Kudos from investment advisers continue to pour in for Butterfield Bank, with a Seeking Alpha headline echoing Moon Capital Management’s Q2 2024 letter to clients: “We know of no other bank generating [return on equity] In excess of 20 per cent and offering 9 per cent dividend yield.”

Observers highlighted Butterfield attributes under “portfolio addition”:

• A key strength is that it is a well-established trust and asset management business, which offers wealth management services to high-net-worth individuals, family offices and institutional/corporate clients

• Over the past five years, the company has earned an average return on equity of 23 per cent. This return has actually increased with higher interest rates — the return on equity was 27 per cent in 2023

The advice note said: “We aren't alone in viewing NTB equity as undervalued — the folks running the bank agree and the company has been repurchasing shares.”

The bank’s trust business has more than $132 billion in assets under administration, while the custody business has another $30 billion in assets — both of which generate highly attractive economics.

Moon Capital commentary said: “The trust business requires minimal capital to grow assets under management and generates higher margins and returns on equity than traditional banking activities.

“Unlike a traditional retail bank, approximately 40 per cent of the company's revenues are generated from fees, which are largely uncorrelated to interest rates. This creates recurring, interest-rate agnostic revenue and provides Butterfield with a greater degree of operating leverage than standard banking models.

“As a wealth management bank with limited competition in Bermuda, its deposit base is sticky, providing a relatively low cost of funds.

“The unique attributes of the business, combined with Bermuda's corporate tax-free status, have created a bank that generates high returns on equity throughout the economic cycle.

“NTB has a long history of acquiring smaller trust and wealth management units of larger banks in the Bahamas and Cayman Islands, the most recent being the acquisition of trust assets from Credit Suisse.

“Larger banks often view trust and wealth management operations in so-called 'tax havens' as subscale and potentially risky for their reputation.

“The increased compliance costs make it challenging for these smaller businesses to generate attractive economics.

“However, Butterfield specialises in trust and wealth management within markets where it has established scale, making it an ideal acquirer for local competitors that are smaller in size.

“Butterfield takes a conservative approach to managing its liquidity and overall balance sheet. The company holds roughly 21 per cent of its assets in cash and cash equivalents, compared with 3 per cent for the average US bank.

“When interest rates spiked in early 2023, resulting in the failure of Silicon Valley Bank and scores of other banks with mismatched assets/liabilities, NTB sailed through unfazed and even generated record profits.

“Butterfield also has minimal commercial real estate exposure, with a loan-to-deposit ratio of roughly 38 per cent [compared with 70 per cent for the US peer median].

“The company has conservative lending standards, with a loan book that mostly consists of underwritten mortgages in Bermuda with a loan-to-value profile below 60 per cent.

“While the company's loan book generates significant net-interest income, the company also maintains a high-quality, fixed-income portfolio that 100 per cent comprises AA or higher-rated securities that are primarily US Government-guaranteed, which helps create a capital buffer well in excess of regulatory requirements.”

At the time of writing, Butterfield was trading slightly above Moon Capital’s purchase price of about $34 per share, with a tangible book value of $20.

The surging NTB stock last closed up strongly at $39 on the Bermuda Stock Exchange and at $39.32 on Thursday on the New York Stock Exchange, after trading at times above $40.