Butterfield Reports Third Quarter 2023 Results
The Bank of N.T. Butterfield & Son Limited today announced financial results for the quarter ended September 30, 2023.
A spokesperson said, “Net income for the third quarter of 2023 was $48.7 million, or $0.99 per diluted common share, compared to net income of $61.0 million, or $1.22 per diluted common share, for the previous quarter and $57.4 million, or $1.15 per diluted common share, for the third quarter of 2022. Core net income1 for the third quarter of 2023 was $57.0 million, or $1.16 per diluted common share, compared to $57.0 million, or $1.14 per diluted common share, for the previous quarter and $57.6 million, or $1.16 per diluted common share, for the third quarter of 2022.
“The return on average common equity for the third quarter of 2023 was 20.6% compared to 25.9% for the previous quarter and 28.5% for the third quarter of 2022. The core return on average tangible common equity1 for the third quarter of 2023 was 26.1%, compared to 26.3% for the previous quarter and 31.6% for the third quarter of 2022. The efficiency ratio for the third quarter of 2023 was 64.1%, compared to 57.6% for the previous quarter and 57.1% for the third quarter of 2022. The core efficiency ratio1 for the third quarter of 2023 was 58.3% compared with 57.6% in the previous quarter and 57.0% for the third quarter of 2022.
Michael Collins, Butterfield’s Chairman and Chief Executive Officer, commented, “The Bank continues to produce earnings and a return on equity that reflect its overall financial strength and operational effectiveness. Our strong results demonstrate the continued focus on low risk density asset classes, while delivering consistent non-interest income and controlling expenses. As higher-for-longer interest rates have developed as the most likely scenario in the near term, competition for deposits has increased across our island jurisdictions, particularly in the Channel Islands. We continue to work closely with clients on both the loan and deposit product sets to ensure their financial services needs are met and that each relationship is appropriately managed.
“Reducing compensation-related expense is one of the key levers available to us as we navigate the current interest rate cycle, increasing competition, and inflation. In the third quarter, we made the difficult decision to initiate a group-wide restructuring program, which will reduce Butterfield’s global workforce by 9% in several phases. We expect annual cost savings of approximately $13 million once the restructuring is fully implemented in the first half of 2024, and we will continue to operate across all of our jurisdictions without changes to our products and services.
“Our efforts remain focused on navigating the various economic cycles for the success of the Bank and for the long-term benefit of all stakeholders.”
“Net income was down in the third quarter of 2023 versus the prior quarter primarily due to $8.2 million of non-core costs associated with the group-wide restructuring program that was implemented in the quarter and resulted in the recognition of redundancy expenses. Core net income1 was flat compared to the prior quarter as lower net interest income comprised of increasing interest income offset by higher interest-bearing deposit costs, and increased core expenses, were moderated by higher non-interest income and a lower provision for credit losses.
“Net interest income [“NII”] for the third quarter of 2023 was $90.2 million, a decrease of $2.3 million, compared with NII of $92.5 million in the previous quarter and down $1.0 million from $91.2 million in the third quarter of 2022. NII decreased during the third quarter of 2023 compared to the prior quarter, primarily due to increased interest-bearing deposit costs in all three banking jurisdictions, partially offset by increased loan and treasury margins and lower subordinated debt interest payments following the redemption of the Bank’s $75 million 2018 series subordinated debt in the second quarter of 2023. Compared to the third quarter of 2022, NII was down due to a decrease in the size of the Bank’s balance sheet following post-Covid normalization, which offset improved net asset margins.
“Net interest margin [“NIM”] for the third quarter of 2023 was 2.76%, a decrease of 7 basis points from 2.83% in the previous quarter and up 17 basis points from 2.59% in the third quarter of 2022. NIM in the third quarter of 2023 was lower than the prior quarter due to increased deposit costs, which were partially offset by higher loan yields and treasury margins. Compared to the third 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 third quarter of 2023 of $52.0 million, an increase of $1.8 million against the previous quarter of $50.2 million and $2.1 million higher than $49.9 million in the third quarter of 2022. Non-interest income for the third quarter of 2023 increased compared to the prior quarter due to higher banking income that benefited from increased card volumes in Bermuda and Cayman, as well as loan pre-payment fees. Trust fees also increased in the third quarter of 2023 following the onboarding of new clients from the previously announced acquisition of Credit Suisse trust assets. Non-interest income in the third quarter of 2023 was higher than the third quarter of 2022 primarily due to increased trust income mostly attributable to new clients, including organic growth, and additional activity-based fees.
“Non-interest expenses were $92.5 million in the third quarter of 2023, compared to $83.5 million in the previous quarter and $82.0 million in the third quarter of 2022. Core non-interest expenses1 of $84.3 million in the third quarter of 2023 were higher than the $83.6 million incurred in the previous quarter, primarily due to higher staff-related expenses as well as higher technology and communications costs related to the Bank’s upgraded core banking system in Bermuda. Core non-interest expenses1 in the third quarter of 2023 were higher than the $81.8 million incurred in the third quarter of 2022 due to inflationary increases in salaries and benefits, as well as the increased technology and communications costs associated with the core banking system and IT infrastructure investments.
“Period end deposit balances were $11.9 billion, a decrease of 8.7% compared to $13.0 billion at December 31, 2022, primarily due to deposit movements in the Channel Islands and UK, and Cayman Islands segments as customers activated their funds and sought higher yielding products. Average deposits were $12.1 billion in the quarter ended September 30, 2023, compared to $12.2 billion in the second 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 November 22, 2023 to shareholders of record on November 8, 2023. During the third quarter of 2023, Butterfield repurchased 1.1 million common shares under the Bank’s share repurchase plan.
“The current total regulatory capital ratio as at September 30, 2023 was 25.8% 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.”
