Bank of Butterfield Announce Record Earnings

"We are pleased that our strategies to build and improve on the profitability of each of our business lines and address the high cost base in Bermuda are now succeeding in terms of improved earnings. Indeed, the Bank is now achieving the highest return on Shareholders' Equity, at 15.6%, seen since 1987," said Calum Johnston, President & Chief Executive Officer. "This is testament to the hard work and dedication of the Management team, and all our employees throughout the Group, and the Bank's continual commitment to running efficient, profitable businesses that place emphasis on providing service to customers", he said.

"We set ourselves stretching financial targets as part of our mission to enhance shareholder value and return the Bank to sound earnings and it is noteworthy that we continue to see strong performances from our Asset Management and Community Banking businesses in Bermuda and Grand Cayman, Guernsey and Davenham businesses overseas", commented Mr. Johnston. "New management has now been installed in Hong Kong and we believe that the Group will achieve acceptable returns on its investment there over the medium term."

"We are particularly pleased that we are now running Year 2000 compliant versions of all our Mission Critical Systems", said Mr. Johnston. "All Mission Critical Systems at the Bank of Butterfield have been certified by their vendors as Year 2000 compliant. In addition, every mission critical system has been tested extensively and been certified by our staff as Year 2000 compliant. Our testing and certification programme has been carried out using IBM Corporation's Transformation 2000 consulting teams methodology. IBM continues to oversee our work as we near the completion of our Business Continuity Planning, which will ensure that the core business of the Bank will continue if a mission critical service provider or a mission critical system fails. No business can afford to be complacent concerning Y2K," said Mr. Johnston, "and we have invested considerable time and effort to ensure we will continue to meet the business needs of our customers going forward."

"Another major event of note was the appointment of Standard & Poor's, the world renowned credit rating agency, to monitor and rate the Bank's own US$ investment portfolios, which total some $1.5 billion. These have all received good quality investment grade and volatility ratings from Standard & Poor's, which is particularly pleasing," said Richard Ferrett, Executive Vice President & Chief Financial Officer, "given their importance in terms of strengthening liquidity, diversifying our overall asset portfolio and enhancing earnings."

Focusing on the Bank's financial performance Mr. Ferrett commented that "fourth quarter earnings, at $9.4 million or $0.50 per share, outperformed all previous three quarters for the year. Full year's earnings of $36.4 million equate to $1.92 per share, up 35% on last year's performance from continuing operations. The Return on Equity for the fourth quarter was 15.8%, bringing the total for the year to 15.6%, reflecting our continued commitment to enhancing shareholder value", he said. "Our focus on improving efficiency is demonstrated by a year on year reduction in total expenses, by 5.3% or $6.3 million, and the improvement in the efficiency (or cost/income) ratio to 75.7% (1998: 80.6% before discontinued operations). Average earnings generated per member of staff throughout the Group for the 12 months improved by 28% to $32,000, compared to $25,000 from continuing operations the previous year," said Mr. Ferrett.

The Financial Highlights for the fourth quarter and full 1999 fiscal year ending 30 June 1999 are:

 Full year net income of $36.4 million was a record for the Group; the previous highest net income was $31.3 million recorded in 1995. In 1998 the Group reported earnings of $2.5 million after losses of $26.3 million from discontinued operations.

 Fourth quarter net income, at $9.4 million, was 2% up on quarter three, 4.4% up on quarter two and 6.6% up on quarter one, demonstrating consistent earnings growth this year.

 Our Grand Cayman, Guernsey and Davenham subsidiaries all reported record earnings, with Grand Cayman recording its eleventh consecutive year of increased earnings, at $16.0 million;

 Earnings per share for the fourth quarter was 50 cents, bringing the full year total to $1.92; a record performance for the Bank. Return on Equity was 15.8% in the fourth quarter and the 15.6% seen for the full year was our highest achieved since 1987.

 Retained earnings, after dividends paid of $12.3 million, were $24.1 million. Both the Group's Total Capital and Tier 1 capital ratios remain strong, at 13% and 9.5% respectively. The Bank purchased during the course of the year for the Stock Option Trust some 1,336,000, or 6.7%, of its total issued shares, at a cost of $21.7 million to satisfy the bank's obligations under its Stock Option Plans.

 Total income for the 12 months was $149.6 million, up from $148.2 million the previous year. Non-interest income now constitutes some 54% of Total Income compared to 51% the previous year; reflecting in particular strong fee income and foreign exchange revenue performances.

 Total expenses, at $113.2 million, were down $6.3 million, or 5.3%, on last year reflecting our continued focus on expense control and productivity. The Bermuda joint venture company, ProServe Bermuda Limited, had a satisfactory first twelve months trading and we continue to look for resultant efficiency improvements in our Bermuda based businesses.

 Total loans, at $1.2 billion, were up 5% year on year, reflecting continued quality lending demand in Bermuda, and now represent some 27% of total assets. The Group's conservative approach to loan loss provisioning, together with active management of the lending portfolio, has resulted in a major reduction in the amount of non-accrual loans outstanding, from $99.7 million last year to $52.1 million at 30 June 1999.

 The Bank's balance sheet continues to remain strong and highly liquid, with some 69% of total assets comprised of high quality investments and deposits placed with major international banks. The Group's securities portfolios, which are predominately comprised of well rated investment grade securities, now stand at $1.6 billion, up 17% on a year ago, reflecting our strategy to enhance earnings and diversify credit risk. The Bank has engaged Standard & Poor's to monitor and rate its securities portfolios in regards to their credit and price volatility characteristics. All of our portfolios have received investment grade credit ratings from Standard & Poor's; notably AAf in respect of our fixed income portfolio and Af in respect of our floating rate note portfolios.

 Total assets as at 30 June 1999, at $4.5 billion, are in line with that seen at previous quarter ends throughout the fiscal year, though down $0.5 billion year on year. That decrease reflects a selective reduction in the Group's activities in the international inter-bank markets, where spreads have been less attractive, and also reflects that last year we saw significant short-term deposits placed with the Bank over the year-end.

 Our core customer deposit base remains stable and, in addition, we have also continued to attract new client funds into our off-balance sheet Butterfield Funds products. The Funds saw a 25% growth in client monies to $1.9 billion. In addition, for the second year running, the Bank won a prestigious first place performance award for its offshore fund management from Standard & Poor's Micropal, with the AAAm rated Butterfield Money Market Fund US dollar class outperforming the global competition over the past five years.

The Board has decided to maintain the quarterly dividend at 16 cents per share payable on Monday 16 August 1999 to shareholders of record on Thursday 5 August 1999.

Note to Editors:

The Bank's results are stated in accordance with accounting principles generally accepted in Bermuda and Canada and are, naturally, subject to final audit.

The Bank of Butterfield Group is a vital community bank in both Bermuda and Grand Cayman and a specialist offshore financial services company that has chosen its markets, knows them well, and uses its knowledge to benefit institutional and individual clients. The Bank, established in 1858, offers a full range of banking, credit, investment, treasury, trust and custody services through its headquarters and four branches in Bermuda, as well as offices in Grand Cayman, Guernsey, Hong Kong and the United Kingdom. Bank of Butterfield is a publicly traded corporation with its shares listed on the Bermuda and Cayman Stock Exchanges.

Further information concerning the Bank of Butterfield may be obtained from our Internet page: www.bankofbutterfield.com.