Hamilton, Bermuda, 28 October 2008: The Bank of N.T. Butterfield & Son Limited (“Butterfield Bank Group” or “the Group”) (Bloomberg: NTB BH) today reported net income for the third quarter of 2008 of $80.5 million, the highest on record for the Group and up 102.9% year on year. The return on equity for the quarter was 51.1%.

The Board has decided to maintain the quarterly dividend at 16 cents per share payable on Thursday 20 November to shareholders of record on Wednesday 5 November 2008.

A number of items recorded in the three-month period ended 30 September 2008 materially influenced the Group’s third quarter results as follows: 

The Group realised an extraordinary gain of $115.5 million in the quarter from the sale and merger of its Fund Services businesses with those of Fulcrum Group to form the new company Butterfield Fulcrum Group.  The Group received $131.7 million in cash proceeds on the transaction and a 40% ownership interest in Butterfield Fulcrum Group.

The Group has determined to migrate its core information and technology systems on to a common information technology platform by the end of 2010.  As a result, the Group’s third quarter results include a write down of $29.2 million on previously capitalised investments in technology.  It is expected that this charge will be more than offset over the medium term through operational savings from systems duplication and licensing fees, and will enhance customer services.  The Group information technology function will continue to be managed from Bermuda.

Also recorded during the month was an unrealised loss of $6.9 million from the only credit support agreement provided by the Bank to Butterfield Money Market Fund Limited.  In addition, the Group incurred a $7.6 million write down on one holding in the held-to-maturity investment portfolio relating to a senior security issued by Washington Mutual Bank.

Alan Thompson, President & Chief Executive Officer, commented: “Against a backdrop of continued uncertainty in world markets all of our businesses are performing satisfactorily and our community banking and wealth management businesses have shown resiliency. Although we have not been immune to the market turmoil, the geographic and business line diversity of our franchise continues to provide some protection from the deterioration of economic conditions in certain markets.”

Mr. Thompson added, “Our investment portfolio currently totals some $4.9 billion, of which $1.8 billion constitutes holdings of high quality certificates of bank deposits. Our other investments are principally of held-to-maturity senior securities, which are well diversified by location, industry sector and maturity.  Holdings of US residential mortgage market backed securities represent only 3% of our total Group assets and, as at 30 September, all such securities are current as to principal and interest.  We perform regular stress testing to determine that there is no permanent impairment of holdings in the Group’s held-to-maturity portfolio.  We have not engaged in any credit default swap transactions.” 

Richard Ferrett, Executive Vice President & Chief Financial Officer, said, “I am pleased to report that Butterfield continues to have a highly liquid balance sheet and a strong capital base with Tier 1 and Total capital ratios at 9.2% and 13.6% respectively.  Shareholders’ equity increased year on year by 13.6% to $665.9 million.“

Mr. Ferrett continued, “We have a coverage ratio of loans by customer deposits of 2.28 times and have seen a $300 million increase in customer deposits in our Bermuda operations over the last quarter.  As a result, Group liquidity remains strong and surplus liquidity is placed on a very short-term basis with high quality financial institutions.  We have an active credit risk review and monitoring function and the quality of the loan portfolio remains strong. Our investment grade ratings were re-confirmed by both Moody’s and Standard & Poor’s in August 2008, which we believe reflects our solid financial fundamentals, asset quality, healthy liquidity and capital ratios.

Financial highlights of the Quarter ending 30 September 2008 compared with the Quarter ending 30 September 2007:

Group Results

• Total non-interest income, at $52.0 million, is down year on year by $3.3 million, or 6.0%. This principally reflects the decline in revenues from investment and pension fund administration, reflecting the sale of that business in the early part of September, and investments in affiliates. The quarter saw revenue growth from asset management (+9.5%), trust and custody (+7.4%) and foreign exchange (+2.7%).
• Net interest income before credit related provisions, at $60.3 million, was down year on year by $3.4 million, or 5.4%, reflecting declines in interest rates in the US and UK. Average interest earning assets were up year on year by $0.1 billion to $11.8 billion, whilst the net interest margin reduced by 15 basis points year on year to 2.02%. During the quarter the Group made net provisions of $0.3 million in respect of credit losses, compared to a release of $0.1 million a year ago. 
• Unrealised losses on trading securities, which primarily comprise seed money invested in equity related Butterfield mutual funds, were $3.2 million, compared to an unrealised gain of $0.6 million in 2007.
• The unrealised loss of $7.6 million on held-to-maturity investments relates to a security issued by Washington Mutual Bank, which was investment grade when purchased, that has suffered permanent impairment. The ‘Other losses/gains’ of $39.8 million is principally made up of the $29.2 million information technology related write down, a loss of $6.9 million in respect of a credit support agreement provided to Butterfield Money Market Fund Limited, and $2.9 million unrealised loss on an equity investment in a credit card company.
• Total operating expenses increased year on year by $14.4 million, or 18.1%, to $93.8 million. Salaries and other employee benefits were up 8.1% year on year, to $50.7 million, primarily reflecting the expanding size of the Group. Total headcount at 30 September 2008 was 1,925 (2007: 1,792), of which 893 are located in Bermuda. The headcount increase reflects growth in our operations in Bermuda, Cayman and Guernsey and the acquisition in October 2007 of the Bentley Reid Group. Headcount figures do not yet factor in the anticipated reduction in number of personnel associated with the merger of our Fund Services businesses, totalling some 280, who remain employees of the Group until 1 January 2009, at which time they become employees of Butterfield Fulcrum Group. Technology and communications costs and professional and outside services increased by 54.6% and 68.7% to $11.9 million and $8.5 million respectively; the increases reflecting information technology related projects.
• Income tax for the quarter was an expense of $2.6 million, compared to $1.9 million in 2007.
• Total assets of the Group as at 30 June 2008 were $11.6 billion, down from $12.1 billion a year ago, in part reflecting the translation impact of the strength of the US dollar against the UK pound. Customer deposits in Bermuda increased by $300 million year on year.
• The loan portfolio increased year on year by 10.4%, or $414 million, to $4.4 billion. This reflects increased loan demand across the Group, in particular in Bermuda, up 16.7%, Barbados, up 27.6% and The Bahamas, up 76.5%. The loan portfolio now represents 37.9% of total assets, compared to 33.0% a year ago. Non-performing loans totalled $35.2 million at 30 September 2008, representing 0.8% of total loans, compared to 0.9% last year. Loan provisions totalled $27.6 million, up from $25.5 million the previous year. 
• The Group’s balance sheet remains highly liquid with a loan to customer deposits ratio of 44.0% and a loans to total assets ratio of 37.9%. Held to maturity investments reduced by $347.8 million year on year, reflecting maturities in the portfolio. Holdings of bank issued certificates of deposits, held for liquidity purposes, stood at $1.8 billion.
• Assets under administration across the Group decreased year on year by $80.3 billion, or 59.6%, to $54.4 billion, reflecting the sale of the Fund Services businesses. Assets under administration in respect of the custody businesses grew by 11.4% to $18.3 billion.
• Assets under investment management now stand at $9.9 billion, down from $11.3 billion a year ago, in part due to the decline in stock market values over the past year and redemptions from a bond fund, though revenues from asset management increased by 9.5% reflecting growth in the UK, primarily associated with the acquisition of Bentley Reid Group.
• Shareholders’ equity increased year on year by 13.6% to $665.9 million. Treasury common stock increased by $13.3 million to $84.9 million. The increase reflects the purchase of shares offset by repayments received on the exercise of stock options by employees and effect of other share-based payments. As at 30 September 2008, the Group had financed the purchase for the Stock Option Trust of 3.58 % (2007:  4.26 %) of the total shares in issue to finance its obligations under the Executive Officers’ and Employee Stock Option Plans. In the quarter under review, the Group purchased and held as treasury stock 352,254 shares, at a cost of $ 4.9 million, under the Share Repurchase Programme. There were 251,189 shares purchased under this plan in the corresponding quarter in 2007 at a cost of $5.1 million. There were no purchases of shares in the quarter by the Stock Option Trust compared to 514,671 shares at a cost of $ 17.7 million a year ago.  There were no purchases and cancellation of shares during the quarter, nor during the same quarter in 2007.
• Diluted earnings per share are $0.86 for the quarter compared to $0.42 a year ago when restated for the stock dividend in February 2008. Basic earnings per share were $0.87, compared to $0.43 for the like quarter a year ago.

Bermuda

• Community Banking net interest income before credit provisions, at $32.2 million was down 1.6% year on year, reflecting a reduction in the net interest margin, offset by strong loan growth, whilst customer driven foreign exchange revenue was up 22.7%. Net income for the quarter was a loss of $14.3 million reflecting the gains and losses noted above. Excluding the one-off gains and losses net income would have been $5.3 million.
• The Wealth Management & Fiduciary Services and Investment & Pension Fund Administration businesses saw a 9.9% decline in total revenue to $18.8 million, reflecting the sale of the Fund Services business in Bermuda in early September and declines in client net asset values. Net income for these businesses was $5.7 million, down $3.6 million, also reflecting higher operating expenses associated with technology investment and increased head count to support business growth.

Barbados

• In Barbados total revenues were up 15.1% year on year to $3.3 million. Net income for the period was $0.2 million after a $0.3 million unrealised loss on an equity investment in a credit card company, compared to a loss of $0.2 million a year ago. Total assets increased year on year by 4.7% to $276 million. This reflects significant growth in both the loan portfolio, up 27.6% to $179 million, and customer deposits, up 14.6% to $244 million.

Cayman Islands

• Cayman achieved net income of $84.0 million, including a gain of $77.3 million on the sale of its Fund Services business. Net income excluding the gain was $6.7 million compared to $14.9 million a year ago. This reflects a combination of factors; primarily lower net interest income as a result of the US interest rate environment, falling asset values on hedge funds, reduced revenues from the Fund Services businesses and a decline in the contribution from a local affiliate. The quarter saw growth in revenues from foreign exchange (+15.4%), banking fees (+15.1%) and trust (+4.2%). Total assets, at $2.7 billion, were down from $3.0 billion a year ago, reflecting a reduction in deposits from Fund Services clients arising from lower subscriptions to funds given market conditions. Assets under management were $1 billion, in line with a year ago, whilst assets under administration reduced by $40.8 billion, due to the sale of the Fund Services business. 
   
   

Guernsey

• In Guernsey, net income increased by $0.2 million, or 4.2%, to $4.5 million. Total revenues declined by $1.3 million to $15.4 million on conversion of the British Pound earnings to US Dollars.  Total assets decreased year on year by 14.6% to $1.9 billion, reflecting the weakness of the British Pound and a fall in the market value of some underlying client assets in line with world market conditions.

Switzerland

• A loss of $0.7 million was recorded on revenues of $0.1 million, reflecting increased costs associated with the Geneva office. Business development by Butterfield Trust (Switzerland) Limited, which opened its doors in Geneva in 2008, and Butterfield Asset Management (Switzerland) Limited, which opened for business in Zurich in 2007, continues to be in line with expectations.
  

The Bahamas

• The Bahamian businesses achieved net income of $0.4 million, down from $0.9 million a year ago, reflecting a decrease in revenues from investment and pension fund administration. Total revenues, at $2.7 million, were down year on year by 14.8% to $2.7 million as result. At 30 September, total assets were $165 million compared to $152 million a year ago. Assets under administration, at $2.6 billion, are down from $5.0 billion a year ago due to the sale of the Fund Services business.
  

United Kingdom

• In the UK, Butterfield Private Bank recorded net income of $3.0 million, up 227.7% year on year, in part reflecting the successful integration of Bentley Reid’s UK based business and also reflecting a $1.6 million post-tax gain on the sale of its Fund Services business. Excluding the gain total revenues were up 11.7% to $9.4 million, reflecting strong growth in net interest income, up 10.7%, and revenues from banking, trust and custody, asset management and banking, up 170.6%, 119.7% and 99.0% respectively. Total assets stood at $1.9 billion, down from $2.1 billion on the prior year; primarily reflecting the exchange rate movement.  Assets under management totalled $0.6 billion; up 116.2% from a year ago while assets under administration increased by 2.2% to $1.6 billion.

Malta

• Butterfield Trust (Malta) Limited, (formerly Bentley Trust Limited) recorded net income of $0.02 million on revenues of $0.5 million. Assets under administration are $1 billion.

Hong Kong

• Net income of $0.4 million was achieved on revenues of $0.9 million. Assets under administration are $45 million.

Media Relations Contacts:
Mark Johnson
Assistant Vice President
The Bank of N.T. Butterfield & Son Limited
Phone: (441) 299 1624
Fax:   (441) 295 3878
E-mail: markjohnson@bntb.bm

Investor Relations:        
Richard Ferrett          
Chief Financial Officer                   
The Bank of N.T. Butterfield & Son Limited  
Phone: (441) 299 1643          
Fax:     (441) 295 1220         
E-mail: richardferrett@bntb.bm