Butterfield’s reports ‘solid’ 3Q earnings after ABN Amro deal
Butterfield reported net income of $42 million or $0.79 per share and $49 million or $0.91 per share on a core basis in the third quarter, which was notable for the early closure of the group’s acquisition of ABN Amro (Channel Islands).
As expected, the deal had an impact on net earnings through higher expenses and lowered net interest margins as Butterfield acquired a larger multi-currency balance sheet.
“However, once the business normalises, we expect continued growth to long-term profitability from this acquisition,” Michael Collins, Butterfield’s chairman and chief executive officer, said in an earnings call.
Collins described the results as “solid”, adding in a press release that the group was making “excellent progress” combining the acquired ABN AMRO [Channel Islands] business with its existing Guernsey bank.
“We have been working to integrate ABN AMRO [Channel Islands] since the early close of the deal on July 15, 2019. Client relationships and employee retention have been broadly stable throughout this period, while customer and staffing integration are progressing well,” he said.
Collins acknowledged that the bank experienced an anticipated staff turnover. But the expected cost savings remain at the same levels as when the deal was first announced in April.
“We continue to view this deal very favourably and believe that Butterfield’s increased presence in the Channel Islands enhances our position as a leading bank and trust company in those core markets with increased scale and improved organic growth prospects.”
Third-quarter earnings continued to benefit from stable and growing fee income, expense management and an expanding balance sheet, the Butterfield CEO said.
The core return on average tangible common equity for third-quarter 2019 was 22.5%, compared to 24.6% for the previous quarter and 24.9% for third-quarter 2018.
Net interest income increased by $1.2 million in the third quarter to $86.3 million as a result of an increase in average earning assets following the ABN Amro (Channel Islands) acquisition.
Net interest margin, in turn, dropped 66 basis points to 2.52% from the previous quarter and was down 85 basis points from 3.37% in third-quarter 2018, also as a result of lower yielding cash and short-term US dollar securities in Bermuda and Cayman.
Interest rate cuts in the US and the resulting lower US prime rate referenced in Cayman loans as well as the inclusion of the ABN AMRO (Channel Islands) loan book at lower yields also reduced loan yields by 45 basis points to 5.22%.
However, non-interest income of $46.6 million increased during the period compared with $44.2 million in the previous quarter due to higher foreign exchange revenue, and custody and asset management fees from the acquired business in Guernsey.
Non-interest expenses were also slightly lower in the third quarter at $90.4 million, down from $91.7 million, as the second quarter of 2019 included restructuring costs in Bermuda and the Channel Islands and costs associated with the departure of a senior executive. On a core basis, non-interest expenses were higher in the third quarter of 2019 due to costs associated with the ABN AMRO [Channel Islands] acquisition.
Butterfield announced a $0.44 dividend, which will be paid on 15 Nov. to stockholders of record on 4 Nov.
In other news, Mark Lynch, a former partner at Wellington Management Company, joined the bank’s board as an independent director, bringing the total number of directors to 10.
He served as Wellington’s senior financial services analyst, and was also a portfolio manager of mutual funds, hedge funds, and institutional portfolios over that period.
“Under Mark’s leadership, Wellington Management was part of the investor group that participated in the Bank’s recapitalisation in 2010,” Collins said. “Mark has a deep understanding of our business and markets, and recognises the value and growth potential of our franchise.”
“However, once the business normalises, we expect continued growth to long-term profitability from this acquisition,” Michael Collins, Butterfield’s chairman and chief executive officer, said in an earnings call.
Collins described the results as “solid”, adding in a press release that the group was making “excellent progress” combining the acquired ABN AMRO [Channel Islands] business with its existing Guernsey bank.
“We have been working to integrate ABN AMRO [Channel Islands] since the early close of the deal on July 15, 2019. Client relationships and employee retention have been broadly stable throughout this period, while customer and staffing integration are progressing well,” he said.
Collins acknowledged that the bank experienced an anticipated staff turnover. But the expected cost savings remain at the same levels as when the deal was first announced in April.
“We continue to view this deal very favourably and believe that Butterfield’s increased presence in the Channel Islands enhances our position as a leading bank and trust company in those core markets with increased scale and improved organic growth prospects.”
Third-quarter earnings continued to benefit from stable and growing fee income, expense management and an expanding balance sheet, the Butterfield CEO said.
The core return on average tangible common equity for third-quarter 2019 was 22.5%, compared to 24.6% for the previous quarter and 24.9% for third-quarter 2018.
Net interest income increased by $1.2 million in the third quarter to $86.3 million as a result of an increase in average earning assets following the ABN Amro (Channel Islands) acquisition.
Net interest margin, in turn, dropped 66 basis points to 2.52% from the previous quarter and was down 85 basis points from 3.37% in third-quarter 2018, also as a result of lower yielding cash and short-term US dollar securities in Bermuda and Cayman.
Interest rate cuts in the US and the resulting lower US prime rate referenced in Cayman loans as well as the inclusion of the ABN AMRO (Channel Islands) loan book at lower yields also reduced loan yields by 45 basis points to 5.22%.
However, non-interest income of $46.6 million increased during the period compared with $44.2 million in the previous quarter due to higher foreign exchange revenue, and custody and asset management fees from the acquired business in Guernsey.
Non-interest expenses were also slightly lower in the third quarter at $90.4 million, down from $91.7 million, as the second quarter of 2019 included restructuring costs in Bermuda and the Channel Islands and costs associated with the departure of a senior executive. On a core basis, non-interest expenses were higher in the third quarter of 2019 due to costs associated with the ABN AMRO [Channel Islands] acquisition.
Butterfield announced a $0.44 dividend, which will be paid on 15 Nov. to stockholders of record on 4 Nov.
In other news, Mark Lynch, a former partner at Wellington Management Company, joined the bank’s board as an independent director, bringing the total number of directors to 10.
He served as Wellington’s senior financial services analyst, and was also a portfolio manager of mutual funds, hedge funds, and institutional portfolios over that period.
“Under Mark’s leadership, Wellington Management was part of the investor group that participated in the Bank’s recapitalisation in 2010,” Collins said. “Mark has a deep understanding of our business and markets, and recognises the value and growth potential of our franchise.”
