Butterfield reports its first quarter 2022 results

Financial highlights for the first quarter of 2022:

• Net income of $44.4 million, or $0.89 per share, and core net income1 of $44.7 million, or $0.90 per share
• Return on average common equity of 19.7% and core return on average tangible common equity1 of 21.9%
• Net interest margin of 2.03%, cost of deposits of 0.12%
• Board declares dividend for the quarter ended March 31, 2022 of $0.44 per share

Net income for the first quarter of 2022 was $44.4 million or $0.89 per diluted common share compared to net income of $41.7 million, or $0.84 per diluted common share, for the previous quarter and $41.6 million, or $0.83 per diluted common share, for the first quarter of 2021.  Core net income1 for the first quarter of 2022 was $44.7 million, or $0.90 per diluted common share, compared to $41.7 million, or $0.84 per diluted common share, for the previous quarter and $41.6 million, or $0.83 per diluted common share, for the first quarter of 2021.

The core return on average tangible common equity1 for the first quarter of 2022 was 21.9%, compared to 18.8% for the previous quarter and 19.3% for the first quarter of 2021. The core efficiency ratio1 for the first quarter of 2022 was 63.7% compared with 64.7% in the previous quarter and 64.8% for the first quarter of 2021.

Michael Collins (pictured), Butterfield’s Chairman and Chief Executive Officer, commented: “The first quarter of 2022 was an excellent start to the year. Our asset sensitive balance sheet has already benefited from the initial increases in interest rates, with improved net interest income and NIM. We expect market interest rates to continue to provide upward momentum to earnings during 2022.

“Additionally, we are seeing signs of improving economic activity across our operating jurisdictions, including growing visitor numbers, the return of cruise ships and increasing airlift to Bermuda and Cayman. While not yet back to pre-pandemic levels, we are very pleased to see progress for the tourism industry.

“Capital management continues to be an important focus for Butterfield, including a sustainable quarterly dividend, support for organic growth and potential acquisitions and the flexibility to repurchase shares when appropriate. Butterfield remains well positioned to benefit from the anticipated rising interest rate environment, whilst generating significant non-interest income and managing expenses.”

Net interest income (NII) for the first quarter of 2022 was $75.9 million, an increase of $1.4 million, compared with NII of $74.5 million in the previous quarter and up $1.0 million from $74.9 million in the first quarter of 2021. NII was higher during the first quarter of 2022 compared to the prior quarter primarily due to lower prepayment rates in the investment portfolio, which decreased the periodic amortization charge on US agency mortgage securities. In addition, rates improved on short term cash and treasury assets. Compared to the first quarter of 2021, NII was higher due to the increased deployment of cash into the investment portfolio, offsetting lower book yields.

Net interest margin (NIM) for the first quarter of 2022 was 2.03%, an increase of 3 basis points from 2.00% in the previous quarter and down 6 basis points from 2.09% in the first quarter of 2021.  NIM in the first quarter of 2022 was higher than the prior quarter primarily due to increased rates on shorter-term assets. Compared to the first quarter of 2021, NIM was down due to lower overall asset yields, while deposit costs remained flat.

Non-interest income for the first quarter of 2022 of $49.9 million was $2.8 million lower than the $52.7 million earned in the previous quarter and $2.3 million higher than $47.6 million in the first quarter of 2021. Non-interest income during the first quarter of 2022 decreased compared to the prior quarter primarily due to lower banking and trust fees, partially offset by increased foreign exchange revenue.  The fourth quarter of 2021 benefited from seasonally higher fees due to increased debit and credit card activity and higher activity-based fees and new business in the trust business.  Non-interest income was up in the first quarter of 2022 compared to the first quarter of 2021 due to increased banking and foreign exchange revenues.

There was a net credit reserve release of $0.7 million for the first quarter of 2022, compared to a net credit release in the previous quarter of $0.6 million and $1.5 million during the first quarter of 2021. The credit releases were driven by a decrease in non-accrual loans, paydowns in the portfolio and general improvement in economic assumptions.

Non-interest expenses were $82.0 million in the first quarter of 2022, compared to $83.8 million in the previous quarter and $80.9 million in the first quarter of 2021. Core non-interest expenses1 decreased to $81.6 million in the first quarter of 2022, compared to $83.7 million the previous quarter and higher than the $80.9 million incurred in the first quarter of 2021. Non-interest expenses were lower in the first quarter of 2022 versus the fourth quarter of 2021 primarily due to the completion of the 10-year amortization period for Butterfield’s legacy banking system in the fourth quarter of 2021 resulting in lower technology costs. Compared to the first quarter of 2021, non-interest expense was higher due to other small movements.

Period end deposit balances remained constant at $13.9 billion compared to December 31, 2021. Deposits continued to remain elevated across all jurisdictions.

The Bank maintained its balanced capital return policy. The Board again declared a quarterly dividend of $0.44 per common share to be paid on May 31, 2022 to shareholders of record on May 16th, 2022. During the first quarter of 2022, Butterfield repurchased 0.1 million common shares under the Bank’s share repurchase plan authorizations.

The current total regulatory capital ratio as at March 31st, 2022 was 20.9% as calculated under Basel III, compared to 21.2% as at December 31, 2021. Both of these ratios remain significantly above the minimum Basel III regulatory requirements applicable to the Bank.