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

KBRA places the senior unsecured debt and deposit ratings of A+, the subordinated debt rating of A, and the short-term debt and deposit ratings of K1 for Hamilton, Bermuda-based The Bank of N.T. Butterfield & Son Limited (NYSE: NTB or “the bank”) on Watch Developing following the announcement of a merger agreement to acquire control of CIBC Caribbean Bank Limited ("CIBC Caribbean").

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 total consideration of about $1.8 billion, comprised of $1.091 billion in cash and $703 million in newly issued NTB common shares. As part of the transaction financing, NTB plans to issue $700 million in subordinated, tier-two debt. The transaction is expected to close during 1H 2027 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 take-over bid for the remaining total outstanding shares of CIBC Caribbean held by 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 into new territories. The combined balance sheet, pro forma, will also increase the amount and proportion of loans, including commercial credits, in relation to assets, which will result in a notably higher RWA density ratio than the level at which NTB has historically operated. On the funding side, CIBC Caribbean’s deposit base appears complementary and will effectively lower NTB’s already low cost of deposits by about 0.30%, pro forma, according to bank disclosures.

Risk-based regulatory capital ratios, notably the CET1 ratio, will decline sharply, considering the size of CIBC Caribbean’s asset base and the degree of cash used to fund the purchase. Anchored by the solid and resilient base of fee (noninterest) income, it appears that on a pre-provision expense basis, the combined bank possesses the capacity to rebuild capital at a meaningful rate (after payment of common dividends and factoring in the pro forma interest expense from the planned subordinated debt issuance). Operating expense savings are projected to be relatively modest and phased in over time but will benefit earnings performance. As part of the merger announcement, management reaffirmed its long-term strategic objective of increasing the noninterest contribution to 50% of total revenues.

The combination will alter the geographical mix of net earnings, lowering the contribution from Bermuda and the Channel Islands and Central London by roughly 50% for each area; the contribution from Cayman will be only modestly lower than currently at standalone NTB. Going forward, the Bahamas, Turks & Caicos and Barbados will contribute about 30% of net earnings, all of which constitute new markets, except for the Bahamas where NTB engages in trust activities.

A key hallmark of the NTB standalone balance sheet is the degree of asset liquidity, including cash held and short-term investments, which perennially amounted to more than 20% of total assets (with overall liquid assets generally constituting about 65% of total assets). The level of short-term liquidity will decline to below 20% as a result of the much higher RWA density ratio at CIBC Caribbean.

Key Credit Considerations

Prior to the CIBC Caribbean merger announcement, the ratings were anchored by the bank’s well managed and consistently strong financial profile, characterized by a highly liquid balance sheet, low RWA density, historically modest cost of funds, diversified and resilient mix of fee businesses, and robust risk-adjusted equity capitalization (e.g., CET1 Ratio of 26.8% at 1Q26).

The Watch Developing status for all ratings incorporates the scale of the transaction, including entry into new geographical markets and the addition of a sizeable commercial loan book. The combination will also initially result in weaker financial metrics in the case of regulatory capital, asset liquidity, and fee income contribution.

Rating Sensitivities

KBRA’s near-term surveillance activities will focus on the overall financial and operational impact of the transaction, with a particular emphasis on regulatory capital and asset liquidity maintenance, post the closure of the merger, in the context of the pro forma earnings profile and entrance into new geographical markets, which could raise the overall risk profile.

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