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Butterfield Q3 profit rises 15%, headcount down 96

Butterfield Bank saw its third-quarter profit rise 15 percent to $21.6 million from $18.8 million a year earlier as the company reduced staff and cut costs.

The bank said provisions for credit losses in the Bermuda operation were $2.2 million, up $0.6 million from the third quarter of 2012, largely due to “increased impairment of non-performing hospitality loans”.

However, the bank said its loan portfolio grew to $4.1 billion at the end of the third quarter, up $128 million from year end as commercial loans grew and mortgages increased.

Consumer loans were relatively flat, while the residential mortgage book increased by $60 million, primarily in the bank's European operations.

In the Bermuda operation, net income before gains and losses was $10.1 million in the third quarter — up $3.2 million from $6.9 million in the third quarter of 2012.

The bank said allowance for credit losses at September 30 totalled $56.3 million, an increase of $0.4 million from year end. At September 30, the bank said it had gross non-accrual loans of $108.2 million representing 2.61 percent of total gross loans, reflecting an improvement from the $113.4 million, or 2.83 percent, of total loans at year-end 2012.

Non-performing loans, which include non-accrual loans and accruing loans past due by 90 days or more,

totalled $139.3 million as at September 30, down $2.4 million from the year-end.

The bank said net salaries and employee benefits decreased by $1.5 million, year-on-year, to $33.3 million in

the third quarter of 2013. Excluding the $3.4 million of early retirement and redundancy payments in the third quarter of 2013, salary and employee benefits were $29.9 million, down $4.9 million compared to the $34.8 million in the third quarter of 2012. The reduction was mainly driven by headcount reduction of 96, year-on-year, resulting in a $2.0 million decrease in salary, overtime and temporary employee costs, a $1.4 million reduction in staff benefits, mainly attributable to decreasing pension and medical expenses, and a reduction of $1.4 million in staff incentive expense.

The bank said headcount at the end of the third quarter of 2013 was 1,142 compared to 1,238 a year ago.

It said technology and communications expenses decreased by $1.1 million to $13.4 million from “expense control measures and IT infrastructure rationalisation initiatives”.

The bank said it was declaring a third interim dividend of $0.01 per share.

Butterfield said third quarter core earnings were $24.5 million, up $13 million year on year.

It said the period saw “strong capital position with a total capital ratio of 22.55 percent”.

Brendan McDonagh, Butterfield's chairman and CEO, said, “Butterfield continues to

improve its profitability by focusing our strategy on delivering efficient wealth management and community banking services to our customers. We are pleased that this strategy has delivered another quarter of double-digit cash return on tangible common equity at 14.34 percent, almost three times the 5 percent achieved a year ago.

“Our deposit base is stable, and we continue to identify new quality lending opportunities in our markets.

“However, we continue to remain cautious on the global economic outlook.”

The core cash return on average tangible common equity improved to 14.34 percent in the third quarter of 2013 compared to 5.01 percent in the third quarter of 2012, “reflecting measures taken to achieve strategic goals, particularly expense and capital management initiatives”, the bank said.

Year-to-date core earnings for the nine months ended 30 September 2013 were $60.0 million ($0.09 per share on a fully diluted basis), up 58 percent from $37.9 million for the nine-month period ended 30 September 2012, due primarily to improved non-interest expenses. Year-to-date net income increased by $18.0 million for the nine months ended 30 September 2013 to $67.8 million, compared to a year-to-date net income of $49.8 million for the nine-month period ended 30 September 2012.

John Maragliano, Butterfield's interim CFO said, “This was a solid quarter for Butterfield, which saw expense reductions and improving net interest income fuel the improvement in the core efficiency ratio — to levels more comparable with our peers — at 68% from 80% a year ago.

“Core operating expense reductions of over $7 million, year over year, has been achieved largely through leveraging technology and organisational realignments to reflect changing business volumes and customer behaviours.

“Complementing the cost reductions are continued increases in net interest income, up 13% year over year, driven by improving yields in our investment portfolio achieved through disciplined asset and liability management practices. The thirteen basis point improvement in our net interest margin to 2.72% was enhanced further by the repayment of $53 million of subordinated debt capital in the

second quarter of 2013.”

Mr. McDonagh added, “Effective expense management and continued growth in profits enables us to deliver acceptable returns to our shareholders and allows us to grow capital organically. Butterfield — with a total capital ratio of 22.55 percent — enjoys a strong capital position, which permits us to focus on enhancing shareholders' returns through the payment of dividends and ongoing Share buy-backs.”

Average customer deposits increased by $0.3 billion to $7.5 billion in 2013, compared to $7.2 billion at year-end 2012. On a quarter-end basis, customer deposits were up $0.6 billion from year end at $7.3 billion.

Total assets as at 30 September 2013 were $5.0 billion, up $0.4 billion from year-end primarily in cash deposits held with banks. Customer deposits ended the quarter at $3.9 billion, up $0.6 billion from year end, and loan balances decreased by $0.1 billion from year end to $2.2 billion.

Strong quarter: Butterfield Bank

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Published October 30, 2013 at 5:07 pm (Updated October 31, 2013 at 1:54 pm)

Butterfield Q3 profit rises 15%, headcount down 96

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