By:
Erik Floyd, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
• (The) Bank of N.T. Butterfield & Son Limited
(NYSE:NTB) The Bank of N.T. Butterfield & Son Ltd. Provides community
banking and wealth management business for individuals, local businesses, captive
insurers, reinsurance companies, trust companies, and hedge funds in Bermuda, the
Cayman Islands, Guernsey, the Bahamas, Switzerland, and the UK.
• The acquisition of ABN
AMRO (which closed July 15th) has brought in roughly $3.5B in
deposits for NTB and the main focus of 2020 will be to deploy the remaining $2.0B
of the cash into the securities portfolio.
• Expenses are forecasted to come down in Late 2020,
because of the savings they received from acquiring ABN, by approximately $3.8MM
and a roll off of $8MM of annualized Amortization from an old technology expenditure.
• The largest risk to NTB is their geographic
risk and customer concentration, with 56.9% of customers located in Bermuda,
and 29% in the Cayman Islands. In addition to this, these countries have
different regulators than mainland banks.
• NTB has maintained a constantly growing
dividend yield that currently pays a 5.3% yield, with a 5 Yr. Dividend Growth
of 340% and a 1 Yr. Dividend Growth of 15.8%.
Key
points:
The management has
consistently exited non-core markets, reduced the risk of the sec. portfolio,
and shifted lending focus to residential loans. The main driver is the fee income
stream, which generates around 35% of total revenue and anchored by $95B of assets
under admin.
Management acknowledged
that they will have to find a partner, as they are currently over 2x the
Bermuda GDP and still growing, and the economy has no lender of last resort to
provide a liquidity backstop. In addition to continual expansion, management is
expected to be repurchasing shares, as they started by purchasing back 5% of
shares before the ABN transaction, and purchased 150,000 common shares in October.
What
has the stock done lately?
The stock has been significantly volatile in the recent
months, with a drop at the end of July because of the Q2 Earnings numbers, missing
GAAP EPS by $0.20 and Revenue by $3.15M. This caused the stock price to drop by
20.65%, hitting a low at $26.08 on August 14th. Since this, the
stock has seen a large increase from $26.08 to $34.55 on November 29th,
representing a 30.67% change, which was influenced by a strong Q3 Earnings and a
large share repurchase in October.
Past Year Performance:
NTB has been recovering the past year, with a 52 WK L-H
ranging from $26.08-$41.84, continuing to be volatile with earnings calls, and
news of the acquisition of ABM ARMO. Last October, the stock was selling for $53.11
per share and fell to $30.03 in December, a 43.23% loss, due to the decline in
Q3 Earnings aside from estimates. Since its fall last year, the stock bottomed
out in August at $26.08 and has since stabled close to its yearly average which
is $33.84.
1 Year Stock Chart vs. Benchmark from FactSet
Source:
FactSet
My
Takeaway
NTB should remain in the
AIM International Portfolio. NTB has consistently outperformed their benchmark
over the last few years and has developed growth traits through acquisitions
and specialization. NTB will be focusing on the ABN ARMO transaction and
deploying the $2.0B of cash into the securities portfolio through the 2nd
half of 2020, but these actions will fully integrate the acquisition and project
$350MM of securities growth in 2020. Depending on Fed decisions and
reinvestment yields, the 2nd half of 2020 could be a growth driver
for NTB, through the completed ABN integration, reduced expenses, and an
expanding net interest margin, which would all contribute to accelerate EPS
growth.
1 Month Stock Chart from FactSet
Source:
FactSet
