Bank Of Butterfield Reports Record Full Year Earnings Of $76.5 Million; Increases Dividend by 3 cent

Alan Thompson, President & Chief Executive Officer said, "We believe our results continue to demonstrate the effectiveness of our business model. During the quarter we acquired a community bank in Barbados, a significant event in our strategic development, and our acquisitions in The Bahamas in the summer of 2003 have performed fully in line with our expectations."

Richard Ferrett, Executive Vice President & Chief Financial Officer stated, "Particularly noteworthy is that the Return on Equity remains over 20%, at 20.5% for the fourth quarter and 20.9% for the full year. Despite the continued challenge of a sustained low interest rate environment, net interest income for the year was a record $112.2 million, up $14.7 million, or 15.1%, year on year and up $2.5 million, or 8.5%, on the previous quarter. This reflects significant growth in the customer deposit base and our asset/liability management strategies. In addition, shareholder value, measured in terms of appreciation in the Bank's stock price and dividends reinvested, increased year on year by 65.2%."

Financial Highlights for the Year ending 31 December 2003 compared with the Year ending 31 December 2002:

· Total fees and other income, at $126.0 million, were up year on year by $11.2 million, or 9.7%, when excluding the $17.0 million gain on the sale of subsidiaries in Hong Kong in 2002. This reflects strong growth in revenues from Investment Services (+15.3%), Investment & Pension Fund Administration (+10.7%), Banking Services (+6.9%) and customer driven Foreign Exchange (+5.4%).

· Net interest income before credit related provisions, at $114.6 million, was a record and was up year on year by $13.9 million, or 13.8%, reflecting balance sheet growth and wider margins. The net interest margin for the year was 1.9% compared to 1.8% for the same period a year ago. During the fourth quarter the Bank made net provisions of $0.9 million in respect of credit losses, bringing the total for the year to $2.4 million compared to $3.2 million a year ago.

· Total operating expenses increased year on year by $14.7 million, or 10.0%, compared to a $25.9 million, or 12.2%, increase in total revenues over the same period when excluding the 2002 gain on the sale of subsidiaries. Personnel related expenses were up 10.4% year on year, reflecting an increase in personnel due to acquisitions. The Group's total headcount at 31 December 2003 was 1,381, including 37 employees in The Bahamas and 115 in Barbados, compared to 1,200 a year ago.

· In Bermuda, net income from core business activities increased year on year by 13.1% to $49.3 million. Community Banking net income grew by 9.9%, reflecting an 11.1% increase in average interest earning assets and a 14 basis points widening in the net interest margin. The Wealth Management & Fiduciary Services businesses achieved a 27.2% growth in net income to $15.6 million, reflecting significant growth in client assets under management in the award winning family of Butterfield Funds, which increased year on year by 10.7% to $4.6 billion. The Investment & Pension Fund Administration business saw a 36.8% growth in net income to $4.0 million, reflecting an 8.2% growth in client assets under administration in Bermuda.

· The overseas businesses accounted for 35.6% of the Group's net income from continuing operations in 2003, up from 34.7% the previous year. Cayman recorded net income of $24.6 million, up year on year by $5.4 million, or 28.2%, reflecting strong revenue growth, up $8.6 million or 20.2%. Cayman's Return on Equity for the year was a pleasing 19.8%.

· In Guernsey, net income decreased by $0.5 million to $2.8 million. Whilst revenues grew year on year by 12.7% to $28.8 million, reflecting strong growth in investment and fund administration revenues, the growth was more than offset by the impacts of the low interest rate environment in the UK, the weak US dollar and a higher expense base. Client assets under management and client assets under administration increased year on year by 62.0% and 24.3% respectively.

· In the UK, a post tax loss of $0.9 million was recorded for the year, in line with expectations as Butterfield Private Bank executed its strategic plan to focus on the provision of banking services to high net worth individuals. While revenues increased by 21.0% to $4.7 million, this was offset by increased operating expenses reflecting the investment in the development of this business.

· Bank of Butterfield (Bahamas) Limited in its first four months as part of the Butterfield group recorded net income of $0.3 million on revenues of $1.4 million, in line with expectations.

· In December the Bank acquired The Mutual Bank of the Caribbean Inc, a community bank in Barbados with total assets of $156 million. This acquisition is in line with the strategy to expand into markets where the Bank can successfully deliver core products and services. In its first month as part of the group The Mutual Bank achieved net income of $0.2 million, again in line with expectations. The bank will be renamed Bank of Butterfield (Barbados) Limited early this year.

· Total assets as at 31 December 2003 were a record $7.7 billion, compared to $6.0 billion a year ago. The increase reflects significant growth in short-term customer deposits, which have increased year on year by 27.7% to $6.6 billion, particularly from clients whose third party investment funds are administered by the Bank.

· Total loans increased year on year by $169 million, or 9.5%, to $1.9 billion. This growth reflects the acquisition of The Mutual Bank, whose loan portfolio was $62 million at year-end, coupled with increased loan demand in Bermuda and Cayman. The loan portfolio now represents 25.2% of total assets, compared to 29.4% a year ago. Non-accrual loans fell $7.8 million year on year to $17.1 million, which represents 0.9% of total loans compared with 1.4% a year ago. Loan provisions totalled $23.5 million at 31 December 2003, representing a coverage ratio of 137% of non-accrual loans and 1.2% of total loans.

· The Bank's balance sheet remains highly liquid and well capitalised, with a loan to customer deposits ratio of 29.4%. Deposits with banks and investments are up $1,477 million year on year, to $5,539 million, representing 72.1% of total assets. This growth reflects the increase in customer deposits.

· Shareholders' equity increased year on year by 16.6% to $394.9 million. The loan to the Stock Option Trust decreased by $5.4 million year on year, due to the exercise of stock options. The Bank has purchased for the Stock Option Trust 7.6% of the total shares in issue, at a cost of $31.1 million, to satisfy its current and future obligations under the Directors' and Executive Officers' and Employee Stock Option Plans. During the fourth quarter the Bank bought back and cancelled 101,120 shares, at a cost of $3.9 million, under the Share Repurchase Programme. This brought total share buybacks for 2003 to 378,994 shares purchased at a cost of $13.2 million and at an average price of $34.77.

· The increase in shareholder value for the year, defined as the increase in share price plus re-investment of dividends in the Bank's shares, was 65.2%.