Bank of Butterfield Reports Record First Half Earnings of $35.79 million, up 23.6%

Commenting on the Bank's performance, Calum Johnston, President & Chief Executive Officer said, "This is the fourteenth consecutive quarter of earnings growth. We continue to be pleased with the enhancement in shareholder value achieved over that time. This is particularly the case in the second quarter ending 31 December 2001; a period which saw declines in interest rates and in the financial environment throughout major world markets. It is noteworthy that the strategy of continued investment in our Guernsey business over the past two years has been well rewarded, with first half net income from that operation increasing by 34.4% year on year. Our policy of focusing on the Bank's core strengths and improving efficiency is having the desired effect and the return on shareholders' equity, at 25.0% in the second quarter, is the highest the Bank has achieved over the past 20 years."

Richard Ferrett, Executive Vice President & Chief Financial Officer stated that "First half 2001/02 earnings per share of $1.86 was a record for the Bank. This represents an increase of 37 cents, or 24.8%, on the corresponding period in 2000/01 and 21 cents (+13.0%), on the second half of last fiscal year. Second quarter earnings per share of 97 cents represents an increase of 22 cents (+29.3%) on the like period a year ago and is up 8 cents (+9.0%) on the first quarter."

"First half net interest income of $51.38 million was up year on year by $4.99 million, or 10.8%. This reflects significant growth in our customer deposit base, which has increased by $1,071 million, or 28.2%, to $4.86 billion over the past year," said Mr. Ferrett. "This increase reflects the acquisitions in Guernsey and the United Kingdom in 2001, together with increases in customer deposits in Bermuda and Cayman. In addition, the loan portfolio has increased by $290 million, or 22.0%, to $1.61 billion. The balance sheet remains highly liquid and strongly capitalised with a €˜loans to assets' ratio of 29.2% and a total capital ratio of 13.5% as at 31 December 2001. The Group's non-accrual loans now total $8.37 million, down from $46.67 million two years ago and $9.54 million at 30 June 2001."

"Fee income in the first half, at $53.84 million, is also a record and represents a year on year increase of $9.46 million, or 21.3%. Notable increases were achieved in the areas of trust and executorship fees, up 52.2%, and corporate services revenues, up 29.4% when comparing the first half with the like period a year ago," commented Mr. Ferrett. The second quarter saw a year on year increase of 20.6% to $27.81 million in fee income; again driven by trust and executorship fees, up 61.0%. Compared to the first quarter fee income increased by $1.78 million, or 6.8%, primarily due to increased investment and corporate services revenues. Also noteworthy was the 14.6% year on year increase in second quarter foreign exchange revenues to $4.18 million, reflecting the growing customer base across the Group. Fee income for the first half represented 51.2% of Group total income, compared to 48.9% for the like period a year ago."

"The growth rate for total expenses continues to be at a lower rate than that for total income," continued Mr. Ferrett, "with operating expenses increasing by 12.2%, to $68.76 million, in the first half, compared to the 15.9% increase in total income achieved during the same period. The prime reason for the increase in expenses was due to the Guernsey and UK acquisitions. In contrast, the Bermuda cost base saw a decrease by $1.40 million (-2.7%) over the same period. Second quarter operating expenses increased year on year by 9.7%, to $33.81 million, which compares favourably with the 15.3% increase in total income over the same period. Particularly pleasing was the $1.14 million (-3.3%) fall in second quarter operating expenses compared to the first quarter."

"In Bermuda first-half net income increased year on year by 58.9% to $22.34 million, reflecting in particular an excellent performance by the Community Banking business during a year in which the Bank became the first in Bermuda to offer Internet banking services to the general public," said Mr. Ferrett. "Overseas, particularly noteworthy were the increases seen in Guernsey and Hong Kong, where first half net income was up 34.4% and 38.1% to $2.64 million and $0.787 million respectively. Cayman achieved net income for the first six months of $9.54 million, compared to $12.35 million for the same period a year ago, the decrease reflecting in particular the substantial dividends paid to the Parent over the past 2 years in order to support the Group's strategic growth."

Other Financial Highlights of the First Half were:

· The return on assets, at 1.3%, is up 0.1% on that achieved in fiscal 2001 and is at its highest level for some 2 decades.

· The efficiency ratio for the first six months improved from 67.5% a year ago to 65.3%. The second quarter efficiency ratio was 64.0%, compared to 67.3% for the same quarter last fiscal year and 66.7% for the first quarter.

· Total assets as at 31 December 2001 were a record $5.52 billion, compared to $4.58 billion a year ago and $5.50 billion at 30 September 2001.

· The balance sheet remains highly liquid, with 68.0% of assets employed in either deposits with banks or in investments. Deposits with banks increased year on year by $822 million, or 64.2%, reflecting the $1,071 million increase in customer deposits. The Group's investment portfolios, the vast majority of which consist of high quality floating rate notes, totalled $1.65 billion as at 31 December 2001.

· Net income from discontinued operations totalled $0.309 million for the first six months, of which $0.069 million was in respect of the second quarter, compared to nil a year ago. This income relates to recoveries from loans previously written off in respect of businesses the Bank exited in 1997. There have been no loans from discontinued operations in the Bank's portfolio since the third quarter of fiscal 2001.

· Shareholders' equity increased year on year by 12.9% to $301.77 million, reflecting the increase in retained earnings less share buybacks.

· The Stock Option Trust holds 2,102,800 shares, representing 9.8% of total issued shares, at a cost of $39.01 million to satisfy current and future obligations under an Employees' Stock Option Plan. In addition, during the first half of this fiscal year 140,957 shares were purchased under the Bank's share buyback programme at a cost of $4.34 million.

The Board has declared a quarterly dividend of 32 cents per share, payable on Friday 15 February 2002 to shareholders of record on Tuesday 5 February 2002. Taking into account the €˜1 for 10' stock dividend shareholders received in August 2001, this represents a year on year increase in the quarterly dividend of 25.7%, evidencing the Bank's continuing commitment to enhancing shareholder value. As at the close of business on 25 January 2002 the Bank's share price of $32.50 was at its highest level to date when taking into account the bonus share issue last year.

Note to Editors:

The Bank's results, which are unaudited, are stated in accordance with accounting principles generally accepted in Bermuda and Canada and conform with Accounting Standard (CICA) 1751 - Interim Financial Statements. Bank of Butterfield is a vital community bank in both Bermuda and Cayman and a specialist offshore financial services company. Established in 1858, the Bank offers a full range of banking, credit, investment, treasury, trust and custody services through its headquarters in Bermuda, as well as offices in Barbados, Cayman Islands, Guernsey, Hong Kong and the United Kingdom.

Bank of Butterfield is a publicly traded corporation with its shares listed on the Bermuda and Cayman Islands stock exchanges. The Bank's share price is published daily by The Bermuda Stock Exchange (www.bsx.com), The Royal Gazette, Bermuda (www.royalgazette.com) and Bloomberg Financial Markets (symbol: NTB.BH). Further details on the Bank can be obtained from our web site at: www.bankofbutterfield.com.