Bank of Butterfield Reports First Quarter Net Income of $26.1 million

Alan Thompson, President & Chief Executive Officer said, "We remain pleased with the Bank's performance and the significant progress made across all areas of our core businesses over the past year as we continue to implement our business model. Particularly pleasing are the significant increases in revenues achieved from Banking, Asset Management and Investment & Pension Fund Administration businesses both in Bermuda and overseas."

Richard Ferrett, Executive Vice President & Chief Financial Officer, commenting on the Bank's financial performance, said, "Significantly, the Bank continues to achieve a Return on Equity in excess of 20%, at 26.0%, and the year on year growth rate in total revenues, at 37.4%, was markedly higher than that for operating expenses, which increased by 27.1%. In addition, our asset/liability management strategies continue to perform well and in line with expectations."

The Board has decided to maintain the quarterly dividend at 38 cents per share payable on Friday 14 May 2004 to shareholders of record on Tuesday 4 May 2004. As a result the rolling 12-month dividend will increase from 140 cents per share a year ago and 143 cents last quarter to 146 cents per share. Taking into account the one-for-ten stock dividend in August 2003, this represents a year on year increase of 14.7%.

Financial Highlights of the Quarter ending 31 March 2004 compared to the Quarter ending 31 March 2003 were:

· Net interest income after provision for credit losses of $1.8 million was $37.2 million, up year on year by $13.2 million, or 55.1%. A $5.8 million realised gain was recognised in the quarter from the sale of a venture capital equity investment in a Bermuda based company.

· Non-accrual loans at 31 March 2004 totalled $18.8 million, down from $22.6 million a year ago, representing 0.9% of total loans. Total provisions stood at $24.9 million at quarter end, including general provisions of $20.8 million, providing 132.5% coverage of non-accrual loans.

· Total fees and other income increased year on year by 23.2%, or $6.9 million, to $36.7 million. The acquisitions in Barbados and The Bahamas in the second half of 2003 accounted for $2.2 million of the increase. The Bank reported strong year on year revenue increases from Investment & Pension Fund Administration services (+58.6%), Asset Management (+21.3%), Banking Services (13.4%) and customer related Foreign Exchange income (+11.1%), reflecting the overall growth in the client base.

· Total operating expenses were up year on year by 27.1% to $47.4 million, a lower growth rate than that seen in total income, up 37.4% to $73.9 million. The growth in expenses reflects higher employee costs which rose year on year by 21.1%, primarily due to the increased headcount from the acquisitions and to support business growth in Bermuda and Cayman. The Group's total headcount has increased year on year from 1,201 at 31 March 2003 to 1,416 at the end of the quarter, in part reflecting the addition of 161 employees in Barbados and The Bahamas.

· Net income from Community Banking in Bermuda increased year on year by 95.6% to $12.9 million, the significant growth reflecting the gain on sale of the venture capital equity investment.

· The Wealth Management & Fiduciary Services and Investment & Pension Fund Administration group of businesses in Bermuda achieved net income for the quarter of $6.8 million, up 44.9% year on year reflecting strong growth in client assets under investment management and administration.

· Overseas, Cayman recorded net income of $7.0 million, up 15.7% compared to a year ago. The improvement reflects strong growth in net interest income, up 22.7% year on year due to increases seen in both customer deposits and loans. Fees and other income increased by 10.3%, reflecting continued strong growth in Investment & Pension Fund Administration and Banking fees, and customer related Foreign Exchange revenues.

· In Guernsey, post tax net income at $0.9 million was in line with that a year ago and is up $0.3 million on last quarter, reflecting increased revenue generation.

· In the UK a post tax loss of $0.7 million was recorded in line with expectations as the Bank continues to invest in the business. The acquisition of Leopold Joseph Holdings plc was completed after the quarter end on 2 April 2004, and reflects a commitment to growing Butterfield Private Bank in the UK.

· In The Bahamas, a jurisdiction the Bank entered in August 2003, total income was up $1.0 million to $1.4 million on the preceding quarter, reflecting the acquisition of Deerfield Fund Services Limited, now renamed Butterfield Fund Services (Bahamas) Limited, in February this year. Net income achieved from the Bahamian businesses was $0.3 million for the quarter.

· In its first full quarter since acquisition, our community bank in Barbados achieved post tax net income of $0.2 million.

· The Group's Return on Equity was 26.0% compared to 19.3% at the same stage last year and 20.5% last quarter.

· Earnings per share increased year on year by 47 cents, or 58.8%, to $1.27.

· The Return on Assets for the quarter was 1.4%, compared to 1.1% a year ago.

· Total assets as at 31 March 2004 were $7.07 billion, up from $6.12 billion a year ago. This primarily reflects the increase in the total assets of the Bermuda, Cayman Islands and Guernsey based businesses of $276 million, $552 million and $117 million respectively, plus the addition of the Barbados community bank acquired in December 2003, which has total assets of $142 million.

· Customer deposits across the Group increased year on year by $852 million, or 16.3%, to $6.07 billion, in line with the growth in total assets.

· Total loans increased year on year by $247 million (14.2%), primarily reflecting increased loan demand in the Community Banking business in Bermuda, up 12%, together with the addition of the Community Banking business in Barbados. The balance sheet continues to remain highly liquid with the loan portfolio, at $1.99 billion, representing 28.1% of total assets compared to 28.4% a year ago. Customer loans as a percentage of customer deposits now stand at 32.8%, compared to 33.4% at the same stage a year ago.

· Total investments increased year on year by $360 million, or 16.7%, to $2.52 billion, reflecting the employment of the increase in customer deposits and the asset/liability management strategy of investing in high quality investment grade securities as an alternative to the inter-bank deposit market. Investments represent 35.6% of total assets, in line with a year ago.

· Shareholders' equity increased year on year by 19.4% to $413.2 million, reflecting the increase in retained earnings less share buybacks. The loan to the Stock Option Trust has decreased year on year by $6.3 million to $29.7 million, reflecting the exercise of stock options by directors and employees. During the quarter under review the Bank bought back and cancelled 110,678 shares, at a cost of $4.9 million, under the Share Repurchase Programme.