Financial highlights for the third quarter of 2022:
- Net income of $57.4 million, or $1.15 per share, and core
net income1 of $57.6 million, or $1.16 per share
- Return on average common equity of 28.5% and core return on
average tangible common equity1 of 31.6%
- Net interest margin of 2.59%, cost of deposits of
0.34%
- Board declares dividend for the quarter ended September 30,
2022 of $0.44 per share
- Announced acquisition of Credit Suisse Trust business in
Singapore, Guernsey and the Bahamas
The Bank of N.T. Butterfield & Son Limited ("Butterfield" or
the "Bank") (BSX: NTB.BH; NYSE: NTB) today announced financial
results for the quarter ended September 30, 2022.
Net income for the third quarter of 2022 was $57.4 million, or
$1.15 per diluted common share, compared to net income of $49.1
million, or $0.99 per diluted common share, for the previous
quarter and $39.8 million, or $0.80 per diluted common share, for
the third quarter of 2021. Core net income1 for the third quarter
of 2022 was $57.6 million, or $1.16 per diluted common share,
compared to $50.2 million, or $1.01 per diluted common share, for
the previous quarter and $40.0 million, or $0.80 per diluted common
share, for the third quarter of 2021.
The core return on average tangible common equity1 for the third
quarter of 2022 was 31.6%, compared to 27.8% for the previous
quarter and 17.9% for the third quarter of 2021. The core
efficiency ratio1 for the third quarter of 2022 was 57.0% compared
with 60.2% in the previous quarter and 66.3% for the third quarter
of 2021.
Michael Collins, Butterfield's Chairman and Chief Executive
Officer, commented, "The Bank posted solid results for the third
quarter of 2022, as we continued to demonstrate resilient
non-interest income in our chosen operating jurisdictions, while
remaining well positioned for the rising interest rate environment.
Butterfield remains asset sensitive, which we expect will continue
to benefit the Bank during this period of rising market interest
rates.
"We regularly monitor and review credit quality in our loan book
and, at this point in the cycle, we have not seen any significant
signs of credit stress. A number of mortgage customers have moved
their facilities from floating rate to fixed rate over the past six
months, protecting their cash flow and improving the credit quality
of our loan portfolio. As anticipated, we saw deposit levels
decrease due to clients investing their funds and the strengthening
of the US dollar.
"During the quarter, we announced the acquisition of the Credit
Suisse trust business in Singapore, Guernsey and the Bahamas. This
strategic transaction will position Butterfield as one of the
largest private client trust companies in Singapore. Importantly,
this acquisition allows Butterfield to review and selectively
acquire each individual trust client in accordance with our risk
appetite, without the requirement to purchase legal entities. We
look forward to welcoming our new clients and staff as we integrate
the business during the first half of next year.”
Net income increased in the third quarter of 2022 versus the
prior quarter principally due to a higher interest rate environment
and lower non-interest expenses, offset by lower non-interest
income and a provision for future expected credit losses due to
decreasing macroeconomic forecasts and net new loan
originations.
Net interest income (“NII”) for the third quarter of 2022 was
$91.2 million, an increase of $9.2 million, compared with NII of
$82.0 million in the previous quarter and up $15.5 million from
$75.7 million in the third quarter of 2021. NII continued to
increase during the third quarter of 2022 compared to the prior
quarter, primarily due to higher margins on interest earning
assets, which were partially offset by higher deposit costs,
particularly in the more competitive Channel Islands markets.
Compared to the third quarter of 2021, NII has increased due to
higher yields on assets, which were moderated by lower interest
earning asset volumes during the third quarter of 2022.
Net interest margin (“NIM”) for the third quarter of 2022 was
2.59%, an increase of 33 basis points from 2.26% in the previous
quarter and up 62 basis points from 1.97% in the third quarter of
2021. NIM in the third quarter of 2022 was higher than the prior
quarter and third quarter of 2021 primarily due to increased market
interest rates and a higher yielding asset mix.
Non-interest income for the third quarter of 2022 of $49.9
million was $1.9 million lower than the $51.8 million earned in the
previous quarter and $0.9 million higher than $49.0 million in the
third quarter of 2021. Non-interest income during the third quarter
of 2022 decreased compared to the prior quarter primarily due to
lower other non-interest income, which included the scheduled
recognition of unclaimed assets in the second quarter of 2022, as
well as lower revenues from trust, due to a decrease in activity
based project fees. Non-interest income was elevated in the third
quarter of 2022 compared to the third quarter of 2021 due to higher
banking fees as some corporate clients amended lending agreements,
which resulted in fee assessments.
Non-interest expenses were $82.0 million in the third quarter of
2022, compared to $83.0 million in the previous quarter and $84.4
million in the third quarter of 2021. Core non-interest expenses1
of $81.8 million in the third quarter of 2022 were relatively
consistent with the $81.9 million incurred in the previous quarter
and lower than the $84.2 million incurred in the third quarter of
2021. Compared to the third quarter of 2021, non-interest expenses
were lower due to decreased technology and communications costs
resulting from the third quarter of 2021 including depreciation of
legacy banking system which became fully depreciated in the fourth
quarter of 2021.
Period end deposit balances were lower at $12.5 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 of
non-US dollar deposits following the strengthening of the US
dollar. Customer withdrawals represent 57% of the decrease in
deposits whilst the strengthening of US dollar's impact on non-US
dollar balances represents 43% of the change.
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 November 28, 2022 to shareholders of record on
November 14, 2022.
The current total regulatory capital ratio as at September 30,
2022 was 22.7% 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.
(1)
See table "Reconciliation of US GAAP
Results to Core Earnings" below for reconciliation of US GAAP
results to non-GAAP measures.
ANALYSIS AND DISCUSSION OF THIRD QUARTER RESULTS
Income statement
Three months ended
(Unaudited)
(in $ millions)
September 30, 2022
June 30, 2022
September 30, 2021
Non-interest income
49.9
51.8
49.0
Net interest income before provision for
credit losses
91.2
82.0
75.7
Total net revenue before provision for
credit losses and other gains (losses)
141.1
133.8
124.7
Provision for credit recoveries
(losses)
(0.8
)
(0.7
)
—
Total other gains (losses)
0.1
0.1
0.3
Total net revenue
140.4
133.2
125.0
Non-interest expenses
(82.0
)
(83.0
)
(84.4
)
Total net income before taxes
58.4
50.2
40.6
Income tax benefit (expense)
(0.9
)
(1.1
)
(0.8
)
Net income
57.4
49.1
39.8
Net earnings per share
Basic
1.16
0.99
0.80
Diluted
1.15
0.99
0.80
Per diluted share impact of other non-core
items 1
0.01
0.02
—
Core earnings per share on a fully
diluted basis 1
1.16
1.01
0.80
Adjusted weighted average number of
participating shares on a fully diluted basis (in thousands of
shares)
49,847
49,772
49,883
Key financial ratios
Return on common equity
28.5
%
24.5
%
16.2
%
Core return on average tangible common
equity 1
31.6
%
27.8
%
17.9
%
Return on average assets
1.6
%
1.3
%
1.0
%
Net interest margin
2.59
%
2.26
%
1.97
%
Core efficiency ratio 1
57.0
%
60.2
%
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)
September 30, 2022
December 31, 2021
Cash due from banks
1,485
2,180
Securities purchased under agreements to
resell
349
96
Short-term investments
646
1,199
Investments in securities
5,805
6,237
Loans, net of allowance for credit
losses
4,992
5,241
Premises, equipment and computer software,
net of accumulated depreciation
144
139
Goodwill and intangibles, net
72
86
Accrued interest and other assets
206
158
Total assets
13,699
15,335
Total deposits
12,461
13,870
Accrued interest and other liabilities
311
316
Long-term debt
172
172
Total liabilities
12,944
14,358
Common shareholders’ equity
755
977
Total shareholders' equity
755
977
Total liabilities and shareholders'
equity
13,699
15,335
Key Balance Sheet Ratios:
September 30, 2022
December 31, 2021
Common equity tier 1 capital ratio1
18.9
%
17.6
%
Tier 1 capital ratio1
18.9
%
17.6
%
Total capital ratio1
22.7
%
21.2
%
Leverage ratio1
6.4
%
5.6
%
Risk-Weighted Assets (in $ millions)
4,780
5,101
Risk-Weighted Assets / total assets
34.9
%
33.3
%
Tangible common equity ratio
5.0
%
5.8
%
Book value per common share (in $)
15.21
19.83
Tangible book value per share (in $)
13.76
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 SEPTEMBER 30, 2022 COMPARED WITH THE QUARTER
ENDED JUNE 30, 2022
Net Income
Net income for the quarter ended September 30, 2022 was $57.4
million, up $8.3 million from $49.1 million in the prior
quarter.
The $8.3 million increase in net income in the quarter ended
September 30, 2022 compared to the previous quarter was due
principally to the following:
- $9.2 million increase in net interest income before provision
for credit losses, driven by the continued impact of higher market
interest rates across the yield curve, which was partially offset
by higher deposit costs, predominantly in the Channel Islands;
and
- $1.9 million decrease in non-interest income due to the
recognition of long-held unclaimed customer check and draft
balances being recognized in revenue in Q2 2022 which did not
re-occur.
Non-Core Items1
Non-core items resulted in a net expense of $0.2 million in the
third quarter of 2022. Non-core items for the quarter mainly relate
to the costs associated with the settlement of a non-US corporate
income tax inquiry in connection with the commercial affairs of a
legacy custody client.
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 SEPTEMBER 30, 2022 COMPARED WITH
DECEMBER 31, 2021
Total Assets
Total assets of the Bank were $13.7 billion at September 30,
2022, a decrease of $1.6 billion from December 31, 2021. The Bank
maintained a highly liquid position at September 30, 2022, with its
$8.3 billion of cash and demand deposits with banks, reverse
repurchase agreements and liquid investments representing 60.5% of
total assets, compared with 63.3% at December 31, 2021.
Loans Receivable
The loan portfolio totaled $5.0 billion at September 30, 2022,
which was $0.2 billion lower than December 31, 2021 balances. The
decrease was driven by the Channel Islands and UK segment as a
result of 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 September 30, 2022 totaled $25.1
million, a decrease of $3.0 million from $28.1 million at December
31, 2021. The movement was driven by a decrease in non-accrual
loans, net paydowns, slightly weaker economic forecasts and foreign
exchange movements in the portfolio. This was partially offset by
the extension of a large, long-term government facility in the
Cayman Islands.
The loan portfolio represented 36.4% of total assets at
September 30, 2022 (December 31, 2021: 34.2%), while loans as a
percentage of total deposits increased to 40.1% at September 30,
2022 from 37.8% at December 31, 2021. The increase in both ratios
were attributable principally to a decrease in deposit balances at
September 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 September 30, 2022, the Bank had gross non-accrual loans
of $60.9 million, representing 1.2% of total gross loans, a
decrease of $0.1 million from $61.0 million, or 1.2% of total
loans, at December 31, 2021. The decrease in non-accrual loans was
driven by a number of Bermuda residential mortgages improving to
current status and partially offset by a few residential mortgages
in the Channel Islands and UK segment moving into non-accrual.
Other real estate owned (“OREO”) increased by $0.4 million from
December 31, 2021 to $1.1 million due to the foreclosure of two
loans in the Bermuda and Channel Islands and UK segments and which
was partially offset by the sale of a property in Bermuda.
Investment in Securities
The investment portfolio was $5.8 billion at September 30, 2022,
down $0.4 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 1.94% during the quarter ended September 30,
2022 from 1.89% during the previous quarter. Total net unrealized
losses on the available-for-sale portfolio increased to $240.1
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 September
30, 2022.
Deposits
Average deposits were $13.0 billion for the quarter ended
September 30, 2022, a decrease of $0.6 billion compared to the
previous quarter, while period end balances as at September 30,
2022 were $12.5 billion, a decrease of $1.4 billion compared to
December 31, 2021.
Average Balance Sheet2
For the three months ended
September 30, 2022
June 30, 2022
September 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
2,818.4
10.0
1.40
3,364.5
4.2
0.50
4,210.8
0.4
0.03
Investment in securities
6,007.3
29.4
1.94
6,143.9
29.0
1.89
5,785.6
25.8
1.77
Available-for-sale
2,140.1
8.5
1.58
2,759.9
9.6
1.40
3,061.0
12.1
1.57
Held-to-maturity
3,867.3
20.9
2.14
3,384.0
19.3
2.29
2,724.6
13.7
2.00
Loans
5,123.1
65.3
5.05
5,066.9
56.5
4.48
5,247.2
55.8
4.22
Commercial
1,523.3
20.8
5.41
1,455.3
17.3
4.76
1,599.5
18.1
4.50
Consumer
3,599.8
44.5
4.90
3,611.6
39.3
4.36
3,647.7
37.7
4.10
Interest earning assets
13,948.9
104.6
2.98
14,575.4
89.7
2.47
15,243.6
82.0
2.13
Other assets
369.1
359.1
374.8
Total assets
14,317.9
14,934.5
15,618.4
Liabilities
Deposits
9,939.5
(11.1
)
(0.44
)
10,590.3
(5.4
)
(0.20
)
11,198.4
(3.9
)
(0.14
)
Long-term debt
172.1
(2.4
)
(5.53
)
172.0
(2.4
)
(5.60
)
171.7
(2.4
)
(5.55
)
Interest bearing liabilities
10,111.7
(13.5
)
(0.53
)
10,762.3
(7.8
)
(0.29
)
11,370.1
(6.3
)
(0.22
)
Non-interest bearing current accounts
3,074.6
2,997.8
2,959.0
Other liabilities
256.2
300.8
282.3
Total liabilities
13,442.4
14,061.0
14,611.4
Shareholders’ equity
875.5
873.6
1,007.0
Total liabilities and shareholders’
equity
14,317.9
14,934.5
15,618.4
Non-interest bearing funds net of
non-interest earning assets
(free balance)
3,837.2
3,813.1
3,873.5
Net interest margin
91.2
2.59
82.0
2.26
75.7
1.97
(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 $104.4 billion and $30.5 billion, respectively, at
September 30, 2022, while assets under management were $4.8 billion
at September 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)
September 30, 2022
June 30, 2022
September 30, 2021
Net income
57.4
49.1
39.8
Non-core items
Non-core expenses
Early retirement program, voluntary
separation, redundancies and other non-core compensation costs
—
1.0
—
Tax compliance review costs
0.2
—
0.1
Settlement of client related tax
inquiry
—
—
0.1
Total non-core expenses
0.2
1.1
0.2
Total non-core items
0.2
1.1
0.2
Core net income
57.6
50.2
40.0
Average common equity
799.0
804.6
975.4
Less: average goodwill and intangible
assets
(75.1
)
(80.0
)
(89.1
)
Average tangible common equity
723.9
724.6
886.2
Core earnings per share fully
diluted
1.16
1.01
0.80
Return on common equity
28.5
%
24.5
%
16.2
%
Core return on average tangible common
equity
31.6
%
27.8
%
17.9
%
Shareholders' equity
754.9
802.4
973.9
Less: goodwill and intangible assets
(71.9
)
(77.5
)
(87.3
)
Tangible common equity
683.0
725.0
886.6
Basic participating shares outstanding (in
millions)
49.6
49.6
49.5
Tangible book value per common
share
13.76
14.61
17.92
Non-interest expenses
82.0
83.0
84.4
Less: non-core expenses
(0.2
)
(1.1
)
(0.2
)
Less: amortization of intangibles
(1.4
)
(1.4
)
(1.5
)
Core non-interest expenses before
amortization of intangibles
80.4
80.5
82.7
Core revenue before other gains and losses
and provision for credit losses
141.1
133.8
124.7
Core efficiency ratio
57.0
%
60.2
%
66.3
%
Conference Call Information:
Butterfield will host a conference call to discuss the Bank’s
results on Tuesday, November 1, 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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