Company News

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:

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.

• 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.

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”.