6-K
Bank of N.T. Butterfield & Son Ltd (NTB)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of February, 2020
Commission File Number: 001-37877
The Bank of N.T. Butterfield & Son Limited
(Translation of registrant’s name into English)
65 Front Street
Hamilton, HM 12
Bermuda
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F ý Form 40-F o
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o
DOCUMENTS INCLUDED AS PART OF THIS FORM 6-K
Attached hereto (i) as Exhibit 99.1 is the earnings release, and (ii) as Exhibit 99.2 is the earnings call presentation, all for The Bank of N.T. Butterfield & Son Limited for the three months and year ended December 31, 2019.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: February 12, 2020 | THE BANK OF N.T. BUTTERFIELD & SON LIMITED | |||
|---|---|---|---|---|
| By: | /s/ Shaun Morris | |||
| Name: | Shaun Morris | |||
| Title: | General Counsel and Group Chief Legal Officer | 2 | ||
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EXHIBIT INDEX
| Exhibit | Description | ||
|---|---|---|---|
| 99.1 | Earnings release - Fourth quarter and year-end 2019 results | ||
| 99.2 | Earnings call presentation - Fourth quarter and year-end 2019 results | 3 | |
| --- |
Exhibit
Butterfield Reports Fourth Quarter and Full Year 2019 Results
Financial highlights for the fourth quarter of 2019:
| • | Net income of $43.9 million, or $0.82 per share and core net income^1^ of $46.2 million, or $0.87 per share |
|---|---|
| • | Return on average common equity of 18.0% and core return on average tangible common equity^1^ of 21.1% |
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| • | Net interest margin of 2.59% |
| --- | --- |
| • | Board declares a dividend for the quarter ended December 31, 2019 of $0.44 per share |
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| • | Completed the previously announced 2.5 million common share repurchase program and authorized a new repurchase program of up to 3.5 million common shares |
| --- | --- |
Hamilton, Bermuda - February 12, 2020: The Bank of N.T. Butterfield & Son Limited ("Butterfield" or the "Bank") (BSX: NTB.BH; NYSE: NTB) today announced financial results for the fourth quarter and year ended December 31, 2019.
Net income for the year ended December 31, 2019 was $177.1 million or $3.30 per diluted common share, compared to $195.2 million or $3.50 per diluted common share for the year ended December 31, 2018. Core net income^1^ for the year ended December 31, 2019 was $197.9 million, or $3.69 per diluted common share, compared to $197.0 million, or $3.53 per diluted common share, for the year ended December 31, 2018.
The core return on average tangible common equity^1^ for the year ended December 31, 2019 was 23.4%, compared to 25.6% for the year ended December 31, 2018. The core efficiency ratio^1^ for the year ended December 31, 2019 was 62.2% compared with 61.5% for the year ended December 31, 2018.
Michael Collins, Butterfield's Chairman and Chief Executive Officer commented, "2019 was an important year for Butterfield in terms of operational and financial achievements. We successfully acquired the ABN AMRO (Channel Islands) banking business, which significantly increased our presence in Guernsey. With a relatively small market share in the Channel Islands, we are now pursuing growth to complement and balance our profitable and well-established banking franchises in Bermuda and Cayman. With the acquisition, we now have a larger and more diversified balance sheet supported by investment grade credit ratings from S&P, Moody's and KBRA.
"It was a more challenging US Dollar interest rate environment in the latter half of 2019 and we were able to achieve strong and stable core net income^1^. Continued share repurchases helped achieve a core net income per diluted share improvement of 5% and core return on average tangible common equity^1^ remained at industry-leading levels. Throughout the year, we continued to emphasize cost management initiatives and furthered our plans to leverage Group service centers, which helped us achieve a core efficiency ratio^1^ of 62.2% in 2019.
| (1) | See table "Reconciliation of US GAAP Results to Core Earnings" below for reconciliation of US GAAP results to non-GAAP measures. 1 |
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"I would like to take this opportunity to congratulate the Butterfield team in Cayman for the successful opening of the new Camana Bay Banking Centre in Grand Cayman earlier this week. Camana Bay is a fantastic location and a great start to the roll out of our updated Butterfield brand. We are confident that this investment will solidify and grow our retail and mid-market corporate banking market share in the Cayman Islands for years to come. Our investment in this new branch signals our confidence in Cayman and the desire to further enhance our offerings in this important market.
"As we enter 2020, Butterfield's strong balance sheet, capital efficient fee businesses, thoughtful capital management, and selective acquisition strategy should continue to provide long-term value for our shareholders. Finally, I would also like to thank our existing and new customers for their business and partnership with Butterfield during 2019 and to all Butterfield Group employees for their commitment to excellent customer service."
Net income for the fourth quarter was $43.9 million, or $0.82 per diluted common share, compared to $42.4 million, or $0.79 per common share, for the previous quarter and $50.9 million, or $0.92 per common share, in the fourth quarter of 2018. Fourth quarter core net income^1^ was $46.2 million, or $0.87 per diluted common share, compared to $48.8 million, or $0.91 per diluted common share, in the previous quarter and $51.1 million, or $0.92 per diluted common share, for the fourth quarter of 2018. Net income increased in the fourth quarter of 2019 versus the prior quarter due to the first full quarter of contribution from the ABN AMRO (Channel Islands) acquisition, as well as increased fee income from card services, which benefited from seasonal retail sales.
The core return on average tangible common equity^1^ for the fourth quarter of 2019 was 21.1%, compared to 22.5% for the previous quarter and 25.8% for the fourth quarter of 2018. The core efficiency ratio^1^ for the fourth quarter of 2019 was 66.3% compared with 62.1% in the previous quarter and 61.5% in the fourth quarter of 2018. Net interest income (“NII”) for the fourth quarter of 2019 was $86.2 million, a decrease of $0.1 million compared with NII of $86.3 million in the previous quarter and $87.4 million in the fourth quarter of 2018.
Net interest margin (“NIM”) for the fourth quarter of 2019 was 2.59%, an increase of 7 basis points from 2.52% in the previous quarter and down 79 basis points from 3.38% in the fourth quarter of 2018. NIM increased in the fourth quarter of 2019 compared to the prior quarter due a higher yielding asset mix.
Non-interest income improved to $49.7 million for the fourth quarter of 2019, compared with $46.6 million in the previous quarter and $45.7 million in the fourth quarter of 2018. The increase over the prior quarter was attributable primarily to the seasonal increase in credit card transaction fees.
Non-interest expenses were $93.9 million in the fourth quarter of 2019, compared to $90.4 million in the previous quarter and $83.5 million in the fourth quarter of 2018. Core non-interest expenses^1^ were $91.6 million in the fourth quarter of 2019, compared with $84.0 million in the previous quarter and $83.2 million in the fourth quarter of 2018. Non-interest expenses were higher in the fourth quarter of 2019 compared to the prior quarter due to Group service center expansion costs, continued integration and compliance review expenses from the Channel Islands acquisition, expenses related to opening a new branch in the Cayman Islands and global re-branding marketing costs.
Capital Management
The Bank adheres to a disciplined and balanced capital return policy. The Board declared a quarterly dividend of $0.44 per common share to be paid on March 11, 2020 to shareholders of record on February 26, 2020. During the fourth quarter of 2019, Butterfield repurchased 0.8 million common shares, completing the repurchases authorized under the Bank's previously announced share repurchase program. Butterfield currently has a share repurchase authorization of up to 3.5 million common shares or $125 million.
The current total regulatory capital ratio as at December 31, 2019 was 19.4% as calculated under Basel III, compared to 22.4% as at December 31, 2018. Both of these ratios are significantly above regulatory requirements applicable to the Bank.
| (1) | See table "Reconciliation of US GAAP Results to Core Earnings" below for reconciliation of US GAAP results to non-GAAP measures. 2 |
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ANALYSIS AND DISCUSSION OF FULL YEAR AND FOURTH QUARTER RESULTS
| Income statement | Three months ended (Unaudited) | Year ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (in $ millions) | December 31, 2019 | September 30, 2019 | December 31, 2018 | December 31, 2019 | December 31, 2018 | |||||
| Non-interest income | 49.7 | 46.6 | 45.7 | 184.0 | 168.7 | |||||
| Net interest income before provision for credit losses | 86.2 | 86.3 | 87.4 | 345.7 | 343.0 | |||||
| Total net revenue before provision for credit losses and other gains (losses) | 136.0 | 133.0 | 133.1 | 529.7 | 511.7 | |||||
| Provision for credit recoveries (losses) | (0.4 | ) | (0.4 | ) | 1.7 | 0.2 | 7.0 | |||
| Total other gains (losses) | 0.3 | 0.5 | (0.3 | ) | 2.8 | (0.9 | ) | |||
| Total net revenue | 135.9 | 133.1 | 134.6 | 532.6 | 517.8 | |||||
| Non-interest expenses | (93.9 | ) | (90.4 | ) | (83.5 | ) | (356.9 | ) | (321.3 | ) |
| Total net income before taxes | 42.0 | 42.7 | 51.1 | 175.7 | 196.5 | |||||
| Income tax benefit (expense) | 1.9 | (0.2 | ) | (0.2 | ) | 1.4 | (1.3 | ) | ||
| Net income | 43.9 | 42.4 | 50.9 | 177.1 | 195.2 | |||||
| Net earnings per share | ||||||||||
| Basic | 0.83 | 0.80 | 0.93 | 3.33 | 3.55 | |||||
| Diluted | 0.82 | 0.79 | 0.92 | 3.30 | 3.50 | |||||
| Per diluted share impact of other non-core items ^1^ | 0.05 | 0.12 | — | 0.39 | 0.03 | |||||
| Core earnings per share on a fully diluted basis ^1^ | 0.87 | 0.91 | 0.92 | 3.69 | 3.53 | |||||
| Adjusted weighted average number of participating shares on a fully diluted basis^^(in thousands of shares) | 53,273 | 53,554 | 55,389 | 53,659 | 55,745 | |||||
| Key financial ratios | ||||||||||
| Return on common equity | 18.0 | % | 17.8 | % | 23.4 | % | 19.1 | % | 23.1 | % |
| Core return on average tangible common equity ^1^ | 21.1 | % | 22.5 | % | 25.8 | % | 23.4 | % | 25.6 | % |
| Return on average assets | 1.3 | % | 1.2 | % | 1.9 | % | 1.4 | % | 1.8 | % |
| Net interest margin | 2.59 | % | 2.52 | % | 3.38 | % | 2.86 | % | 3.25 | % |
| Core efficiency ratio ^1^ | 66.3 | % | 62.1 | % | 61.5 | % | 62.2 | % | 61.5 | % |
| ^(1)^ | See table "Reconciliation of US GAAP Results to Core Earnings" below for reconciliation of US GAAP results to non-GAAP measures. | |||||||||
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3
| Balance Sheet | As at | |||
|---|---|---|---|---|
| (in $ millions) | December 31, 2019 | December 31, 2018 | ||
| Cash due from banks | 2,550 | 2,054 | ||
| Securities purchased under agreements to resell | 142 | 27 | ||
| Short-term investments | 1,218 | 52 | ||
| Investments in securities | 4,436 | 4,255 | ||
| Loans, net of allowance for credit losses | 5,143 | 4,044 | ||
| Premises, equipment and computer software, net of accumulated depreciation | 158 | 158 | ||
| Goodwill and intangibles, net | 97 | 75 | ||
| Other assets | 177 | 108 | ||
| Total assets | 13,922 | 10,773 | ||
| Total deposits | 12,442 | 9,452 | ||
| Other liabilities | 373 | 295 | ||
| Long-term debt | 144 | 143 | ||
| Total liabilities | 12,958 | 9,891 | ||
| Common shareholders’ equity | 964 | 882 | ||
| Total shareholders' equity | 964 | 882 | ||
| Total liabilities and shareholders' equity | 13,922 | 10,773 | ||
| Key Balance Sheet Ratios: | December 31, 2019 | December 31, 2018 | ||
| Common equity tier 1 capital ratio | 17.3 | % | 19.6 | % |
| Tier 1 capital ratio | 17.3 | % | 19.6 | % |
| Total capital ratio | 19.4 | % | 22.4 | % |
| Leverage ratio | 5.9 | % | 7.6 | % |
| Risk-Weighted Assets (in $ millions) | 4,898 | 4,321 | ||
| Risk-Weighted Assets / total assets | 35.2 | % | 40.1 | % |
| Tangible common equity ratio | 6.3 | % | 7.5 | % |
| Non-accrual loans/gross loans | 1.0 | % | 1.2 | % |
| Non-performing assets/total assets | 0.4 | % | 0.4 | % |
| Total coverage ratio | 46.8 | % | 51.6 | % |
| Specific coverage ratio | 35.1 | % | 30.6 | % |
YEAR ENDED DECEMBER 31, 2019 COMPARED WITH THE YEAR ENDED DECEMBER 31, 2018
Net Income
Net income for the year ended December 31, 2019 was $177.1 million, down $18.1 million from $195.2 million in the prior year.
The $18.1 million decrease in net income in the year ended December 31, 2019 was due principally to the following:
| • | $2.7 million increase in net interest income before provision for credit losses due to a $22.0 million increase in interest income on investments and deposits with banks, and a $15.5 million increase in interest income on loans as a result of the ABN AMRO (Channel Islands) acquisition. These increases in interest income were partially offset by a $34.8 million increase in interest expense due principally to higher rates, as well as higher volumes of deposits as a result of the ABN AMRO (Channel Islands) acquisition; |
|---|---|
| • | $15.3 million increase in non-interest income due to increased card service fee contributions, increased transactional volumes on foreign exchange transactions, growth in Cayman Islands and the impact of the late-2018 onboarding of Deutsche Bank clients as well as the ABN AMRO (Channel Islands) acquisition in 2019; |
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| • | $6.8 million decrease in provision for credit recoveries due to continued favorable credit performance and conditions; |
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| • | $3.6 million increase in total gains and losses, driven by higher mark-to-market gains on equity securities |
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and net realized gains on the sale of available-for-sale investments;
4
| • | $23.9 million increase in staff-related costs due to increased headcount associated with the ABN AMRO (Channel Islands) acquisition and service center expansion, as well as cost restructuring initiatives in Bermuda and the Channel Islands; |
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| • | $2.7 million decrease in tax expense driven by the recognition of a deferred tax asset in the UK; and |
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| • | $11.7 million increase in the remaining non-interest expense items, due principally to marketing expenses associated with the rebranding initiative announced in Q3 2019, as well as the ABN AMRO (Channel Islands) acquisition. |
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Non-Core Items^1^
Non-core items resulted in expenses of $20.8 million in the year ended December 31, 2019, which caused an unfavorable impact of $19.0 million compared to expenses of $1.8 million in the prior year. Non-core items for the year were principally a combination of deal-related expenses for the ABN AMRO (Channel Islands) acquisition and costs associated with the departure of a Group senior executive.
Management does not believe that the expenses, gains or losses identified as non-core are indicative of the results of operations of the Bank in the ordinary course of business.
QUARTER ENDED DECEMBER 31, 2019 COMPARED WITH THE QUARTER ENDED SEPTEMBER 30, 2019
Net Income
Net income for the quarter ended December 31, 2019 was $43.9 million, up $1.5 million from $42.4 million in the prior quarter.
The $1.5 million increase in net income in the quarter ended December 31, 2019 over the previous quarter was due principally to the following:
| • | $0.1 million decrease in net interest income before provision for credit losses due to a $2.8 million decrease in interest income on investments and deposits with banks due to reduced volumes driven by lower deposit funding, partially offset by a $1.3 million increase in interest income on loans due to corporate loan growth, as well as the full quarter impact from the ABN AMRO (Channel Islands) acquisition, and a $1.4 million decrease in interest expense on deposits due to both lower volumes and the impact of deposit repricing in the Channel Islands; |
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| • | $3.1 million increase in non-interest income primarily due to a $1.9 million increase in banking income due to higher card services income and a $1.2 million increase in all other non-interest income, primarily due to rental income related to the ABN AMRO (Channel Islands) acquisition; |
| --- | --- |
| • | $2.9 million increase in staff-related costs due to increased headcount associated with the Group service center expansion, health insurance stop-loss adjustments and staff incentive adjustments in the prior quarter; |
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| • | $2.8 million decrease in professional service expenses, driven by acquisition-related costs recognized in the prior quarter; |
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| • | $1.6 million increase in marketing expenses associated with the Bank's rebranding initiative and preparatory work for the Bank's new Cayman branch in Camana Bay; |
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| • | $2.1 million decrease in tax expense due to the recognition of a deferred tax asset in the UK; and |
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| • | $1.9 million increase in the remaining non-interest expense items, due principally to a settlement charge due to liability settlements on the Guernsey defined benefit pension fund. |
| --- | --- |
Non-Core Items^1^
Non-core items resulted in expenses of $2.3 million in the quarter ended December 31, 2019, which caused a favorable impact of $4.1 million compared to expenses of $6.4 million in the prior quarter. Non-core items for the period were principally incurred in implementing a target operating staffing model for the combined Channel Islands segment following the ABN AMRO (Channel Islands) acquisition. The costs were primarily staff exit expenses associated with the program.
Management does not believe that the expenses, gains or losses identified as non-core are indicative of the results of operations of the Bank in the ordinary course of business.
| ^(1)^ | See table "Reconciliation of US GAAP Results to Core Earnings" below for reconciliation of US GAAP results to non-GAAP measures. |
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5
BALANCE SHEET COMMENTARY AT DECEMBER 31, 2019 COMPARED WITH DECEMBER 31, 2018
Total Assets
Total assets of the Bank were $13.9 billion at December 31, 2019, an increase of $3.1 billion from December 31, 2018. The Bank maintained a highly liquid position at December 31, 2019, with $8.3 billion of cash and demand deposits with banks, reverse repurchase agreements and short and long-term investments representing 60.0% of total assets, compared with 59.3% at December 31, 2018.
Loans Receivable
The loan portfolio totaled $5.1 billion at December 31, 2019, which was an increase of $1.1 billion compared to December 31, 2018, due to the ABN AMRO (Channel Islands) acquisition, new residential loan origination in the UK and increases in government lending in Bermuda and Cayman. The Bank continues to support its core market borrowing demand using consistent underwriting criteria as in previous years.
Allowance for credit losses at December 31, 2019 totaled $23.6 million, a decrease of $1.5 million from year-end 2018. The movement was due to slightly lower general provisioning rates across several jurisdictions, which was partially offset by a few increases and new specific provisions.
The loan portfolio represented 36.9% of total assets at December 31, 2019 (December 31, 2018: 37.5%), while loans as a percentage of customer deposits decreased from 42.9% at year-end 2018 to 41.4% at December 31, 2019. The decreases in both percentages are due principally to an increase in customer deposits at December 31, 2019 related to the ABN AMRO (Channel Islands) acquisition.
As of December 31, 2019, the Bank had gross non-accrual loans of $50.4 million, representing 1.0% of total gross loans, a slight increase from the $48.7 million, or 1.2%, of total loans at year-end 2018. Net non-accrual loans were $32.7 million at December 31, 2019, equivalent to 0.6% of net loans. Butterfield continues to engage proactively with clients who experience financial difficulty.
Other real estate owned (“OREO”) decreased by $1.5 million from year-end 2018 to $3.8 million at December 31, 2019, primarily as a result of sales transactions completed during the first quarter of 2019.
Investment in Securities
The investment portfolio was $4.4 billion at December 31, 2019, up $0.2 billion from December 31, 2018.
The investment portfolio was made up of high quality assets with 99.8% invested in A-or-better-rated securities. The investment yield decreased from 2.82% in the previous quarter to 2.77% as at December 31, 2019 due to the impact of lower US market rates impacting the floating rate book. Total net unrealized gains were $60.8 million, compared to total net unrealized losses of $72.8 million at year-end 2018.
Deposits
Average deposits were at $12.2 billion in the fourth quarter of 2019 compared to $9.1 billion in the fourth quarter of 2018. The cost of deposits decreased 4 basis points from the previous quarter reflecting a relatively modest average customer rate decrease in term deposit products and driven by re-pricing initiatives in the Channel Islands and UK segment.
6
Average Balance Sheet^2^
| For the three months ended | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, 2019 | September 30, 2019 | December 31, 2018 | ||||||||||
| (in $ millions) | Average<br><br>balance<br><br>($) | Interest() | Average<br><br>rate<br><br>(%) | Average<br><br>balance<br><br>($) | Interest() | Average<br><br>rate<br><br>(%) | Average<br><br>balance<br><br>($) | Interest() | Average<br><br>rate<br><br>(%) | |||
| Assets | ||||||||||||
| Cash due from banks and short‑term investments | 3,791.9 | 10.9 | 1.14 | 4,434.4 | 12.5 | 1.12 | 1,719.2 | 6.1 | 1.40 | |||
| Investment in securities | 4,533.6 | 31.7 | 2.77 | 4,616.8 | 32.9 | 2.82 | 4,415.1 | 32.0 | 2.87 | |||
| Equity securities at fair value | 1.2 | — | — | 1.5 | — | — | 1.0 | — | — | |||
| Available-for-sale | 2,271.7 | 14.7 | 2.57 | 2,299.7 | 15.4 | 2.66 | 2,310.9 | 15.6 | 2.67 | |||
| Held-to-maturity | 2,260.7 | 17.0 | 2.98 | 2,315.6 | 17.4 | 2.99 | 2,103.3 | 16.4 | 3.10 | |||
| Loans | 4,880.6 | 60.9 | 4.95 | 4,529.4 | 59.6 | 5.22 | 4,113.9 | 57.7 | 5.56 | |||
| Commercial | 1,600.1 | 22.2 | 5.50 | 1,548.8 | 20.5 | 5.26 | 1,371.1 | 20.5 | 5.94 | |||
| Consumer | 3,280.5 | 38.8 | 4.69 | 2,980.7 | 39.1 | 5.20 | 2,742.9 | 37.1 | 5.37 | |||
| Interest earning assets | 13,206.2 | 103.5 | 3.11 | 13,580.6 | 105.0 | 3.07 | 10,248.3 | 95.7 | 3.70 | |||
| Other assets | 398.8 | 396.0 | 329.5 | |||||||||
| Total assets | 13,605.0 | 103.5 | 13,976.6 | 105.0 | 10,577.8 | 95.7 | ||||||
| Liabilities | ||||||||||||
| Deposits | 10,050.5 | (15.4 | (0.61 | ) | 10,199.7 | (16.7 | (0.65 | ) | 6,946.5 | (6.3 | (0.36 | ) |
| Securities sold under agreement to repurchase | 2.6 | — | (2.10 | ) | — | — | — | 2.7 | — | (2.33 | ) | |
| Long-term debt | 143.5 | (1.9 | (5.28 | ) | 143.4 | (2.0 | (5.42 | ) | 143.3 | (2.0 | (5.48 | ) |
| Interest bearing liabilities | 10,196.6 | (17.3 | (0.67 | ) | 10,343.1 | (18.7 | (0.72 | ) | 7,092.4 | (8.3 | (0.46 | ) |
| Non-interest bearing current accounts | 2,132.6 | 2,134.0 | 2,186.2 | |||||||||
| Other liabilities | 348.0 | 311.7 | 301.6 | |||||||||
| Total liabilities | 12,677.3 | (17.3 | 12,788.9 | (18.7 | 9,580.2 | (8.3 | ||||||
| Shareholders’ equity | 927.7 | 1,187.7 | 997.6 | |||||||||
| Total liabilities and shareholders’ equity | 13,605.0 | 13,976.6 | 10,577.8 | |||||||||
| Non‑interest‑bearing funds net of<br><br>non‑interest earning assets<br><br>(free balance) | 3,009.6 | 3,237.5 | 3,155.9 | |||||||||
| Net interest margin | 86.2 | 2.59 | 86.3 | 2.52 | 87.4 | 3.38 |
All values are in US Dollars.
^(2)^Averages are based upon a daily averages for the periods indicated.
Assets Under Administration and Assets Under Management
Total assets under administration for the trust and custody businesses were $91.7 billion and $30.3 billion, respectively, at December 31, 2019, while assets under management were $5.6 billion at December 31, 2019. This compares with $96.1 billion, $24.5 billion and $4.8 billion, respectively, at December 31, 2018.
7
Reconciliation of US GAAP Results to Core Earnings
The table below shows the reconciliation of net income in accordance with US GAAP to core earnings, a non-GAAP measure, which excludes certain significant items that are included in our US GAAP results of operations. We focus on core net income, which we calculate by adjusting net income to exclude certain income or expense items that are not representative of our business operations, or “non-core”. Core net income includes revenue, gains, losses and expense items incurred in the normal course of business. We believe that expressing earnings and certain other financial measures excluding these non-core items provides a meaningful base for period-to-period comparisons, which management believes will assist investors in analyzing the operating results of the Bank and predicting future performance. We believe that presentation of these non-GAAP financial measures will permit investors to assess the performance of the Bank on the same basis as management.
| Core Earnings | Three months ended | Year ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (in $ millions except per share amounts) | December 31, 2019 | September 30, 2019 | December 31, 2018 | December 31, 2019 | December 31, 2018 | |||||
| Net income to common shareholders | 43.9 | 42.4 | 50.9 | 177.1 | 195.2 | |||||
| Non-core items | ||||||||||
| Non-core (gains) losses | ||||||||||
| Gain on disposal of a pass-through note investment (formerly a SIV) | — | — | — | (1.0 | ) | (1.2 | ) | |||
| Settlement loss on de-risking on a defined benefit plan | — | — | — | — | 1.5 | |||||
| Total non-core (gains) losses | — | — | — | (1.0 | ) | 0.3 | ||||
| Non-core expenses | ||||||||||
| Early retirement program, redundancies and other non-core compensation costs | 2.2 | 2.8 | — | 16.3 | — | |||||
| Tax compliance review costs | — | — | 0.1 | — | 0.5 | |||||
| Business acquisition costs | 0.1 | 3.6 | 0.1 | 5.5 | 1.0 | |||||
| Total non-core expenses | 2.3 | 6.4 | 0.2 | 21.8 | 1.5 | |||||
| Total non-core items | 2.3 | 6.4 | 0.2 | 20.8 | 1.8 | |||||
| Core net income | 46.2 | 48.8 | 51.1 | 197.9 | 197.0 | |||||
| Average common equity | 964.8 | 948.4 | 862.3 | 927.7 | 843.2 | |||||
| Less: average goodwill and intangible assets | (95.3 | ) | (87.1 | ) | (75.6 | ) | (83.2 | ) | (74.6 | ) |
| Average tangible common equity | 869.5 | 861.3 | 786.7 | 844.5 | 768.6 | |||||
| Core earnings per share fully diluted | 0.87 | 0.91 | 0.92 | 3.69 | 3.53 | |||||
| Return on common equity | 18.0 | % | 17.8 | % | 23.4 | % | 19.1 | % | 23.1 | % |
| Core return on average tangible common equity | 21.1 | % | 22.5 | % | 25.8 | % | 23.4 | % | 25.6 | % |
| Non-interest expenses | 93.9 | 90.4 | 83.5 | 356.9 | 321.3 | |||||
| Less: non-core expenses | (2.3 | ) | (6.4 | ) | (0.2 | ) | (21.8 | ) | (1.5 | ) |
| Less: amortization of intangibles | (1.5 | ) | (1.5 | ) | (1.3 | ) | (5.5 | ) | (5.1 | ) |
| Core non-interest expenses before amortization of intangibles | 90.1 | 82.5 | 81.9 | 329.7 | 314.7 | |||||
| Core revenue before other gains and losses and provision for credit losses | 136.0 | 133.0 | 133.1 | 529.7 | 511.7 | |||||
| Core efficiency ratio | 66.3 | % | 62.1 | % | 61.5 | % | 62.2 | % | 61.5 | % |
8
Conference Call Information:
Butterfield will host a conference call to discuss the Bank’s results on Thursday, February 13, 2020 at 10:00 a.m. Eastern Time. Callers may access the conference call by dialing +1 (844) 855 9501 (toll-free) or +1 (412) 858 4603 (international) ten minutes prior to the start of the call. A live webcast of the conference call, including a slide presentation, will be available in the investor relations section of Butterfield’s website at www.butterfieldgroup.com. A replay of the call will be archived on the Butterfield website thereafter.
About Non-GAAP Financial Measures:
Certain statements in this release involve the use of non-GAAP financial measures. We believe such measures provide useful information to investors that is supplementary to our financial condition, results of operations and cash flows computed in accordance with US GAAP; however, our non-GAAP financial measures have a number of limitations. As such, investors should not view these disclosures as a substitute for results determined in accordance with US GAAP, and they are not necessarily comparable to non-GAAP financial measures that other companies use. See "Reconciliation of US GAAP Results to Core Earnings" for additional information.
Forward-Looking Statements:
Certain of the statements made in this release are forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements through our use of words such as “may,” “will,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “plan,” “point to,” “project,” “could,” “intend,” “target” and other similar words and expressions of the future. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions, and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause the actual results, performance, capital, ownership or achievements of the Bank to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements due to a variety of factors, including worldwide economic conditions and fluctuations of interest rates, the successful completion and integration of acquisitions (including the recently closed acquisition of ABN AMRO (Channel Islands) Limited) or the realization of the anticipated benefits of such acquisitions in the expected time-frames or at all, success in business retention and obtaining new business and other factors. All statements other than statements of historical fact are statements that could be forward-looking statements.
All forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary notice, including, without limitation, those risks and uncertainties described in our Securities and Exchange Commission (“SEC”) reports and filings. Such reports are available upon request from the Bank, or from the SEC, including through the SEC’s website at https://www.sec.gov. Except otherwise required by law, Butterfield assumes no obligation and does not undertake to review, update, revise or correct any of the forward-looking statements included herein, whether as a result of new information, future events or other developments. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof.
About Butterfield:
Butterfield is a full-service bank and wealth manager headquartered in Hamilton, Bermuda, providing services to clients from Bermuda, the Cayman Islands, Guernsey and Jersey, where our principal banking operations are located, and The Bahamas, Switzerland, Singapore and the United Kingdom, where we offer specialized financial services. Banking services comprise deposit, cash management and lending solutions for individual, business and institutional clients. Wealth management services are composed of trust, private banking, asset management and custody. In Bermuda, the Cayman Islands and Guernsey, we offer both banking and wealth management. In The Bahamas, Singapore and Switzerland, we offer select wealth management services. In the UK, we offer residential property lending. In Jersey, we offer select banking and wealth management services. Butterfield is publicly traded on the New York Stock Exchange (symbol: NTB) and the Bermuda Stock Exchange (symbol: NTB.BH). Further details on the Butterfield Group can be obtained from our website at: www.butterfieldgroup.com.
Investor Relations Contact: Media Relations Contact:
Noah Fields Mark Johnson
Investor Relations Group Head of Communications
The Bank of N.T. Butterfield & Son Limited The Bank of N.T. Butterfield & Son Limited
Phone: (441) 299 3816 Phone: (441) 299 1624
Fax : (441) 295 1220 Fax: (441) 295 3878
E-mail: [email protected] E-mail: [email protected]
9
currentearningsdeckr6289
Fourth Quarter and Year-End Earnings Presentation The Bank of N.T. Butterfield & Son Limited February 13, 2020
Forward-Looking Statements Forward-Looking Statements: Certain of the statements made in this release are forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements through our use of words such as “may,” “will,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “plan,” “point to,” “project,” “could,” “intend,” “target” and other similar words and expressions of the future. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions, and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause the actual results, performance, capital, ownership or achievements of the Bank to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements due to a variety of factors, including worldwide economic conditions and fluctuations of interest rates, the successful completion and integration of acquisitions (including the recently closed acquisition of ABN AMRO (Channel Islands) Limited) or the realization of the anticipated benefits of such acquisitions in the expected time-frames or at all, success in business retention and obtaining new business and other factors. All statements other than statements of historical fact are statements that could be forward-looking statements. All forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary notice, including, without limitation, those risks and uncertainties described in our Securities and Exchange Commission (“SEC”) reports and filings. Such reports are available upon request from the Bank, or from the SEC, including through the SEC’s website at https://www.sec.gov. Except otherwise required by law, Butterfield assumes no obligation and does not undertake to review, update, revise or correct any of the forward-looking statements included herein, whether as a result of new information, future events or other developments. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof. About Non-GAAP Financial Measures: This presentation contains non-GAAP financial measures including “core” net income and other financial measures presented on a “core” basis. We believe such measures provide useful information to investors that is supplementary to our financial condition, results of operations and cash flows computed in accordance with GAAP; however, our non-GAAP financial measures have a number of limitations. As such, investors should not view these disclosures as a substitute for results determined in accordance with GAAP, and they are not necessarily comparable to non-GAAP financial measures that other companies use. Reconciliations of these non-GAAP measures to corresponding GAAP financial measures are provided in the Appendix of this presentation. 2 All information in $millions and as of December 31, 2017 unless otherwise indicated . Conversion rate: 1 BMD$ = 1 US$.
Agenda and Overview Presenters Agenda Butterfield Overview Michael Collins • Overview • Leading Bank in Attractive Markets Chairman and Chief Executive Officer • Financials • Strong Capital Generation and Return Michael Schrum • Q&A • Efficient, Conservative Balance Sheet Chief Financial Officer • Visible Earnings Ten International Locations Awards 3
Full Year 2019 Highlights • Net income of $177.1 million, or $3.30 per share (In US$ millions) vs. 2018 • Core Net Income** of $197.9 million, or $3.69 per share 2019 $ % • Return on average common equity of 19.1%; core return on average Net Interest Income $ 345.7 $ 2.7 tangible common equity** of 23.4% Non-Interest Income 184.0 15.3 • Net Interest Margin of 2.86%, cost of deposits of 0.47% Prov. for Credit Losses 0.2 (6.8) • Core efficiency ratio of 62.2%** Non-Interest Expenses* (355.6) (32.9) • Large banking expansion in Channel Islands with completed Other Gains (Losses) 2.8 3.6 acquisition of ABN AMRO (Channel Islands) Limited Net Income $ 177.1 $ (18.1) (9.3)% • Healthy loan book growth from Bermuda and Cayman governments Non-Core Items** 20.8 (19.0) and UK mortgage company, combined with acquired Channel Islands business Core Net Income** $ 197.9 $ 0.9 0.4 % • Active capital management with aggregate quarterly dividends of $1.76 per common share and 2.3 million shares repurchased Core Return on Average Tangible Common Equity** Core Net Income** (In US$ millions) 25.6% $197.0 $197.9 22.4% 23.4% 20.5% $158.9 17.6% $138.6 $113.9 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 * Includes income taxes ** See the Appendix for a reconciliation of the non-GAAP measure 4
Financials
Fourth Quarter 2019 Highlights • Net income of $43.9 million, or $0.82 per share (In US$ millions) vs. Q3 2019 vs. Q4 2018 • Core Net Income** of $46.2 million, or $0.87 per share Q4 2019 $ % $ % • Return on average common equity of 18.0%; core return on average Net Interest Income $ 86.2 $ (0.1) $ (1.2) 14.2 % tangible common equity** of 21.1% Non-Interest Income 49.7 3.1 4.0 5.4 % • Net Interest Margin of 2.59%, cost of deposits of 0.50% Prov. for Credit Losses (0.4) — (2.1) (315.3)% • Core efficiency ratio of 66.3%** Non-Interest Expenses* (92.0) (1.3) (8.3) (4.8)% • Continued progress on Channel Islands banking integration - moving Other Gains (Losses) 0.3 (0.2) 0.6 181.3 % ahead as anticipated Net Income $ 43.9 $ 1.5 3.4 % $ (7.0) (13.8)% • Cash dividend of $0.44 per common share and share repurchases Non-Core Items** 2.3 4.1 2.1 (104.5)% • Significantly moderated asset sensitivity through fixed rate loans and Core Net Income** $ 46.2 $ (2.6) (5.4)% $ (5.0) (9.7)% GNMA purchases Core Return on Average Tangible Common Equity** Core Net Income** (In US$ millions) 25.8% 25.6% 24.6% $51.1 $51.7 $51.1 22.5% $48.8 21.1% $46.2 Q4 Q1 Q2 Q3 Q4 Q4 Q1 Q2 Q3 Q4 2018 2019 2018 2019 * Includes income taxes ** See the Appendix for a reconciliation of the non-GAAP measure 6
Income Statement Net Interest Income Net Interest Margin & Yields Net Interest Income before Provision for Credit Losses - Trend (In US$ millions) Q4 2019 vs. Q3 2019 (In US$ millions) Avg. Balance Yield Avg. Balance Yield $87.4 $86.3 $86.2 Cash, S/T Inv. & Repos $ 3,791.9 1.14 % $ (642.5) 0.02 % Investments 4,533.6 2.77 % (83.1) (0.05)% Loans (net) 4,880.6 4.95 % 351.2 (0.27)% Interest Earning Assets 13,206.2 3.11 % (374.4) 0.04 % Interest Bearing Liabilities 10,196.6 (0.67)% (146.5) 0.05 % Q4 Q1 Q2 Q3 Q4 2018 2019 Net Interest Margin 2.59 % 0.07 % • Net interest margin (NIM) increased 7 bps from the previous quarter benefiting from a higher yielding asset mix due to loan growth and lower deposit costs • Cash and short term securities remain elevated during seasoning of acquired Channel Islands balance sheet • Loan yields of 4.95% down 27 bps in the fourth quarter due to the lower US prime rate linked loans repricing in Cayman and the full quarter inclusion of the acquired Channel Islands loan book at lower GBP loan rates • As expected, term deposit costs declined in the fourth quarter due to lower rates on roll-over maturities • Loan growth principally attributable to winning two new sovereign mandates in Bermuda and Cayman Islands 7
Customer Deposits Deposit Composition By Currency Average Deposit Volume and Cost of Deposits 7.0% 14.0% 10.2% 5,000 (In US$ millions) 13.0% 1.48% 19.0% 20.2% 1.38% 80.0% 4,000 67.0% 69.6% 1.12% 3,000 Q4 Q1 Q2 Q3 Q4 2018 2019 USD / USD Pegged GBP 2,000 0.54% Other 0.50% 0.28% 1,000 0.25% 0.27% By Type 20.9% 23.9% 24.5% 0.04% 0 56.7% Q4 Q1 Q2 Q3 Q4 59.8% 57.5% 2018 2019 22.4% 16.3% 18.0% Bermuda Demand Deposits Bermuda Term Deposits Q4 Q1 Q2 Q3 Q4 Cayman Demand Deposits Cayman Term Deposits 2018 2019 Channel Islands Demand Deposits Channel Islands Term Deposits Non-interest bearing demand deposits Interest bearing demand deposit cost Term deposit cost Interest bearing demand deposits Overall cost of deposits Term deposits 8
Income Statement Non-Interest Income Non-Interest Income Trend (In US$ millions) (In US$ millions) Q4 2019 vs. Q3 2019 $49.7 $45.7 $46.6 Asset management $ 7.8 $ 0.4 Banking 14.0 1.9 FX Revenue 9.8 (0.2) Trust 13.0 0.3 Custody and Other 3.5 (0.2) Q4 Q1 Q2 Q3 Q4 Other 1.7 0.9 2018 2019 Total Non-Interest Income $ 49.7 $ 3.1 • Non-interest income was up 6.6% versus last quarter and up 8.7% compared to the fourth quarter of 2018, with the linked quarter increase primarily due to holiday season merchant acquiring and the year-over-year improvement principally due to the acquired business in the Channel Islands • Card services fee income of $6.4 million was the largest contributor to banking income in the fourth quarter of 2019 • Fee income ratio of 36.7% in the fourth quarter of 2019 remains higher than the peer average* * Includes US banks identified by management as a peer group. Please see the Appendix for a list of these banks. 9
Income Statement Non-Interest Expenses Core Non-Interest Expense Trend* Core Non-Interest Expenses* vs. Q3 2019 (In US$ millions) (In US$ millions) Q4 2019 $ % $91.6 Salaries & Benefits** $ 46.6 $ 3.9 9.1 % Technology & Comm. 16.5 0.2 1.2 % $83.1 $84.0 Property 7.0 1.0 15.7 % Professional & O/S Services 6.5 0.6 10.7 % 66.3% Indirect Taxes 5.3 — — % Intangible Amortization 1.5 — — % 61.5% 62.1% Marketing 3.1 1.6 98.3 % Q4 Q1 Q2 Q3 Q4 Other 5.1 0.4 9.8 % 2018 2019 Total Core Non-Interest Expenses* $ 91.6 $ 7.6 9.0 % Core Non-Interest Expenses* Non-Core Expenses* 2.3 (4.1) (64.0)% Non-Interest Expenses $ 93.9 $ 3.5 3.9 % Core Efficiency Ratio* • Core cost / income ratio* of 66.3% is above target and higher than the 62.1% in the prior quarter and 62.2% for the full year 2019 • Quarter core expenses were higher sequentially due to: ◦ Group service center expansion prior to call center migration planned in 2Q20; ◦ Continued integration and compliance review expenses in Channel Islands following acquisition, due to finish in 2Q20; ◦ Preparatory work associated with February 2020 opening of new branch in Cayman Islands; and ◦ Global re-branding initiative with elevated marketing expenses, continuing for remainder of 2020. • Through cycle core efficiency ratio target remains 60% * See the Appendix for a reconciliation of the non-GAAP measure ** Includes Non-Service Employee Benefits Expense 10
Capital Requirements and Return Regulatory Capital (Basel III) - Total Capital Ratio Leverage Capital 9.9% 19.4% 0.6% 7.7% 1.4% 16.3% 9.3% 13.7% 6.3% Butterfield Current BMA 2019 Required US Peer Median * Butterfield - Current US Peer Median * TCE/TA TCE/TA Ex Cash Dividend Payout Ratio** • Capital management balances regulatory requirements and 52.8% shareholder returns 46.4% • TCE/TA ratio of 6.3% returns to targeted range of 6.0% to 6.5% 42.8% • Board declared a quarterly qualified cash dividend of $0.44 per common share • Active share repurchase program continues subject to market 33.9% conditions • Dividend rates are established to be sustainable with flexibility for share repurchases and potential M&A 2016 2017 2018 2019 * Includes US banks identified by management as a peer group. Please see the Appendix for a list of these banks. ** 2019 is based on year-to-date dividend and earnings per share 11
Balance Sheet Total Assets (In US$ millions) Q4 2019 Q4 2018 (In US$ billions) Cash & Equivalents $ 2,550 $ 2,054 $14.2 $13.9 S/T Investments 1,218 52 Reverse Repos 142 27 $10.8 Loans (net) 5,143 4,044 Investments 4,436 4,255 Other Assets 432 340 $4.3 $4.7 $4.4 Total Assets $ 13,922 $ 10,773 $4.7 $5.1 $4.0 Int. Bearing Deposits $ 10,203 $ 7,333 Non-Int. Bearing Deposits 2,238 2,120 Q4 Q1 Q2 Q3 Q4 Other Liabilities 516 439 2018 2019 Shareholders Equity 964 882 Total assets Investments Loans Total Liab. & Equity $ 13,922 $ 10,773 Total Deposits • Deposit balances dropped to $12.4 billion from $12.7 billion $12.7 $12.4 with the majority of the decrease due to expected Euro (In US$ billions) deposit decline in Channel Islands $9.5 • Loan balances increased 10% and 27% from last quarter and year-end 2018, respectively, due to newly acquired business in Channel Islands, growth in Bermuda/Cayman sovereign loans and the central London mortgage book • Butterfield manages a conservative balance sheet with low risk density Q4 Q1 Q2 Q3 Q4 2018 2019 • Total balance sheet values benefited from a strong GBP/ USD exchange rate at quarter end 12
Asset Quality Non-Accrual Loans Investment Portfolio (In US$ millions) Loan Distribution Rating Distribution $51.9 $50.4 Gov’t: $48.7 7.2% BBB: 0.2% A: 0.5% Other Comm’l: AA: 0.3% 10.9% Res Mtg: 62.3% Comm’l R/E: 14.6% AAA: 99.0% Consumer: 5.0% $5.1 billion $4.4 billion Q4 Q1 Q2 Q3 Q4 2018 2019 • Investment portfolio remains very high quality with 99% AAA Net Charge-Off Ratio 0.10% rated securities, primarily US Government guaranteed securities 0.08% • Well seasoned residential mortgages in Bermuda/Cayman 0.06% and UK mortgage markets make up 62% of the loan book 0.04% • Loans to the Cayman and Bermuda governments increased 0.04% to 7.2% at quarter-end from 3.4% at the end of the third 0.02% 0.02% 0.01% quarter of 2019 • Net charge-offs and non-accruals remain low 0.00% • Completed model validation and all preparatory work for Q4 Q1 Q2 Q3 Q4 2018 2019 CECL transition effective January 1, 2020 13
Interest Rate Sensitivity Average Balance - Balance Sheet Interest Rate Sensitivity Average Balances (US 5.8% 5.6% $Mil) Weighted Average 3.6% 3.6% Q4 2019 vs. Q3 2019 Duration vs. Q3 2019 Life Cash & Reverse Repos 2,773.5 (1,310.4) N/A N/A N/A S/T Invest. 1,018.4 667.9 0.2 (0.1) N/A (4.0)% (4.0)% -100bps +100bps +200bps AFS 2,271.7 (28.1) 3.0 0.2 5.3 HTM** 2,260.7 (54.8) 4.0 0.4 5.8 NTB US Peer Median * Total 8,324.3 (725.4) • Butterfield’s interest rate sensitivity was significantly reduced during the fourth quarter of 2019 due to: ◦ A higher volume of fixed rate assets (sovereign term loan in Cayman and fixed rate mortgages in London); and ◦ Increased duration of the MBS portfolio with rising long-term US rates. • Butterfield’s lower interest rate sensitivity indicates greater certainty in net interest income in future years and is currently in-line with peers* * Includes US banks identified by management as a peer group. Please see the Appendix for a list of these banks. ** The HTM portfolio is comprised of securities with negative convexity which typically exhibit higher prepayment speeds when assuming lower future rates. 14
Appendix
Appendix Balance Sheet Trends (in millions of US Dollars, unless otherwise indicated) 2019 2018 2017 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Assets Cash & Equivalents $ 2,550 $ 3,605 $ 2,011 $ 2,601 $ 2,054 $ 1,259 $ 1,756 $ 1,846 $ 1,535 Reverse Repos 142 62 166 72 27 72 89 198 179 S/T Investments 1,218 793 163 215 52 76 79 100 250 Investments 4,436 4,662 4,524 4,393 4,255 4,576 4,727 4,512 4,706 Loans, Net 5,143 4,673 4,000 3,986 4,044 4,092 3,986 3,957 3,777 Other Assets 432 420 364 374 340 355 367 376 332 Total Assets $ 13,922 $ 14,216 $ 11,229 $ 11,643 $ 10,773 $ 10,430 $ 11,002 $ 10,988 $ 10,779 Liabilities and Equity Total Deposits $ 12,442 $ 12,663 $ 9,852 $ 10,294 $ 9,452 $ 9,066 $ 9,718 $ 9,754 $ 9,536 Long-Term Debt 144 143 143 143 143 143 143 117 117 Other Liabilities 373 446 305 310 295 349 293 293 303 Total Liabilities $ 12,958 $ 13,252 $ 10,300 $ 10,747 $ 9,891 $ 9,558 $ 10,154 $ 10,164 $ 9,956 Common Equity $ 964 $ 965 $ 929 $ 896 $ 882 $ 872 $ 849 $ 824 $ 823 Total Equity $ 964 $ 965 $ 929 $ 896 $ 882 $ 872 $ 849 $ 824 $ 823 Total Liabilities and Equity $ 13,922 $ 14,216 $ 11,229 $ 11,643 $ 10,773 $ 10,430 $ 11,002 $ 10,988 $ 10,779 Key Metrics TCE / TA 6.3% 6.2% 7.7% 7.1% 7.5% 7.7% 7.1% 6.7% 7.1% CET 1 Ratio 17.3% 17.4% 20.1% 19.3% 19.6% 20.2% 19.1% 17.6% 18.2% Total Tier 1 Capital Ratio 17.3% 17.4% 20.1% 19.3% 19.6% 20.2% 19.1% 17.6% 18.2% Total Capital Ratio 19.4% 19.6% 22.7% 22.0% 22.4% 23.3% 22.3% 19.2% 19.9% 16
Appendix Average Balance Sheet Trends (in millions of US Dollars, unless otherwise indicated) Q4 2019 Q3 2019 Q4 2018 Average Interest Average rate Average Interest Average rate Average Interest Average rate Assets balance ($) ($) (%) balance ($) ($) (%) balance ($) ($) (%) Cash due from banks, reverse repurchase agreements and short-term investments $ 3,791.9 $ 10.9 1.14 % $ 4,434.4 $ 12.5 1.12 % $ 1,719.2 $ 6.1 1.40 % Investment in securities 4,533.6 31.7 2.77 % 4,616.8 32.9 2.82 % 4,415.1 32.0 2.87 % Equity securities at fair value 1.2 — — % 1.5 — — % 1.0 — — % AFS 2,271.7 14.7 2.57 % 2,299.7 15.4 2.66 % 2,310.9 15.6 2.67 % HTM 2,260.7 17.0 2.98 % 2,315.6 17.4 2.99 % 2,103.3 16.4 3.10 % Loans 4,880.6 60.9 4.95 % 4,529.4 59.6 5.22 % 4,113.9 57.7 5.56 % Commercial 1,600.1 22.2 5.50 % 1,548.8 20.5 5.26 % 1,371.1 20.5 5.94 % Consumer 3,280.5 38.8 4.69 % 2,980.7 39.1 5.20 % 2,742.9 37.1 5.37 % Total interest earning assets 13,206.2 103.5 3.11 % 13,580.6 105.0 3.07 % 10,248.3 95.7 3.70 % Other assets 398.8 396.0 329.5 Total assets $ 13,605.0 $ 13,976.6 $ 10,577.8 Liabilities Interest bearing deposits $ 10,050.5 $ (15.4) (0.61)% $ 10,199.7 $ (16.7) (0.65)% $ 6,946.5 $ (6.3) (0.36)% Customer demand deposits 6,989.7 (4.4) (0.25)% 7,091.8 (5.0) (0.28)% 4,941.0 (0.5) (0.04)% Customer term deposits 3,038.7 (10.6) (1.38)% 3,080.6 (11.5) (1.48)% 1,962.4 (5.5) (1.12)% Deposits from banks 22.1 (0.3) (6.14)% 27.3 (0.3) (3.87)% 43.0 (0.2) (2.08)% Securities sold under agreement to repurchase 2.6 — (2.10)% — — — % 2.7 — (2.33)% Long-term debt 143.5 (1.9) (5.28)% 143.4 (2.0) (5.42)% 143.3 (2.0) (5.48)% Interest bearing liabilities 10,196.6 (17.3) (0.67)% 10,343.1 (18.7) (0.72)% 7,092.4 (8.3) (0.46)% Non-interest bearing customer deposits 2,132.6 2,134.0 2,186.2 Other liabilities 348.0 311.7 301.6 Total liabilities $ 12,677.3 $ 12,788.9 $ 9,580.2 Shareholders’ equity 927.7 1,187.7 997.6 Total liabilities and shareholders’ equity $ 13,605.0 $ 13,976.6 $ 10,577.8 Non-interest bearing funds net of non-interest earning assets (free balance) $ 3,009.6 $ 3,237.5 $ 3,155.9 Net interest margin $ 86.2 2.59 % $ 86.3 2.52 % $ 87.4 3.38 % 17
Appendix Income Statement Trends (in millions of US Dollars, unless otherwise indicated) 2019 2018 2017 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Net Interest Income $ 86.2 $ 86.3 $ 85.2 $ 88.0 $ 87.4 $ 88.3 $ 87.4 $ 79.9 $ 76.1 Non-Interest Income 49.7 46.6 44.2 43.4 45.7 41.3 41.9 39.8 42.4 Prov. for Credit Recovery (Losses) (0.4) (0.4) 0.9 — 1.7 2.8 0.5 1.9 5.4 Non-Interest Expenses* 92.0 90.6 91.9 81.0 83.7 82.6 78.6 77.8 80.8 Other Gains (Losses) 0.3 0.5 0.2 1.8 (0.3) 0.7 (1.6) 0.4 (2.7) Net Income $ 43.9 $ 42.4 $ 38.6 $ 52.1 $ 50.9 $ 50.4 $ 49.7 $ 44.2 $ 40.3 Non-Core Items** $ 2.3 $ 6.4 $ 12.5 $ (0.4) $ 0.2 $ (1.2) $ 2.0 $ 0.8 $ 1.9 Core Net Income** $ 46.2 $ 48.8 $ 51.1 $ 51.7 $ 51.1 $ 49.1 $ 51.7 $ 45.0 $ 42.2 Key Metrics Loan Yield 4.95% 5.22% 5.67% 5.67% 5.56% 5.54% 5.44% 5.31% 5.23% Securities Yield 2.77 2.82 2.92 3.07 2.87 2.78 2.67 2.54 2.27 Cost of Deposits 0.50 0.54 0.42 0.38 0.27 0.20 0.14 0.12 0.12 Net Interest Margin 2.59 2.52 3.18 3.31 3.38 3.37 3.20 3.05 2.87 Core Efficiency Ratio** 66.3 62.1 60.3 60.1 61.5 63.2 59.0 62.3 65.4 Core ROATCE** 21.1 22.5 24.6 25.6 25.8 24.9 27.6 24.3 22.3 Fee Income Ratio 36.7 35.2 33.9 33.0 33.9 31.2 32.4 32.7 34.2 Fully Diluted Share Count (in millions of common shares) 53.3 53.6 53.5 54.2 55.4 56.0 55.9 55.8 55.6 * Includes income taxes ** See the reconciliation of non-GAAP measures on pages 21-22 18
Appendix Non-Interest Income & Expense Trends (in millions of US Dollars, unless otherwise indicated) 2019 2018 2017 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Non-Interest Income Trust $ 13.0 $ 12.7 $ 13.0 $ 12.6 $ 13.8 $ 13.1 $ 13.2 $ 10.9 $ 11.3 Asset Management 7.8 7.4 6.9 6.7 6.5 6.5 6.2 6.4 6.6 Banking 14.0 12.1 12.1 11.2 12.8 10.6 10.8 10.9 12.0 FX Revenue 9.8 10.0 8.4 8.8 8.6 7.8 8.3 8.2 8.8 Custody & Other Admin. 3.5 3.6 3.1 2.7 2.4 2.2 2.4 2.2 2.2 Other 1.7 0.8 0.9 1.4 1.6 1.0 1.1 1.2 1.4 Total Non-Interest Income $ 49.7 $ 46.6 $ 44.2 $ 43.4 $ 45.7 $ 41.3 $ 41.9 $ 39.8 $ 42.4 Non-Interest Expense Salaries & Benefits* $ 48.8 $ 45.6 $ 52.1 $ 42.8 $ 43.7 $ 43.8 $ 40.9 $ 37.0 $ 42.4 Technology & Comm. 16.5 16.3 15.2 14.6 14.9 15.6 15.1 14.7 14.4 Property 7.0 6.1 5.7 5.4 6.1 5.3 5.3 5.1 4.5 Professional & O/S Services 6.7 9.5 6.2 5.6 6.1 5.1 5.1 9.7 8.0 Indirect Taxes 5.3 5.3 5.3 5.2 4.7 4.8 5.0 4.9 4.7 Intangible Amortization 1.5 1.5 1.2 1.3 1.3 1.4 1.3 1.1 1.1 Marketing 3.1 1.6 1.7 1.7 2.3 1.5 1.4 0.9 1.5 Restructuring — — — — — — — — 0.3 Other 5.0 4.6 4.3 4.3 4.3 4.9 4.1 3.9 3.5 Total Non-Interest Expense $ 93.9 $ 90.4 $ 91.7 $ 80.9 $ 83.5 $ 82.2 $ 78.2 $ 77.4 $ 80.4 Income Taxes (1.9) 0.2 0.2 0.1 0.2 0.4 0.3 0.4 0.5 Total Expense incld. Taxes $ 92.0 $ 90.6 $ 91.9 $ 81.0 $ 83.7 $ 82.6 $ 78.6 $ 77.8 $ 80.8 *Includes non-service employee benefits 19
Appendix Core Non-Interest Expense* Trends (in millions of US Dollars, unless otherwise indicated) 2019 2018 2017 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Salaries & Benefits** $ 46.6 $ 42.8 $ 41.1 $ 42.8 $ 43.7 $ 43.8 $ 40.9 $ 37.0 $ 42.2 Technology & Comm. 16.5 16.3 15.2 14.6 14.8 15.4 14.9 14.6 14.3 Property 7.0 6.1 5.7 5.4 6.1 5.3 5.3 5.1 4.5 Professional & O/S Services 6.5 5.9 5.0 5.0 6.0 6.3 4.7 8.1 6.7 Indirect Taxes 5.3 5.3 5.0 5.2 4.7 4.8 5.0 4.9 4.7 Intangible Amortization 1.5 1.5 1.2 1.3 1.3 1.4 1.3 1.1 1.1 Marketing 3.1 1.6 1.7 1.7 2.3 1.5 1.4 0.9 1.5 Other 5.1 4.6 4.3 4.3 4.3 4.8 4.1 3.9 3.5 Total Core Non-Interest Expense $ 91.6 $ 84.0 $ 79.2 $ 80.3 $ 83.1 $ 83.3 $ 77.6 $ 75.7 $ 78.5 Income Taxes (1.9) 0.2 0.2 0.1 0.2 0.4 0.3 0.4 0.5 Total Core Expense incld. Taxes $ 89.7 $ 84.2 $ 79.4 $ 80.5 $ 83.3 $ 83.7 $ 77.9 $ 76.0 $ 78.9 * See the reconciliation of non-GAAP measures on pages 21-22 ** Includes non-service employee benefits 20
Appendix Non-GAAP Reconciliation (in millions of US Dollars, unless otherwise indicated) 2019 2018 Q4 Q3 Q2 Q1 Q4 Net income A $ 43.9 $ 42.4 $ 38.6 $ 52.1 $ 50.9 Non-core (gains), losses and expenses Non-core (gains) losses Gain on disposal of a pass-through note investment (formerly a SIV) — — — (1.0) — Total non-core (gains) losses B $ — $ — $ — $ (1.0) $ — Non-core expenses Early retirement program, redundancies and other non-core compensation costs 2.2 2.8 11.3 — — Tax compliance review costs — — — — 0.1 Business acquisition costs 0.1 3.6 1.2 0.6 0.1 Total non-core expenses C $ 2.3 $ 6.4 $ 12.5 $ 0.6 $ 0.2 Total non-core (gains), losses and expenses D=B+C 2.3 6.4 12.5 (0.4) 0.2 Core net income to common shareholders E=A+D $ 46.2 $ 48.8 $ 51.1 $ 51.7 $ 51.1 Average shareholders' equity 964.8 948.4 905.7 893.4 862.3 Average common equity F 964.8 948.4 905.7 893.4 862.3 Less: average goodwill and intangible assets (95.3) (87.1) (73.0) (74.9) (75.6) Average tangible common equity G 869.5 861.3 832.7 818.5 786.7 Return on equity A/F 18.0 % 17.8% 17.1% 23.7% 23.4% Core return on average tangible common equity E/G 21.1 % 22.5% 24.6% 25.6% 25.8% Core earnings per common share fully diluted Adjusted weighted average number of diluted common shares (in thousands) H 53.3 53.6 53.5 54.2 55.4 Earnings per common share fully diluted A/H 0.82 0.79 0.72 0.96 0.92 Non-core items per share D/H 0.05 0.12 0.23 (0.01) — Core earnings per common share fully diluted E/H 0.87 0.91 0.95 0.95 0.92 Core return on average tangible assets Total average assets I $ 13,814.7 $ 13,519.2 $ 11,294.3 $ 11,177.1 $ 10,449.2 Less: average goodwill and intangible assets (95.3) (87.1) (73.0) (74.9) (75.6) Average tangible assets J $ 13,719.4 $ 13,432.1 $ 11,221.3 $ 11,102.2 $ 10,373.7 Return on average assets A/I 1.3 % 1.2% 1.4% 1.9% 1.9% Core return on average tangible assets E/J 1.3 % 1.4% 1.8% 1.9% 2.0% 21
Appendix Non-GAAP Reconciliation (cont’d) (in millions of US Dollars, unless otherwise indicated) 2019 2018 Q4 Q3 Q2 Q1 Q4 Tangible equity to tangible assets Shareholders' equity $ 963.7 $ 964.6 $ 928.7 $ 896.2 $ 882.3 Less: goodwill and intangible assets (96.5) (93.4) (72.2) (74.1) (74.7) Tangible common equity L 867.2 871.2 856.5 822.1 807.6 Total assets 13,921.6 14,216.3 11,229.0 11,643.1 10,773.2 Less: goodwill and intangible assets (96.5) (93.4) (72.2) (74.1) (74.7) Tangible assets M $ 13,825.1 $ 14,122.9 $ 11,156.8 $ 11,569.0 $ 10,698.4 Tangible common equity to tangible assets L/M 6.3 % 6.2% 7.7% 7.1% 7.5% Efficiency ratio Non-interest expenses $ 93.9 $ 90.4 $ 91.7 $ 80.9 $ 83.5 Less: Amortization of intangibles (1.5) (1.5) (1.2) (1.3) (1.3) Non-interest expenses before amortization of intangibles N 92.4 88.9 90.5 79.6 82.2 Non-interest income 49.7 46.6 44.2 43.4 45.7 Net interest income before provision for credit losses 86.2 86.3 85.2 88.0 87.4 Net revenue before provision for credit losses and other gains/losses O $ 136.0 $ 133.0 $ 129.4 $ 131.4 $ 133.1 Efficiency ratio N/O 68.0 % 66.9% 70.0% 60.6% 61.7% Core efficiency ratio Non-interest expenses $ 93.9 $ 90.4 $ 91.7 $ 80.9 $ 83.5 Less: non-core expenses (C) (2.3) (6.4) (12.5) (0.6) (0.2) Less: amortization of intangibles (1.5) (1.5) (1.2) (1.3) (1.3) Core non-interest expenses before amortization of intangibles P 90.1 82.5 78.0 79.0 81.9 Net revenue before provision for credit losses and other gains/losses Q 136.0 133.0 129.4 131.4 133.1 Core efficiency ratio P/Q 66.3 % 62.1% 60.3% 60.1% 61.5% 22
Appendix Peer Group Our peer group includes the following banks, noted by their ticker symbols: • FRC • SIVB • EWBC • CFR • ASB • WTFC • CBSH • IBKC • UMBF • FHB • BOH • TRMK • IBOC • CBU • BPFH • FFIN • WABC 23