Bank of N.T. Butterfield & Son Ltd Annual Report 2014

FY2014 Annual Report · Bank of N.T. Butterfield & Son Ltd
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COVER: Locking mechanism of the Chatwood vault installation, Main Banking Hall, Head Office, The Bank of N.T. Butterfield & Son Limited, Hamilton, Bermuda (circa 1953).

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BUTTERFIELD ANNUAL REPORT 2014  

MESSAGE FROM THE CHAIRMAN 
& CHIEF EXECUTIVE OFFICER

Dear Shareholders,

The acquisitions contributed to a modest increase in core operating expenses 

of $3.2 million during the year, but we saw our core efﬁciency ratio improve 

Butterﬁeld delivered strong results in 2014, generating core earnings of  

to 67.7%, better by 390 basis points than 2013. Expenses as a percentage of 

$106.4 million, or $0.17 per share, which represent improvements of 39% and 

revenues continue to trend downwards as we experience efﬁciencies from the 

55% over 2013, respectively. Return on shareholders’ equity, as measured by core 

installation of common core banking platforms in Bermuda/Cayman and Europe, 

cash return on average tangible common equity, was 15.1%, up from 10.3% the 

and the centralisation of key functions, as well as continued diligence in the 

previous year.

maintenance of stafﬁng levels as revenues rise.

Following the Bank’s recapitalisation ﬁve years ago, Butterﬁeld has posted core 

Looking forward, Butterﬁeld will continue to seek to deploy excess capital through 

proﬁts and continued to build capital with each successive year. Today, Butterﬁeld 

organic growth and prudent acquisitions in our core business areas—community 

is on a very solid footing, with a strong capital position and ample liquidity. Our 

banking and wealth management—in locations where we have a substantial 

core earnings are sustainable and growing. Our asset quality continues to improve. 

market presence and history, and a depth of expertise. In this way, we will continue 

to create sustainable value for our shareholders.

Butterﬁeld has achieved these results against 

a backdrop of low interest rates and lagging 

economic recovery in our key markets, which 

has continued to suppress demand for loans and 

limit some transaction volumes. Our progress, 

therefore, is owed principally to our internal focus 

on expanding our core businesses to create value, 

rather than an external, macroeconomic lift.

CREATING SUSTAINABLE VALUE

Our strategy for growth is centred on the 

development of our core businesses in existing 

markets, coupled with diligent management of 

expenses, capital and risks.

In April, Butterﬁeld completed the acquisition 

“Butterﬁeld is on a very solid 

footing, with a strong capital 

position and ample liquidity.

 Our core earnings are 

sustainable and growing. 

Our asset quality continues

 to improve.”

IMPROVING ASSET QUALITY

In 2014, Butterﬁeld completed the sales of two hotel 

properties in Bermuda that were in receivership. 

Those transactions contributed to a 31% reduction 

of gross non-accrual loans to $71.8 million, or 1.8% 

of total gross loans, from $104.1 million, or 2.5% of 

total gross loans, in 2013. 

Reﬂective of the protracted economic recovery 

affecting credit demand, loan run-offs exceeded 

gross loans written in Bermuda in 2014. Combined 

with the impact of unfavourable foreign exchange 

movements, offset by the acquisition of HSBC 

Cayman loans, the Group loan portfolio decreased by 

$69 million year over year. Over the same period, the 

of Legis Group’s Guernsey-based trust and corporate services business. The 

Bank’s investment portfolio grew by $400 million to $3.0 billion, 99.8% of which 

acquired personnel and clientele are complementary to our existing trust business 

was invested in A-or-better-rated securities.

in Guernsey—where Butterﬁeld has operated for more than 40 years—and have 

added scale and expertise to our operations without the need for expansion of 

EFFECTIVELY MANAGING CAPITAL

premises or signiﬁcant infrastructure investment. The Legis acquisition has been 

Earnings growth has driven organic growth of capital and, at year-end 2014, 

accretive to revenue and earnings, contributing signiﬁcantly to the $8.8 million increase 

Butterﬁeld’s Tier 1 and Total capital ratios were 19.0% and 22.2%, respectively, 

in non-interest income during 2014.

well in excess of requirements. 

Late in the year, Butterﬁeld also expanded its presence in the Cayman  
Islands—the Bank’s second largest market—by completing the acquisition of 

During the year, the Bank called a $90 million tranche of subordinated debt, which 
lowered our annual debt interest expense. We also continued to repurchase shares 

select deposit and credit business from HSBC, which has exited the community  

and provided direct returns to shareholders in the form of dividends. The Bank 

banking business locally. With the onboarding of more than 3,800 new accounts, 

repurchased $17 million of common shares and $0.7 million of preference shares 

Butterﬁeld has added approximately $0.5 billion of deposits, enhancing our 

during the year, and paid common dividends totalling $0.05 per share, or  

lending capabilities and providing us with economies of scale that will continue to 

$27 million. Subsequent to year end, the Board declared interim (fourth quarter) 

drive our long-term growth in the market.

and special common dividends of $0.01 each to be paid to common and contingent 
value convertible preference shareholders during the ﬁrst quarter of 2015.

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RESPONDING TO REGULATORY CHANGES

CONTRIBUTING TO OUR COMMUNITIES

Butterﬁeld devoted signiﬁcant time and resources in 2014 to developing an 

At Butterﬁeld, we take our commitment to corporate citizenship seriously and, 

effective set of procedures and systems to enable us to be fully compliant with the 

with strong earnings and capital, we are able to provide support to worthy 

reporting requirements of the US Foreign Account Tax Compliance Act (“FATCA”).

charities and programmes in the communities we call home. We provided 

We view FATCA as an important ﬁrst step in the ongoing process of improving 

donations, sponsorships and assistance to a range of non-proﬁt organisations 

transparency in international ﬁnancial services centres, which will serve to beneﬁt 
our industry. 

and community events in 2014, complete details of which are provided in the 
Community Involvement section of this Report, overleaf.

We will continue to invest proactively in the development of internal procedures 

Reﬂecting on the successes of 2014, and looking ahead to another promising year 

and controls to ensure that Butterﬁeld is compliant with all applicable  

in 2015, I would like to thank our employees for their ongoing dedication and 

know-your-client, tax, and source-of-funds-related reporting requirements,  

contributions in meeting the needs of our clients. I look forward to working with 

and able to respond effectively and completely to information requests from 

them, and with my fellow Directors, as we continue to strengthen and grow the 

our regulators. 

BOARD MATTERS

Bank for the beneﬁt of our shareholders and the wider community.

Butterﬁeld’s 10-member Board and its various committees provide direction to 

and oversight of the management team as we work to effect progressive change 

and grow the Bank. Butterﬁeld has beneﬁted from a high degree of continuity 

Brendan McDonagh

of service among both independent and non-independent Directors, and in 2014 

Chairman & Chief Executive Ofﬁcer

we had only one change of Director. In September, Victor Dodig retired from 

Butterﬁeld’s Board in advance of his appointment to the post of President & 

Chief Executive Ofﬁcer of CIBC. Shawn Beber replaced Mr. Dodig as one of CIBC’s 

representatives on the Board.

BUTTERFIELD ANNUAL REPORT 2014

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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 people in our communities.

In 2014, Butterﬁeld was pleased to provide support to the following organisations and events:

CULTURAL ORGANISATIONS & EVENTS

Abbotsford Trust 
conserving Abbotsford 
House and its collections for 
the beneﬁt of current and 
future generations (UK)

Bermuda National Trust 
Christmas Walkabout in  
St. George (Bermuda)

Cayman Arts Festival 
bringing varied and diverse 
performances to Cayman to 
help entertain and educate 
(Cayman Islands)

Cayman Carnival 
Batabano, the island’s 
national carnival providing 
youth with a platform to 
express their creativity and 
celebrate their Caribbean 
heritage (Cayman Islands)

Cayman Drama Society 
promoting drama, music and 
allied arts, and producing 
dramatic and artistic 
entertainment (Cayman Islands)

Cayman International 
Film Festival promoting 
Cayman as a ﬁlmmaking 

destination and supporting 
Cayman’s aspiring ﬁlmmakers 
(Cayman Islands)

Guernsey Eisteddfod 
annual music, drama, dance 
and art festival (Guernsey)

Cayman National Cultural 
Foundation Young At Arts 
Programme, an educational 
youth programme including 
after-school theatre 
instruction (Cayman Islands)

Guernsey Sinfonietta 
concert (Guernsey)

Guernsey Symphonic 
Winds November 
performance (Guernsey) 

European Piano Teachers 
Association annual recital 
and concert (Guernsey)

Guernsey Air Display 
annual air show (Guernsey)

Liberation Day 
Celebrations marking 
Guernsey’s liberation from 
German occupation in WWII 
(Guernsey)

EDUCATION & INSTRUCTION

National Children’s 
Festival of the Arts 
Young Musician of the Year 
Award (Cayman Islands)

National Gallery of the 
Cayman Islands promoting 
and encouraging the 
appreciation and practice of 
the visual arts of and in the 
Cayman Islands (Cayman 
Islands)

Rocquaine Regatta 
community day (Guernsey)

St. James Concert and 
Assembly Hall (Guernsey)

Simon Spillett Jazz 
Concert, an independently 
organised event to raise 
funds for the Saumarez Park 
playground (Guernsey)

TEDx Seven Mile Beach, 
an independently organised 
TED event devoted to 
sharing world-changing 
ideas (Cayman Islands)

Alpha Phi Alpha 
Fraternity providing 
mentoring to local students 
(Bermuda)

The Bermuda School of 
Music providing music 
education to the island 
(Bermuda)

Butterﬁeld School Supply 
Drive providing supplies 
to children at 23 schools 
(Bermuda)

Kaleidoscope Arts 
Foundation, a community 
arts centre dedicated to 
teaching art to children 
(Bermuda)

The Menuhin Foundation 
dedicated to bringing 
the art of string playing 
to Bermuda’s children 
(Bermuda)

Sir Dudley A. Spurling 
Postgraduate Scholarship 
awarded to Marlena Tucker 
(Bermuda)

Association of 
International Banks and 
Trust Companies Soft Skills 
Training Programme  
(The Bahamas)

Bermuda Zoological 
Society inspiring 
appreciation and care 
of island environments 
(Bermuda)

Butterﬁeld 
Undergraduate 
Scholarship awarded to 
Alexandra Anglin (Cayman 
Islands)

Kiwanis Club Résumé 
Writing Workshop at 
the Ranfurly Home (The 
Bahamas)

Sir Harry D. Butterﬁeld 
Scholarship awarded to 
Victoria Clarke (Bermuda)

SPORTS PROGRAMMES & SPORTING EVENTS 

Academy Sports Club 
youth football programme 
(Cayman Islands)

Butterﬁeld Bermuda 
Grand Prix 2014 cycling 
event (Bermuda)

Cayman Islands 
Basketball Association 
(Cayman Islands)

Cayman Islands 
Equestrian Federation 
providing training, 
organising competitions and 
working to prevent equine 
abuse (Cayman Islands)

Cayman Islands 
Gymnastics Foundation 
providing scholarships to 
young gymnasts to further 
their development within 
the sport (Cayman Islands)

Cayman Islands Golf 
Association supporting 
youth participation in golf 
(Cayman Islands)

Cayman Islands Little 
League Association 
youth t-ball and baseball 
programme (Cayman Islands)

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Cayman Islands Sailing 
Club providing youth sailing 
instruction (Cayman Islands)

Cayman Islands Squash 
Association junior squash 
programme (Cayman Islands)

Guernsey Sailing Trust 
enabling children from all 
walks of life to experience 
and enjoy sailing (Guernsey)

Freedom Farm Baseball 
League for children aged 
four to 18 (The Bahamas)

Guernsey Disability 
Football Club, a Special 
Olympics-afﬁliated club 
(Guernsey)

Guernsey Sports 
Association for the 
Disabled, an active club 
for people with learning 
or physical disabilities 
(Guernsey)

Cayman Islands Crisis Centre 
(Cayman Islands)

Swan Rendezvous 
Regatta yacht racing 
competition (Guernsey)

The Rock International 
Open (TRIO) kitesurﬁng 
competition  
(Cayman Islands)

St. Patrick’s Day 5K Irish 
Jog supporting the 

Tigers Football Club youth 
football team  
(Cayman Islands)

The Salvation Army 
meeting human needs 
and being a transforming 
inﬂuence in the community 
(Bermuda)

Saumarez Park 
Playground Appeal raising 
funds for a new adventure 
playground at Saumarez 
Park (Guernsey)

Save The Children working 
in 120 countries to save 
children’s lives, ﬁght for their 
rights and help them fulﬁl 
their potential (Guernsey)

Spitalﬁelds Crypt 
Trust supporting people 
recovering from addiction 
(UK)

Stroke Association 
funding research for stroke 
prevention and treatment, 
and supporting stroke 
survivors (UK)

Wellbeing of Women 
dedicated to improving the 
health of women and babies 
across the UK (UK)

HEALTH & HUMAN SERVICES

Addington Fund providing 
homes for farming families 
who have left the industry 
and lost their homes (UK)

AFASIC supporting parents 
and representing children 
with speech, language and 
communication needs (UK)

All Saints Camp of St 
John the Divine, a refuge 
for people with HIV/AIDS 
(The Bahamas)

The Back Up Trust 
supporting individuals who 
suffer from spinal cord 
injuries (UK)

Bahamas Crisis Centre 
providing services to victims 
of abuse (The Bahamas)

BBC Children In Need 
funding projects for 
disadvantaged youth  
(UK | Guernsey)

Big Brothers Big Sisters 
of Bermuda helping 
children of single-parent 
homes realise their potential 
(Bermuda)

Bilney Lane Children’s 
Home, an orphanage and 
foster home for children 
aged ﬁve to 18  
(The Bahamas)

Breast Cancer Foundation 
raising funds to support the 
ﬁght against breast cancer 
(Cayman Islands)

The Royal British Legion 
providing practical, 
emotional and ﬁnancial 
support to all members of 
the British Armed Forces 
past and present, and their 
families (UK | Guernsey)

Cancer Research UK 
funding research and 
providing information to the 
public to help beat cancer 
sooner (UK | Guernsey)

The Coalition for the 
Protection of Children 
working to ensure the rights 
and needs of children in 
Bermuda are met (Bermuda)

Havens Hospices caring for 
individuals with life-limiting 
illnesses and their families 
(UK)

North London Hospice 
caring for those with 
potentially life-limiting 
illnesses (UK)

Cayman Heart Fund 
developing programmes 
to reduce and prevent 
cardiovascular disease 
(Cayman Islands)

Cayman Islands Crisis 
Centre providing safe, 
temporary shelter for 
women and children and 
assistance to all victims of 
abuse (Cayman Islands)

Cayman Islands Hospice 
Care providing specialised 
nursing services and 
bereavement programmes 
(Cayman Islands) 

Cayman Islands Red Cross 
protecting human dignity by 
helping vulnerable people in 
crisis (Cayman Islands)

Cayman Islands Veterans 
Association providing 
services and support to 
ex-servicemen and women 
(Cayman Islands)

The Charitable 
Foundation for Physically 
Handicapped Children 
responding to the health, 
education and other needs 
of physically challenged 
children (Bermuda)

Deaf Access promoting the 
equality of deaf people (UK)

The Eliza DoLittle Society 
addressing the needs 
of Bermuda’s homeless 
population (Bermuda)

Feed Our Future funding 
nutritionally balanced 
low cost or free meals to 
schoolchildren in need 
(Cayman Islands)

Friends of Hospice 
supporting Agape House 
and hospice care in 
Bermuda (Bermuda)

Great Ormond Street 
Hospital for Children 
dedicated to ﬁnding new 
and better ways to treat 
childhood illnesses (UK)

Guernsey Chest & Heart 
Foundation providing free 
health screening services 
for the prevention and 
treatment of respiratory 
and circulatory disease 
(Guernsey)

Guernsey Stroke 
Association supporting 
stroke patients and their 
families (Guernsey)

Cheshire Home providing 
individual care and support 
for adults living with 
severe physical disabilities 
(Guernsey)

Guernsey Town Centre 
Partnership promoting the 
improvement, protection 
and preservation of St Peter 
Port (Guernsey)

Children’s Emergency 
Hostel providing temporary 
accommodation, food, 
clothing, medical care 
and other necessities to 
abandoned and neglected 
children (The Bahamas)

Hands of Love Ministry 
providing feeding and 
clothing programmes for the 
community and employment 
and housing programmes 
for ex-prisoners (Bermuda)

The Packwood Home 
seniors’ residence (Bermuda)

Pink Ladies Cancer 
Charity breast cancer 
support group (Guernsey) 

Priaulx Premature Baby 
Foundation assisting 
the Neo Natal Unit and 
supporting families 
of premature babies 
(Guernsey)

The Ranfurly Home For 
Children providing a safe 
haven for orphaned, abused, 
neglected or abandoned 
children (The Bahamas)

Rotaract Club of Grand 
Cayman empowering 
students and young 
professionals to create 
positive change in their  
local communities  
(Cayman Islands)

Rotary Club End Polio Now 
Campaign (Guernsey)

St. John Ambulance & 
Rescue Service providing 
24-hour accident and 
emergency cover and 
paramedic response and 
non-emergency patient 
transport (Guernsey)

St. Saviour Community 
Centre fostering community 
spirit through social, leisure 
and community events 
(Guernsey)

Help For Heroes 
supporting wounded 
servicemen and women and 
their families (Guernsey)

Juvenile Diabetes 
Research Foundation 
funding research to cure, 
treat and prevent type 1 
diabetes (Guernsey)

LEPRA assisting people and 
communities affected by 
some of the world’s oldest 
and most neglected diseases 
(UK)

Macmillan Cancer 
Support providing practical 
medical and ﬁnancial 
support for better cancer 
care (UK)

Maggie’s Centres offering 
practical, emotional, and 
social support for people 
with cancer (UK)

Maison St. Pierre providing 
accommodation and life-
skills training for homeless 
women and their children 
(Guernsey)

Meals On Wheels 
delivering meals to seniors 
(Cayman Islands)

Mercury Phoenix Trust 
providing funding for the 
global battle against HIV/
AIDS (Guernsey)

National Council of 
Voluntary Organisations 
dedicated to the care, 
education, and well-being of 
children and families in need 
(Cayman Islands)

BUTTERFIELD ANNUAL REPORT 2014

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BOARD OF DIRECTORS & 
PRINCIPAL BOARD COMMITTEES

COMMITTEES INDICATED BY NUMBERS

1

CHAIRMAN 

BRENDAN MCDONAGH 

Chief Executive Ofﬁcer,

The Bank of N.T. Butterﬁeld & Son Limited

1,3,5

VICE CHAIRMAN 

BARCLAY SIMMONS* 

Managing Partner,

Attride-Stirling & Woloniecki, Barristers & Attorneys

1,2,4

ALASTAIR BARBOUR*

Retired Partner, KPMG

2,4

SHAWN BEBER

Senior Vice-President,

Strategy and Corporate Development, CIBC

2,5

WENDALL BROWN*

Chairman & President, BDC 2000

X

1,2,4

CAROLINE FOULGER*

Retired Partner, PwC

3,5

OLIVIER SARKOZY

Managing Director and Head of The Carlyle Group’s  

Global Financial Services Group

1,3,5
WOLFGANG SCHOELLKOPF*

Managing Partner, 

PMW Capital Management

1,3,5

RICHARD VENN   

Strategic Advisor, 

REV Advisory Ltd. 

3,4

JOHN WRIGHT* 
Retired Bank Chief Executive

PRINCIPAL BOARD COMMITTEES

1. EXECUTIVE COMMITTEE OF THE BOARD OF 

3. RISK POLICY AND  

DIRECTORS

COMPLIANCE COMMITTEE

Supports the Board in fulﬁlling its overall  

Focuses on credit, market and 

governance responsibilities.

operational risk.

2. AUDIT COMMITTEE

4. CORPORATE GOVERNANCE COMMITTEE

Oversees Butterﬁeld’s ﬁnancial reports, internal 

Focuses on Directors’ and Board Committee 

ﬁnancial controls, internal audit processes

governance, performance and  

and compliance.

Directors’ nominations.

5. COMPENSATION AND HUMAN  

RESOURCES COMMITTEE

Focuses on compensation and  

beneﬁts, employee development  

and succession.

DIRECTORS’ CODE OF PRACTICE AND CODES OF CONDUCT

The Directors have adopted a Code of Best Practice based upon recommended principles of corporate governance. In implementing the Code, the Board meets regularly, 
retains full effective control over the Bank, and monitors executive management. Codes of Conduct & Ethics apply to Directors and employees and impose Butterﬁeld’s 
principles of business, including ethics and conﬂicts of interest. Copies of the Codes can be accessed on www.butterﬁeldgroup.com.

*Independent, Non-Executive Director. On an annual basis, the Corporate Governance Committee ensures the appropriate composition of the Board and its Committees in accordance with the 
Group’s Corporate Governance Policy. The assessment of the independence of a Director is based upon a number of factors including, but not limited to: whether he or she has been employed by 
the Group within the last ﬁve years; whether he or she has had, within the last three years, a material relationship with the Group; and whether he or she represents a signiﬁcant shareholder.

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GROUP EXECUTIVE 
MANAGEMENT 

BRENDAN MCDONAGH

Chairman & Chief Executive Ofﬁcer

MICHAEL COLLINS

Senior Executive Vice President

Bermuda

CONOR O’DEA

Senior Executive Vice President

International Banking

DANIEL FRUMKIN

Executive Vice President

Chief Risk Ofﬁcer

DONNA HARVEY MAYBURY

Executive Vice President

Human Resources

JOHN MARAGLIANO

Executive Vice President 

Chief Financial Ofﬁcer

ROBERT MOORE

Executive Vice President

Head of Group Trust

SHAUN MORRIS 

Executive Vice President 
General Counsel, Group Chief Legal Ofﬁcer

MICHAEL NEFF

Executive Vice President

Head of Group Asset Management

OWEN MARTIN

Senior Vice President 

Group Internal Audit 

BUTTERFIELD ANNUAL REPORT 2014
BUTTERFIELD ANNUAL REPORT 2014

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 
Note 1: Nature of Business 
Note 2: Signiﬁcant Accounting Policies 
Note 3: Cash and Cash Equivalents 
Note 4: Short-Term Investments 
Note 5: Investments 
Note 6: Loans 
Note 7: Credit Risk Concentrations 
Note 8: Premises, Equipment and Computer Software 
Note 9: Goodwill and Other Intangible Assets 
Note 10: Customer Deposits and Deposits from Banks 
Note 11: Employee Future Beneﬁts 
Note 12: Credit-Related Arrangements and Commitments 
Note 13: Loan Interest Income 
Note 14: Segmented Information 
Note 15: Derivative Instruments and Risk Management 
Note 16: Fair Value of Financial Instruments 
Note 17: Interest Rate Risk 
Note 18: Subordinated Capital 
Note 19: Earnings Per Share 
Note 20: Share-Based Payments 
Note 21: Share Buy-Back Plans 
Note 22: Accumulated Other Comprehensive Loss 
Note 23: Capital Structure 
Note 24: Investments in Afﬁliates 
Note 25: Income Taxes 
Note 26: Business Combinations 
Note 27: Related Party Transactions 
Note 28: Comparative Information 
Note 29: Subsequent Events 

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SHAREHOLDER INFORMATION  

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TABLE OF CONTENTS 

MANAGEMENT’S DISCUSSION & ANALYSIS OF  

OPERATIONS AND FINANCIAL CONDITION 
Performance Measurement  
About Butterﬁeld  
Business Strategy 
2014 Overview  
Market Environment  
2015 Outlook 
Financial Summary  

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CONSOLIDATED RESULTS OF OPERATIONS AND  

DISCUSSION FOR FISCAL YEAR ENDED 31 DECEMBER 2014  

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CONSOLIDATED BALANCE SHEET AND DISCUSSION  

OFF BALANCE SHEET ARRANGEMENTS 

RISK MANAGEMENT  

JURISDICTION AND BUSINESS LINE OVERVIEWS 
Bermuda 
Cayman Islands 
Guernsey  
United Kingdom 
Group Trust 
Group Asset Management 

FINANCIAL STATEMENTS 
Management’s Financial Reporting Responsibility 
Independent Auditor’s Report to the  
Board of Directors and Shareholders 
Consolidated Balance Sheets 
Consolidated Statements of Operations 
Consolidated Statements of Comprehensive Income 
Consolidated Statements of Changes in Shareholders’ Equity  
Consolidated Statements of Cash Flows 

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MANAGEMENT’S DISCUSSION & ANALYSIS OF  
RESULTS OF OPERATIONS AND FINANCIAL CONDITION 

The ﬁnancial overview of results of operations and ﬁnancial condition should be read in conjunction with our consolidated ﬁnancial statements and the related 
notes. The consolidated ﬁnancial statements and notes have been prepared in accordance with generally accepted accounting principles in the United States 
of America (“GAAP”). All references to “Butterﬁeld”, the “Group” or the “Bank” refer to The Bank of N.T. Butterﬁeld & Son Limited and its subsidiaries on a 
consolidated basis. Certain statements in this discussion and analysis may be deemed to include “forward looking statements” and are based on management’s 
current expectations and are subject to uncertainty and changes in circumstances. Forward looking statements are not historical facts but instead represent only 
management’s belief regarding future events, many of which by their nature are inherently uncertain and outside of management’s control. Actual results may 
differ materially from those included in these statements due to a variety of factors, including worldwide economic conditions, success in business retention and 
obtaining new business and other factors.

PERFORMANCE MEASUREMENT
We use a number of ﬁnancial measures to assess the performance of our 
business. Some measures are calculated in accordance with GAAP, while other 
measures do not have a standardised meaning under GAAP. Accordingly, these 
measures, described below, may not be comparable to similar measures used 
by other companies. Investors may however ﬁnd these non-GAAP ﬁnancial 
measures useful in analysing ﬁnancial performance.

Return on Common Equity (“ROE”)
ROE measures proﬁtability by revealing how much proﬁt is generated with 
the money invested by common shareholders. ROE is the amount of net 
income to common shareholders as a percentage of average common equity 
and calculated as Net Income to Common Shareholders / Average Common 
Equity. Net income is for the full ﬁscal year (before dividends paid to common 
shareholders but after dividends to preference shareholders). Common equity 
does not include the preference shareholders’ equity.

Core Cash Return on Average Tangible Common Equity (“CCROTCE”)
CCROTCE measures core cash proﬁtability as a percentage of average 
tangible common equity.  CCROTCE is the amount of core income to common 
shareholders excluding amortisation of intangible assets as a percentage of 
average tangible common equity and is calculated as Core Cash Earnings to 
Common Shareholders / Average Tangible Common Equity. Core cash earnings 
to common shareholders is net earnings to common shareholders for the full 
ﬁscal year (before dividends paid to common shareholders but after dividends 
to preference shareholders) adjusted for one-off items not in the ordinary 
course of business plus amortisation of intangible assets expensed in the year. 
Average tangible common equity does not include the preference shareholders’ 
equity or goodwill and intangible assets.

Tangible Total Equity/Tangible Asset Ratio (“TE/TA”)
TE/TA is used to determine how much loss the Bank can take before 

subordinated debt capital is impacted. The TE/TA ratio is calculated as 
(Common Equity + Preferred Equity - Intangible Assets - Goodwill) / Tangible 
Assets. Tangible equity does not include goodwill or intangible assets. Tangible 
assets are the Bank’s total assets from continuing operations less goodwill 
and intangibles. 

Tangible Common Equity/Tangible Asset Ratio (“TCE/TA”)
TCE/TA is used to determine how much loss the Bank can take before forms of 
capital other than common equity are impacted. The TCE/TA ratio is calculated 
as (Common Equity - Intangible Assets - Goodwill) / Tangible Assets. Tangible 
common equity does not include preference shareholders’ equity or goodwill 
and intangible assets. Tangible assets are the Bank’s total assets from 
continuing operations less goodwill and intangibles. 

Total Capital Ratio
The Total capital ratio measures the amount of the Bank’s capital in relation 
to the amount of risk it is taking. All banks must ensure that a reasonable 
proportion of their risk is covered by permanent capital. Under Basel II, Pillar 
I, banks must maintain a minimum Total capital ratio of 8%. In effect, this 
means that 8% of risk-weighted assets must be covered by permanent or near 
permanent capital. The risk weighting process takes into account the relative 
risk of various types of lending, ﬁnancial instruments and other exposures. 
The higher the capital adequacy ratio a bank has, the greater the level of 
unexpected losses it can absorb before becoming insolvent.

Tier 1 Capital Ratio
The Tier 1 capital ratio is the ratio of the Bank’s core equity capital, as measured 
under Basel II, to its total risk-weighted assets (“RWA”). RWA are the total  
of all assets held by the Bank weighted by credit risk according to a formula 
determined by the Regulator plus a component for operational risk. The Bank 
follows the Basel Committee on Banking Supervision (“BCBS”) guidelines in 
setting formulae for calculation of the components of total RWA. 

BUTTERFIELD ANNUAL REPORT 2014

9

Tier 1 Common Ratio
The Tier 1 common ratio is the same as the Tier 1 capital ratio but excludes 
preference shareholders’ equity in the numerator.

Return on Assets (“ROA”)
ROA is an indicator of proﬁtability relative to total assets and demonstrates 
how efﬁcient management is at using the assets to generate earnings. The ROA 
ratio is calculated as Annual Net Income / Average Total Assets.

Core Cash Return on Average Tangible Assets (“CCROATA”)
CCROATA is an indicator used to assess the core cash proﬁtability of average 
tangible assets and demonstrates how efﬁciently management is utilising its 
tangible assets to generate core cash net income. CCROATA is calculated by 
taking the core income to common shareholders excluding amortisation of 
intangible assets as a percentage of average tangible assets and is calculated 
as Core Cash Earnings to Common Shareholders / Average Tangible Common 
Equity. Core net income is the net income adjusted for one-off items not in the 
ordinary course of business, annualised. 

Net Interest Margin (“NIM”)
NIM is a performance metric that examines how successful the Bank’s 
investment decisions are compared to its cost of funding assets and is 
expressed as net interest income as a percentage of average interest-earning 
assets. NIM is calculated as Net Interest Income Before Provision for Credit 
Losses / Average Interest-Earning Assets. Net interest income is the interest 
earned on cash and cash equivalents, investments, loans and other interest 
earning assets minus the interest paid for deposits, short-term borrowings and 
long-term debt. The average interest-earning assets is calculated using daily 
average balances of interest-earning assets.

Efﬁciency Ratio 
The efﬁciency ratio is an indicator used to assess operating efﬁciencies and 
demonstrates how efﬁciently management is controlling expenses relative 

to generating revenues. The efﬁciency ratio is calculated by taking the cash 
non-interest expenses as a percentage of total revenue before gains and losses 
and provisions for credit losses and is calculated as (Non-Interest Expenses 
– Amortisation of Intangible Assets) / (Non-Interest Income + Net Interest 
Income Before Provision for Credit Losses).  

Core Efﬁciency Ratio 
The Core Efﬁciency Ratio is an indicator used to assess core operating 
efﬁciencies relative to generating core revenues. The core efﬁciency ratio is 
calculated by taking the core cash non-interest expenses as a percentage of 
total core revenue before gains and losses and provisions for credit losses and is 
calculated as (Core Non-Interest Expenses – Amortisation of Intangible Assets) 
/ (Core Non-Interest Income + Core Net Interest Income Before Provision for 
Credit Losses).   

Non-Performing Assets (“NPA”) Ratio  
NPA ratio is an indicator of the credit quality of the Bank’s total assets by 
expressing the non-performing assets as a percentage of total assets. The NPA 
ratio is calculated as (Gross Non-Accrual Loans – Speciﬁc Allowance for Credit 
Losses on Non-Accrual Loans + Accruing Loans Past Due 90 days + Other Real 
Estate Owned) / Total Assets.

Non-Accrual (“NACL”) Ratio
The NACL ratio is an indicator used to assess the credit performance of the 
Bank’s loan portfolio by calculating the non-accrual loans as a percentage of 
loans. The NACL ratio is calculated as Gross Non-Accrual Loans / Gross Total 
Loans. Note the reference to gross implies the amounts prior to loan allowances 
for credit losses.

ABOUT BUTTERFIELD
Established in 1858, Butterﬁeld provides community banking and wealth management in Bermuda and select markets in the Caribbean and Europe. Today we 
are the largest independent bank in Bermuda and have a signiﬁcant market position in the Cayman Islands.  Group-wide, we have over 1,100 employees across 
six jurisdictions. Butterﬁeld offers a full range of banking services in Bermuda and the Cayman Islands, consisting of institutional, corporate, commercial and 
retail banking and treasury activities. In wealth management, we provide private banking, asset management, custody and trust services to individual, family, 
institutional and corporate clients from our headquarters in Bermuda and subsidiary ofﬁces in The Bahamas, the Cayman Islands, Guernsey, Switzerland and the 
United Kingdom. 

10

BUSINESS STRATEGY
Whilst remaining well-capitalised with strong liquidity, our strategic focus 
is on building shareholder value by expanding our share of the community 
and private banking markets in jurisdictions in which we have a meaningful 
presence and a depth of local market knowledge. Our strategy also involves 
leveraging our multi-jurisdictional trust, custody and asset management 
offerings to build our wealth management business from both cross-referrals 
with existing customers and business development through referrals and 
relationships with ﬁduciaries and advisers. We aim to build upon our 
relationship-based business approach by delivering exceptional client service 
experiences, as well as a wide range of products to meet our clients’ ﬁnancial 
service needs.

The wide range of products on offer is reﬂective of our strategy of pursuing 
opportunities in diversiﬁed businesses including community banking, private 
banking, asset management, custody, corporate trust and personal trust 
services. These diverse businesses directly contribute to the high level of fee 
income at 36% of revenue before credit provisions and gains or losses.

Building on our community banking and wealth management strategies will 
also leverage our strong and loyal client base. Unlike many banks, Butterﬁeld 
is almost exclusively funded by our shareholders and customers. Our core 
customer deposits have been very stable; even throughout the credit crisis. 
Our core deposit base includes $1.6 billion of non-interest earning deposits 
and together with $849 million of equity, the Bank can invest in longer 
duration assets and earn a higher yield on $2.0 billion of assets with very low 
interest rate risk. This contribution reﬂects the strength of being a deposit-led 
organisation even in times of low interest rates.

Given the large, loyal customer deposit base enjoyed in our main jurisdictions, 
and the relatively low volume of lending demand from our customer base, 
our investment strategy is more important than is the case for most ﬁnancial 
institutions. At 31 December 2014, we had $5.4 billion of cash and investments 
representing 55% of total assets. In recognition of this deﬁning characteristic 
of Butterﬁeld, we maintain a conservative approach to our investments. 
With the help of our investment advisers, we continued to manage our 
interest rate risk, which measures the degree to which our proﬁtability is at 
risk due to changes in interest rates. Our focused investment strategy has 
allowed us to improve the proﬁtability of our investments despite the ongoing 
challenges of a changing investment climate, whilst minimising credit risk in 
the investment book. Our continued management of interest rate risk requires 
us to purchase primarily ﬁxed-rate investments that, whilst complying with 
our credit safety requirements, will experience temporary declines in market 
values when rates start to increase. Rising interest rates will improve the 
proﬁtability of Butterﬁeld, such that these anticipated negative marks are part 
of our strategy. They will not affect earnings, as they are not credit-related, 
but they will potentially give rise to negative impacts in equity through “other 
comprehensive income” for available-for-sale (“AFS”) investments. To minimise 

the impact on our equity in such circumstances, whilst implementing proper 
management of interest rate risk, we held $338 million of investments in the 
held-to-maturity (“HTM”) portfolio at year end.

To support our strategy, the Bank aligns our management structure to focus on 
lines of business and central support services with increasingly less emphasis 
on independent management by jurisdiction. However, we remain ﬂexible and 
nimble in each jurisdiction, with business development and decision making 
on client service-related matters based locally. In addition, we continue to 
invest heavily in new technology allowing for new and more ﬂexible products, 
enhanced customer service and a streamlined, more efﬁcient operation. We 
expect that recent investments in core banking systems in our two largest 
markets (Bermuda and Cayman), upgrades in Guernsey and the United 
Kingdom, and the introduction of mobile banking in Bermuda and Cayman will 
enhance our strategy by driving additional revenue opportunities, improving 
internal controls, and creating new operational efﬁciencies. 

2014 OVERVIEW
In 2014, the Bank made solid progress in building value for shareholders, 
raising the core cash return on average tangible common equity to 15.1% and 
core cash EPS to $0.17, up substantially from 10.3% and $0.11, respectively, 
in 2013. That progress was driven by a continued focus on prudent expansion 
within our core businesses and markets, and diligent management of capital, 
expenses and risks. Coupled with our ongoing diligence in the management of 
our balance sheet, each successive quarter of proﬁtability in 2014 has translated 
into growth of capital, which has enabled the Bank to deploy funds not only 
to accretive acquisitions, but also to the retirement of subordinated debt, 
the repurchase of shares and the payment of common dividends to directly 
enhance shareholder returns, whilst maintaining strong capital ratios that are 
well in excess of regulatory requirements. As a result of our focused strategy, 
Butterﬁeld is a stronger bank, core earnings are stable and growing, and asset 
quality is solid.

Core earnings improved by $29.8 million to $106.4 million, building on our 
strong capital position with Total and Tier 1 capital ratios of 22.2% and 19.0%, 
respectively. To enhance common shareholder returns, the Board declared a 
fourth interim dividend of $0.01 per common and contingent value convertible 
preference share and a special dividend of $0.01 per common and contingent 
value convertible preference share on 26 February 2015. Going forward, the 
Board will continue to assess capital planning options and declare dividends as 
warranted, subject to regulatory approval.

The Bank’s balance sheet remains strong, with shareholders’ equity ending 
the year at $849 million, of which $183 million is 8% preference shareholders’ 
equity and $666 million is common and contingent value convertible preference 
shareholders’ equity (“common equity”). Total assets increased by $1.0 billion 
to $9.9 billion, driven by a $1.0 billion increase in customer deposit levels 
reinvested in cash, short-term investments and investments.  

BUTTERFIELD ANNUAL REPORT 2014

11

Shareholders’ equity increased by $46 million mainly due to net income earned 
during 2014 net of dividends to shareholders.

During the ﬁrst quarter of 2014, the Bank announced that it had reached an 
agreement to expand its trust and ﬁduciary services presence in Guernsey—
one of Butterﬁeld’s core markets—through the acquisition of Legis T & C 
Holdings Limited (“Legis”). On 1 April 2014, Butterﬁeld Trust (Guernsey) 
Limited (“BTGL”) acquired all of the outstanding common shares of Legis for a 
maximum purchase price of up to $39.6 million. Legis is a Guernsey-based trust 
and corporate services business. The acquisition was undertaken to enhance 
the Bank’s market presence and widen the Bank’s range of corporate and 
institutional trust services. 

In July 2014, the Bank announced an agreement to acquire parts of the 
corporate and retail banking business of HSBC Bank (Cayman) Limited (“HSBC 
Cayman”) in the Cayman Islands—another of our core markets. The acquisition 
was completed in the fourth quarter of 2014. We are committed to providing 
banking innovation and leadership in Cayman, and by welcoming customers of 
HSBC to the Butterﬁeld family, we are continuing to strengthen our community 
banking market presence. This transaction strengthens our core business 
and market position in Cayman and is in keeping with our Group strategy of 
deploying capital to business development in core markets and businesses in 
which we have the scale and expertise to drive long-term growth.

Key accomplishments in 2014 were as follows:

 •   Core proﬁtability: The Bank delivered excellent growth in core net 

income, up $29.8 million (39%) to $106.4 million from $76.6 million  
in 2013.

 •   Investment strategy: NIM improved by 10 basis points to 274 basis 

points compared to 264 basis points in 2013. Underlying this increase, 
earning asset yields increased by 6 basis points from an increase in 
investment portfolio yields. The cost of funds declined by 5 basis points 
to 32 basis points due to the retirement of $90 million of subordinated 
capital and higher levels of non-interest bearing balances.

  •   Core expenses: Core non-interest expenses increased by $3.3 million, 
from $253.7 million in 2013, to $257.0 million in 2014 as a result of the 
two acquisitions, whilst the core efﬁciency ratio improved from 71.6% in 
2013 to 67.7% in 2014 reﬂecting the faster rate of revenue increase over 
the marginal increase in expenses.

  •   Headcount: Across the Group, headcount on a full-time equivalency 

basis, excluding students, increased by 31 from 1,133 as at 31 December 
2013 to 1,164 at the end of 2014 due to the integration of staff from the 
Legis and HSBC Cayman acquisitions.

•   Deposits: Customer deposits increased by $1.0 billion due to both 

organic deposit growth and the acquisition of HSBC Cayman deposits 
in November 2014, whilst interest bearing deposit costs increased 
marginally by 1 basis point from 30 basis points in 2013 to 31 basis 
points in 2014. Together with non-interest bearing deposits totalling 
$1.6 billion at 31 December 2014, the average cost of deposits  
remained ﬂat at 26 basis points.

 •   Loan quality: As at 31 December 2014, the Bank had gross non-accrual 
loans of $71.8 million representing 1.8% of total gross loans, reﬂecting 
an improvement from the $104.1 million, or 2.5%, of total loans at 
year-end 2013. Net non-accrual loans were $53.0 million, equivalent to 
1.3% of net loans, after speciﬁc provisions of $18.8 million, reﬂecting an 
increased speciﬁc provision coverage ratio of 26.2%, up from 21.2% at 
31 December 2013.

 •   Investment grade ratings: Moody’s at A3; Standard & Poor’s at  

BBB+; and Fitch at A-.

MARKET ENVIRONMENT
In 2014, the global economy expanded at a slightly better pace than in the 
previous year, but with a degree of inconsistency across geographic regions. 
A few key countries are showing clear signs of growth and improvement, but 
Europe, in particular, continued to experience economic challenges. Most 
economic forecasts remain cautiously optimistic that the global recovery will 
show slow and modest improvement. 

The latest data available in the United States (“US”) have shown that the 
economy experienced continued improvement in 2014. The Federal Reserve 
saw signiﬁcant enough improvement in labour markets to warrant the 
conclusion of its latest round of quantitative easing stimulus, although the 
cumulative size of the balance sheet expansion remains in place. Better 
employment ﬁgures have supported continued increases in consumer 
conﬁdence and spending, and have contributed to continued stabilisation in the 
housing market. Inﬂation in the US has remained subdued.

The Eurozone remained weak in 2014 with high unemployment rates, 
particularly in Southern Europe, and minimal real GDP growth below 1%. 
The European Central Bank (“ECB”) has taken several steps to ensure that 
measured inﬂation and inﬂation expectations do not turn negative. Both 
negative deposit rates and large new quantitative easing programmes have 
been announced and implemented in the second half of 2014 and early 2015. In 
contrast to the situation in the Eurozone, the economy in the United Kingdom 
(“UK”) improved markedly in 2014, returning to what most forecasters would 
consider its “trend” growth rate. The unemployment rate in the UK, much like 
in the US, declined faster than anticipated, supporting consumer conﬁdence 
and spending.

12

 
 
 
 
 
 
 
 
 
  
 
 
 
 
As noted above, the improvement in UK real GDP growth should continue at 
a similar pace in 2015. The Bank of England is in a very similar position to the 
US Federal Reserve, but is closer to the situation in continental Europe, where 
measured inﬂation is very low. Any increases to interest rates in the UK should 
be focused on the second half of the year and be at a measured and orderly 
pace. In the Eurozone, the ECB stimulus together with a weakening Euro and 
lower oil prices should support a strengthening Eurozone economy. 

With recent positive developments in its economic outlook, including its 
selection to host the 2017 America’s Cup and the resurgence of hospitality 
construction projects, Bermuda appears well-positioned to post modest  
GDP growth, despite downward pressure from consolidations in the  
insurance industry.

In the Cayman Islands, GDP is expected to improve from 2014 with 
continuing strength in hospitality, construction, and real estate. Additionally, 
unemployment is expected to register a slight improvement, though inﬂation 
pressures will continue.

Our asset and liability management strategy focuses on net interest income at 
risk in various interest rate environments. We match our expected investment 
ﬂows with maturities and expected deposit behaviour on the liability side of 
the balance sheet, which neutralises the impact of changing interest rates in 
any given reporting period. These investments position us so we are not reliant 
on rising rates to achieve adequate proﬁtability. However, when higher rates 
materialise, core proﬁtability should be further improved. Higher rates will 
also have a restraining effect on capital levels as they will reduce the market 
values of our longer-dated securities in our AFS book, partially offset by lower 
liabilities for future pension and health costs for employees. 

In 2015, our strategy remains unchanged as we continue to focus our  
attention on the development of our core businesses, which we expect will 
drive revenue growth and improve our efﬁciency ratio as we maintain our  
focus on cost containment.

The Bermuda economy remains challenged, but improved during 2014. 
Although ofﬁcial ﬁgures for 2014 have not yet been released, economic 
indicators (e.g., retail sales index) suggest that real GDP was positive in 2014. 
Consumer and business conﬁdence also improved in the second half of 2014 
as Bermuda was awarded the right to host the 2017 America’s Cup. Whilst 
tourism remains a small part of the Bermuda economy, Bermuda is expected 
to beneﬁt from signiﬁcant publicity, construction of facilities and hotels, and 
higher economic activity over the next two years in relation to the America’s 
Cup events.

The Cayman Islands experienced GDP growth in 2014 with strength noted 
in the hotel, restaurant, real estate, rental and business activity sectors. The 
consumer price index showed a modest decrease in 2014 from its higher 2013 
levels, with higher costs for household goods, education and transport offset  
by lower costs for housing and utilities and miscellaneous goods and services.

The mixed economic climate in our two largest operations in 2014 resulted  
in limited loan demand and continued pressure on customers’ ability to  
service loan payment obligations. Similarly, our private banking business in 
Europe experienced limited loan growth due to increase competition and 
pricing pressures.

In this mixed macroeconomic climate, the Bank continues to maintain a highly 
liquid balance sheet with a low-risk investment portfolio and no reliance on 
wholesale money markets for liquidity. Total liquid cash and investments made 
up 55% of the Bank’s balance sheet at year-end 2014, which is up from 50% at 
the end of 2013.

2015 OUTLOOK
We are cautiously optimistic that improvements noted in certain areas of  
the global economy during 2014 will continue. However, the ability of economic 
forecasters to accurately assess the economic future is challenged  
by inconsistent trends in terms of the strength, scope, and geography of  
the world’s recovery. As a result, conﬁdence levels in these forecasts  
remain moderate. 

The US economy should experience a similar or slightly better level of real 
GDP growth in 2015, which should be supportive of growth in Bermuda and 
the Cayman Islands. Inﬂation should continue to remain subdued, but as 
substantially lower oil prices drive energy costs lower in the US, inﬂation could 
become low enough to cause concern for the US Federal Reserve. Current 
market expectations are for the US Federal Reserve to begin to adjust  
short-term policy rates higher in 2015, but any rate movement should be 
conﬁned to the second half of the year and an extended period of near-zero 
inﬂation does have the ability to delay any rate normalisation within 2015 as we 
have experienced in the last few years.

BUTTERFIELD ANNUAL REPORT 2014

13

 
 
 
FINANCIAL SUMMARY  
(in $ thousands, except per share data)

As at 31 December  

Cash and cash equivalents
Short-term investments
Investments in debt and equity securities
Loans, net of allowance for credit losses
Premises, equipment and computer software
Goodwill and intangible assets
Total assets from continuing operations
Assets of discontinued operations
Total assets
Total deposits
Subordinated capital
Shareholders’ equity
    Preference shareholders’ equity

    Common and contingent value convertible  

preference shareholders’ equity

For the year ended 31 December

Interest income 

   Loans
   Investments
   Deposits with banks
Interest expense
Net interest income before provision for credit losses
Non-interest income 
Provision for credit losses
Salaries and other employee beneﬁts
Other non-interest expenses (including income taxes)
Net income (loss) before gains and losses 

Total other gains (losses)

Net income  (loss)  from continuing operations
Net income (loss) from discontinued operations
Net income (loss) 
Non-core items
Core net income 
Dividends and guarantee fee of preference shares
Amortisation of intangible assets
Core cash earnings to common shareholders
Common dividends paid 

Financial Ratios

Core cash return on average tangible assets 
Core cash return on average tangible  
common equity
Return on common shareholders’ equity
Tier 1 capital ratio
Total capital ratio
Tangible common equity ratio
Tangible total equity / tangible assets
Net interest margin
Efﬁciency ratio 
Core efﬁciency ratio 

14

2014

2,063,311

394,770

2,989,111

4,019,128

215,123

57,862

9,858,440

-

9,858,440

8,671,577

117,000

183,046

666,328

2013

1,730,472
54,981
2,613,643
4,088,225
240,603
19,121
8,870,815
-
8,870,815
7,637,951
207,000

183,606

618,955

2012

1,542,526
76,213
2,881,704
3,955,960
243,321
22,276
8,833,009
-
8,833,009
7,393,238
260,000

195,578

661,596

2011

1,902,726
20,280
2,061,639
4,069,419
272,472
46,100
8,517,306
307,044
8,824,350
7,256,561
267,755

200,000

629,725

2010

2,222,934
18,157
2,764,723
3,858,138
257,468
51,435
9,346,914
276,573
9,623,487
7,988,501
282,799

200,000

609,289

2014

2013

2012

2011

2010

191,986

67,757

5,358

(26,614)

238,487

134,830

(8,048)

(129,761)

(143,037)

92,471

5,868

98,339

-

98,339

8,064

106,403

(16,546)

4,281

94,138

(27,440)

2014

1.2%

15.1%
12.3%

19.0%

22.2%

6.2%

8.1%

2.74%

72.0%

67.7%

187,042
60,875
5,291
(29,399)
223,809
125,963
(14,825)
(131,064)
(132,472)
71,411

6,749

78,160
-
78,160
(1,600)
76,560
(16,990)
3,358
62,928
(38,531)

2013

0.9%

10.3%
9.2%
19.6%
23.7%
6.8%
8.9%
2.64%
74.1%
71.6%

190,691
49,117
4,999
(33,102)
211,705
128,543
(14,190)
(137,433)
(143,352)
45,273

(27,312)

17,961
7,620
25,581
29,300
54,881
(18,000)
5,040
41,921
-

2012

0.6%

6.6%
1.1%
18.5%
24.2%
7.3%
9.5%
2.66%
79.3%
78.4%

188,043
43,816
9,636
(39,246)
202,249
132,349
(13,169)
(145,136)
(141,186)
35,107

4,238

39,345
1,127
40,472
(2,700)
37,772
(21,270)
5,367
21,869
-

2011

0.4%

3.8%
3.0%
17.7%
23.5%
6.9%
9.3%
2.42%
84.1%
83.6%

181,786
26,161
11,015
(52,937)
166,025
143,264
(40,262)
(153,246)
(143,174)
(27,393)

(180,366)

(207,759)
144
(207,615)
222,400
14,785
(18,000)
5,278
2,063
-

2010

0.2%

0.6%
(44.3%)
15.7%
21.6%
5.8%
7.9%
1.91%
95.0%
88.2%

 
Per participating share (1) ( $ ) 

Net income (diluted) 

Core cash earnings per share (diluted)

Cash dividends 

Net book value

Tangible net book value

Number of employees (2)

Bermuda

Overseas

Total

Other data

2014

0.15

0.17

0.05

1.22

1.12

2014

537

627

1,164

2013

0.11

0.11

0.07

1.13

1.09

2013

554

579

1,133

2012

0.01

0.08

-

1.20

1.16

2012

624

607

1,231

2011

0.03

0.04

-

1.14

1.05

2011

664

606

1,270

2010

(0.47)

0.01

-

1.10

1.00

2010

732

649

1,381

2014

2013

2012

2011

2010

Year-end number of participating shares

544,162

548,622

549,866

554,769

554,531

Weighted average number of participating shares on a fully  
diluted basis

Risk-weighted assets

556,482

4,113,404

553,571

4,197,744

556,357

555,615

477,225

4,275,055

4,425,639

4,934,569

(1) Includes both common and contingent value convertible preference shareholders’ equity.  
(2) On a full-time equivalency basis and excluding students.

CONSOLIDATED RESULTS OF OPERATIONS AND DISCUSSION FOR FISCAL YEAR ENDED 31 DECEMBER 2014

Net Income
The Bank reported net income of $98.3 million for the year ended 31 December 2014, compared to $78.2 million in 2013. Results in both years were adversely 
affected by various non-core gains (losses) and expenses. After deduction of preference dividends and guarantee fees (2014: $16.5 million, 2013: $17.0 million) 
and the premium paid on preference share buy-backs (2014: $0.1 million, 2013: $2.8 million), the net income available to common shareholders was $81.7 million 
($0.15 per share) in 2014 compared to $58.4 million ($0.11 per share) in 2013. 

The following table states reported earnings for 2014 compared to 2013:

(in $ millions)

Non-interest income

Net interest income before provision for credit losses

Total revenue before provision for credit losses and gains and losses

Provision for credit losses

Total other gains 

Total net revenue 

Non-interest expenses

Net income before taxes

Income tax beneﬁt (expense)

Net income

Dividends and guarantee fee of preference shares

Premium paid on preference shares bought back

Net earnings attributable to common shareholders

Net earnings per common share

Basic

Diluted

$ change

% change

               Year ended 31 December

2014

134.8

238.5

373.3

(8.0)

5.9

371.2

2013

126.0

223.8

349.8

(14.8)

6.7

341.7

8.8

14.7

23.5

6.8

(0.8)

29.5

(273.1)

(262.6)

(10.5)

98.1

0.2

98.3

(16.5)

(0.1)

81.7

0.15

0.15

79.1

(0.9)

78.2

(17.0)

(2.8)

58.4

0.11

0.11

19.0

1.1

20.1

0.5

2.7

23.3

0.04

0.04

7.0%

6.6%

6.7%

(45.9%)

(11.9%)

8.6%

4.0%

24.0%

(122.2%)

25.7%

(2.9%)

(96.4%)

39.9%

36.4%

36.4%

BUTTERFIELD ANNUAL REPORT 2014

15

                                                         
Core Earnings
The following table shows the income statement on a core earnings basis:

(in $ millions)

Non-interest income

Net interest income before provision for credit losses

Total net revenue before provision for credit losses  and other gains (losses) 

Provision for credit losses

Total other losses

Total net revenue 

Non-interest expenses

Total net income before taxes

Income tax beneﬁt (expense)

Core net income

               Year ended 31 December

2014

134.8

238.5

373.3

(8.0)

(1.1)

364.2

(257.0)

107.2

(0.8)

106.4

2013

126.0

223.8

349.8

(14.8)

(3.8)

331.2

(253.7)

77.5

(0.9)

76.6

The following table reconciles the Bank’s US GAAP net income for 2014 and 2013 to core earnings attributable to common shareholders: 

                                             Year ended 31 December

(in $ millions)

Net income

Non-core items:

Impairment of ﬁxed assets 

Gain on disposal of a Pass-through note investment (formerly a SIV)

Net gain on sale of afﬁliate

Additional consideration from previously disposed of entities

Impairment of investment in afﬁliate

Realised gain on legal settlement

Realised gain on private equity investment

Early retirement programme, redundancies and other one-off compensation costs

One-off project costs

Business acquisition costs

One-off income tax refund

Total one-time items

Core earnings

Dividends and guarantee fee of preference shares

Amortisation of intangible assets

Core cash earnings to common shareholders

Core cash earnings per common share (1)

    Impact of non-core items on earnings per share - fully diluted

    Core cash earnings per share - fully diluted

2014

98.3

2.0

(8.7)

-

(0.3)

-

-

(1.1)

2.7

10.2

4.3

(1.0)

8.1

106.4

(16.5)

4.3

94.2

0.01

0.17

(1) Premium paid on preference shares bought back was not adjusted as management views the transaction as non-core. 

16

Movement

8.8

14.7

23.5

6.8

2.7

33.0

(3.3)

29.7

0.1

29.8

2013

78.2

-

-

(0.4)

(0.8)

3.8

(13.1)

-

8.9

-

-

-

(1.6)

76.6

(17.0)

3.4

63.0

-

0.11

Impairment of Fixed Assets
In 2014, the Bank recognised $2.0 million of write-downs on properties deemed impaired where the recorded value was greater than the market value.

Gain on Disposal of a Pass-through Note Investment
During the second quarter of 2014, the Bank realised a gain of $8.7 million on the sale of the Bank’s last remaining structured investment. This gain is reﬂective of 
the prudent decision made to hold the asset when the market was distressed as the underlying intrinsic value was much higher than market prices reﬂected at the 
time.

Net Gain on Sale of Afﬁliate
During December 2013, the Bank sold its 30% interest in Friesenbruch-Meyer Insurance Ltd., a Bermuda-based insurance company, for $3.4 million, resulting in a 
gain of $0.4 million.

Additional Consideration from Previously Disposed of Entities
During 2014, the Bank received additional sale consideration of $0.3 million for the 2012 disposal of Island Heritage (2013: $0.8 million).

Impairment of Investment in Afﬁliate
In 2013, the Bank recognised a $3.8 million impairment loss in one of its investments in afﬁliates as the fair value of the investment in afﬁliate was less than the 
carrying amount.

Realised Gain on Legal Settlement
During the second quarter of 2013, the Bank reached a legal settlement relating to a previously disposed of investment, resulting in a one off receipt of  
$13.1 million.

Realised Gain on Private Equity Investments
During the second quarter of 2014, the Bank disposed of its investment in a private equity holding and realised a gain of $1.1 million.

Early Retirement Programme, Redundancies and Other One-off Compensation Costs
One-off compensation costs includes incentive packages for redundancies, optional early retirement packages and other one-off compensation costs offered to 
eligible employees. In 2014 and 2013, the cost amounted to $2.7 million and $8.9 million respectively.

One-off Project Costs
During 2014, the Bank incurred expenses associated with a stringent compliance review programme of customer data to ensure our ﬁles meet internationally 
recognised standards. The Bank has and continues to put signiﬁcant resources into the enhancement of our compliance and reporting procedures to fulﬁll 
regulatory obligations and ensure our records continue to meet international reporting standards.

Business Acquisition Costs
During 2014, the Bank expensed $4.3 million of professional costs relating to the acquisitions of Legis and HSBC.

One-off income tax refund 
During 2014, the Bank received a tax refund of $1.0 million.

REVENUE
Total revenue before provision for credit losses and gains and losses for 2014 was $373.3 million, up $23.5 million (6.7%) from 2013. Net interest income before 
provision for credit losses increased from $223.8 million in 2013 to $238.5 million in 2014, an improvement of $14.7 million (6.6%). The increase in net interest 
income was driven by higher average investment portfolio balances of $222.5 million, an increase in related investment yields of 6 basis points, an increase in 
average loan balances of $52.1 million and a decrease in liability costs of 5 basis points. The overall NIM increased by 10 basis points from 264 basis points in 2013 
to 274 basis points in 2014. In addition, non-interest income was up $8.8 million (7.0%) attributable to increased trust revenues earned from the recently acquired 
Legis Group business along with new business growth.

BUTTERFIELD ANNUAL REPORT 2014

17

Other Non-Interest Income 1%

Custody and Other 
Administration Services 3%

Trust 10%

Foreign Exchange 
Revenue 8%

Asset 
Management 5%

The Bahamas 1%

Switzerland 1%

Guernsey 12%

United Kingdom 6%

Bermuda 55%

Net Interest Income 64%

Banking 9%

Cayman 25%

Non-Interest Income
Non-interest income is a function of a number of factors including the composition and value of client assets under management and administration, the volume 
and nature of clients’ transaction activities, and the types of products and services our clients use. Our fee structure provides for varied pricing that depends on the 
value of client assets and the nature of services provided. As a result, it is not always possible to draw a direct relationship between the value of client assets and 
the level of non-interest income, though the trend of non-interest income generally follows the trend in client asset levels.

Total non-interest income increased from $126.0 million in 2013 to $134.8 million in 2014, and similar to 2013, non-interest income as a percentage of total revenue 
before provision for credit losses and gains and losses remained stable at 36%. 

The following table presents the components of non-interest income for the years ended 31 December: 

(in $ thousands) 

Asset management

Banking

Foreign exchange revenue

Trust 

Custody and other administration services 

Other non-interest income

Total non-interest income  

2014

17,728

34,280

29,379

38,268

10,166

5,009

2013

18,067

32,490

29,311

30,410

10,232

5,453

134,830

125,963

$ change

% change

(339)

1,790

68

7,858

(66)

(444)

8,867

(1.9%)

5.5%

0.2%

25.8%

(0.6%)

(8.1%)

7.0%

Asset management
Asset management revenues are generally based on the market value of assets managed and the volume of transactions and fees for other services rendered. We 
provide asset management services from our ofﬁces in Bermuda, the Cayman Islands, Guernsey and the United Kingdom. Revenues from asset management were 
$17.7 million in 2014, compared to $18.1 million in 2013. The decrease is mainly due to the lower fees earned on the Butterﬁeld Money Market Fund (“BMMF”) 
owing to lower short-term interest rates, and a decline in balances as clients sought better-yielding alternatives for short-term investments. This decrease was 
partially offset by increased management fees from private clients.

The table that follows shows the changes in the year-end values of clients’ assets under management as at 31 December, sub-divided between those managed for 
clients on a discretionary basis and those client funds invested in mutual funds that Butterﬁeld manages:

(in $ millions) 

Butterﬁeld Funds

Discretionary

Total assets under management

2014

2,164

1,638

3,802

2013

2,304

1,892

4,196

$ change

(140)

(254)

(394)

18

Banking
During 2014, Butterﬁeld provided a full range of community, commercial, and private banking services in select jurisdictions. Community banking services are 
offered to individuals and small to medium-sized businesses through branch locations, Internet banking, automated teller machines, debit cards, and mobile 
banking in Bermuda and the Cayman Islands, whilst private banking services are offered in Bermuda, the Cayman Islands, Guernsey and the United Kingdom. 
Banking revenues reﬂect loan, transaction, processing, and other fees earned in these jurisdictions. Banking fee revenues increased by 5.5% in 2014 to  
$34.3 million, compared to $32.5 million in 2013, due primarily to higher credit card activity as a result of increased volumes from the merchant business and  
higher levels of customer purchases.

Foreign Exchange
We provide foreign exchange services in the normal course of business in all jurisdictions. The major contributors to foreign exchange revenues are Bermuda and 
the Cayman Islands, accounting for 86% of the Group’s foreign exchange revenue (2013: 84%). The Bank does not maintain a proprietary trading book. Foreign 
exchange income is generated from client-driven transactions and totalled $29.4 million in 2014, compared with $29.3 million in 2013. The $0.1 million  
year-on-year increase reﬂects increased client activity and related volumes in both retail and institutional foreign exchange ﬂows. 

Trust
We provide both personal and institutional ﬁduciary services from our operations in Bermuda, The Bahamas, the Cayman Islands, Guernsey and Switzerland.  
Revenues are derived from a combination of ﬁxed fees, fees based on the market values of assets held in trust and fees based on time spent in relation to the range 
of personal trust and company administration services and pension and employee beneﬁt trust services we provide. Trust revenues represent 28% of the Bank’s 
non-interest income, up from 24% in 2013. In 2014, trust revenues totalled $38.3 million, an increase of $7.9 million or 25.8% over 2013  largely attributable to the 
acquisition of the Legis Group business, which closed on 1 April 2014, and also to new business growth. Revenue growth was supported by structured, proactive 
business development activities.  Improved new business results were seen in all of our businesses in both personal and institutional ﬁduciary services.

Trust assets under administration were $84.4 billion at year-end 2014 compared to $53.3 billion the prior year, an increase of $31.1billion or 58.3%, which is largely 
attributable to the acquired Legis Group business. 

Custody and Other Administration Services
Custody fees are generally based on market values of assets in custody, the volume of transactions, and ﬂat fees for other services rendered. We provide custody 
services from our ofﬁces in Bermuda, the Cayman Islands, Guernsey and the United Kingdom, and other administration services — primarily administered  
banking — in Guernsey. In 2014, revenues were $10.2 million, the slight decrease due to lower transaction volumes and expired mandates.  Total custody and 
other administration services assets under administration (which includes the administered banking services operations provided by our Guernsey business) were 
$42.5 billion as at 31 December 2014, down from $43.7 billion the prior year.

Other Non-Interest Income
The components of other non-interest income for the years ended 31 December 2014 and 2013 are set forth in the following table: 

(in $ thousands)

Net share of earnings from investments in afﬁliates

Rental income

Other

Total other non-interest income

2014

834

2,726

1,449

5,009

2013

1,068

3,194

1,191

5,453

In 2014, we recorded equity pickup income of $0.8 million, a decrease of $0.4 million from the prior year. Rental income decreased by $0.5 million to $2.7 million 
in 2014 due to a reduction in rented properties. Included in the “Other” category are maintenance fees from leased premises, director’s fee income, and other 
miscellaneous income.

Net Interest Income Before Provision For Credit Losses
Net interest income is the amount of interest earned on our interest-earning assets less interest paid on our interest-bearing liabilities. There are several drivers of 
the change in net interest income, including changes in the volume and mix of interest-earning assets and interest-bearing liabilities, their relative sensitivity to 
interest rate movements, and the proportion of non-interest-bearing sources of funds, such as equity and non-interest-bearing current accounts. 

During the second quarter of 2013, the Bank enhanced its net interest margin calculation by changing its balance sheet averages from monthly to daily averages 
and analysing in detail the interest earning balances. Prior periods have been restated for this change in methodology. 

BUTTERFIELD ANNUAL REPORT 2014

19

The following table presents the components of net interest income for the years ended 31 December: 

(in $ millions)

Assets

Cash and cash equivalents and short-term investments

Investments

Loans

Interest-earning assets

Other assets

Total assets

Liabilities

Deposits

Securities sold under agreement to repurchase 

Subordinated capital

Interest-bearing liabilities

Non-interest-bearing current accounts

Other liabilities

Total liabilities

Shareholders’ equity

Total liabilities and shareholders’ equity

Non-interest-bearing funds net of non-interest earning  
assets (free balance)

Net interest margin

2014

2013

Average 
balance

Interest

Average 
rate

Average 
balance

Interest

Average 
rate

5.3

60.9

187.0

253.2

0.30%

2.29%

4.65%

2.99%

-

-

253.2

2.85%

(20.0)

(0.2)

(9.2)

(29.4)

(0.30%)

(0.31%)

(4.02%)

(0.43%)

(29.4)

(0.37%)

1,752.9

2,877.8

4,075.0

8,705.7

410.8

9,116.5

6,741.6

22.0

117.2

6,880.8

1,211.0

187.2

8,279.0

837.5

9,116.5

1,824.9

5.4

67.7

192.0

265.1

0.31%

2.35%

4.71%

3.05%

-

-

265.1

2.91%

(20.9)

(0.1)

(5.6)

(0.31%)

(0.45%)

(4.78%)

1,794.7

2,655.3

4,022.9

8,472.9

413.7

8,886.6

6,559.5

63.8

228.7

(26.6)

(0.39%)

6,852.0

(26.6)

(0.32%)

990.7

198.0

8,040.7

845.9

8,886.6

1,620.9

238.5

2.74%

223.8

2.64%

Net interest income before provision for credit losses of $238.5 million increased $14.7 million or 6.6% over 2013. Net interest income is largely generated by 
the Bank’s Bermuda and Cayman jurisdictions, which account for 86% of total net interest income. Interest income increased by $11.9 million and was driven by 
improved investment portfolio performance and higher loan income. Investment income increased by $6.9 million from an increase of $222.5 million in average 
balances combined with a yield improvement of 6 basis points. The yield increase resulted from favourable prepayment speeds on US agency securities despite a 
shortening of duration to approximately four years attributable to increased investment in adjustable-rate US agency securities. Loan interest income was higher by 
$4.9 million due primarily to $2.6 million attributable to one-off interest received and a $52.1 million increase in average balances, whilst yields remained stable.

Interest-bearing liability costs decreased by 5 basis points, driving an improvement in interest expense of $2.8 million, largely from the subordinated capital 
paydown of $90 million in January 2014 and $43 million in May 2013.

Average free balances for 2014 were $1.8 billion (2013: $1.6 billion) including non-interest bearing current accounts of $1.2 billion (2013: $990.7 million), 
shareholders’ equity of $837.5 million (2013: $845.9 million), net of other assets and other liabilities totalling $223.6 million (2013: $215.7 million). See the Risk 
Management section for more information on how interest rate risk is managed. 

PROVISION FOR CREDIT LOSSES
The Bank’s net provision for credit losses in 2014 was $8.0 million compared to $14.8 million in 2013, a decrease of $6.8 million. Incremental provisions of  
$10.3 million were required principally for speciﬁc reserves pertaining to commercial and residential mortgages, partially offset by recoveries of $2.3 million. This 
compares to 2013 when the Bank required incremental provisions relating to speciﬁc reserves of $20.6 million that were partially offset by recoveries of 
$5.8 million.

20

OTHER GAINS (LOSSES)
The following table represents the components of other gains (losses) for the years ended 31 December: 

(in $ thousands)

Net trading gains

Net realised gains (losses) on available-for-sale investments

Net realised / unrealised losses on other real estate owned 

Impairment of ﬁxed assets

Gain on sale of subsidiary and afﬁliates

Impairment of investment in afﬁliate

Net other gains 

Other gains 

2014

250

8,680

(1,804)

(1,986)

277

-

451

5,868

2013

315

(61)

(5,000)

-

1,227

(3,800)

14,068

6,749

Net Trading Gains
A $0.3 million gain was recorded with respect to trading securities in 2014, which relates primarily to the fair value adjustments of the Bank’s seed money in 
shares of the Butterﬁeld Select Funds. The Bank’s seed capital in the BNY Mellon Butterﬁeld Income Advantage Fund was redeemed in 2014 at the prevailing 
net asset value.

Net Realised Gains (Losses) on Available-For-Sale Investments
Net realised gain of $8.7 million was recorded on the sale of the Bank’s investment in the Avenir Pass-through note, which was formerly a structured 
investment vehicle.

Net Realised / Unrealised Losses on Other Real Estate Owned
Valuation adjustments related to real estate held for sale were $1.8 million compared to $5.0 million in 2013, the decrease being attributable largely to 2013  
write-downs in the hospitality portfolio.

Impairment of Fixed Assets
The Bank conducts annual property impairment assessments on its properties held for sale and rent which resulted in $2.0 million in write-downs in 2014 to reﬂect 
current market values.

Gain on Sale of Subsidiary and Afﬁliates
During 2014, the Bank received $0.3 million of additional sale consideration for the 2012 disposal of Island Heritage Holdings Ltd.

Impairment of Investment in Afﬁliate
In 2013, the Bank recognised a $3.8 million impairment loss in one of its investments in afﬁliates as the fair value of the investment in afﬁliate was less than the 
carrying amount.

Net Other Gains 
Net other gains were $0.5 million in 2014 compared to net other gains of $14.1 million in 2013.  The primary driver of this change is the legal settlement reached 
relating to a previously disposed of investment, resulting in a one-off receipt of $13.1 million in 2013. 

NON-INTEREST EXPENSES
Expense management continued to be a key focus in 2014 as the Bank continues to adapt to the persistently low interest rate environment. Total non-interest 
expenses in 2014 were $273.1 million compared to $262.6 million recorded in 2013. These ﬁgures include non-core expenses in 2014 and 2013 of $16.0 million and 
$8.9 million, respectively. After adjusting for these non-core items, 2014 core expenses were up $3.3 million (1.3%) with an improvement in core efﬁciency ratio to 
67.7% from 71.6% in 2013.

Salary and employee beneﬁts accounted for 47% of non-interest expenses with technology, communications and property making up 30% combined. Bermuda 
expenses include all head ofﬁce costs.

BUTTERFIELD ANNUAL REPORT 2014

21

 
       
DISTRIBUTION OF 2014 NON-INTEREST EXPENSES

DISTRIBUTION OF 2014 NON-INTEREST 
EXPENSES BY LOCATION

Other Non-Interest Expenses 6%

Marketing 1%

The Bahamas 2%

Amortisation of Intangible Assets 2%

United Kingdom 8%

Switzerland 1%

Non-Income Taxes 5%

Professional and 
Outside Services 9%

Property 9%

Technology and 
Communications 21%

Guernsey 14

%

Cayman 21

%

Bermuda 54

%

Salaries and Other 
Employee Benefits 47%

The following table presents the components of non-interest expenses for the years ended 31 December: 

(in $ thousands)

Salaries and other employee beneﬁts 

Technology and communications

Property

Professional and outside services

Non-income taxes

Amortisation of intangible assets

Marketing

Other non-interest expenses 

Total non-interest expenses

Non-core items

Core non-interest expenses

2014

129,761

57,119

24,312

24,022

14,175

4,281

3,802

15,495

272,967

(16,045)

256,922

2013

$ change

% change

131,064

54,223

24,309

15,012

13,682

3,358

3,484

17,513

262,645

(8,900)

253,745

(1,303)

2,896

3

9,010

493

923

318

(2,018)

10,322

(7,145)

3,177

(1.0%)

5.3%

-

60.0%

3.6%

27.5%

9.1%

(11.5%)

3.9%

80.3%

1.3%

Salaries and Other Employee Beneﬁts
Total salaries and other employee beneﬁts costs were $129.8 million in 2014, down $1.3 million compared to 2013. 2014 included $5.6 million of severance and 
project-related non-core costs, compared to $8.5 million of non-core personnel costs in 2013. Core salaries and other employee beneﬁts costs were $124.2 million 
in 2014, up $1.6 million compared to 2013 from a $3.2 million increase in staff costs from the consolidation of the acquisitions offset by cost savings from a full year 
beneﬁt of the early retirement and redundancy programme at the end of 2013 as well as a $1.0 million one-time release of pension expense from the closure of a 
deﬁned beneﬁt pension plan. Headcount on a full-time equivalency basis at year-end was 1,164, up 31 compared to 1,133 a year ago as a result of the acquisitions.

Technology and Communications
Technology and communication costs were $57.1 million in 2014, up $2.9 million from the $54.2 million recorded in 2013 as a result of a $2.2 million increase in 
depreciation relating to the new banking systems in our European businesses and $0.7 million non-core project-related costs.

Property
Property costs, which reﬂect occupancy expenses, building maintenance, and depreciation of property, plant and equipment, remained unchanged in 2014.

Professional and Outside Services
Professional and outside services include primarily consulting, legal, audit, and other professional services. The current year expense of $24.0 million 
included $9.5 million of non-core project-related costs, and when excluded, professional fees from our core business decreased by $0.5 million from 
reduced consulting expenditures.

22

Non-Income Taxes
These taxes reﬂect taxes levied in the jurisdictions in which we operate, including employee-related payroll taxes, customs duties, and business licences. In 2014, 
the expense was $14.2 million, up $0.5 million mainly due to higher value-added taxes paid in our UK business. Of the $14.2 million in non-income taxes, 
$8.8 million was paid to the Bermuda government agencies for payroll tax, business licences and land taxes, $1.6 million for value-added taxes paid in our UK 
business and $3.8 million paid to other governments for business licences, insurance tax and work permit fees.

Amortisation of Intangible Assets
Intangible assets relate to client relationships acquired from business acquisitions and are amortised on a straight-line basis over their estimated useful lives, 
not exceeding 15 years. The estimated lives of these acquired intangible assets are re-evaluated annually and tested for impairment. The amortisation expense 
associated with intangible assets was $4.3 million in 2014 compared to $3.4 million in 2013. The higher amortisation levels were driven by the Legis Group and 
HSBC Cayman acquisitions completed in 2014.

Marketing
Marketing expenses reﬂect costs incurred in advertising and promoting our products and services. Marketing expenses totalled $3.8 million in 2014, up  
$0.3 million but remained consistent as a percentage of total net revenue before provision for credit losses and gains and losses at 1.0%.

Other Non-Interest Expenses

(in  $ thousands)

Stationery and supplies

Custodian and handling

Charitable donations

Insurance

Other expenses

Maintenance fees for liquidity facility

Cheque processing

Dues and subscriptions

Registrar and transfer agent fee

Agent commission fees

Foreign bank charges

Directors’ fees

General expenses

Other 

Total other non-interest expenses

2014

1,343

1,753

787

2,230

175

1,328

535

707

439

572

899

713

4,014

15,495

2013

1,320

1,647

1,139

2,367

175

1,319

517

1,012

468

564

914

2,541

3,530

17,513

$ change

% change

23

106

(352)

(137)

-

9

18

(305)

(29)

8

(15)

(1,828)

484

(2,018)

1.7%

6.4%

(30.9%)

(5.8%)

-

0.7%

3.5%

(30.1%)

(6.2%)

1.4%

(1.6%)

(71.9%)

13.7%

(11.5%)

Other non-interest expenses were $15.5 million in 2014, a decrease of $2.0 million compared to 2013. This was driven principally by lower operational losses 
experienced in 2014. 

INCOME TAXES
Each jurisdiction in which we operate is subject to different income tax laws. The Bank is incorporated in Bermuda as a local company and therefore, pursuant to 
Bermuda law, not obligated to pay any taxes in Bermuda on either income or capital gains. The Bank’s subsidiaries in the Cayman Islands and The Bahamas are 
not subject to any taxes in their respective jurisdictions on either income or capital gains under current laws applicable in the respective jurisdictions. In general, 
Bermuda and Cayman are not subject to corporate income taxes but are required to pay higher rates of non-income taxes (included above) such as licence fees and 
payroll taxes.

The Bank’s subsidiaries in the United Kingdom, Guernsey and Switzerland are subject to the tax laws of those jurisdictions. The corporate tax rate in the UK is 
21.5% whilst in Guernsey the banking proﬁts are subject to a 10% ﬂat corporate tax rate. In 2014, income tax beneﬁt netted to $0.2 million compared to an 
income tax expense of $0.9 million in 2013, the movement is due to the income tax refund received in 2014.  

BUTTERFIELD ANNUAL REPORT 2014

23

CONSOLIDATED BALANCE SHEET AND DISCUSSION
The following table shows the balance sheet as reported as at 31 December:

(in $ millions)

Assets

Cash and cash equivalents

Short-term investments

Debt and equity securities

Loans, net of allowance for credit losses

Premises, equipment and computer software

Goodwill and intangibles

Other assets

Total assets 

Liabilities

Total deposits

Total other liabilities

Subordinated capital

Total liabilities 

Preference shareholders’ equity

Common and contingent value convertible preference shareholders’ equity

Total shareholders’ equity

2014

2013

$ change

% change

2,063

395

2,989

4,019

215

58

119

9,858

8,672

220

117

9,009

183

666

849

1,730

55

2,614

4,088

241

19

124

8,871

7,638

223

207

8,068

184

619

803

333

340

375

(69)

(26)

39

(5)

987

1,034

(3)

(90)

941

(1)

47

46

19.2%

618.2%

14.3%

(1.7%)

(10.8%)

205.3%

(4.0%)

11.1%

13.5%

(1.3%)

(43.5%)

11.7%

(0.5%)

7.6%

5.7%

Total liabilities and shareholders’ equity

9,858

8,871

987

11.1%

Capital Ratios

Risk-weighted assets

Tangible common equity (TCE)

Tangible assets (TA)

TCE/TA

Tier 1 common ratio

Tier 1 capital ratio

Total capital ratio

2014

4,113

608

9,800

6.2%

14.6%

19.0%

22.2%

2013

4,198

600

8,852

6.8%

15.2%

19.6%

23.7%

The Bank maintains a highly liquid balance sheet and is well capitalised. At 31 December 2014, total cash and cash equivalents, short-term investments and other 
investments represented $5.4 billion, or 55.3% of total assets, up from 49.6% at year-end 2013. The Bank’s balance sheet remains strong with shareholders’ equity 
ending the year up $46 million to $849 million, of which $183 million is preference shareholders’ equity and $666 million is common equity. 

Total assets grew by $1.0 billion to $9.9 billion, primarily reﬂecting a $1.0 billion increase in customer deposit levels reinvested in cash and investments, which grew 
by $1.0 billion. 

At 31 December 2014, Butterﬁeld’s capital ratios were strong, but declined from year-end 2013 because of balance sheet growth, with the TCE/TA ratio ending 
2013 at 6.2% (2013: 6.8%), whilst the total capital ratio and tier 1 capital ratios were 22.2% (2013: 23.7%) and 19.0% (2013: 19.6%), respectively. These ratios 
are well in excess of regulatory minimums.

Cash, Cash Equivalents and Short-Term Investments
The Bank only places deposits with highly-rated institutions and ensures there is appropriate geographic diversiﬁcation in its exposures. Limits are set for aggregate 
geographic exposures and for every counterparty for which the Bank places deposits. Those limits are monitored and reviewed by our Credit Risk Management 

24

(“CRM”) division and approved by the Financial Institutions Committee. The Bank deﬁnes cash and cash equivalents to include cash on hand, cash items in the 
process of collection, amounts due from correspondent banks and highly liquid investments that are readily convertible to known amounts of cash and which are 
subject to an insigniﬁcant risk of change in fair value. Such investments are those with less than three months maturity from the date of acquisition and include 
unrestricted term deposits, certiﬁcates of deposit and treasury bills. Investments of a similar nature that are either restricted or have a maturity of more than 
three months but less than one year are classiﬁed as short-term investments. From August 2014, certiﬁcates of deposits with less than one year but greater than 
three months’ maturity from the date of acquisition are designated as short-term investments as the investments are highly liquid and subject to an insigniﬁcant 
risk of change in fair value. As at 31 December 2014, cash and cash equivalents and short-term investments were $2.5 billion, compared to $1.8 billion as at 
31 December 2013.

See “Note 3: Cash and Cash Equivalents” and “Note 4: Short-Term Investments” in the 31 December 2014 consolidated ﬁnancial statements for additional tables 
and information.

Investments
Our investment policy requires management to maintain a portfolio of securities that provide the liquidity necessary to cover the Bank’s obligations as they come 
due, and mitigate our overall exposure to credit and interest rate risk, whilst achieving a satisfactory return on the funds invested. The securities in which we may 
invest are limited to securities that are considered investment grade. Securities in our investment portfolio are accounted for under US GAAP as either trading, 
available-for-sale or held-to-maturity. Investment policies are approved by the Board of Directors, governed by the Group Asset and Liability Committee and 
monitored by Group Market Risk, a department of the Group Risk Management division.

Effective 1 October 2010, the Bank entered into an investment advisory agreement with Carlyle Investment Management LLC, an afﬁliated company of the Carlyle 
Group.  Under the agreement, Carlyle provided balance sheet management advisory services to the Bank including, but not limited to: development of investment 
strategies for consideration by the Bank’s Asset and Liability Committee; balance sheet simulation analysis, including interest rate sensitivity, economic value at 
risk, interest at risk and stress testing; detailed investment portfolio reporting; cash ﬂows and net interest income forecasting; deposit behaviour analysis and 
pricing strategies; and assistance with credit advisory and workout strategies. Effective 31 July 2012, the investment advisory business previously conducted by 
Carlyle Investment Management LLC was transferred to Alumina Investment Management LLC (“Alumina”) and the Bank agreed to the transfer of its contract (the 
“Contract”) to Alumina. 

As part of this transfer, balance sheet simulation analysis, which includes: interest rate sensitivity, economic value at risk, interest at risk and stress testing; cash 
ﬂows and net interest income forecasting; deposit behaviour analysis, and pricing strategies, is now performed in-house using best in class ALM technology and 
professional services. The results are reviewed by both the Group Asset and Liability Management Committee and our investment advisers.

Consistent with industry and rating agency designations, the Bank deﬁnes investment grade as “BBB” or higher. As at 31 December 2014, 99.8% (2013: 98.5%) of 
our total investments were investment grade and rated A or better.

31 DECEMBER 2014 INVESTMENT PORTFOLIO BY
 LONG-TERM DEBT RATING

31 DECEMBER 2014 INVESTMENT PORTFOLIO BY TYPE

A 13%

AA 2%

Certificates of Deposit 1%

Asset-Backed Securities
- Student  Loans 2%

Debt Securities 
Issued by Non-US
Governments 1%

Commercial
Mortgage-Backed 
Securities 5%

Corporate Debt 
Securities 13%

AAA 85%

Mutual Funds 2%

Residential 
Mortgage-Backed 
Securities - Prime 2%

US Government and
Federal Agencies 74%

BUTTERFIELD ANNUAL REPORT 2014

25

  
 
The following table presents the carrying value of investments by balance sheet category as at 31 December: 

(in $ millions)

Trading

Available-for-sale

Held-to-maturity

Total investments

2014

7

2,644

338

2,989

2013

53

2,227

334

2,614

$ change

% change

(46)

417

4

375

(86.8%)

18.7%

1.2%

14.3%

The investment portfolio was $3.0 billion as at 31 December 2014, compared to $2.6 billion as at 31 December 2013. A net decrease in non-US agency securities 
of $170 million was reinvested primarily in US government and federal agency securities that totalled $2.2 billion, or 75% of the total investment portfolio. New 
business acquisitions also contributed to the growth in the investment portfolio. The investment yield improved year-on-year by 6 basis points to 2.35% in 2014, 
due primarily to favourable prepayment speeds on US agency securities. Total net unrealised gains of the investment portfolio were $15.7 million, compared to net 
unrealised losses of $57.5 million at year-end 2013. The movement in unrealised losses for the year related to the impact of changes in interest rates on the longer 
duration assets and is not credit related. The 10 year treasury rate was 2.17% as at 31 December 2014 compared to 3.03% the year before.

Trading securities, consisting of holdings of real estate mutual funds and seed capital invested in mutual funds managed by the Bank, totalled $6.9 million at 
year-end 2014, compared to $53.3 million at year-end 2013. Trading securities reﬂect primarily the $5 million seed capital invested by the Bank in Butterﬁeld Select 
Funds. A $43 million investment in the BNY Mellon Butterﬁeld Income Advantage Fund was redeemed in 2014.

Available-for-sale (“AFS”) securities totalled $2.6 billion at year-end 2014, compared to $2.2 billion at year-end 2013. As at 31 December 2014, 71.4% or $1.9 billion 
(2013: 60.5% or $1.3 billion) of AFS securities consisted of holdings of mortgage-backed securities implicitly and explicitly guaranteed by US government agencies. 
Corporate debt securities totalled $399 million or 15.1% (2013: $415 million or 18.7%), and certiﬁcates of deposit represented 1.4% or $38 million (2013: 3.8% or 
$85 million). 

The remaining 12.1% of AFS securities is comprised primarily of commercial mortgage-backed securities (5.7% or $151 million); government guaranteed student 
loan-backed securities (2.5% or $65 million), debt securities issued by non-US governments (1.4% or $38 million) and residential mortgage-backed securities 
(2.5% or $65 million).

Held-to-maturity (“HTM”) investments were $338 million as at 31 December 2014 (2013: $333 million) and consisted entirely of mortgage-backed securities 
implicitly and explicitly guaranteed by US government agencies that management has no intention to sell before maturity.

Investment valuation
Securities in unrealised loss positions are analysed as part of management’s ongoing assessment of other-than-temporary impairment (“OTTI”). When 
management intends to sell securities, it recognises an impairment loss equal to the full difference between the amortised cost basis and the fair value of those 
securities. When management does not intend to sell equity or debt securities in an unrealised loss position, potential OTTI is considered using a variety of factors, 
including: the length of time and extent to which the market value has been less than amortised cost; adverse conditions speciﬁcally related to the industry, 
geographic area or ﬁnancial condition of the issuer or underlying collateral of a security; payment structure of the security; changes to the rating of the security by a 
rating agency; the volatility of the fair value changes; and changes in fair value of the security after the balance sheet date.

For debt securities, management estimates cash ﬂows over the remaining lives of the underlying collateral to assess whether credit losses exist and to determine 
whether any adverse changes in cash ﬂows have occurred. Management’s cash ﬂow estimates take into account expectations of relevant market and economic 
data, such as  GDP and unemployment during the cash ﬂow cycle as of the end of the reporting period and includes, for example, underlying loan-level data, and 
structural features of securitisation, such as subordination, excess spread, over-collateralisation or other forms of credit enhancement. Management compares 
the losses projected for the underlying collateral (“pool losses”) against the level of credit enhancement in the securitisation structure to determine whether these 
features are sufﬁcient to absorb the pool losses, or whether a credit loss on the debt security exists. Management also performs other analyses to support its cash 
ﬂow projections, such as stress scenarios. For debt securities, management considers a decline in fair value to be other-than-temporary when it does not expect to 
recover the entire amortised cost basis of the security.

See “Note 5: Investments” in the 31 December 2014 consolidated ﬁnancial statements for additional tables and information.

Loans
The loan portfolio stood at $4.0 billion at 31 December 2014, down $0.1 billion from $4.1 billion in 2013, due primarily to the signiﬁcant prepayments on the 
commercial and residential mortgage portfolio and unfavourable foreign exchange rate movements offset by the acquisition of the HSBC Cayman loan portfolio in 
November 2014.

26

  
During the year, gross loans written totalled $476.8 million offset by pay downs of $619.8 million.  In Bermuda, gross loans written totalled $194.2 million offset by 
pay downs of $240.7 million.

The loan portfolio represented 41% of total assets at 31 December 2014 (2013: 46%), whilst loans as a percentage of customer deposits decreased from 54% at 
year-end 2013 to 47% in 2014.

Allowance for credit losses at 31 December 2014 totalled $47.5 million, a decrease of $5.3 million from the prior year. The movement in the allowance was mainly 
the result of additional provisions of $10.3 million (including recoveries of $2.3 million) recorded during the year, and $15.6 million in charge-offs and foreign 
exchange movements. Of the total allowance, the general allowance was $28.7 million (2013: $30.7 million) and the speciﬁc allowance was $18.8 million (2013: 
$22.1 million), reﬂecting a speciﬁc coverage ratio of 26.2%, compared to 21.2% at 31 December 2013. The increase in the speciﬁc coverage ratio reﬂects the 
resolution of large commercial loans, which in turn ampliﬁes the coverage ratio on the more diversiﬁed and less concentrated remaining balance.

Gross non-accrual loans totalled $71.8 million at 31 December 2014, down $32.3 million from $104.1 million at 31 December 2013, and represented 1.8% of the 
total loan portfolio at 31 December 2014, compared to 2.5% in 2013. During 2014, the Bank held other real estate owned properties (“OREO”) amounting to  
$19.3 million (2013: $27.4 million) comprising commercial real estate of $9.2 million (2013: $14.2 million), foreclosed residential properties of $6.7 million  
(2013: $9.2 million) and property held for sale reclassiﬁed during 2014 of $3.4 million (2013: $4.0 million).

31 DECEMBER 2014 LENDING BY LOCATION 

31 DECEMBER 2014 GROUP LOANS BY TYPE

United Kingdom 9%

Guernsey 13%

Commercial 
and Industrial 10%

Commercial Overdrafts 1%

Commercial 
Real Estate 18%

Automobile 
Financing 1%

  Government 3%

Bermuda 51%

Cayman 27%

Credit Cards 2%

Other Consumer 4%

Residential Mortgages 61%

Government
Loans to governments showed a $32.4 million increase from 2013, due primarily to the loans acquired through HSBC (Cayman) Limited in November 2014.

Commercial 
The commercial and industrial loan portfolio includes loans and overdraft facilities advanced primarily to corporations and small and medium-sized entities, which 
are generally not collateralised by real estate and where loan repayments are expected to ﬂow from the operation of the underlying businesses.

Commercial real estate loans are offered to real estate investors, developers and builders domiciled primarily in Bermuda and the United Kingdom. To manage 
our credit exposure on such loans, the principal collateral is real estate held for commercial purposes and is supported by a registered mortgage. Cash ﬂows from 
the properties, primarily from rental income, are generally supported by long-term leases to high quality international businesses. These cash ﬂows are principally 
sufﬁcient to service the loan. The portfolio has decreased by $45.5 million due primarily to signiﬁcant repayments of loans in our European jurisdictions.

Commercial loans of $0.4 billion at 31 December 2014 decreased by $18.5 million from the previous year, driven by repayments of commercial lending facilities 
partially offset by corporate loan growth.

Residential
The residential mortgage portfolio comprises mortgages to clients with whom we are seeking to establish (or already have) a comprehensive ﬁnancial services 
relationship. It includes mortgages to individuals and corporate loans secured by residential property.  

At 31 December 2014, residential mortgages totalled $2.5 billion (or 62% of total gross loans), a $40.0 million decrease from 31 December 2013. The reduction 
was as a result of signiﬁcant prepayments on the residential mortgage portfolio and unfavourable foreign exchange rate movements offset by the acquisition of the 
HSBC Cayman loan portfolio in November 2014. 

BUTTERFIELD ANNUAL REPORT 2014

27

All mortgages were underwritten utilising our stringent credit standards. Residential loans consist of conventional home mortgages and equity credit lines. 

Other Loan Portfolios
We provide loans, as part of our normal banking business, in respect of automobile ﬁnancing, consumer ﬁnancing, credit cards, commercial ﬁnancing, loans to 
ﬁnancial institutions and overdraft facilities to retail, corporate and private banking clients in the jurisdictions in which we operate. 

Our loan portfolio and contractual obligations and arrangements are discussed in more detail in “Note 6: Loans” and “Note 7: Credit Risk Concentrations” in the 
31 December 2014 consolidated ﬁnancial statements.

Deposits
Deposits are our principal funding source for use in lending, investments and liquidity. Butterﬁeld is a deposit-led Bank and does not require the use of wholesale 
funding to fund its loan business. Deposit balances at the end of reporting periods, particularly in our Bermuda and Cayman Islands operations, can ﬂuctuate due to 
signiﬁcant balances that ﬂow in and out from hedge fund clients to meet quarter-end subscriptions and redemptions, and are typically paid in the ﬁrst few days of 
the quarter. 

The table below shows the year-end and average customer deposit balances by jurisdiction, comparing 31 December 2014 and 2013:

(in $ millions)

Bermuda

Cayman 

Guernsey

The Bahamas

UK

Total deposits

          As at 31 December

        Average balance

2014

3,870

2,591

1,496

61

614

8,632

2013

3,551

2,071

1,291

78

607

7,598

$ change

319

520

205

(17)

7

1,034

2014

3,758

2,018

1,440

78

621

7,915

2013

3,531

1,878

1,376

88

635

7,508

$ change

227

140

64

(10)

(14)

407

Average customer deposits increased by $0.4 billion to $7.9 billion in 2014. On a year-end basis, customer deposits were up $1.0 billion to $8.6 billion from 
$7.6 billion at year-end 2013. 

Customer demand deposits, which include chequing accounts (both interest-bearing and non-interest-bearing), savings and call accounts, totalled $6.7 billion, 
or 78.1% of total customer deposits at year-end 2014, compared to $5.6 billion, or 74.3%, at year-end 2013. Customer term deposits remained ﬂat at $2.0 billion 
compared to the prior year. The cost of funds on deposits remained ﬂat at 26 basis points in 2014.

See “Note 10: Customer Deposits and Deposits from Banks” in the 31 December 2014 consolidated ﬁnancial statements for additional tables and information.

Borrowings
We have no issuances of certiﬁcates of deposit (“CD”), commercial paper (“CP”) or senior notes outstanding and have no CD or CP issuance programmes. We are 
able to source funding on an uncommitted basis from a number of major banks, including our principal correspondent banks. We use funding from the inter-bank 
market as part of interest rate and liquidity management. At 31 December 2014, deposits from banks totalled $39.9 million, a decrease of $0.3 million from the 
prior year.

Employee Future Beneﬁts
The Bank maintains trusteed pension plans including non-contributory deﬁned beneﬁt plans and a number of deﬁned contribution plans, and provides 
post-retirement healthcare beneﬁts to its qualifying retirees. The deﬁned beneﬁt provisions under the pension plans are generally based upon years of service and 
average salary during the ﬁnal years of employment. The deﬁned beneﬁt pension and post-retirement healthcare plans are not open to new participants and are  
non-contributory and the funding required is provided by the Bank, based upon the advice of an independent actuary.

Effective 31 December 2011, the Bermuda deﬁned beneﬁt pension beneﬁts were amended to freeze credited service and ﬁnal average earnings for remaining active 
members. Effective January 2012, all the participants of the Bermuda deﬁned beneﬁt pension plan are inactive and in accordance with US GAAP, the net actuarial 
loss of the Bermuda deﬁned beneﬁt pension plan is amortised over the estimated average remaining life expectancy of the inactive participants of 22.8 years. Prior 
to all Bermuda participants being inactive, the net actuarial loss of the Bermuda deﬁned beneﬁt pension plan was amortised to net income over the estimated 
average remaining service period for active members of 4.5 years. 

Effective 30 September 2014, the deﬁned beneﬁt pension beneﬁts of the Bank’s Guernsey operations were amended to freeze credited service and ﬁnal average 
earnings for remaining active members. The beneﬁts amendment resulted in a further reduction in the Guernsey deﬁned beneﬁt pension liability of $4.59 million as 
at 30 September 2014.

28

  
Effective October 2014, all the participants of the Guernsey deﬁned beneﬁt pension plan are inactive and in accordance with US GAAP, the net actuarial loss of the 
Guernsey deﬁned beneﬁt pension plan will be amortised over the estimated average remaining life expectancy of the inactive participants of 39 years. Prior to all 
Guernsey participants being inactive, the net actuarial loss of the Guernsey deﬁned beneﬁt pension plan was amortised to net income over the estimated average 
remaining service period for active members of 15 years.

For the year ended 31 December 2014 numerous changes in the plan provisions were made to align the plan provisions with the administrative practices of the 
Bank resulting in a further increase in the Bermuda deﬁned beneﬁt post-retirement healthcare plan liability of $7.9 million. The Bank previously amortised prior 
service credits resulting from plan amendments on a linear basis over the expected average remaining service period (to full eligibility) of active members expected 
to receive beneﬁts under the plan (3.1 years remaining for 2010 plan amendments and 4.6 years remaining for 2011 plan amendments as of 1 January  2014). At 
31 December 2014, for new prior service costs/credits amortisations, the plan is substantially inactive; therefore, the Bank will amortise new prior service  
costs/credits resulting from plan amendments recognised at 31 December 2014 on a linear basis over the average remaining life expectancy of members eligible for 
beneﬁts under the plan (21 years at 31 December 2014).

As at 31 December 2014, the Bank had a net obligation for employee future beneﬁts in the amount of $109.5 million, up $39.3 million from $70.2 million at 
year-end 2013 driven by plan amendments, lower interest rates, longer life expectancy and reduced returns on plan assets. 

See “Note 11: Employee Future Beneﬁts” in the 31 December 2014 consolidated ﬁnancial statements for additional tables and information.

Subordinated Debt, Interest Payments and Maturities 
We have outstanding issuances of subordinated debt with a carrying value of $117 million as at 31 December 2014, all issued in US dollars, compared to  
$207 million as at 31 December 2013. All but $14.9 million of outstanding subordinated debt is eligible for inclusion in our Tier 2 regulatory capital base and is 
limited to 50% of Tier 1 Capital. 

The $90 million Series A note was due 2015 with a ﬁxed coupon of 4.81% until 2 July 2010 after which the coupon rate became ﬂoating and the principal became 
redeemable in whole at the Bank’s option. During January 2014, the Bank exercised its option to redeem all of the Series A notes outstanding at face value of 
$90 million.

The following table presents the contractual maturity, interest rates and principal outstanding as at 31 December 2014:

Subordinated  
capital (in $ millions)

Earliest date  
redeemable
at the 
Bank’s option 

Contractual  
maturity date

Interest rate until 
date redeemable

Interest rate  
from earliest date  
redeemable to  
contractual maturity

Principal   
outstanding

2003 issuance - Series B

27 May 2013

27 May 2018

2005 issuance - Series B

2 July 2015

2 July 2020

2008 issuance - Series B

27 May 2018

27 May 2023

5.15%

5.11%

8.44%

3 months US$ LIBOR + 2.000%

3 months US$ LIBOR + 1.695%

3 months US$ LIBOR + 4.929%

Total

47

45

25

117

See “Note 18: Subordinated Capital” in the 31 December 2014 consolidated ﬁnancial statements for additional information.

Repurchase Agreements
We also obtain funds from time to time from the sale of securities to institutional investors under repurchase agreements. In a repurchase agreement transaction, 
we will generally pledge investment securities as collateral in a borrowing transaction, agreeing to repurchase the identical security on a speciﬁed later date, 
generally not more than 90 days, at a price greater than the original sales price. The difference between the sale price and repurchase price is the cost of the use 
of the proceeds, or interest expense. The investment securities underlying these agreements may be delivered to securities dealers who arrange such transactions 
as collateral for the repurchase obligation. Repurchase agreements represent a cost competitive funding source and also provide liquidity on agency paper for us. 
However, we are subject to the risk that the borrower of the securities may default at maturity and not return the collateral. In order to minimise this potential risk 
when entering into such transactions, we generally deal with large, established investment brokerage ﬁrms with whom we have master repurchase agreements. 
Repurchase transactions are accounted for as ﬁnancing arrangements rather than as sales of such securities, and the obligation to repurchase such securities is 
reﬂected as a liability in our consolidated ﬁnancial statements. As at 31 December 2014, there were no repurchase agreements outstanding compared to  
$25.5 million at 31 December 2013. 

BUTTERFIELD ANNUAL REPORT 2014

29

 
 
 
 
 
Shareholders’ Equity
Shareholders’ equity increased during the year ended 31 December 2014 by $46.8 million to $849.4 million.

Increases totalling $158.4 million include:

•  $98.3 million net income for the year
•  $49.9 million from unrealised gains on AFS securities
•  $9.0 million of share-based compensation
•  $1.2 million of share-based settlements for stock options exercised

These increases were offset by decreases totalling $111.6 million:
•  $47.1 million net increase in employee future beneﬁts 
•  $27.4 million of common share dividends 
•  $17.0 million from the purchase of treasury common shares
•  $16.5 million preference share dividends and guarantee fee
•  $2.9 million translation adjustments on foreign operations
•  $0.7 million from the buy-back and cancellation of preference shares

Capital Resources
The Bank manages its capital both on a total Group basis and, where appropriate, on a legal entity basis. The Finance department has the responsibility for 
measuring, monitoring and reporting capital levels within guidelines and limits established by the Risk Policy and Compliance Committee of the Board. The 
management of capital will also involve regional management to ensure compliance with local regulation. In establishing the guidelines and limits for capital, a 
variety of factors are taken into consideration, including the overall risk of the business in stressed scenarios, regulatory requirements, capital levels relative to our 
peers, and the impact on our credit ratings.

As at 31 December 2014, the Bank was subject to Basel II which is a risk-based capital adequacy framework developed by the Basel Committee on Banking 
Supervision and has been endorsed by the central bank governors and heads of bank supervision of the G10 countries. The Bank is fully compliant with all 
regulatory capital requirements and maintains capital ratios well in excess of regulatory minimums as at 31 December 2014.

As at 31 December 2014, the Bank’s regulatory capital stood at $0.9 billion with the consolidated tier 1 and total capital ratios of 19.0% and 22.2%, respectively 
(2013: 19.6% and 23.7%, respectively). 

The following table sets forth our capital adequacy as at 31 December 2014 and 2013 in accordance with Basel II framework:

(in $ millions) 

Capital

Tier 1 capital

Tier 2 capital

Total capital

Risk-Weighted Assets

Cash and cash equivalents and investments

Loans

Other assets

Off-balance sheet items

Operational risk charge

Total risk-weighted assets

Capital Ratios (%)

Tier 1 common

Tier 1 total

Total capital

30

2014

781.7

130.8

912.5

683.2

2,364.9

314.0

177.7

573.6

4,113.4

14.6%

19.0%

22.2%

2013

823.6

169.2

992.8

742.9

2,381.8

345.2

193.6

534.2

4,197.7

15.2%

19.6%

23.7%

 
 
 
 
 
 
 
 
 
 
Under Basel II Pillar III (market disclosures) the Bank is required to publish further information about the risks to which it is exposed. The Bank’s Pillar III disclosures 
for the year ended 31 December 2014 will be published on the corporate website, www.butterﬁeldgroup.com, shortly after the publication of the consolidated 
ﬁnancial statements.

Under these standards, when fully phased-in on 1 January 2019, the Bank will be subject to the following requirements:

 •   Common equity Tier 1 (“CET1”) of at least 7.0 % of risk-weighted assets (“RWA”), inclusive of a minimum CET1 ratio of 4.5% and the new capital 

conservation buffer of 2.5%;

 •  Tier 1 capital of at least 8.5% of RWA, inclusive of the 2.5% capital conservation buffer;

 •  Total capital of at least 10.5% of RWA, inclusive of the 2.5% capital conservation buffer;

 •   Buffer between 0.5% to 3% (to be determined) composed of CET1-eligible capital imposed by the BMA upon its assessment of the extent to which the 
Bank (individually and collectively with the other Bermuda banks) pose a degree of material systemic risk to the economy of Bermuda due to its role in 
deposit taking, corporate lending, payment systems and other core economic functions;

  •   Counter-cyclical buffer of up to 2.5% composed of CET1-eligible capital may be imposed by the BMA when macroeconomic indicators provide an 

assessment of excessive credit or other pressures building in the banking sector;

 •  Leverage ratio must be at least 5.0%; and

  •  Liquidity coverage ratio (“LCR”) with a minimum requirement of 100%, subject to the phase-in rules.

Effective 1 January 2015, the BMA adopted capital and liquidity regulatory requirements consistent with Basel III, a framework released by the Basel Committee on 
Banking Supervision. The ﬁnalisation of the implementation is subject to ongoing consultation with the BMA regarding the implementation and interpretation of 
these new rules. The Bank is assessing the impact of the adoption of this guidance.

Preference Shares
In June 2009, the Bank offered 200,000 of 8.00% non-cumulative perpetual limited voting preference shares, liquidation preference of US $1,000 per share 
(the “preference shares”) and $200,000,000 in the aggregate. The preference shares are fully and unconditionally guaranteed, with the full faith and credit of 
the Government of Bermuda (the “Guarantor”), as to payment of dividends for up to ten years and as to payment of the liquidation preference on, or in certain 
circumstances prior to, the ten-year anniversary of the date of issuance (the “Guarantee”).

Dividends on the preference shares are payable quarterly on a non-cumulative basis, only when, as and if declared by our Board of Directors, on 15 March, 15 June, 
15 September and 15 December of each year at a ﬁxed rate equal to 8.00% per annum on the liquidation preference, commencing on 15 September 2009. In the 
event that, during the ten-year term of the Guarantee, the Bank does not pay full dividends in respect of any quarterly dividend period on any preference shares 
that are then issued and outstanding, the Guarantor has agreed to pay to holders of the preference shares an amount equal to such unpaid dividends pursuant to 
the Guarantee. 

The Bank may redeem the preference shares at its option, subject to approval of the Bermuda Monetary Authority (“BMA”), in whole or in part, on the tenth day 
prior to the ten-year anniversary of the date of issuance (the “Bank Redemption Date”), at a redemption price equal to 100% of the liquidation preference thereof 
plus any unpaid dividends for the then-current dividend period to the Guarantee End Date, regardless of whether any dividends are actually declared for such 
dividend period. In addition, the Bank may redeem the preference shares prior to the Bank Redemption Date, at its option, subject to approval of the BMA, in whole 
or in part, at any time and from time to time, at a redemption price equal to the “Make-Whole Redemption Price”. Unless previously redeemed, the Guarantor has 
agreed to purchase from the holders thereof, and such holders will be required to transfer to the Guarantor, on the ten-year anniversary of the date of issuance, 
all preference shares then issued and outstanding, at a price per preference share equal to the liquidation preference thereof plus any unpaid dividends for the 
then-current dividend period to the date of such purchase, regardless of whether any dividends are actually declared for such dividend period. In addition, upon 
the occurrence of a Liquidation Event at any time prior to the ten-year anniversary of the date of issuance of the preference shares, the Guarantor has agreed to 
purchase from the holders thereof, and such holders will be required to transfer to the Guarantor, all preference shares then issued and outstanding, at a price per 
preference share equal to the liquidation preference thereof plus any unpaid dividends for the then-current dividend period to the date of payment, regardless of 
whether any dividends are actually declared for such dividend period.

BUTTERFIELD ANNUAL REPORT 2014

31

  
 
 
 
 
 
 
 
Contingent Value Convertible Preference Shares (“CVCP shares”) (see the Rights Offering Prospectus for details)
In March 2010, the Bank offered up to 99.3 million common shares and 8.3 million CVCP shares in the form of up to 107.4 million Rights Units, each Unit consisting 
of 0.92038 common shares and 0.07692 CVCP shares, for each common share held at a price of BD$1.21 per Rights Unit.

A holder of CVCP shares has the option to convert any such shares to common shares at any time. All CVCP shares outstanding will automatically convert into 
common shares at the earlier of 31 March 2015 or a sale of the Bank. On such conversion, the CVCP shares will convert into common shares at the Conversion Price. 
The initial Conversion Price shall be US$1.21, subject to any customary anti-dilution adjustments and certain downward notional adjustment based on certain Loan 
Recoveries.

A holder of CVCP shares is entitled to certain distributions in connection with certain sales or public offerings of the Bank’s equity interest in Butterﬁeld Fulcrum 
Group (“BFG”, now known as Mitsubishi UFJ Fund Services, or MUFJ). On 9 February 2011, the Bank announced that it had agreed to sell its minority ownership 
position in BFG. The sale transaction closed during the second quarter of 2011 and generated proceeds of $3.31 million. The completion of the sale triggered a 
dividend of $3.27 million ($0.42 per share) to holders of Butterﬁeld CVCP shares, which was paid on 16 August 2011 to shareholders of record on 26 July 2011. 
Through this transaction, the Bank fully divested itself of its minority ownership stake in BFG. The Bank continues to provide MUFJ and its clients with commercial 
banking, foreign exchange and custody services. 

When, as and if declared by the Board, holders of the outstanding CVCP shares will be entitled to receive dividends based on the number of common shares into 
which the CVCP shares would be convertible as of the dividend record date.

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Bank, the holders of the CVCP shares will be entitled to 
receive from its assets legally available for distribution to shareholders as a liquidation preference before any distribution of assets is made to or set aside for the 
holders of any junior shares, such as the common shares, the greater of (1) US$1.21 per CVCP share plus any declared but unpaid dividends with respect to the 
then-current dividend period and (ii) the amount per CVCP share that would be received if such CVCP share had converted into common shares immediately 
prior to such liquidation, dissolution or winding up.

The CVCP shares are issued as perpetual securities subject to conversion to common shares and shall not be redeemable by any holders at any time.

The holders of the CVCP shares will vote together with the holders of the common shares on all matters upon which the holders of the common shares are entitled 
to vote. The CVCP shares shall be entitled to such number of votes based on the number of common shares into which the CVCP shares are convertible as of the 
applicable record date.

The class vote of the holders of at least 66.6% of the CVCP shares shall be required for (i) the creation or issuance of shares that are senior to liquidation, (ii) an 
amendment of rights of the CVCP shares or (iii) a reclassiﬁcation, merger, amalgamation or consolidation where the holders of CVCP shares would not receive the 
consideration that would be received if such CVCP shares had converted into common shares immediately prior to such event.

The CVCP shares shall be privately transferable (subject to applicable securities laws and any required regulatory consents) but shall not be listed on the Bermuda 
Stock Exchange or any other stock exchange. The CVCP shares will not be registered under the securities laws of any jurisdiction. This will result in a limited market 
for the CVCP shares. CVCP shares are transferable to common shares at the holders’ option by contacting the Bank’s transfer agent and registrar.

With respect to the 8.0% preference shares, the CVCP shares rank pari passu as to liquidation and pari passu as to dividends and, with respect to common shares, 
the CVCP shares rank senior as to liquidation and pari passu as to dividends (other than dividends relating to BFG, as to which the CVCP shares rank senior).

As at 31 December 2014, there were 6.9 million CVCP shares outstanding with 0.2 million shares converted to common shares at the holders’ option during the 
year ended 31 December 2014. As at 31 December 2014, there were no loan recoveries attributable to the CVCP shares as deﬁned in the certiﬁcate of designation. 
Consequently, the conversion factor to common shares at 31 December 2014 remained one to one (1:1). Loan recoveries mean the amount by which the cumulative 
amount of collections actually received by the Bank with respect to “covered loans” from and after 1 January 2010 and through (and including) the measurement 
date exceeds $102.3 million. In no event shall the loan recoveries exceed US$42.0 million. As at 31 December 2014, the carrying value of the covered loans was 
$11.0 million (2013: $23.7 million) reﬂecting charge-offs during the year as approved by the Audit Committee and reviewed by an independent committee of the 
Board of Directors.

Share Buy-Back Programme
The Bank initially introduced two share buy-back programmes on 1 May 2012 as a means to improve shareholder liquidity and facilitate growth in share value.  
Each programme was approved by the Board of Directors for a period of 12 months, in accordance with the regulations of the BSX. The BSX must be advised 
monthly of shares purchased pursuant to each programme. 

32

Common Share Buy-Back Programme
The Board of Directors approved the 2012 common share buy-back programme on 1 May 2012 with up to six million common shares authorised to be acquired for 
treasury. On 10 December 2012, the Board approved increasing the number of common shares to be acquired up to 10 million.

Effective 1 April 2013, the Board cancelled the 2012 common share buy-back programme and approved the 2013 common share buy-back programme for the 
purchase of up to 10 million common shares. On 2 December 2013, the Board increased the total number of common shares authorised to be purchased for treasury 
to 15 million.

Effective 1 April 2014, the Board approved the 2014 common share buy-back programme authorising the purchase for treasury of up to 15 million common shares. 

On 26 February 2015, the Board approved, with effect from 1 April 2015, the 2015 common share buy-back programme, authorising the purchase for treasury of up 
to eight million common shares.

Total common share buy-backs for the year ending 31 December are as follows:

Acquired number of shares (to the nearest 1)

8,567,340

4,038,482

7,260,051

19,865,873

Average cost per common share

Total cost (in Bermuda dollars)

1.99

1.39

1.24

1.59

17,018,412

5,610,907

8,999,061

31,628,380

2014

2013

2012

Total

Preference Share Buy-Back Programme
The Board of Directors approved the 2012 preference share buy-back programme on 1 May 2012 with up to 2,000 preference shares authorised to be purchased for 
cancellation. On 10 December 2012, the Board approved increasing the number of preference shares to be purchased for cancellation up to 8,000. 

During the second quarter of 2013, the Board approved the 2013 preference share buy-back programme authorising in total the purchase and cancellation of up to 
15,000 preference shares. On 2 December 2013, the Board increased the total number of preference shares authorised to be repurchased and cancelled to 26,600 
preference shares.

On 28 April 2014, the Board approved the 2014 preference share buy-back programme, authorising the purchase and cancellation of up to 26,600 preference shares.

On 26 February 2015, the Board approved, with effect from 4 May 2015, the 2015 preference share buy-back programme, authorising the purchase and 
cancellation of up to 5,000 preference shares.

Total preference share buy-backs for the year ending 31 December are as follows:

Acquired number of shares (to the nearest 1)

Average cost per preference share

Total cost (in Bermuda dollars)

2014

560

1,172.26

656,465

2013

11,972

2012

4,422

Total

16,954

1,230.26

1,218.40

1,225.25

14,728,624

5,387,777

20,772,866

From time to time, the Bank’s associates, insiders and insiders’ associates as deﬁned by the BSX regulations may sell shares which may result in such shares 
being repurchased pursuant to each programme, provided no more than any such person’s pro-rata share of the listed securities is repurchased. Pursuant to the 
BSX regulations, all repurchases made by any issuer pursuant to a securities repurchase programme must be made: (1) in the open market and not by private 
agreement; and (2) for a price not higher than the last independent trade for a round lot of the relevant class of securities.

Warrants 
Following the capital raise on 2 March 2010, the terms of the 4,279,601 warrants with an exercise price of $7.01 previously issued to the Government of Bermuda 
in conjunction with the issuance of the preference shares in 2009 were adjusted in accordance with the terms of the guarantee. Subsequently, the Government of 
Bermuda now holds 4.30 million (2013: 4.28 million) warrants with an exercise price of $3.49 (2013: $3.51) and an expiration date of 22 June 2019.

Dividends
During the year ended 31 December 2014, the Bank declared cash dividends totalling $27.4 million or $0.05 for each common share and contingent value 
convertible preference shares on record as of the related record dates. 

BUTTERFIELD ANNUAL REPORT 2014

33

The Board also declared a fourth interim dividend of $0.01 per common and contingent value convertible preference share and a special dividend of $0.01 per 
common and contingent value convertible preference share to be paid on 27 March 2015 to shareholders of record on 13 March 2015.

During the years ended 31 December 2014 and 2013, the Bank declared the full 8.00% cash dividends on preference shares in each quarter. Preference share 
dividends declared and paid were $14.7 million during 2014 (2013: $15.1 million). Guarantee fees paid to the Government of Bermuda were $1.8 million during 
2014 (2013: $1.9 million).

Cash Flows
Cash and cash equivalents were $2.1 billion as at 31 December 2014, compared to $1.7 billion in the prior year. The increase is described below by category of 
operating, investing and ﬁnancing activities.

For the year ended 31 December 2014, net cash provided by operating activities totalled $182.7 million (2013: $119.1 million). Cash ﬂows from operating activities 
are generally the cash effects of transactions and other events that enter into the determination of net income. Cash provided by operating activities increased by 
$63.5 million from 2013 to 2014, due primarily to rising core earnings that generated higher cash earnings compared to the prior year, a decrease in other assets 
and an increase in trading investments due to the receipt of seed money from the BNY Mellon Butterﬁeld Income Advantage Fund. 

Our investing activities include capital expenditures, loan activities, investment activities, and divesture and acquisition activities. We do not own, directly or 
indirectly, any shares of stock or any other equity interest or long-term debt securities of any company, corporation, ﬁrm, partnership, joint venture, association 
or other entity, except pursuant to the ordinary course of investment activities, the strategic investment in an associated company or as a result of the ordinary 
course loan structuring. Net cash used in investing activities for the year ending 31 December 2014 totalled $341.1 million, compared to cash provided by investing 
activities of $55.7 million in 2013. The $341.1 million cash used in investing activities in 2014 was mainly attributable to $343.8 million increased investments in 
short-term certiﬁcate of deposits, $425.3 million increased net investment in securities offset by cash transferred for deposits assumed in the HSBC acquisition of 
$310.6 million and a decrease in loan balances of $145.0 million.

Net cash provided by ﬁnancing activities totalled $505.3 million in 2014, compared to net cash provided by ﬁnancing activities of $4.1 million in 2013. The 
$501.2 million change reﬂects primarily a $465.5 million increase in deposits and a $58.0 million decrease in repurchase agreements. 

OFF BALANCE SHEET ARRANGEMENTS

Assets Under Administration and Assets Under Management
The Bank, in the normal course of business, holds assets under administration and assets under management in a ﬁduciary or agency capacity for our clients. In 
accordance with US GAAP, these assets are not assets of the Bank and are not included in our consolidated balance sheet.

Credit-Related Arrangements 
We enter into standby letters of credit, letters of guarantee and contractual commitments to extend credit in the normal course of business, which are not required 
to be recorded on the balance sheet. Since many commitments expire unused or only partially used, these totals do not necessarily reﬂect future cash requirements. 
Management believes there are no material commitments to extend credit that represent risks of an unusual nature.

Standby letters of credit and letters of guarantee are issued at the request of our clients in order to secure a client’s payment or performance obligations to a 
third party. These guarantees represent our irrevocable obligation to pay the third-party beneﬁciary upon presentation of the guarantee and satisfaction of the 
documentary requirements stipulated therein, without investigation as to the validity of the beneﬁciary’s claim against the client. Generally, the term of the standby 
letters of credit does not exceed one year, whilst the term of the letters of guarantee does not exceed four years.

Credit risk is the principal risk associated with these instruments. The contractual amounts of these instruments represent the credit risk should the instrument be 
fully drawn upon and the client defaults. To control the credit risk associated with issuing letters of credit and letters of guarantee, we subject such activities to the 
same credit quality and monitoring controls as our lending activities. The types and amounts of collateral security we hold for these standby letters of credit and 
letters of guarantee is generally represented by our deposits or a charge over assets held in mutual funds. We are obligated to meet the entire ﬁnancial obligation of 
these agreements and in certain cases are able to recover the amounts paid through recourse against the collateral security. 

The following table sets forth the outstanding ﬁnancial guarantees with contractual amounts representing credit risk: 

Collateral is shown at estimated market value less selling cost. Where cash is the collateral, it is shown in gross amounts including interest income.

(in $ millions)

Standby letters of credit

Letters of guarantee

Total

34

2014

Gross 

Collateral

225.7

10.2

235.9

224.2

7.6

231.8

Net

1.5

2.6

4.1

2013

Gross 

Collateral

294.6

12.4

307.0

292.2

8.8

301.0

Net

2.4

3.6

6.0

Contractual Obligations (Including Subordinated Debt)
We enter into contractual commitments to extend credit, normally with ﬁxed expiration dates or termination clauses, at speciﬁed rates and for speciﬁc purposes. 
These credit arrangements are subject to our normal credit standards and collateral is obtained where appropriate. Substantially all of our commitments to extend 
credit are contingent upon clients maintaining speciﬁc credit standards at the time of loan funding. Management assesses the credit risk associated with certain 
commitments to extend credit in determining the level of the allowance for possible loan losses.

The Bank has a facility by one of its custodians, whereby the Bank may offer up to US$200 million of standby letters of credit to its customers on a fully secured 
basis. Under the standard terms of the facility, the custodian has the right to set-off against securities held of 110% of the utilised facility. At 31 December 2014, 
$91.8 million (2013: $149.2 million) of standby letters of credit were issued under this facility. The contractual amounts for these commitments represent the 
maximum payments we would have to make should the contracts be fully drawn, the counterparty default, and any collateral held prove to be of no value. 
Commitments, when drawn, would be funded from our free cash resources. 

We enter into other contractual obligations in the normal course of business. Certain of these obligations, such as subordinated debt, are recorded as liabilities in 
our consolidated balance sheet. Other items, such as sourcing agreements, operating leases and other purchase contracts, are not required to be recorded on the 
balance sheet. Expected cash payments associated with subordinated debt are based on principal payment dates. 

See “Note 18: Subordinated Capital” in the 31 December 2014 consolidated ﬁnancial statements for terms of subordinated debt arrangements and interest 
obligations.

The $33.1 million contractual obligation in respect of sourcing—for Bermuda and the Cayman Islands— relates to an eight-year agreement entered into in 
October 2008 with global technology service provider Hewlett Packard (“HP”) (previously EDS) to supply technology infrastructure and application development 
management, information security and technical support for our locations in Bermuda and the Cayman Islands. In 2011, working with HP, we completed the 
transition of all our business applications and legacy systems in these locations to a new, common platform that is centrally managed. Under our agreement with 
HP, server management and maintenance, technology ﬁeld support, application support and development and help desk functions are managed by HP. 

We have entered into additional contractual obligations in the normal course of business which are not signiﬁcant to the amounts above. 

RISK MANAGEMENT

Risk Governance
The Group’s risk governance and management structure is illustrated below:

BOARD OF DIRECTORS

RISK POLICY AND COMPLIANCE
COMMITTEE

AUDIT COMMITTEE

GROUP RISK COMMITTEE

GROUP ASSET AND LIABILITY
COMMITTEE

GROUP CREDIT COMMITTEE

PROVISION AND IMPAIRMENTS
COMMITTEE

POLICY DEVELOPMENT
COMMITTEE

JURISDICTIONAL BUSINESS UNITS & OVERSIGHT COMMITTEES

The Board of Directors (the “Board”) has overall responsibility for determining risk strategy, setting the Bank’s risk appetite and ensuring that risk is monitored and 
controlled effectively. It accomplishes its mandate through the activities of two dedicated committees:

The Risk Policy and Compliance Committee: This committee assists the Board in fulﬁlling its responsibilities by overseeing the Group’s risk proﬁle and its 
performance against approved risk appetites and tolerance thresholds. Speciﬁcally, the committee considers the sufﬁciency of the Group’s policies, procedures 
and limits related to the identiﬁcation, measurement, monitoring and control of activities that give rise to credit, market, liquidity, interest rate, operational and 
reputational risks, as well as overseeing its compliance with laws, regulations and codes of conduct.

BUTTERFIELD ANNUAL REPORT 2014

35

             
The Audit Committee: This committee reviews the overall adequacy and effectiveness of the Group’s system of internal controls and the control environment, 
including those that are brought to bear in respect of the risk management process. It reviews recommendations arising from internal and independent audit review 
activities and management’s response to any ﬁndings raised.

Both the Risk Policy and Compliance and Audit Committees are supported in the execution of their respective mandates by the dedicated Audit, Compliance and 
Risk Policy Committees for our UK, Guernsey and Caribbean operations, which oversee the sufﬁciency of local risk management policies and procedures and the 
effectiveness of the system of internal controls that are in place. These committees are chaired by non-executive Directors drawn from our jurisdictional Boards.

The Group executive management team is led by the Chairman & Chief Executive Ofﬁcer (the “Chairman”) and includes the members of executive management 
reporting directly to the Chairman. The executive management team is responsible for setting business strategy and for monitoring, evaluating and managing risks 
across the Group. It is supported by the following committees:

The Group Risk Committee (“GRC”) is comprised of executive and senior management team members and is chaired by the Chief Risk Ofﬁcer. It provides a 
forum for the strategic assessment of risks assumed across the Group as a whole based on an integrated view of credit, market, liquidity, legal and regulatory 
compliance, operational, interest rate, investment, capital and reputational risks, ensuring that these exposures are consistent with the risk appetites and tolerance 
thresholds promulgated by the Board. It is responsible for reviewing, evaluating and recommending the Group’s Risk Appetite Framework, the results of the Capital 
Assessment and Risk Proﬁle (“CARP”) process (including all associated stress testing performed) and the Group’s key risk policies to the Board for approval, for 
reviewing and evaluating current and proposed business strategies in the context of our risk appetites and for identifying, reviewing and advising on current and 
emerging risk issues and associated mitigation plans.

The Group Asset and Liability Committee (“GALCO”) is comprised of executive and senior management team members and is chaired by the Chief Financial 
Ofﬁcer. The committee is responsible for liquidity, interest rate and exchange rate risk management and other balance sheet issues. It also oversees the execution of 
the Group’s investment and capital management strategies and monitors the associated risks assumed. It is supported in the execution of its mandate by the work 
undertaken by the dedicated Asset and Liability Committees in each of the Bank’s jurisdictional business units.

The Group Credit Committee (“GCC”) is comprised of executive and senior management and is chaired by the Chief Risk Ofﬁcer. The committee is responsible for 
a broad range of activities relating to the monitoring, evaluation and management of credit risks assumed across the Group at both transaction and portfolio levels. 
It is supported in the execution of its mandate by the Financial Institutions Committee (FIC), a dedicated sub-committee that is responsible for the evaluation and 
approval of recommended inter-bank and counterparty exposures assumed in the Group’s treasury and investment portfolios, and by the activities of the European 
Credit Committee, which reviews and approves transactions within delegated authorities and recommends speciﬁc transactions outside of these limits to the Group 
Credit Committee for approval.

The Provision and Impairments Committee is comprised of executive and senior management team members and is chaired by the Chief Risk Ofﬁcer. The 
committee is responsible for approving signiﬁcant provisions and other impairment charges. It also oversees the overall credit risk proﬁle of the Group in regards 
to non-accrual loans and assets. It is supported in the execution of its mandate by local credit committees and the Group Credit Committee, which make 
recommendations to this committee. 

The Policy Development Committee is comprised of senior management team members across the Group and is chaired by the Group Head of Compliance. The 
committee is responsible for overseeing the design, development and maintenance of the Group’s framework of operational policies. It develops recommendations 
regarding policy requirements, engages with nominated members of executive management to ensure that policies are drafted or updated on a timely basis and 
provides a forum through which they are debated Group-wide prior to their adoption, thereby ensuring a consistency of application and interpretation. It also 
ensures that all policies and any policy exception requests are reviewed and recommended prior to presentation to the Group Risk Committee and if necessary, the 
Risk Policy and Compliance Committee of the Board for approval.

Risk Management
The Group manages its exposure to risk through a three “lines of defence” model. This may be summarised as follows:

The ﬁrst “line of defence” is provided by our Jurisdictional business units, which retain ultimate responsibility for the risks they assume and for bearing the cost of 
risk associated with these exposures.

The second “line of defence” is provided by the Risk Management group, which works in collaboration with our business units to identify, assess, mitigate and 
monitor the risks associated with our business activities and strategies. It does this by:

•  Making recommendations to the Group Risk Committee regarding the constitution of the Risk Appetite Framework;

•   Setting risk strategies that are designed to manage risk exposures assumed in the course of pursuing our business strategies and aligning them with  

agreed appetites;

36

 
 
 
 
•   Establishing and communicating policies, procedures and limits to control risks in alignment with these risk strategies;

•  Measuring, monitoring and reporting on risk levels;

•  Opining on speciﬁc transactions that fall outside delegated risk limits; and

•  Identifying and assessing emerging risks.

The four functions within the Risk Management group that support our risk management activities are outlined below. To ensure a formal separation of duties, 
each reports directly to the Chief Risk Ofﬁcer.

 Group Market Risk – This unit provides independent oversight of the measurement, monitoring and control of liquidity and funding risks, interest rate 
and foreign exchange risks as well as the market risks associated with the Group’s investment portfolios. It also monitors compliance with both regulatory 
requirements and the Group’s internal policies and procedures relating to the management of these risks.

 Group Credit Risk Management – This unit is responsible for the adjudication and oversight of credit risks associated with our retail and commercial 
lending activities and the management of risks associated with our investment portfolios and counterparty exposures. It also establishes the parameters and 
delegated limits within which credit risks may be assumed and promulgates guidelines on how exposures should be managed and monitored.

 Group Compliance – This unit provides independent analysis and assurance of the Group’s compliance with applicable laws, regulations, codes of conduct 
and recommended best practices, including those associated with the prevention of money laundering and terrorist ﬁnancing. It is also responsible for 
assessing the Group’s potential exposure to upstream risks and for providing guidance on the preparations that should be made in advance of these changes 
coming into effect.

 Group Operational Risk – This unit assesses the effectiveness of the Group’s procedures and internal controls in managing its exposure to various forms of 
operational risk, including those associated with new business activities and processes and the deployment of new technologies. It also oversees the Group’s 
incident management processes and reviews the effectiveness of its loss data collection activities.

The third “line of defence” is provided by our Group Internal Audit function, which performs oversight and ongoing review, and challenges the effectiveness 
of the internal controls that are executed by both the business and Risk Management. This includes the review of the accuracy of the underlying data and 
appropriateness of the stress testing methodologies that are executed as a part of our Capital Adequacy and Risk Proﬁle (CARP) process.

The Risk Appetite Framework
The Risk Appetite Framework is the cornerstone of our approach to risk management. Developed by executive management and approved formally by the Board of 
Directors, it communicates a willingness to take on certain risks in the pursuit of our strategic objectives and deﬁnes those that should be avoided. It also provides 
management with a clear mandate regarding the amount and type of risk that it may accept and establishes minimum expectations regarding the practices and 
behaviours that should be brought to bear in managing the exposures assumed. It is aligned with the interests of our stakeholders, feeds into our business planning 
processes, and shapes our discussions on risk matters generally.

Our framework comprises the following elements:

(i)   Nine broad categories of risk: credit; market; liquidity; legal and regulatory; governance; process and technology; people; country and political; and 
reputational. These represent the various risks that the Group assumes across the entirety of its operations in the pursuit of its strategic goals. 

(ii)  For each risk category, there is a declared risk appetite. To ensure consistency in our risk conversations, these have been distilled into the three options set 

out in the table below, with each appetite designed to convey a clear strategic direction in terms of the risk/reward proﬁle assumed:  

BUTTERFIELD ANNUAL REPORT 2014

37

 
 
 
 
 
 
 
 
 
 
 
 
 
 
APPETITE

Averse

Cautious

Open

DEFINITION

PROFILE

The Group will work to avoid exposure to this risk given its 
potential for ﬁnancial loss, reputational damage, and/or the 
loss of customer and/or investor conﬁdence.  

Our processes and controls are defensive and focus on  
detection and prevention.

Given the potential for ﬁnancial loss, reputational damage, and 
the loss of customer and/or investor conﬁdence, the Group will 
be very selective in the exposures assumed to this risk and will 
monitor it closely. 

The Group will consider opportunities to accept this risk and will 
accept those that fall within clearly deﬁned parameters. The risk 
of loss or reputational damage is accepted but the exposure can 
be estimated reliably and can be managed to a tolerable level.

Security is favoured over reward. Exposures are only assumed 
when the risk can be quantiﬁed accurately and is assessed as 
being acceptable.  

Reward is commensurate with the risk assumed. Exposures can 
be estimated reliably and structures, systems and processes are 
in place to manage it. 

(iii)  A statement of our governing principles relating to each risk category. This establishes the characteristics of the risks that the Bank is willing to assume and 

the management behaviours that we should exhibit when doing so. 

Speciﬁc performance measures and tolerance thresholds in respect of each risk category, combining quantitative and qualitative targets (which are designed to 
reﬂect both forward looking as well as historical perspectives), are designed to provide executive management and the Board with an indication of the “direction” 
of our exposure relative to our declared risk appetite and an early warning of material adverse developments requiring remedial action. The metrics are monitored 
independently by the Group Risk function and are measured against actual results. The results of these analyses are reported to management at all levels of the 
organisation and are reviewed regularly by Group Risk, executive management, and the Board of Directors in the performance of their oversight activities. 

Application of the Risk Appetite Framework
The limits, targets and thresholds used to measure performance continue to be reﬁned by the Group Risk Management function in an effort to express as complete 
a “picture” as possible of our exposure to a given risk, relative to the stated appetite. All changes proposed pass through a formal review and approval process at 
both the executive management and Board levels prior to their adoption.  

Through this approach, the Risk Appetite Framework sets the tone for our risk culture across the Group as a whole, inﬂuencing behaviours at all levels of the 
organisation and reinforcing accountability for decisions taken. Many of our jurisdictional ofﬁces have developed subsidiary risk appetite frameworks in conjunction 
with their local Risk Management functions. This ensures appropriate coverage of local risk factors and the establishment of proportional tolerance thresholds.  
Group Risk has reviewed these frameworks prior to their adoption and has modiﬁed any appetites proposed that are considered to be inconsistent with the  
overall Group approach. 

Credit Ratings
Our credit ratings are provided in the table below: 

As at 31 December 2014

Short-term deposits

Long-term deposits and debt

Standard & Poor’s

      Moody’s

A2

BBB+

P2

A3

Fitch

F1

A-

38

 
 
 
JURISDICTION AND 
BUSINESS LINE OVERVIEWS

BUTTERFIELD ANNUAL REPORT 2014

39

BERMUDA

For more than 150 years, Bermuda has served as home to Butterﬁeld’s 
headquarters and remains the Bank’s largest jurisdiction in terms of number 
of employees, Banking Centre locations and business volume. Recognised 
in 2013 and 2014 as Bermuda’s Bank of the Year by The Banker, Butterﬁeld 
is Bermuda’s largest independent bank, offering a full range of community 
banking services and wealth management services, including private banking, 
asset management and personal trusts. Butterﬁeld also provides services 
to corporate and institutional clients in Bermuda, which includes asset 
management and corporate trust services.

Net income before gains and losses was $53.3 million at 31 December 2014, 
up $19.5 million from $33.8 million in the prior year, due principally to higher 
investment income, restructuring initiatives in 2013, and lower provisions for 
credit losses and interest expense on subordinated debt, all partially offset 
by higher professional fees.  Net gains of $6.9 million during the year were 
favourable by $3.4 million compared to net gains of $3.5 million in 2013, 
due primarily to one-off gains and reduced valuation allowances required on 
foreclosed properties.  Net income after gains and losses was $60.2 million, an 
increase of $22.8 million from $37.4 million in the prior year.

average loan balances than in 2013 and $0.6 million of other items relating 
primarily to higher interest paid on deposits. 

Provision for credit losses was $6.4 million, down $6.3 million from the prior 
year, largely due to higher impairment of non-performing hospitality loans and 
residential mortgages in 2013. 

Non-interest income of $60.7 million at 31 December 2014 remained ﬂat, due 
primarily to $0.9 million of higher banking fees offset by asset management 
fees that were lower by $1.1 million.

Operating expenses declined by $5.3 million to $145.7 million in 2014 due to 
operational losses and restructuring initiatives in 2013, all partially offset by 
higher professional fees.

Total assets as at 31 December 2014 were $4.8 billion, up $0.2 billion from 
year-end 2013. Customer deposits ended the year at $3.9 billion, up  
$0.3 billion from year-end 2013, and loan balances ended the year at $2.1 
billion, ﬂat from year-end 2013.

Net interest income before provision for credit losses increased by $7.8 million 
to $144.7 million in 2014 due to an increase of $6.3 million in investment 
income and a decrease of $3.6 million in subordinated debt expense, all 
partially offset by reduced loan interest revenue of $1.5 million due to lower 

Client assets under administration for the trust and custody businesses 
were $33.7 billion and $29.8 billion, respectively, whilst assets under 
management were $2.3 billion. 

40

(in $ thousands)

Net interest income

Provision for credit losses

Non-interest income  

Revenue before other gains (losses)

Operating expenses  

Net income before other gains (losses)

Total other gains

Net income 

As at  31 December

(in $ millions)

Customer deposits

Loans, net of allowance for credit losses 

Total assets  

Assets under administration

Custody and other administration services  

Trust 

Assets under management

Butterﬁeld Funds  

Other assets under management 

Total assets under management

Number of employees

2014

144,692

(6,425)

60,692

198,959

(145,696)

53,263

6,908

60,171

3,870

2,031

4,797

29,824

33,650

1,893

404

2,297

537

2013

136,900

(12,707)

60,682

184,875

(151,042)

33,833

3,533

37,366

3,551

2,075

4,624

31,198

35,621

1,956

805

2,761

554

$ change

7,792

6,282

10

14,084

5,346

19,430

3,375

22,805

319

(44)

173

(1,374)

(1,971)

(63)

(401)

(464)

(17)

% change

5.7%

(49.4%)

-

7.6%

(3.5%)

57.4%

95.5%

61.0%

9.0%

(2.1%)

3.7%

(4.4%)

(5.5%)

(3.2%)

(49.8%)

(16.8%)

(3.1%)

BUTTERFIELD ANNUAL REPORT 2014

41

CAYMAN ISLANDS

Butterﬁeld is a leading ﬁnancial services provider in the Cayman Islands, 
offering a comprehensive range of personal and corporate ﬁnancial services.  In 
addition to our strong retail presence, Butterﬁeld is also focused on our wealth 
management offering through an award-winning private banking service, as 
well as asset management and trust services.

in demand deposits was offset by a marginal decline in average time deposits. 

Provision for credit losses was $0.6 million compared to $3.6 million in 2013. 
Signiﬁcant general provisions in the prior year (relating to the increase in 
commercial loans and speciﬁc provisions on certain residential mortgages and 
commercial loans) resulted in the year-over-year reduction of $3.0 million.

Named Bank of the Year in 2013 and 2014 by The Banker, Butterﬁeld continued 
to enhance its client delivery channels including online, mobile banking and the 
American Airlines afﬁnity credit card products, as well as the recent acquisition 
of the community and corporate banking business of HSBC Bank (Cayman) 
Limited. With three Banking Centres in excellent locations and 13 ATMs 
strategically located in Grand Cayman, Butterﬁeld continues to be a leader in 
the provision of ﬁnancial services locally.

Net income before gains and losses at 31 December 2014 was $33.5 million, 
up $7.6 million from $25.9 million in 2013. The increase was due primarily to 
increases in interest income on loans and investments, banking fees, foreign 
exchange income, and lower provision for credit losses, offset by acquisition 
integration and other project costs.

Net interest income before loan loss provisions was $59.4 million in 2014, 
an improvement of $7.4 million compared to 2013.  The increase was driven 
primarily by an improvement in loan income of $6.8 million as loans increased 
by $153.0 million. Investment income was up $1.0 million resulting from an 
average increase of $23.3 million in ﬁxed rate available-for-sale securities and 
$4.5 million in ﬂoating rate notes. Deposit liability costs of $1.9 million were 
unchanged from the prior year as the interest-cost impact from average growth 

Non-interest income was $33.5 million, up $1.3 million year over year. The 
increase was due primarily to higher banking fees, driven by an increase in 
card, wire transfer and foreign exchange volumes, along with trust and 
asset management fees, partially offset by lower rental and other 
non-interest income.

Operating expenses increased $4.2 million, year over year, to $58.8 million, 
driven primarily by acquisition integration and other project costs, as well as 
growth in technology and loan servicing costs. 

Total assets at 31 December 2014 were $2.9 billion, up $0.6 billion from 
year-end 2013, reﬂecting higher client deposit levels propelled by the 
acquisition of loans and deposits from HSBC Cayman in November 2014. 
Net loans increased by $0.2 billion from year-end 2013 to end the year at 
$1.1 billion. The available-for-sale investments, at $0.8 billion at the end of 
ﬁscal 2014, were up $0.3 billion, year over year. 

Client assets under administration for the trust and custody businesses were 
$3.4 billion and $1.5 billion, respectively, whilst assets under management were 
$0.8 billion at year end.

42

  
(in $ thousands)

Net interest income 

Provision for credit losses

Non-interest income

Revenue before  other gains (losses)    

Operating expenses    

Net income before other gains (losses)  

Total other gains (losses)    

Net  income   

As at 31 December

(in $ millions)

Customer deposits

Loans, net of allowance for credit losses  

Total assets

Assets under administration

Custody and other administration services

Trust

Assets under management

Butterﬁeld Funds  

Other assets under management

Total assets under management

Number of employees

2014

59,370

(557)

33,515

92,328

(58,829)

33,499

36

33,535

2,591

1,104

2,864

1,464

3,432

111

696

807

293

2013

51,981

(3,554)

32,177

80,604

(54,674)

25,930

(492)

25,438

2,071

951

2,309

1,323

1,591

139

541

680

273

$ change

7,389

2,997

1,338

11,724

(4,155)

7,569

528

8,097

520

153

555

141

1,841

(28)

155

127

20

% change

14.2%

(84.3%)

4.2%

14.5%

7.6%

29.2%

(107.3%)

31.8%

25.1%

16.1%

24.0%

10.7%

115.7%

(20.1%)

28.7%

18.7%

7.3%

BUTTERFIELD ANNUAL REPORT 2014

43

GUERNSEY

In Guernsey, Butterﬁeld offers private banking, lending, asset management, 
custody, administered banking and ﬁduciary services.

Guernsey’s results now include Legis Group, the acquisition having been 
completed on 1 April 2014. The acquisition was undertaken to expand our 
market presence and widen the range of corporate and institutional trust 
services for private clients and institutional and corporate clients.

Guernsey posted net income before gains and losses of $5.1 million in 2014, 
compared to $7.4 million in 2013. The decrease of $2.3 million was due 
primarily to lower net interest income from compressed yields on investments 
and higher non-interest expenses, in particular higher technology and 
professional fees offset by a tax refund received.

Non-interest income increased $7.1 million to $26.8 million, attributable to 
additional revenues earned from the acquired Legis business together with 
higher asset management, custody and other administration services fees 
earned, offset by lower foreign exchange revenues.  

Operating expenses at $39.6 million were $7.7 million higher than 2013 due 
primarily to additional expenses attributable to the acquired business and 
an increase in technology and amortisation expenses offset by a tax refund 
received.

Total assets at 31 December 2014 of $1.6 billion were up $0.2 billion from 
year-end 2013, driven by higher customer deposit balances that have 
increased cash and investment balances.

Net interest income before provision for credit losses declined by $1.7 million 
to $18.1 million in 2014, compared to $19.8 million last year, attributable 
to weakening inter-bank and investment yields and increased inter-Group 
subordinated debt interest.

Provision for credit losses was $0.2 million compared to $0.1 million in 2013. 

Client assets under administration for the trust business were $41.0 billion 
in 2014, up from $10.1 billion in 2013 and attributable to the acquired 
Legis business. Similarly, assets under administration for the custody and 
administered banking businesses were $9.2 billion, down $0.5 billion (4.2%) 
over 2013, due to adverse exchange rates. Client assets under management 
were $0.4 billion at year-end.  

44

  
(in $ thousands)

Net interest income

Provision for credit losses

Non-interest income

Revenue before other gains (losses)

Operating expenses  

Net income before other gains (losses)

Total other losses

Net income

As at 31 December

(in $ millions)

Customer deposits

Loans, net of allowance for credit losses

Total assets

Assets under administration

Custody and other administration services 

Trust  

Assets under management

Butterﬁeld Funds

Other assets under management

Total assets under management

Number of employees

2014

18,061

(154)

26,814

44,721

(39,580)

5,141

(1,077)

4,064

1,496

527

1,639

9,247

41,016

46

355

401

211

2013

19,808

(126)

19,678

39,360

(31,945)

7,415

(378)

7,037

1,291

563

1,438

9,654

10,108

72

352

424

175

$ change

(1,747)

(28)

7,136

5,361

(7,635)

(2,274)

(699)

(2,973)

205

(36)

201

(407)

30,908

(26)

3

(23)

36

% change

(8.8%)

22.2%

36.3%

13.6%

23.9%

(30.7%)

184.9%

(42.2%)

15.9%

(6.4%)

14.0%

(4.2%)

305.8%

(36.1%)

0.9%

(5.4%)

20.6%

BUTTERFIELD ANNUAL REPORT 2014

45

 
 
 
 
UNITED KINGDOM

In the UK, Butterﬁeld provides a range of traditional private banking, lending, 
treasury and investment management services. This includes the provision 
of family ofﬁce services to high net worth international clients through the 
expertise within the Butterﬁeld Group.

in 2014 of $0.9 million, the majority of which related to two commercial loan 
facilities. This compares to a net recovery of $1.5 million in 2013 following 
recoveries from two previously written off facilities.

The United Kingdom recorded net income of $0.9 million in 2014, down  
$3.3 million from $4.2 million in 2013. The swing in credit provisions accounts 
for $2.4 million of the decrease, as a net recovery of $1.5 million was booked in 
2013 compared to provisions of $0.9 million in 2014. 

Net interest income before credit provisions of $16.2 million was up $1.3 
million from $14.9 million at year-end 2013. The increase was due primarily to 
a one-off receipt of default loan interest of $1.6 million, but also due in part 
to the revised strategy on customer deposit products, which reduced interest 
expenses by $0.3 million compared to 2013.

Provision for credit losses increased by $2.4 million. We recorded a net loss 

Operating expenses of $22.2 million were $2.3 million higher than 2013 due 
primarily to an increase in non-income taxes, as well as increased professional 
fees relating to external assistance and advice received on a number of projects 
associated with changing regulatory requirements.

Total assets at year-end were consistent with year-end 2013 at $0.8 billion. 
Loan balances were $0.4 billion in 2014, down $0.1 billion from year-end 2013.  
Customer deposit balances of $0.6 billion at year-end 2013 remained ﬂat during 
2014 to end the year at the same level.

Assets under management of $0.3 billion were unchanged from year-end 2013. 
Custody client assets under administration at the end of 2014 amounted to 
$1.9 billion.

46

(in $ thousands)

Net interest income

Provision for credit losses

Non-interest income

Revenue before other gains (losses)

Operating expenses 

Net income before other gains (losses) 

Total other gains 

Net income  

As at  31 December

(in $ millions)

Customer deposits

Loans, net of allowance for credit losses

Total assets

2014

16,213

(912)

7,717

23,018

(22,164)

854

1

855

614

357

833

2013

14,932

1,504

7,384

23,820

(19,841)

3,979

181

4,160

607

497

828

Assets under administration – Custody 

1,920

1,506

Assets under management

Butterﬁeld Funds

Other assets under management

Total assets under management

Number of employees

88

183

271

85

97

194

291

97

$ change

1,281

(2,416)

333

(802)

(2,323)

(3,125)

(180)

(3,305)

7

(140)

5

414

(9)

(11)

(20)

(12)

% change

8.6%

(160.6%)

4.5%

(3.4%)

11.7%

(78.5%)

(99.4%)

(79.4%)

1.2%

(28.2%)

0.6%

27.5%

(9.3%)

(5.7%)

(6.9%)

(12.4%)

BUTTERFIELD ANNUAL REPORT 2014

47

 
 
GROUP TRUST

Our trust and corporate services specialists deliver solutions to meet a range 
of client needs, including estate and succession planning, administration 
of complex asset holdings, and efﬁcient co-ordination for the affairs of 
international families; as well as the pension, employee beneﬁt and other 
ﬁduciary requirements of multinational corporations and institutions. 

Alongside our traditional strengths in providing services to families and 
institutions connected with the United Kingdom, North America, and Europe, 
in 2014 we continued to build relationships with clients connected to the Asian 
and Latin American regions.

Our goal is to deliver consistently reliable service to our clients underpinned by 
the technical expertise of our multi-jurisdictional team, which operates through 
separately incorporated trust businesses in our jurisdictions of choice: The 
Bahamas, Bermuda, the Cayman Islands, Guernsey and Switzerland.  To this 
end, training and continual professional development for our staff remained 
a priority in 2014.  Active participation in the local branches of leading trust 
industry associations and bodies such as the Society of Trust and Estate 
Practitioners also assists our employees in remaining at the forefront of  
their specialisations.

Our multi-jurisdictional expertise in trust and ﬁduciary services has been 
recognised by a number of prestigious wealth services industry awards.  Most 
recently, Butterﬁeld won awards in respect of Succession Planning Advice 
and Trusts in Guernsey, and for Net-Worth-Speciﬁc Services for Super Afﬂuent 
Clients in the Cayman Islands, in the 2015 annual Euromoney Private Banking 
and Wealth Management Awards.  The Euromoney awards are decided by a 
vote of private banking professionals from around the globe and recognise 
recipients offering the leading private wealth services and products in their 
respective markets. Euromoney magazine is considered the preeminent journal 
of the international ﬁnance community.

Total Trust assets under administration (“Trust AUA”) at 31 December:

 (in $ millions)

Bermuda

Cayman Islands

Guernsey

Switzerland

The Bahamas

Total

48

The Euromoney award came on the heels of recognition from UK-based 
publisher of wealth-management industry news and directories, Citywealth, 
with Butterﬁeld being named runner up in the categories of Best Trust 
Company – Caribbean and Best Trust Company – Guernsey at Citywealth’s 
International Financial Centre Awards in January 2015.  This followed on our 
successes as winners of Best Trust Company – Switzerland and Best Trust 
Company – Caribbean in last year’s awards. 

We have also been prominent participants in the international ﬁduciary services 
industry through sponsorship of leading events such as the 2014 STEP Asia 
conference, which took place in Hong Kong, the STEP Caribbean conference 
held in The Bahamas, the upcoming Transcontinental Trusts Conference taking 
place in Bermuda in April 2015 and the International Bar Association’s 20th 
Wealth Transfer Conference in London in March 2015.

Revenues are derived from a combination of ﬁxed fees, fees based on the 
market values of assets held in trust and fees based on time spent in relation 
to the range of personal trust and company administration services, and the 
pension, employee beneﬁt and other corporate and institutional trust services 
we provide.

In 2014, trust revenues totalled $38.3 million, an increase of 25.8% from 2013 
attributable largely to the acquisition of the Legis Group’s trust and corporate 
administration business in Guernsey, and also to strong new business results.  
Close relationships with our clients and their advisers, as well as structured, 
proactive business development activities led to an increase in new business in 
both personal and institutional ﬁduciary services in all of our businesses.

Trust revenues represented 28.4% of total non-interest income in 2014, up  
from 24.1% in 2013.

2014

33,650

3,432

41,016

3,097

3,203

84,398

2013

35,621

1,591

10,108

2,566

3,370

53,256

$ change

% change

(1,971)

1,841

30,908

531

(167)

31,142

(5.5%)

115.7%

305.8%

20.7%

(5.0%)

58.5%

 
GROUP ASSET MANAGEMENT

Group Asset Management revenue was $17.7 million in 2014, compared to 
$18.1 million in 2013. The decrease of $0.4 million is due principally to lower 
short-term interest rates and their trickle-down effect on Money Market Fund 
management fee income. This was partially offset by increased management 
fees from private clients.

Assets under management were $3.8 billion at year-end 2014, compared  
to $4.2 billion at the end of 2013. The decrease of $0.4 billion is due primarily  
to the decline in institutional clients, as insurance captives continued  
to move assets back onshore, and withdrawals of Money Market Fund  
balances as clients continued to seek out better-yielding alternatives for  
short-term investments. 

Butterﬁeld Asset Management focuses on fulﬁlling the ﬁnancial needs of 
those who demand the highest levels of service and expertise. Each client has 
direct access to his or her portfolio manager who is, in turn, supported by a 
Group investment discipline designed to leverage resources from across the 
organisation, including a Core Strategy and Research team based in the  
United Kingdom. 

The Group provides a broad range of investment services to institutional and 
private clients in Bermuda, the Cayman Islands, Guernsey, and the United 
Kingdom. Principal services include discretionary investment management 
and managed portfolio services. Advisory and self-directed brokerage options 
are available to clients in Bermuda and the Cayman Islands. The Group also 
provides money market and mutual fund offerings in all four jurisdictions. 
Institutional clients consist primarily of captive insurance companies in Bermuda 
and the Cayman Islands. Private clients are high net worth individuals and their 
ﬁduciary vehicles served from all four jurisdictions. Retail and mass afﬂuent 
clients are served in Bermuda and the Cayman Islands as part of Butterﬁeld’s 
community banking platform. 

Total Assets under Management (“AUM”) at 31 December:

(in $ millions)

Bermuda

Cayman Islands

Guernsey

The Bahamas

UK

Total

2014

2013

Butterﬁeld Funds

Other assets 

Total AUM

Butterﬁeld Funds

Other assets

Total AUM

1,893

111

46

26

88

404

696

355

-

183

2,297

807

401

26

271

1,956

139

72

40

97

805

541

352

-

194

2,761

680

424

40

291

2,164

1,638

3,802

2,304

1,892

4,196

BUTTERFIELD ANNUAL REPORT 2014

49

 
FINANCIAL STATEMENTS

5050550505055050500005505005055505050500555055055055050050055050505550055005050555005055050005050500050550505000550050555005055050500550500505050505050000555005550055055050500050505500055000500005000005

MANAGEMENT’S FINANCIAL REPORTING RESPONSIBILITY 

The Management of The Bank of N.T. Butterﬁeld & Son Limited is responsible for the preparation of the consolidated ﬁnancial statements contained in 
this report, which covers all of the interests of the Bank. Management has fully disclosed its income, assets, liabilities and off-balance sheet commitments. 
These ﬁnancial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and, where 
appropriate, are based on the best estimates and judgment of management. 

Management has established and maintains a system of ﬁnancial reporting and internal controls to provide reasonable assurance that transactions are 
properly authorised and recorded, assets are protected against unauthorised use or disposition and liabilities are recognised. These procedures include 
the careful selection and training of qualiﬁed staff, the establishment of organisational structures providing an appropriate and well-deﬁned division of 
responsibilities, and the communication of policies and standards of business conduct throughout the Bank. 

The system of internal controls is further supported by a professional staff of internal auditors who conduct periodic inspections of all aspects of the Bank’s 
operations. In addition, the Bank’s Head of Group Internal Audit reports to, and has full and free access to the Audit Committee of the Board of Directors. 

The Audit Committee, composed entirely of Directors who are not employees of the Bank, reviews the ﬁnancial statements before such statements are 
approved by the Board of Directors and submitted to the Bank’s shareholders. The Committee meets and consults regularly with management, the internal 
auditors and our external independent auditors to review the scope and results of their work. 

Under the provisions of the Bermuda Monetary Authority Act 1969, the Bermuda Monetary Authority is charged with the supervision of the Bank. Such 
supervision is in line with international practices and combines a comprehensive system of statistical returns, providing a detailed breakdown of the balance 
sheet and statement of operations of the Bank, and regular meetings with the senior management of the Bank. Such regular reviews are intended to satisfy 
the Authority that the safety and interests of the depositors, creditors and shareholders of the Bank are being duly observed and that the Bank is in a sound 
ﬁnancial condition. 

The accounting ﬁrm of PricewaterhouseCoopers Ltd., the shareholders’ independent auditors, has examined the consolidated ﬁnancial statements of the 
Bank in accordance with auditing standards generally accepted in the United States of America and have expressed their opinion in their report to the 
shareholders. The auditors have unrestricted access to, and meet periodically with, the Audit Committee to review their ﬁndings regarding internal controls 
over the ﬁnancial reporting process, auditing matters and ﬁnancial reporting issues. Management has made available to PricewaterhouseCoopers Ltd. all of 
the Bank’s ﬁnancial records and related data, as well as the minutes of shareholders’ and Directors’ meetings. 

Brendan McDonagh
Chairman & Chief Executive Ofﬁcer 
26 February 2015

John Maragliano
Executive Vice President & Chief Financial Ofﬁcer
26 February 2015

BUTTERFIELD ANNUAL REPORT 2014

51

26 February 2015

Independent Auditor’s Report

To the Board of Directors and Shareholders of
The Bank of N.T. Butterfield & Son Limited

We have audited the accompanying consolidated financial statements of The Bank of N.T.
Butterfield & Son Limited and its subsidiaries, which comprise the consolidated balance sheets as of
31 December 2014 and 2013, and the related consolidated statements of operations, of
comprehensive income, of changes in shareholders’ equity and of cash flows for the years then
ended.

Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with accounting principles generally accepted in the United States of
America; this includes the design, implementation, and maintenance of internal control relevant to
the preparation and fair presentation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.

Auditor’s responsibility
Our responsibility is to express an opinion on the consolidated financial statements based on our
audits. We conducted our audits in accordance with auditing standards generally accepted in the
United States of America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material
misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the consolidated financial statements. The procedures selected depend on our
judgment, including the assessment of the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error. In making those risk assessments, we consider
internal control relevant to the Company’s preparation and fair presentation of the consolidated
financial statements in order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control. Accordingly, we express no such opinion. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of significant accounting
estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.

PricewaterhouseCoopers Ltd., Chartered Professional Accountants, P.O. Box HM 1171, Hamilton HM EX, Bermuda
T: +1 (441) 295 2000, F: +1 (441) 295 1242, www.pwc.com/bermuda

52

Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of The Bank of N.T. Butterfield & Son Limited and its subsidiaries at
31 December 2014 and 2013, and the results of their operations and their cash flows for the years
then ended in accordance with accounting principles generally accepted in the United States of
America.

Chartered Professional Accountants

Reference: Independent Auditor’s Report on the Consolidated Financial Statements of The Bank of N.T.
Butterfield & Son Limited as at 31 December 2014 and 2013 and for the years then ended.

Page: 2 of 2

BUTTERFIELD ANNUAL REPORT 2014

53

CONSOLIDATED BALANCE SHEETS

(in thousands of Bermuda dollars, except per share data) 

            As at

31 December 2014 

31 December 2013

 482,286  
 1,581,025  
 2,063,311  
 394,770  

 6,871  
 2,644,063  
 338,177  
 2,989,111  
 4,019,128  
 215,123  
 19,241  
 24,821  
 33,041  
 12,838  
 19,300  
 67,756  
 9,858,440  

 1,558,122  
 7,073,549  
 8,631,671  
 39,906  
 8,671,577  
 -  
 117,897  
 4,754  
 655  
 97,183  
 220,489  
 117,000  
 9,009,066  

 5,500  

 2  

 69  
 1,348,465  
 (405,804) 
 (22,086) 
 (76,772) 
 849,374  
 9,858,440  

 411,124 
 1,319,348 
 1,730,472 
 54,981 

 53,328 
 2,226,921 
 333,394 
 2,613,643 
 4,088,225 
 240,603 
 19,621 
 7,086 
 12,035 
 12,533 
 27,407 
 64,209 
 8,870,815 

 1,012,973 
 6,584,756 
 7,597,729 
 40,222 
 7,637,951 
 25,535 
 89,109 
 3,825 
 616  
 104,218 
 223,303 
 207,000 
 8,068,254 

 5,498 

 2 

 71 
 1,344,755 
 (460,157)
 (10,948)
 (76,660)
 802,561 
 8,870,815 

Assets   
    Cash and demand deposits with banks 
    Cash equivalents 
Total cash and cash equivalents 
Short-term investments 
Debt and equity securities 
    Trading  
    Available-for-sale 
    Held-to-maturity 
Total investments in debt and equity securities 
Loans, net of allowance for credit losses 
Premises, equipment and computer software 
Accrued interest 
Goodwill 
Intangible assets 
Investments in afﬁliates 
Other real estate owned  
Other assets 
Total assets 

Liabilities  
Customer deposits 
    Non-interest bearing 
    Interest bearing 
    Total customer deposits 
Bank deposits 
Total deposits 
Securities sold under agreement to repurchase 
Employee future beneﬁts 
Accrued interest 
Preference share dividends payable 
Other liabilities 
Total other liabilities  
Subordinated capital 
Total liabilities 

Shareholders’ equity 
Common share capital (BMD 0.01 par; authorised shares 26,000,000,000)  
    issued and outstanding: 550,023,138 (2013: 549,803,460) 
Preference share capital (USD 0.01 par; USD 1,000 liquidation preference) 
    issued and outstanding: 183,046  (2013: 183,606) 
Contingent value convertible preference share capital (USD 0.01 par) 
    issued and outstanding: 6,909,397 (2013: 7,129,075) 
Additional paid-in capital 
Accumulated deﬁcit 
Less: treasury common shares: 12,770,604 shares (2013: 8,310,421 shares) 
Accumulated other comprehensive loss 
Total shareholders’ equity 
Total liabilities and shareholders’ equity 

The accompanying notes are an integral part of these consolidated ﬁnancial statements. 

Brendan McDonagh
Chairman & Chief Executive Ofﬁcer

54

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CONSOLIDATED STATEMENTS OF OPERATIONS 

(in thousands of Bermuda dollars, except per share data) 

For the year ended

31 December 2014 

31 December 2013

Non-interest income  
    Asset management 
    Banking 
    Foreign exchange revenue 
    Trust  
    Custody and other administration services 
    Other non-interest income 
Total non-interest income 
Interest income  
    Loans  
    Investments 
    Deposits with banks 
Total interest income 
Interest expense 
    Deposits 
    Subordinated capital 
    Securities sold under repurchase agreements 
Total interest expense 
Net interest income before provision for credit losses 
    Provision for credit losses 
Net interest income after provision for credit losses 
    Net trading gains 
    Net realised gains (losses) on available-for-sale investments 
    Net realised / unrealised losses on other real estate owned 
    Impairment of ﬁxed assets 
    Net gain on sale of afﬁliates and subsidiary 
    Impairment of investment in afﬁliate 
    Net other gains 
Total other gains 
Total net revenue 
Non-interest expense 
    Salaries and other employee beneﬁts 
    Technology and communications 
    Property 
    Professional and outside services 
    Non-income taxes 
    Amortisation of intangible assets 
    Marketing 
    Other expenses 
Total non-interest expense 
Net income before income taxes  
    Income tax beneﬁt (expense) 
Net income 

Earnings per common share  
    Basic earnings per share 
    Diluted earnings per share 

The accompanying notes are an integral part of these consolidated ﬁnancial statements. 

 17,728  
 34,280  
 29,379  
 38,268  
 10,166  
 5,009  
 134,830  

 191,986  
 67,757  
 5,358  
 265,101  

 20,903  
 5,628  
 83  
 26,614  
 238,487  
 (8,048) 
 230,439  
 250  
 8,680  
 (1,804) 
 (1,986) 
 277  
 -  
 451  
 5,868  
 371,137  

 129,761  
 57,119  
 24,312  
 24,022  
 14,175  
 4,281  
 3,802  
 15,495  
 272,967  
 98,170  
 169  
 98,339  

 0.15  
 0.15  

 18,067 
 32,490 
 29,311 
 30,410 
 10,232 
 5,453 
 125,963 

 187,042 
 60,875 
 5,291 
 253,208 

 19,973 
 9,186 
 240 
 29,399 
 223,809 
 (14,825)
 208,984 
 315 
 (61)
 (5,000)
 - 
 1,227 
 (3,800)
 14,068 
 6,749 
 341,696 

 131,064 
 54,223 
 24,309 
 15,012 
 13,682 
 3,358 
 3,484 
 17,513 
 262,645 
 79,051 
 (891)
 78,160 

 0.11 
 0.11 

BUTTERFIELD ANNUAL REPORT 2014

55

 
 
 
 
 
 
 
 
 
 
 
 
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands of Bermuda dollars)

Net income 

Other comprehensive income (loss), net of taxes 
Net change in unrealised gains (losses) on translation of net investment in foreign operations 
Net change in unrealised gains (losses) on available-for-sale investments 
Employee future beneﬁts adjustments 
Other comprehensive loss 

Total comprehensive income  

The accompanying notes are an integral part of these consolidated ﬁnancial statements. 

For the year ended

31 December 2014 

31 December 2013

98,339  

 78,160 

 (2,874) 
 49,905  
 (47,143) 
 (112) 

 98,227  

 2,855 
 (84,917)
 17,925 
 (64,137)

 14,023 

56

 
 
 
 
 
 
 
 
 
 
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY 

For the year ended 

31 December 2014 

                                 31 December 2013

Number of shares 

In thousands of 
Bermuda dollars 

Number of shares 

In thousands of 
Bermuda dollars

Common share capital issued and outstanding 
Balance at beginning of year 
Conversion of contingent value preference shares  
Balance at end of year 

 549,803,460  
 219,678  
 550,023,138  

Preference shares 
Balance at beginning of year 
Repurchase and cancellation of preference shares 
Balance at end of year 

Contingent value convertible preference shares 
Balance at beginning of year 
Conversion to common shares  
Balance at end of year 

 183,606  
 (560) 
 183,046  

 7,129,075  
 (219,678) 
 6,909,397  

Additional paid-in capital 
Balance at beginning of year 
Stock option plan expense 
Share-based compensation settlements 
Reduction of carrying value on repurchase of preference shares 
Premium paid on repurchase of preference shares 
Balance at end of year 

Accumulated deﬁcit 
Balance at beginning of year 
Net income for year 
Common share cash dividends declared and paid 
    $0.05 per share (2013 $0.07 per share) 
Cash dividends declared on preference shares 
Preference shares guarantee fee 
Balance at end of year 

Treasury common shares 
Balance at beginning of year 
Share-based settlement 
Purchase of treasury shares 
Share-based compensation settlements 
Balance at end of year 

Accumulated other comprehensive loss 
Balance at beginning of year 
Other comprehensive loss, net of taxes 
Balance at end of year 
Total shareholders’ equity 

 8,310,421  
 (90,000) 
 8,567,340  
 (4,017,157) 
 12,770,604  

 5,498  
 2  
 5,500  

 549,677,803  
 125,657  
 549,803,460  

 195,578  
 (11,972) 
 183,606  

 7,254,732  
 (125,657) 
 7,129,075  

 7,066,586  
 (119,873) 
 4,038,482  
 (2,674,774) 
 8,310,421  

 2  
 -  
 2  

 71  
 (2) 
 69  

 1,344,755  
 8,869  
 (4,503) 
 (560) 
 (96) 
 1,348,465  

 (460,157) 
 98,339  

(27,440) 
 (14,712) 
 (1,834) 
 (405,804) 

 (10,948) 
 180  
 (17,018) 
 5,700  
 (22,086) 

 (76,660) 
 (112) 
 (76,772) 
 849,374  

 The accompanying notes are an integral part of these consolidated ﬁnancial statements. 

 5,496 
 2 
 5,498 

 2 
 - 
 2 

 73 
 (2)
 71 

 1,355,689 
 6,347 
 (2,553)
 (11,972)
 (2,756)
 1,344,755 

 (482,796)
 78,160 

 (38,531)
 (15,094)
 (1,896)
 (460,157)

 (8,767)
 173 
 (5,611)
 3,257 
 (10,948)

 (12,523)
 (64,137)
 (76,660)
  802,561  

BUTTERFIELD ANNUAL REPORT 2014

57

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CONSOLIDATED STATEMENTS OF CASH FLOWS 

(in thousands of Bermuda dollars) 

Cash ﬂows from operating activities 
Net income    
Adjustments to reconcile net income to operating cash ﬂows 
    Depreciation and amortisation 
    Impairment of ﬁxed assets 
    Decrease in carrying value of investments in afﬁliates 
    Share-based payments and settlements 
    Realised gains on legal settlement 
    Contingent consideration fair value adjustment 
    Equity pick up on private equity partnership investment 
    Net gain on sales of afﬁliates and subsidiary 
    Impairment of investment in afﬁliate 
    Net realised / unrealised losses on other real estate owned 
    Net realised (gains) losses on available-for-sale investments 
    Provision for credit losses 
Changes in operating assets and liabilities 
    Decrease (increase) in accrued interest receivable 
    Increase in other assets 
    Increase in accrued interest payable 
    Decrease in other liabilities and employee future beneﬁts 

Net change in trading investments 
Cash provided by operating activities from operations 

Cash ﬂows from investing activities 
    Net (increase) decrease in short-term investments 
    Net proceeds on sale of afﬁliate and dividends received 
    Purchase of subsidiary 
    Net amounts received for assuming deposits acquired from another bank 
    Proceeds from legal settlement 
    Net additions to premises, equipment and computer software 
    Proceeds from other real estate owned 
    Net decrease (increase) in loans 
    Held-to-maturity investments: proceeds from pay downs 
    Held-to-maturity investments: purchases 
    Available-for-sale investments: proceeds from sale  
    Available-for-sale investments: proceeds from maturities and pay downs 
    Available-for-sale investments: purchases 
Cash (used in) provided by investing activities 

Cash ﬂows from ﬁnancing activities 
    Net increase in demand and term deposit liabilities 
    Net decrease in securities sold under agreement to repurchase 
    Repayment of subordinated capital 
    Common shares repurchased 
    Preference shares repurchased 
    Proceeds from stock option exercise 
    Cash dividends paid on preference shares 
    Cash dividends paid on common and contingent value convertible preference shares 
    Preference shares guarantee fee paid 
Cash provided by ﬁnancing activities 
    Net effect of exchange rates on cash and cash equivalents 
Net increase in cash and cash equivalents 
Cash and cash equivalents at beginning of year 
Cash and cash equivalents at end of year 

Supplemental disclosure of cash ﬂow information 
Cash interest paid 
Cash income tax paid 

Non-cash item 
Transfer to other real estate owned 

The accompanying notes are an integral part of these consolidated ﬁnancial statements. 

58

For the year ended

31 December 2014 

31 December 2013

 98,339  

 47,251  
 1,986  
 (834) 
 9,049  
 -  
 1,070  
 (458) 
 (277) 
 -  
 1,804  
 (8,680) 
 8,048  

 594  
 (3,955) 
 1,040  
 (18,885) 
 136,092  
 46,574  
 182,666  

 (343,773) 
 806  
 (34,757) 
 310,578  
 -  
 (6,128) 
 12,389  
 145,023  
 12,426  
 (18,073) 
 160,208  
 707,158  
 (1,287,004) 
 (341,147) 

 681,258  
 (25,535) 
 (90,000) 
 (17,018) 
 (656) 
 1,198  
 (14,673) 
 (27,440) 
 (1,834) 
 505,300  
 (13,980) 
 332,839  
 1,730,472  
 2,063,311  

 27,654  
 985  

 6,086  

 78,160 

 44,957 
 - 
 (1,068)
 6,520 
 (13,108)
 - 
 - 
 (1,227)
 3,800 
 5,000 
 61 
 14,825 

 (585)
 (24,716)
 1,011 
 (2,965)
 110,665 
 8,464 
 119,129 

 21,393 
 4,598 
 - 
 - 
 13,108 
 (19,169)
 8,619 
 (133,503)
 19,435 
 (114,588)
 387,149 
 1,073,069 
 (1,204,440)
 55,671 

 215,800 
 (83,486)
 (53,000)
 (5,611)
 (14,852)
 706 
 (15,015)
 (38,531)
 (1,896)
 4,115 
 9,031 
 187,946 
 1,542,526 
 1,730,472 

 30,410 
 911 

 6,719 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  

(in thousands of Bermuda dollars unless otherwise stated)

NOTE 1: NATURE OF BUSINESS
The Bank of N.T. Butterﬁeld & Son Limited (“Butterﬁeld”, “Bank” or the “Company”) is incorporated under the laws of Bermuda and has a banking 
licence under the Bank and Deposit Companies Act, 1999 (“the Act”). Butterﬁeld is regulated by the Bermuda Monetary Authority (“BMA”), which 
operates in accordance with Basel principles.

Butterﬁeld is a full service community bank in Bermuda and Cayman and a provider of specialised wealth management services in all its jurisdictions. 
Services offered include retail, private and corporate banking, treasury, custody, asset management and personal and institutional trust services. The 
Bank provides such services from six jurisdictions: Bermuda, Cayman, Guernsey, Switzerland, The Bahamas and the United Kingdom. The Bank holds all 
applicable licenses required in the jurisdictions in which it operates. 

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES 
a. Basis of Presentation and Use of Estimates and Assumptions
The accounting and ﬁnancial reporting policies of the Bank and its subsidiaries conform to generally accepted accounting principles in the United States 
of America (“GAAP”). The preparation of consolidated ﬁnancial statements in accordance with GAAP requires management to make estimates and 
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated 
ﬁnancial statements and the reported amounts of revenues and expenses during the year, and actual results could differ from those estimates.  

Critical accounting estimates are those that require management to make subjective or complex judgments about the effect of matters that are inherently 
uncertain and may change in subsequent periods. Changes that may be required in the underlying assumptions or estimates in these areas could have a 
material impact on the future ﬁnancial condition and results of operations. Management believes that the most critical accounting policies upon which 
the ﬁnancial condition depends, and which involve the most complex or subjective decisions or assessments, are as follows: 

• 
• 
• 
• 
• 
• 

Allowance for credit losses 
Fair value and impairment of ﬁnancial instruments 
Impairment of long-lived assets   
Impairment of goodwill 
Employee future beneﬁts 
Share-based payments 

b. Basis of Consolidation
The consolidated ﬁnancial statements include the accounts of the Company and its majority-owned subsidiaries (collectively the “Bank”), and those 
variable interest entities (“VIEs”) where the Company is the primary beneﬁciary. Intercompany accounts and transactions have been eliminated. The Bank 
consolidates subsidiaries where it holds, directly or indirectly, more than 50% of the voting rights or where it exercises control. The Bank is deemed to 
have a controlling ﬁnancial interest and is the primary beneﬁciary of a VIE if it has both the power to direct the activities of the VIE that most signiﬁcantly 
impact the VIE economic performance and an obligation to absorb losses or the right to receive beneﬁts that could potentially be signiﬁcant to the 
VIE. The determination of whether the Bank meets the criteria to be considered the primary beneﬁciary of a VIE requires a periodic evaluation of all 
transactions (such as investments, loans and fee arrangements) with the entity. 

Entities where the Bank holds 20% to 50% of the voting rights and/or has the ability to exercise signiﬁcant inﬂuence, other than investments in 
designated VIEs, are accounted for under the equity method, and the pro rata share of their income (loss) is included in other non-interest income. 

c. Foreign Currency Translation
Assets, liabilities, revenues and expenses denominated in United States (“US”) dollars are translated to Bermuda dollars at par. Assets and liabilities of 
the parent company arising from other foreign currency transactions are translated into Bermuda dollars at the rates of exchange prevailing at the balance 
sheet date. The resulting gains or losses are included in foreign exchange revenue in the consolidated statements of operations. 

The assets and liabilities of foreign currency-based subsidiaries are translated at the rate of exchange prevailing on the balance sheet date, while 
associated revenues and expenses are translated to Bermuda dollars at the average rates of exchange prevailing throughout the year. Unrealised 
translation gains or losses on investments in foreign currency-based subsidiaries are recorded as a separate component of shareholders’ equity within 
accumulated other comprehensive loss (“AOCL”). Gains and losses on foreign currency-based subsidiaries are recorded in the consolidated statements of 
operations when the Bank ceases to have a controlling ﬁnancial interest in a foreign currency-based subsidiary. 

d. Assets Held in Trust or Custody 
Securities and properties (other than cash and deposits held with the Bank and its subsidiaries) held in trust, custody, agency or ﬁduciary capacity for 
customers are not included in the consolidated balance sheet because the Bank is not the beneﬁciary of these assets. 

BUTTERFIELD ANNUAL REPORT 2014

59

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
e. Cash and Cash Equivalents  
Cash and cash equivalents include cash on hand, cash items in the process of collection, amounts due from correspondent banks and highly liquid 
investments that are readily convertible to known amounts of cash and which are subject to an insigniﬁcant risk of change in fair value. Such investments 
are those with less than three months’ maturity from the date of acquisition and include unrestricted term deposits, certiﬁcates of deposit and  
treasury bills.

f. Short-Term Investments 
Short-term investments comprise restricted term and demand deposits and unrestricted term deposits and treasury bills with less than one year but 
greater than three months maturity from the date of acquisition. From August 2014, certiﬁcates of deposit with less than one year but greater than three 
months maturity from the date of acquisition are designated as short-term investments as the investments are highly liquid and subject to an insigniﬁcant 
risk of change in fair value. 

g. Investments 
Investments in debt and equity securities are classiﬁed as trading, available-for-sale (“AFS”) or held-to-maturity (“HTM”). 

Investments are classiﬁed primarily as AFS when used to manage the Bank’s exposure to interest rate and liquidity movements, as well as to make 
strategic longer-term investments. AFS investments are carried at fair value in the consolidated balance sheet with unrealised gains and losses reported 
as net increase or decrease to AOCL. Debt and equity securities classiﬁed as trading investments are carried at fair value in the consolidated balance 
sheet, with unrealised gains and losses included in the consolidated statements of operations as net realised / unrealised gains (losses) on trading 
investments. Investments that the Bank has the positive intent and ability to hold to maturity are classiﬁed as HTM and are carried at amortised cost in 
the consolidated balance sheet. Unrecognised gains and losses on HTM securities are disclosed in the notes to the consolidated ﬁnancial statements.  

The speciﬁc identiﬁcation method is used to determine realised gains and losses on AFS and HTM investments, which are included in net realised gains 
and losses on AFS and HTM investments, respectively, in the consolidated statements of operations. 

Dividend and interest income, including amortisation of premiums and discounts, on securities for which cash ﬂows are not considered uncertain are 
included in interest income in the consolidated statements of operations. For securities with uncertain cash ﬂows, the investments are accounted for 
under the cost recovery method, whereby all principal and coupon payments received are applied as a reduction of the amortised cost and carrying 
amount. Accrual of income is suspended in respect of debt securities that are in default, or from which it is unlikely that future interest payments will be 
received as scheduled. 

Contained within other assets are investments in a closed ended fund (prior to its redemption in 2013) and private equity companies for which the Bank 
does not have sufﬁcient rights or ownership interests to follow the equity method of accounting. With respect to the closed ended fund, the Bank used 
the net assets value as a practical expedient for fair value. Unquoted equity investments which are held directly by the Bank and which do not have 
readily determinable fair values are recorded at cost and reviewed for impairment if indicators of impairment exist. 

Investments in afﬁliates, which includes investments whereby the Bank has the ability to inﬂuence, but not control, the ﬁnancial or operating policies of 
such entities, are accounted for using the equity method of accounting. 

Recognition of other-than-temporary impairments 
For debt securities, management considers a decline in fair value to be other-than-temporary when it does not expect to recover the entire amortised 
cost basis of the security. Investments in debt securities in unrealised loss positions are analysed as part of management’s ongoing assessment of other-
than-temporary impairment (“OTTI”). When management intends to sell such securities or it is more likely than not that the Bank will be required to sell 
the securities before recovering the amortised cost, it recognises an impairment loss equal to the full difference between the amortised cost basis and 
the fair value of those securities. When management does not intend to sell or it is not more likely than not that the Bank will be required to sell such 
securities before recovering the amortised cost, management determines whether any credit losses exist to identify any OTTI. 

Under certain circumstances, management will perform a qualitative determination and consider a variety of factors, including the length of time and 
extent to which the fair value has been less than cost; adverse conditions speciﬁcally related to the industry, geographic area or ﬁnancial condition of 
the issuer or underlying collateral of a security; payment structure of the security; changes to the rating of the security by a rating agency; the volatility 
of the fair value changes; and changes in fair value of the security after the balance sheet date. Alternatively, management estimates cash ﬂows over the 
remaining lives of the underlying security to assess whether credit losses exist. 

In situations where there is a credit loss, only the amount of impairment relating to credit losses on AFS and HTM investments is recognised in net 
income. For AFS investments, the decrease in fair value relating to factors other than credit losses are recognised in AOCL. Cash ﬂow estimates take into 
account expectations of relevant market and economic data as of the end of the reporting period, including, for example, underlying loan-level data, 
and structural features of securitisation, such as subordination, excess spread, over collateralisation or other forms of credit enhancement. The degree 
of judgment involved in determining the recoverable value of an investment security is dependent upon the availability of observable market prices or 
observable market parameters. When observable market prices and parameters do not exist, judgment is necessary to estimate recoverable value which 
gives rise to added uncertainty in the assessment. The assessment takes into consideration factors such as interest rate changes, movements in credit 
spreads, default rate assumptions, prepayment assumptions, type and quality of collateral, and market sentiment. 

60

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
With respect to the pass-through note investment (“PTN”), prior to its redemption in 2014, management compared cash ﬂow projections to fair value 
and amortised cost to determine if any credit losses existed. Management’s cash ﬂow forecasts for the PTN were created in conjunction with a specialist 
in analytical cash ﬂow modelling. Management also performed other analyses to support its cash ﬂow projections to assess the reasonability.   

Management’s fair valuations may include inputs and assumptions that are less observable or require greater estimation, thereby resulting in values 
which may be greater or lower than the actual value at which the investments may be ultimately sold or the ultimate cash ﬂows that may be recovered. 
If the assumptions on which management based its fair valuations change, the Bank may experience additional OTTI or realised losses or gains, and the 
period-to-period changes in value could vary signiﬁcantly. 

h. Loans   
Loans are reported as the principal amount outstanding, net of allowance for credit losses, unearned income and net deferred loan fees. Interest income 
is recognised over the term of the loan using the effective interest method, or on a basis approximating a level rate of return over the term of the loan, 
except for loans classiﬁed as non-accrual. 

Acquired loans 
Acquired loans are recorded at fair value at the date of acquisition. No allowance for credit losses is recorded on the acquisition date as the fair value of 
the acquired assets incorporates assumptions regarding credit risk. Acquired  loans with evidence of credit quality deterioration for which it is probable 
that the Bank will not receive all contractually required payments receivable are accounted for as purchased credit-impaired loans. Generally, acquired 
loans that meet the Bank’s deﬁnition for non-accrual status are considered to be credit-impaired.    

The excess of the cash ﬂows expected to be collected on purchased credit-impaired loans, measured as of the acquisition date, over the estimated fair 
value is referred to as the accretable yield and is recognised in interest income over the remaining life of the loan using an effective yield methodology. 
The difference between contractually required payments as of the acquisition date and the cash ﬂows expected to be collected is referred to as the non-
accretable difference, which is included as a reduction of the carrying amount of the purchased credit-impaired loans.  

The Bank evaluates at each balance sheet date whether the estimated cash ﬂows and corresponding present value of its loans determined using the 
effective interest rates has decreased and if so, recognises an allowance for credit losses in its consolidated statements of operations. For any increases 
in cash ﬂows expected to be collected, the Bank adjusts any prior recorded allowance for purchased credit-impaired loans ﬁrst, and then the amount 
of accretable yield recognised on a prospective basis over the purchased credit-impaired loan’s remaining life. Purchased credit-impaired loans are not 
considered non-performing and continue to have an accretable yield as long as there is a reasonable expectation about the timing and amount of cash 
ﬂows expected to be collected.    

Impaired loans 
A loan is considered to be impaired when, based on current information and events, the Bank determines that it will not be able to collect all amounts 
due according to the loan contract, including scheduled interest payments. Impaired loans include all non-accruing loans and all loans modiﬁed in a 
troubled debt restructuring (‘‘TDR’’) even if full collectability is expected following the restructuring. 

When a loan is identiﬁed as impaired, the impairment is measured based on the present value of expected future cash ﬂows, discounted at the loan’s 
effective interest rate, except when the sole (remaining) source of repayment for the loan is the operation or liquidation of the collateral. In these cases, 
the current fair value of the collateral, less selling costs, is used instead of discounted cash ﬂows. 

If the Bank determines that the expected realisable value of the impaired loan is less than the recorded investment in the loan (net of previous charge-
offs, deferred loan fees or costs and unamortised premium or discount), impairment is recognised through an allowance estimate. If the Bank determines 
that part of the allowance is uncollectible, that amount is charged off. 

Non-accrual 
Commercial, commercial real estate and consumer loans (excluding credit card consumer loans) are placed on non-accrual status generally if:

• 
• 

in the opinion of management, full payment of principal or interest is in doubt; or
principal or interest is 90 days past due. 

Residential mortgages are placed on non-accrual status immediately if:

• 
• 

in the opinion of management, full payment of principal or interest is in doubt; or
when principal or interest is 90 days past due, unless the loan is well secured and any ongoing collection efforts are reasonably expected to 
result in repayment of all amounts due under the contractual terms of the loan. 

Interest income on non-accrual loans is recognised only to the extent it is received in cash. Cash received on non-accrual loans where there is no doubt 
regarding full repayment (no impairment recognised in the form of a speciﬁc allowance) is ﬁrst applied as repayment of the past due principal amount of 
the loan and secondly to past due interest and fees. 

Where there is doubt regarding the ultimate full repayment of the non-accrual loan (impairment recognised in the form of a speciﬁc allowance), all cash 
received is applied to reduce the principal amount of the loan. Interest income on these loans is recognised only after the entire balance receivable is 
recovered and interest is actually received. 

BUTTERFIELD ANNUAL REPORT 2014

61

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
   
 
 
 
  
   
 
 
 
 
 
 
  
 
 
 
 
 
Loans are returned to accrual status when: 

• 

• 

none of the principal or accrued interest is past due (with certain exceptions as noted below) and the Bank expects repayment of the  
remaining contractual obligation; or
when the loan becomes well secured and in the process of collection. 

Loans modiﬁed in a TDR 
A modiﬁcation of a loan constitutes a TDR when a borrower is experiencing ﬁnancial difﬁculty and the modiﬁcation constitutes a concession. If a 
restructuring is considered a TDR, the Bank is required to make certain disclosures in the notes of the consolidated ﬁnancial statements and individually 
evaluate the restructured loan for impairment. The Bank employs various types of concessions when modifying a loan that it would not otherwise 
consider, which may include extension of repayment periods, interest rate reductions, principal or interest forgiveness, forbearance, and other actions 
intended to minimise economic loss and to avoid foreclosure or repossession of collateral. 

Commercial and industrial loans modiﬁed in a TDR often involve temporary interest-only payments, term extensions, and converting revolving credit lines 
to term loans. Additional collateral, a co-borrower, or a guarantor is often requested. 

Commercial mortgage and construction loans modiﬁed in a TDR often involve extending the maturity date at an interest rate lower than the current 
market rate for new debt with similar risk, or substituting or adding a new borrower or guarantor. 

Construction loans modiﬁed in a TDR may also involve extending the interest-only payment period. 

Residential mortgage modiﬁcations generally involve a short-term forbearance period after which the missed payments are added to the end of the loan 
term, thereby extending the maturity date. Interest continues to accrue on the missed payments and as a result, the effective yield on the mortgage 
remains unchanged. As the forbearance period usually involves an insigniﬁcant payment delay they typically do not meet the reporting criteria for a TDR.   

Automobile loans modiﬁed in a TDR are primarily comprised of loans where the Bank has lowered monthly payments by extending the term. 

When a loan undergoes a TDR, the determination of the loan’s accrual versus non-accrual status following the modiﬁcation depends on several 
factors. As with the risk rating process, the accrual status decision for such a loan is a separate and distinct process from the loan’s TDR analysis and 
determination. Management considers the following in determining the accrual status of restructured loans: 

• 

• 

If the loan was appropriately on accrual status prior to the restructuring, the borrower has demonstrated performance under the previous 
terms, and the Bank’s credit evaluation shows the borrower’s capacity to continue to perform under the restructured terms (both principal 
and interest payments), it is likely that the appropriate conclusion is for the loan to remain on accrual at the time of the restructuring. This 
evaluation must include consideration of the borrower’s sustained historical repayment performance for a reasonable period prior to the date 
on which the loan was restructured. A sustained period of repayment performance generally would be a minimum of six months and would 
involve payments of cash or cash equivalents; or 
If the loan was on non-accrual status before the restructuring, but the Bank’s credit evaluation shows the borrower’s capacity to meet 
the restructured terms, the loan would likely remain as non-accrual until the borrower has demonstrated a reasonable period of sustained 
repayment performance. As noted above, this period generally would be at least six months (thereby providing reasonable assurance as to the 
ultimate collection of principal and interest in full under the modiﬁed terms). Sustained performance before the restructuring may be taken 
into account. 

Loans that have been modiﬁed in a TDR are restored to accrual status only when interest and principal payments are brought current for a continuous 
period of six months under the modiﬁed terms. However, performance prior to the modiﬁcation, or signiﬁcant events that coincide with the modiﬁcation, 
are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of loan 
modiﬁcation or after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains on non-
accrual status. 

A loan that is modiﬁed in a TDR prior to becoming impaired will be left on accrual status if full collectability in accordance with the restructured terms 
is expected. The Bank works with its customers in these difﬁcult economic times and may enter into a TDR for loans that are in default, or at risk of 
defaulting, even if the loan is not impaired.

Delinquencies 
The entire balance of an account is contractually delinquent if the minimum payment of principal or interest is not received by the speciﬁed due date. 
Delinquency is reported on loans that are 30 days or more past due. 

Charge-offs 
The Bank recognises charge-offs when it determines that loans are uncollectible, and this generally occurs when all commercially reasonable means of 
recovering the loan balance have been exhausted.

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Commercial and consumer loans are either fully or partially charged-off down to the fair value of collateral securing the loans when:

•  management judges the loan to be uncollectible;
• 
• 
• 

repayment is expected to be protracted beyond reasonable time frames;
the asset has been classiﬁed as a loss by either the Bank’s internal loan review process or external examiners; or
the customer has ﬁled bankruptcy and the loss becomes evident owing to a lack of assets or cash ﬂow. 

The outstanding balance of commercial and consumer real estate secured loans and residential mortgages that are in excess of the estimated property 
value, less costs to sell, is charged-off once there is reasonable assurance that such excess outstanding balance is not recoverable. 

Credit card consumer loans that are contractually 180 days past due and other consumer loans with an outstanding balance under $100,000 that are 
contractually 180 days past due are written off and reported as charge-offs. 

i. Allowance for Credit Losses 
The Bank maintains an allowance for credit losses, which in management’s opinion is adequate to absorb all estimated credit-related losses in its lending 
and off-balance sheet credit-related arrangements at the balance sheet date. The allowance for credit losses consists of speciﬁc allowances and a general 
allowance as follows: 

Speciﬁc allowances 
Speciﬁc allowances are determined on an exposure-by-exposure basis and reﬂect the associated estimated credit loss. The speciﬁc allowance for credit 
loss is computed as the difference between the recorded investment in the loan and the present value of expected future cash ﬂows from the loan. The 
effective rate of return on the loan is used for discounting the cash ﬂows. However, when foreclosure of a collateral-dependent loan is probable, the Bank 
measures impairment based on the fair value of the collateral. The Bank considers estimated costs to sell, on a discounted basis, in the measurement of 
impairment if those costs are expected to reduce the cash ﬂows available to repay or otherwise satisfy the loan. If the measurement of an impaired loan 
is less than the recorded investment in the loan, then the Bank recognises impairment by creating an allowance with a corresponding charge to provision 
for credit losses. 

General allowances 
The allowance for credit losses attributed to the remaining portfolio is established through various analyses that estimate the incurred loss at the balance 
sheet date inherent in the lending and off-balance sheet credit-related arrangements portfolios. These analyses consider historical default rates and loss 
severities, geographic, industry, and other environmental factors. Management also considers overall portfolio indicators including trends in internally 
risk rated exposures, cash-basis loans, historical and forecasted write-offs, and a review of industry, geographic and portfolio concentrations, including 
current developments within those segments. In addition, management considers the current business strategy and credit process, including limit setting 
and compliance, credit approvals, loan underwriting criteria and loan workout procedures. 

Each portfolio of smaller balance, homogeneous loans, including consumer instalment, revolving credit, and most other consumer loans, is collectively 
evaluated for impairment. The allowance for credit losses attributed to these loans is established via a process that estimates the probable losses 
inherent and incurred in the portfolio, based upon various analyses. Management considers overall portfolio indicators including historical credit 
losses; delinquent (deﬁned as loans that are more than 30 days past due), non-performing, and classiﬁed loans; trends in volumes and terms of loans; 
an evaluation of overall credit quality; the credit process, including lending policies and procedures; and economic, geographical, product, and other 
environmental factors. 

j. Business Combinations, Goodwill and Intangible Assets 
All business combinations are accounted for using the acquisition method. Identiﬁable intangible assets (mostly customer relationships) are recognised 
separately from goodwill and are initially valued at fair value using discounted cash ﬂow calculations and other recognised valuation techniques. 
Goodwill represents the excess of the fair value of the consideration paid for the acquisition of a business over the fair value of the net assets acquired. 
Contingent purchase consideration was measured at its fair value and recorded on the purchase date. Any subsequent changes in the fair value of a 
contingent consideration liability will be recorded through the statement of comprehensive income. 

Goodwill is tested annually for impairment at the reporting unit level, or more frequently if events or circumstances indicate there may be impairment. 
If the carrying amount of a reporting unit, including the allocated goodwill, exceeds its fair value, goodwill impairment is measured as the excess of 
the carrying amount of the reporting unit’s allocated goodwill over the implied fair value of the goodwill. Other acquired intangible assets with ﬁnite 
lives are amortised on a straight-line basis over their estimated useful lives, not exceeding 15 years. Intangible assets’ estimated lives are re-evaluated 
annually and an impairment test is carried out if certain indicators of impairment exist. 

k. Premises, Equipment and Computer Software 
Land, buildings, equipment and computer software, including leasehold improvements, are carried at cost less accumulated depreciation. The Bank 
generally computes depreciation using the straight-line method over the estimated useful life of an asset, which is 50 years for buildings, and three to 10 
years for other equipment. For leasehold improvements the Bank uses the straight-line method over the lesser of the remaining term of the leased facility 
or the estimated economic life of the improvement. The Bank capitalises certain costs, including interest cost incurred during the development phase, 
associated with the acquisition or development of internal use software. Once the software is ready for its intended use, these costs are amortised on a 
straight-line basis over the software’s expected useful life, which is between ﬁve and 10 years. 

BUTTERFIELD ANNUAL REPORT 2014

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Management reviews the recoverability of the carrying amount of premises, equipment and computer software when indicators of impairment exist 
and an impairment charge is recorded when the carrying amount of the reviewed asset is deemed not recoverable by future expected cash ﬂows to be 
derived from the use and disposition of the asset. 

l. Other Real Estate Owned 
Other real estate owned (“OREO”) is comprised of real estate property held for sale and commercial and residential real estate properties acquired in 
partial or total satisfaction of loans acquired through foreclosure proceedings, acceptance of a deed-in-lieu of foreclosure or by taking possession of 
assets that were used as loan collateral. These properties are recorded at fair value less estimated costs to sell the property. If the recorded investment 
in the loan exceeds the property’s fair value at the time of acquisition, a charge-off is recorded against the speciﬁc allowance. If the carrying value 
of the real estate exceeds the property’s fair value at the time of reclassiﬁcation, an impairment charge is recorded in the consolidated statements 
of operations. Subsequent decreases in the property’s fair value below the new cost basis are recorded through the use of a valuation allowance. 
Subsequent increases in the fair value of a property may be used to reduce the allowance but not below zero. Any operating expenses of the property are 
recognised through charges to non-interest expense.  

m. Derivatives 
All derivatives are recognised on the consolidated balance sheet at their fair value. On the date that the Bank enters into a derivative contract, it 
designates the derivative as: a hedge of the fair value of a recognised asset or liability (a fair value hedge); a hedge of a forecasted transaction or the 
variability of cash ﬂows that are to be received or paid in connection with a recognised asset or liability (a cash ﬂow hedge); a hedge of an exposure 
to foreign currency risk of a net investment in a foreign operation (a net investment hedge); or, an instrument that is held for trading or non-hedging 
purposes (a trading or non-hedging instrument). 

The changes in the fair value of a derivative that is designated and qualiﬁes as a fair value hedge, along with changes in the fair value of the hedged 
asset or liability that are attributable to the hedged risk, are recorded in current year earnings.  

The changes in the fair value of a derivative that is designated and qualiﬁes as a cash ﬂow hedge, to the extent that the hedge is effective, are recorded 
in other comprehensive loss (“OCL”) and the ineffective portion is recorded in current year earnings. That is, ineffectiveness from a derivative that 
overcompensates for changes in the hedged cash ﬂows is recorded in earnings. However, the ineffectiveness from a derivative that under compensates is 
not recorded in earnings. 

The changes in the fair value of a derivative that is designated and qualiﬁes as a foreign currency hedge is recorded in either current year earnings or 
OCL, depends on whether the hedging relationship satisﬁes the criteria for a fair value or cash ﬂow hedge. If, however, a derivative is used as a hedge of 
a net investment in a foreign operation, the changes in the derivative’s fair value, to the extent that the derivative is effective as a hedge, are recorded in 
the cumulative translation adjustment (“CTA”) account within OCL.  

Changes in the fair value of derivative trading and non-hedging instruments are reported in current year earnings. 

The Bank formally documents all relationships between hedging instruments and hedged items, as well as its risk management objectives and strategies 
for undertaking various hedge transactions. This process includes linking all derivatives that are designated as fair value, cash ﬂow, or foreign currency 
hedges to speciﬁc assets and liabilities on the consolidated balance sheet or speciﬁc ﬁrm commitments or forecasted transactions.  

The Bank also formally assesses whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the fair 
value or cash ﬂows of hedged items and whether those derivatives may be expected to remain highly effective in future periods.  

For those hedge relationships that are terminated, hedge designations that are elected to be removed, forecasted transactions that are no longer 
expected to occur, or the hedge relationship ceases to be highly effective, the hedge accounting treatment described in the paragraphs above is no 
longer applied and the end-user derivative is terminated or transferred to the trading designation. For fair value hedges, any changes to the carrying 
value of the hedged item prior to the discontinuance remain as part of the basis of the asset or liability. When a cash ﬂow hedge is discontinued, the net 
derivative gain (loss) remains in AOCL unless it is probable that the forecasted transaction will not occur in the originally speciﬁed time period. 

n. Securities Sold Under Agreements to Repurchase 
Securities sold under agreements to repurchase (securities ﬁnancing agreements) are treated as collateralised ﬁnancing transactions. The obligation to 
repurchase is recorded at the value of the cash received on sale adjusted for the amortisation of the difference between the sale price and the agreed 
repurchase price. The amortisation of this amount is recorded as an interest expense. 

o. Collateral 
The Bank pledges assets as collateral as required for various transactions involving security repurchase agreements, deposit products and derivative 
ﬁnancial instruments. Assets that have been pledged as collateral, including those that can be sold or repledged by the secured party, continue to be 
reported on the Bank’s consolidated balance sheet. 

p. Employee Future Beneﬁts 
The Bank maintains trusteed pension plans for substantially all employees as either non-contributory deﬁned beneﬁt plans or deﬁned contribution plans. 

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Beneﬁts under the deﬁned beneﬁt plans are primarily based on the employee’s years of credited service and average annual salary during the ﬁnal years 
of employment as deﬁned in the plans. The Bank also provides post-retirement medical beneﬁts for certain qualifying active and retired Bermuda-based employees.    

Expense for the deﬁned beneﬁt pension plans and the post-retirement medical beneﬁts plan is comprised of (a) the actuarially determined beneﬁts for 
the current year’s service, (b) imputed interest on the actuarially determined liability of the plan, (c) in the case of the deﬁned beneﬁt pension plans, 
the expected investment return on the fair value of plan assets and (d) amortisation of certain items over the expected average remaining service life of 
employees in the case of the active deﬁned beneﬁt pension plans, estimated average remaining life expectancy of the inactive participants in the case 
of the inactive deﬁned beneﬁt pension plans and the expected average remaining service life to full eligibility age of employees covered by the plan 
in the case of the post-retirement medical beneﬁts plan. The items amortised are amounts arising as a result of experience gains and losses, changes 
in assumptions, plan amendments and the change in the net pension asset or post-retirement medical beneﬁts liability arising on adoption of revised 
accounting standards. 

For each of the deﬁned beneﬁt pension plans and for the post-retirement medical beneﬁts plan, the asset and liability recognised for accounting purposes 
are reported in other assets and employee future beneﬁts respectively. The actuarial gains and losses, transition obligation and past service costs of the 
deﬁned pension plans and post-retirement medical beneﬁts plan are recognised in OCL net of tax and amortised to net income over the average service 
period for the active deﬁned beneﬁt pension plans and post-retirement medical beneﬁts plan and average remaining life expectancy for the inactive 
deﬁned beneﬁt pension plans. 

For the deﬁned contribution pension plans, the Bank and participating employees provide an annual contribution based on each participating employee’s 
pensionable earnings. Amounts paid are expensed in the period.   

q. Share-Based Compensation 
The Bank engages in equity settled share-based payment transactions in respect of services received from eligible employees. The fair value of the 
services received is measured by reference to the fair value of the shares or share options granted on the date of the grant. The cost of the employee 
services received in respect of the shares or share options granted is recognised in the consolidated statements of operations over the shorter of the 
vesting or service period. 

The fair value of the options granted is determined using option pricing models, which take into account the exercise price of the option, the current 
share price, the risk-free interest rate, expected dividend rate, the expected volatility of the share price over the life of the option and other relevant 
factors. Time vesting conditions are taken into account by adjusting the number of shares or share options included in the measurement of the cost of 
employee services so that ultimately, the amount recognised in the consolidated statements of operations reﬂects the number of vested shares or share 
options. The Bank recognises compensation cost for awards with performance conditions if and when the Bank concludes that it is probable that the 
performance condition will be achieved, net of an estimate of pre-vesting forfeitures (e.g., due to termination of employment prior to vesting). 

r. Revenue Recognition 
Trust and investment services fees include fees for private and institutional trust, executorship, and custody services. Asset management fees include 
fees for investment management, investment advice and brokerage services. Fees are recognised as revenue over the period of the relationship or when 
the Bank has rendered all services to the clients and is entitled to collect the fee from the client, as long as there are no contingencies associated with  
the fees. 

Banking services fees primarily include fees for certain loan origination, letters of credit, other ﬁnancial guarantees, compensating balances and other 
ﬁnancial services-related products. Certain loan origination fees are primarily overdraft and other revolving lines of credit fees. These fees are recognised 
as revenue over the period of the underlying facilities. Letters of credit fees are recognised as revenue over the period in which the related service is 
provided. All other fees are recognised as revenue in the period in which the service is provided. 

Loan interest income includes the amortisation of non-refundable loan origination and commitment fees. These fees are deferred (except for certain 
retrospectively determined fees meeting speciﬁed criteria) and recognised as an adjustment of yield over the life of the related loan. These loan 
origination and commitment fees are offset by their related direct costs and only the net amounts are deferred and amortised into interest income. 

Dividend and interest income, including amortisation of premiums and discounts, on securities for which cash ﬂows are not considered uncertain are 
included in interest income in the consolidated statements of operations. Loans placed on non-accrual status and investments with uncertain cash ﬂows 
are accounted for under the cost recovery method, whereby all principal, dividends, interest and coupon payments received are applied as a reduction of 
the amortised cost and carrying amount. 

s. Fair Values 
Fair value is deﬁned as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most 
advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Bank determines the 
fair values of assets and liabilities based on the fair value hierarchy which requires an entity to maximise the use of observable inputs and minimise the 
use of unobservable inputs when measuring fair value. The relevant accounting standard describes three levels of inputs that may be used to measure 
fair value. Investments classiﬁed as trading and AFS, and derivative assets and liabilities are recognised in the consolidated balance sheet at fair value. 

BUTTERFIELD ANNUAL REPORT 2014

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Level 1, 2 and 3 valuation inputs 
Management classiﬁes items that are recognised at fair value on a recurring basis based on the level of inputs used in their respective fair value 
determination as described below. 

Fair value inputs are considered Level 1 when based on unadjusted quoted prices in active markets for identical assets.  

Fair value inputs are considered Level 2 when based on internally developed models or based on prices published by independent pricing services using 
proprietary models. To qualify for Level 2, all signiﬁcant inputs used in these models must be observable in the market place or can be corroborated 
by observable market data for substantially the full term of the instrument and includes, among others: interest yield curves, credit spreads, prices for 
similar assets and foreign exchange rates. Level 2 also includes ﬁnancial instruments that are valued using quoted prices for identical assets but for which 
the market is not considered active due to low trading volumes. 

Fair value inputs are considered Level 3 when based on internally developed models using signiﬁcant unobservable assumptions involving management’s 
estimations or non-binding bid quotes from brokers. 

The following methods and assumptions were used in the determination of the fair value of ﬁnancial instruments: 

Cash and cash equivalents 
The carrying amount of cash and demand deposits with banks, being short-term in nature, is deemed to approximate fair value. 

Cash equivalents include unrestricted term deposits, certiﬁcates of deposit and treasury bills with a maturity of less than three months from the date 
of acquisition and the carrying value at cost is considered to approximate fair value because they are short-term in nature, bear interest rates that 
approximate market rates, and generally have negligible credit risk. 

Short-term investments 
Short-term investments comprise restricted term and demand deposits and unrestricted term deposits, certiﬁcates of deposit and treasury bills with less 
than one year but greater than three months’ maturity from the date of acquisition. The carrying value at cost is considered to approximate fair value 
because they are short-term in nature, bear interest rates that approximate market rates, and generally have negligible credit risk. 

Trading investments and deﬁned beneﬁt pension plan equity securities and mutual funds 
Trading investments include equities, mutual funds and debt securities issued by non-US governments. The fair value of listed equity securities is based 
upon quoted market values. Investments in actively traded mutual funds are based on their published net asset values. See “AFS and HTM investments 
including deﬁned beneﬁt pension plan ﬁxed income securities” below for valuation techniques and inputs of ﬁxed income securities. 

AFS and HTM investments and deﬁned beneﬁt pension plan ﬁxed income securities 
The fair values for AFS investments are generally sourced from third parties. The fair value of ﬁxed income securities is based upon quoted market values 
where available, “evaluated bid” prices provided by third party pricing services (“pricing services”) where quoted market values are not available, or by 
reference to broker or underwriter bid indications where pricing services do not provide coverage for a particular security. To the extent the Bank believes 
current trading conditions represent distressed transactions, the Bank may elect to utilise internally generated models. The pricing services typically use 
market approaches for valuations using primarily Level 2 inputs (in the vast majority of valuations), or some form of discounted cash ﬂow analysis.  

Pricing services indicate that they will only produce an estimate of fair value if there is objectively veriﬁable information available to produce a valuation. 
Standard inputs to the valuations provided by the pricing services listed in approximate order of priority for use when available include: reported trades, 
benchmark yields, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data. The pricing services 
may prioritise inputs differently on any given day for any security, and not all inputs listed are available for use in the evaluation process on any given day 
for each security evaluation. However, the pricing services also monitor market indicators and industry and economic events. When these inputs are not 
available, pricing services identify “buckets” of similar securities (allocated by asset class types, sectors, sub-sectors, contractual cash ﬂows/structure, 
and credit rating characteristics) and apply some form of matrix or other modelled pricing to determine an appropriate security value which represents 
their best estimate as to what a buyer in the marketplace would pay for a security in a current sale. 

It is common industry practice to utilise pricing services as a source for determining the fair values of investments where the pricing services are able 
to obtain sufﬁcient market corroborating information to allow them to produce a valuation at a reporting date. In addition, in the majority of cases, 
although a value may be obtained from a particular pricing service for a security or class of similar securities, these values are corroborated against 
values provided by other pricing services. While the Bank receives values for the majority of the investment securities it holds from pricing services, 
it is ultimately management’s responsibility to determine whether the values received and recorded in the ﬁnancial statements are representative of 
appropriate fair value measurements. 

Broker/dealer quotations are used to value investments with ﬁxed maturities where prices are unavailable from pricing services due to factors speciﬁc to 
the security such as limited liquidity, lack of current transactions, or trades only taking place in privately negotiated transactions. These are considered 
Level 3 valuations, as signiﬁcant inputs utilised by brokers may be difﬁcult to corroborate with observable market data, or sufﬁcient information 
regarding the speciﬁc inputs utilised by the broker was not available to support a Level 2 classiﬁcation. 

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For disclosure purposes, investments held to maturity are fair valued using the same methods described above. 

Loans 
The majority of loans are variable rate and re-price in response to changes in market rates and hence management estimates that the fair value of loans 
is not signiﬁcantly different than their carrying amount. For signiﬁcant ﬁxed-rate loan exposures, fair value is estimated by discounting the future cash 
ﬂows, using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities, of 
such loans. 

Accrued interest 
The carrying amounts of accrued interest receivable and payable are assumed to approximate their fair values given their short-term nature. 

OREO   
OREO assets are carried at the lower of cost or fair value less estimated costs to sell. Fair value is based on third-party appraisals adjusted to reﬂect 
management’s judgment as to the realisable value of the properties. Appraisals of OREO properties are updated on an annual basis. 

Deposits 
The fair value of ﬁxed-rate deposits has been estimated by discounting the contractual cash ﬂows, using market interest rates offered at the balance 
sheet date for deposits of similar terms. The carrying amount of deposits with no stated maturity date is deemed to equate to the fair value. 

Subordinated capital 
The fair value of the subordinated capital has been estimated by discounting the contractual cash ﬂows, using current market interest rates. 

Derivatives 
Derivative contracts can be exchange traded or over-the-counter (“OTC”) derivative contracts and may include forward, swap and option contracts 
relating to interest rates or foreign currencies. Exchange-traded derivatives typically fall within Level 1 of the fair value hierarchy depending on whether 
they are deemed to be actively traded or not. OTC derivatives are valued using market transactions and other market evidence whenever possible, 
including market-based inputs to models, model calibration to market clearing transactions, broker or dealer quotations or alternative pricing sources 
where an understanding of the inputs utilised in arriving at the valuations is obtained. 

Where models are used, the selection of a particular model to value an OTC derivative depends upon the contractual terms and speciﬁc risks inherent 
in the instrument as well as the availability of pricing information in the market. The Bank generally uses similar models to value similar instruments. 
Valuation models require a variety of inputs, including contractual terms, market prices, yield curves, credit curves, measures of volatility, prepayment 
rates and correlations of such inputs. For OTC derivatives that trade in liquid markets, such as generic forwards, interest rate swaps and options, model 
inputs can generally be veriﬁed and model selection does not involve signiﬁcant management judgment. 

Goodwill 
The fair value of reporting units for which goodwill is recognised is determined by discounting estimated future cash ﬂows using discount rates reﬂecting 
valuation-date market conditions and risks speciﬁc to the reporting unit. 

t. Impairment or Disposal of Long-Lived Assets 
Impairment losses are recognised when the carrying amount of a long-lived asset exceeds the sum of the undiscounted cash ﬂows expected from its use 
and disposal. The impairment recognised is measured as the amount by which the carrying amount of the asset exceeds its fair value. Long-lived assets 
that are to be disposed of other than by sale are classiﬁed and accounted for as held for use until the date of disposal or abandonment. Assets that meet 
certain criteria are classiﬁed as held for sale and are measured at the lower of their carrying amounts or fair value, less costs of sale. 

u. Credit-Related Arrangements 
In the normal course of business, the Bank enters into various commitments to meet the credit requirements of its customers. Such commitments, which 
are not included in the consolidated balance sheet, include: 

• 

• 

• 

Commitments to extend credit, which represent undertakings to make credit available in the form of loans or other ﬁnancing for speciﬁc 
amounts and maturities, subject to certain conditions.   
Standby letters of credit, which represent irrevocable obligations to make payments to third parties in the event that the customer is unable to 
meet its ﬁnancial obligations. 
Documentary and commercial letters of credit, related primarily to the import of goods by customers, which represent agreements to honour 
drafts presented by third parties upon completion of speciﬁc activities. 

These credit arrangements are subject to the Bank’s normal credit standards and collateral is obtained where appropriate. The contractual amounts for 
these commitments set out in the table in Note 12 represent the maximum payments the Bank would have to make should the contracts be fully drawn, 
the counterparty default, and any collateral held prove to be of no value. As many of these arrangements will expire or terminate without being drawn 
upon or are fully collateralised, the contractual amounts do not necessarily represent future cash requirements. The Bank does not carry any liability for 
these obligations. 

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v. Income Taxes 
The Bank uses the asset and liability method of accounting for income taxes. Under this method, deferred income taxes reﬂect the net tax effect 
of temporary differences between the consolidated ﬁnancial statements’ carrying amounts of assets and liabilities and their respective tax bases. 
Accordingly, a deferred income tax asset or liability is determined for each temporary difference based on the enacted tax rates to be in effect on the 
expected reversal date of the temporary difference. The effect of a change in tax rates on deferred tax assets and liabilities is recognised in income in the 
period that includes the enactment date. 

The Bank records net deferred tax assets to the extent the Bank believes these assets will more likely than not be realised. Net deferred income tax 
assets or liabilities accumulated as a result of temporary differences are included in other assets or other liabilities, respectively. A valuation allowance is 
established to reduce deferred income tax assets to the amount more likely than not to be realised. In making such a determination, the Bank considers 
all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-
planning strategies, and results of recent operations. In the event the Bank were to determine that it would be able to realise the deferred income tax 
assets in the future in excess of their net recorded amount, the Bank would make an adjustment to the deferred tax asset valuation allowance, which 
would reduce the provision for income taxes. 

The Bank records uncertain tax positions on the basis of a two-step process whereby (1) the Bank determines whether it is more likely than not that 
the tax positions will be sustained based on the technical merits of the position and (2) where those tax positions that meet the more-likely-than-not 
recognition threshold, the Bank recognises the largest amount of tax beneﬁt that is greater than 50 percent likely to be realised upon ultimate settlement 
with the related tax authority. 

Income taxes on the consolidated statements of operations include the current and deferred portions of the income taxes. The Bank recognises interest 
accrued and penalties related to unrecognised tax beneﬁts in operating expenses. Income taxes applicable to items charged or credited directly to 
shareholders’ equity are included in such items. 

w. Consolidated Statements of Cash Flows 
For the purposes of the consolidated statements of cash ﬂows, cash and cash equivalents include cash on hand, cash items in the process of collection, 
amounts due from correspondent banks and highly liquid investments that are readily convertible to known amounts of cash and which are subject to an 
insigniﬁcant risk of change in fair value. 

x. Earnings Per Share 
Earnings per share have been calculated using the weighted average number of common shares outstanding during the year (see also Note 19). 
Dividends declared on preference shares and related guarantee fees are deducted from net income to obtain net income available to common 
shareholders. In periods when basic earnings per share is positive, the dilutive effect of share-based compensation plans is calculated using the treasury 
stock method, whereby the proceeds received from the exercise of share-based awards are assumed to be used to repurchase outstanding common 
shares, using the quarterly average market price of the Bank’s shares for the period.   

y. New Accounting Pronouncements 
Accounting for CTA Upon Derecognition of Certain Subsidiaries or Group of Assets  
In March 2013, the Financial Accounting Standards Board (“FASB”) issued the ﬁnal guidance related to the release of CTA upon derecognition of 
subsidiaries or a group of assets within a foreign entity into net income. The guidance clariﬁes that when a parent ceases to have a controlling ﬁnancial 
interest in a subsidiary or group of assets within a foreign entity and the sale represents the complete or substantially complete liquidation of the 
investment in the foreign entity, or when a parent loses its controlling ﬁnancial interest in an investment in a foreign entity, it should release the CTA into 
net income. The standard also requires the release of CTA into net income upon acquiring a controlling interest in a foreign entity that was accounted for 
under the equity method prior to obtaining control, and consistent with current GAAP in this area, upon a partial sale of an equity method investment. 
The guidance was effective prospectively from 1 January 2014. The adoption of this guidance for the year ended 31 December 2014 has not had an 
impact on the Bank’s consolidated ﬁnancial position or results of operations. 

Accounting for the Reclassiﬁcation of Residential Real Estate Collateralised Consumer Mortgage Loans Upon Foreclosure 
In January 2014, the FASB published an Accounting Standards Update for the reclassiﬁcation of residential real estate collateralised consumer mortgage 
loans upon foreclosure. The update codiﬁes the consensus reached by the FASB’s Emerging Issues Task Force (“EITF”) at its November 2013 meeting. 
The amendments in the update clariﬁes when an in-substance repossession or foreclosure occurs, that is, when a creditor should be considered to 
have received physical possession of residential real estate property collateralising a consumer mortgage loan such that the loan receivable should be 
derecognised and the real estate property recognised. The update requires a creditor to reclassify a collateralised consumer mortgage loan to real estate 
property upon obtaining legal title to the real estate collateral, or the borrower voluntarily conveying all interest in the real estate property to the lender 
to satisfy the loan through a deed in lieu of foreclosure or similar legal agreement. The update is effective for public business entities for annual periods, 
and interim periods within those annual periods, beginning after 15 December 2014. The adoption of this guidance is not expected to have an impact on 
the Bank’s consolidated ﬁnancial position or results of operations.  

Revenue Recognition 
In May 2014, the FASB and International Accounting Standards Board (“IASB”) issued converged ﬁnal standards on revenue recognition. The core 
principle of the new standards is that revenue is recognised when a customer obtains control of a good or service compared to the existing model that 

68

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
  
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
is based on the transfer of risks and rewards. As a result of the change, revenue could be recognised earlier or later than it is today and in addition, the 
standards require extensive new disclosures. The revenue standard is effective for the ﬁrst interim period within annual reporting periods beginning after 
15 December 2016 for GAAP public reporting entities and early adoption is not permitted. The Bank is assessing impact of the adoption of 
this guidance. 

Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved After the 
Requisite Service Period 
In June 2014, the FASB published an Accounting Standards Update which provides explicit guidance on accounting for share-based payments when the 
terms of an award provide that a performance target could be achieved after the requisite service period. The amendments require that a performance 
target that could be achieved after the requisite service period be treated as a performance condition that affects the vesting of the award. Performance 
conditions that affect vesting would not be reﬂected in estimating the grant date fair value of the awards. Rather, compensation costs would be 
recognised when the achievement of the performance condition is considered probable, which may be after the recipient’s service period ends or 
may never become probable. The update is effective for public business entities for annual periods, and interim periods within those annual periods, 
beginning after 15 December 2015. The adoption of this guidance is not expected to have an impact on the Bank’s consolidated ﬁnancial position or 
results of operations.

NOTE 3: CASH AND CASH EQUIVALENTS

Unrestricted 
    Non-interest earning 

   Cash and demand deposits 

Interest earning 
       Demand deposits 
       Cash equivalents 
Sub-total - Interest earning 

31 December 2014 
 Non-  
Bermuda  

Bermuda  

 31 December 2013 

Total   Bermuda 

Non- 
Bermuda 

Total

23,609  

 116,056  

 139,665  

 46,104  

 90,767  

 136,871 

203,572  
 469,388  
672,960  

 139,049  
 1,111,637  
 1,250,686  

 342,621  
 1,581,025  
 1,923,646  

 110,273  
 407,052  
 517,325  

 163,980  
 912,296  
 1,076,276  

 274,253 
 1,319,348 
 1,593,601 

Total cash and cash equivalents 

696,569  

 1,366,742  

 2,063,311  

 563,429  

 1,167,043  

 1,730,472

NOTE 4: SHORT-TERM INVESTMENTS

Unrestricted term deposits, certiﬁcates of 
    deposit and treasury bills 
       Maturing within three months 
       Maturing between three to six months 
       Maturing between six to twelve months 
Total unrestricted short-term investments 

Affected by drawing restrictions related to minimum
    reserve and derivative margin requirements 
       Interest earning demand deposits 

         31 December 2014   

 31 December 2013 

Bermuda  

Non-  
Bermuda  

Total   Bermuda 

Non- 
Bermuda 

Total

 -  
 -  
-  
-  

 144,632  
 223,563  
 15,694  
 383,889  

 144,632  
 223,563  
 15,694  
 383,889  

 -  
 -  
 -  
 -  

 35,420  
 6,884  
 3,721  
 46,025  

 35,420 
 6,884 
 3,721 
 46,025 

9,141  

 1,740  

 10,881  

 8,842  

 114  

 8,956 

Total short-term investments 

9,141  

 385,629  

 394,770  

 8,842  

 46,139  

 54,981

BUTTERFIELD ANNUAL REPORT 2014

69

 
 
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
          
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
  
 
 
 
 
 
NOTE 5: INVESTMENTS 
Amortised Cost, Carrying Amount and Fair Value

  31 December 2014 
Gross 
Amortised  unrealised  unrealised 
losses 

Gross 

gains 

cost 

Carrying 
amount / 
Fair value 

Gross 
Amortised  unrealised 
gains 

  31 December 2013 
Gross 
unrealised 
losses 

cost 

Carrying  
amount / 
Fair value

Trading 
    Debt securities issued 
       by non-US governments 
    Mutual funds 
Total trading 

Available-for-sale 
    Certiﬁcates of deposit 
    US government and federal agencies 
    Debt securities issued 
       by non-US governments 
    Corporate debt securities 
    Asset-backed securities - Student loans 
    Commercial mortgage-backed securities 
    Residential mortgage-backed 
       securities - Prime 
    Pass-through note 
    Equity securities 
Total available-for-sale  

-  
6,778  
6,778  

 -  
 1,037  
 1,037  

 -  
 (944) 
 (944) 

 -  
 6,871  
 6,871  

 3,000  
 49,799  
 52,799  

 546  
 990  
 1,536  

 -  
 (1,007) 
 (1,007) 

 3,546 
 49,782 
 53,328 

37,724  
1,881,728  

 19  
 17,140  

 -  
 (10,998) 

 37,743  
 1,887,870  

 83,789  
 1,390,987  

 794  
 9,382  

 (12) 
 (52,789) 

 84,571 
 1,347,580     

38,254  
 391,059  
 66,136  
 154,211  

 196  
 9,393  
 -  
 33  

 (125) 
 (1,163) 
 (1,313) 
 (3,075) 

 38,325  
 399,289  
 64,823  
 151,169  

 88,298  
 402,921  
 85,980  
 155,374  

 65,167  
 -  
15  
 2,634,294  

 264  
 -  
 -  
 27,045  

 (602) 
 -  
 -  

 64,829  
 -  
 15  
 (17,276)   2,644,063  

 32,917  
 26,791  
 -  
 2,267,057  

 184  
 15,888  
 -  
 -  

 -  
 7,216  
 -  
 33,464  

 (28) 
 (3,405) 
 (2,801) 
 (12,485) 

 88,454 
 415,404 
 83,179 
 142,889 

 (2,080) 
 -  
 -  
 (73,600) 

 30,837 
 34,007 
 - 
 2,226,921

31 December 2014  

Amortised 
cost /  

Gross 

Gross 
Carrying  unrealised  unrealised 
losses 
amount 

gains 

31 December 2013 

Amortised
cost /  

Gross 
Carrying  unrealised 
gains 
amount 

Gross 
unrealised 
losses 

Fair 
value 

Fair  
value 

Held-to-maturity(1) 
    US government and federal agencies 
(1) For the years ended 31 December 2014 and 2013 non-credit impairments recognised in AOCL for HTM investments were $nil.

 343,989  

 338,177  

 333,394  

 6,330  

 (518) 

 91  

 (17,951) 

 315,534 

Pledged AFS Investments 
The Bank pledges US government and federal agency investment securities to secure Bank deposit products where the secured party does not have 
the right to sell or repledge the collateral. As at 31 December 2014, US government and federal agency investment securities with an amortised cost of 
$381.4 million (2013: $363.8 million) and fair value of $383.7 million (2013: $350.7 million) were pledged. 

As at 31 December 2014, US government and federal agency investment securities with an amortised cost of $nil (2013: $25.2 million) and fair value of 
$nil (2013: $25.8 million) were pledged to collateralise repurchase agreements maturing within 90 days. 

Pledged HTM Investments 
As at 31 December 2014, US government and federal agency investment securities with an amortised cost of $107.8 million (2013: $83.0 million) and 
fair value of $110.2 million (2013: $75.1 million) were pledged to secure Bank deposit products where the secured party did not have the right to sell or 
repledge the collateral.  

Unrealised Loss Positions 
The following tables show the fair value and gross unrealised losses of the Bank’s AFS and HTM investments with unrealised losses that are not deemed 
to be OTTI, aggregated by investment category and length of time that individual securities have been in a continuous unrealised loss position. Debt 
securities are categorised as being in a continuous loss position for “less than 12 months” or “12 months or more” based on the point in time that the 
fair value declined below the amortised cost basis. 

70

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
31 December 2014 
Available-for-sale 
    Certiﬁcates of deposit 
    US government and federal agencies 
    Debt securities issued by non-US governments 
    Corporate debt securities 
    Asset-backed securities - Student loans 
    Commercial mortgage-backed securities 
    Residential mortgage-backed securities - Prime 
Total available-for-sale securities 
    with unrealised losses 

Held-to-maturity 
    US government and federal agencies 
Total held-to-maturity securities 
    with unrealised losses 

31 December 2013 
Available-for-sale 
  Certiﬁcates of deposit 
  US government and federal agencies 
  Debt securities issued by non-US governments 
  Corporate debt securities 
  Asset-backed securities - Student loans 
  Commercial mortgage-backed securities 
  Residential mortgage-backed securities - Prime 
Total available-for-sale securities
    with unrealised losses 

Held-to-maturity 
  US government and federal agencies 
Total held-to-maturity securities 
    with unrealised losses 

Less than 12 months 
Gross 
unrealised 
losses 

Fair 
value 

12 months or more

Fair 
value 

Gross 
unrealised 
losses 

Total 
fair value 

Total gross
unrealised
losses 

 5,454  
270,276  
 22,588  
 8,090  
 -  
 -  
 -  

 -  
 (1,942) 
 (125) 
 (8) 
 -  
 -  
 -  

 -  
 390,913  
 -  
 38,845  
 64,847  
 150,216  
 18,116  

 -  
 (9,056) 
 -  
 (1,155) 
 (1,313) 
 (3,075) 
 (602) 

 5,454  
 661,189  
 22,588  
 46,935  
 64,847  
 150,216  
 18,116  

 - 
 (10,998)
 (125)
 (1,163)
 (1,313)
 (3,075)
 (602)

306,408  

 (2,075) 

 662,937  

 (15,201) 

 969,345  

 (17,276)

 -  

 -  

 -  

 -  

 60,556  

 (518) 

 60,556  

 (518)

 60,556  

 (518) 

 60,556  

 (518)

Less than 12 months 
Gross 
unrealised 
losses 

Fair 
value 

 50,464  
855,973  
42,996  
 -  
 36,470  
 58,890  
30,837  

 (12) 
 (47,481) 
 (28) 
 -  
 (681) 
 (5,619) 
 (2,080) 

12 months or more

Fair 
value 

 -  
 107,189  
 -  
 36,595  
 46,709  
 83,998  
 -  

Gross 
unrealised 
losses 

 -  
 (5,308) 
 -  
 (3,405) 
 (2,120) 
 (6,866) 
 -  

Total 
fair value 

 50,464  
 963,162  
 42,996  
 36,595  
 83,179  
 142,888  
 30,837  

Total gross
unrealised
losses

 (12)
 (52,789)
 (28)
 (3,405)
 (2,801)
 (12,485)
 (2,080)

1,075,630  

 (55,901) 

 274,491  

 (17,699) 

 1,350,121  

 (73,600)

259,595  

 (11,740) 

 41,161  

 (6,211) 

 300,756  

 (17,951)

 259,595  

 (11,740) 

 41,161  

 (6,211) 

 300,756  

 (17,951)

The Bank does not believe that the investment securities that were in an unrealised loss position as of 31 December 2014, which was comprised of 72 
securities, or, 34% of the portfolio by fair value, represent an OTTI. Total gross unrealised losses were 1.7% of the fair value of affected securities and 
were attributable primarily to changes in market interest rates, relative to when the investment securities were purchased, and not due to the credit 
quality of the investment securities. The Bank does not intend to sell the investment securities that were in an unrealised loss position and it is not more 
likely than not that the Bank will be required to sell the investment securities before recovery of the amortised cost bases, which may be at maturity. 

The following describes the process for identifying credit impairment in security types with the most signiﬁcant unrealised losses. 

US government and federal agencies  
As at 31 December 2014, gross unrealised losses on securities related to US government and federal agencies were $11.5 million (2013: $70.7 million) 
of which $1.9 million has been in an unrealised loss position for less than 12 months and $9.6 million has been in an unrealised loss position for more 
than 12 months. Overall, management believes that all the securities in this class do not have any credit losses, given the explicit and implicit guarantees 
provided by the US federal government.  

Corporate debt securities 
As at 31 December 2014, gross unrealised losses on corporate debt securities were $1.2 million (2013: $3.4 million) of which materially all have been in 
an unrealised loss position for more than 12 months. This relates primarily to one debt security issued by a US government-sponsored enterprise and is 
implicitly backed by the US federal government. Management believes that the value of this security will recover and the current unrealised loss position 
is a result of interest rate movements. 

BUTTERFIELD ANNUAL REPORT 2014

71

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
Asset-backed securities - Student loans 
As at 31 December 2014, gross unrealised losses on student loan asset-backed securities were $1.3 million (2013: $2.8 million) all of which related to 
investments that were in an unrealised loss position for greater than 12 months. Asset-backed securities collateralised by student loans are composed 
primarily of securities collateralised by Federal Family Education Loan Program loans (“FFELP loans”). FFELP loans beneﬁt from a federal government 
guarantee of at least 97% of defaulted principal and accrued interest, with additional credit support provided in the form of over-collateralisation, 
subordination and excess spread, which collectively total in excess of 100%. Accordingly, the vast majority of FFELP loan-backed securities are not 
exposed to traditional consumer credit risk.  

Commercial mortgage-backed securities  
As at 31 December 2014, gross unrealised losses on commercial mortgage-backed securities were $3.1 million (2013: $12.5 million) all of which have 
been in an unrealised loss position for more than 12 months. The Bank’s commercial mortgage-backed securities are predominantly rated “AAA” 
and possess signiﬁcant subordination (a form of credit enhancement for the beneﬁt of senior securities, expressed here as credit support which is the 
percentage of pool losses that can occur before a senior security will incur its ﬁrst dollar of principal loss). No credit losses were recognised on these 
securities as there are no delinquencies on the underlying mortgages and credit support and loan-to-value ratios (“LTV”) range from 5% - 36% and  
25% - 61% respectively.  

Residential mortgage-backed securities -  Prime 
As at 31 December 2014, gross unrealised losses on prime residential mortgage-backed securities were $0.6 million (2013: $2.1 million) all of which have 
been in an unrealised loss position for more than 12 months. The Bank’s prime residential mortgage-backed securities are predominantly rated “AAA” 
and possess signiﬁcant subordination (a form of credit enhancement for the beneﬁt of senior securities, expressed here as credit support which is the 
percentage of pool losses that can occur before a senior security will incur its ﬁrst dollar of principal loss). No credit losses were recognised on these 
securities as credit support and LTVs range from 7% - 18% and 54% - 62%, respectively.  

Contractual Maturities 
The following table presents the remaining contractual maturities of the Bank’s securities. For mortgage-backed securities (primarily US government 
agencies), management presents the maturity date as the mid-point between the reporting and expected contractual maturity date which is determined 
assuming no future prepayments. By using the aforementioned mid-point, this date represents management’s best estimate of the date by which the 
remaining principal balance will be repaid given future principal repayments of such securities. The actual maturities may differ due to the uncertainty of 
the timing when borrowers make prepayments on the underlying mortgages. 

31 December 2014 
Trading  
    Mutual funds 

Within 
3 months 

3 to 12 
months 

 Remaining term to average contractual maturity
5 to 10 
years 

Over 10      No speciﬁc 
 years           maturity  

1 to 5 
years 

Carrying
amount

 -  

 -  

 -  

 -  

 -  

 6,871  

 6,871 

Available-for-sale  
  Certiﬁcates of deposit 
  US government and federal agencies 
  Debt securities issued by non-US governments 
  Corporate debt securities 
  Asset-backed securities - Student loans 
  Commercial mortgage-backed securities 
  Residential mortgage-backed securities - Prime 
  Equity securities 
Total available-for-sale  

 18,246  
 -  
 -  
 8,090  
 -  
 -  
-  
 -  
26,336  

 19,497  
 -  
 1,360  
 121,930  
 -  
 -  
 -  
 -  
 142,787  

 -  
 100,305  
 14,376  
 230,424  
 52,597  
 -  
 -  
 -  
 397,702  

 -  
 335,769  
 22,589  
 38,845  
 -  
 43,128  
 6,448  
 -  
 446,779  

 -  
 1,451,796  
 -  
 -  
 12,226  
 108,041  
 58,381  
 -  
 1,630,444  

 -  
 -  
 -  
 -  
 -  
 -  
 -  
 15  
 15  

 37,743 
 1,887,870 
 38,325 
 399,289 
 64,823 
 151,169
 64,829 
 15 
 2,644,063 

Held-to-maturity 
  US government and federal agencies 

 -  

 -  

 -  

 48,820  

 289,357  

 -  

 338,177 

Total investments 

26,336  

 142,787  

 397,702  

 495,599  

 1,919,801  

 6,886  

 2,989,111 

13,088  
 13,248  
 26,336  

 123,290  
 19,497  
 142,787  

 397,702  
 -  
 397,702  

 473,011  
 22,588  
 495,599  

 1,919,801  
 -  
 1,919,801  

 6,037  
 849  
 6,886  

 2,932,929 
 56,182 
 2,989,111 

Total by currency 
  US dollars 
  Other 
Total investments 

72

 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
  
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
31 December 2013 
Trading  
    Debt securities issued by non-US governments 
    Mutual funds 
Total trading 

Within 
3 months 

 -  
 -  
 -  

Available-for-sale  
    Certiﬁcates of deposit 
    US government and federal agencies 
    Debt securities issued by non-US governments 
    Corporate debt securities 
    Asset-backed securities - Student loans 
    Commercial mortgage-backed securities 
    Residential mortgage-backed securities - Prime 
    Pass-through note 
Total available-for-sale  

 28,186  
 1  
 26,472  
 -  
 -  
 -  
 -  
 -  
 54,659  

 Remaining term to average contractual maturity

3 to 12 
months 

 -  
 -  
 -  

 56,385  
 -  
 31,141  
 -  
 -  
 -  
 -  
 -  
 87,526  

1 to 5 
years 

 1,095  
 -  
 1,095  

 -  
 82,668  
 4,783  
 415,404  
 562  
 -  
 -  
 -  
 503,417  

5 to 10 
years 

 1,482  
 -  
 1,482  

 -  
 310,676  
 26,058  
 -  
 71,320  
 133,765  
 8,570  
 34,007  
 584,396  

Over 10      No speciﬁc 
 years           maturity  

Carrying
amount

 969  
 -  
 969  

 -  
 49,782  
 49,782  

 3,546 
 49,782 
 53,328 

 -  
 954,235  
 -  
 -  
 11,297  
 9,124  
 22,267  
 -  
 996,923  

 -  
 -  
 -  
 -  
 -  
 -  
 -  
 -  
 -  

 84,571 
 1,347,580 
 88,454 
 415,404 
 83,179 
 142,889 
 30,837 
 34,007 
 2,226,921 

Held-to-maturity 
    US government and federal agencies 

 -  

 -  

 -  

 51,144  

 282,250  

 -  

 333,394 

Total investments 

54,659  

 87,526  

 504,512  

 637,022  

 1,280,142  

 49,782  

 2,613,643 

Total by currency 
  US dollars 
  Other 
Total investments 

 17  
54,642  
 54,659  

 32,132  
 55,394  
 87,526  

 503,416  
 1,096  
 504,512  

 612,839  
 24,183  
 637,022  

 1,279,173  
 969  
 1,280,142  

 49,011  
 771  
 49,782  

 2,476,588 
 137,055 
 2,613,643 

Sale Proceeds and Realised Gains and Losses of AFS Securities 
During the year ended 31 December 2014, the Bank disposed of:
• 
• 
• 
• 

Pass-through note totalling $34.4 million in sale proceeds, resulting in a gross realised gain of $8.7 million;
US government and federal agency securities totalling $96.1 million in sale proceeds, resulting in a gross realised loss of $0.1 million; 
Certiﬁcates of deposit totalling $17.1 million in sale proceeds, resulting in a gross realised gain of $nil; and                                                                                                                
Debt securities issued by non-US governments totalling $12.6 million in sale proceeds, resulting in a gross realised gain of $nil. 

During the year ended 31 December 2013, the Bank disposed of:
• 

US government and federal agency securities totalling $117.2 million in sale proceeds, resulting in gross realised gains of $0.3 million and gross 
realised losses of $0.6 million;
Corporate bonds totalling $116.3 million in sale proceeds, resulting in gross realised gains of $0.5 million;   
Asset-backed securities totalling $43.6 million in sale proceeds, resulting in gross realised losses of $0.2 million; and   
Other securities totalling $110.0 million is sale proceeds, resulting in gross realised losses of $0.1 million. 

• 
• 
• 

BUTTERFIELD ANNUAL REPORT 2014

73

 
 
 
 
 
 
  
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
  
 
  
   
 
 
 
 
 
  
 
 
 
 
NOTE 6: LOANS 
The “Bermuda” and “Non-Bermuda” classiﬁcations purpose is to reﬂect management segment reporting as described in Note 14: Segmented Information. 

Commercial loans
    Government 
    Commercial and industrial 
    Commercial overdrafts 
Total commercial loans 
    Less speciﬁc allowance for credit losses on commercial loans 
Total commercial loans after speciﬁc allowance for credit losses 

Commercial real estate loans 
    Commercial mortgage 
    Construction 
Total commercial real estate loans 
    Less speciﬁc allowance for credit losses on commercial real estate loans 
Total commercial real estate loans after speciﬁc allowance 
    for credit losses 

Consumer loans 
    Automobile ﬁnancing 
    Credit card 
    Overdrafts 
    Other consumer 
Total consumer loans 
    Less speciﬁc allowance for credit losses on consumer loans 
Total consumer loans after speciﬁc allowance for credit losses 

Residential mortgage loans 
    Less speciﬁc allowance for credit losses on residential mortgage loans 
Total residential mortgage loans after speciﬁc allowance 
    for credit losses 

Total gross loans 
    Less speciﬁc allowance for credit losses 
    Less general allowance for credit losses 
Net loans 

 31 December 2014                          31 December 2013

Non- 
Bermuda  Bermuda 

   Non- 
Bermuda  Bermuda 

Total 

Total

 66,316  
137,445  
 48,107  
251,868  
 (352) 
 251,516  

 46,776  
 251,392  
 11,194  
 309,362  
 (65) 
 309,297  

 113,092  
 388,837  
 59,301  
 561,230  
 (417) 
 560,813  

 65,725  
 129,865  
 57,851  
 253,441  
 (240) 
 253,201  

 80,725 
 15,000  
 270,808    400,673 
 65,934 
 547,332 
 (473)
 293,658    546,859 

 8,083  
 293,891  
 (233) 

415,315  
 -  
415,315  
 (770) 

 281,663  
 20,617  
 302,280  
 (1,052) 

 696,978  
 20,617  
 717,595  
 (1,822) 

 417,112  
 -  
 417,112  
 (5,123) 

 332,509  
 13,489  
 345,998  
 -  

 749,621 
 13,489 
 763,110 
 (5,123)

414,545  

 301,228  

 715,773  

 411,989  

 345,998  

 757,987 

12,639  
 58,500  
 12,935  
 43,679  
 127,753  
 (355) 
 127,398  

 7,716  
 20,684  
 8,208  
 113,941  
 150,549  
 -  
 150,549  

 20,355  
 79,184  
 21,143  
 157,620  
 278,302  
 (355) 
 277,947  

 15,618  
 60,846  
 10,079  
 47,396  
 133,939  
 (160) 
 133,779  

 6,654  
 16,149  
 6,311  
 117,960  
 147,074  
 -  

 22,272 
 76,995 
 16,390 
 165,356 
 281,013 
 (160)
 147,074    280,853 

 1,270,867   1,238,616   2,509,483    1,309,605   1,239,920  2,549,525 
 (16,295)

 (14,771) 

 (16,217) 

 (13,225) 

 (1,446) 

 (3,070) 

1,256,096    1,237,170   2,493,266  

 1,296,380   1,236,850  2,533,230 

 2,065,803   2,000,807   4,066,610  
 (18,811) 
 (28,671) 
 2,030,563   1,988,565   4,019,128  

 (16,248) 
 (18,992) 

 (2,563) 
 (9,679) 

 2,114,097   2,026,883   4,140,980 
 (22,051)
 (3,303) 
 (10,264) 
 (30,704)
 2,074,909    2,013,316  4,088,225  

 (18,748) 
 (20,440) 

The principal means of securing residential mortgages, personal, credit card and business loans are charges over assets and guarantees. Mortgage loans 
are generally repayable over periods of up to thirty years and personal, credit card, business and government loans are generally repayable over terms 
not exceeding ﬁve years. The effective yield on total loans as at 31 December 2014 is 4.71% (2013: 4.65%). 

74

  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Age Analysis of Past Due Loans (Including Non-Accrual Loans) 
The following tables summarise the past due status of the loans at 31 December 2014 and 2013. The aging of past due amounts are determined based on 
the contractual delinquency status of payments under the loan and this aging may be affected by the timing of the last business day at period end. 

31 December 2014 
Commercial loans 
    Government 
    Commercial and industrial 
    Commercial overdrafts 
Total commercial loans 

Commercial real estate loans 
    Commercial mortgage 
    Construction 
Total commercial real estate loans 

Consumer loans 
    Automobile ﬁnancing 
    Credit card 
    Overdrafts 
    Other consumer 
Total consumer loans 

30-59 
days 

60-89 
days 

90 days or 
more 

Total past 
due loans 

Total    
 current (1) 

Total  
loans

 -  
357  
 -  
 357  

 909  
 -  
 909  

165  
 753  
 -  
 856  
1,774  

 -  
 29  
 -  
 29  

 1,001  
 -  
 1,001  

 19  
 384  
 -  
 270  
 673  

 -  
 1,776  
 61  
 1,837  

 9,054  
 -  
 9,054  

 152  
 202  
 10  
 1,653  
 2,017  

 -  
 2,162  
 61  
 2,223  

 113,092  
 386,675  
 59,240  
 559,007  

 113,092 
 388,837 
 59,301
 561,230 

 10,964  
 -  
 10,964  

 686,014  
 20,617  
 706,631  

 696,978 
 20,617 
 717,595 

 336  
 1,339  
 10  
 2,779  
 4,464  

 20,019  
 77,845  
 21,133  
 154,841  
 273,838  

 20,355 
 79,184 
 21,143 
 157,620 
 278,302 

Residential mortgage loans 

29,577  

 15,889  

 80,812  

 126,278  

 2,383,205  

 2,509,483 

Total past due loans 
 32,617  
(1) Loans less than 30 days past due are included in current loans. 

 17,592  

 93,720  

 143,929  

 3,922,681  

 4,066,610

31 December 2013 
Commercial loans 
    Government 
    Commercial and industrial 
    Commercial overdrafts 
Total commercial loans 

Commercial real estate loans 
    Commercial mortgage 
    Construction 
Total commercial real estate loans 

Consumer loans 
    Automobile ﬁnancing 
    Credit card 
    Overdrafts 
    Other consumer 
Total consumer loans 

30-59 
days 

60-89 
days 

90 days or 
more 

Total past 
due loans 

Total    
 current  (1) 

Total  
loans

 -  
 681  
 2  
 683  

 784  
 -  
 784  

 253  
 834  
 10  
 506  
 1,603  

 -  
 89  
 1  
 90  

 -  
 529  
 604  
 1,133  

 -  
 1,299  
 607  
 1,906  

 80,725  
 399,374  
 65,327  
 545,426  

 80,725 
 400,673 
 65,934 
 547,332 

 1,386  
 -  
 1,386  

 42,958  
 -  
 42,958  

 45,128  
 -  
 45,128  

 704,493  
 13,489  
 717,982  

 749,621 
 13,489 
 763,110 

 91  
 482  
 8  
 348  
 929  

 353  
 501  
 258  
 2,060  
 3,172  

 697  
 1,817  
 276  
 2,914  
 5,704  

 21,575  
 75,178  
 16,114  
 162,442  
 275,309  

 22,272 
 76,995 
 16,390 
 165,356 
 281,013 

Residential mortgage loans 

 36,355  

 16,908  

 62,700  

 115,963  

 2,433,562  

 2,549,525 

Total past due loans 
 39,425  
(1) Loans less than 30 days past due are included in current loans.

 19,313  

 109,963  

 168,701  

 3,972,279  

 4,140,980

BUTTERFIELD ANNUAL REPORT 2014

75

 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans’ Credit Quality 
The four credit quality classiﬁcations set out in the following table are deﬁned below and describe the credit quality of the Group’s lending portfolio. 
These classiﬁcations each encompass a range of more granular, internal credit rating grades assigned.  

31 December 2014 
Commercial loans 
  Government 
  Commercial and industrial 
  Commercial overdrafts 
Total commercial loans 

Commercial real estate loans
  Commercial mortgage 
  Construction 
Total commercial real estate loans 

Consumer loans 
  Automobile ﬁnancing 
  Credit card 
  Overdrafts 
  Other consumer 
Total consumer loans 

Pass 

Special mention 

Substandard 

Non-accrual 

 98,092  
381,952  
55,439  
535,483  

544,832  
20,617  
565,449  

19,615  
78,982  
20,933  
153,226  
272,756  

 15,000  
 4,254  
3,452  
 22,706  

 91,500  
 -  
 91,500  

 564  
 -  
 167  
 1,917  
 2,648  

 -  
 1,898  
 304  
 2,202  

 48,373  
 -  
 48,373  

 -  
 202  
 -  
 714  
 916  

 -  
 733  
 106  
 839  

 12,273  
 -  
 12,273  

 176  
 -  
 43  
 1,763  
 1,982  

Total 
gross recorded
investments

 113,092 
 388,837 
59,301
 561,230 

 696,978 
 20,617 
 717,595 

 20,355 
 79,184 
 21,143 
 157,620 
 278,302 

Residential mortgage loans 

2,344,836  

 49,819  

 58,124  

 56,704  

 2,509,483 

Total gross recorded loans 

3,718,524  

 166,673  

 109,615  

 71,798  

 4,066,610

Pass 

Special mention 

Substandard 

Non-accrual 

31 December 2013 
Commercial loans 
  Government 
  Commercial and industrial 
  Commercial overdrafts 
Total commercial loans 

Commercial real estate loans 
  Commercial mortgage 
  Construction 
Total commercial real estate loans 

Consumer loans 
  Automobile ﬁnancing 
  Credit card 
  Overdrafts 
  Other consumer 
Total consumer loans 

80,725  
 393,091  
 57,569  
 531,385  

 559,312  
 12,332  
 571,644  

 20,794  
 76,494  
14,954  
160,959  
 273,201  

 -  
 4,282  
 7,445  
 11,727  

 99,174  
 -  
 99,174  

 1,033  
 -  
 1,008  
 2,295  
 4,336  

Total 
gross recorded
investments

 80,725 
 400,673 
 65,934 
 547,332 

 749,621 
 13,489 
 763,110 

 22,272 
 76,995 
 16,390 
 165,356 
 281,013 

 -  
 520  
 472  
 992  

 41,236  
 -  
 41,236  

 437  
 69  
 221  
 1,951  
 2,678  

 -  
 2,780  
 448  
 3,228  

 49,899  
 1,157  
 51,056  

 8  
 432  
 207  
 151  
 798  

 42,607  

 97,689  

Residential mortgage loans 

 2,383,773  

 63,979  

Total gross recorded loans 

 3,760,003  

 179,216  

 59,166  

 2,549,525 

 104,072  

 4,140,980

Quality classiﬁcation deﬁnitions 
A pass loan shall mean a loan that is expected to be repaid as agreed. A loan is classiﬁed as pass where the Bank is not expected to face repayment 
difﬁculties because the present and projected cash ﬂows are sufﬁcient to repay the debt and the repayment schedule as established by the agreement is 
being followed.

A special mention loan shall mean a loan under close monitoring by the Bank’s management. Loans in this category are currently protected and still 
performing (current with respect to interest and principal payments), but are potentially weak and present an undue credit risk exposure, but not to the 
point of justifying a classiﬁcation of substandard.    

76

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
A substandard loan shall mean a loan whose evident unreliability makes repayment doubtful and there is a threat of loss to the Bank unless the 
unreliability is averted.   

A non-accrual loan shall mean either management is of the opinion full payment of principal or interest is in doubt or when principal or interest is 90 
days past due and for residential mortgage loans which are not well secured and in the process of collection. 

Non-Performing Loans

Commercial loans 
  Commercial and industrial 
  Commercial overdrafts 
Total commercial loans 

Commercial real estate loans 
  Commercial mortgage 
  Construction 
Total commercial real estate loans 

Consumer loans 
  Automobile ﬁnancing 
  Credit card 
  Overdrafts 
  Other consumer 
Total consumer loans 

31 December 2014 

Non-accrual 

  loans(1) 

Accruing 
loans past 
due 90 days 

Total non- 
performing 
loans 

Non-accrual 
loans 

31 December 2013
Accruing 
loans past 
due 90 days 

Total non-
performing
loans

 733  
 106  
 839  

 1,057  
 4  
 1,061  

 1,790  
 110  
 1,900  

 520  
 472  
 992  

 12,273  
 -  
 12,273  

 176  
 -  
 43  
1,763  
 1,982  

 779  
 -  
 779  

 -  
 202  
 -  
 619  
 821  

 13,052  
 -  
 13,052  

 41,236  
 -  
 41,236  

 176  
 202  
 43  
 2,382  
 2,803  

 437  
 69  
 221  
 1,951  
 2,678  

 9  
 132  
 141  

 1,722  
 -  
 1,722  

 8  
 432  
 37  
 283  
 760  

 529 
 604 
 1,133 

 42,958
 - 
 42,958 

 445 
 501 
 258 
 2,234 
 3,438 

Residential mortgage loans 

56,704  

 29,052  

 85,756  

 59,166  

 9,938  

 69,104 

Total non-performing loans 
(1) Excludes purchased credit-impaired loans.

Gross Loans Evaluated For Impairment 

Commercial 
Commercial real estate 
Consumer 
Residential mortgage 
Total gross loans evaluated for impairment 

 71,798  

 31,713  

 103,511  

 104,072  

 12,561  

 116,633

31 December 2014 
Individually   Collectively 
evaluated 
 560,391  
 683,697  
 276,234  
 2,403,706  
 3,924,028  

evaluated 
839  
33,898  
 2,068  
 105,777  
142,582  

31 December 2013

Individually 
evaluated 
 2,642  
 63,264  
 4,093  
 103,086  
 173,085  

Collectively 
evaluated
 544,690 
 699,846 
 276,920 
 2,446,439 
 3,967,895

Changes in General and Speciﬁc Allowances For Credit Losses 

Allowances at beginning of year 
  Provision taken (released) during the year 
  Recoveries 
  Charge-offs  
  Other  
Allowances at end of year  

 Commercial 
Commercial  real estate 
 9,816  
2,789  
  -  
 (6,621) 
(64) 
 5,920  

 8,340  
282  
67 
 (838) 
(20) 
7,831  

31 December 2014 

Consumer 
 3,442  
 (686) 
 1,983  
 (1,895) 
 (47) 
 2,797  

Residential 

mortgage   
 31,157  
 5,663  
 274  
 (6,113) 
 (47) 
 30,934  

31 December
2013

Total 
 52,755  
 8,048  
 2,324  
 (15,467) 
 (178) 
 47,482  

Total 
 55,957 
 14,825 
 5,826 
 (23,706)
 (147)
 52,755 

Allowances at end of year: individually evaluated for impairment  
417  
Allowances at end of year: collectively evaluated for impairment   7,414  

 1,822  
 4,098  

 355  
 2,442  

 16,217  
 14,717  

 18,811  
 28,671  

 22,051 
 30,704

BUTTERFIELD ANNUAL REPORT 2014

77

 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Impaired Loans 
A loan is considered to be impaired when, based on current information and events, the Bank determines that it will not be able to collect all amounts 
due according to the loan contract, including scheduled interest payments. Impaired loans include all non-accrual loans and all loans modiﬁed in a TDR 
even if full collectability is expected following the restructuring. For the year ended 31 December 2014, the amount of gross interest income that would 
have been recorded had impaired loans been current was $5.2 million (2013: $5.7 million). The tables below present information about the Bank’s 
impaired loans:  

   Impaired loans with an allowance 

  Gross recorded
 investment of impaired 
Net                        loans without 
  investment  allowance             loans                          an allowance 

Speciﬁc 

 Gross recorded 

             Total impaired loans (1)

 Gross recorded 

Speciﬁc 
 investment  allowance 

Net
loans

575  
  -  
 575  

 (417) 
 -  
 (417) 

   158  
 -  
 158  

 158    
 106  
 264  

 733  
 106  
 839  

 (417) 
 -  
 (417) 

 316 
 106 
 422 

 5,854  

 (1,822) 

 4,032  

 28,044  

 33,898  

 (1,822) 

 32,076 

 -  
 -  
 515  
 515  

 -  
 -  
 (355) 
 (355) 

 -  
 -  
 160  
 160  

Residential mortgage loans 

 45,673  

 (16,217) 

 29,456  

Total impaired loans 
 52,617  
(1) Excludes purchased credit-impaired loans. 

 (18,811) 

 33,806  

 176  
 43  
 1,344  
 1,563  

 29,764  

 59,635  

 176  
 43  
 1,859  
 2,078  

 -  
 -  
 (355) 
 (355) 

 176 
 43 
 1,504 
 1,723 

 75,437  

 (16,217) 

 59,220 

 112,252  

 (18,811) 

 93,441 

31 December 2014 
Commercial loans 
  Commercial and industrial 
  Commercial overdrafts 
Total commercial loans 

Commercial real estate loans 
  Commercial mortgage 

Consumer loans 
  Automobile ﬁnancing 
  Overdrafts 
  Other consumer 
Total consumer loans 

      Impaired loans with an allowance 
 Gross recorded 

Speciﬁc 
investment  allowance 

    Gross recorded
investment of impaired 
Net                          loans without 
loans                           an allowance  

                Total impaired loans
Speciﬁc 
allowance 

    Gross recorded 
investment 

 442  
 169  
 611  

 (373) 
 (100) 
 (473) 

 69  
 69  
 138  

 1,728   
  303   
 2,031  

2,170  
472  
 2,642  

 (373) 
 (100) 
 (473) 

Net
loans

 1,797 
 372 
 2,169 

 30,277  

 (5,123) 

 25,154  

 32,987  

 63,264  

 (5,123) 

 58,141 

 229   
 69   
 221  
 1,938   
 2,457 

14,285  

51,760  

437  
69  
 221  
2,066  
2,793  

 (75) 
 -  
 -  
 (85) 
 (160) 

 362 
 69
 221 
 1,981 
 2,633 

66,408  

 (16,295) 

 50,113 

135,107  

 (22,051) 

 113,056 

31 December 2013 
Commercial loans 
  Commercial and industrial 
  Commercial overdrafts 
Total commercial loans 

Commercial real estate loans 
  Commercial mortgage 

Consumer loans 
  Automobile ﬁnancing 
  Credit card 
  Overdrafts 
  Other consumer 
Total consumer loans 

 208  
 -  
 -  
 128  
 336  

 (75) 
 -  
 -  
 (85) 
 (160) 

 133  
 -  
 -  
 43  
 176  

Residential mortgage loans  

52,123  

 (16,295) 

 35,828  

Total impaired loans 

 83,347  

 (22,051) 

 61,296  

78

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
  
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
Average Impaired Loan Balances and Related Recognised Interest Income

31 December 2014  

31 December 2013

Average gross 
recorded 
investment 

Interest income 
recognised 

Average gross
recorded 
investment 

Interest income
recognised

Commercial loans 
    Commercial and industrial 
    Commercial overdrafts 
Total commercial loans 

Commercial real estate loans 
    Commercial mortgage 

Consumer loans 
    Automobile ﬁnancing 
    Credit card 
    Overdrafts 
    Other consumer 
Total consumer loans 

Residential mortgage loans 

 1,452  
289  
1,741  

 -  
 -  
 -  

  3,744  
382  
  4,126  

48,581  

 675  

  64,002  

 307  
35  
 132  
 1,963  
2,437  

70,923  

 -  
 -  
 -  
 5  
 5  

 1,021  

 1,701  

  509  
  35  
  219  
  2,025  
  2,788  

 63,159  

 134,075  

 97 
 - 
 97

 256 

 - 
 - 
 - 
 4 
 4

 386 

 743

Total impaired loans 

 123,682  

Loans Modiﬁed in a TDR

Effect of modiﬁcation 
on recorded investment

31 December 2014 
Commercial real estate loans 
Consumer loans 
Residential mortgage loans 
Total loans modiﬁed in a TDR 
(1) The total recorded investment is comprised of $8.9 million of non-accrual loans and $40.5 million of loans on accrual status. 

(1)

 Pre-modiﬁcation   Post-modiﬁcation 
outstanding  
recorded 
investment 
 35,419  
 111  
 24,203  
 59,733  

outstanding 
recorded 
investment 
 35,270  
 111  
 23,706  
 59,087  

Recorded 
investment 
 25,922  
 96  
 23,346  
 49,364  

Number of 
contracts  
 8  
 1  
 36  
 45  

Changes in the 
amount and / (or) 
timing of principal 
Interest
or interest 
payments  capitalisation
 149
 - 
 497 
 646

 -  
 -  
 -  
 -  

Effect of modiﬁcation 
on recorded investment

31 December 2013 
Commercial loans 
Commercial real estate loans 
Consumer loans 
Residential mortgage loans 
Total loans modiﬁed in a TDR 
(1) The total recorded investment is comprised of $11.3 million of non-accrual loans and $31.0 million of loans on accrual status. 

(1)

  Pre-modiﬁcation  
outstanding 
recorded 
investment 
 1,911  
 35,270  
 117  
 11,347  
 48,645  

Recorded 
  investment 
 1,785  
 29,081  
 115  
 11,395  
 42,376  

Post-modiﬁcation 
outstanding  
recorded 
investment 
 1,911  
 35,419  
 117  
 11,585  
 49,032  

Number of 
contracts  
 3  
 8  
 1  
 18  
 30  

Changes in the 
amount and / (or) 
timing of principal 
or interest 
payments 
 -  
 -  
 -  
 -  
 -  

   Interest 
capitalisation
 - 
 149 
 - 
 238 
 387

For the year ended 31 December 2014, the Bank has four loans modiﬁed in a TDR that subsequently defaulted (i.e., 90 days or more past due 
following a modiﬁcation) with a recorded investment amounting to $2.4 million. 

BUTTERFIELD ANNUAL REPORT 2014

79

 
 
 
 
 
 
 
  
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Purchased Credit-Impaired Loans 
Changes in the contractual principal outstanding for all purchased credit-impaired loans 
Balance at beginning of year 
    Purchases 
    Advances 
Balance at end of year 

Changes in the non-accretable balance for purchased credit-impaired loans 
Balance at beginning of year 
    Estimate of contractual principal not expected to be collected (non-accretable difference) at acquisition 
Balance at end of year 

There were no accretable balances for purchased credit-impaired loans for the year ended 31 December 2014. 

31 December
  2014
-  
7,197 
 19 
7,216 

-  
3,804 
 3,804

NOTE 7: CREDIT RISK CONCENTRATIONS 
Concentrations of credit risk in the lending and off-balance sheet credit-related arrangements portfolios arise when a number of customers are 
engaged in similar business activities, are in the same geographic region, or when they have similar economic features that would cause their ability 
to meet contractual obligations to be similarly affected by changes in economic conditions. The Bank regularly monitors various segments of its 
credit risk portfolio to assess potential concentrations of risks and to obtain collateral when deemed necessary. In the Bank’s commercial portfolio, 
risk concentrations are evaluated primarily by industry and by geographic region of loan origination. In the consumer portfolio, concentrations are 
evaluated primarily by products. Credit exposures include loans, guarantees and acceptances, letters of credit and commitments for undrawn lines of 
credit. Unconditionally cancellable credit cards and overdraft lines of credit are excluded from the tables below. 

The following table summarises the credit exposure of the Bank by business sector. The on-balance sheet exposure amounts disclosed are net of 
speciﬁc allowances and the off-balance sheet exposure amounts disclosed are gross of collateral held:

Business sector 
  Banks and ﬁnancial services 
  Commercial and merchandising 
  Governments 
Individuals 

  Primary industry and manufacturing 
  Real estate 
  Hospitality industry 
  Transport and communication 
Sub-total 
  General allowance 
Total 

31 December 2014 
Off-balance 
sheet 
 299,934  
 113,432  
 -  
 75,224  
 570  
 5,703  
 275  
 -  
 495,138  
 -  
 495,138  

Loans 
 307,835  
 252,945  
 109,051  
 2,482,892  
 70,298  
 710,905  
 107,538  
 6,335  
 4,047,799  
 (28,671) 
 4,019,128  

Total credit 
exposure 
 607,769  
 366,377  
 109,051  
 2,558,116  
 70,868  
 716,608  
 107,813  
 6,335  
 4,542,937  
 (28,671) 
 4,514,266  

31 December 2013
Off-balance 
sheet 
 367,162  
 129,698  
 4,767  
 97,184  
 -  
 9,849  
 -  
 -  
 608,660  
 -  
 608,660  

Total credit
exposure
 725,241 
 388,391 
 80,547 
 2,570,846 
 57,001 
 799,108 
 100,019 
 6,436 
 4,727,589 
 (30,704)
 4,696,885

Loans 
 358,079  
 258,693  
 75,780  
 2,473,662  
 57,001  
 789,259  
 100,019  
 6,436  
 4,118,929  
 (30,704) 
 4,088,225  

The following table summarises the credit exposure of the Bank by geographic region for cash and cash equivalents, short-term investments, loans 
receivable and off-balance sheet exposure. The credit exposure by currency for investments is disclosed in Note 5: Investments.

80

 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
  
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
31 December 2014 

 31 December 2013

Cash and cash  
equivalents and 
short-term 
investments 
 7,521  
 18,486  
 16,648  
 196,746  
 -  
 1,741  
 32,464  
 3,384  
 2,419  
 7,954  
 4,423  
 1,300,686  
 864,361  
 1,248  
 2,458,081  
 -  
2,458,081  

Geographic 
region 
Australia 
Bermuda 
Canada 
Cayman 
Germany 
Guernsey 
Japan 
New Zealand 
Sweden 
Switzerland 
The Bahamas 
United Kingdom  
United States 
Other 
Sub-total 
  General allowance 
Total 

Loans 
 -  
 2,269,748  
 -  
 763,379  
 -  
 527,560  
 -  
 -  
 -  
 -  
 31,809  
 455,303  
 -  
 -  
 4,047,799  
 (28,671) 
 4,019,128  

Off-balance 
 sheet 
 -  
 263,407  
 -  
 145,796  
 -  
 70,976  
 -  
 -  
 -  
 -  
 -  
 14,959  
 -  
 -  
 495,138  
 -  
 495,138  

Total credit 
exposure 
 7,521  
 2,551,641  
 16,648  
 1,105,921  
 -  
 600,277  
 32,464  
 3,384  
 2,419  
 7,954  
 36,232  
 1,770,948  
 864,361  
 1,248  
 7,001,018  
 (28,671) 
 6,972,347  

Cash and cash 
equivalents and 
short-term 
investments 
 11,044  
 56,730  
 57,478  
 76,890  
 2,617  
 1  
 12,503  
 846  
 503  
 19,396  
 4,932  
 984,127  
 557,370  
 1,016  
 1,785,453  
 -  
 1,785,453  

Loans 
 -  
 2,331,616  
 -  
 589,807  
 -  
 563,669  
 -  
 -  
 -  
 -  
 39,990  
 593,847  
 -  
 -  
 4,118,929  
 (30,704) 
 4,088,225  

  Off-balance 
sheet 
 -  
 301,603  
 -  
 179,367  
 -  
 84,493  
 -  
 -  
 -  
 -  
 -  
 43,197  
 -  
 -  
 608,660  
 -  
 608,660  

Total credit
exposure
 11,044 
 2,689,949 
 57,478 
 846,064 
 2,617 
 648,163 
 12,503 
 846 
 503 
 19,396 
 44,922 
 1,621,171 
 557,370 
 1,016 
 6,513,042 
 (30,704)
 6,482,338 

NOTE 8: PREMISES, EQUIPMENT AND COMPUTER SOFTWARE

Category 
Land 
  Buildings  
  Equipment 
  Computer hardware and software in use 
  Computer software in development 
Total 

Cost 
 11,569  
147,704  
 42,324  
 203,089  
 6,238  
 410,924  

 31 December 2014 
Accumulated 
depreciation 
 -  
 (58,424) 
 (38,046) 
 (99,331) 
 -  
 (195,801) 

Net carrying 
value 
 11,569  
 89,280  
 4,278  
 103,758  
 6,238  
 215,123  

  31 December 2013 

Cost 
 13,290  
 153,737  
 47,140  
 195,656  
 5,556  
 415,379  

Accumulated 
depreciation 
 -  
 (56,423) 
 (40,893) 
 (77,460) 
 -  
 (174,776) 

 Net carrying 
value 
 13,290 
 97,314 
 6,247 
 118,196 
 5,556 
 240,603 

Depreciation charged to operating expenses 
  Buildings (included in Property expense) 
  Equipment (included in Property expense) 
  Computer hardware and software (included in Technology and communication expense) 
Total depreciation charged to operating expenses 
Impairment of buildings’ carrying value (included in Impairment of ﬁxed assets) 

31 December 2014 
4,434  
 1,728  
 18,588  
 24,750  
 1,986  

31 December 2013
 4,478 
 2,100 
 16,300 
 22,878 
 - 

During the year ended 31 December 2014, the Bank’s intended use of three Bermuda properties changed and therefore the properties were assessed 
for impairment. The carrying amount of the Bermuda segment’s buildings was impaired by $1.2 million because their respective fair values were 
lower than the carrying amounts.  

At the end of 2014, the Bank changed its commitment with respect to a Bermuda property which was being used in its operations but is now 
contemplated for disposal and therefore the property has been reclassiﬁed as held for sale and included in OREO assets in the consolidated balance 
sheet. The reclassiﬁcation resulted in an $0.8 million write down of the carrying amount to its fair value less cost to sell. The fair value was based on 
the discounted cash ﬂow of a projected sale. 

NOTE 9: GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill

Guernsey segment 
Balance at beginning of year 
  Acquisition during the year (see Note 26) 
  Foreign exchange translation adjustment 
Balance at end of year 

  For the year ended

31 December 2014 
 7,086  
 19,291  
(1,556) 
 24,821  

31 December 2013
 6,949 
 - 
 137 
 7,086

BUTTERFIELD ANNUAL REPORT 2014

81

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Customer Relationship Intangible Assets

31 December 2014 

31  December 2013

Business segment 
  Bermuda - Wealth Management 
  Cayman 
  Guernsey 
Total 

  Accumulated  Accumulated 
impairment  amortisation 
 (5,702) 
 (1,138) 
 (39,205) 
 (46,045) 

 -  
 -  
 -  
 -  

Cost 
 8,342  
 12,324  
 58,420  
 79,086  

Net 
carrying 
amount 
 2,640  
 11,186  
 19,215  
 33,041  

  Accumulated  Accumulated 
amortisation 
 (5,146) 
 (934) 
 (34,391) 
 (40,471) 

impairment 
 -  
 -  
 -  
 -  

Cost 
 8,342  
 1,211  
 42,953  
 52,506  

Net
carrying
amount
 3,196 
 277 
 8,562 
 12,035 

Customer relationships are initially valued based on the present value of net cash ﬂows expected to be derived solely from the recurring customer 
base existing as at the date of acquisition. Customer relationship intangible assets may or may not arise from contracts. See Note 26: Business 
Combinations for details of acquisitions of customer relationship intangible assets that occurred during the year ended 31 December 2014. 

During the year ended 31 December 2014, the amortisation expense amounted to $4.3 million (2013: $3.4 million) and the foreign exchange 
translation adjustment decreased the net carrying amount by $1.3 million (2013: increased by $0.1 million). The estimated aggregate amortisation 
expense for each of the succeeding ﬁve years (until 31 December 2019) is $5.2 million.

NOTE 10: CUSTOMER DEPOSITS AND DEPOSITS FROM BANKS 

By Maturity 

Demand deposits
  Demand deposits - Non-interest bearing 
  Demand deposits - Interest bearing 
Sub-total - demand deposits 

Term deposits having a denomination
    of less than $100,000 

Customers 

 1,558,122  
 5,179,522  
 6,737,644  

31 December 2014 
Banks 

Total 

Customers 

31 December 2013
Banks 

Total

 408  
 26,512  
 26,920  

 1,558,530  
 5,206,034  
 6,764,564  

 1,012,973  
 4,631,149  
 5,644,122  

 385  
 11,701  
 12,086  

 1,013,358 
 4,642,850 
 5,656,208 

   Term deposits maturing within six months 
 57,451  
   Term deposits maturing between six to twelve months   18,310  
 18,492  
   Term deposits maturing after twelve months 

Sub-total - term deposits having a
    denomination of less than $100,000 

 94,253  

 82  
 -  
 -  

 82  

 57,533  
 18,310  
 18,492  

 56,468  
 16,392  
 18,205  

 94,335  

 91,065  

 -  
 -  
 -  

 -  

 56,468 
 16,392 
 18,205 

 91,065 

Term deposits having a denomination
    of $100,000 or more 

   Term deposits maturing within six months 
 1,445,072  
   Term deposits maturing between six to twelve months  294,175  
 60,527  
   Term deposits maturing after twelve months 

 9,368  
 3,536  
 -  

 1,454,440  
 297,711  
 60,527  

 1,570,923  
 94,802  
 196,817  

 16,150  
 11,986  
 -  

 1,587,073 
 106,788 
 196,817 

Sub-total - term deposits having a 
    denomination of $100,000 or more 

 1,799,774  

 12,904  

 1,812,678  

 1,862,542  

 28,136  

 1,890,678   

Sub-total - term deposits 

 1,894,027  

 12,986  

 1,907,013  

 1,953,607  

 28,136  

 1,981,743 

Total 

By Type and Segment

Bermuda
  Customers  
  Banks 
Cayman 
  Customers  
  Banks 
Guernsey 
  Customers  
  Banks 
The Bahamas 
  Customers  
United Kingdom 
  Customers  
  Banks 
Total Customers 
Total Banks 
Total 

82

 8,631,671  

 39,906  

 8,671,577  

 7,597,729  

 40,222  

 7,637,951

Payable 
on demand 

31 December 2014 
Payable on a 
ﬁxed date 

Total 

Payable 
on demand 

 31 December 2013
Payable on a 
ﬁxed date 

Total

 2,914,440  
 9,508  

 955,683  
 -  

 3,870,123  
 9,508  

 2,532,572  
 494  

 1,018,417  
 1,036  

 3,550,989 
 1,530 

 2,153,500  
 15,797  

 437,259  
 12,986  

 2,590,759  
 28,783  

 1,677,092  
 10,627  

 394,338  
 27,100  

 2,071,430 
 37,727 

1,350,377  
1,307  

 145,132  
 -  

 1,495,509  
 1,307  

 1,085,862  
 965  

 204,646  
 -  

 1,290,508 
 965 

53,317  

 7,514  

 60,831  

 68,257  

 9,980  

 78,237 

 266,010  
 308  
 6,737,644  
 26,920  
 6,764,564  

 348,439  
 -  
 1,894,027  
 12,986  
 1,907,013  

 614,449  
 308  
 8,631,671  
 39,906  
 8,671,577  

 280,339  
 -  
 5,644,122  
 12,086  
 5,656,208  

 326,226  
 -  
 1,953,607  
 28,136  
 1,981,743  

 606,565 
 - 
 7,597,729 
 40,222 
 7,637,951

 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
    
  
 
 
 
 
 
  
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
  
NOTE 11: EMPLOYEE FUTURE BENEFITS 
The Bank maintains trusteed pension plans including non-contributory deﬁned beneﬁt plans and a number of deﬁned contribution plans, and provides 
post-retirement medical beneﬁts to its qualifying retirees. The deﬁned beneﬁt provisions under the pension plans are generally based upon years of 
service and average salary during the ﬁnal years of employment. The deﬁned beneﬁt and post-retirement medical plans are not open to new participants 
and are non-contributory and the funding required is provided by the Bank, based upon the advice of an independent actuary. 

The following table presents the ﬁnancial position of the Bank’s deﬁned beneﬁt pension plans and the Bank’s post-retirement medical beneﬁts, which is 
unfunded. The beneﬁt obligations and plan assets are measured as at 31 December 2014 and 2013: 

 Accumulated beneﬁt obligation at end of year 

Change in projected beneﬁt obligation 
Projected beneﬁt obligation at beginning of year 
  Service cost  
  Employee contributions 

Interest cost  
  Beneﬁts paid  
  Plan amendment 
  Settlement and curtailment of liability 
  Actuarial (gain) loss  
  Foreign exchange translation adjustment 
Projected beneﬁt obligation at end of year 

Change in plan assets 
Fair value of plan assets at beginning of year 
  Actual return on plan assets  
  Employer contribution 
  Employee contributions 
  Beneﬁts paid 
  Foreign exchange translation adjustment 
Fair value of plan assets at end of year 

Amounts recognised in the consolidated
    balance sheet consist of: 
       Prepaid beneﬁt cost included in other assets 
       Accrued pension beneﬁt cost included 
          in employee future beneﬁts liability 
Surplus (deﬁcit) of plan assets over projected 
    beneﬁt obligation at measurement date 

 31 December 2014 

      31 December 2013 

Post-retirement 
Pension plans  medical beneﬁt plan 
 -  

188,890  

Post-retirement
Pension plans  medical beneﬁt plan  
 - 

 160,762  

167,469  
1,203  
99  
7,760  
(8,771) 
-  
(4,662) 
31,604  
(5,812) 
 188,890  

 186,412  
 18,451  
 4,172  
99  
(8,771) 
 (6,356) 
194,007  

 89,109  
 825  
 -  
 4,503  
 (3,590) 
 7,901  
 -  
 15,892  
 -  
 114,640  

 -  
 -  
 3,590  
 -  
 (3,590) 
 -  
 -  

 167,683  
 1,553  
 124  
 6,971  
 (7,889) 
 -  
 -  
 (2,690) 
 1,717  
 167,469  

 163,701  
 18,089  
 10,070  
 124  
 (7,889) 
 2,317  
 186,412  

 97,126 
 930 
 - 
 4,215 
 (3,139)
 - 
 - 
 (10,023)
 - 
 89,109   

 - 
 - 
 3,139 
 - 
 (3,139)
 - 
 - 

8,374  

 -  

 18,943  

 - 

(3,257) 

 (114,640) 

 -  

 (89,109)

 5,117  

 (114,640) 

 18,943  

 (89,109)

As at 31 December 2014, the pension plans of the Guernsey and United Kingdom subsidiaries were in a surplus position (i.e., net surplus presented 
in other assets in the balance sheet), while the pension plan of the Bermuda operations was in a deﬁcit position with projected beneﬁt obligations of 
$94.9 million and plan assets of $91.6 million (2013: all plans were in a surplus position).

Amounts recognised in accumulated other 
    comprehensive loss consist of: 
  Net actuarial loss, excluding deferred taxes 
  Prior service credit, net of prior service cost  
  Deferred income taxes assets 
Net amount recognised in accumulated 
    other comprehensive loss 

(53,970) 
- 
801  

 (29,874) 
 7,008  
 -  

 (36,384) 
 -  
 768  

 (14,904)
 21,628 
 - 

(53,169) 

 (22,866) 

 (35,616) 

 6,724   

Guernsey Deﬁned Beneﬁt Pension Plan 
Effective 30 September 2014, the deﬁned beneﬁt pension beneﬁts of the Bank’s Guernsey operations were amended to freeze credited service and 
ﬁnal average earnings for remaining active members. The beneﬁts amendment resulted in a further reduction in the Guernsey deﬁned beneﬁt pension 
liability of $4.59 million as at 30 September 2014. 

BUTTERFIELD ANNUAL REPORT 2014

83

 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
Effective October 2014, all the participants of the Guernsey deﬁned beneﬁt pension plan are inactive and in accordance with US GAAP, the net actuarial    
loss of the Guernsey deﬁned beneﬁt pension plan will be amortised over the estimated average remaining life expectancy of the inactive participants of 
39 years. Prior to all of the Guernsey participants being inactive, the net actuarial loss of the Guernsey deﬁned beneﬁt pension plan was amortised to net 
income over the estimated average remaining service period for active members of 15 years.

Bermuda Deﬁned Beneﬁt Post Retirement Healthcare Plan   
For the year ended 31 December 2014 numerous changes in the plan provisions were made to align the plan provisions with the administrative practices 
of the Bank resulting in a further increase in the Bermuda deﬁned beneﬁt post-retirement healthcare plan liability of $7.9 million. 

The Bank amortises prior service credit resulting from plan amendments that occurred when plan members were active employees, on a linear basis over 
the expected average remaining service period (to full eligibility) of active members expected to receive beneﬁts under the plan. Such remaining service 
periods are as follow: 3.1 years for the 2010 plan amendments and 4.6 years for the 2011 plan amendments. Plan amendments occurring in 2014 resulted 
in the recognition of new prior service cost on 31 December 2014 on  a plan for which  substantially all members are now inactive and, in accordance 
with US GAAP, the Bank has elected to amortise this new prior service cost on a linear basis over the average remaining life expectancy of members 
eligible for beneﬁts under the plan (21 years at 31 December 2014).

Annual Beneﬁt Expense

Expense component 
  Service cost  
Interest cost  

  Expected return on plan assets  
  Amortisation of past service cost 
  Amortisation of net actuarial loss 
Deﬁned beneﬁt expense (income) 
Deﬁned contribution expense 
Total beneﬁt expense (income) 

Other Changes Recognised in Other Comprehensive (Loss) Income 
Net gain (loss) arising during the year 
Prior service cost arising during the year 
Amortisation of past service credit 
Amortisation of net actuarial loss 
Change in deferred taxes 
Foreign exchange adjustment 
Total changes recognised in other 
  comprehensive (loss) income 

(18,947) 
 -  
-  
 1,058  
 83  
253  

(17,553) 

For the year ended 

 31 December 2014 

        31 December 2013

Post-retirement 
Pension plans  medical beneﬁt plan 

Pension plans 

Post-retirement
medical beneﬁt plan

1,203  
7,760  
(10,653) 
-  
1,058  
(632) 
6,892  
6,260  

 825  
 4,503  
 -  
 (6,719) 
 922  
 (469) 
 -  
 (469) 

 (15,892) 
 (7,901) 
 (6,719) 
 922  
 -  
 -  

 (29,590) 

 1,553  
 6,971  
 (9,076) 
 -  
 1,695  
 1,143  
 6,042  
 7,185  

 11,755  
 -  
 -  
 1,644  
 (1,656) 
 636  

 12,379  

 930 
 4,215 
 - 
 (6,719)
 2,242 
 668 
 - 
 668   

 10,023 
 - 
 (6,719)
 2,242 
 - 
 - 

 5,546  

The estimated portion of the net actuarial loss for the pension plans that will be amortised from AOCL into beneﬁt expense over the 2015 ﬁscal year is 
$1.3 million. The estimated portion of the net actuarial loss and the past service credit for the post-retirement medical beneﬁt plan that will be amortised 
from AOCL into beneﬁt expense over the 2015 ﬁscal year is $2.3 million for the net actuarial loss and a credit of $5.7 million for the net past service credit. 

Actuarial Assumptions

     For the year ended 
    31 December 2014                                              31 December 2013

Post-retirement 
Pension plans  medical beneﬁt plan 

Pension plans 

Post-retirement
medical beneﬁt plan

Actuarial assumptions used to determine annual beneﬁt expense
4.75% 
  Weighted average discount rate 
  Weighted average rate of compensation increases (1)  
4.30% 
  Weighted average expected long-term rate of return on plan assets   5.80% 
  Weighted average annual medical cost

5.10% 
N/A 
N/A 

4.20% 
3.85% 
5.65% 

4.40%
N/A
N/A

   increase rate (sensitivity shown below) 

N/A  7.3% to 4.5% in 2027 

N/A 

7.5% to 4.5% in 2027

(1) Excludes the inactive Bermuda deﬁned beneﬁt pension plan. 

Actuarial assumptions used to determine beneﬁt  
  Weighted average discount rate 
  Weighted average rate of compensation increases 
  Weighted average annual medical cost 
       increase rate (sensitivity shown below) 

3.80% 
2.80% 

4.20% 
N/A 

4.75% 
4.30% 

5.10%
N/A

 N/A   7.1% to 4.5% in 2027 

N/A 

7.3% to 4.5% in 2027

84

 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
  
Post-retirement medical beneﬁt plan sensitivity to trend rate assumptions
The effect of a one percentage point increase or decrease in the assumed medical cost increase rate on the aggregate of service and interest costs 
is as follows: 
a. One percent increase in trend rate 

i. Effect on total service cost and interest cost components for the year 
ii. Effect on beneﬁt obligation at year-end 

a. One percent increase in trend rate 

i. Effect on total service cost and interest cost components for the year 
ii. Effect on beneﬁt obligation at year-end 

952  
20,339  

 (771) 
(16,514) 

 934 
 14,111 

 (752)
 (11,601)

To develop the expected long-term rate of return on the plan assets assumption for each plan, the Bank considered the historical returns and the future 
expectations for returns for each asset class, as well as the target asset allocations of the assets. The weighted average discount rate used to determine beneﬁt 
obligations at the end of the year is derived from interest rates on high quality corporate bonds with maturities that match the expected beneﬁt payments. 

Investments Policies and Strategies 
The pension plans’ assets are managed according to each plan’s investment policy statement, which outlines the purpose of the plan, statement of 
objectives and guidelines and investment policy. The asset allocation is diversiﬁed and any use of derivatives is limited to hedging purposes only.

Weighted average actual and target asset 
    allocations of the pension by asset category 
  Debt securities (including debt mutual funds) 
  Equity securities (including equity mutual funds) 
  Other 
Total  

 31 December  2014 

  31 December 2013

Actual 
allocation 

Target 
allocation 

Actual 
allocation 

Target
allocation

49% 
45% 
6% 
100% 

50% 
48% 
2% 
100% 

41% 
59% 
0% 
100% 

48%
50%
2%
100%

Fair Value Measurements of Pension Plans’ Assets 
The following table presents the fair value of plans’ assets by category and level of inputs used in their respective fair value determination as described 
in Note 2: 

31 December 2014  
  Fair value determination 

31 December 2013
Fair value determination

US government and federal agencies 
Corporate debt securities 
Debt securities issued by non-US governments 
Equity securities and mutual funds 
Other 
Total fair value of plans’ assets 

Level 1 
 -  
 -  
 -  
 12,747  
 -  
 12,747  

Level 2 
 7,707  
 62,466  
 17,342  
 92,962  
 783  
 181,260  

Level 3 
 -  
 -  
 -  
 -  
 -  
 -  

Total 
fair value 
 7,707  
 62,466  
 17,342  
 105,709  
 783  
 194,007  

Level 1 
 -  
 -  
 -  
 12,807  
 -  
 12,807  

Level 2 
 7,737  
 54,036  
 14,978  
 96,228  
 517  
 173,496  

Total
fair value
 7,737 
 54,036 
 14,978 
 109,144 
 517 
 186,412

Level 3 
 -  
 -  
 -  
 109  
 -  
 109  

At 31 December 2014, 35.9% (2013: 35.6%) of the assets of the pension plans were mutual funds and equity securities managed or administered by 
wholly-owned subsidiaries of the Bank. At 31 December 2014, 0.3% and  1.1% (2013: 0.2% and 1.2%) of the plans’ assets were invested in common and 
preference shares of the Bank, respectively. 

The investments of the pension funds are diversiﬁed across a range of asset classes and are diversiﬁed within each asset class. The assets are generally 
actively managed with the goal of adding some incremental value through security selection and asset allocation. 

BUTTERFIELD ANNUAL REPORT 2014

85

 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
Estimated 2015 Bank contribution to, and estimated beneﬁt payments for the next ten years under, the pension and post-retirement medical beneﬁt 
plans are as follows: 

Estimated Bank contributions for the year ending 31 December 2015 
Estimated beneﬁt payments by year: 
2015  
2016  
2017  
2018  
2019  
2020-2023 

  Pension plans 
  627 

 7,200  
 7,400  
7,500  
7,400  
 7,400  
37,300  

  Post-retirement
 medical beneﬁt plan
4,033

 4,033 
 4,306 
 4,572 
 4,874 
 5,194 
 30,328

NOTE 12: CREDIT-RELATED ARRANGEMENTS AND COMMITMENTS 
Commitments 
As at 31 December 2014, the Bank was committed to expenditures under contract for sourcing and leases of $33.1 million and $20.0 million respectively 
(2013: $52.6 million and $21.5 million, respectively). Rental expense for premises leased on a long-term basis for the year ended 31 December 2014 
amounted to $5.3 million (2013: $4.9 million).  

The following table summarises the Bank’s commitments for sourcing, long-term leases and other agreements: 

For the year ending 31 December  
2015  
2016  
2017  
2018  
2019  
2020 & thereafter 
Total commitments 

Sourcing 
18,409  
14,667  
-  
 -  
 -  
-  
33,076  

Leases 
 4,270  
 3,994  
 3,256  
 3,086  
 2,714  
 2,696  
 20,016  

Other agreements 
 2,241  
 559  
 559  
 516  
 474  
 474  
 4,823  

Total
 24,920 
 19,220 
 3,815 
 3,602 
 3,188 
 3,170 
 57,915

Credit-Related Arrangements 
Standby letters of credit and letters of guarantee are issued at the request of a Bank customer in order to secure the customer’s payment or performance 
obligations to a third party. These guarantees represent an irrevocable obligation of the Bank to pay the third party beneﬁciary upon presentation of 
the guarantee and satisfaction of the documentary requirements stipulated therein, without investigation as to the validity of the beneﬁciary’s claim 
against the customer. Generally, the term of the standby letters of credit does not exceed one year, whilst the term of the letters of guarantee does not 
exceed four years. The types and amounts of collateral security held by the Bank for these standby letters of credit and letters of guarantee is generally 
represented by deposits with the Bank or a charge over assets held in mutual funds.  

The Bank considers the fees collected in connection with the issuance of standby letters of credit and letters of guarantee to be representative of the 
fair value of its obligation undertaken in issuing the guarantee. In accordance with applicable accounting standards related to guarantees, the Bank 
defers fees collected in connection with the issuance of standby letters of credit and letters of guarantee. The fees are then recognised in income 
proportionately over the life of the credit agreements. 

The following table presents the outstanding ﬁnancial guarantees with contractual amounts representing credit risk as follows:

Standby letters of credit 
Letters of guarantee 
Total 

 31 December 2014 

Gross  
 225,718  
 10,227  
 235,945  

Collateral 
 224,158  
 7,594  
 231,752  

Net 
 1,560  
 2,633  
 4,193  

Gross  
 294,572  
 12,391  
 306,963  

31 December 2013
Collateral 

 292,204  
 8,761  
 300,965  

Net
 2,368 
 3,630 
 5,998  

Collateral is shown at estimated market value less selling cost. Where cash is the collateral, this is shown gross including interest income.  

The Bank enters into contractual commitments to extend credit, normally with ﬁxed expiration dates or termination clauses, at speciﬁed rates and for 
speciﬁc purposes. Substantially all of the Bank’s commitments to extend credit are contingent upon customers maintaining speciﬁc credit standards 
at the time of loan funding. Management assesses the credit risk associated with certain commitments to extend credit in determining the level of the 
allowance for possible loan losses.

86

      
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The following table presents the unfunded legally binding commitments to extend credit with contractual amounts representing credit risk as follows: 

Commitments to extend credit 
Documentary and commercial letters of credit 
Total unfunded commitments to extend credit 

31 December 2014 
257,266  
 1,927  
 259,193  

31 December 2013
 299,062 
 2,635 
 301,697

The Bank has a facility by one of its custodians, whereby the Bank may offer up to US$200 million of standby letters of credit to its customers on a fully 
secured basis. Under the standard terms of the facility, the custodian has the right to set-off against securities held of 110% of the utilised facility. At 
31 December 2014, $91.8 million (2013: $149.2 million) of standby letters of credit were issued under this facility. 

Legal Proceedings 
There are actions and legal proceedings pending against the Bank and its subsidiaries which arose in the normal course of its business. Management, 
after reviewing all actions and proceedings pending against or involving the Bank and its subsidiaries, considers that the resolution of these matters 
would in the aggregate not be material to the consolidated ﬁnancial position of the Bank. 

NOTE 13: LOAN INTEREST INCOME

Contractual interest 
  Contractual interest earned on mortgages 
  Contractual interest earned on other loans 
Subtotal contractual interest earned 

Amortisation 
  Amortisation of fair value hedge 
  Amortisation of loan origination fees (net of amortised costs) 
Total loan interest income 

Balance of unamortised fair value hedge as at year-end 
Balance of unamortised loan fees as at year-end 

31 December 2014 

  31 December 2013

 For the year ended

113,076 
75,640  
 188,716  

(1,548) 
 4,818  
191,986  

(5,806) 
 7,526  

106,725
 77,256  
 183,981  

 (1,724) 
 4,785  
 187,042  

 (7,354) 
 7,380  

NOTE 14: SEGMENTED INFORMATION 
At 31 December 2014, for management reporting purposes, the operations of the Bank are grouped into the following six business segments based upon 
the geographic location of the Bank’s operations: Bermuda, Cayman, Guernsey, Switzerland, The Bahamas and the United Kingdom. Accounting policies 
of the reportable segments are the same as those described in Note 2. 

Bermuda provides a full range of retail, commercial and private banking services. Retail services are offered to individuals and small to medium-
sized businesses through ﬁve branch locations and through Internet banking, mobile banking, automated teller machines (“ATMs”) and debit cards. 
Retail services include deposit services, consumer and mortgage lending, credit cards and personal insurance products. Commercial banking includes 
commercial lending and mortgages, cash management, payroll services, remote banking and letters of credit. Treasury services include money market and 
foreign exchange activities. Bermuda’s wealth management offering consists of Butterﬁeld Asset Management Limited, which provides investment management, 
advisory and brokerage services and Butterﬁeld Trust (Bermuda) Limited, which provides trust, estate, company management and custody services.  

The Cayman segment provides a comprehensive range of retail, commercial and private banking services. Retail services are offered to individuals and 
small to medium-sized businesses through three branch locations and through Internet banking, mobile banking, ATMs and debit cards. Retail services 
include deposit services, consumer and mortgage lending, credit cards and property/auto insurance. Commercial banking includes commercial lending 
and mortgages, cash management, payroll services, remote banking and letters of credit. Treasury services include money market and foreign exchange 
activities. Cayman’s wealth management offering comprises investment management, advisory and brokerage services and Butterﬁeld Trust (Cayman) 
Limited, which provides trust, estate and company management.   

The Guernsey segment provides a broad range of services to private clients and ﬁnancial institutions including private banking and treasury services, 
Internet banking, administered bank services, wealth management and ﬁduciary services.  

The Switzerland segment provides ﬁduciary services.  

The Bahamas segment provides ﬁduciary and ancillary services. 

The United Kingdom segment provides a broad range of services including private banking and treasury services, Internet banking and wealth 
management and ﬁduciary services to high net worth individuals and privately owned businesses.  

BUTTERFIELD ANNUAL REPORT 2014

87

 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
  
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
  
 
 
 
 
  
 
 
 
Total Assets by Segment 
Bermuda 
Cayman  
Guernsey  
Switzerland 
The Bahamas 
United Kingdom  
Total assets before inter-segment eliminations 
Less: inter-segment eliminations 
Total 

For the year ended 
31 December 2014 
Bermuda 
Cayman 
Guernsey 
Switzerland 
The Bahamas 
United Kingdom 
Total before eliminations 
Inter-segment eliminations  
Total 

Net interest income

Inter- 
Customer  segment 
 3,164  
 928  
 (1,242) 
 -  
 166  
 (3,016) 
 -  
 -  
 -  

 141,528  
 58,442  
 19,303  
 -  
 (15) 
 19,229  
 238,487  
 -  
 238,487  

Provision 
 for  
credit 
losses 
 (6,425) 
 (557) 
 (154) 
 -  
 -  
 (912) 
 (8,048) 
 -  
 (8,048) 

31 December 2014 
4,797,235  
2,863,624  
1,639,334  
2,002  
 70,265  
832,707  
10,205,167  
 (346,727) 
9,858,440  

Revenue 
before 
gains 

  Net income
  before gains 
  and losses 
Non- 
interest 
Total   and central  
income  and losses  expenses  allocations 
 53,263  
 60,692  
 33,499  
 33,515  
 5,141  
 26,814  
 (381) 
 2,486  
 95  
 5,492  
 7,717  
 854  
 92,471  
 136,716  
 -  
 (1,886) 
 92,471  
 134,830  

 198,959  
 92,328  
 44,721  
 2,486  
 5,643  
 23,018  
 367,155  
 (1,886) 
 365,269  

 145,696  
 58,829  
 39,580  
 2,867  
 5,548  
 22,164  
 274,684  
 (1,886) 
 272,798  

For the year ended 
31 December 2013 
Bermuda 
Cayman 
Guernsey 
Switzerland 
The Bahamas 
United Kingdom 
Total before eliminations 
Inter-segment eliminations  
Total  

Net interest income

Customer 
 135,404  
 50,809  
 19,805  
 1  
 17  
 17,773  
 223,809  
 -  
223,809  

Inter- 
segment 
 1,496  
 1,172  
 3  
 -  
 170  
 (2,841) 
 -  
 -  
 -  

Provision 
 for  
credit 
losses 
 (12,707) 
 (3,554) 
 (126) 
 -  
 58  
 1,504  
 (14,825) 
 -  
 (14,825) 

Non- 
interest 
income 
 60,682  
 32,177  
 19,678  
 1,746  
 5,612  
 7,384  
 127,279  
 (1,316) 
 125,963  

Revenue 
before 
gains 
and losses 
 184,875  
 80,604  
 39,360  
 1,747  
 5,857  
 23,820  
 336,263  
 (1,316) 
 334,947  

  Net income
  before gains 

Total 
expenses 
 151,042  
 54,674  
 31,945  
 2,418  
 4,932  
 19,841  
 264,852  
 (1,316) 
 263,536  

and losses   
and central 
allocations 
 33,833  
 25,930  
 7,415  
 (671) 
 925  
 3,979  
 71,411  
 -  
 71,411  

31 December 2013
 4,624,281 
 2,309,380 
 1,437,873 
 2,206 
 91,758 
 828,295 
 9,293,793 
 (422,978)
 8,870,815

Gains 
and 
losses 
 6,908  
 36  
 (1,077) 
 -  
 -  
 1  
 5,868  
 -  
 5,868  

Gains 
and 
losses 
 3,533  
 (492) 
 (378) 
 3,905  
 -  
 181  
 6,749  
 -  
 6,749  

Net
income
 60,171 
 33,535 
 4,064 
 (381)
 95 
 855 
 98,339 
 - 
 98,339 

Net
income
 37,366 
 25,438 
 7,037 
 3,234 
 925 
 4,160 
 78,160 
 - 
 78,160 

NOTE 15: DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT 
The Bank uses derivatives for risk management purposes and to meet the needs of its customers. The Bank’s derivative contracts principally involve 
OTC transactions that are privately negotiated between the Bank and the counterparty to the contract and include interest rate contracts and foreign 
exchange contracts.

The Bank may pursue opportunities to reduce its exposure to credit losses on derivatives by entering into International Swaps and Derivatives Association 
master agreements (“ISDAs”). Depending on the nature of the derivative transaction, bilateral collateral arrangements may be used as well. When 
the Bank is engaged in more than one outstanding derivative transaction with the same counterparty, and also has a legally enforceable master 
netting agreement with that counterparty, the net marked to market exposure represents the netting of the positive and negative exposures with that 
counterparty. When there is a net negative exposure, the Bank regards its credit exposure to the counterparty as being zero. The net marked to market 
position with a particular counterparty represents a reasonable measure of credit risk when there is a legally enforceable master netting agreement 
between the Bank and that counterparty. 

Certain of these agreements contain credit risk-related contingent features in which the counterparty has the option to accelerate cash settlement of the 
Bank’s net derivative liabilities with the counterparty in the event the Bank’s credit rating falls below speciﬁed levels or the liabilities reach certain levels.  

All derivative ﬁnancial instruments, whether designated as hedges or not, are recorded on the consolidated balance sheet at fair value within other 
assets or other liabilities. These amounts include the effect of netting. The accounting for changes in the fair value of a derivative in the consolidated 
statements of operations depends on whether the contract has been designated as a hedge and qualiﬁes for hedge accounting.  

88

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
Notional Amounts 
The notional amounts are not recorded as assets or liabilities on the consolidated balance sheet as they represent the face amount of the contract 
to which a rate or price is applied to determine the amount of cash ﬂows to be exchanged. Notional amounts represent the volume of outstanding 
transactions and do not represent the potential gain or loss associated with market risk or credit risk of such instruments. Credit risk is limited to the 
positive fair value of the derivative instrument, which is signiﬁcantly less than the notional amount. 

Fair Value 
Derivative instruments, in the absence of any compensating up-front cash payments, generally have no market value at inception. They obtain value, 
positive or negative, as relevant interest rates, exchange rates, equity or commodity prices or indices change. The potential for derivatives to increase 
or decrease in value as a result of the foregoing factors is generally referred to as market risk. Market risk is managed within clearly deﬁned parameters 
as prescribed by senior management of the Bank. The fair value is deﬁned as the proﬁt or loss associated with replacing the derivative contracts at 
prevailing market prices. 

Risk Management Derivatives 
The Bank enters into interest derivative contracts as part of its overall interest rate risk management strategy to minimise signiﬁcant unplanned 
ﬂuctuations in earnings that are caused by interest rate volatility. The Bank’s goal is to manage interest rate sensitivity by modifying the repricing or 
maturity characteristics of certain consolidated balance sheet assets and liabilities so that movements in interest rates do not adversely affect the net 
interest margin. Derivative instruments that are used as part of the Bank’s risk management strategy include interest rate swap contracts that have 
indices related to the pricing of speciﬁc consolidated balance sheet assets and liabilities. Interest rate swaps generally involve the exchange of ﬁxed and 
variable-rate interest payments between two parties, based on a common notional principal amount and maturity date. The Bank uses foreign currency 
derivative instruments to hedge its exposure to foreign currency risk. Certain hedging relationships are formally designated and qualify for hedge 
accounting as fair value or net investment hedges. Risk management derivatives comprise the following: 

Fair value hedges 
Derivatives are designated as fair value hedges to minimise the Bank's exposure to changes in the fair value of assets and liabilities due to movements in 
interest rates. The Bank enters into interest rate swaps to convert its ﬁxed-rate long-term loans to ﬂoating-rate loans, and convert ﬁxed-rate deposits to 
ﬂoating-rate deposits. Changes in fair value of these derivatives are recognised in income. For fair value hedges, the Bank applies the "shortcut" method 
of accounting, which assumes there is no ineffectiveness in a hedge. As a result, changes recorded in the fair value of the hedged item are equal to the 
offsetting gain or loss on the derivative and are reﬂected in the same line item. During the year ended 31 December 2011, the Bank cancelled its interest 
rate swaps designated as fair value hedges of loans receivable and therefore discontinued hedge accounting for these ﬁnancial instruments. The fair 
value attributable to the hedged loans are accounted for prospectively and are being amortised to net income over the remaining life of each individual 
loan using the effective interest method. 

Net investment hedges 
Foreign currency swaps and qualifying non-derivative instruments designated as net investment hedges are used to minimise the Bank’s exposure to 
variability in the foreign currency translation of net investments in foreign operations. The effective portion of changes in the fair value of the hedging 
instrument is recognised in AOCL consistent with the related translation gains and losses of the hedged net investment. For net investment hedges, 
all critical terms of the hedged item and the hedging instrument are matched at inception and on an ongoing basis to minimise the risk of hedge 
ineffectiveness.  

For derivatives designated as net investment hedges, the Bank follows the forward-rate method in measuring the amount of ineffectiveness in a net 
investment hedge. According to that method, all changes in fair value, including changes related to the forward-rate component and the time value of 
currency swaps, are recorded in the foreign currency translation adjustment account within AOCL. To the extent all terms are not perfectly matched, 
any ineffectiveness is measured using the hypothetical derivative method. Ineffectiveness resulting from net investment hedges is recorded in foreign 
exchange income. Amounts recorded in AOCL are reclassiﬁed to earnings only upon the sale or liquidation of an investment in a foreign subsidiary. 

For foreign-currency-denominated debt instruments that are designated as hedges of net investments, the translation gain or loss that is recorded in the 
foreign currency translation adjustment account is based on the spot exchange rate between the functional currencies of the respective subsidiary. 

Derivatives not formally designated as hedges 
Derivatives not formally designated as hedges are entered into to manage the interest rate risk of ﬁxed rate deposits and foreign exchange risk of the 
Bank’s exposure. Changes in the fair value of derivative instruments not formally designated as hedges are recognised in foreign exchange income. 

Client service derivatives 
The Bank enters into foreign exchange contracts and interest rate caps primarily to meet the foreign exchange needs of its customers. Foreign exchange 
contracts are agreements to exchange speciﬁc amounts of currencies at a future date at a speciﬁed rate of exchange. Changes in the fair value of client 
services derivative instruments are recognised in income. 

The following table shows the aggregate notional amounts of derivative contracts outstanding listed by type and respective gross positive or negative 
fair values and classiﬁed by those used for risk management (sub-classiﬁed as hedging and those that do not qualify for hedge accounting), client 
services and credit derivatives. Fair value of derivatives is recorded in the consolidated balance sheet in other assets and other liabilities. Gross positive 
fair values are recorded in other assets and gross negative fair values are recorded in other liabilities, subject to netting when master netting agreements 
are in place. 

BUTTERFIELD ANNUAL REPORT 2014

89

 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
  
The following table shows the notional amounts and related fair value measurements of derivative instruments as at the balance sheet date:  

31 December 2014 
Risk management derivatives 
  Net investment hedges 
  Derivatives not formally designated 
       as hedging instruments 
Subtotal risk management derivatives 

Client services derivatives 

Derivative instrument 

  Notional 
amounts 

Positive 
fair value 

Negative 
fair value 

Net 
fair value 

Currency swaps 

  180,333  

 29  

 (3,102) 

 (3,073)

Currency swaps 

Spot and forward 
foreign exchange 

   48,408  
   228,741  

 253  
 282  

 (1,108) 
 (4,210) 

 (855)
 (3,928)

  2,529,159  

 16,648  

 (15,032) 

 1,616 

Total derivative instruments 

   2,757,900  

 16,930  

 (19,242) 

 (2,312)

31 December 2013 
Risk management derivatives 
    Net investment hedges 
    Derivatives not formally designated

Derivative instrument 

Currency swaps 

   as hedging instruments 

Currency swaps 

Subtotal risk management derivatives 

Client services derivatives 

Spot and forward
 foreign exchange 

Notional 
amounts 

 171,396  

 168,343  
339,739  

Positive 
fair value 

Negative 
fair value 

Net 
fair value

 -  

 -  
 -  

 (10,004) 

 (10,004)

 (9,381) 
 (19,385) 

 (9,381)
 (19,385)

 2,871,361  

 11,246  

 (10,167) 

 1,079 

Total derivative instruments 

3,211,100  

 11,246  

 (29,552) 

 (18,306) 

In addition to the above, foreign denominated deposits, totalling $15.7 million at 31 December 2014 (2013: $nil), were designated as a hedge of foreign 
exchange risk associated with the net investment in foreign operations. 

The “Net amounts offset in consolidated balance sheet” column within the following table represents the aggregate of our net exposure to each 
counterparty after considering the balance sheet and disclosure-only netting adjustments. We manage derivative exposure by monitoring the credit risk 
associated with each counterparty using counterparty speciﬁc credit risk limits, using master netting arrangements and obtaining collateral.  

Gross 
amounts 
recognised 

31 December 2014 
Derivative assets 
  Spot and forward foreign 

 Gross amounts 
offset in  
consolidated 
 balance sheet 

Net amounts  Gross amounts 
not offset in 
consolidated 
balance sheet 

offset in 
consolidated 
balance sheet 

Net 
amounts in 
consolidated 
balance sheet 

Collateral  
pledged  

Amounts
 net of
collateral in
  consolidated
 balance sheet

   exchange and currency swaps  16,222  

 (2,585) 

 13,637  

 3,293  

 16,930  

 11,375  

 28,305 

Derivative liabilities 
  Spot and forward foreign 

   exchange and currency swaps  2,839  

 (19,283) 

Total derivative instruments 

 (16,444) 
 (2,807) 

 (2,798) 

 (19,242) 
 (2,312) 

 9,041  

 (10,201)
 18,104

Gross 
amounts 
recognised 

  Gross amounts 
offset in  
consolidated 
  balance sheet 

Net amounts 
offset in 
consolidated 
balance sheet 

Gross amounts 
not offset in 
consolidated 
balance sheet 

Net 
amounts in 
consolidated 
balance sheet 

Amounts
 net of
collateral in
consolidated
  balance sheet

Collateral  
pledged  

31 December 2013 
Derivative assets 
    Spot and forward foreign

  exchange and currency swaps  11,075  

 (3,362) 

 7,713  

 3,533  

 11,246  

 9,611  

 20,857 

Derivative liabilities 
    Spot and forward foreign 

  exchange and currency swaps  4,217  

 (30,302) 

Total derivative instruments 

 (26,085) 
 (18,372) 

 (3,467) 

 (29,552) 
 (18,306) 

 9,599  

 (19,953)
 904  

90

  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
  
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
The following table shows the location and amount of gains (losses) recorded in the consolidated statements of operations on derivatives outstanding as 
at 31 December 2014 and 2013:

Derivative instrument 
Interest rate swaps 

  Spot and forward foreign exchange 
Total net gains recognised in net income 

Consolidated statements of operations line item 
 Net other gains 
 Foreign exchange revenue 

 For the year ended

31 December 2014 
 -  
 (332) 
 (332) 

31 December 2013
 86 
 2,030 
 2,116

NOTE 16: FAIR VALUE OF FINANCIAL INSTRUMENTS 
The following table presents the ﬁnancial assets and liabilities that are measured at fair value on a recurring basis. Management classiﬁes these items 
based on the level of inputs used in their respective fair value determination, as described in Note 2. 

Management reviews the price of each security monthly, comparing market values to expectations and to the prior month’s price. Management’s 
expectations are based upon knowledge of prevailing market conditions and developments relating to speciﬁc issuers and/or asset classes held in 
the investment portfolio. Where there are unusual or signiﬁcant price movements, or where a certain asset class has performed out-of-line with 
expectations, the matter is reviewed by the Group Asset and Liability Committee. 

Financial instruments in Level 1 include actively traded redeemable mutual funds. 

Financial instruments in Level 2 include equity securities not actively traded, certiﬁcates of deposit, corporate bonds, mortgage-backed securities and 
other asset-backed securities, interest rate swaps and caps and forward foreign exchange contracts, and mutual funds not actively traded. 

Financial instruments in Level 3 include mortgage-backed securities and other asset-backed securities for which the market is relatively illiquid and for 
which information about actual trading prices is not readily available. 

Items that are recognised at fair value on a recurring basis: 

Financial assets 
  Trading investments 
   Debt securities issued 
           by non-US governments 

   Mutual funds 

Total trading 

Available-for-sale investments 
  Certiﬁcates of deposit 
  US government and federal agencies 
  Debt securities issued 
        by non-US governments 
  Corporate debt securities 
  Asset-backed securities - Student loans 
  Commercial mortgage-backed securities 
  Residential mortgage-backed 
        securities - Prime 
  Pass-through note 
  Equity securities 
Total available-for-sale 

 31 December 2014 

   31 December 2013

Level 1 

Fair value
Level 2 

Level 3 

Total  
carrying 
amount / 
fair value 

Level 1 

  Fair value
Level 2 

Level 3 

Total
carrying
amount /
fair value

 -  
 6,038  
 6,038  

 -  
 833  
 833  

 -  
 -  
 -  

 -  
 6,871  
 6,871  

 -  
 5,842  
 5,842  

 3,546  
 43,940  
 47,486  

 -  
 -  
 -  

 3,546 
 49,782 
 53,328 

 -  
 37,743  
 -    1,887,870  

 -  
 -  

 37,743  
 1,887,870  

 -   
 84,571  
 -     1,347,580  

 -  
 84,571 
 -    1,347,580 

 -  
 -  
 -  
 -  

 38,325  
 399,289  
 52,596  
 151,169  

 -  
 -  
 12,227  
 -  

 38,325  
 399,289  
 64,823  
 151,169  

-   
-  
-   
-  

 88,454  
 415,404  
 71,882  
 142,889  

 -  
 -  
 11,297  
 -  

 88,454 
 415,404 
 83,179 
 142,889 

 -  
 64,829  
 -  
 -  
 15  
 -  
 -    2,631,836  

 -  
 -  
 -  
 12,227  

 64,829  
 -  
 15  
 2,644,063  

-   
-  
-  
-  

 30,837  
 -  
 -  
 2,181,617  

 -  
 34,007  
 -  

 30,837 
 34,007 
 - 
 45,304    2,226,921 

Other assets - Derivatives 

 -  

 16,930  

 -  

 16,930  

-   

 11,246  

 -  

 11,246 

Financial liabilities 
  Other liabilities - Derivatives 

 -  

 (19,242) 

 -  

 (19,242) 

-   

 (29,552) 

 -  

 (29,552)  

BUTTERFIELD ANNUAL REPORT 2014

91

  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
 
 
 
 
There were no transfers between Level 1 and Level 2 during the years ended 31 December 2014 and 2013. 

The following table presents quantitative information about recurring fair value measurements of assets classiﬁed within Level 3 of the fair value hierarchy: 

Financial instrument type 
Asset-backed securities - Student loans 
Pass-through note 

 Valuation technique 
Unadjusted third-party priced 
Unadjusted third-party priced 

31 December 2014 
  12,227  
 -    

31 December 2013
 11,297 
 34,007 

The valuation techniques used for the Level 3 assets as presented in the previous table, are described as follows:  

Unadjusted third-party price 
Prices obtained from third-party pricing vendors or brokers that are used to record the fair value of the asset of which the related valuation technique and 
signiﬁcant unobservable inputs are not provided. 

• 

• 

Asset-backed securities (“ABS”) – The ABS is a federal family education loan programme guaranteed student loan security and is valued using 
a non-binding broker quote. The fair value provided by the broker is based on the last trading price of similar securities but as the market for 
the security is illiquid, a Level 2 classiﬁcation is not supported. 

Pass-through note (“PTN”) – The PTN consisted of a pool of ﬂoating rate income securities (typically US sub-prime collateralised mortgage 
obligations and mortgage-backed securities). The third-party investment manager of the PTN determined the fair value of each underlying 
security within the PTN. The investment manager used a variety of valuation techniques consistent with those disclosed in Note 2. Despite 
relying on the fair values provided by the investment manager, management is still responsible for the ﬁnal fair valuation used. The PTN was 
sold in 2014. 

Signiﬁcant increases (decreases) in any of the above inputs in isolation could result in a signiﬁcantly different fair value measurement. Generally a change 
in assumption used for the probability of defaults is accompanied by a directionally similar change in the assumption used for the loss severity. 

Level 3 Reconciliation

Carrying amount at beginning of year 
Proceeds from sales, paydowns and maturities 
Accretion recognised in net income 
Realised and unrealised gains (losses) recognised in other comprehensive income 
Realised and unrealised gains recognised in net income 
Foreign exchange translation adjustment 
Carrying amount at end of year 

Items Recognised at Fair Value on a Non-Recurring Basis:

31 December 2014 
Available- 
for-sale 
investments 
45,304  
 (36,438) 
 915  
(6,286) 
8,732  
-  
12,227  

   31 December 2013  
Closed  
ended
fund
 4,397 
 (4,111)
 - 
 - 
 - 
 (286)
 -

Available- 
for-sale 
investments 
 41,810  
 (5,542) 
 1,929  
 7,107  
 -  
 -  
 45,304  

   31 December 2014 

       31 December 2013

Other real estate owned 
The current carrying value of OREO will be adjusted to fair value only when there is devaluation below carrying value.

Level 1 
 -  

Fair value

Level 2 
 19,300  

Level 3 
 -  

  Fair value

Level 1 
 -  

Level 2 
 27,407  

Level 3 
 -  

Total 
carrying 
amount / 
fair value 
 19,300  

Total
carrying
amount /
fair value
 27,407   

92

 
 
  
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
  
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Items Other Than Those Recognised at Fair Value on a Recurring Basis:

Financial assets 
  Cash and cash equivalents 
  Short-term investments 

Investments held-to-maturity 
Loans, net of allowance
    for credit losses 

31 December 2014 

 31 December 2013  

Carrying 
amount 

Fair  Appreciation / 
(depreciation) 

value 

 Carrying 
   amount  

 Fair   Appreciation / 
(depreciation) 

   value  

 2,063,311  
 394,770  
 338,177  

 2,063,311  
 394,770  
 343,989  

 -  
 -  
 5,812  

 1,730,472  
 54,981  
 333,394  

 1,730,472  
 54,981  
 315,534  

 - 
 - 
 (17,860)

Level  

 Level 1  
 Level 1  
 Level 2  

Level 2  

 4,019,128  

 4,015,764  

 (3,364) 

 4,088,225  

 4,082,741  

 (5,484)

Financial liabilities 
  Customer deposits 
   Demand deposits 
   Term deposits 
  Deposits from banks 
  Securities sold under 
        agreement to repurchase 
  Subordinated capital 

Level 2  
 Level 2  
 Level 2  

 Level 2  
 Level 2  

 6,737,644  
 1,894,027  
 39,906  

 6,737,644  
 1,895,558  
 39,906  

 -  
 117,000  

 -  
 115,936  

 -  
 (1,531) 
 -  

 -  
 1,064  

 5,644,122  
 1,953,607  
 40,222  

 5,644,122  
 1,955,096  
 40,222  

 25,535  
 207,000  

 25,543  
 203,521  

 - 
 (1,489)
 - 

 (8)
 3,479

NOTE 17: INTEREST RATE RISK 
The following tables set out the assets, liabilities and shareholders’ equity and off-balance sheet instruments on the date of the earlier of contractual 
maturity, expected maturity or repricing date. Use of these tables to derive information about the Bank’s interest rate risk position is limited by the 
fact that customers may choose to terminate their ﬁnancial instruments at a date earlier than the contractual maturity or repricing date. Examples 
of this include ﬁxed-rate mortgages, which are shown at contractual maturity but which may pre-pay earlier, and certain term deposits, which are 
shown at contractual maturity but which may be withdrawn before their contractual maturity subject to prepayment penalties. Investments are 
shown based on remaining contractual maturities. The remaining contractual principal maturities for mortgage-backed securities (primarily US 
Government agencies) do not consider prepayments. Remaining expected maturities will differ from contractual maturities because borrowers may 
have the right to prepay obligations before the underlying mortgages mature. 

31 December 2014 

          Earlier of contractual maturity or repricing date

Within 3 
months 

3 to 6 
months 

6 to 12 
months 

1 to 5 
years 

After 
5 years 

Non-interest
bearing 
funds 

(in $ millions)  
Assets 
    Cash and deposits with banks  
  Short-term investments 

Investments  
Loans  

  Other assets 
Total assets  

Liabilities and shareholders’ equity 
  Shareholders’ equity 
  Demand deposits 
  Term deposits 
  Other liabilities 
  Subordinated capital 
Total liabilities and shareholders’ equity 

Interest rate sensitivity gap 
Cumulative interest rate sensitivity gap 

 1,923  
 155  
422  
3,684  
 -  
 6,184  

 -  
 5,142  
 1,168  
 -  
 47  
 6,357  

 (173) 
 (173) 

 -  
 224  
 37  
 133  
 -  
 394  

 -  
 64  
 344  
 -  
 -  
 408  

 -  
 16  
 105  
 20  
 -  
 141  

 -  
 -  
 316  
 -  
 45  
 361  

 (14) 
 (187) 

 (220) 
 (407) 

 -  
 -  
 470  
 89  
 -  
 559  

 -  
 -  
 79  
 -  
 25  
 104  

 455  
 48  

 -  
 -  
 1,948  
 44  
 -  
 1,992  

 -  
 -  
 -  
 -  
 -  
 -  

 140  
 -  
 7  
 49  
 392  
 588  

 849  
 1,559  
 -  
 220  
 -  
 2,628  

Total 

 2,063 
 395 
 2,989 
 4,019 
 392 
 9,858 

 849 
 6,765 
 1,907 
 220 
 117 
 9,858 

 1,992  
 2,040  

 (2,040) 
 -  

 - 
 - 

BUTTERFIELD ANNUAL REPORT 2014

93

 
 
 
 
  
 
 
 
 
  
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
31 December 2013 

 Earlier of contractual maturity or repricing date

(in $ millions)  
Assets 
   Cash and deposits with banks  
  Short-term investments 

Investments  
Loans 

  Other assets 
Total assets 

Liabilities and shareholders’ equity 
  Shareholders’ equity 
  Demand deposits 
  Term deposits 
  Securities sold under agreement to repurchase 
  Other liabilities 
  Subordinated capital 
Total liabilities and shareholders’ equity 

Interest rate sensitivity gap 
Cumulative interest rate sensitivity gap 

Within 3 
months 

3 to 6 
months 

6 to 12 
months 

1 to 5 
years 

After 
5 years 

Non-interest
bearing 
funds 

 1,593  
 44  
 347  
 3,581  
 -  
 5,565  

 -  
4,587  
 1,432  
 26  
 -  
 137  
 6,182  

 (617) 
 (617) 

 -  
 7  
 55  
 253  
 -  
 315  

 -  
 57  
 212  
 -  
 -  
 -  
 269  

 -  
 4  
 32  
 19  
 -  
 55  

 -  
 -  
 123  
 -  
 -  
 -  
 123  

 -  
 -  
 496  
 138  
 -  
 634  

 -  
 -  
 215  
 -  
 -  
 70  
 285  

 -  
 -  
 1,634  
 27  
 -  
 1,661  

 -  
 -  
 -  
 -  
 -  
 -  
 -  

 137  
 -  
 50  
 70  
 384  
 641  

 803  
 1,012  
 -  
 -  
 197  
 -  
 2,012  

 46  
 (571) 

 (68) 
 (639) 

 349  
 (290) 

 1,661  
 1,371  

 (1,371) 
 -  

Total 

 1,730 
 55 
 2,614 
 4,088 
 384 
 8,871 

 803 
 5,656 
 1,982 
 26  
 197 
 207 
 8,871 

 - 
 - 

NOTE 18: SUBORDINATED CAPITAL 
On 28 May 2003, the Bank issued US $125 million of Subordinated Lower Tier II capital notes. The notes were issued at par and in two tranches, 
namely US $78 million in Series A notes due 2013 and US $47 million in Series B notes due 2018. The issuance was by way of private placement with 
US institutional investors. The notes are listed on the Bermuda Stock Exchange (“BSX”) in the specialist debt securities category. Part proceeds of 
the issue were used to repay the entire amount of the US $75 million outstanding subordinated notes redeemed in July 2003. The notes issued under 
Series A paid a ﬁxed coupon of 3.94% until 27 May 2008 when it was redeemed in whole by the Bank. The Series B notes paid a ﬁxed coupon of 
5.15% until 27 May 2013 when they became redeemable in whole at the Bank’s option. The Series B notes were priced at a spread of 1.35% over the 
10-year US Treasury yield.  

On 27 June 2005, the Bank issued US $150 million of Subordinated Lower Tier II capital notes. The notes were issued at par in two tranches, namely 
US $90 million in Series A notes due 2015 and US $60 million in Series B notes due 2020. The issuance was by way of private placement with US 
institutional investors. The notes are listed on the BSX in the specialist debt securities category. The notes issued under Series A paid a ﬁxed coupon 
of 4.81% until 2 July 2010 after which the coupon rate became ﬂoating and the principal became redeemable in whole at the Bank’s option. The 
Series B notes pay a ﬁxed coupon of 5.11% until 2 July 2015 when they also become redeemable in whole at the Bank’s option. The Series A notes 
were priced at a spread of 1.00% over the ﬁve-year US Treasury yield and the Series B notes were priced at a spread of 1.10% over the 10-year US 
Treasury yield. During September 2011, the Bank repurchased a portion of the outstanding 5.11% 2005 Series B Subordinated notes (“the Note”). The 
face value of the portion of the Note repurchased was $15 million and the purchase price paid for the repurchase was $13.875 million, which realised 
a gain of $1.125 million. During January 2014, the Bank fully redeemed the 2005 issuance Series A subordinated debt for its nominal value of 
$90 million. 

On 27 May 2008, the Bank issued US $78 million of Subordinated Lower Tier II capital notes. The notes were issued at par and in two tranches, 
namely US $53 million in Series A notes due 2018 and US $25 million in Series B notes due 2023. The issuance was by way of private placement with 
US institutional investors. The notes are listed on the BSX in the specialist debt securities category. The proceeds of the issue were used to repay the 
entire amount of the US $78 million outstanding subordinated notes redeemed in May 2008. The notes issued under Series A paid a ﬁxed coupon of 
7.59% until 27 May 2013 when they became redeemable in whole at the option of the Bank. In May 2013, the Bank exercised its option to redeem 
the Series A note outstanding at face value. The Series B notes pay a ﬁxed coupon of 8.44% until 27 May 2018 when they also become redeemable in 
whole at the Bank’s option. The Series B notes were priced at a spread of 4.51% over the 10-year US Treasury yield.   

No interest was capitalised during the years 2014 and 2013. 

94

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
The following table presents the contractual maturity and interest payments for subordinated capital issued by the Bank as at 31 December 2014. The 
interest payments are calculated until contractual maturity using the current LIBOR rates. 

Earliest date  
redeemable 
at the Bank’s 

 Interest rate 
until date 
option  maturity date  redeemable 

Contractual 

 Interest payments until 
 contractual maturity

              Interest rate from
                        earliest date 
 redeemable to contractual 
Principal  Within  1 to 5   After
                              maturity  outstanding  1 year  years  5 years

27-May-2018 
2-Jul-2020 
27-May-2023 

5.15%   3 months US$ LIBOR + 2.000% 
5.11%   3 months US$ LIBOR + 1.695% 
8.44%   3 months US$ LIBOR + 4.929% 

 - 
 47,000   1,065    2,662  
 45,000   1,806    3,526  
 661 
 25,000    2,110    7,244    4,580 
 5,241 
 117,000   4,981   13,432  

Subordinated capital 
Bermuda 
    2003 issuance - Series B  27-May-2013 
    2005 issuance - Series B 
2-Jul-2015 
    2008 issuance - Series B  27-May-2018 
Total 

NOTE 19: EARNINGS PER SHARE 
Earnings per share have been calculated using the weighted average number of common shares outstanding during the year after deduction of the 
shares held as treasury stock. The dilutive effect of share-based compensation plans was calculated using the treasury stock method, whereby the 
proceeds received from the exercise of share-based awards are assumed to be used to repurchase outstanding shares, using the average market price 
of the Bank’s shares for the year. Numbers of shares are expressed in thousands.  

Basic earnings per share 

Net income 
Less: Preference dividends declared and guarantee fee 
Less: Premium on preference share buyback 
Net income attributable for common shareholders 

Weighted average number of common shares issued 
Weighted average number of common shares held as treasury stock 
Adjusted weighted average number of common shares (in thousands) 

Diluted Earnings Per Share 

Net income attributable for common shareholders 

Adjusted weighted average number of common shares issued 
Net dilution impact related to options to purchase common shares 
Net dilution impact related to awards of unvested common shares 
Adjusted weighted average number of diluted common shares (in thousands)   

  For the year ended

31 December 2014 
 0.15 

31 December 2013
 0.11

 98,339  
(16,546) 
(96) 
 81,697  

 556,933  
 (9,336) 
 547,597  

0.15 

 81,697  

 547,597  
 3,927  
 4,958  
 556,482  

 78,160 
 (16,990)
 (2,756)
 58,414 

 556,933 
 (7,567)
 549,366 

 0.11 

 58,414 

 549,366 
 1,271 
 2,934 
 553,571 

The contingent value convertible preference (“CVCP”) shares are classiﬁed as participating securities as they are entitled to dividends declared to 
common shareholders on a 1:1 basis and are therefore included in the basic earnings per share calculation. 

During the year ended 31 December 2014, options to purchase 30.3 million (2013: 31.8 million) shares of common stock (see Note 20), were 
outstanding. During the year ended 31 December 2014, the number of outstanding awards of unvested common shares (see Note 20) was 9.7 million 
(2013: 8.6 million). Only awards for which the sum of 1) the expense that will be recognised in the future (i.e., the unrecognised expense) and 2) its 
exercise price, if any, was lower than the average market price of the Bank‘s common stock were considered dilutive and, therefore, included in the 
computation of diluted earnings per share. An award’s unrecognised expense is also considered to be the proceeds the employees would need to pay 
to purchase accelerated vesting of the awards. For purposes of calculating dilution, such proceeds are assumed to be used by the Bank to buy back 
common shares at the average market price. The weighted-average number of outstanding awards, net of the assumed weighted-average number of 
common shares bought back, is included in the number of diluted participating shares.   

Warrants issued to the Government of Bermuda in exchange for the Government’s guarantee of the preference shares, with an exercise price of 
$3.49 (2013: $3.51) for 4.30 million shares of common stock (2013: 4.28 million) were not included in the computation of earnings per share as at 
31 December 2014 and 2013 because the exercise price was greater than the average market price of the Bank‘s common stock. 

BUTTERFIELD ANNUAL REPORT 2014

95

 
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NOTE 20: SHARE-BASED PAYMENTS 
Stock Option Plans

1997 Stock Option Plan 
Prior to the capital raise on 2 March 2010, the Bank granted stock options to employees and Directors of the Bank that entitle the holder to purchase 
one common share at a subscription price equal to the market price on the effective date of the grant. Generally, the options granted vest 25 percent at 
the end of each year for four years, however as a result of the capital raise, the options granted under the Bank's 1997 Stock Option Plan to employees 
became fully vested and options awarded to certain executives were surrendered.  

2010 Stock Option Plan 
In conjunction with the capital raise, the Board of Directors approved the 2010 Stock Option Plan. Under the Plan, ﬁve per cent of the Bank’s fully diluted 
common shares, equal to approximately 29.5 million shares, are available for grant to certain ofﬁcers. In May 2012, the Board of Directors approved an 
increase to the options allowed to be granted under the 2010 Stock Option Plan to 50 million shares. 

Under the 2010 Stock Option Plan, options are awarded to Bank employees and executive management, based on predetermined vesting conditions that 
entitle the holder to purchase one common share at a subscription price usually equal to the last-traded common share price when granted and have a 
term of 10 years. The subscription price will be reduced for all special dividends declared by the Bank.   

The 2010 Stock Option Plan will vest based on two speciﬁc types of vesting conditions (i.e., time and performance conditions), as detailed below: 

Time vesting condition 
50% of each option award is granted in the form of time vested options and vests 25% on each of the second, third, fourth and ﬁfth anniversaries of the 
effective grant date. 

Performance vesting condition 
50% of each option award is granted in the form of performance options and vests on a “valuation event” date (date any of the 2 March 2010 investors 
transfer at least 5% of total number of shares or the date that there is a change in control and any of the new investors achieve a multiple of invested 
capital (“MOIC”) based on predetermined MOIC tiers). In the event of a valuation event and the MOIC reaching 200% of the original $1.21 per 
share invested capital, all performance options would vest. As at 31 December 2014 the grant date fair value of outstanding performance options is 
$8.9 million (2013: $9.5 million). If the probability of a valuation event becomes more likely than not, some or all of the unrecognised expense relating to 
the performance options will be recognised as an expense.  

In addition to the time and performance vesting conditions noted above, the options will generally vest immediately:
• 
• 
• 

by reason of the employee’s death or disability,
upon termination, by the Bank, of the holder’s employment, unless if in relation with the holder’s misconduct, or
in limited circumstances and speciﬁcally approved by the board, as stipulated in the holder’s employment contract. 

In the event of the employee’s resignation, any unvested portion of the awards shall generally be forfeited and any vested portion of the options shall 
generally remain exercisable during the 90-day period following the termination date or, if earlier, until the expiration date, and any vested portion of the 
options not exercised as of the expiration of such period shall be forfeited without any consideration therefore. 

Weighted average fair value of stock options granted 
No options were granted in the year ended 31 December 2014 
No options were granted in the year ended 31 December 2013 
Weighted average fair value of stock options granted in the year ended 31 December 2012 
Weighted average fair value of stock options granted in the year ended 31 December 2011 

Time vested options 
N/A 
N/A 
$0.42  
$0.41  

Performance options
N/A
N/A
$0.44 
$0.43

96

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
Changes in Outstanding Stock Options

For the year ended 
31 December 2014 
Outstanding at 
  beginning of year 

 3,992  
   Exercised 
 -  
   Forfeitures and cancellations   (436) 
   Resignations, retirements,
      redundancies 
  Expiration at end of plan life 

 -  
 (31) 
 3,525  

Outstanding at end of year 
Vested and exercisable 
  at end of year 

For the year ended 
31 December 2014 
Outstanding at 
  beginning of year 

4,577  
 -  
 (1) 

   Exercised 
   Forfeitures and cancellations 
   Resignations, retirements, 
      redundancies 
 -  
  Expiration at end of plan life   (584) 
 3,992  

Outstanding at end of year 
Vested and exercisable 
  at end of year 

Number of shares transferable 
 upon exercise (thousands) 

Weighted average 
exercise price ($) 

Weighted average
   remaining life (years) 

1997 Stock 
2010 Stock 
Option Plan  Option Plan 

Total 

Aggregate
1997 Stock 
2010 Stock  intrinsic value
1997 Stock 
Option Plan  Option Plan  Option Plan  Option Plan  ($ thousands) 

2010 Stock 

 27,808    31,800  
 (1,027)   (1,027) 
 (437) 

 (1) 

 -  
 -  

 -  
 (31) 
 26,780   30,305  

 12.83  

 -    

 10.86  

 1.17  
 1.16  
 1.16  

 -    

 1.16  

 13.76  
 13.07  

 -    

 1.17  

 2.38  

 5.66  

 22,233 

 3,525  

 8,677    12,202  

 13.07  

 1.17  

 2.38  

 5.65  

Number of shares transferable 
 upon exercise (thousands) 

Weighted average 
exercise price ($) 

Weighted average
   remaining life (years) 

1997 Stock 
Option Plan 

2010 Stock 
Option Plan 

Total 

1997 Stock 
Option Plan 

2010 Stock 
Option Plan 

1997 Stock 
Option Plan 

2010 Stock 
Option Plan 

Aggregate
intrinsic value
($ thousands)

 28,750    33,327  
 (596) 
 (303) 

 (596) 
 (302) 

 (44) 
 -  

 (44) 
 (584) 
 27,808    31,800  

 12.77  

 -    

 15.78  

 -    

 12.70  
 12.78  

 1.18  
 1.17  
 1.17  

 1.17  
 -    

 1.18  

 3.12  

 6.65  

 8,636 

 3,992  

 6,429    10,421  

 12.78  

 1.17  

 3.12  

 6.41  

Share-Based Plans 
Recipients of unvested shares awards are entitled to the related common shares at no cost, at the time the award vests. Recipients of unvested shares 
may be entitled to receive additional unvested shares having a value equal to the cash dividends that would have been paid had the unvested shares 
been issued and vested. Such additional unvested shares granted as dividend equivalents are subject to the same vesting schedule and conditions as 
the underlying unvested shares. 

Unvested shares subject only to time-vesting condition immediately vest upon retirement, death, disability or upon termination, by the Bank, of 
the holder’s employment unless if in relation with the holder’s misconduct. Unvested shares subject to both time-vesting and performance vesting 
condition remain outstanding and unvested upon retirement and will vest only if the performance conditions are met. Unvested shares can also vest 
in limited circumstances and if speciﬁcally approved by the board, as stipulated in the holder’s employment contract. Unvested shares are generally 
forfeited when employment ends. 

BUTTERFIELD ANNUAL REPORT 2014

97

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Employee Deferred Incentive Plan (“EDIP”) 
Under the Bank’s EDIP Plan, shares were awarded to Bank employees and executive management based on time-vesting condition, which states that 
the shares will vest equally over a three-year period from the effective grant date. The table below presents the number of shares transferable upon 
vesting of the shares under the EDIP: 

Number of shares transferable upon vesting of 
EDIP shares (in thousands of shares) 
Outstanding at beginning of year 
    Granted 
    Vested 
    Forfeitures and cancellations 
    Resignations, retirements, redundancies 
Outstanding at end of year 

For the year ended

  31 December 2014 
2,183  
1,510  
(1,029) 
 -  
(4) 
2,660  

  31 December 2013
 1,976 
 1,367 
 (755)
 (8)
 (397)
 2,183

Executive Long-Term Incentive Share Plan (“ELTIP”) 
2012 and 2011 ELTIP 
Under the Bank’s 2012 and 2011 ELTIP, shares were awarded to Bank employees and executive management, based on predetermined vesting 
conditions. Two types of vesting conditions upon which the shares were awarded comprise the ELTIP: 1) 50% of each share award were granted in 
the form of time vested shares, generally vesting equally over a three-year period from the effective grant date; and 2) 50% of each share award 
were granted in the form of performance shares, generally vesting upon the achievement of certain performance targets in the three-year period from 
the effective grant date. 

2014 and 2013 ELTIP 
The 2014 EDIP and the 2014 ELTIP were approved on 24 February 2014. Under the Bank’s 2014 and 2013 ELTIP, performance shares were awarded 
to executive management. These shares will generally vest upon the achievement of certain performance targets in the three-year period from the 
effective grant date. 

Number of shares transferable upon vesting of the 
2011 to 2014 ELTIP shares (in thousands of shares) 
Outstanding at beginning of year 
    Granted 
    Vested 
    Forfeitures and cancellations 
    Resignations, retirements, redundancies 
Outstanding at end of year 

Share-based Compensation Cost Recognised in Net Income

For the year ended

  31 December 2014 
6,441  
 2,550  
 (1,852) 
 -  
(77) 
7,062  

  31 December 2013
 5,231 
 3,520 
 (900)
 (1,110)
 (300)
 6,441  

 31 December 2014 

  31 December 2013

Stock option 
plan 

EDIP 
and ELTIP 

Total 

Stock option  
plan  

EDIP 
and ELTIP 

For the year ended

 1,915  
 1,915  

 6,954  
 6,954  

 8,869  
 8,869  

 1,486  
 1,486  

 4,861  
 4,861  

 180  
 9,049  

Total

 6,347 
 6,347 

 173 
 6,520 

31 December 2014 

31 December 2013

As at

477  
 8,864  

 1,900  

129  
4,165  
15,535  

 1,826 
 9,479 

 1,614 

 727 
 3,978 
17,624 

Share-based compensation plans 
    Awards granted in year 2010 and after 
Total share-based compensation 
Share-based settlement plans 
    Directors shares and retainers settlement plan 
Total share-based payments  

Unrecognised Expense Attributable to Each Plan 

2010 Stock Option Plan 
  Time vesting options 
    Performance vesting options 

EDIP 

2011, 2012, 2013, 2014 ELTIP 
    Time vesting shares 
    Performance vesting shares 
Total unrecognised expense 

98

 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
      
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     
 
 
 
 
 
 
 
 
 
 
 
  
Directors’ Compensation 
The Bank's Non-Executive Directors received their annual retainer compensation in the form of cash or fully vested and unrestricted Bank shares. 

NOTE 21: SHARE BUY-BACK PLANS 
The Bank initially introduced two share buy-back programmes on 1 May 2012 as a means to improve shareholder liquidity and facilitate growth in share 
value. Each programme was approved by the Board of Directors for a period of 12 months, in accordance with the regulations of the BSX. The BSX must 
be advised monthly of shares purchased pursuant to each programme.  

Common Share Buy-Back Programme 
The Board of Directors approved the 2012 common share buy-back programme on 1 May 2012 with up to six million common shares authorised to be 
acquired for treasury. On 10 December 2012, the Board approved increasing the number of common shares to be acquired up to 10 million. 

Effective 1 April 2013, the Board cancelled the 2012 common share buy-back programme and approved the 2013 common share buy-back programme 
for the purchase of up to 10 million common shares. On 2 December 2013, the Board increased the total number of common shares authorised to be 
purchased for treasury to 15 million. 

Effective 1 April 2014, the Board approved the 2014 common share buy-back programme authorising the purchase for treasury of up to 15 million 
common shares. 

On 26 February 2015, the Board approved, with effect from 1 April 2015, the 2015 common share buy-back programme, authorising the purchase for 
treasury of up to eight million common shares.

Common share buy-backs 
Acquired number of shares (to the nearest 1) 
Average cost per common share 
Total cost (in Bermuda dollars) 

           For the years ended

2014 
 8,567,340  
 1.99  
 17,018,412  

2013 
 4,038,482  
 1.39  
 5,610,907  

2012 
 7,260,051  
 1.24  
 8,999,061  

Total
 19,865,873 
 1.59 
 31,628,380 

Preference Share Buy-Back Programme  
The Board of Directors approved the 2012 preference share buy-back programme on 1 May 2012 with up to 2,000 preference shares authorised to be 
purchased for cancellation. On 10 December 2012, the Board approved increasing the number of preference shares to be purchased for cancellation up  
to 8,000. 

During the second quarter of 2013, the Board approved the 2013 preference share buy-back programme authorising in total the purchase and 
cancellation of up to 15,000 preference shares. On 2 December 2013, the Board increased the total number of preference shares authorised to be 
repurchased and cancelled to 26,600 preference shares. 

On 28 April 2014, the Board approved the 2014 preference share buy-back programme, authorising the purchase and cancellation of up to 26,600 
preference shares. 

On 26 February 2015, the Board approved, with effect from 4 May 2015, the 2015 preference share buy-back programme, authorising the purchase for 
cancellation of up to 5,000 preference shares. 

Preference share buy-backs 
Acquired number of shares (to the nearest 1) 
Average cost per preference share 
Total cost (in Bermuda dollars) 

           For the years ended

2014 
 560  
 1,172.26  
 656,465  

2013 
 11,972  
 1,230.26  
 14,728,624  

2012 
 4,422  
 1,218.40  
 5,387,777  

Total
 16,954 
 1,225.25 
 20,772,866

From time to time, the Bank’s associates, insiders and insiders’ associates as deﬁned by the BSX regulations may sell shares, which may result in such 
shares being repurchased pursuant to each programme, provided no more than any such person’s pro-rata share of the listed securities is repurchased. 
Pursuant to the BSX regulations, all repurchases made by any issuer pursuant to a securities repurchase programme must be made: (1) in the open 
market and not by private agreement; and (2) for a price not higher than the last independent trade for a round lot of the relevant class of securities. 

BUTTERFIELD ANNUAL REPORT 2014

99

 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
      
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
NOTE 22: ACCUMULATED OTHER COMPREHENSIVE LOSS 
The table below presents the changes in AOCL by component for the year ended:  

Unrealised losses on 
translation of net 
 investment in foreign 
operations 
(7,632) 

Unrealised
gains (losses) 
on available- 
for-sale 
investments 
 (40,136) 

 (2,874) 
 (10,506) 

 49,905  
 9,769  

Unrealised losses on 
translation of net 
 investment in foreign 
operations 
 (10,487) 

Unrealised
gains (losses) 
on available- 
for-sale 
investments 
 44,781  

 2,855  
 (7,632) 

 (84,917) 
 (40,136) 

31 December 2014 
Balance at beginning of year 
  Other comprehensive 

   income (loss), net of taxes 

Balance at end of year 

31 December 2013 
Balance at beginning of year 
   Other comprehensive 

   income (loss), net of taxes 

Balance at end of year 

Net change of AOCL Components 

Employee future beneﬁts

Post- 
retirement 
healthcare 
 6,724  

Subtotal -  
employee
future 
beneﬁts 
 (28,892) 

Total AOCL
 (76,660)

 (29,590) 
 (22,866) 

 (47,143) 
 (76,035) 

 (112)
 (76,772)

Pension 
 (35,616) 

 (17,553) 
 (53,169) 

              Employee future beneﬁts

Post- 
retirement 
healthcare 
 1,178  

Subtotal -  
employee
future 
beneﬁts 
 (46,817) 

Total AOCL
 (12,523)

 5,546  
 6,724  

 17,925  
 (28,892) 

 (64,137)
 (76,660)

Pension 
 (47,995) 

 12,379  
 (35,616) 

Line item in the consolidated 
statements of operations, if any 

  For the year ended

31 December 2014 

31 December 2013

Net unrealised (loss) gains on translation of net
investment in foreign operations adjustments 

  Foreign currency translation adjustments 
  Net investment hedge gains (losses)  
Net change 

N/A 

Available-for-sale investment adjustments 
  Gross unrealised gains (losses)

   arising during the year 
  Reclassiﬁcation of realised

    (gains) losses to net income 

  Foreign currency translation 

 Net realised gains on available-for-sale investments 

   adjustments of related balances 

N/A 

Net change 

Employee future beneﬁts adjustments 
  Deﬁned beneﬁt pension plan 

   Net actuarial gain (loss)  
   Amortisation of actuarial gains (losses)  
   Change in deferred taxes 
   Foreign currency translation
      adjustments of related balances 

Net change 

Post-retirement healthcare plan 
  Net actuarial gain (loss)  
  Prior service cost  
  Amortisation of actuarial gains (losses) 
  Amortisation of prior period service credit 
Net change 

Other comprehensive loss 

100

N/A 
 Salaries and other employee beneﬁts 
N/A 

N/A 

N/A 
N/A 
 Salaries and other employee beneﬁts 
 Salaries and other employee beneﬁts 

 (10,574) 
 7,700  
(2,874) 

 5,963 
 (3,108)
 2,855 

58,523  

 (84,261)

(8,680) 

 62  
 49,905  

(18,947) 
 1,058  
 83  

253  
 (17,553) 

(15,892) 
 (7,901) 
 922  
 (6,719) 
(29,590) 

 61 

 (717)
 (84,917)

 11,755 
 1,644 
 (1,656)

 636 
 12,379 

 10,023 
 - 
 2,242 
 (6,719)
 5,546 

(112) 

 (64,137)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NOTE 23: CAPITAL STRUCTURE 
Authorised Capital 
The Bank's total authorised share capital as of 31 December 2014 and 2013 consisted of (i) 26 billion common shares of par value BD$0.01, (ii) 
100,200,001 preference shares of par value US$0.01 and (iii) 50 million preference shares of par value £0.01. 

Preference Shares 
On 22 June 2009, the Bank issued 200,000 Government guaranteed, 8.00% non-cumulative perpetual limited voting preference shares (the “preference 
shares”). The issuance price was US$1,000 per share. The preference share buy-backs are disclosed in Note 21: Share Buy-Back Plans. 

The preference share principal and dividend payments are guaranteed by the Government of Bermuda. At any time after the expiry of the guarantee 
offered by the Government of Bermuda, and subject to the approval of the Bermuda Monetary Authority (“BMA”), the Bank may redeem, in whole or in 
part, any preference shares at the time issued and outstanding, at a redemption price equal to the liquidation preference plus any unpaid dividends at the 
time.  

Holders of preference shares will be entitled to receive, on each preference share only when, as and if declared by the Board of Directors, non-cumulative 
cash dividends at a rate per annum equal to 8.00% on the liquidation preference of US$1,000 per preference share payable quarterly in arrears. In 
exchange for the Government's commitment, the Bank issued to the Government 4,279,601 warrants to purchase common shares of the Bank at an 
exercise price of $7.01. The warrants expire on 22 June 2019. During 2010, the warrants issued to the Government were adjusted in accordance with the 
terms of the guarantee and as a result the Government now holds 4,299,010 warrants with an exercise price of $3.49 as at 31 December 2014.  

On 11 May 2010, the Bank’s Rights offering was over subscribed with the maximum allowable number of rights of 107,438,016 exercised and 
subsequently converted on the ratio of 0.07692 CVCP shares for each right unit exercised amounting to 8,264,157 CVCP shares issued. The CVCP shares 
have speciﬁc rights and conditions attached, which are explained in detail in the prospectus of the rights offering. On 31 March 2015, all remaining CVCP 
shares will be converted to common shares. 

Dividend Declared 
During the year ended 31 December 2014, the Bank declared cash dividends totalling $0.05 (2013: $0.07) for each common share and CVCP share 
on record as of the related record dates. During the years ended 31 December 2014 and 2013, the Bank declared the full 8.00% cash dividends on 
preference shares in each quarter. 

Regulatory Capital 
The Bank is subject to Basel II which is a risk-based capital adequacy framework developed by the Basel Committee on Banking Supervision (the “Basel 
Committee”) and has been endorsed by the central bank governors and heads of bank supervision of the G10 countries. In December 2008, the BMA 
published ﬁnal rules, effective 1 January 2009, with respect to the implementation of the Basel II framework. From this date the Bank has calculated its 
capital requirement on the Standardised approach under Basel II requirements. 

Effective 1 January 2015, the BMA adopted capital and liquidity regulatory requirements consistent with Basel III, a framework released by the 
Basel Committee on Banking Supervision. The ﬁnalisation of the implementation is subject to ongoing consultation with the BMA regarding the 
implementation and interpretation of these new rules. The Bank is assessing the impact of the adoption of this guidance. 

The Bank is fully compliant with all regulatory capital requirements and maintains capital ratios in excess of regulatory minimums as at 31 December 
2014 and 2013. The following table sets forth the Bank's capital adequacy in accordance with Basel II framework: 

31 December 2014 

31 December 2013

Capital
  Tier 1 capital 
  Tier 2 capital 
Total capital 

Weighted Risk Assets 

Capital Ratios (%) 
  Tier 1 common 
  Tier 1 Total 
  Total Capital 

 781,743  
 130,788  
 912,531  

 4,113,404  

14.6% 
19.0% 
22.2% 

 823,577 
 169,221 
 992,798 

 4,197,744 

15.2%
19.6%
23.7%

NOTE 24: INVESTMENTS IN AFFILIATES 
During December 2013, the Bank sold its 30% interest in Friesenbruch-Meyer Insurance Ltd., a Bermuda-based insurance company, for $3.4 million, 
resulting in a gain of $0.4 million. 

At 31 December 2013, the Bank recognised a $3.8 million impairment loss in one of its investments in afﬁliates as the decline in fair value of the 
investment was considered other-than-temporary.  

BUTTERFIELD ANNUAL REPORT 2014

101

 
 
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
  
 
 
 
 
  
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
  
 
 
 
 
 
 
  
 
 
 
 
 
NOTE 25: INCOME TAXES 
The Bank is incorporated in Bermuda, and pursuant to Bermuda law is not taxed on either income or capital gains. The Bank’s subsidiaries in the Cayman 
Islands and The Bahamas are not subject to any taxes in their respective jurisdictions on either income or capital gains under current law applicable in the 
respective jurisdictions. The Bank’s subsidiaries in the United Kingdom, Guernsey, and Switzerland are subject to the tax laws of those jurisdictions.  

For the years ended 31 December 2014 and 2013, the Bank did not record any unrecognised tax beneﬁts or expenses and has no uncertain tax positions 
as at 31 December 2014 and 2013. 

The Bank records income taxes based on the enacted tax laws and rates applicable in the relevant jurisdictions for each of the years ended 31 December 
2014 and 2013. For the years ended 31 December 2014 and 2013, the Bank did not incur any interest or pay any penalties. 

Income taxes in consolidated statement of operations 
  Current tax expense (beneﬁt) 
  Deferred tax expense 
Total tax expense (beneﬁt) 

31 December 2014 
(169) 
 -  
 (169) 

31 December 2013
 859
 32 
 891 

Reconciliation Between the Effective Income Tax Rate and the Statutory Income Tax Rate

Income tax expense at Bermuda corporation tax rate of 0% 
Income tax expense in international ofﬁces taxed at different rates  
Change in valuation allowance 
Prior year tax adjustments 
Other - net 
Income tax expense (beneﬁt) at effective tax rate 

Deferred income taxes 
Deferred income tax asset 
    Tax loss carried forward 
    Pension liability 
    Fixed assets 
    Allowance for compensated absence 
    Onerous leases 
Deferred income tax asset before valuation allowance 

Less: valuation allowance  

Net deferred income tax assets  

Deferred income tax liability 
   Other 
Net deferred income tax asset 

For the year ended

31 December 2014 
% 
 -    
 2  
 (2) 
 (1) 
 1  
 -    

$ 
 -  
1,501  
 (1,429) 
 (956) 
 715  
 (169) 

31 December 2013
%
 -   
 2 
 (1)
 1 
 -   
 2 

$ 
 -  
 1,714  
 (1,116) 
 587  
 (294) 
 891  

 31 December 2014                      31 December 2013

   2,641  
800  
  1,067  
 10  
 11  
   4,529  
  (3,068) 
   1,461  

 -  
  1,461  

 4,173 
 201 
 815 
 10 
 12 
 5,211 
 (4,304)
 907 

 (5)
 902

Management assesses the available positive and negative evidence to estimate if sufﬁcient future taxable income will be generated to use the 
existing deferred tax assets. A signiﬁcant piece of objective negative evidence evaluated was the cumulative loss incurred in the UK bank over the 
period ended 31 December 2014. Such objective evidence limits the ability to consider other subjective evidence, such as projections for 
future growth.  

On the basis of this evaluation, as of 31 December 2014, a valuation allowance of $3.1 million (2013: $4.3 million) has been recognised to record only 
the portion of the deferred tax asset that more likely than not will be realised. The amount of the deferred tax asset considered realisable, however, 
could be adjusted if estimates of future taxable income during the carry-forward period are reduced or increased, or if objective negative evidence in 
the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth. 

The Bank has net taxable loss carry forwards related to the Bank’s international operations of approximately $12.3 million (2013: $20.0 million), 
which have an indeﬁnite life.  

102

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NOTE 26: BUSINESS COMBINATIONS 
Legis Acquisition 
On 1 April, 2014, the Bank via one of its subsidiaries, Butterﬁeld Trust (Guernsey) Limited ("BTGL"), acquired all of the outstanding common shares 
of Legis T & C Holdings Limited ("Legis") for a maximum purchase price of up to $39.6 million. Legis is a Guernsey-based trust and corporate services 
business. The acquisition was undertaken to enhance the Bank's market presence and widen the Bank's range of corporate and institutional trust services 
for private clients and institutional and corporate clients.  

The acquisition date fair value of the cash consideration transferred amounted to $34.8 million comprising cash settlement of $31.9 million paid on 1 
April 2014 and a contingent consideration of $2.9 million. The contingent consideration is dependent on revenue performance and representation and 
warranties being met. The undiscounted contingent consideration ranges from $2.3 million to $5.4 million. The fair value is calculated as the discounted 
amount payable based on various case scenarios with equal probabilities assigned to the payouts being made under each scenario.  

The contingent consideration of $2.9 million is included in other liabilities in the consolidated balance sheet. The ﬁnal consideration payable may differ 
from the initial estimated liability with any changes in the liability recorded in other gains (losses) in the consolidated statement of operations until the 
liability is settled. Subsequent to the acquisition date, the estimated fair value of the contingent consideration liability increased to $3.9 million as at 31 
December 2014, primarily as a result of change in payment probabilities as estimates are updated for actual results. 

The fair value of the net assets acquired and allocation of purchase is summarised as follows: 

Total consideration transferred 

Assets acquired 
  Cash and cash equivalents 

Intangible assets 

  Other assets 
Total assets acquired 

Liabilities acquired 
  Other liabilities 
Liabilities acquired 

Excess purchase price (Goodwill) 

                      As at 1 April 2014
34,757 

 1,466 
 15,466 
 158 
17,090  

 1,624 
1,624 

19,291  

The purchase price paid by the Bank was for intangible assets in the form of customer relationships of $15.5 million with an estimated ﬁnite useful life 
of 15 years and resulting goodwill of $19.3 million. Goodwill is made up of expected cash ﬂows to be derived from new business and expected synergies 
resulting from leveraging existing support services and infrastructure within the Bank. 

The Bank incurred transaction expenses, comprising legal and professional fees, related to the Legis acquisition in the amount of $1.2 million, which were 
expensed during the year. 

Effective 1 April 2014, the operating results of Legis are included in the consolidated ﬁnancial statements. For the year ended 31 December 2014, net 
revenue of $6.4 million and operating expenses of $4.9 million from the Legis business are included in the consolidated ﬁnancial statement. 

The following selected pro forma ﬁnancial information has been provided to present a summary of the combined results of the Bank and Legis, assuming 
the transaction had been effected on 1 January 2013. The pro forma data is for informational purposes only and does not necessarily represent results 
that would have occurred if the transaction had taken place on the basis assumed above.

For the year ended 
  Total net revenue 
  Total non-interest operating expense (including income tax expense) 
Net income 

 31 December 2014                      31 December 2013
 350,755 
 271,773 
 78,982  

 373,554  
 272,550  
 101,004  

HSBC Acquisition 
During the third quarter of 2014, the Bank announced that it had reached an agreement to acquire parts of the corporate and retail banking business 
of HSBC Bank (Cayman) Limited (“HSBC Cayman”). The acquisition was undertaken to enhance the Bank’s market presence and expand its community 
banking customer base in the Cayman Islands.                                                                                                                                                 

On 7 November 2014, the Bank via one of its subsidiaries, Butterﬁeld Bank (Cayman) Limited (“BNTB Cayman”), acquired substantially all the retail 
loans and deposits of HSBC Cayman for a cash purchase price of $5.3 million. The acquisition was accounted for as a business combination as the Bank 
acquired substantially all the loans and deposits of HSBC Cayman and deemed to obtain control over the business.

BUTTERFIELD ANNUAL REPORT 2014

103

 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
The fair value of the net assets acquired and allocation of purchase is summarised as follows:

Total consideration transferred 

Assets acquired 
  Cash and cash equivalents 

Loans 
   Performing loans 
      Residential mortgages (a) 
      Government loans (a) 
      Commercial loans (a) 
      Other loans (a) 
   Purchased credit impaired loans - residential mortgages(a) 

  Accrued interest receivable 
Total tangible assets acquired 

Liabilities assumed 
  Deposits 
  Accrued interest payable 
Total tangible liabilities assumed 

Intangible assets  (b) 

Excess purchase price (Goodwill) 

      As at 7 November 2014

  Acquisition        Fair value   

value 

adjustment 

Fair
value
 5,341 

315,919  

 -  

 315,919 

112,491  
20,000  
1,721  
4,175  
11,001  
522  
465,829  

465,810  
19  
465,829  

 (1,784) 
 (120) 
 (21) 
 (43) 
 (3,804) 
 -  
 (5,772) 

 110,707 
 19,880 
 1,700 
 4,132 
 7,197 
 522 
 460,057 

 -  
 -  
 -  

 465,810 
 19 
 465,829 

-  

 11,113  

 11,113 

-

(a)  Adjustment reﬂects the fair value adjustments based on the Bank’s evaluation of the acquired loan portfolio. When assessing the fair value  
  adjustment, the Bank has considered prepayments for purchased credit impaired loans by estimating the future cash ﬂows of liquidated collateral. 
(b) Estimated ﬁnite useful life of 15 years. 

The Bank incurred transaction expenses, comprising legal and professional fees, related to the HSBC Cayman acquisition in the amount of $1.6 million, 
which were expensed during the year.  

Disclosure of the pro forma ﬁnancial information to present a summary of the combined results of the Bank and HSBC Cayman acquisition is 
impracticable. The disclosure is impracticable as the Bank did not acquire the legal entity and therefore does not have access to the historical revenue 
and expense data as it relates to the loans and deposits acquired. 

NOTE 27: RELATED PARTY TRANSACTIONS 
Financing Transactions  
As of 17 May 2005, the Bank established a programme to offer loans with preferential rates to eligible Bank employees, subject to certain conditions 
set by the Bank and provided that such employees meet certain credit criteria. Loan payments are serviced by automatically debiting the employee’s 
chequing or savings account with the Bank. Applications for loans are handled according to the same policies as those for the Bank’s regular retail 
banking clients. The Bank’s ability to offer preferential rates on loans depends upon a number of factors, including market conditions, regulations and the 
Bank’s overall proﬁtability. The Bank has the right to change its employee loan policy at any time after notifying participants. The staff loans outstanding 
at 31 December 2014 amount to $208.0 million (2013: $222.2 million) resulting in an interest rate beneﬁt to employees of $6.4 million (2013: $5.7 million).   

Certain Directors of the Bank, companies in which they are principal owners, and trusts in which they are involved, have loans with the Bank. These loans 
were made in the ordinary course of business at normal credit terms, including interest rate and collateral requirements. As at 31 December 2014, related 
party Director loan balances were $58.0 million (2013: $66.3 million). 

On 27 June 2013, the Bank executed a $95 million loan agreement with an investment fund managed by a signiﬁcant shareholder which provides for 
maturity on 30 June 2017. This loan was made in the ordinary course of business on normal commercial terms. At 31 December 2014, $65.7 million (2013: 
$95.0 million) was outstanding under this agreement. For the year ended 31 December 2014, $2.7 million (2013:  $1.8 million) of interest income has 
been recognised in the consolidated statements of operations. 

Capital Transaction  
Canadian Imperial Bank of Commerce (“CIBC”) and funds associated with the Carlyle Group each hold approximately 19%, of the Bank’s equity voting 
power, along with the right to each designate two persons for nomination for election by the shareholders as members of the Bank’s Board of Directors.   

104

 
 
 
 
 
 
 
    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Repurchase Facility Agreement 
During 2013, the Bank entered into a repurchase agreement with CIBC for a $225 million line at market rates and terms. At 31 December 2014, the 
repurchase agreement balance with CIBC was $nil (2013: $25.5 million). 

Financial Instruments With Related Parties 
At 31 December 2014, the Bank held $239.3 million (2013: $112.1 million) in cash and cash equivalents with CIBC. As at 31 December 2014, the Bank 
held forward exchange contracts with CIBC with a notional amount of $372.9 million (2013: $317.1 million) with unrealised losses of $6.2 million (2013: 
gain of $1.1 million).

NOTE 28: COMPARATIVE INFORMATION 
Certain prior-year ﬁgures have been reclassiﬁed to conform to current year presentation. Non-interest bearing cash as at 31 December 2013 has been 
reduced by $110 million with a corresponding increase in Interest earning cash. The change in classiﬁcation results from demand deposits with banks that 
are earning interest at a negligible rate, which the Bank now classiﬁes as interest bearing although interest earned is minimal. 

NOTE 29: SUBSEQUENT EVENTS 
On 26 February 2015, the Board of Directors declared a fourth interim dividend of $0.01 per common and CVCP share and a special dividend of $0.01 per 
common and CVCP share to be paid on 27 March 2015 to shareholders of record on 13 March 2015.     

The Bank has performed an evaluation of subsequent events through to 26 February 2015, the date the ﬁnancial statements were issued.  

BUTTERFIELD ANNUAL REPORT 2014

105

 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
  
 
  
 
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
 
 
 
SHAREHOLDER INFORMATION

106106

DIRECTORS’ AND EXECUTIVE OFFICERS’ SHARE INTERESTS AND 
DIRECTORS’ SERVICE CONTRACTS 
In accordance with Regulation 6.8(3) of Section IIA of the Bermuda Stock 

REGISTRAR AND TRANSFER AGENT  
Mitsubishi UFJ Fund Services 

The Belvedere Building  

Exchange Listing Regulations, the total interests in common shares and contingent 

69 Pitts Bay Road 

value convertible preference shares of the Bank by all Directors and Executive 

Pembroke, HM 08 

Ofﬁcers* at 31 December 2014 was 5,293,191 shares. In addition, this group also 

Bermuda 

has interests in 70 non-cumulative perpetual limited voting preference shares. As 

Tel: (441) 299 3882 

of 31 December 2014, Executive Ofﬁcers also had interests in 14,640,000 stock 

Fax: (441) 295 6759 

options pursuant to the 2010 Stock Option Plan that vest in accordance with 

E-mail: bntbshareholders2@mfsadmin.com

timelines established by the Plan. None of the Directors or Executive Ofﬁcers had 

any interest in any debt securities issued by the Bank or its subsidiaries as at  

31 December 2014 and, as of that date, there were no other equity securities 

issued by the Bank.

There are no service contracts with Directors, except for that of Brendan 

McDonagh, Chairman & Chief Executive Ofﬁcer, whose contract expires 

5 April 2017.

Save for the foregoing contract, and those arrangements described in Note 27 

to the Bank’s 31 December 2014 consolidated ﬁnancial statements, there are no 
other contracts of signiﬁcance subsisting during or at the end of the ﬁnancial year 

ended 31 December 2014 in which a Director of the Bank is or was materially 

interested, either directly or indirectly.

*As listed on pages 6 and 7 of this Annual Report. 

EXCHANGE LISTING  
The Bank’s Shares are listed on the Bermuda Stock Exchange (“BSX”), which is 

located at:

BERMUDA STOCK EXCHANGE   

30 Victoria Street 

Hamilton, HM 12 

P.O. Box HM 1369 

Hamilton HM FX 

Bermuda  

Tel: (441) 292 7212  

Fax: (441) 292 7619  

www.bsx.com 

SHARE DEALING SERVICE  
Butterﬁeld Securities (Bermuda) Limited  

65 Front Street  

Hamilton, HM 12 

Bermuda  

Tel: (441) 299 3972  

Fax: (441) 292 9947 

E-mail: info@butterﬁeldgroup.com

SHARE PRICE 
Published daily in The Royal Gazette in Bermuda and available on Bloomberg 
Financial Markets (symbol: NTB BH). Also available on the BSX website.

MEDIA RELATIONS / PUBLICATION REQUESTS  
Vice President, Communications, Brand & Public Affairs 

Tel: (441) 299 1624  
E-mail: mark.johnson@butterﬁeldgroup.com 

INVESTOR RELATIONS  
Executive Vice President, Chief Financial Ofﬁcer 

Tel: (441) 298 4758 

E-mail: john.maragliano@butterﬁeldgroup.com

WRITTEN NOTICE OF SHARE REPURCHASE PROGRAMME  
— BSX REGULATION 6.38 
The Bank renewed the Common Share Repurchase Programme for a twelve-month 

period, with effect from 1 April 2015, authorising the Board to repurchase up to 

8,000,000 common shares. The Bank renewed the Preference Share Repurchase 

Programme for a twelve-month period, with effect from 4 May 2015, authorising 

the Board to repurchase up to 5,000 preference shares.

During 2014, the Bank repurchased 8,567,340 common shares to be held as 

treasury shares at a cost of $17.0 million, and 560 preference shares, which were 

subsequently cancelled, at a cost of $0.7 million.

From time to time, the Bank’s associates, insiders and insiders’ associates as 

deﬁned by the BSX regulations may sell shares, which may result in such shares 

being repurchased pursuant to the Programme, but under BSX regulations, such 

trades must not be pre-arranged and all repurchases must be made in the open 

market. Prices paid by the Bank must not, according to BSX regulations, be higher 

than the last independent trade for a “round lot” deﬁned as 100 shares or more. 

The Bank will advise the BSX monthly of shares repurchased and cancelled by  

the Bank.

LARGE SHAREHOLDERS 

As at 31 December 2014, the following were registered holders of 5% or more of 

the issued share capital*:

Carlyle Global Financial Services Partners LP, 19.55% 

Canadian Imperial Bank of Commerce, 19.01% 

Wellcome Trust Investments, 6.86% 

Ithan Creek Master Investor (Cayman) LP, 6.85% 

Rosebowl Western, 6.85%

*Includes common and contingent value convertible preference shares and  

excludes treasury shares held. 

BUTTERFIELD ANNUAL REPORT 2014

107

 
 
THE BAHAMAS 
Butterﬁeld Trust (Bahamas) Limited  
Trust & Fiduciary Services 
Managing Director: Timothy Colclough  
3rd Floor, Montague Sterling Centre  

East Bay Street  

P.O. Box N-3242 

Nassau, N.P. 

The Bahamas  

Tel: (242) 393 8622  

Fax: (242) 393 3772  

Butterﬁeld Trust (Guernsey) Limited 
Trust & Fiduciary Services 
Managing Director: Paul Hodgson 
P.O. Box 25 

Regency Court 

Glategny Esplanade 

St Peter Port 

Guernsey GY1 3AP 

Channel Islands  

Tel: (44) 1481 711 521  

Fax: (44) 1481 728 665   

E-mail: bahamas@butterﬁeldgroup.com

E-mail: guernsey@butterﬁeldgroup.com 

SWITZERLAND 
Butterﬁeld Trust (Switzerland) Limited 
Trust & Fiduciary Services 
Managing Director: Jim Parker 
Boulevard des Tranchées 16 

1206 Geneva 

Switzerland 

Tel: (41) 22 839 0000  

Fax: (41) 22 839 0099 

E-mail: switzerland@butterﬁeldgroup.com

UNITED KINGDOM 
Butterﬁeld Bank (UK) Limited  
Private Banking, Asset Management,  
Credit and Treasury Services  
Interim Chief Executive Ofﬁcer: Charles Gregory 
99 Gresham Street  

London, EC2V 7NG 

United Kingdom  

Tel: (44) 207 776 6700  

Fax: (44) 207 776 6701  

E-mail: info@uk.butterﬁeldgroup.com

CAYMAN ISLANDS 
Butterﬁeld Bank (Cayman) Limited  
Community Banking, Corporate Banking,  
Private Banking, Asset Management 
Managing Director: Conor O’Dea 
Butterﬁeld Place 

12 Albert Panton Street 

P.O. Box 705 

Grand Cayman KY1-1107 

Cayman Islands 

Tel: (345) 949 7055 

Fax: (345) 949 7004 

E-mail: cayman@butterﬁeldgroup.com

Butterﬁeld Trust (Cayman) Limited  
Trust & Fiduciary Services 
Managing Director: Brian Balleine 
Butterﬁeld House 

68 Fort Street 

P.O. Box 705 

Grand Cayman KY1-1107 

Cayman Islands 

Tel: (345) 949 7055 

Fax: (345) 949 7004 

E-mail: trust.cayman@butterﬁeldgroup.com

GUERNSEY 
Butterﬁeld Bank (Guernsey) Limited 

Private Client and Institutional Banking, Credit,  

Investment Management, Custody and Custodian 
Trustee Services, Administered Banking 
Managing Director: John Robinson 
P.O. Box 25 

Regency Court 

Glategny Esplanade  

St Peter Port 

Guernsey GY1 3AP 

Channel Islands  

Tel: (44) 1481 711 521  

Fax: (44) 1481 714 533  

E-mail: guernsey@butterﬁeldgroup.com 

PRINCIPAL OFFICES & SUBSIDIARIES  

This list does not include all companies in the Group. 

The Bank of N.T. Butterﬁeld & Son Limited  
Group Parent Company, Community Banking, 

Corporate Banking, Private Banking,  

Credit and Treasury Services 

Head Ofﬁce 
65 Front Street  

Hamilton, HM 12 

Bermuda 

Tel: (441) 295 1111 

Fax: (441) 292 4365 

SWIFT: BNTB BM HM 
E-mail: info@butterﬁeldgroup.com 

Mailing Address: 
P.O. Box HM 195 

Hamilton, HM AX 
Bermuda 

BERMUDA

Country Head: Michael Collins, 

Senior Executive Vice President

Butterﬁeld Asset Management Limited  
Investment Management  
Managing Director: Michael Neff 
65 Front Street  

Hamilton, HM 12 

Bermuda  

Tel: (441) 299 3817  

Fax: (441) 292 9947  

E-mail: info@butterﬁeldgroup.com 

Butterﬁeld Securities (Bermuda) Limited 
Brokerage Services 

65 Front Street  

Hamilton, HM 12  

Bermuda  

Tel: (441) 299 3972  

Fax: (441) 292 9947 
E-mail: info@butterﬁeldgroup.com 

Butterﬁeld Trust (Bermuda) Limited 
Grosvenor Trust Company Limited  
Trust & Fiduciary Services 
Managing Director: Martin Pollock 
65 Front Street  

Hamilton, HM 12  

Bermuda  

Tel: (441) 299 3980  

Fax: (441) 292 1258 
E-mail: info@butterﬁeldgroup.com 

108

 
 
 
 
 
Butterfield is committed to environmentally conscious printing. The 
following savings to our natural resources were realised in the printing  
of this Annual Report:

Energy: 6,798,654 BTUs  
Trees: 10 
Wastewater: 15,434 liters 

Air Emissions: 403 kg 
Solid Waste: 205 kg

The Bank of N.T. Butterfield & Son Limited 
65 Front Street, Hamilton, Bermuda
www.butterfieldgroup.com

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