Butterfield Reports Second Quarter Profit

The Bank of N.T. Butterfield & Son Limited (“Butterfield or theBank”) today reported second quarter net income of $11.8 million, compared to net income of $8.4 million in the first quarter of 2011 and net income of $0.2 million in the second quarter of 2010.

Brad Kopp, Butterfield’s President & Chief Executive Officer, said, “We are pleased that Butterfield has delivered a profit for a second consecutive quarter in what continues to be a challenging operating environment. Against a backdrop of economic slowdown in key Butterfield markets and continued low interest rates, the Bank’s profitability and year-on-year increases in net interest income are good indicators that we are doing the right things to maintain customer loyalty and effectively manage our balance sheet. We continue the difficult work of reducing our cost base.”

The Bank recorded net income of $11.8 million for the three months ended 30 June 2011 compared to net income of $0.2 million in the prior year. This edited News Release, provides details of Butterfield’s second quarter financial results, was delivered to local & international media earlier today.

Mr. Kopp continued, “Our deposits are stable and our loan portfolio continues to perform well, considering the economic situation. At this time, we have seen no significant increases in delinquencies and the residential mortgage book is holding up.”

Brad Rowse, Chief Financial Officer, commented on the quarterly results: “During the second quarter, we continued to realise the benefits of investing our excess liquidity in higher-yielding, low-risk securities including select US government agencies. Combined with small adjustments to deposit rates during the quarter, addressing prevailing overseas rates and competitive factors locally, our investment strategy delivered an increase in our net interest margin. This drove an increase in net interest income before credit provisions of more than 23% over the same period last year.”

During the quarter, Butterfield also achieved significant milestones in its programme to deliver new core banking technology and peripheral systems in its two largest jurisdictions. In late April, Cayman Islands operations were migrated to the new operating platform without significant business interruption. The Bank’s Bermuda operations remain on track for a conversion later this year.

During the second quarter, Butterfield completed the sale of its equity interest in fund administrator Butterfield Fulcrum, contributing $3.2 million of quarterly net income. The completion of the sale will trigger a dividend of $0.42 per share to holders of Butterfield Contingent Value Convertible Preference Shares (“CVCP Shares”), payable on 16 August 2011 to shareholders of record on 26 July 2011. Therefore, management’s belief is that there will be no further dividends or distributions made on the CVCP shares. In addition, management believes that it is highly unlikely that there will be any change in the conversion price of the CVCP shares. (The current conversion ratio is one CVCP share to one common share.) Holders of CVCP shares are eligible for downward adjustments of the conversion price contingent on the Bank realising certain recoveries on a pool of specified non-performing loans. The possibility that such recoveries will occur is remote.

The Board declared $4.0 million of dividends on the Bank’s 8% Non-Cumulative Perpetual Voting Preference Shares to be paid on 15 September 2011 to Preference shareholders of record on 1 September 2011. No common dividend was declared.

Shareholders’ equity increased during the first six months of fiscal 2011 by $32 million to $841 million. The ratio of total capital to risk weighted assets (also known as thetotal capital ratio”) was 22.8% at Q2 2011 compared to 21.6% at year-end 2010. The ratio of tangible common equity to tangible assets was 6.2% reflecting the strength of the Bank’s balance sheet.

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