Butterfield’s core earnings improve in first quarter

Butterfield Bank (Cayman) headquarters in downtown George Town. – PHOTO: TANEOS RAMSAY

Butterfield reported first-quarter core earnings of $36 million, $7 million higher than during the same period last year.

Net income during the period of $26.8 million was down $1.2 million year on year.

Michael Collins, Butterfield’s chief executive officer, said the group continues to generate steadily growing earnings through a combination of wealth management acquisitions, deposit growth in community banking and cost reductions.

“Our dual focus on revenue growth and expense management, while making significant investments in compliance, will position Butterfield for continued success as our core markets recover and the period of historically low interest rates comes to a natural conclusion,” he said.

Non-interest income for the first quarter improved modestly, and net interest income was pushed by higher corporate loan revenue and lower deposit costs.

“We saw increased demand for loans in Cayman, but loan demand overall remains subdued across our major markets,” Mr. Collins said, noting that in the absence of sustained loan growth, Butterfield would deploy capital in wealth management acquisitions and the investment portfolio.

Butterfield will soon conclude the acquisition of HSBC’s Private Banking Trust and Investment Management businesses in Bermuda, which will increase the bank’s deposits, assets under administration and assets under management.

Meanwhile, the bank is winding down its deposit taking and investment management business in the U.K., a process which is due to be finalized by the third quarter of this year. As a result, Butterfield incurred significant expenses in the final quarter of last year and recognized additional charges in the first quarter of 2016.

Additional costs resulted from severance and retirement charges related to a management restructuring that was carried out during the quarter.

Michael Schrum, Butterfield’s chief financial officer, noted the bank’s loan quality continues to improve.

Non-performing loans, which include gross non-accrual loans and accruing loans that are past due by 90 days or more, were broadly stable during the quarter.

He said the bank benefited from the U.S. Federal Reserve’s December 2015 increase of the benchmark U.S. dollar rate through improved returns on its investment portfolio and the impact of associated rate adjustments implemented in the bank’s corporate lending portfolio.

“Combined with lower deposit expenses incurred during the quarter from both rate and volume changes, and the effects of the exchange of one tranche of long-term debt in favor of lower, floating rate instruments, we saw an increase in net interest income before provision for credit losses during the quarter of $3.5 million,” Mr. Schrum said.

Cayman Islands

In the Cayman Islands, first-quarter net income before gains and losses was up $1.8 million, compared to the same period last year, at $14.1 million.

Net income growth in Cayman was due to increases in investments and loans. Higher non-interest income from volume-driven foreign exchange, banking, asset management and trust fees were partially offset by increased salary and other employee benefits and technology sourcing costs.

Loan income was up $0.8 million as average loan balances increased by $48.7 million from 2015, following growth in residential mortgages and the increase in Cayman’s base lending rate in December of 2015.

Average customer deposits increased by $401.6 million over the first quarter of 2015 while deposit liability costs declined by $0.1 million.

Higher client deposit levels pushed the bank’s total assets up $0.1 billion from year-end 2015 to $3.4 billion.

Client assets under administration for the trust and custody businesses were $3.5 billion and $2.3 billion, respectively, while assets under management were $0.9 billion.