Bank Of Butterfield Reports Third Quarter Earnings of $20.2 Million Up 15.9% Year On Year

Alan Thompson, President & Chief Executive Officer said, "We continue to be pleased with the performance achieved by the Bank in the current challenging economic environment and believe it demonstrates the effectiveness of our business model. During the quarter we achieved a strategic objective by entering The Bahamas through two acquisitions and were honoured to be named €˜Bank of the Year' in Bermuda for the second consecutive year."

Richard Ferrett, Executive Vice President & Chief Financial Officer stated, " Particularly noteworthy is that both net interest income and non interest income for the quarter were at record levels. Net interest income, at $28.8 million, is up year on year by $5.1 million, or 21.5%, and up $0.6 million, or 2.3%, on the previous quarter, despite the challenges of declining interest rates. This reflects both the success of our asset/liability management strategies and the growth in our customer deposit base. Fees and other income were up by $1.7 million, or 5.8%, on the like quarter a year ago and $0.5 million, or 1.6%, on the previous quarter. In addition, the Bank's return on equity remains over 20%, at 21.6%, up from 20.6% a year ago and our return on assets has increased by 0.1%, to 1.3%, compared to a year ago."

Financial Highlights for the Quarter ending 30 September 2003 compared with the Quarter ending 30 September 2002.

· Total fees and other income, at $31.4 million, was also a record and is up year on year by $1.7 million, or 5.8%. This reflects in particular strong growth in revenues from Trust & Fiduciary services (+13.2%), Investment & Pension Fund Administration (+11.1%) and Banking Services (+10.1%).

· Net interest income before credit related provisions, at $29.3 million, was a record and is up year on year by $4.1 million, or 16.1%, reflecting balance sheet growth and wider margins. The net interest margin for the quarter was 1.9% compared to 1.7% a year ago. During the quarter the Bank made net provisions of $0.5 million in respect of credit losses, compared to $1.5 million a year ago.

· Total operating expenses increased year on year by 11.4%, compared to a 12.8% increase in total income. Personnel related expenses were up 10.6% year on year, though remained flat compared to the previous quarter. The Group's total headcount at 30 September 2003 was 1,259, including 37 employees in The Bahamas, compared to 1,241 a year ago.

· In Bermuda, net income from our core business activities increased year on year by 15.8% to $13.6 million. Net interest income grew by 22.8%, reflecting an 11.0% increase in average interest earning assets and a 0.2% widening in the net interest margin, due in part to our asset/liability management. The quarter also saw increased revenues from Banking Services, Investment & Pension and Investment Services.

· Overseas, the Cayman operation recorded net income of $5.9 million, up year on year by $1.0 million, or 19.8%. Total income was up 21.0% year on year, to $12.5 million, reflecting strong non-interest income revenues, up 29.8% year on year. Return on Equity for the quarter was 19.1% compared to 18.2% a year ago and the net interest margin improved 0.2% to 2.1%.

· In Guernsey, total income increased by $0.3 million, or 5.0%, despite global stock market and interest rate conditions. Net income for the quarter, at $0.7 million, was in line with that a year ago and up 15.1% on the previous quarter, reflecting increased fees from investment services, and Investment and Pension Fund Administration and stronger Foreign Exchange revenues.

· In the UK, Butterfield Private Bank increased total income by 10.3% to $1.0 million, offset by increased operating expenses reflecting our investment in the development of this business. As a result a small after tax loss of $0.2 million was recorded, compared to $0.1 million a year ago and $0.3 million the previous quarter.

· In The Bahamas our two subsidiaries in their first month as part of the Butterfield group recorded net income of $0.1 million on revenues of $0.4 million. They have since been merged and renamed Bank of Butterfield (Bahamas) Limited. Our Hong Kong minority shareholding contributed a net profit of $0.1 million for the quarter.

· Total assets as at 30 September 2003 were $6.6 billion compared to $6.0 billion a year ago. The increase reflects the growth in total assets in Bermuda and Cayman, which were up year on year by $251 million (7.5%) and $344 million (27.8%) respectively These increases reflect the growth in customer deposits, which have increased year on year by 9.5%, to $5.5 billion.

· Total loans increased year on year by $118 million, or 6.8% to $1.9 billion, reflecting increased loan demand in both Cayman, up 15.8%, and Bermuda, up 5.7% to $263 million. The loan portfolio represents 28.0% of total assets, compared to 28.7% a year ago. Non-accrual loans totaled $19.3 million as at 30 September, down from $22.9 million as at 30 June 2003 and $25.7 million as at 30 September 2002 and represent 1.0% of the total loan portfolio. Loan provisions totalled $23.7 million at 30 September 2003, representing a coverage ratio of 1.3%.

· The Bank's balance sheet remains highly liquid and well capitalised, with a loan to customer deposits ratio of 33.5%. Deposits with banks and investments are up $438 million year on year, to $4,561 million, representing 69.1% of total assets. As at 30 September the Group's Tier 1 and Total Capital ratios were 9.5% and 13.5% respectively. The US$75 million issue of subordinated notes issued in June 1998 were repaid on 1 July 2003 following the issue of US$125 million of subordinated notes the previous quarter.

· Shareholders' equity increased year on year by 11.6% to $377.0 million. The €˜1 for 10' bonus share issue during the quarter resulted in the issuance of 2,037,470 new shares. Retained earnings reduced by $70.5 million as a direct result of the bonus issue in the quarter, with a corresponding increase in share premium. The loan to the Stock Option Trust decreased by $4.9 million year on year, due to the exercise of stock options. The Bank has purchased for the Stock Option Trust 7.9% of the total shares in issue, at a cost of $32.5 million, to satisfy its current and future obligations under the Directors' and Executive Officers' and Employee Stock Option Plans. During the quarter under review the Bank bought back and cancelled 113,001 shares, at a cost of $3.9 million, under the Share Repurchase Programme.