Butterfield Reports Second Quarter Profit

• Q2 2016 core earnings⁽¹⁾ of $32.1 million, up $4.3 million (15.2%) over Q2 2015
• Q2 2016 net income of $29.8 million, up $6.5 million (27.7%) over Q2 2015⁽³⁾
• Core earnings per share of $0.06, up $0.01 from $0.05 in Q2 2015⁽²⁾
• Diluted earnings per share of $0.05, up $0.01 from $0.04 in Q2 2015⁽²⁾⁽³⁾
• Asset quality strong, with non-accrual loans at 1.7% of total gross loans (flat from year-end 2015)
• Strong capital position with Common Equity Tier 1 Capital Ratio at 12.3% and Total Capital Ratio at 18.9%
• Board declares interim dividend of $0.01 per common share

Hamilton, Bermuda─25 July 2016: The Bank of N.T. Butterfield & Son Limited (“Butterfield” or the “Bank”) today announced core earnings for the second quarter ended 30 June 2016 of $32.1 million, an improvement of $4.3 million compared to $27.8 million earned in the same quarter a year ago.  The core earnings per share increased $0.01 to $0.06 per share. The core return on average tangible common equity improved to 20.1% in the second quarter of 2016, compared to 17.6% in the second quarter of 2015. ⁽²⁾ Return on assets at 1.1% was up 0.1% from Q2 2015.   Reported net income for the second quarter was $29.8 million ($0.05 per share on a fully diluted basis) compared to $23.3 million ($0.04 per share on a fully diluted basis) in the same quarter a year ago, up $6.5 million.

Michael Collins, Butterfield’s Chief Executive Officer, said, “Complementing organic growth in our key businesses, we continue to see the positive financial impact of acquisitions that have expanded our trust and wealth management platform in our core markets of Bermuda, Cayman and Guernsey, where we understand the environment and can build economies of scale.

“As we focus on jurisdictions in which we have significant market share, Butterfield also accelerated the wind down of our London-based private bank, which is now nearing completion.  The Bank will maintain a residential property lending business in the UK, but our deposit taking and investment management businesses will be discontinued in line with previously communicated plans.

“We continue to deploy capital to directly benefit shareholders through share buy-backs and dividend payments.  During the quarter, we repurchased $1.2 million worth of common shares, and the Board declared common dividends of $0.01 per share from second quarter earnings.

“It is pleasing to see that industry analysts and peers have taken note of our progress in recent weeks. Citing the wind down of our London private bank, the recent acquisitions, and improvements in non-performing loans, Standard & Poor’s affirmed our credit ratings while upgrading its outlook for the Bank from stable to positive earlier this month.  Industry publication eprivateclient named Butterfield to its Top 25 trust companies listing earlier this summer, and Citywealth has shortlisted Butterfield for nomination as Trust Company of the Year in Guernsey, Switzerland and the Caribbean, and as Private Bank of the Year in the Channel Islands.

 “During the quarter the Bank welcomed James Burr as a returning, Non-Executive Director and a representative for The Carlyle Group, our largest shareholder. Jim was closely involved in Butterfield’s recapitalisation in 2010 and has a deep understanding of the Bank’s businesses and markets.  Olivier Sarkozy, who served as a Non-Executive Director and a Carlyle representative on the Board since 2012, has stepped down.  On behalf of the Board, I would like to thank Olivier for his many contributions to Butterfield.  We wish him the very best in the future.”

Michael Schrum, Butterfield’s Chief Financial Officer, said, “Butterfield had strong and improved performance for the second quarter of 2016.  Against a backdrop of limited economic expansion in our core markets and low interest rates, the Bank generated year-on-year core earnings growth, inclusive of earnings from acquired businesses, of over 15%.  Recent acquisitions have improved our capacity to generate non-interest income, as improved margins drove improvements in net interest income, and we continue to exercise careful management of operating costs.

“We completed the acquisition of the private banking trust and investment management business of HSBC Bermuda in April, which contributed to a $1.6 billion increase in Bermuda deposits and which generated additional fee and commission-based revenue.  Adjustments and improved alignment of our fees to various banking services also contributed to growth in non-interest income during the quarter. Across the Group, non-interest income for the quarter improved by $3.4 million year over year.

“Year-over-year increases in net interest income before provision for credit losses of over $5 million were largely the result of previous rate adjustments on the corporate loan portfolio that were implemented commensurately with the US Federal Reserve benchmark rate increase in December 2015, as well as increases in lending volumes in that portfolio during the quarter, complemented by lower deposit costs.

“The impact of improved margins on loans was offset by declines in loan balances of about $100 million from year end.  That decline stemmed from continued weak consumer credit demand in key markets, and currency-conversion of our Pound-denominated loans following the UK’s June 23^rd Brexit vote that precipitated a significant decline in the value of the Pound.

 “The quality of our loan book remains strong, though provisions for credit losses were increased, year-on-year, to $3.4 million from $1.9 million due to a specific provision established for a loan on a single Bermuda commercial property, as well as adjustments to our general provisions.  The latter resulted from changes to sovereign credit ratings in the UK and Bermuda, which impacted our provisioning formulae.

“Quarterly core operating expenses increased by $0.7 million over the same quarter last year largely as a result of increase compliance-related costs, but expenses as a percentage of core revenues decreased.  The core efficiency ratio improved from 66.7% in Q2 2015 to 61.8% in Q2 2016.”

Capital Management

Consistent with global banking industry reform, Bermuda banks began the implementation of the Basel III framework during 2016, which is improving the Bank’s loss absorption capabilities and introducing new regulatory liquidity rules.

As the Bank has exceptional organic capital generation and very high quality capital, the Bank is in a robust position and can continue to serve customers with new loans, deposit products and general banking services, as well as meet emerging regulatory capital requirements.

The current total capital ratio as at 30 June 2016 was 18.9% as calculated under Basel III, which is effective for reporting purposes starting 1 January 2016. As of 31 December 2015, we reported our total capital ratio under Basel II at 19.0%. Both of these are significantly above regulatory requirements.

The Board remains committed to a balanced capital return policy and declared quarterly dividends of $20 per share on the Bank’s 8% non-cumulative perpetual voting preference shares, to be paid on 15 September 2016 to preference shareholders of record on 1 September 2016.The Board also declared an interim dividend of $0.01 per common share to be paid on 29 August 2016 to shareholders of record on 15 August 2016.

Share Repurchase Activity

Under the Bank’s share buy-back programmes, the total shares acquired or purchased for cancellation during the quarter ended 30 June 2016 amounted to 0.7 million common shares to be held as treasury shares at an average cost of $1.63 per share (total cost of $1.2 million).  There were no preference shares repurchased during the quarter ended 30 June 2016.

On 19 February 2016, the Board approved, with effect from 1 April 2016, the 2016 common share buy-back programme, authorising the purchase for treasury of up to eight million common shares.

END