The Bermuda Stock Exchange has this year launched its “Own Your Share of Bermuda” campaign to raise awareness of opportunities to invest in the island’s public companies. The Royal Gazette is supporting the effort by publishing weekly features on each of the 13 domestic companies listed on the BSX. In the fifth of the series, Jonathan Kent looks at Butterfield Bank.

Butterfield Bank may be in its 160th year in business, but in 2017 it is effectively embarking on a new era.

Having been brought to its knees by the impact of the US subprime mortgage crisis nearly a decade ago, Butterfield can claim to have finally put that painful episode behind it after a pivotal last 12 months.

It was a year when the rescuers of the bank — those who invested in $200 million of preference shares issued in 2009 and the institutions that ploughed $550 million into the bank a year later — got their money back with a tidy profit.

And on a momentous day in September, the bank launched a successful initial public offering of shares on the New York Stock Exchange, with chairman Barclay Simmons, chief executive officer Michael Collins and Michael Dunkley, the Premier, on hand to ring the opening bell on Wall Street — not to mention a troupe of Gombeys on the trading floor.

“With these events behind us, I believe Butterfield has emerged fully from the impact of the global financial crisis and is well placed to benefit from economic growth in our key markets,” Mr Simmons stated in Butterfield’s 2016 annual report.

From an investor’s viewpoint, there are many promising signs to note in recent years, including increasing earnings, a rising share price and acquisitions that will boost future earnings capacity.

Full-year net income in 2016 was $115.9 million, up $38.2 million on the year before. Both interest and non-interest income rose last year and the prospects for further gains look good in an rising interest-rate environment.

Twice in the last four months, Butterfield has raised its base rate for residential and commercial lending in line with quarter-point hikes by the US Federal Reserve. And with the Fed signalling two or three more increases this year alone, that should translate into improving margins for the bank.

While that will not be popular with borrowers, it’s certainly good news for shareholders.

The bank declared a quarterly dividend of 32 cents per share for the fourth quarter of last year — tripling the payout to shareholders from the same period a year before. Going forward, that translates into an attractive 4.1 per cent yield on the current share price of $31.50.

Since the crisis, the bank has cleaned up its loan portfolio — of which non-performing loans made up just 1.6 per cent as of the end of last year — and has made strides towards its strategic aim of becoming “the leading independent offshore bank and trust company”.

Acquisitions over the past three years have included a trust business in Guernsey, banking operations in Cayman and last year, the private banking investment management and trust businesses of HSBC in Bermuda.

While retail banking remains a key part of its business and a generator of the deposits that make up much of Butterfield’s $4.4 billion investment portfolio, Mr Collins sees the greatest opportunities ahead in catering to wealthier types.

As the CEO stated in the annual report: “Our mission is to build relationships and wealth as a trusted adviser to generations of mobile, high-net-worth families moving capital around the world.”

And he made no secret that the bank is on the lookout for further acquisitions that will fit with its growth objectives. “We continue to see opportunities to acquire offshore trust companies, with large international banks exiting certain jurisdictions and smaller firms sensing their vulnerability as the industry consolidates,” Mr Collins said.

While investors who have bought into the bank in recent years have done very well, longer-term shareholders still have a long way to go to recover the paper value they once had.

Ten years ago today, Butterfield shares were trading at $59 on the BSX. Taking into account the stock splits since then, today’s share price is down by about 84 per cent from that day.

Hundreds of millions of dollars were lost on the bank’s investments tied to US subprime mortgages that soured dramatically, sparking what was hopefully a once-in-a-generation global financial crisis.

But today’s Butterfield appears more focused in its purpose, more conservative in its management and all the wiser for the painful lessons of the past.

It is by far the biggest constituent of the BSX — with its $1.68 billion market capitalisation more than nine times bigger than second-largest BF&M — and the only domestic-board stock on the BSX trading above book value.

What is evident from the share price, at more than 2.3 times book value, is that the slew of institutions that have ploughed millions into the bank since its shares launched on the NYSE are bullish about its prospects for the future.

Disclaimer: This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Past performance is no guarantee of future results