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Why Shares of Bank of N.T. Butterfield Climbed 11.2% in October

By Lou Whiteman - Nov 5, 2019 at 12:52PM

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The Bermuda-based bank held up better than expected in a falling interest rate environment.

What happened

Shares of Bank of N.T. Butterfield & Son ( NTB -3.42% ) gained 11.2% in October, according to data provided by S&P Global Market Intelligence, after the offshore banking specialist reported third-quarter results. Analysts had worried that lower interest rates would weigh on results, but the latest quarter showed the company is so far holding up well.

So what

Butterfield, which is based in Bermuda and has operations in the Cayman Islands and the Channel Islands, is a 160-year-old financial institution catering to the affluent. The company, like many bank stocks, is exposed to changes in interest rates, and heading into earnings season Butterfield had been downgraded by a number of analysts worried that the U.S. Federal Reserve lowering rates would eat into profits.

A banker meeting with clients.

Image source: Getty Images.

The bank put some of those concerns to rest when it released third-quarter earning that were in line with expectations. Net interest margin for the third quarter, at 2.52%, did decrease by 66 basis points from the previous quarter and 85 basis points versus the third quarter of 2018, but overall net interest income grew from the previous quarter.

Butterfield earlier this year agreed to acquire the Channel Islands business of Dutch bank ABN AMRO for $208 million, helping to grow its total earnings assets. Butterfield CEO Michael Collins, on a call with investors, said "we continue to reach out to potential targets" but added that he does not anticipate any "significant" deals over the next year as the bank focuses on integration.

Now what

Butterfield Bank isn't on a lot of investors' radar, but as my Foolish colleague Jason Hall notes, it is an exceptionally profitable financial institution with much potential for growth. Management has a lot on its plate in the coming quarters managing macroeconomic trends and the merger acquisition, but the bank remains an enticing buy for long-term investors willing to ride out the potential storm.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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