KBRA Places Ratings for The Bank of N.T. Butterfield & Son Limited on Watch Downgrade

KBRA revises the Watch Status of the senior unsecured debt and deposit ratings of A+ and the subordinated debt rating of A to Watch Downgrade from Watch Developing for Hamilton, Bermuda-based The Bank of N.T. Butterfield & Son Limited (NYSE: NTB or “the bank”). Additionally, KBRA affirms the short-term debt and deposit ratings of K1.

On May 28, 2026, NTB announced that it had entered into a definitive agreement to acquire Canadian Imperial Bank of Commerce’s (“CIBC”) 91.7% interest in CIBC Caribbean Bank Limited for a total consideration of about $1.8 billion, comprised of $1.091 billion in cash and $703 million of newly issued NTB common shares. As part of the transaction financing, NTB plans to issue approximately $700 million in subordinated, tier-two debt. The transaction is expected to close during 1H27 and Bermuda will remain as the bank’s headquarters. On a pro forma basis, shareholder ownership will consist of 76% NTB, 22% CIBC, and 2% minority shareholders. NTB plans to commence a mandatory takeover for the remaining outstanding shares of CIBC Caribbean held by the minority shareholders with the objective of acquiring full ownership of CIBC Caribbean. The combination will create a $29 billion bank, effectively doubling NTB’s asset base, and will deepen its presence in Cayman and expand its footprint further into the Caribbean region, including new territories.

Key Credit Considerations

The change in Watch Status to Watch Downgrade is tied, principally, to the scale of the transaction, relative to NTB standalone, which, if completed, would 1) increase the size of the loan portfolio, materially raising RWA density, and the concomitant credit risk profile, 2) lower capital ratios, meaningfully for RBC metrics, and 3) reduce modestly NTB’s historically strong liquidity profile – all key historic ratings factors. If the acquisition of CIBC Caribbean closes as expected, NTB’s long-term ratings will likely be lowered by one notch, with the Outlook revised to Stable.

While the transaction would extend NTB’s market presence into new geographies, KBRA believes NTB is positioned to manage the expanded reach, given the breadth of the current franchise including its long-term operating presence in the Caribbean.

Based on KBRA’s analysis, the earnings profile of the combined banks will remain in the range of NTB’s historically solid performance (using ROA as the barometer). Various strategic merger benefits, such as the integration of CIBC Caribbean’s rich and relatively low cost deposit base, realization of cost synergies, and consideration of other factors, including a greater proportion of loans, will be counterbalanced by increased interest expense (tied to the planned issuance of subordinated debt), amortization expense, and an accelerated adoption of income tax law changes in Bermuda. Risk-adjusted earnings will remain substantial. The revenue mix will shift. The contribution from noninterest income sources will decline, although it will remain solid relative to KBRA rated bank peers, while the contribution from net interest income will increase (connected largely to the higher level of loans).

Previously, a key strategic objective of NTB management was to limit credit risk connected to investment and lending activities. KBRA anticipates no strategic change with respect to the investment portfolio, which will continue to represent a sizeable portion of pro forma total assets. However, the nature of the loan portfolio will shift, in terms of both geographic dispersion into new markets and notably higher commercial (business) loan and CRE loan exposures, which are nominal at standalone NTB.

KBRA estimates that on a pro forma basis liquid assets, consisting of cash, short-term investments, and the investment portfolio, will comprise more than 50% of pro forma assets, compared to about 66% at NTB standalone as of 2Q26. Estimated cash and short-term investments will continue to comprise a meaningful percentage of total deposits – a key consideration given the absence of central bank support and the modest deposit insurance schemes across the deposit footprint.

Rating Sensitivities

Upward ratings trajectory is unlikely during the next few years, barring an exogenous event. If the acquisition of CIBC Caribbean closes as expected, NTB’s long-term ratings will likely be lowered by one notch, with the Outlook revised to Stable.

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Methodology