Butterfield expects no direct impact from corporate income tax
Butterfield Bank has told analysts that Bermuda’s new corporate income tax is not expected to impact the financial institution directly in the near future. But bank executives will closely monitor developments.
The observation came from Michael Collins, Butterfield's chairman and chief executive, during the bank’s recent earnings call with stock market analysts to discuss the first quarter earnings statement issued by the bank on Tuesday.
Mr Collins commented: “During the fourth quarter of the 2023 reporting cycle, we saw a number of Bermuda reinsurers announce deferred tax assets in preparation for the expected implementation of a first ever corporate income tax in Bermuda.”
He said: “At this point, reinsurers are mostly planning to accept the changes and maintain their significant and economically important operations in Bermuda. In Cayman, the Government has taken a less active approach legislatively with a wait-and-see position.”
The bank reported strong financial results in the first quarter, with net income of $53.4 million and core net income of $55 million.
Butterfield operates its business through geographic segments that also includes Cayman, the Channel Islands and Britain.
It operates banking and wealth management franchises in Bermuda, Cayman Islands and the Channel Islands. It also has specialised financial services in the Bahamas, Switzerland, Singapore and Britain, where it provides mortgages to high-net-worth clients with properties in prime Central London.
Mr Collins and other top Butterfield executives were on the earnings call from offices in the Cayman Islands, where they were attending board meetings.
Michael Schrum, the president and group chief risk officer, commented on the strength of the Cayman economy and favourable business circumstances there.
He said: “There’s certainly quite a bit of opportunity here on the lending side in Cayman. The economy is booming, tower cranes everywhere.”
The bank bosses were also asked to discuss the core banking system upgrades, completed during the review period.
The Butterfield spring 2023 upgrade to banking systems in Bermuda resulted in “an unsatisfactory level of service” that included client issues with user access to Butterfield Online, online payments and missing beneficiaries. The difficulties led to widespread challenges and complaints and took some weeks to resolve.
During the fourth quarter of 2023, the bank upgraded its core banking system in the Cayman Islands and said it was well received.
Mr Collins conceded such upgrades were always difficult.
He said: “So what we did was a like-for-like conversion. It’s a fairly major upgrade. It was a move into a cloud infrastructure. As you can see, the expenses and the capital picture has changed slightly in terms of software-as-a-service, rather than the capital depreciation in those lines.
“I think generally speaking, it went well. There are no write-offs. There are obviously a few client impacting things and we apologise to clients, but they’re all still with us. And I think what we’re excited about is the opportunity to roll out additional functionality, now.
“And we have a pretty good steady platform; it seems to be operating a lot faster for clients. So, there’s not a lot of noise. Our call centres broadly were able to deal with the elevated volumes. Most of the volumes from the implementation came from the ‘OTP’ functionality.
“So, ‘one-time password’ functionality, inability to log in, new splash screens, et cetera. And so, it was really kind of user walk-throughs on that side.
“Internally, it went very well, like all our staff – the training programme was very good. And we ended up, as I said, not having any real reconciliation issues at the back end or process issues.
“So I think at this point, I think everybody’s feeling like that was probably more of the operational risk moment when we went live, and that’s kind of in the rear view mirror, and now we can add new functionality.”
Although Butterfield’s first-quarter earnings report last week included earnings per share ($1.17), revenue ($142.80 million), net income ($53.4 million) and profit margin all down from the same period last year, they beat expectations from stock analysts, reported Simply Wall St.
The commentary included: “Revenue exceeded analyst estimates by 3.6 per cent. Earnings per share also surpassed analyst estimates by 16 per cent.
“Revenue is forecast to stay flat during the next two years compared to a 5.9 per cent growth forecast for the banks industry in the US.”
Butterfield’s share price reached $34.56 last week, a new 52-week high, following the stronger than expected earnings report.
On Friday, it finished at $34.06 on the New York Stock Exchange. The all-time high was $39.43 on August 17, 2018.
Financial services firm Piper Sandler adjusted its outlook on the bank on Thursday, increasing its price target to $38 from the previous $34 while maintaining an overweight rating on the stock. Some firms have new target prices above $40.
A Piper Sandler analyst stated: “NTB is another unique bank, differentiated from the pack by its strong profitability, low-risk density balance sheet, and attractive capital return.”
The 52-week low stock price is $22.93, which is 32.7 per cent below the present share price. The average price for the last 52 weeks is $28.91.
On the Bermuda Stock Exchange, Butterfield closed at $33 on Friday, up $2.75 (9.1 per cent) for the day.
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