Bank of Butterfield Reports Second Quarter Earnings of $20.0 million up 7.4% year on year

Alan Thompson, President & Chief Executive Officer said, "We continue to be pleased with the enhancement in shareholder value achieved by the Bank and remain committed to providing consistent and superior returns to our shareholders by achieving sustainable profitability and building on our existing strengths. During a period that has again seen continued declines in interest rates, and the challenging financial environment throughout major world markets, the strategy of focusing on our core business is clearly having the desired effect. I attribute the favourable results to the ongoing commitment of employees who are dedicated to achieving their business goals, offering quality financial services, focusing on customer satisfaction and, as a result, delivering shareholder value."

Richard Ferrett, Executive Vice President & Chief Financial Officer stated that "The Bank's strong earnings performance is reflected in the return achieved on shareholders' equity, which was 23.6% in the second quarter, up from 20.6% the previous quarter. Earnings per share for the quarter was $1.08, up 11 cents compared to the same period a year ago and up 17 cents on the previous quarter. Also noteworthy is that despite the challenge of declining world interest rates the Bank has been able to widen the net interest margin from 1.8% as at June 2002 to 1.9% as at 31 December 2002."

The Board has decided to maintain the quarterly dividend at 35 cents per share, payable on Friday 21 February 2003 to shareholders of record on Tuesday 11 February 2003. As a result the rolling 12-month dividend will increase from 126 cents at the same stage a year ago, and 134 cents last quarter, to 137 cents per share. At today's closing share price of $32.25 this represents a dividend yield of 4.3%.

Note to Editors:

The Bank's results, which are unaudited, are stated in accordance with accounting principles generally accepted in Bermuda and Canada. 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, 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.

Financial Highlights for the Quarter ending 31 December 2002.

· Net interest income before credit related provisions, at $28.3 million, is up year on year by $3.0 million, or 12.0%, despite the impact of the low interest rate environments in the US and UK, reflecting balance sheet growth and our asset/liability management strategies. During the quarter we provided $0.4 million in respect of the loan portfolio from earnings, compared to $0.3 million a year ago and $1.5 million the previous quarter.

· Total fees and other income increased year on year by 6.6% to $29.7 million, reflecting strong growth in revenues from fund and corporate services (+20.9%) and foreign exchange (+20.6%).

· Total income for the quarter was $57.6 million, up year on year by $4.8 million or 9.1%.

· Total expenses increased year on year by $3.6 million to $37.4 million, reflecting increased expenditure on systems and communications. Employee related expenses declined by 2.0% to $22.1 million, reflecting a reduced headcount primarily due to the sale of the Hong Kong subsidiaries in June last year. The Group's total headcount now stands at 1,200 employees, compared to 1,285 a year ago.

· Net income from both the Community Banking and Asset Management & Administration group of businesses based in Bermuda increased year on year by 15.2%, to $10.7 million, and 5.1%, to $2.8 million, respectively despite the low interest rate and stock market conditions.

· Overseas, our Cayman operation recorded net income of $5.9 million, up year on year by $1.3 million, or 29.4%. Net interest income was up 4.4% year on year, to $5.0 million, reflecting our asset/liability management strategies, and non-interest income rose 37.7% to $6.8 million.

· In Guernsey, net income after corporation tax was down year on year by $0.5 million, to $0.8 million, though was slightly up on the previous quarter. The decline from last year reflects stock market and interest rate conditions.

· Our UK business recorded a small loss of $26,000 after corporation tax compared to a profit of $47,000 a year ago. The low interest rate environment in the UK continues to have a negative effect on earnings, as has the increased expense base due to our strategic investment in the business.

· Total assets as at 31 December 2002 were $6.0 billion compared to $5.5 billion a year ago and in line with that reported last quarter. This year on year increase reflects growth in the total assets of our Community Banking businesses in Bermuda and Cayman due to increased customer deposits. The return on assets for the quarter was 1.4%, compared to 1.2% the preceding quarter.

· Total loans increased year on year by $157 million, (9.8%), reflecting increased loan demand in our Community Banking businesses. The loan portfolio, at $1.8 billion, represents 29.4% of total assets, compared to 29.2% a year ago. Non-accrual loans totaled $24.9 million as at 31 December 2002, down from $25.7 million as at 30 September 2002, and represent 1.4% of the loan portfolio.

· Total investments increased year on year by $423 million (25.7%) to $2.1 billion, which represents 34.5% of total assets. This reflects the Bank's asset/liability management strategy of investing in high quality investment grade securities as an alternative to the inter-bank deposit market. As at 31 December 2002 our investments, which are primarily carried at cost or amortised cost, had a net positive unrealised gain of $6.2 million. In addition, there was a net positive unrealised gain on our interest swap portfolio, which is also part of our asset/liability management strategy, of $16.9 million.

· Customer deposits have increased year on year by $291 million, or 6.0%, to $5.2 billion, reflecting growth in the deposit base of our Community Banking businesses.

· In respect of discontinued operations, there was a net loss of $0.4 million. Recoveries of $0.1 million in respect of loans made by our former businesses were offset by a $0.5 million increase in the provision in respect of obligations under the leasehold agreements for our former London branch. These will expire in September 2005.

· Shareholders' equity increased year on year by 12.3% to $338.8 million, reflecting the increase in retained earnings less share buybacks. The loan to the Stock Option Trust decreased by $2.6 million year on year, reflecting the exercise of stock options. The Bank has purchased for the Stock Option Trust 9.0% of the total shares in issue, at a cost of $36.4 million, to satisfy its current and future obligations under the Directors and Executive and Employee Stock Option Plans. In addition, during the quarter under review the Bank bought back and cancelled 523,500 shares, at a cost of $16.3 million, under the Share Repurchase Programme.