Butterfield Bank Reports Second Quarter Net Income of $30.1 million, up 47.7%. Announces `one-for-ten stock' dividend.

Hamilton, Bermuda - 26 July 2005:  The Bank of N.T. Butterfield & Son Limited today reported net income for the second quarter ended 30 June 2005 of $30.1 million, up 47.7% year on year. This brings the year to date net income to $54.4 million, an 18.2% increase year on year. Diluted earnings per share were $1.28, up 41 cents year on year and up 24 cents on the previous quarter. Other financial highlights of the quarter include:

·      Return on equity of 27.3%, up from 20.1% a year ago

·      Net interest income of $45.8 million, up 30.2% year on year

·      Non-interest income of $44.7 million, up 8.6% year on year

·      Total assets up 13.0% year on year to $9.1 billion

·      Assets under administration up 36.7% year on year to $94.2 billion

·      Assets under investment management up 16.5% year on year to $9.9 billion.

Reflecting the Group's continuing strong earnings performance and commitment to enhancing shareholder value the Board has approved a one-for-ten bonus share issue, which equates to a 10% stock dividend, effective Friday 5 August 2005, in addition to maintaining the quarterly dividend at 41 cents per share. The cash dividend is payable on Thursday 18 August 2005 to shareholders of record on Friday 5 August 2005. The bonus shares will be eligible for dividends commencing November 2005.

Alan Thompson, President & Chief Executive Officer, said: "These results yet again demonstrate the continuing effectiveness of our business model in a highly competitive environment.  Our strategic focus on developing our core businesses has resulted in growth across the jurisdictions in which we operate.  Aiding a strong performance for our operations in Cayman, the speed and strength of the jurisdiction's recovery has enabled us to reduce the loan loss reserve set aside post-Hurricane Ivan and also see a healthy return on our equity investment in Island Heritage Insurance.  Our Bermuda businesses are continuing to do well with Corporate Banking, especially, showing how quality customer service can attract and retain business.  Retail also had a strong quarter and confirmed Butterfield Bank's position as a premier community banking partner, with the roll-out of security tokens for Butterfield Direct Internet Banking, which have set a new standard of security in Bermuda for online banking. In the United Kingdom, our London subsidiary has made significant progress since the acquisition of Leopold Joseph in April of 2004; net interest income and fee income have increased while expenses are being carefully managed as the strategic marketing plan is being implemented.  Guernsey has also performed well this quarter, reflecting the benefit of the Leopold Joseph acquisition as well as a result of strong earnings from its wealth management businesses.  Overall, our results reflect the commitment and professionalism of our employees and I am proud to see their continuing dedication to excellent customer service, which is a key driver in our success."

Richard Ferrett, Executive Vice President & Chief Financial Officer, said: "Our return on equity for the quarter was very pleasing, at 27.3% compared to 20.1% for the same quarter a year ago and consistent with our target to achieve a return exceeding 20%. Significant increases were seen year on year in the Group's revenue generation with net interest income increasing by 30.2% and revenues from trust and investment services, and investment and pension fund administration increasing by 20.5% and 13.9% respectively.  During the quarter the Bank successfully issued US$150 million of subordinated capital notes in the US private placement market, which reflects investor long term confidence in the Bank and will support our growth going forward."

Financial highlights of the Quarter ending 30 June 2005 compared with the Quarter ending 30 June 2004:

Group Results

·         Total non-interest income, at $44.7 million, was a record and up 8.6%, or $3.5 million, year on year. This reflects strong growth from trust & investment services (+20.5%), asset management (+15.4%), customer driven foreign exchange (19.0%) and investment and pension fund administration (+13.9%).

·         Net interest income before credit related provisions, at $45.1 million, was also a record and is up year on year by $9.4 million, or 26.3%, reflecting balance sheet growth across all the Group's operations. During the quarter the Group had net credit recoveries of $0.7 million, reflecting the Cayman loan portfolio, compared to provisions for credit losses of $0.5 million a year ago. The net interest margin for the quarter was 2.1% compared to 1.9% a year ago. 

·         Total operating revenue grew year on year by $14.1 million, or 18.5%, to $90.3 million.

·         Total operating expenses increased year on year by $4.0 million, or 7.2%, to $59.9 million; a lower percentage than that seen for operating income, reflecting the successful integration of the Leopold Joseph group of businesses acquired in April 2004. As a result the efficiency ratio improved from 69.4% a year ago to 64.0% for the quarter. Personnel-related expenses increased by $1.9 million, up 5.7% year on year. This reflects an increase in the headcount; up from 1,527 a year ago to 1,590, with some 789 employees now based in Bermuda compared to 756 a year ago.

·         Total assets of the Group as at 30 June 2005 were $9.1 billion, compared to $8.0 billion a year ago. The increase reflects solid growth in customer deposits, which have increased year on year by 10.1% to $7.7 billion, in part reflecting growth in Bermuda, Cayman, Guernsey and the UK. The return on assets for the quarter was 1.3%, compared to 1.1% for the same quarter in 2004.

·         The loan portfolio increased year on year by 21.2%, or $495 million, to $2.8 billion. This reflects increased loan demand across all jurisdictions. The loan portfolio now represents 31.2% of total assets, compared to 29.1% a year ago. Non-accrual loans totalled $23.5 million at 30 June 2005, representing 0.8% of total loans compared with 0.9% a year ago. Loan provisions totalled $23.2 million at 30 June 2005, representing a coverage ratio of 99% of non-accrual loans. 

·         The Group's balance sheet remains highly liquid with a loan to customer deposits ratio of 36.8%. Deposits with banks and investments increased year on year by $499 million, or 9.2%, to $5.9 billion, reflecting the increase in customer deposits, and represent 65.1% of total assets.

·         Client assets under investment management and client assets under administration across the Group increased year on year by 16.5% and 36.7% to $9.9 billion and $94.2 billion respectively.

·         Shareholders' equity increased year on year by 14.9% to $460.6 million. The loan to the Stock Option Trust decreased by $6.6 million year on year, reflecting the exercise of stock options. The Group has financed the purchase for the Stock Option Trust of 6.2% of the total shares in issue, at a cost of $22.2 million, to satisfy its obligations under the Directors' and Executive Officers' and Employee Stock Option Plans. Over the course of the quarter the Bank bought back and cancelled 4,371 shares, at a cost of $0.2 million, under the Share Repurchase Programme at an average price of $41.42.

·         Basic earnings per share for the quarter were $1.31, compared to 89 cents a year ago and $1.07 last quarter.

Bermuda

·         In Bermuda, total revenues were up year on year by 12.6% to $50.7 million, reflecting growth in revenues from both Community Banking, up 14.4% to $33.8 million, and wealth management,  fiduciary services and Investment and pension fund administration, up 9.3% to $16.5 million. Net income from Community Banking was down 4.0% to $8.2 million year on year, reflecting increased costs associated with technology investment. However, Community Banking's net income was up $2.1 million on the previous quarter. The wealth management, fiduciary services and investment and pension fund administration businesses achieved a 6.3% year on year growth in net income to $8.2 million, reflecting growth in both client assets under management and under administration, which now stand at $6.9 billion and $41.9 billion respectively. Total assets in Bermuda increased by 11.3% year on year to $3.8 billion.

Barbados

·         Butterfield Bank (Barbados) Limited made a profit of $0.3 million post tax compared to $0.1 million a year ago, reflecting a strong increase in net interest income emanating from both customer deposit and loan growth.  Total assets increased year on year by 14.4% to $175 million.

Cayman Islands

·         Cayman recorded record net income of $12.7 million, up year on year by $5.8 million. Total income was up 53.3% to $21.7 million, reflecting increases of 34.6% and 73.3% respectively in non-interest income and interest income. The quarter saw credit recoveries of $1.1 million, following a further review of the loan portfolio post Hurricane Ivan. Operating expenses increased by a lower percentage than for total revenues, up 24.3% to $9.1 million, reflecting increased headcount to support business growth. Total assets increased year on year by 11.4% to $2.3 billion. Client assets under investment management increased year on year by 24.3% to $1.6 billion and client assets under administration were $31.0 billion at 30 June 2005, up from $19.0 billion a year ago.

Guernsey

·         In Guernsey, post tax net income was a record $1.7 million and up from $0.1 million a year ago. Total revenues grew year on year by 6.7% to $10.0 million; the increase reflecting the successful amalgamation of the Leopold Joseph Guernsey-based businesses. Total assets were up 9.6% year on year to $1.55 billion, reflecting solid deposit growth, up $171 million to $1.4 billion.  Assets under management for Guernsey clients now stand at $0.7 billion and client assets under administration at 30 June 2005 were $16.0 billion, in line with a year ago.

The Bahamas

·         The Bahamian businesses achieved net income of $0.4 million on total revenues of $1.6 million; up from $0.1 million and $1.5 million respectively a year ago, reflecting growth in revenues from fund administration services. Total assets have increased year on year by 40.9%, to $84 million and client assets under administration are up 13.9% to $4.0 billion.

United Kingdom

·         In the UK total revenues increased year on year by 20.5% to $5.7 million, reflecting the successful growth achieved in the business since the acquisition of Leopold Joseph's UK businesses in April 2004.  A small post tax loss of $0.1 million was recorded for the quarter, an improvement of $1.7 million year on year and a $0.4 million improvement on the preceding quarter. Total assets at 30 June 2005 were $1.2 billion compared to $0.9 billion at the same stage a year earlier. The loan portfolio has increased year on year by $131 million to $404 million, reflecting the growth in the customer base. Client assets under management in the UK now total $0.7 billion, up 10.9% year on year.

The Group's results, which are unaudited, are stated in accordance with US GAAP. The Butterfield Bank Group, Bermuda's first and largest indigenous bank, offers a full range of community banking services in Bermuda, Barbados and the Cayman Islands, encompassing retail and corporate banking and treasury activities. As a specialist offshore financial services provider the Group also provides private banking, wealth management, fiduciary services, and investment and pension fund administration services from its headquarters in Bermuda, and its subsidiary offices in the Cayman Islands, Guernsey, The Bahamas and the United Kingdom.

The Butterfield Bank Group is a publicly traded corporation with its shares listed on the Bermuda and Cayman Islands stock exchanges. The Group's share price is published daily in The Royal Gazette: www.theroyalgazette.com and is also available on Bloomberg Financial Markets (symbol: NTB.BH) and The Bermuda Stock Exchange web site: www.bsx.com. Certain statements in this press release may be deemed to include €˜forward-looking statements' and are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from those included in these statements due to a variety of factors, including worldwide economic conditions, success in business retention and obtaining new business and other factors. Further details on Butterfield Bank can be obtained from our web site at: www.butterfieldbank.com.

Investor Relations:                                                                                                                    Media Relations:                                                                   

Richard Ferrett                                                                                      Anna Lowry

Chief Financial Officer                                                                                           Marketing & Communications

Phone: (441) 299-1643                                                                        Phone: (441) 298-6469

Fax:     (441) 295-1220                                                                        Fax: (441) 295-3878

e-mail: richardferrett@bntb.bm                                      e-mail: annalowry@bntb.bm