Financial highlights for the second quarter of 2023:
- Net income of $61.0 million, or $1.22 per share, and core
net income1 of $57.0 million, or $1.14 per share
- Return on average common equity of 25.9% and core return on
average tangible common equity1 of 26.3%
- Net interest margin of 2.83%, cost of deposits of
1.27%
- Board declares dividend for the quarter ended June 30, 2023
of $0.44 per share
- Second closing of previously announced acquisition of Credit
Suisse trust assets
- Completed early redemption of $75 million 2018 series of the
Bank's subordinated debt
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 June 30, 2023.
Net income for the second quarter of 2023 was $61.0 million, or
$1.22 per diluted common share, compared to net income of $62.2
million, or $1.24 per diluted common share, for the previous
quarter and $49.1 million, or $0.99 per diluted common share, for
the second quarter of 2022. Core net income1 for the second quarter
of 2023 was $57.0 million, or $1.14 per diluted common share,
compared to $62.2 million, or $1.24 per diluted common share, for
the previous quarter and $50.2 million, or $1.01 per diluted common
share, for the second quarter of 2022.
The return on average common equity for the second quarter of
2023 was 25.9% compared to 28.0% for the previous quarter and 24.5%
for the second quarter of 2022. The core return on average tangible
common equity1 for the second quarter of 2023 was 26.3%, compared
to 30.5% for the previous quarter and 27.8% for the second quarter
of 2022. The efficiency ratio for the second quarter of 2023 was
57.6%, compared to 56.0% for the previous quarter and 61.0% for the
second quarter of 2022. The core efficiency ratio1 for the second
quarter of 2023 was 57.6% compared with 56.0% in the previous
quarter and 60.2% for the second quarter of 2022.
Michael Collins, Butterfield's Chairman and Chief Executive
Officer, commented, “Butterfield reported a solid second quarter of
2023, as we delivered consistent quarter-over-quarter non-interest
income and expense discipline, which partially offset lower net
interest income. During the quarter, we were pleased to have
Moody’s assign an A3 long-term deposit rating with a stable outlook
to our Cayman subsidiary in addition to reaffirming our Group
rating. This demonstrates the strength of our Cayman business model
and ability to support the Cayman Islands market, which has
benefited from steady economic growth, driven by resurgent tourism
and a healthy financial services sector. In Bermuda, we
successfully implemented the upgrade of our core banking system and
online platform and inaugurated our new flagship retail banking
center in Hamilton.
"As expected, we also completed the second closing of our
planned acquisition of Credit Suisse trust assets. To date, 374
relationships representing $21.1 billion of AUA have now
transferred to Butterfield, significantly expanding our footprint
in Asia. Work is now under way on client due diligence for
subsequent tranches, which will include residual relationships in
Singapore and selected Credit Suisse trust relationships in
Guernsey and The Bahamas.”
(1)
See table "Reconciliation of US GAAP
Results to Core Earnings" below for reconciliation of US GAAP
results to non-GAAP measures.
Net income was down in the second quarter of 2023 versus the
prior quarter primarily due to lower net interest income as a
result of lower average interest-earning assets, higher deposit
costs and accelerated amortization of $0.9 million of issuance
costs related to the Bank's early redemption of its 2018 issuance
of subordinated debt.
Net interest income (“NII”) for the second quarter of 2023 was
$92.5 million, a decrease of $4.9 million, compared with NII of
$97.4 million in the previous quarter and up $10.5 million from
$82.0 million in the second quarter of 2022. NII decreased during
the second quarter of 2023 compared to the prior quarter, primarily
due to lower balance sheet volumes, increasing deposit costs and
the early redemption of subordinated debt. Compared to the second
quarter of 2022, NII improved due to higher yields on assets, which
was partially offset by increased deposit costs.
Net interest margin (“NIM”) for the second quarter of 2023 was
2.83%, a decrease of 5 basis points from 2.88% in the previous
quarter and up 57 basis points from 2.26% in the second quarter of
2022. NIM in the second quarter of 2023 was lower than the prior
quarter due to lower balance sheet volumes, increasing deposit
costs and early redemption of subordinated debt, which was
partially offset by increased yields on interest earning assets.
Compared to second quarter of 2022, NIM improved primarily due to
higher yields on treasury assets and loans, partially offset by
increased deposit costs.
Non-interest income for the second quarter of 2023 of $50.2
million was sequentially flat against the previous quarter and $1.7
million lower than $51.8 million in the second quarter of 2022.
Non-interest income for the second quarter of 2023 was comprised of
increased trust income driven by the onboarding of relationships
acquired from Credit Suisse and higher activity-based revenues,
offset by lower banking income, driven by reduced volumes, as well
as lower other non-interest income driven by a decrease in equity
pick-up on a portfolio investment. Non-interest income in the
second quarter of 2023 was lower than the second quarter of 2022
primarily due to a lower level of unclaimed balances recognized
into income, which was partially offset by higher revenues from
asset management and trust activities.
Non-interest expenses were $83.5 million in the second quarter
of 2023, compared to $84.1 million in the previous quarter and
$83.0 million in the second quarter of 2022. Core non-interest
expenses1 of $83.6 million in the second quarter of 2023 were lower
than the $84.1 million incurred in the previous quarter, primarily
due to lower staff-related expenses, which were partially offset by
higher technology and communications costs related to the Bank's
implementation of its core banking system upgrade in Bermuda. Core
non-interest expenses1 in the second quarter of 2023 were higher
than the $81.9 million incurred in the second quarter of 2022 due
to inflationary increases in salaries and benefits, as well as the
aforementioned increase in technology and communications costs.
Period end deposit balances were $12.2 billion, a decrease of
6.2% compared to $13.0 billion at December 31, 2022, primarily due
to deposit movement across all banking jurisdictions as customers
activated their funds and sought higher yielding products, with the
largest decrease in the Channel Islands. Average deposits were
$12.2 billion in the quarter ended June 30, 2023, compared to $12.8
billion in the first quarter of 2023.
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 28, 2023 to shareholders of record on August
14, 2023. During the second quarter of 2023, the Butterfield
repurchased 0.7 million common shares under the Bank's share
repurchase plan authorization.
The current total regulatory capital ratio as at June 30, 2023
was 25.1% as calculated under Basel III, compared to 24.1% as at
December 31, 2022. 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, 2023
March 31, 2023
June 30, 2022
Non-interest income
50.2
50.2
51.8
Net interest income before provision for
credit losses
92.5
97.4
82.0
Total net revenue before provision for
credit losses and other gains (losses)
142.6
147.5
133.8
Provision for credit (losses)
recoveries
(1.5
)
(0.7
)
(0.7
)
Total other gains (losses)
4.0
0.1
0.1
Total net revenue
145.1
147.0
133.2
Non-interest expenses
(83.5
)
(84.1
)
(83.0
)
Total net income before taxes
61.5
62.9
50.2
Income tax benefit (expense)
(0.5
)
(0.7
)
(1.1
)
Net income
61.0
62.2
49.1
Net earnings per share
Basic
1.23
1.25
0.99
Diluted
1.22
1.24
0.99
Per diluted share impact of other non-core
items 1
(0.08
)
—
0.02
Core earnings per share on a fully
diluted basis 1
1.14
1.24
1.01
Adjusted weighted average number of
participating shares on a fully diluted basis (in thousands of
shares)
49,890
50,131
49,772
Key financial ratios
Return on common equity
25.9
%
28.0
%
24.5
%
Core return on average tangible common
equity 1
26.3
%
30.5
%
27.8
%
Return on average assets
1.8
%
1.8
%
1.3
%
Net interest margin
2.83
%
2.88
%
2.26
%
Core efficiency ratio 1
57.6
%
56.0
%
60.2
%
(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, 2023
December 31, 2022
Cash and cash equivalents
1,795
2,101
Securities purchased under agreements to
resell
60
60
Short-term investments
670
884
Investments in securities
5,546
5,727
Loans, net of allowance for credit
losses
5,003
5,096
Premises, equipment and computer software,
net
153
146
Goodwill and intangibles, net
74
74
Accrued interest and other assets
208
217
Total assets
13,510
14,306
Total deposits
12,192
12,991
Accrued interest and other liabilities
269
278
Long-term debt
98
172
Total liabilities
12,559
13,441
Common shareholders’ equity
950
865
Total shareholders' equity
950
865
Total liabilities and shareholders'
equity
13,510
14,306
Key Balance Sheet Ratios:
June 30, 2023
December 31, 2022
Common equity tier 1 capital ratio1
22.7
%
20.3
%
Tier 1 capital ratio1
22.7
%
20.3
%
Total capital ratio1
25.1
%
24.1
%
Leverage ratio1
7.6
%
6.7
%
Risk-Weighted Assets (in $ millions)
4,628
4,843
Risk-Weighted Assets / total assets
34.3
%
33.9
%
Tangible common equity ratio
6.5
%
5.6
%
Book value per common share (in $)
19.34
17.42
Tangible book value per share (in $)
17.83
15.92
Non-accrual loans/gross loans
1.2
%
1.2
%
Non-performing assets/total assets
0.7
%
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, 2023 COMPARED WITH THE QUARTER ENDED
MARCH 31, 2023
Net Income
Net income for the quarter ended June 30, 2023 was $61.0
million, down $1.2 million from $62.2 million in the prior
quarter.
The $1.2 million change in net income in the quarter ended June
30, 2023 compared to the previous quarter was due principally to
the following:
- $4.9 million decrease in net interest income before provision
for credit losses primarily due to lower average interest-earning
assets, increased deposit costs and the accelerated amortization of
issuance costs due to the early redemption of the 2018 series of
the Bank's subordinated debt;
- $3.9 million increase in total other gains (losses) due to a
gain realized on the liquidation settlement from a legacy
investment previously written-off;
- $0.9 million increase in provision from credit losses driven by
a small number of loan facilities in Bermuda; and
- $0.6 million decrease in non-interest expense, primarily due to
a reduction in staff-related expenses which were partially offset
by higher technology and communications costs as the core banking
system upgrade in Bermuda came into operation.
Non-Core Items1
Non-core items resulted in gains, net of expenses, of $4.0
million in the second quarter of 2023. Non-core items for the
quarter mainly relates to the liquidation settlement from a legacy
investment previously written-off.
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, 2023 COMPARED WITH
DECEMBER 31, 2022
Total Assets
Total assets of the Bank were $13.5 billion at June 30, 2023, a
decrease of $0.8 billion from December 31, 2022. The Bank
maintained a highly liquid position at June 30, 2023, with $8.1
billion of cash, bank deposits, reverse repurchase agreements and
liquid investments representing 59.7% of total assets, compared
with 61.3% at December 31, 2022.
Loans Receivable
The loan portfolio totaled $5.0 billion at June 30, 2023, which
was $0.1 billion lower than December 31, 2022 balances. The
decrease was driven primarily by scheduled paydowns in the
portfolio.
The allowance for credit losses at June 30, 2023 totaled $26.0
million, an increase of $1.0 million from $25.0 million at December
31, 2022. The movement was driven by an increase in credit card
provisions, specific provisions on a small number of loan
facilities in Bermuda and updated forward-looking economic
forecasts. This was partially offset by net paydowns.
The loan portfolio represented 37.0% of total assets at June 30,
2023 (December 31, 2022: 35.6%), while loans as a percentage of
total deposits was 41.0% at June 30, 2023 (December 31, 2022:
39.2%). The increase in both ratios was attributable principally to
a decrease in deposit balances at June 30, 2023.
As of June 30, 2023, the Bank had gross non-accrual loans of
$58.1 million, representing 1.2% of total gross loans, a decrease
of $5.0 million from $63.1 million, or 1.2% of total loans, at
December 31, 2022. The decrease in non-accrual loans was driven by
the settlement of a residential mortgage in the Channel Islands and
UK segment.
Other real estate owned (“OREO”) increased by $0.4 million from
December 31, 2022 to $1.2 million due to the foreclosure of a loan
in Bermuda.
Investment in Securities
The investment portfolio was $5.5 billion at June 30, 2023,
which was $0.2 billion lower against December 31, 2022 balances
driven by paydowns in the portfolio which were reinvested into
treasury assets.
The investment portfolio is made up of high quality assets with
100% invested in A-or-better-rated securities. The investment book
yield decreased to 2.07% during the quarter ended June 30, 2023
from 2.12% during the previous quarter. Total net unrealized losses
on the available-for-sale portfolio decreased to $207.3 million,
compared with total net unrealized losses of $220.2 million at
December 31, 2022, as a result of a decline in long-term US dollar
interest rates. No credit losses have been noted as at June 30,
2023.
Deposits
Average deposits were $12.2 billion for the quarter ended June
30, 2023, a decrease of $0.6 billion compared to the previous
quarter, while period end balances as at June 30, 2023 were $12.2
billion, a decrease of $0.8 billion compared to December 31, 2022,
due to normal commercial activity.
Average Balance Sheet2
For the three months ended
June 30, 2023
March 31, 2023
June 30, 2022
(in $ millions)
Average
balance
($)
Interest
($)
Average
rate
(%)
Average
balance
($)
Interest
($)
Average
rate
(%)
Average
balance
($)
Interest
($)
Average
rate
(%)
Assets
Cash and cash equivalents and short-term
investments
2,488.2
25.2
4.06
2,943.9
27.1
3.74
3,364.5
4.2
0.50
Investment in securities
5,614.7
28.9
2.07
5,720.2
29.8
2.12
6,143.9
29.0
1.89
Available-for-sale
1,970.7
8.8
1.78
2,005.6
8.9
1.80
2,759.9
9.6
1.40
Held-to-maturity
3,644.0
20.2
2.22
3,714.6
20.9
2.28
3,384.0
19.3
2.29
Loans
4,984.1
79.8
6.42
5,040.7
77.5
6.23
5,066.9
56.5
4.48
Commercial
1,396.7
23.0
6.59
1,409.8
22.6
6.51
1,455.3
17.3
4.76
Consumer
3,587.4
56.8
6.35
3,630.9
54.9
6.13
3,611.6
39.3
4.36
Interest earning assets
13,087.0
133.9
4.10
13,704.7
134.5
3.98
14,575.4
89.7
2.47
Other assets
402.0
395.9
359.1
Total assets
13,489.0
14,100.7
14,934.5
Liabilities
Deposits
9,308.0
(38.5
)
(1.66
)
9,786.5
(34.7
)
(1.44
)
10,590.3
(5.4
)
(0.20
)
Securities sold under agreement to
repurchase
0.4
—
(5.45
)
0.4
—
(4.50
)
—
—
—
Long-term debt
147.4
(2.9
)
(8.02
)
172.3
(2.4
)
(5.65
)
172.0
(2.4
)
(5.60
)
Interest bearing liabilities
9,455.8
(41.4
)
(1.76
)
9,959.2
(37.1
)
(1.51
)
10,762.3
(7.8
)
(0.29
)
Non-interest bearing current accounts
2,863.2
2,993.5
2,997.8
Other liabilities
243.6
241.1
300.8
Total liabilities
12,562.6
13,193.7
14,061.0
Shareholders’ equity
926.4
906.9
873.6
Total liabilities and shareholders’
equity
13,489.0
14,100.7
14,934.5
Non-interest bearing funds net of
non-interest earning assets
(free balance)
3,631.2
3,745.6
3,813.1
Net interest margin
92.5
2.83
97.4
2.88
82.0
2.26
(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 $118.5 billion and $29.0 billion, respectively, at
June 30, 2023, while assets under management were $5.4 billion at
June 30, 2023. This compares with $106.2 billion, $32.2 billion and
$5.0 billion, respectively, at December 31, 2022.
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, 2023
March 31, 2023
June 30, 2022
Net income
61.0
62.2
49.1
Non-core items
Non-core (gains) losses
Liquidation settlement from an investment
previously written-off
(4.0
)
—
—
Total non-core (gains) losses
(4.0
)
—
—
Non-core expenses
Early retirement program, voluntary
separation, redundancies and other non-core compensation costs
—
—
1.0
Total non-core expenses
—
—
1.1
Total non-core items
(4.0
)
—
1.1
Core net income
57.0
62.2
50.2
Average common equity
943.3
902.5
804.6
Less: average goodwill and intangible
assets
(74.0
)
(74.2
)
(80.0
)
Average tangible common equity
869.3
828.3
724.6
Core earnings per share fully
diluted
1.14
1.24
1.01
Return on common equity
25.9
%
28.0
%
24.5
%
Core return on average tangible common
equity
26.3
%
30.5
%
27.8
%
Shareholders' equity
950.3
936.9
802.4
Less: goodwill and intangible assets
(74.0
)
(74.1
)
(77.5
)
Tangible common equity
876.3
862.8
725.0
Basic participating shares outstanding (in
millions)
49.1
49.8
49.6
Tangible book value per common
share
17.83
17.32
14.61
Non-interest expenses
83.5
84.1
83.0
Less: non-core expenses
—
—
(1.1
)
Less: amortization of intangibles
(1.4
)
(1.4
)
(1.4
)
Core non-interest expenses before
amortization of intangibles
82.1
82.7
80.5
Core revenue before other gains and losses
and provision for credit losses
142.6
147.5
133.8
Core efficiency ratio
57.6
%
56.0
%
60.2
%
Conference Call Information:
Butterfield will host a conference call to discuss the Bank’s
results on Tuesday, August 1, 2023 at 10:00 a.m. Eastern Time.
Callers may access the conference call by dialing +1 (800) 225-9448
(toll-free) or +1 (203) 518-9708 (international) ten minutes prior
to the start of the call and referencing the Conference ID:
BUTTERFIELD. 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 for
12 months.
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 intention to make share repurchases and 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 (including
economic growth and general business conditions) and fluctuations
of interest rates, inflation, a decline in Bermuda’s sovereign
credit rating, the successful completion and integration of
acquisitions (including our progress on subsequent closings of the
acquisition of trust assets from Credit Suisse) or the realization
of the anticipated benefits of such acquisitions in the expected
time-frames or at all, success in business retention (including the
retention of relationships associated with our Credit Suisse
acquisition) and obtaining new business, the impact of the COVID-19
pandemic, the success of our updated systems and platforms 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.
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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
Bank of NT Butterfield a... (NYSE:NTB)
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