America’s Cup raised Butterfield’s expenses

America’s Cup raised Butterfield’s expenses
America’s Cup raised Butterfield’s expenses

Butterfield Bank is confident it will return its operating expenses to its target level by the end of the year.

And while it has twice raised its lending rates this year, in line with moves by the US Federal Reserve, it has no declared intention on what it will do if there is a further hike by the Fed.

Regarding expenses, the bank has a 60 per cent efficiency ratio target for the end of 2017. However, between March and the end of June it went off target. Its non-net interest expenses rose to $75.3 million, about $9.5 million higher year-on-year.

Part of the reason for the blip was the impact of the 35th America’s Cup. The bank was an official supplier and official Bermuda bank of the event, and it hosted more than 800 guests and clients during the sailing competition in May and June.

Michael Collins, chief executive officer has previously described the one-time expenditures as yielding “unparalleled opportunities for business development and retention”.

And during a conference call following the release of the bank’s quarterly results last month, he said expenses had been driven by “marketing for the America’s Cup, Sarbanes Oxley, investment in compliance systems and capabilities and the build-out of our Halifax, Nova Scotia Support Centre”.

Mr Collins said that the America’s Cup expenses were non-recurring, while the costs of Sarbanes Oxley, a US Act which relates to management and accounting, and investment in compliance systems had picked up in the second quarter “but should start to level off by the end of 2017”.

He added: “Expenses related to the Halifax build-out will likely continue through the end of the year, before fading in early 2018, and thereafter will start to create operational efficiencies for the group.”

Butterfield is moving some middle-office functions and back-office departments to its service centre in Halifax, Canada.

Mr Collins said: “We continue to be very focused on expenses and expect to show significant progress by the end of the year as projects conclude and we achieve the anticipated savings.”

During the second quarter, the bank’s net interest income increased $3.6 million over the prior quarter.

Michael Schrum, chief financial officer, said: “The increase was due mainly to improving yields on the Bermuda and Cayman mortgage books, as adjustable rates began to reset following the recent Fed rate moves.”

On the question of how the bank might react to future Fed rate hikes, Daniel Frumkin, chief risk officer, noted that Butterfield had passed along the March and June rate rises to its Bermuda mortgage customers.

But he added: “We don’t have any forward-looking view of what we’ll do on the next rate rise.”

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