Butterfield Bank has reported a third-quarter profit of $80.5 million in results bolstered by the sale of its fund services businesses, which resulted in a $115.5 million extraordinary gain.

The bank said the third quarter of 2008 was its highest on record — up 102.9 percent over last year.

But it was not all good news, with Butterfield incurring a $6.9 million unrealised loss through a credit support agreement with its Money Market Fund and a $7.6 million write-down on one holding in the held-to-maturity investment portfolio relating to a senior security issued by the failed Washington Mutual Bank, as well as a $29.2 million technology write-down.

President and CEO Alan Thompson said overall performance had been satisfactory. "Against a backdrop of continued uncertainty in world markets all of our businesses are performing satisfactorily and our community banking and wealth management businesses have shown resiliency," he said. "Although we have not been immune to the market turmoil, the geographic and business line diversity of our franchise continues to provide some protection from the deterioration of economic conditions in certain markets.

"Our investment portfolio currently totals some $4.9 billion, of which $1.8 billion constitutes holdings of high quality certificates of bank deposits. Our other investments are principally of held-to-maturity senior securities, which are well diversified by location, industry sector and maturity. Holdings of US residential mortgage market backed securities represent only three percent of our total Group assets and, as at 30 September, all such securities are current as to principal and interest.

"We perform regular stress testing to determine that there is no permanent impairment of holdings in the Group's held-to-maturity portfolio. We have not engaged in any credit default swap transactions."

The Group's balance sheet remains highly liquid with a loan to customer deposits ratio of 44 percent and a loans to total assets ratio of 37.9 percent.

"I am pleased to report that Butterfield continues to have a highly liquid balance sheet and a strong capital base with Tier 1 and Total capital ratios at 9.2 percent and 13.6 percent respectively," said executive vice-president and chief financial officer Richard Ferrett. "Shareholders' equity increased year on year by 13.6 percent to $665.9 million.

"We have a coverage ratio of loans by customer deposits of 2.28 times and have seen a $300 million increase in customer deposits in our Bermuda operations over the last quarter. As a result, Group liquidity remains strong and surplus liquidity is placed on a very short-term basis with high quality financial institutions.

"We have an active credit risk review and monitoring function and the quality of the loan portfolio remains strong. Our investment grade ratings were reconfirmed by both Moody's and Standard & Poor's in August 2008, which we believe reflects our solid financial fundamentals, asset quality, healthy liquidity and capital ratios."

But assets under administration across the Group declined year on year by 59.6 percent — $80.3 billion — to $54.4 billion "reflecting the sale of the Fund Services businesses", the Bank noted. The merger of the Fund Services businesses with the Fulcrum Group to form Butterfield Fulcrum Group was announced last month. Butterfield Bank received $131.7 million in cash proceeds on the transaction and a 40 percent ownership interest.

Assets under investment management have fallen to $9.9 billion from $11.3 billion a year ago and the Bank said unrealised losses on trading securities, which primarily comprise seed money invested in equity related Butterfield mutual funds, were $3.2 million, compared to an unrealised gain of $0.6 million in 2007.

Butterfield's loan portfolio was up year on year by 10.4 percent, however, to $4.4 billion reflecting increased loan demand across the Group, in particular in Bahamas, Barbados and Bermuda. The loan portfolio now represents 37.9 percent of total assets, compared to 33 percent a year ago, the Bank said. Non-performing loans totalled $35.2 million at 30 September 2008, representing 0.8 percent of total loans, compared to 0.9 percent last year. Loan provisions totalled $27.6 million, up from $25.5 million the previous year.

Butterfield Group employs 1,925 people in its operations in nine countries, up from 1,792 in 2007. It has 893 staff in Bermuda., The bank noted that increase translated to a $14 million increase in salaries and benefits year on year to accommodate growth.

"The Board has decided to maintain the quarterly dividend at 16 cents per share payable on Thursday, November 20 to shareholders of record on Wednesday November 5, 2008," the Bank said yesterday.