Bank of NT Butterfield & Son Ltd - $NTB - Earnings Analysis: Strong Q4 2024 performance driven by higher non-interest and net interest income.

Business Model

Butterfield generates revenue through net interest income and non-interest income. Net interest income is derived from the difference between interest earned on assets (loans, securities) and interest paid on liabilities (deposits). Non-interest income includes banking fees, foreign exchange revenue, trust income, asset management fees, and custody fees.

Revenue Sources

• Net Interest Income: Difference between interest earned on assets and interest paid on liabilities.
• Banking Fees: Card services fees, wire fees, and volume incentives.
• Foreign Exchange Revenue: Income from foreign exchange transactions.
• Trust Income: Fees earned from trust services.
• Asset Management Fees: Fees based on asset valuations and assets under management.
• Custody Fees: Fees for custody services.

Income Statement Analysis

• Net income increased from $52.7 million in Q3 2024 to $59.6 million in Q4 2024, primarily driven by higher non-interest income and net interest income.
• Non-interest income increased due to higher card volumes, incentives, and foreign exchange volume.
• Net interest income increased due to lower deposit costs and higher investment yields.
• Non-interest expenses also rose, driven by increased marketing and professional services costs.

Balance Sheet Analysis

• Total assets increased by $0.9 billion, driven by increases in cash, investments and deposits.
• Total liabilities increased primarily due to growth in deposit balances.
• Shareholders' equity saw a slight increase.
• The bank maintained a highly liquid position, with $9.3 billion in cash, bank deposits and liquid investments

Capital Allocation

Butterfield maintains a balanced capital return policy, including a quarterly dividend of $0.44 per share and share repurchases. In 2024, Butterfield repurchased 4.5 million shares at an average price of $34.58 per share. On December 9, 2024, the Board approved a new share repurchase program authorizing the purchase of up to 2.7 million common shares through December 31, 2025. The bank is also focused on finding the right deal that will expand fee income.

Management Commentary

We had an excellent finish to the year with seasonally higher non-interest income, lower funding costs, and a steady net interest margin driving a higher tangible book value per share.

As we position the Bank for sustainable growth in 2025, we continue to manage expenses by expanding our Halifax service center while investing in the technology required to provide an enhanced client experience.

Butterfield is committed to increasing shareholder value by returning excess capital, improving our operating efficiency, and exploring offshore bank and fee business acquisitions.

Overall Sentiment: Positive. Management expresses confidence in the bank's performance and commitment to increase shareholder value. They are focused on sustainable growth, expense management, and strategic acquisitions.

Recommendation

Rating: Hold

Reason for Rating: Butterfield demonstrates a solid financial performance with increasing revenues and profitability. A hold recommendation is appropriate based on a stable financial position, balanced capital allocation strategy, and a positive outlook from management, but a full cash flow analysis was unavailable for more thorough analysis

Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information and subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.

Generated on: 2/12/2025, 1:04:46 AM