Business context and reporting period
The Bank of N.T. Butterfield & Son Limited is a Bermuda-headquartered bank and wealth manager operating primarily in Bermuda, the Cayman Islands, and the Channel Islands and UK. This Form 20-F reports audited U.S. GAAP results for the fiscal year ended December 31, 2023; it is an annual report, not a standalone fourth-quarter filing. Amounts are in U.S. dollars, with the Bermuda dollar pegged one-to-one to the U.S. dollar.
Key financial metrics
| Metric | 2023 | 2022 |
|---|---|---|
| Total net revenue | $578.6 million | $549.3 million |
| Net interest income before credit-loss provision | $367.0 million | $343.6 million |
| Net income | $225.5 million | $214.0 million |
| Basic / diluted EPS | $4.62 / $4.58 | $4.32 / $4.29 |
| Net interest margin | 2.80% | 2.41% |
| Total non-interest expenses | $352.3 million | $331.6 million |
| Core efficiency ratio (non-GAAP) | 58.1% | 58.9% |
| Net cash from operating activities | $300.3 million | $219.3 million |
Revenue before credit-loss provision and other gains or losses was $579.3 million; reported total net revenue, including those items, was $578.6 million. Net income rose 5.4%. Higher rates lifted loan and cash yields, while deposit interest expense increased substantially. The credit-loss provision was $4.5 million, versus $2.4 million in 2022. The company reported net income rather than a separate profit attributable to common shareholders in its income statement.
Balance sheet, liquidity and capital
- Total assets were $13.4 billion, down 6.5%; net loans were $4.7 billion, down 6.9%; and deposits were $12.0 billion, down 7.7%. Management attributed deposit declines across jurisdictions to customers moving funds to higher-yielding alternatives.
- Cash and cash equivalents were $1.65 billion, down from $2.10 billion. Cash, resell agreements, short-term investments and securities totaled $8.2 billion, or 61.0% of assets, compared with 61.3% in 2022. Management said working capital was sufficient for present requirements; the filing provides no standalone cash-flow forecast.
- Shareholders’ equity increased 16.0% to $1.00 billion. CET1 was 23.0%, total capital 25.4%, and leverage 7.6%, all above the stated regulatory minimums. The bank reported compliance with minimum 100% LCR and NSFR requirements.
- Long-term debt had a $98.5 million carrying value at year-end, consisting of $100 million principal on 5.25% subordinated notes due 2030, redeemable at the bank’s option from June 2025. The $75 million 2018 notes were redeemed early in June 2023. No repurchase agreements were outstanding at year-end.
- Operating cash flow was $300.3 million; investing activities provided $681.8 million, largely as loan repayments exceeded originations; financing activities used $1.45 billion, mainly reflecting lower deposits, debt redemption, dividends and share repurchases.
Material changes versus 2022
- Net interest margin increased 39 basis points to 2.80%; average loan yield rose to 6.46% from 4.90%, while deposit funding cost increased to 1.40% from 0.34%.
- Non-interest income increased 2.8% to $212.3 million. Trust fees rose to $57.8 million, principally following the completed Credit Suisse trust-asset acquisition; foreign-exchange revenue declined to $46.1 million from $47.8 million.
- Non-interest expenses rose 6.2% to $352.3 million. The company cited restructuring and redundancy costs, Credit Suisse onboarding and acquisition costs, and technology expenses following the core banking system upgrade. It recorded $10.0 million of non-core expenses; core expenses increased 3.8%.
- The Channel Islands and UK segment’s net income declined to $13.6 million from $33.1 million, with lower net interest income, a smaller balance sheet and higher funding costs. Cayman net income rose to $136.1 million from $119.9 million, and Bermuda net income rose to $70.8 million from $59.9 million.
- Net unrealized losses on investment securities improved to $648.3 million from $761.3 million, largely with changes in long-term rates and portfolio paydowns. The bank recorded no investment credit-impairment losses in 2023.
- The bank repurchased 3.13 million shares for $88.6 million, compared with 102,000 shares in 2022, and ended the year with 47.5 million common shares outstanding.
Outlook, commentary and risks
The filing gives no specific earnings or revenue guidance. Management said it expected to continue benefiting from higher market rates in its core markets, while acknowledging higher funding costs and competition for deposits. Its stated priorities included managing capital, expenses and risk, maintaining a liquid balance sheet, and pursuing selective growth, including acquisitions. The Credit Suisse trust acquisition was completed in December 2023; the bank also launched credit cards in Guernsey and Jersey during the year.
Principal risks include deposit outflows and liquidity stress, particularly because the bank operates in jurisdictions without a central bank lender of last resort; interest-rate and investment-valuation risk; geographic and residential-mortgage concentration; credit deterioration; and operational, cyber, regulatory, sanctions and reputational risks. Approximately 69% of gross loans were residential mortgages. The $5.3 billion securities portfolio was primarily U.S. government and agency securities and carried material unrealized losses; management said it did not expect to sell securities before recovery of cost. The Cayman Islands had no deposit-insurance scheme, and uninsured deposits were substantial across the group.
Management reported effective disclosure controls and internal control over financial reporting as of year-end; the independent auditor also opined that internal control was effective. The auditor identified the qualitative assessment of the allowance for credit losses, particularly probability-of-default assumptions, as a critical audit matter. The bank reported a three-year U.S. Department of Justice non-prosecution agreement resolved in 2021 with a $5.6 million payment, consistent with amounts previously provisioned; other ordinary-course legal matters were not expected by management to be material in aggregate.
Important facts for investors to verify
- How deposit trends and deposit pricing evolve, including the mix of demand and term deposits and funding costs.
- Whether higher rates continue to support net interest income, and the sensitivity of earnings and economic value to rate changes.
- The valuation, duration and liquidity implications of the securities portfolio’s unrealized losses, especially if asset sales become necessary.
- Credit quality developments: non-accrual loans were $61.0 million (1.3% of loans), while the non-performing-loan ratio was 2.8%, up from 1.5%; review the allowance and past-due exposures.
- Integration and returns from the Credit Suisse acquisition, restructuring costs, and the Channel Islands and UK segment’s performance.
- Future dividends and buybacks, which remain subject to Board discretion, regulatory requirements and BMA approval.