Cayman biggest contributor to Butterfield’s full year earnings

Butterfield ended the year with a solid fourth quarter as Cayman contributed higher earnings than Bermuda to the banking group’s annual results for the second consecutive year.

Michael Collins, Butterfield’s chairman and chief executive officer, said primary operations in Bermuda, Cayman and the Channel Islands had managed COVID-19 relatively well last year with no significant disruption of services even during the government-mandated lockdowns.

Butterfield CEO Michael Collins

“2020 was an extraordinary year for Butterfield. We finished with a strong fourth quarter, having successfully navigated the challenges of a global pandemic,” he said in a press release.

“It was also notable that, while all jurisdictions performed well, contributions to annual earnings from our Cayman segment have now surpassed Bermuda for two years running.”

The bank generated US$147.2 million of net income for the year 2020, or $2.90 per diluted common share, compared to $177.1 million, or $3.30 per diluted common share in 2019.

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The lower net income was mainly the result of a $28.1 million decrease in net interest income before provisions for credit losses. This followed a $53.1 million decrease in interest income from investments and banks in the low interest rate market environment, offset by a $25 million decrease in interest expense due to both lower term deposit volumes and costs.

The core return on average tangible common equity for the year dropped to 17.3% from 23.4% in the previous year.

Butterfield last year offered mortgage loan deferrals in Bermuda and Cayman to help customers manage the initial impacts of the pandemic. This affected loan growth but the bank’s loan portfolio remained at $5.2 billion in 2020, which represents 35% of total assets compared to 36.9% in 2019.

The decline of this ratio was due to corporate and retail deposit increases in Bermuda and Cayman. Retail deposit growth was driven by the mortgage deferral programmes and pension withdrawals in both jurisdictions.

However, Butterfield expects the deposit balances to revert back to more normalised levels in the first half of 2021.

“Given the economic headwinds, we have increased credit monitoring and remain cautiously confident that our conservative underwriting and an improving economic outlook are evolving into relatively mild deterioration in credit quality,” Collins said. “We recognise that the pandemic is not over and will continue to work with customers who experience difficulty.”

The bank increased the allowance for credit losses by $10.5 million to $34.1 million last year.

Fourth-quarter net income of $42.1 million was down year-on-year from $43.9 million in the same period in 2019, but $11.5 million higher than in the third quarter because of lower employment costs.

Net interest income for the fourth quarter of 2020 was $75.6 million, a slight increase of $0.3 million from the previous quarter but down $10.7 million from $86.2 million in the fourth quarter of 2019.

Butterfield said continued low market rates across the yield curve and faster pre-payment in the investment portfolio meant that the fourth-quarter net interest margin of 2.25% was five basis points lower than in the third quarter and down 34 basis points year-on-year.

Butterfield’s board declared a quarterly dividend of $0.44 per common share to be paid on 10 March to shareholders of record on 24 Feb.

During the fourth quarter of 2020, Butterfield repurchased 200,000 common shares completing the bank’s previous share repurchase programme. The board has approved a new share repurchase programme of up to 2 million common shares, which will expire on 28 Feb. 2022.

The bank’s total regulatory capital ratio as calculated under Basel III at the end of 2020 was 19.8%, compared to 19.4% at the end of 2019.

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