The Bank of N.T. Butterfield & Son Limited Annual Report 2013 923_1 BNTB AR Cover 2013_PR_F.indd 2 14-03-21 9:39 AM 923_1 BNTB AR Cover 2013_PR_F.indd 3 14-03-20 5:02 PM About Butterfield CORECORE EARNINGSEARNINGS Butterfield is a diversified financial services group operating in six international financial centres. Find out more at We are a leading community bank in Bermuda and www.butterfieldgroup.com 76.6 million the Cayman Islands, and we provide wealth management services in all of the jurisdictions in which we operate. We have total assets of $8.9 billion. 39.5% We employ 1,133 people around the world. The parent company, The Bank of N.T. Butterfield & Son Limited, is a publicly traded company with a primary share listing on the Bermuda Stock Exchange. NET INCOME Capital Strength 78.2 million 205.5% Total Capital Ratio Tier 1 Capital Ratio 20092010 2011 2012 2013 CORECORE CASHCASH RETURNRETURN ONON TANGIBLE COMMON EQUITYEQUITY 10.3% 370 bps 10.1%7.2% 21.6% 15.7% 23.5% 17.7% 24.2% 18.5% 23.7% 19.6% CORE CASH EARNINGS PER SHARE Awards 0.11 37.5% CORE EFFICIENCY RATIO Best Private Bank 71.6% Bermuda 680 bps improvement 1 THE BAHAMAS | BERMUDA | CAYMAN ISLANDS | GUERNSEY | SWITZERLAND | UNITED KINGDOM Chairman & Chief Executive Officer’s Report to the Shareholders In 2013, Butterfield had core earnings of $76.6 million, or $0.11 per Legis Group’s fiduciary client base is an excellent complement to our share, an increase of 39.5% over 2012. The improvement in earnings existing book of business. The acquisition—Butterfield’s first since drove a similar increase in the core cash return on tangible common 2007—allows us to add scale to our international trust business and equity, which rose to 10.3% from 6.6% last year. depth to our international trust team without having to expand our geographic footprint. Net income in 2013 was $78.2 million, up from $25.6 million in 2012; last year’s net income having been affected by write-downs of goodwill Our efforts to enhance and expand our services and deepen client and downward market valuations of real estate held and used by the relationships have been recognised with several prestigious awards. Bank in its operations. Butterfield was named Bank of the Year – 2013 in our two largest markets, Bermuda and the Cayman Islands, by industry publication, The increase in core earnings against a backdrop of ongoing economic The Banker. Citywealth named Butterfield Trust Company of the Year in difficulties in key markets was a pleasing result and a validation of the both Switzerland and the Caribbean, and Private Bank of the Year in effectiveness of our strategy. the Caribbean in its 2014 International Financial Centre Awards. Most recently, Euromoney named Butterfield Best Private Bank in Bermuda. BUSINESS AND PRODUCT DEVELOPMENT The Bank remains strategically focused on balancing capital ORGANISATIONAL DESIGN preservation with appropriate expenditures on initiatives that will In 2013, we completed the conversion of our Guernsey and UK strengthen our core businesses over the long term. To that end, banking systems to an upgraded, shared platform, complementing an the Bank introduced new products in 2013 and continued to invest earlier Bermuda/Cayman conversion. The installation of common core in technology solutions and organisational realignments that will banking systems has facilitated the restructuring of operations and the strengthen our client relationships and further improve our streamlining of back-office processing. operating efficiency. A key objective of restructuring is the creation of business and Within our community banking markets—Bermuda and the Cayman support teams with multi-jurisdictional responsibilities. In 2013, Islands—our priority was enhancing electronic banking services we built upon our past success in centralising Human Resources, for clients. We introduced mobile banking applications for leading Information Technology, Finance, Asset Management and Trust by smart phones and tablets in both markets simultaneously, leveraging bringing Operations and Marketing personnel in different jurisdictions our recent investment in a banking system that is shared by both together under common reporting lines. The benefits of this kind of jurisdictions. In Bermuda, we were the first to market with Chip and restructuring include not only improved operating efficiency and the PIN credit card technology that will offer consumers and merchants ability to introduce new products and services to multiple markets added protection against fraud. In Cayman, we enhanced our suite more quickly, but also the creation of new leadership opportunities for of credit cards with the introduction of new cards featuring American Butterfield employees around the globe. Airlines® AAdvantage® travel rewards. CAPITAL MANAGEMENT Within our Corporate Banking division, our innovative, secured At year end, Butterfield’s capital position remained very strong, with deposit product, which is designed to address the liquidity, security a Tier 1 Capital ratio of 19.6% and a Total Capital ratio of 23.7%, well in and return preferences of high value, institutional clients, continued to excess of regulatory requirements. attract new deposits. At year end, secured deposit balances totalled $409 million, an increase of 45% over 2012. During the year, we continued the practice of returning excess capital that was not deployed for business development initiatives directly International trust services have been a cornerstone of Butterfield’s to our shareholders in the form of dividends and through share wealth management offering for decades, and judiciously expanding buy-back programmes. The Bank declared a special dividend of $0.04 our presence in that business to build non-interest income is a key per common and contingent value convertible preference share in part of the Bank’s overall growth strategy. In January 2014, in keeping February 2013 and thereafter, interim dividends of $0.01 per common with that goal, we announced that we had reached an agreement to and contingent value convertible preference share in the second, third acquire the trust and fiduciary services business of Legis Group, an and fourth quarters, totalling $38.5 million. We also repurchased independent, Guernsey-based financial services company. 4 million common shares and 12,000 preference shares during the year. 2 In addition, in May, Butterfield redeemed $53 million of Series A Directors and bade farewell to Sheila Lines and Pauline Richards, who 2018 Subordinated Notes, reducing annual interest expenses retired from the Board in May after five and seven years of service, by $4 million. respectively. We thank Sheila and Pauline for their contributions and dedication to Butterfield during their tenure on the Board. Core non-interest expenses were reduced by a total of $18.1 million (6.7%) in 2013 as a result of careful cost management that saw I look forward to working with my fellow Directors and colleagues as reductions in technology, communications, professional and outside we seek to continue to build sustainable value in Butterfield Group by services expenses, in addition to reductions in costs associated with delivering leading products and services to our clients, and supporting the streamlining of operations. The Bank’s core efficiency ratio stood the communities in which we operate. at 71.6% at year end, which represents an improvement of 680 basis points over the 2012 ratio. BOARD MATTERS The composition of the Board today is appropriately reflective of Butterfield’s geography, ownership and business interests. During Brendan McDonagh 2013, we welcomed Wendall Brown and Caroline Foulger as new Chairman & Chief Executive Officer Butterfield Annual Report 2013 3 Community Involvement At Butterfield, we recognise that our role within the communities in which we operate extends beyond providing financial services. Through our employees, who volunteer their time and skills to important causes, and through sponsorships and donations, Butterfield supports initiatives and organisations that are working to enhance prosperity, foster social progress and enrich the quality of the lives of the people in our communities. In 2013, Butterfield was pleased to provide support to the following organisations and events: HEALTH & HUMAN SERVICES AIDS FOUNDATION OF BILNEY LANE CHILDREN’S THE FAMILY CENTRE MACMILLAN CANCER THE SUNSHINE LEAGUE THE BAHAMAS supporting HOME, an orphanage and strengthening children, SUPPORT providing practical enhancing the lives of foster the fight against HIV/AIDS: foster home for children aged families and systems to medical and financial support children: Butterfield Hope donation (The Bahamas) five to 18: donation (The create a healthier community: for better cancer care: Award recipient – June 2013 Bahamas) Butterfield Hope Award donation (UK) (Bermuda) THE BACK UP TRUST recipient – March 2013 supporting individuals BREAST CANCER (Bermuda) THE PRINCESS TEEN SERVICES/TEEN who suffer from spinal cord FOUNDATION raising funds MARGARET HOSPITAL: HAVEN assisting in the injuries: donation (UK) to support the fight against GIVE A CHILD A RIDE donation (The Bahamas) empowerment of youth, breast cancer: donation cycling programme raising by promoting healthy BAHAMAS CRISIS CENTRE (Cayman Islands) funds for the advancement QUEEN ELIZABETH’S development through providing services to victims and education of children FOUNDATION FOR ongoing education, of physical, sexual and CAYMAN HOSPICE CARE residing in local orphanages: DISABLED PEOPLE working counselling