The Bank of NT Butterfield & Son Limited (Butterfield) (BSX:NTB.BH; NYSE: NTB) today announced its financial results for the second quarter ended June 30th, 2021.
Financial highlights for the second quarter of 2021:
- Net income of $39.6 million, or $0.79 per share, and core net income(*1) of $40.1 million, or $0.80 per share
- Return on average common equity of 16.7% and core return on average tangible common equity(*1) of 18.7%
- Credit reserve release of $1.0 million primarily due to improved macroeconomic growth forecast
- Board declares dividend for the quarter ended June 30, 2021 of $0.44 per share
Net income for the second quarter of 2021 was $39.6 million, or $0.79 per diluted common share, compared to net income of $41.6 million, or $0.83 per diluted common shares, for the previous quarter and $34.3 million, or $0.67 per diluted common share, for the second quarter of 2020. Core net income1 for the second quarter of 2021 was $40.1 million, or $0.80 per diluted common share, compared to $41.6 million, or $0.83 per diluted common share, for the previous quarter and $34.4 million, or $0.67 per diluted common share, for the second quarter of 2020.
The core return on average tangible common equity1 for the second quarter of 2021 was 18.7%, compared to 19.3% for the previous quarter and 15.5% for the second quarter of 2020. The efficiency ratio for the second quarter of 2021 was 67.4%, compared to 64.8% from the previous quarter and 66.7% from the second quarter of 2020. The core efficiency ratio for the second quarter of 2021 was 66.3%, compared to 64.8% from the previous quarter and 66.7% from the second quarter of 2020.
Michael Collins, Butterfield’s Chairman and Chief Executive Officer (pictured), commented, “Butterfield produced a solid second quarter of 2021 with a core return on average tangible common equity of 18.7%, despite a sustained low interest rate environment. Our consistent high returns, even through the pandemic, is the product of a business model characterized by low credit risk, substantial liquidity, strong fee income, and favourable competitive dynamics.
“We are able to generate a recurring 15% to 25% core return on average tangible common equity throughout the interest rate cycle, while only lending in our home jurisdictions, where we have market knowledge, and investing excess deposits in U.S. Government Treasuries and Agencies.
“In the second quarter, Butterfield generated higher non-interest income and steady net interest income. We remain committed to the thoughtful management of capital which we allocate to a sustainable quarterly dividend, modest organic growth, potential acquisitions, and share repurchases subject to market conditions. As our deposits continue to grow through deepening corporate, trust, and private banking relationships, we will monitor the duration of these liabilities to offer off-balance sheet investment products where appropriate.
“All of our operating jurisdictions fared relatively well during the pandemic as airports and sea borders closed, a testament to the indigenous wealth and strong domestic economies of small island nations. International business in Bermuda, Cayman, and the Channel Islands was largely unaffected due to the success of remote working models.
“As vaccinations rise, we are seeing improvements in tourism and business volumes across our markets, although offshore economies may regress somewhat if variants emerge during the winter months impacting flight capacity.
“We continue to explore potential acquisition targets with an emphasis on private trust and in-market banking opportunities and will keep the market apprised of any developments as appropriate.”
Net interest income (NII) for the second quarter of 2021 was $74.7 million, a marginal decrease of $0.2 million compared with NII of $74.9 million in the previous quarter and down $4.4 million from $79.1 million in the second quarter of 2020. NII was relatively flat during the second quarter of 2021 compared to the prior quarter with lower asset margins substantially offset by higher volumes. In the second quarter of 2021, NII was lower compared to the second quarter of 2020 due to lower reinvestment yields from cash received as a result of accelerated prepayments of US agency mortgage backed securities.
Net interest margin (NIM) for the second quarter of 2021 was 2.01%, a decrease of 8 basis points from 2.09% in the previous quarter and down 47 basis points from 2.48% in the second quarter of 2020. NIM in the second quarter of 2021 was lower than the prior quarter and second quarter of 2020 primarily due to lower margins on investments and loans, which was slightly offset by lower deposit costs.
Non-interest income for the second quarter of 2021 of $48.8 million was $1.3 million higher than the $47.6 million earned in the previous quarter and $7.2 million higher than $41.7 million in the second quarter of 2020. Compared to the prior quarter, banking fees increased due to higher credit card and debit card usage, partially offset by lower foreign exchange fees.
Credit reserve releases totalled $1.0 million for the second quarter of 2021 versus a release of $1.5 million in the previous quarter and a provision expense of $4.4 million during the second quarter of 2020. Continued improvement in economic growth forecasts resulted in a decrease of future expected credit losses.
Non-interest expenses were $84.8 million in the second quarter of 2021, compared to $80.9 million in the previous quarter and $82.0 million in the second quarter of 2020. Core non-interest expenses1 were $83.4 million in the second quarter of 2021, compared to $80.9 million in the previous quarter and $81.9 million in the second quarter of 2020. Non-interest expenses were higher in the second quarter of 2021 compared to the prior quarter and the second quarter of 2020 primarily due to costs associated with the transfer of the Channel Islands banking operations function from Mauritius to Butterfield’s service centre in Canada and Guernsey, increased consultancy and staff incentive costs, and a one-time payout program for pandemic-related unused vacation.
Period end deposit balances increased significantly to $14.2 billion from $13.3 billion as at December 31, 2020. Deposits continued to grow across all jurisdictions as customers maintained elevated deposit balances.
The Bank continued its balanced capital return policy. The Board again declared a quarterly dividend of $0.44 per common share to be paid on August 24, 2021 to shareholders of record on August 10, 2021. During the second quarter of 2021, Butterfield also repurchased 0.1 million common shares under the Bank’s current 2.0 million common share repurchase plan authorization.
The current total regulatory capital ratio as at June 30, 2021 was 19.5% as calculated under Basel III, compared to 19.8% as at December 31, 2020. Both of these ratios remain significantly above the Basel III regulatory requirements applicable to the Bank.
The Bank is close to resolving the United States Department of Justice’s inquiry into Butterfield’s legacy business with U.S. clients which dates back to late 2013. The financial component of such resolution would be in line with the existing provision of $5.5 million in the Bank’s financial statements as recorded in 2015 and 2016.
*1 Refer to table ‘Reconciliation of US GAAP Results to Core Earnings’ in detailed results for reconciliation of US GAAP results to non-GAAP measures
