Highlights:
• Today announced a major new acquisition of Deutsche Bank’s banking businesses in the Cayman Islands, Guernsey and Jersey. Transaction is anticipated to close before the end of 2018;
• Board declared quarterly dividend of $0.38 per common share, a 19% increase;
• Announced a share repurchase program of up to one million common shares.
Financial highlights for the fourth quarter of 2017:
• Net income of $40.3 million, or $0.72 per share;
• Core net income1 of $42.2 million, or $0.76 per share;
• Return on average common equity of 19.7%; and core return on average tangible common equity1 of 22.3%;
• Net interest margin expands to 2.87%.

Hamilton, Bermuda—February 15, 2018: The Bank of N.T. Butterfield & Son Limited (“Butterfield” or the “Bank”) (BSX: NTB.BH; NYSE: NTB) today announced financial results for the fourth quarter and year ended December 31, 2017.

Net income for the year ended December 31, 2017 was $153.3 million, or $2.76 per diluted common share, compared to $115.9 million or $1.18 per common share for the year ended December 31, 2016. Core net income1 for the year ended December 31, 2017 was $158.9 million, or $2.86 per diluted common share, compared to $138.6 million, or $2.48 per diluted common share, for the year ended December 31, 2016.

The core return on average tangible common equity1 for the year ended December 31, 2017 was 22.4%, up from 20.5% for the year ended December 31, 2016. The core efficiency ratio1 for the year ended December 31, 2017 was 64.3%, compared with 63.8% in the previous year.

“I am pleased to report that Butterfield achieved record profits in 2017,” said Michael Collins, Butterfield’s Chairman and Chief Executive Officer. “These strong results were driven by our specialized banking and wealth management businesses that generate consistent fee income and an expanding net interest margin that benefited from our efficient deposit franchise and a rising rate environment.

1 See table “Reconciliation of US GAAP Results to Core Earnings” below for reconciliation of US GAAP results to non-GAAP measures

“We delivered core net income1 of $158.9 million, up $20.3 million or 14.6% year-on-year, and a core return on average common equity1 of 19.7% driven by strong performances in our core banking markets, as well as strong growth in our UK mortgage business.

“As part of our acquisition strategy, in October, we announced that we had reached our first agreement with Deutsche Bank to acquire its Global Trust Solutions (“GTS”) business. The GTS integration process is well underway and anticipated to close early in the second quarter of 2018, ahead of plan. We are pleased that over 90% of the staff have now accepted employment agreements with Butterfield.

“This morning we announced that we have reached a second agreement with Deutsche Bank to acquire their banking businesses in the Cayman Islands, Guernsey and Jersey. We are very excited about this acquisition as it could increase our deposit base by about 20% once integrated. It will help us establish a foothold in Jersey, an attractive banking market, as well as increasing our scale and market share in Cayman and Guernsey. The customer base has a very similar profile to our existing banking business and we look forward to welcoming the new relationship teams and their clients to the Butterfield Group.”

Net income for the fourth quarter of 2017 was $40.3 million, or $0.72 per diluted common share, compared to $41.1 million or $0.74 per common share for the third quarter of 2017. Core net income1 for the fourth quarter of 2017 was $42.2 million, or $0.76 per diluted common share, compared to $40.7 million, or $0.73 per diluted common share, for the third quarter of 2017.

Net interest income (“NII”) for the fourth quarter of 2017 was $76.1 million, an increase of $1.8 million compared with NII of $74.3 million in the third quarter of 2017 and an increase of $9.3 million compared with NII of $66.8 million in the fourth quarter of 2016. Improvements in NII were driven by higher volumes and higher yields on the investment portfolio and increased yields on the adjustable-rate loan portfolio.
Net interest margin (“NIM”) for the fourth quarter of 2017 was 2.87%, up 6 basis points from the NIM of 2.81% in the previous quarter and up 42 basis points from the NIM of 2.45% in the fourth quarter of 2016.

Results for the fourth quarter of 2017 included lower credit costs with a release of provision for credit losses of $5.4 million compared with a release of provision for credit losses of $0.9 million in the fourth quarter of 2016. In the fourth quarter of 2017 the provision release was partially offset by $2.5 million of valuation loss adjustment on a foreclosed property included in other real estate owned.

Non-interest income improved to $42.4 million for the fourth quarter of 2017, compared with $38.2 million in the previous quarter and $38.8 million in the fourth quarter of 2016.

Core non-interest expenses were $78.5 million in the fourth quarter of 2017, compared with $71.6 million in the previous quarter and $70.2 million in the fourth quarter of 2016. Expenses were significantly elevated in the quarter as the Bank accelerated investment in multiple programs, particularly Sarbanes-Oxley as well as compliance related systems and processes. Additionally, some office set up costs in Singapore were incurred ahead of completing the GTS acquisition. Finally, Butterfield increased the year-end performance-related compensation accruals in the quarter to align the 2017 bonus pools to the record financial performance for the year.

Capital Management

The total capital ratio as at December 31, 2017 was 19.9% as calculated under Basel III, which was effective for reporting purposes beginning on January 1, 2016. As of December 31, 2016, the Bank reported its total capital ratio under Basel III at 17.6%. Both of these ratios are significantly above regulatory requirements.

The Board remains committed to a balanced and progressive capital return policy. The Board declared an interim dividend of $0.38 per common share, an 18.8% increase over the previous quarter, to be paid on March 9, 2018 to shareholders of record on February 26, 2018. In addition, the Board approved a new share repurchase program pursuant to which the Bank is authorized to purchase up to one million common shares in the next year. The program is intended to further augment shareholder return and will become effective on April 1, 2018, subject to all regulatory approvals.

1 See table “Reconciliation of US GAAP Results to Core Earnings” below for reconciliation of US GAAP results to non-GAAP measures

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