Butterfield Bank has said its capital and liquidity profile remains strong after it has faced the early headwinds from COVID-19 in the first quarter of the year.

The bank reported net income of $40.3 million for the first three months of 2020, down from $52.1 million for the same period one year ago.

Net income decreased mainly as a result of lower fee income and the formation of a $5.2 million reserve for future expected credit losses. This was partially offset by lower non-interest expenses and higher net interest income.

The 18.6% core return on average tangible common equity for the first three months was also lower than the 25.6% reported in the first quarter of 2019.

The core efficiency ratio of 63.8%, which expresses non-interest operating expenses as a percentage of total income, went up from 60.1% during the same period last year.

Butterfield CEO Michael Collins

Michael Collins, Butterfield’s chairman and chief executive officer, described the first-quarter results as “relatively strong”, despite the early headwinds from the global COVID-19 health crisis.

He said the bank is “acutely aware of the personal and financial challenges” caused by the crisis in the communities in which Butterfield operates.

“We have taken appropriate measures, such as temporarily deferring mortgage payments, reducing fees, safeguarding our colleagues and customers in retail banking, and operating remotely where possible. We have also significantly increased our contributions to community programmes for people in the greatest need,” he said.

The bank’s capital and liquidity profile remains strong, Collins added.

Butterfield’s total regulatory capital ratio was 19.8% at the end of the quarter, slightly higher than at the end of 2019, and well above the regulatory requirements.

“We continue to stress test our risk positions and believe that our historically conservative underwriting criteria now places the bank in a strong position to manage through this crisis, and we are beginning to plan for possible economic recovery scenarios,” Collins said.

But he added that “the impacts to Butterfield from this health crisis will vary depending on a variety of factors, including the length and severity of the economic downturn, the interest rate environment and the time it takes for tourism in Bermuda and Cayman to recover”.

He said, “We are monitoring the changing operating environment closely while preparing for a challenging economic base case and continue to take appropriate actions to balance the interests of all stakeholders.”

Butterfield’s net interest income in the first three months of 2020 increased by $1.4 million to $87.6 million from the previous quarter but it was down marginally year on year.

The net interest margin of 2.63%, the difference in interest the bank receives from loans and pays for deposits, was down 68 basis points from 3.31% in the first quarter of 2019.

Butterfield’s board declared a quarterly dividend of $0.44 per common share to be paid on 28 May to shareholders of record on 14 May.

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