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Butterfield Bank profit rises to $41.1m

Butterfield Bank saw its net income rise in the third quarter

Butterfield Bank has reported a profit of $41.1 million for the third quarter, up $5 million on the previous three months.

The results were released this morning, along with news that the bank is to acquire Global Trust Solutions from Deutsche Bank.

While Butterfield’s net income for the quarter was $41.1 million, core net income was $40.7 million, or 73 cents per share, up $3.2 million on the previous quarter. In the same quarter last year, Butterfield’s core net income was $33.4 million, or 60 cents per share.

Michael Collins, chairman and CEO of Butterfield Bank, said: “Butterfield delivered solid results this quarter as lending margins improved and expenses began to return to a more normal level.

“We are also pleased to announce an agreement to acquire the Global Trust Solutions business from Deutsche Bank. This acquisition will add scale and talent to our existing trust operations in Switzerland, Guernsey and Cayman and add a profitable and strategically important private trust platform in Singapore. We expect it to generate stable trust fee income for the Bank and be accretive once integrated.”

The agreement to acquire Deutsche Bank’s Global Trust Solutions business, excludes its US operations. Terms of the agreement have not been disclosed.

Upon completion of the transaction, which is subject to regulatory approvals, Butterfield will take over the ongoing management and administration of the GTS portfolio, comprising approximately 1,000 trust structures for some 900 private clients. With client assets of around 299 billion euros, Deutsche Bank’s wealth management business is one of the largest wealth managers worldwide.

Butterfield is offering positions to all employees who are “fully dedicated to GTS in the Cayman Islands, Guernsey, Switzerland, Singapore and Mauritius”.

And in a statement, Butterfield said it will partner with Deutsche Bank to provide trust solutions to Deutsche Bank’s clients on an ongoing basis.

The acquisition is expected to close in the first half of 2018.

Mr Collins said it was the fourth significant acquisition for the bank since 2014 and was consistent with the strategy to grow by acquiring complementary businesses in select jurisdictions.

Announcing its third quarter results, the bank has declared an interim dividend of 32 cents per share to be paid on November 27.

Butterfield’s improved profit was attributed to a number of factors, including a $2.8 million increase in net interest income before provision for credit losses, principally from interest earned on loans from slightly increased volumes and a full quarter’s impact of repricing.

There was a $1.2 million decrease in provisions for credit losses, and a $500,000 decrease in non-interest income.

Marketing costs fell by $1.5 million, due principally to a decrease in America’s Cup-related marketing initiatives.

There was also a $1 million decrease in the remaining non-interest expense items, due to lower America’s Cup-related premises improvement costs, a decrease in restructuring costs and lower board of directors-related expenses.

The bank reported a $800,000 increase in professional and outside services costs, due principally to $1.1 million of noncore expenses associated with potential acquisitions.

Butterfield’s total assets were $10.6 billion at the end of September 2017, down $500 million from December 31, 2016.

The loan portfolio totalled $3.7 billion at the end of the quarter, approximately flat from year-end 2016. The bank said paydowns in commercial lending were offset by new residential mortgages loans. Allowance for credit losses at totalled $42 million, a decrease of $2.3 million from the end of 2016.

Butterfield’s return on average assets for the third quarter was 1.5 per cent, up from 1.3 per cent in the second quarter and 0.9 per cent in the third quarter of 2016. The core return on average tangible common equity was 22.2 per cent, up from 21.6 per cent in the previous quarter and 19 per cent a year ago. in the third quarter of 2016.

Meanwhile, the core efficiency ratio for the third quarter of was 62.8 per cent compared with 66.1 per cent in the previous quarter and 65.3 per cent in the third quarter of 2016.

Net interest income for the third quarter was $74.3 million, up $2.8 million on the previous three months, and $9.3 million higher, year-on-year. The bank said improvements were driven by higher yields on the investment portfolio and on the adjustable-rate loan portfolio.

Net interest margin was 2.81 per cent, up 15 basis points from 2.66 per cent in the previous quarter and 42 basis points higher than the 2.39 per cent in the third quarter of 2016. Improvements were said to have been driven by increases in net interest income and deposit costs which decreased slightly to 10 basis points from 11 basis points in the previous quarter.

Results for the third quarter included a release of provision for credit losses of $0.7 million compared with a provision for credit losses of $0.5 million in the previous quarter and a provision for credit losses of $0.3 million a year ago.

Non-interest income was $38.2 million, compared with $38.7 million in the previous quarter and $36.3 million in the third quarter of 2016.

Non-interest expenses were $73.6 million, compared with $75.3 million in the previous quarter and $77.3 million in the third quarter of 2016. The bank stated that non-interest expenses are expected to continue to normalise over the next quarter as various temporary expenses abate.

Butterfield’s total capital ratio as at 30 September was 19.9 per cent as calculated under Basel III. This compares with 17.6 per cent as of December 31. Both of these ratios are significantly above regulatory requirements.

Disclosure: the writer owns shares in Butterfield Bank