Butterfield Bank Group NTB - BH

Share Price (09/30/07):$20.00
Stock Rating:Hold
Risk Profile:Low
1-Year Target Price:$21.00
1-Year Implied ROR: 8.20%
  
52-Week High:$21.67
52-Week Low:$18.33
Avg. Monthly Volume:604,000
  
Current P/E Ratio:13.04x
Shareholder's Equity:$571.9m
Total Assets:$12,000m
Return on Equity:24.40%
Return on Assets:1.30%
Annual Dividend:$0.64
Current Yield:3.20%
Payout Ratio:42%
Ex-Dividend Date:11/6/2007
Frequency:Quarterly
Shares O/S:89.61m
Market Cap:$1,792m
BSX Weight:62.93%
Book Value:$6.13
Price/Book:3.26x

2004200520062007E
EPS:$1.06$1.28$1.53$1.62
YoY Growth:25.6%20.7%19.5%5.7%
P/E Ratio:10.49x11.00x12.23x13.00x
Fiscal YE Price:$11.16$14.12$18.75 

Website: www.butterfielbank.com
Fiscal Year-End: Dec. 31,2006
Ticker: NTB - BH
Sector: Financial


NTB 1-year price/volume chart:

chart of bank of butterfield bermuda


Company Description

Butterfield Bank Group is a diversified provider of financial services with headquarters in Bermuda, and operations in six other jurisdictions. The bank’s 2006 revenues can be deconstructed geographically and operationally as follows:


Revenue by Location
Bermuda54%
Cayman23%
Guernsey11%
UK7%
Barbados 3%
Bahamas2%
Revenue by Segment
Net Interest Income52%
Investment & Pension Admin.11%
Banking Services10%
Asset Management8%
Foreign Exchange8%
Trust & Investment Services8%
Other3%



In their latest financial release (06/30/07), Butterfield reported total assets of $12.0 billion, assets under management of $11.7 billion, and assets under administration of $137 billion.

2006 Results

Butterfield enjoyed another record year in 2006, with net income climbing 22.6% year-on-year to $134 million and revenue growing 16.9% to $415 million. Net interest income before provisions increased 17.7% to $218 million on the back of a healthy growth in customer deposits, which rose 22.7%, or $1.8 billion, to $9.8 billion. The bank’s investment and loan portfolios were up year-on-year by 30% and 22% respectively, with each standing at $3.8 billion as of fiscal year-end. Butterfield’s capital structure remains strong, as evidenced by a highly liquid balance sheet and risk-weighted capital ratios that are well above the minimum requirements mandated by the Bermuda Monetary Authority.

Half-Year 2007 Results

Bank of Butterfield recently reported 2nd quarter earnings of $35.9 million, up only 6.1% from the same quarter last year. This brings half-year diluted earnings per share (pre the 3:1 stock split) to $2.46 for fiscal 2007 versus $2.31 for 2006, a gain of 6.5% year-on-year. Net interest income for the quarter grew a healthy 15% to $61.6 million on customer deposits of $10.6 billion, which rose nearly 20%. The recent slowdown in earnings growth can be attributed to three main factors:

  • The bank undertook a number of acquisitions from 2001 to 2004, the benefits of which have been recognized handsomely over the past two years. The lack of recent acquisitions has made double-digit rates of revenue and earnings growth more difficult to sustain.
  • An increase in Butterfield’s headcount required to support its rapid growth, especially increased staffing in “corporate governance” areas such as Risk Management and Compliance.
  • It is common for expense growth to lag behind strong revenue growth.

Forecast and Recommendation

Butterfield Bank remains a first-rate financial institution and the bellweather stock of the BSX index, accounting for over 60% of the Domestic Issuers market capitalization. The stock has performed admirably over the past three years, posting an average annualized return of approximately 25%. Butterfield’s retail business in the Caribbean is poised for organic growth, and there exist the future possibilities of both accretive acquisitions and of periodic dividend increases. However, it is unreasonable to expect the bank to maintain its torrid growth rate of the past few years. In addition, there remains the likelihood that recent volatility in global capital markets may negatively impact Butterfield’s operations going forward.

We apply a 13.0x multiple to our 2007 earnings projection of $1.62 and generate a 1-year price target of $21 for shares of NTB. LOM rates Butterfield Bank Group as a “hold”.