Even though Butterfield Bank (currently trading at $46.67 per share) has gained 14.4% over the last six months, it has lagged the S&P 500’s 21.3% return during that period. This may have investors wondering how to approach the situation.
Find out in our full research report, it’s free for active Edge members.
Why Does Butterfield Bank Spark Debate?
Founded in 1784 as one of the oldest banks in the Western Hemisphere, Butterfield Bank (NYSE: NTB) provides banking, wealth management, and trust services to individuals and businesses in select offshore financial centers including Bermuda, Cayman Islands, and the Channel Islands.
Two Positive Attributes:
1. Outstanding Long-Term EPS Growth
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Butterfield Bank’s EPS grew at an astounding 12.1% compounded annual growth rate over the last five years, higher than its 3.1% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
2. Stellar ROE Showcases Lucrative Growth Opportunities
Return on equity (ROE) reveals the profit generated per dollar of shareholder equity, which represents a key source of bank funding. Banks maintaining elevated ROE levels tend to accelerate wealth creation for shareholders via earnings retention, buybacks, and distributions.
Over the last five years, Butterfield Bank has averaged an ROE of 21.7%, exceptional for a company operating in a sector where the average shakes out around 7.5% and those putting up 15%+ are greatly admired. This shows Butterfield Bank has a strong competitive moat.
One Reason to be Careful:
Net Interest Income Points to Soft Demand
Our experience and research show the market cares primarily about a bank’s net interest income growth as one-time fees are considered a lower-quality and non-recurring revenue source.
Butterfield Bank’s net interest income has grown at a 2.3% annualized rate over the last five years, much worse than the broader banking industry and in line with its total revenue.
Final Judgment
Butterfield Bank’s merits more than compensate for its flaws. With its shares underperforming the market lately, the stock trades at 1.7× forward P/B (or $46.67 per share). Is now the time to initiate a position? See for yourself in our full research report, it’s free for active Edge members.
Stocks We Like Even More Than Butterfield Bank
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