Butterfield sees ‘improved economic conditions in all markets’

Butterfield Bank reported 2015 core earnings of $113.9 million, a slight improvement of $7.5 million over 2014.

The Bermuda-based banking group’s core cash return on average tangible common equity improved to 18.4 percent in 2015, compared to 15.1 percent in 2014.

Net earnings, however, were $30.5 million lower at $77.7 million than in the previous financial year.

“We are encouraged by improving economic conditions in all of our markets as evidenced by a 6 percent increase in deposits, core earnings of $113.9 million, and a core return on equity of 18.4 percent,” Butterfield’s Chief Executive Officer Michael Collins said.

The bank’s net income was significantly reduced because of non-core charges related to the exploration of a U.S. stock exchange listing, management restructuring, and the planned wind down of Butterfield’s private banking business in the U.K.

Additional tax compliance costs of $3.8 million resulted from an internal review and account remediation program of the bank’s U.S. account holders for potential violations of U.S. tax laws and the bank made provisions of $4.8 million for the review and remediation program.

“Although there will be some additional non-core charges associated with these projects, our actions will deliver an improved core run rate throughout 2016 and beyond,” Mr. Collins said.

Butterfield will continue to pursue its strategy of focusing its resources on markets where the bank has an established presence, he said.

“Building upon our recent acquisitions in Bermuda, Cayman and Guernsey, we continue to strengthen our unique trust and wealth management platform. Our agreement to acquire the Private Banking Trust and Investment Management business of HSBC in Bermuda, a transaction which is expected to close in the second quarter of 2016, along with the planned wind down of our sub-scale private banking operation in London are manifestations of a strategy that will further contribute to improvements in the bank’s run rate.”

In order to preserve capital for potential acquisitions, Butterfield’s board has not declared a special dividend in relation to the 2015 earnings.

But over time the integration of the acquired businesses, the anticipated improvement in the bank’s core markets and the implementation of its capital financing strategy should drive earnings growth, which in turn should allow Butterfield to increase its cash dividend payments, Mr. Collins said.

Cayman Islands

In the Cayman Islands, the bank’s net income before gains and losses increased to $47.9 million in 2015 from $33.5 million in the previous financial year, based on increases in interest income on loans and investments and higher non-interest income from foreign exchange and banking, trust and asset management fees.

This was partially offset by the increased amortization of intangible assets.

The higher net interest income was due to primarily to an improvement in loan income of $4.3 million from a higher average loan balance, as a result of Butterfield’s acquisition of HSBC in Cayman.

Investment income was up $3.5 million resulting from an average increase of $204.3 million in fixed-rate securities and $217.5 million in floating-rate notes. Average customer deposits grew to $785.8 million.

Provisions for credit losses of $0.5 million in 2015 declined by $0.1 million compared to 2014.

Client assets under administration for the trust and custody businesses were $3.5 billion and $2.0 billion, respectively, while assets under management were $0.9 billion at the end of 2015. This compares with $3.4 billion, $1.5 billion and $0.8 billion on Dec. 31, 2014.

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