Financial highlights for the second quarter of 2022:
- Net income of $49.1 million, or $0.99 per share, and core
net income1 of $50.2 million, or $1.01 per share
- Return on average common equity of 24.5% and core return on
average tangible common equity1 of 27.8%
- Net interest margin of 2.26%, cost of deposits of
0.16%
- Board declares dividend for the quarter ended June 30, 2022
of $0.44 per share
The Bank of N.T. Butterfield & Son Limited ("Butterfield" or
the "Bank") (BSX: NTB.BH; NYSE: NTB) today announced financial
results for the second quarter ended June 30, 2022.
Net income for the second quarter of 2022 was $49.1 million or
$0.99 per diluted common share compared to net income of $44.4
million, or $0.89 per diluted common share, for the previous
quarter and $39.6 million, or $0.79 per diluted common share, for
the second quarter of 2021. Core net income1 for the second quarter
of 2022 was $50.2 million, or $1.01 per diluted common share,
compared to $44.7 million, or $0.90 per diluted common share, for
the previous quarter and $40.1 million, or $0.80 per diluted common
share, for the second quarter of 2021.
The core return on average tangible common equity1 for the
second quarter of 2022 was 27.8%, compared to 21.9% for the
previous quarter and 18.7% for the second quarter of 2021. The core
efficiency ratio1 for the second quarter of 2022 was 60.2% compared
with 63.7% in the previous quarter and 66.3% for the second quarter
of 2021.
Michael Collins, Butterfield's Chairman and Chief Executive
Officer, commented, "Butterfield was able to build on our first
quarter momentum with continued strong results in the second
quarter of 2022. Revenue generation was robust, with growth in both
interest and non-interest income. As anticipated, non-core
commercial deposits have moderated due to client investment of cash
and the strong US dollar impact on foreign currency deposits. As
overall deposit levels normalize further, we expect the Bank to
return to an organic deposit growth rate of low single digit
percentages annually. Our net interest margin increased 23 basis
points and should continue to improve in the rising rate
environment.
“I am also pleased to share that Butterfield has recently joined
the United Nations Global Compact ("UNGC") – the world’s largest
corporate sustainability initiative. Participating in the UNGC
reinforces our commitment to ethical and responsible business
practices and gives us an organizing framework as we continue to
develop our environmental and social responsibility programs, aimed
at creating shared value for the communities in which we
operate.”
(1)
See table "Reconciliation of US GAAP
Results to Core Earnings" below for reconciliation of US GAAP
results to non-GAAP measures.
Net interest income (“NII”) for the second quarter of 2022 was
$82.0 million, an increase of $6.1 million, compared with NII of
$75.9 million in the previous quarter and up $7.3 million from
$74.7 million in the second quarter of 2021. NII was higher during
the second quarter of 2022 compared to the prior quarter primarily
due to higher yields on treasury securities, loans and investments,
which was slightly moderated by higher deposit costs, particularly
in the Channel Islands. Compared to the second quarter of 2021, NII
was higher due to increased asset yields, which were partially
offset by lower average interest earnings asset volume.
Net interest margin (“NIM”) for the second quarter of 2022 was
2.26%, an increase of 23 basis points from 2.03% in the previous
quarter and up 25 basis points from 2.01% in the second quarter of
2021. NIM in the second quarter of 2022 was higher than the prior
quarter and second quarter of 2021 primarily due to improved market
interest rates and a favorable mix of deployment into higher
yielding assets.
Non-interest income for the second quarter of 2022 of $51.8
million was $1.9 million higher than the $49.9 million earned in
the previous quarter and $3.0 million higher than $48.8 million in
the second quarter of 2021. Non-interest income during the second
quarter of 2022 increased compared to the prior quarter primarily
due to increased Trust revenue from the onboarding of new clients
and activity-based revenues, and other non-interest income,
consisting of the scheduled recognition of unclaimed assets.
Non-interest income was up in the second quarter of 2022 compared
to the second quarter of 2021 due to the increased unclaimed assets
and increased foreign exchange commissions.
There was a provision for credit losses of $0.7 million for the
second quarter of 2022, compared to a net credit recovery in the
previous quarter of $0.7 million and a net credit recovery of $1.0
million during the second quarter of 2021. The increase in the
provision for credit losses was driven by loan originations and
less favorable macroeconomic forecasts.
Non-interest expenses were $83.0 million in the second quarter
of 2022, compared to $82.0 million in the previous quarter and
$84.8 million in the second quarter of 2021. Core non-interest
expenses1 increased to $81.9 million in the second quarter of 2022,
compared to $81.6 million the previous quarter and lower than the
$83.4 million incurred in the second quarter of 2021. Core
non-interest expenses1 were relatively consistent in the second
quarter of 2022 versus the previous quarter. Compared to the second
quarter of 2021, non-interest expenses were lower due to a one-time
program in the prior period that allowed employees to receive
payment for unused vacation time during the pandemic, which was not
repeated in the current quarter.
Period end deposit balances were lower at $13.1 billion,
compared to December 31, 2021 at $13.9 billion due to the
anticipated normalization of pandemic-related elevated deposit
levels, as well as the impact of foreign exchange translation from
non-US dollar deposits following the strengthening of the US
dollar. 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 August 22, 2022 to shareholders of record on August
8, 2022.
The current total regulatory capital ratio as at June 30, 2022
was 21.4% 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.
ANALYSIS AND DISCUSSION OF SECOND QUARTER RESULTS
Income statement
Three months ended
(Unaudited)
(in $ millions)
June 30, 2022
March 31, 2022
June 30, 2021
Non-interest income
51.8
49.9
48.8
Net interest income before provision for
credit losses
82.0
75.9
74.7
Total net revenue before provision for
credit losses and other gains (losses)
133.8
125.8
123.5
Provision for credit recoveries
(losses)
(0.7
)
0.7
1.0
Total other gains (losses)
0.1
0.8
0.7
Total net revenue
133.2
127.3
125.2
Non-interest expenses
(83.0
)
(82.0
)
(84.8
)
Total net income before taxes
50.2
45.3
40.4
Income tax benefit (expense)
(1.1
)
(1.0
)
(0.8
)
Net income
49.1
44.4
39.6
Net earnings per share
Basic
0.99
0.90
0.80
Diluted
0.99
0.89
0.79
Per diluted share impact of other non-core
items 1
0.02
0.01
0.01
Core earnings per share on a fully
diluted basis 1
1.01
0.90
0.80
Adjusted weighted average number of
participating shares on a fully diluted basis (in thousands of
shares)
49,772
49,829
49,946
Key financial ratios
Return on common equity
24.5
%
19.7
%
16.7
%
Core return on average tangible common
equity 1
27.8
%
21.9
%
18.7
%
Return on average assets
1.3
%
1.2
%
1.0
%
Net interest margin
2.26
%
2.03
%
2.01
%
Core efficiency ratio 1
60.2
%
63.7
%
66.3
%
(1)
See table "Reconciliation of US GAAP
Results to Core Earnings" below for reconciliation of US GAAP
results to non-GAAP measures.
Balance Sheet
As at
(in $ millions)
June 30, 2022
December 31, 2021
Cash due from banks
1,340
2,180
Securities purchased under agreements to
resell
265
96
Short-term investments
1,252
1,199
Investments in securities
5,970
6,237
Loans, net of allowance for credit
losses
5,139
5,241
Premises, equipment and computer software,
net of accumulated depreciation
142
139
Goodwill and intangibles, net
77
86
Accrued interest and other assets
167
158
Total assets
14,350
15,335
Total deposits
13,075
13,870
Accrued interest and other liabilities
300
316
Long-term debt
172
172
Total liabilities
13,547
14,358
Common shareholders’ equity
802
977
Total shareholders' equity
802
977
Total liabilities and shareholders'
equity
14,350
15,335
Key Balance Sheet Ratios:
June 30, 2022
December 31, 2021
Common equity tier 1 capital ratio1
17.7
%
17.6
%
Tier 1 capital ratio1
17.7
%
17.6
%
Total capital ratio1
21.4
%
21.2
%
Leverage ratio1
5.8
%
5.6
%
Risk-Weighted Assets (in $ millions)
4,854
5,101
Risk-Weighted Assets / total assets
33.8
%
33.3
%
Tangible common equity ratio
5.1
%
5.8
%
Book value per common share (in $)
16.17
19.83
Tangible book value per share (in $)
14.61
18.08
Non-accrual loans/gross loans
1.2
%
1.2
%
Non-performing assets/total assets
0.5
%
0.5
%
Allowance for credit losses/total
loans
0.5
%
0.5
%
(1)
In accordance with regulatory capital
guidance, the Bank has elected to make use of transitional
arrangements which allow the deferral of the January 1, 2020
Current Expected Credit Loss ("CECL") impact of $7.8 million on its
regulatory capital over a period of 5 years.
QUARTER ENDED JUNE 30, 2022 COMPARED WITH THE QUARTER ENDED
MARCH 31, 2022
Net Income
Net income for the quarter ended June 30, 2022 was $49.1
million, up $4.8 million from $44.4 million in the prior
quarter.
The $4.8 million increase in net income in the quarter ended
June 30, 2022 compared to the previous quarter was due principally
to the following:
- $6.1 million increase in net interest income before provision
for credit losses, driven by the impact of higher market interest
rates across the yield curve, which was partially offset by higher
deposit costs, predominantly in the Channel Islands;
- $1.9 million increase in non-interest income due to an increase
in long-held unclaimed customer check and draft balances being
recognized in revenue;
- $1.4 million increase in provision for credit losses driven by
the extension of a large, long-term government facility in the
Cayman Islands as well as a lower incremental improvement in
macroeconomic forecasts impacting future expected credit loss
estimates; and
- $1.3 million increase in salaries and other employee benefits
primarily due to costs associated with the departure of a senior
executive and recorded as a non-core item.
Non-Core Items1
Non-core items resulted in a net expense of $1.1 million in the
second quarter of 2022. Non-core items for the quarter mainly
relate to the costs associated with the departure of a senior
executive.
Management does not believe that comparative period 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.
BALANCE SHEET COMMENTARY AT JUNE 30, 2022 COMPARED WITH
DECEMBER 31, 2021
Total Assets
Total assets of the Bank were $14.3 billion at June 30, 2022, a
decrease of $1.0 billion from December 31, 2021. The Bank
maintained a highly liquid position at June 30, 2022, with its $8.8
billion of cash and demand deposits with banks, reverse repurchase
agreements and liquid investments representing 61.5% of total
assets, compared with 63.3% at December 31, 2021.
Loans Receivable
The loan portfolio totaled $5.1 billion at June 30, 2022, which
was $0.1 billion lower than December 31, 2021 balances. The
decrease was driven by the Channel Islands and UK segment as a
result of facility repayments and a decrease in the GBP/USD foreign
exchange rate and partially offset by the extension of a government
facility in the Cayman Islands.
Allowance for credit losses at June 30, 2022 totaled $25.0
million, a decrease of $3.1 million from $28.1 million at December
31, 2021. The movement was driven by a decrease in non-accrual
loans, net paydowns in the portfolio and the positive economic
forecasts and partially offset by the extension of a large,
long-term government facility in the Cayman Islands.
The loan portfolio represented 35.8% of total assets at June 30,
2022 (December 31, 2021: 34.2%), while loans as a percentage of
total deposits increased to 39.3% at June 30, 2022 from 37.8% at
December 31, 2021. The increase in both ratios were attributable
principally to a decrease in deposit balances at June 30, 2022
driven by the expected withdrawal of some pandemic-related deposits
as well as the impact of the strengthening US dollar on non-US
dollar denominated balances.
As of June 30, 2022, the Bank had gross non-accrual loans of
$62.2 million, representing 1.2% of total gross loans, an increase
of $1.2 million from $61.0 million, or 1.2% of total loans, at
December 31, 2021. The increase in non-accrual loans was driven by
a few residential mortgages in the Channel Islands and UK segment
moving into non-accrual and partially offset by a number of Bermuda
residential mortgages improving to current status.
Other real estate owned (“OREO”) increased by $0.1 million from
December 31, 2021 to $0.7 million due to the foreclosure of a loan
in the Channel Islands and UK segment and which was partially
offset by the sale of a property in Bermuda.
Investment in Securities
The investment portfolio was $6.0 billion at June 30, 2022, down
$0.3 billion from $6.2 billion at December 31, 2021. The movement
was driven by the increase in total net unrealized losses on the
available-for-sale portfolio that is carried at fair value.
The investment portfolio is made up of high quality assets with
100% invested in A-or-better-rated securities. The investment book
yield increased to 1.89% during the quarter ended June 30, 2022
from 1.79% during the previous quarter. Total net unrealized losses
on the available-for-sale portfolio increased to $152.0 million,
compared with total net unrealized losses of $21.8 million at
December 31, 2021, as a result of rising long-term US dollar
interest rates. No credit losses have been noted as at June 30,
2022.
Deposits
Average deposits were $13.6 billion for the quarter ended June
30, 2022, a decrease of $0.5 billion compared to the previous
quarter, while period end balances as at June 30, 2022 were $13.1
billion, a decrease of $0.8 billion compared to December 31,
2021.
Average Balance Sheet2
For the three months ended
June 30, 2022
March 31, 2022
June 30, 2021
(in $ millions)
Average balance ($)
Interest ($)
Average rate (%)
Average balance ($)
Interest ($)
Average rate (%)
Average balance ($)
Interest ($)
Average rate (%)
Assets
Cash due from banks and short-term
investments
3,364.5
4.2
0.50
3,809.2
1.0
0.11
4,181.6
0.2
0.02
Investment in securities
6,143.9
29.0
1.89
6,226.5
27.4
1.79
5,514.7
25.0
1.82
Available-for-sale
2,759.9
9.6
1.40
3,352.8
11.9
1.44
2,996.4
12.2
1.63
Held-to-maturity
3,384.0
19.3
2.29
2,873.6
15.6
2.20
2,518.4
12.8
2.04
Loans
5,066.9
56.5
4.48
5,144.3
54.1
4.26
5,205.1
55.5
4.28
Commercial
1,455.3
17.3
4.76
1,454.2
16.3
4.56
1,610.7
18.2
4.54
Consumer
3,611.6
39.3
4.36
3,690.1
37.7
4.14
3,594.4
37.2
4.16
Interest earning assets
14,575.4
89.7
2.47
15,180.0
82.5
2.20
14,901.4
80.7
2.17
Other assets
359.1
367.2
362.1
Total assets
14,934.5
15,547.1
15,263.5
Liabilities
Deposits
10,590.3
(5.4
)
(0.20
)
11,070.5
(4.3
)
(0.16
)
10,925.6
(3.6
)
(0.13
)
Long-term debt
172.0
(2.4
)
(5.60
)
171.9
(2.4
)
(5.66
)
171.6
(2.4
)
(5.61
)
Interest bearing liabilities
10,762.3
(7.8
)
(0.29
)
11,242.4
(6.7
)
(0.24
)
11,097.2
(6.0
)
(0.22
)
Non-interest bearing current accounts
2,997.8
3,024.3
2,853.1
Other liabilities
300.8
323.3
326.1
Total liabilities
14,061.0
14,589.9
14,276.4
Shareholders’ equity
873.6
957.2
987.1
Total liabilities and shareholders’
equity
14,934.5
15,547.1
15,263.6
Non-interest-bearing funds net of
non-interest earning assets
(free balance)
3,813.1
3,937.6
3,804.3
Net interest margin
82.0
2.26
75.9
2.03
74.7
2.01
(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 $101.7 billion and $32.8 billion, respectively, at
June 30, 2022, while assets under management were $5.0 billion at
June 30, 2022. This compares with $106.4 billion, $36.8 billion and
$5.5 billion, respectively, at December 31, 2021.
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
(in $ millions except per share
amounts)
June 30, 2022
March 31, 2022
June 30, 2021
Net income
49.1
44.4
39.6
Non-core items
Non-core (gains) losses
Gain on disposal of Visa Inc. Class B
shares
—
—
(0.9
)
Total non-core (gains) losses
—
—
(0.9
)
Non-core expenses
Early retirement program, voluntary
separation, redundancies and other non-core compensation costs
1.0
—
1.4
Tax compliance review costs
—
0.1
—
Settlement of client related tax
inquiry
—
0.2
—
Total non-core expenses
1.1
0.3
1.4
Total non-core items
1.1
0.3
0.5
Core net income
50.2
44.7
40.1
Average common equity
804.6
912.8
950.6
Less: average goodwill and intangible
assets
(80.0
)
(84.7
)
(91.4
)
Average tangible common equity
724.6
828.1
859.2
Core earnings per share fully
diluted
1.01
0.90
0.80
Return on common equity
24.5
%
19.7
%
16.7
%
Core return on average tangible common
equity
27.8
%
21.9
%
18.7
%
Shareholders' equity
802.4
841.8
966.6
Less: goodwill and intangible assets
(77.5
)
(82.9
)
(90.2
)
Tangible common equity
725.0
758.9
876.4
Basic participating shares outstanding (in
millions)
49.6
49.6
49.6
Tangible book value per common
share
14.61
15.30
17.67
Non-interest expenses
83.0
82.0
84.8
Less: non-core expenses
(1.1
)
(0.3
)
(1.4
)
Less: amortization of intangibles
(1.4
)
(1.5
)
(1.5
)
Core non-interest expenses before
amortization of intangibles
80.5
80.1
81.9
Core revenue before other gains and losses
and provision for credit losses
133.8
125.8
123.5
Core efficiency ratio
60.2
%
63.7
%
66.3
%
Conference Call Information:
Butterfield will host a conference call to discuss the Bank’s
results on Tuesday, July 26, 2022 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. Forward-looking
statements include statements with respect to our beliefs, plans,
objectives, goals, expectations, anticipations, assumptions
estimates, intentions, and future performance, including, without
limitation, our dividend payout target, 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 Butterfield 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, inflation, a decline in Bermuda's
sovereign credit rating, the successful completion and integration
of acquisitions 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, the impact of the
COVID-19 pandemic, the scope and duration of the pandemic, actions
taken by governmental authorities in response to the pandemic, the
eventual timing and duration of economic stabilization and recovery
from the pandemic and other factors. Forward-looking statements can
be identified by words such as "anticipate," "assume," "believe,"
"estimate," "expect," "indicate," "intend," "may," "plan," "point
to," "predict," "project," "seek," "target," "potential," "will,"
"would," "could," "should," "continue," "contemplate" and other
similar expressions, although not all forward-looking statements
contain these identifying words. All statements other than
statements of historical fact are statements that could be
forward-looking statements.
All forward-looking statements in this disclosure are expressly
qualified in their entirety by this cautionary notice, including,
without limitation, those risks and uncertainties described in our
SEC reports and filings, including under the caption "Risk Factors"
in our most recent Form 20-F. Such reports are available upon
request from Butterfield, or from the Securities and Exchange
Commission ("SEC"), including through the SEC’s website at
https://www.sec.gov. Any forward-looking statements made by
Butterfield are current views as at the date they are made. Except
as 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 in this disclosure, whether as
a result of new information, future events or other developments.
You are cautioned not to place undue reliance on the
forward-looking statements made by Butterfield in this disclosure.
Comparisons of results for current and any prior periods are not
intended to express any future trends or indications of future
performance, and should only be viewed as historical data.
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.
BF-All
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Investor Relations Contact: Noah Fields Investor
Relations The Bank of N.T. Butterfield & Son Limited Phone:
(441) 299 3816 E-mail: noah.fields@butterfieldgroup.com Media
Relations Contact: Nicky Stevens Group Strategic Marketing
& Communications The Bank of N.T. Butterfield & Son Limited
Phone: (441) 299 1624 Cellular: (441) 524 4106 E-mail:
nicky.stevens@butterfieldgroup.com
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