Bank of Butterfield Reports Quarterly Net Income Of $16.40 million, Up 5.1% Year On Year

Alan Thompson, President and Chief Executive Officer said, "We remain pleased with the Bank's performance in the challenging environment evidenced during the first quarter. Interest rates in both the USA and UK have continued to remain low and geo-political tensions have lead to continuing uncertainty in the major equity and capital markets. In spite of these conditions we have achieved a year on year increase of 8.3% in non-interest income, reflecting significant increases achieved in our investment and pension fund administration business and customer related foreign exchange revenues".

Richard Ferrett, Executive Vice President & Chief Financial Officer, commenting on the Bank's Financial performance, stated that: "It is pleasing to note that the Bank achieved a Return on Equity of 19.3% in this environment. Our asset/liability management strategies have performed well and in line with expectations. The Board has decided to maintain the quarterly dividend at 35 cents per share payable on Thursday 15 May 2003 to shareholders of record on Tuesday 29 April 2003. As a result the rolling 12-month dividend will increase from 137 cents per share to 140 cents per share. At today's closing share price of $33.50 this represents a dividend yield of 4.18%."

Financial Highlights of the Quarter ending 31 March 2003 compared to the Quarter ending 31 March 2002 were:

· Net interest income after provision for credit losses of $0.09 million, was $23.99 million, up year on year by $1.47 million, or 6.5%, despite the impact of the low interest rate environment in the US and in the UK. A $4.63 million charge to investment income was made to reflect the write-down of the Bank's venture capital equity investment in a Bermuda based company. The negative effect of this charge was offset by the success of the Bank's asset/liability management strategies, which were put in place last year in anticipation of current market conditions.

· Total provisions stand at $23.63 million, including general provisions of $18.90 million. Non-accrual loans total $22.59 million, compared to $23.75 million at 31 March 2002 and $24.92 million at 31 December 2002.

· Total fees and other income increased year on year by 8.3% to $29.82 million, reflecting strong growth in revenues from investment and pension fund administration services (+18.6%) and customer related foreign exchange income (+27.1%).

· Total operating expenses were up year on year by 9.0% to $37.32 million, reflecting higher employee costs which rose year on year by 4.1% due to salary increases. The Group's total headcount has reduced year on year from 1,301 at 31 March 2002 to 1,201 at the end of the quarter, in part reflecting the sale last June of our subsidiaries in Hong Kong which had 72 employees.

· Net income from Community Banking in Bermuda decreased year on year by $1.38 million, or 17.3%, due to the write-down of the venture capital equity investment. Excluding the impact of that charge underlying core earnings from Community banking increased year on year by 40.7%, reflecting improved net interest margins.

· Our Asset Management and Administration businesses in Bermuda achieved net income for the quarter of $4.66 million, up 21.9% year on year reflecting, in particular, growth in investment and pension fund administration fees.

· Overseas, our Cayman operation recorded net income of $6.07 million, up 59.0% compared to a year ago, despite the low interest rate environment. The improvement reflects strong growth in net interest income, up 36.9% year on year due to growth in both customer deposits and loans. In addition, fees and other income increased by 21.0%, reflecting strong growth in investment and pension fund administration and banking fees and customer related foreign exchange revenues.

· In Guernsey, net income was also up year on year, increasing by $0.22 million to $0.94 million. The increase in net income reflects improved revenue generation and the strengthening of the UK pound.

· Our UK business recorded a loss of $0.29 million in line with our expectations given the low interest rate and stock market environments in the UK. This compares to a loss of $0.01 million a year ago. We have increased the number of personnel as part of our strategy to invest in this business.

· Dexia BIL took over the remaining business of our restricted licence branch in Hong Kong in early April. At 31 March 2003 our former branch had total assets of $134 million which are included in the Bank's consolidated balance sheet.

· The Group's return on equity was 19.3% compared to 20.8% at the same stage last year.

· Earnings per share increased year on year by 7 cents, or 8.6%, to $0.88 cents.

· The return on assets for the quarter was 1.1%, down from 1.2% a year ago reflecting the write-down of the venture capital equity investment.

· Total assets as at 31 March 2003 were a record $6.12 billion, up from $5.57 billion a year ago. This primarily reflects the increase in the total assets of our Bermuda and Cayman Islands based operations by $386 million and $192 million respectively.

· Customer deposits across the Group increased year on year by $499 million, or 10.6%, to $5.22 billion, reflecting growth in both Bermuda and Cayman Islands.

· Total loans increased year on year by $93 million (5.7%), reflecting increased loan demand in our Community Banking business in Bermuda. The balance sheet continues to remain highly liquid with the loan portfolio, at $1.74 billion, representing 28.4% of total assets compared to 29.6% a year ago.

· Total investments increased year on year by $446 million, or 26.1%, to $2.16 billion, reflecting the employment of the increase in customer deposits and our asset /liability management strategy of investing in high quality investment grade securities as an alternative to the inter-bank deposit market. Investments now represent 35.2% of total assets.

· Shareholders' equity increased year on year by 12.6% to $346.16 million, reflecting the increase in retained earnings less share buybacks. The loan to the Stock Option Trust has decreased year on year by $4.00 million to $35.94 million, reflecting the exercise of stock options by directors and employees. During the quarter under review the Bank bought back and cancelled 112,600 shares, at a cost of $3.65 million, under the Share Repurchase Programme.