Principal Offices

Annual Report 2002

Our Mission

In Bermuda and the Cayman Islands we aspire to be the pre-eminent financial

institution, having a reputation for financial strength, integrity and professional

competence, recognised as an outstanding corporate citizen and employer, delivering

a full range of banking, trust and investment products.

In other jurisdictions we will provide a focused range of financial services to

selected groups of customers. We shall pursue excellence and efficiency and act

with courtesy, honesty, integrity and candour as we strive to exceed the expectations of our shareholders,

customers, employees and the communities we serve.

BermudaHead Office

Cayman

Barbados

Guernsey

Hong Kong

The Bank of N.T. Butterfield & Son Limited65 Front StreetHamilton HM 12Bermuda

Bank of Butterfield International (Cayman) Ltd.

Butterfield (Barbados) Limited

Butterfield House68 Fort StreetP.O. Box 705 GTGeorge Town Grand CaymanCayman Islands

Belleville Corporate Centre38 Pine RoadBellevilleSt. MichaelBarbados

Bank of ButterfieldInternational (Guernsey)Limited

The Bank of N.T. Butterfield & Son Limited Hong Kong Branch

Tel: 852 2978-5656Fax: 852 2845-0336

26th FloorBank of China Tower1 Garden RoadCentral Hong Kong

United Kingdom Bank of Butterfield (UK) Limited

Tel: 020 7816 8300Fax: 020 7816 8306info@bankofbutterfield.co.uk

St Helen's1 UndershaftLondon EC3A 8JXUnited Kingdom

P.O. Box 25 RoseneathThe GrangeSt. Peter PortGuernsey GY1 3APChannel Islands

Tel: (01481) 711521Fax: (01481) 714533Telex: 4191362 FIELD Gbuttfld@guernsey.net

Tel: (345) 949-7055Fax: (345) 949-7004Telex: 4263 BFIELD CPinfo@bankofbutterfield.ky

Tel: (441) 295-1111Fax: (441) 292-4365Telex: 3211 FIELD BAcontact@bntb.bm

Tel: (246) 430-1650Fax: (246) 436-7999 carolineprow@butterfield.bb

MAILING ADDRESSP.O. Box HM 195Hamilton HM AXBermuda

2002 Performance

Net Income $82.3 millionUp from $60.7 million last year

Return On Equity 27.1%Up from 22.7% last year

Earnings Per Share $4.27Up from $3.14 last year

New Location BarbadosIn October 2001 we established

Butterfield (Barbados) Limited

New Acquisition GuernseyIn July 2001 we purchased the Guernsey

operations of Canadian Imperial Bank of Commerce

Recognition

Fund Performance Awards / Offshore CategoryStandard & Poor’s Micropal

Group of Butterfield Funds Second Place for Five Year Performance

Butterfield Capital Appreciation Bond FundFirst Place for Five Year Performance First Place for One Year Performance

Butterfield International Balanced Fund – USDFirst Place for Five Year Performance

Bank of the Year in Bermuda for 2002Presented by “The Banker” magazine and

the Financial Times Group

Business of the Year (Financial Services) in the Cayman Islands

Presented by the Cayman Islands Chamber of Commerce

P.02

Rosebank Branch11 Bermudiana RoadPembrokeBermudaTel: (441) 298-4692

Somerset Branch47 Mangrove Bay RoadSomerset VillageSandy'sBermudaTel: (441) 234-0048

St. George's Branch1 King's SquareSt. George'sBermudaTel: (441) 297-1277

Waterfront Branch90 Pitt's Bay RoadPembrokeBermudaTel: (441) 294-2070

One Butterfield Place7 Main StreetGeorge TownGrand CaymanCayman IslandsTel: (345) 949-7055

Cayman Branches†

Bermuda Branches

Cayman Subsidiary

Butterfield House68 Fort StreetP.O. Box 705 GTGeorge TownGrand CaymanCayman Islandswww.bankofbutterfield.ky

Tel: (345) 949-7055Fax: (345) 949-7004Telex: 4191362 FIELD GE-mail: info@bankofbutterfield.ky

Compass Centre19 North Sound RoadGeorge TownGrand CaymanCayman IslandsTel: (345) 914-5557

West Shore Centre508B West Bay RoadGeorge TownGrand CaymanCayman IslandsTel: (345) 949-8565

65 Front StreetHamiltonBermudawww.bam.bm

Rosebank Centre11 Bermudiana RoadPembrokeBermuda

65 Front StreetHamiltonBermuda

Bermuda SubsidiariesButterfield Asset Management Limited

Butterfield Fund Services (Bermuda) Limited**

Butterfield Trust (Bermuda) Limited

Butterfield Fund Managers (Cayman) Limited

Guernsey Subsidiaries

P.O. Box 211La Tonnelle HouseLes BanquesStv SampsonsGuernsey GY2 4BFChannel Islands

Tel: (01481) 720321Fax: (01481) 716117Telex: 4191362 FIELD GE-mail: buttfund@bfmgl.gg

Butterfield Fund Managers (Guernsey) Limited

P.O. Box 25 RoseneathThe GrangeSt. Peter PortGuernsey GY1 3APChannel Islands

Tel: (01481) 711521Fax: (01481) 714533Telex: 4191362 FIELD G

Butterfield Trust (Guernsey) Limited

Tel: (441) 299-3817Fax: (441) 292-9947Telex: 3320 BETCO BAE-mail: contact@bntb.bm

MAILING ADDRESSP.O. Box HM 195Hamilton HM AXBermuda

Tel: (441) 299-3882Fax: (441) 295-6759Telex: 3320 BETCO BAE-mail: contact@bntb.bm

MAILING ADDRESSP.O. Box HM 195Hamilton HM AXBermuda

Tel: (441) 299-3980Fax: (441) 292-1258Telex: 3320 BETCO BAE-mail: contact@bntb.bm

MAILING ADDRESSP.O. Box HM 195Hamilton HM AXBermuda

* Principal Offices are listed overleaf.

†Of Bank of Butterfield International (Cayman) Ltd.

Branches & Subsidiary Offices* P.75

** Name changed from Butterfield Corporate Services Limited in August 2002.

Our Strategy 06

Financial & Statistical Summary 07

Corporate Profile 09

Community Commitment 10

Chairman's Letter to the Shareholders 12

President & Chief Executive Officer's Report 13

Management's Analysis of Financial Condition &

Review of Operations 15

Financial Overview 36

Selected Quarterly Results of Operations 45

Five Years in Review 46

Management's Financial Reporting Responsibility 47

Auditors' Report to the Shareholders 48

Consolidated Balance Sheet 49

Consolidated Statement of Income 50

Consolidated Statement of Changes in Shareholders’ Equity 51

Consolidated Statement of Cash Flows 52

Notes to Consolidated Financial Statements 53

Principal Group Companies 72

Board of Directors & Principal Board Committees 72

Directors’ Code of Practice 72

Directors’ and Executive Officers’ Share Interests and

Directors’ Service Contracts 72

Management & Management Committees 73

Glossary of Terms 73

Shareholder Information 74

Branches & Subsidiary Offices 75

Table of Contents

P.03

P.04

P.05

P.06Our Strategy

Our strategy is to build onour core activities andstrengths, to take thethings we do well to thenext level.

For Bank of Butterfield Group, the two areasthat hold the greatest opportunities forbusiness expansion and financial success arecommunity banking and specialised offshorefinancial services.

We have identified these as our corebusinesses, based on their continuedprofitability and potential for growth.Community Banking in Bermuda, where weare a leading domestic bank, is a keyoperation with historic importance and futurepotential. The same is true in the CaymanIslands, where Bank of Butterfield is a keyparticipant in the local economy. Our othercore business is Asset Management andAdministration. Over the years, we havedeveloped the expertise and finely honedprocesses to manage this complexinternational business. We provide thehighest quality service at a competitive price,offering these specialist offshore bankingservices to selected groups of clients inBermuda, Barbados, the Cayman Islands,Guernsey and the United Kingdom.

In these core businesses we are continuouslyseeking opportunities to increase profitabilityby widening our client base and deepeningour relationships with existing clients, byoffering the right products at fair prices withpersonal service. It is what has made usstrong and what will keep us that way.

Pictured:Detail of the vault door at Head Office

P.07Financial & Statistical Summary

'98

2.5

'99 '00 '01 '02

Net Income ($m)

36.440.3

60.7

82.3

'98 '99 '00 '01 '02

Earnings per Share ($)

0.11

1.752.02

3.14

4.27

'98 '99 '00 '01 '02

Return on Equity (%)

0.9

15.6 16.4

22.7

27.1

For the year ended 30 June (In $ thousands except share data)

For the Year 2002 2001

Net income from continuing operations 81,416 66,732 Profit (loss) from discontinued operations 873 (5,990)Net income 82,289 60,742 Net income per share

Including discontinued operations $4.27 $3.14 Excluding discontinued operations $4.23 $3.45

At Year End

Total assets 5,738,044 5,197,804Cash and deposits with banks 2,027,225 1,691,423Investments 1,831,142 1,882,479Loans 1,696,775 1,451,773Deposits from customers 4,787,228 4,464,379Subordinated debt capital 75,000 75,000Shareholders’ equity 335,167 286,525

Net book value per share $17.41 $14.85 Market value per share $33.00 $28.64 Number of shares (in thousands)* 19,247 17,571 Number of shareholders 3,364 3,619 Number of employees 1,229 1,162

Financial Ratios

Return on assets (after discontinued operations) 1.5 % 1.2 %Return on equity (after discontinued operations) 27.1 % 22.7 %Total capital funds to total assets ratio 7.0 % 7.2 %Risk weighted capital ratio 13.8 % 14.8 %

* Excludes shares purchased by the Bank for the Stock Option Trust. (See note 18 to the ConsolidatedFinancial Statements.)

Comparative share data has been restated to reflect the 1 for 10 Stock Dividend in August 2001.

All percentages here and in the report that follows are based on actual rather than rounded numbers.

P.08

Working with manygenerations of Bermudians

Corporate ProfileP.09

With a stable history that

parallels Bermuda’s

development, Bank of

Butterfield has evolved to

become a vital community

bank and a provider of

specialised offshore

financial services.

We trace our origins back to theButterfield family, who farmed theisland as early as the 1600s. In 1758,Nathaniel T. Butterfield founded amerchant-trading firm, which in 1858became The Bank of N.T. Butterfield & Son, Bermuda’s first bank.

Working with many generations ofBermudians, we have made asignificant contribution to building astrong and successful economy on theisland. Dating back to the late 1800s,we supported a budding tourismindustry by lending to hotels, retailersand other parties building the island’sinfrastructure. In 1904, with theequivalent of about $120,000 inassets, the Bank was incorporated byAct of Parliament. By 1923, we had 13employees, and by 1946, we had 425shareholders. By the 1950s, we wereserving a growing internationalbusiness community. Throughout therest of the 20th century we continuedto play an essential role in the island’seconomy, and undertook focusedexpansion in offshore markets.

Today we continue to providecommunity banking services inBermuda and the Cayman Islands andhave become a specialist offshorefinancial services group. We provideinstitutional and individual customerswith a range of banking, credit,treasury, investment, trust, custodyand corporate services.

Our headquarters remain in Bermuda’scapital, Hamilton, and the island ishome to our largest operation. We alsohave offices in Barbados, the CaymanIslands, Guernsey and the UnitedKingdom, as well as a strategicinvestment in Hong Kong. We have over$5.7 billion in assets and administerover $45 billion of client assets.

Our success is built on fundamentalstrengths: integrity, a stable customerbase, strong capital and liquiditypositions and solid core businesses.Essential to our accomplishment is a dedicated team of employees whowork together to continue to buildbusiness, increase efficiency andimprove service. In all, we had 1,229employees at the close of financialyear 2002, 749 in Bermuda and 480 overseas.

Our home country regulator is theBermuda Monetary Authority, whichoperates in accordance with Baselprinciples and maintains closecontacts with regulators in the otherjurisdictions where we have offices.Bank of Butterfield common stock is listed on the Bermuda StockExchange and the Cayman IslandsStock Exchange. We have over 3,300shareholders with 21 millionshares outstanding.

Community CommitmentP.10

Contributing to causes that

strengthen the community is

one of Bank of Butterfield’s

key corporate values. We

believe that our business is

tightly linked to the economic

and social conditions of the

environments in which we

operate, and it is our

responsibility to help the

communities that support us.

We ensure that our donations are usedfor causes that make a positivecontribution to society and that oursponsorships support areas such aseducation, sports, healthcare and thearts. Our community events, whichinclude the Grand Art Festival by theSea and the Concerts in the Parkseries, now in its 10th year, have awell-earned reputation in Bermuda as enjoyable family outings. Oursponsorships range from youth sailingawards to a museum exhibit thatcelebrates Bermuda’s cultural, politicaland family ties to the Caribbean.

Supporting the aspirations of youngpeople is important to us. We fundscholarships so that promisingstudents may pursue higher education.In Bermuda we hosted our second“Hot Jobs Forum” for college anduniversity graduates to provideinformation about career choices.

We encourage our employees tobecome involved in fulfilling ourcommunity commitment. In Bermudawe introduced an employee-drivenprogramme called BEST (Bank ofButterfield’s Employee Shared Trust).Employees donate funds to BEST, andthe Bank matches the total amount ofemployee contributions each year. Inthe first year of the programme,employees pledged more than $40,000in voluntary charitable donations,which will result in over $80,000 beinginvested in community initiatives inBermuda this year. Employees whodonate to BEST determine thecharitable activities and sectors ofthe community that will benefit.

Following the tragic events of 11September 2001, we were inspired to help friends beyond our ownborders. We joined forces with otherorganisations in Bermuda to establishthe Bermuda American Relief Fund.Combined with our initial bequest of$150,000, the fund raised more than$475,000 to assist the spouses andchildren of the victims of the terrorist attacks.

In the Cayman Islands we continue ourpatronage of the arts in associationwith the Cayman National CulturalFoundation by sponsoring a children’sart programme. The Cayman MaritimeHeritage Foundation and the CaymanIslands Little League also benefit fromBank of Butterfield contributions. The10th annual Bank of Butterfield/HyattRegency Irish Jog attracted over 850participants and volunteers to raisefunds in aid of a local After-SchoolCentre. We also support JuniorAchievement, with dedicated employeesmentoring young entrepreneurs in ourtraining facilities.

We commend our employeesthroughout the Bank who generouslyshare their time, enthusiasm andexpertise with organisations that makea difference in people’s lives. Ourcommunities are stronger as a result.

P.11

Supporting theaspirations ofyoung people isimportant to us

Chairman’s Letter to the Shareholders

On behalf of the Boardof Directors I ampleased to report that,despite a challengingeconomic environment,the management andemployees of Bank ofButterfield havedelivered a fourthconsecutive year ofrecord profit for the 12 months ended 30June 2002.

Since its establishment in the 1800s thisBank has prospered through manyeconomic cycles, and I commend thecurrent team for contributing to a traditionof success as our evolution continues.

I am pleased to report that the Bank’sachievements during the past year havebeen acknowledged with the Bank of theYear in Bermuda Award presented by“The Banker” magazine and the FinancialTimes Group. This recognition serves toreinforce what our current annual reporttestifies – Bank of Butterfield’s first classteam has performed very well and ispoised for more success in the future.

During the year under review CalumJohnston retired from his position asPresident & Chief Executive Officer afterfour years with the Bank. On behalfof the Board of Directors I would like to thank him for his substantialcontributions to the success of the Bank and wish him well in his futureendeavours. In January this year wewelcomed Alan Thompson as President& Chief Executive Officer. With threedecades of experience in internationaland domestic banking, Mr. Thompsonhas considerable expertise and anoutstanding reputation. I am confidentthat he will be instrumental in ourcontinued strength and profitability.

Also this year Michael Butt resignedfrom the Board of Directors, and I thankhim for his valuable service and thesound advice he has rendered since hisappointment to the Board in 1996.I extend a warm welcome to JohnWright, our newest Board member, whois an accomplished banker with manyyears of international experience.

The scrutiny of corporate governancepractices during the past year motivatedus to examine our own Board andmanagement structure and how we shareinformation between management,directors, shareholders and the public.A risk review, conducted by anindependent outside organisation, of ourrisk management and control systemsconfirmed that Bank of Butterfieldapplies the fundamentals of good riskmanagement and internal control. Wenevertheless saw room for improvementand decided to re-align some of themanagement committees to simplify ourinternal communications and strengthenfurther our control of risk management.

In April 2002 the Board of Directorsmade a decision to change the Bank’sfiscal year end from 30 June to 31December to enhance the ability ofmarket analysts and investors to compareour results with those of other banks.The next reporting period will be the sixmonths from 1 July to 31 December2002 and then annually thereafter.

In closing, I would like to express sincerethanks and congratulations to the Boardof Directors, management and employeesfor another year of significantaccomplishment. I also thank my fellowshareholders and customers of Bank of Butterfield. Your loyal support isessential to our continued success.

James A.C.King, MD, FRCS(C), FACS, JPChairman of the Board

P.12

President & Chief Executive Officer’s Report

As we report on a yearthat was both challengingand profitable for Bankof Butterfield, wemaintain an optimisticoutlook for futuresuccess balanced by arealistic perspective onthe global economicenvironment.

Overall the Bank performed well,delivering another year of record profitand a 27.1% return on equity.

This is our first annual report since 11 September 2001. Those tragic eventscaused a negative impact on tourism andthe stock markets, but increased capitalflowing into Bermuda’s insuranceindustry. While our community bankingactivities performed well, with increasesin both loans and deposits, we were notimmune to the effects of the world inwhich we operate. Our net incomegrowth slowed along with the economyduring the last two quarters of the year.The increase in our non-performingloans was also consistent with theeconomic situation, although they remain at acceptable levels, representing1.4% of total loans.

We accomplished a great deal during theyear. Our investment teams in Bermuda,the Cayman Islands and Guernsey againreceived recognition from Standard &Poor’s for the performance of ButterfieldFunds. In addition to several first placeawards for individual funds, the overall

family of Butterfield Funds received asecond place award for five-yearperformance. This is particularlygratifying as it reflects the long termresults of our investment strategy acrossall categories.

On the international front, we establishedButterfield (Barbados) Limited topromote the investment managementservices of the Group in a promisingmarket, focusing on international bankingand insurance sectors, internationalbusinesses and trusts. Also, part of ourprofit this year came from the sale of acontrolling interest in our Hong Kongsubsidiaries, a transaction in keeping withour strategy to focus on core businessesand strengths.

Without a doubt, convenient, multi-channel access is essential for bankcustomers in the information age. Wecontinued to enhance the functions ofour Internet Banking products to meetcustomer needs in both Bermuda andthe Cayman Islands. In Bermuda weadded telephone banking to provide anadditional channel for our customers tomanage their money.

We also identified key demographicsectors of the market and developedspecialised packages to meet theirneeds. For example, a new financialmanagement seminar and productpackage called “Hook Up with BNTB”helps young people get started on theroad to financial responsibility.

Improving customer service remains akey objective as we aim to not onlyachieve customer satisfaction but toexceed expectations whenever possible.Since joining the Bank I have been

consistently impressed by the calibre ofpeople who work throughout the Group,and I believe that our expertise andteamwork will see us continue to improveservice, enhance efficiencies, winbusiness and meet challenges head on.

Corporate citizenship is a shared value at Bank of Butterfield. This year weextended the reach of our charitabledollars in Bermuda with BEST, Bank ofButterfield Employees Shared Trust.BEST is a partnership that combinesemployee donations with matching Bankfunds and makes charitable investmentsas directed by those who contribute.

Moving forward, I believe that theworldwide focus on corporate ethics andregulatory compliance will continue. Thisunderlines the need to continue to bevigilant in our own practices and tosupport and encourage high regulatorystandards in the jurisdictions in which weoperate. Communicating this complianceclearly with our stakeholders is alsoessential, as was emphasised by the toneof recent media reports regarding UScompanies locating offshore.

I would like to thank our employees in all locations for their teamwork andcommitment, our Board of Directors fortheir expertise and advice, and ourcustomers and shareholders for theirloyalty and trust. You have all beeninstrumental in our success, and I amconfident that together we will achieveeven more in the future.

Alan R.Thompson President & Chief Executive Officer

P.13

P.14

P.15

The Bank of N. T. Butterfield

& Son Limited reported record

Group earnings of $82.3

million for the year ended 30

June 2002. This represents an

increase of 35.5% over the

$60.7 million (after losses from

discontinued operations)

achieved in fiscal 2001 and

was our fourth consecutive

year of record earnings.

Of the $21.5 million increase, $17.0million arose from the gain on disposalof an 80% controlling interest in ourHong Kong subsidiaries during June2002 to Dexia Banque Internationale àLuxembourg (Dexia BIL). Excluding thisdisposal, therefore, underlying netincome was up $4.5 million, or 7.5%,which is extremely pleasing given theunderlying economic environment duringthe year under review.

The global uncertainty and stock marketdownturn after 11 September 2001, andrecent corporate accounting events in theUS and Europe, affected businessesworldwide. In particular, financialservices companies were impacted bysubstantial interest rate cuts made by theUnited States Federal Reserve Board andthe Bank of England, which broughtshort-term US and UK interest rates totheir lowest levels in 40 years.

These cuts resulted in a decrease in net interest income across the Bank’sbusinesses. However, in thecircumstances, a reduction of only 3.0%in net interest income after provisionsfor credit losses was not unsatisfactory.

Despite the economic background, weachieved financial success in many ofthe activities of our core businesses.We experienced an increase of $2.4million, or 9.1%, in the profitability ofour Community Banking business inBermuda reflecting increased loangrowth and fee income. In Cayman,the impact of US interest rate cuts oninterest margins was more severe andwas a major factor in the decrease in itsnet income by 20.5%, or $4.6 million, to$17.9 million. Our Guernsey operationscontinue to produce substantial businessgrowth with significant fee incomeresulting from the acquisition of theCanadian Imperial Bank of Commerce’s(CIBC) businesses. As a result netincome was up a pleasing $0.6 million or 14.7%. The United Kingdom operationprovides a valuable presence in astrategically important market, and weexpect its contribution to grow steadilyin the future.

The solid performance reflects ourstrategy of concentrating on corebusinesses and existing strengths.We continue to apply our expertise andknowledge to businesses and marketswhich offer the greatest opportunity.At the same time, we maintain a focuson efficiency in our operations.The result is that we move from strengthto strength as we actively and selectivelymarket our services. The diversity of

business streams and geographical areas also contributed to our strong performance.

Our asset quality remains strong. Whilenon-performing loans have increasedfrom $9.5 million a year ago to $24.8million, they still only represent 1.4% oftotal loans. The reason for the increaseis related to the Bermuda and Caymantourism market, and three hotel loans inparticular. Given our conservativelending criteria and strength of securitytaken, we anticipate substantial recoveryof both principal and interest on theseloans, which collectively total $13.0million. As at June 2002 the generalprovision for loan losses of $20.6 millionwas equivalent to 1.2% of total loans. Inaddition, there are specific provisions of$3.9 million held for possible shortfallsin the security held for non-performingloans. In total, therefore, loan provisionswere $24.5 million, or 1.4% of the loanportfolio.

Approximately one third of our assetsare held in investments, predominantlyhigh quality investment grade securities,the purpose of which is to enhance boththe Bank’s liquidity position and the yieldover that available in the inter-bankdeposit market. The Bank has engagedStandard & Poor’s, the world renownedcredit rating agency, to monitor and ratethe Bank’s own securities portfolios,which constitute some 91.5% of totalinvestments. All of these portfolios havereceived investment grade ratings.(See table on page 42.)

Management’s Analysis of Financial Condition and Review of Operations

P.16

Performance Indicators

Certain key measures indicate the Bank’soverall strength and performance. Ourreturn on equity (ROE) for the year was27.1%, up from 22.7% in 2001. Earningsper share (EPS) was $4.27, up 36.0%compared to $3.14 last year whenrestated for the 1 for 10 stock dividend inAugust last year. Return on assets (ROA)improved from 1.2% in 2001 to 1.5% in2002. The Bank’s net book value pershare increased by 17.2% to $17.41.

The loan portfolio growth reflects ourability to meet new demand for lendingproducts, particularly in CommunityBanking in Bermuda, where we producedloan growth of 18.5%, and in the CaymanIslands, where growth was 12.7%.

An important productivity indicator is the efficiency ratio – operating expenses(excluding corporation tax andamortisation of intangible assets)expressed as a percentage of operatingincome (excluding credit provisions).In 2002 Bank of Butterfield achieved anefficiency ratio of 61.9% compared to61.8% a year ago. However, excludingincome from the sale of Hong Kong, theefficiency ratio declined to 67.0%,reflecting a reduction in net interestincome due to the sustained low interestrate environment. We continue to adopta judicious approach to revenue growthand expense management to improvethis ratio as a key financial objective.

We believe our careful attention toimproving efficiency will reduce our costof doing business going forward.

During the year 287,521 shares wererepurchased and cancelled, at an averagecost of $31.75. The Board approved a 1 for 10 stock dividend effective 14August 2001. In addition, the Boardincreased the quarterly dividend in thefourth quarter by 9.4% to $0.35 per share.The total dividend for the year was $1.28per share when adjusted for the impact ofthe stock dividend issue, an increase of21.9% over 2001. This represents a30.0% payout on 2002 net income.

10

15

20

25

30

35

'99'98 '00 '01 '02

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

J A S O N D J F M A M J

Market Value14.55 13.91 13.82 28.64 33.00

Book Value10.76 11.69 12.85 14.85 17.41

Market Value & Net Book Value per Share ($)Market Price per Share 1 July 2001 to 30 June 2002 ($)

1998-2001 Values Restated for Stock DividendNot adjusted for 1 for 10 Stock Dividend

Management’s Analysis of Financial Condition and Review of Operations

P.17

Outlook

We are optimistic that our core marketswill see improved economic conditionsand that management will continue tofind opportunities to maintain and growthe businesses.

In Bermuda and the Cayman Islands weare confident that the results of ourongoing business development,operational improvements and theenhancement of our products andservices to meet customers’ financialneeds will be beneficial.

Our presence in Guernsey, significantlystrengthened by the acquisition of theGuernsey operations of CIBC in July2001, is positioned for continued

success. Bank of Butterfield (UK) Limited maintains a positive reputation inthe United Kingdom and is important toour expansion aspirations.

We have retained a strategic interest inHong Kong through a 20% equityinterest in Dexia BIL’s Trust andCorporate Services operations in thatjurisdiction. This will enable the Bank to continue to participate in the highlycompetitive Hong Kong market throughan alliance with a major global providerof administration services to theinvestment and pension fund industries.It will also provide continuity of serviceto our customers based in the regionwho use the services of our otheroffices, particularly Bermuda.

'98 '99 '00 '01 '02

Annual Dividend ($)

0.58 0.580.68

1.05

1.28

'98 '99 '00 '01 '02

Efficiency Ratio (%)

75.068.5 67.1

61.8 61.9

'98 '99 '00 '01 '02

Return on Assets (%)

0.1

0.80.9

1.2

1.5

Pictured Left to Right:

Graham C. Brooks Executive Vice President,International & TrustC. Wendell Emery Executive Vice President,OperationsRichard J. Ferrett Executive Vice President & Chief Financial Officer

Karla Lacey-Minors Senior Vice President,Human Resources & Corporate Communications

Michael A. McWatt Senior Vice President,

Credit Risk Management

Janet M. Nearon Senior Vice President,

Customer RelationsPeter J. M. Rodger Senior Vice President,Group Legal Adviser

Ronald E. Simmons Senior Vice President &

Chief AccountantFred H. Tesch Senior Vice President &Head of Group Internal AuditLloyd O. Wiggan Senior Vice President, Banking

Bob W. Wilson Senior Vice President, Credit

Sheila Brown Vice President,Head of Investment Services

Andrew R. Collins Vice President & Managing

Director, Butterfield Corporate Services Limited

Ian Coulman Vice President & Managing Director,

Butterfield Asset Management Limited

P.18

Bermuda is home to the Bank’shead office and our largestoperation, which includesCommunity Banking and AssetManagement and Administration.Located in the mid-Atlantic, dueeast of North Carolina, it is theUnited Kingdom’s largestoverseas territory with apopulation of some 62,000.The 21-square-mile archipelagohas a long-established tourismindustry. It is the base for asophisticated internationalbusiness communityspecialising in insurance andreinsurance. It is also animportant domicile for mutualfunds and offshore trusts, and is positioning itself as apreferred centre for globalelectronic commerce.

Community Banking

Bank of Butterfield provides a full rangeof retail, corporate and treasury servicesin Bermuda. These activities are anessential part of the Group’s business.Net income from our Community Bankingactivities increased by 9.1%, or $2.4million, to $29.1 million in 2002. Ourmarket share in both the local deposit andlending markets has risen, reflecting ourcommitment to this important market.We believe that Bank of Butterfield is thepremier community bank on the islandand take pride in winning the Bank ofthe Year in Bermuda Award for 2002 from “The Banker” magazine and theFinancial Times Group.

We continue to provide innovativeproducts and services across all ourbanking functions. This year weintroduced Butterfield Direct Telephonebanking to complement our otherelectronic banking services. This serviceallows customers to perform alltransactions that can be performed at our ATMs, with the exception of depositsand withdrawals.

We are proud of our long history ofdeveloping and maintaining strongcustomer relationships built on trust andcaring service. Meeting customers’banking needs effectively and efficiently isour top priority as we evolve and improveour products, services and procedures.Through personal contact, ATMs, Internetand telephone banking, we offer ourcustomers multi-channel access, ensuringthat the Bank is conveniently available tothem at all times. We understand thatbehind each transaction is a customerwhose time and money is valuable,regardless of the channel they use.

We are expanding our initiatives to reach targeted segments of the Bermudacommunity through lifestyle based banking packages that meet their specificneeds. One such program involves anoffering to college and university studentswho are 18 years or older. The “Hook Upwith BNTB” package provides studentswith an introduction to forming their ownbanking relationship with a focus onmanaging credit responsibly. Ourcustomer-centric approach enables us toanticipate and effectively meet customers’needs, resulting in a favourable responserate to these lifestyle banking packages.

To accommodate the expandingButterfield Premium clientele, in May2002 the offices were relocated to newlyrenovated facilities in our head office.This new area, exclusively for customersof the Premium Banking service, offersuse of dedicated tellers and direct accessto Personal Banking Representatives whoact on their customers’ financial requestsand maintain an ongoing understandingof their banking needs.

To coincide with the introduction of Euronotes and coins, the Bank extended twonew services, Euro cash sales and Eurotraveller’s cheques. The resulting demandhas been significant and is expected to increase.

Our statement savings (Strata) productcontinues to drive the growth of Bermudadollar customer deposits, with the portfoliogrowing by 50.2% over the last year.Strata accounts offer attractive interestrates and quarterly statements, and can beaccessed via electronic and telephonebanking, both locally and overseas.

'98 '99 '00 '01 '02

Community Banking, Bermuda Net Income ($m)

4.1

8.6

18.6

26.729.1

BermudaP.19

E-Commerce & Electronic Banking

Technology is a key driver in the financial services industry.Throughout the year we continued to take advantage of newbusiness opportunities presented by e-commerce and e-banking.

A significant innovation introduced last year, Butterfield DirectInternet Banking, continues to provide customers with the power,control and convenience of managing their money and performingtransactions 24 hours a day, 365 days a year, using the Internet.More than 5,000 customers are now using Butterfield Direct, withan average of 42,000 user log-ins per month.

One of our top priorities is to ensure that Butterfield DirectInternet Banking continuously evolves to meet customers’needs and demands. We have expanded the functionality of theservice to include future dated and recurring transactions sothat customers can plan their payments in advance.

Electronic bill payments are a popular feature for customers,whether they pay online, via the ATM network or by telephone.During the past year we expanded the list of companies thatcustomers can pay electronically. Credit and debit cardscontinue to be a key element in our electronic banking strategy,and focus is maintained on enhancing convenience,accessibility and security for card users.

Bank of Butterfield’s web site, www.bankofbutterfield.com,won the prestigious Minister’s Choice Award at Bermuda’s first “Web S Awards” from Bermuda’s Minister of Tele-communications & E-Commerce at a ceremony held in January 2002. The site scored top marks in every category,including functionality, ease of use, aesthetic appeal and e-commerce readiness.

Lending

From a lending standpoint we experienced a very successful year,with strong performance in the corporate and business loanportfolios, coupled with steady growth in our mortgage business.

This year we achieved net loan growth of 18.5%, or $207million, bringing the total Bermuda loan portfolio to $1.3billion. Prospects for the coming year look positive, althoughwe continue to maintain a close watch on loan quality, and ourconservative lending criteria has helped to maintain theunderlying quality of our portfolio.

Residential mortgages saw growth of 8.2%, to $529.4 million,due to our quality product, strong customer service,competitive rates and improved relationships with local

realtors. Consumer loans performed satisfactorily during the year under review, with an increase of 7.9%, or $9.1 million, to $124.4 million, excluding lending to employees. We were ableto obtain an increased share of the automobile dealer businessand continue to improve our customer service.

Our Letter of Credit products continue to attract attention,notably from the insurance industry in Bermuda. During thepast financial year, these have generated solid fee income forthe Bank, and have been promoted in tandem with ourTreasury and Investment Management capabilities.

Treasury

The primary role of our Treasury is to manage the Bank’s cashflows, maintain liquidity requirements and monitor and controlthe Bank’s interest rate and foreign exchange risk. In addition tothis role as the Bank’s banker, Treasury offers a range of foreignexchange and money market products and services, includinginternational money transfers and cash management, to theBank’s customers. In order to effectively provide these services,Treasury is an active participant in the international inter-bankfinancial markets.

During 2002, the Treasury dealing room operation wasstreamlined by reducing staffing levels, eliminating inefficientprocedures and controlling expenses. This resulted in greaterefficiency and significant cost savings. As a result operatingexpenses reduced by $0.6 million or 9.0%.

The Treasury Training Programme, which seeks to attractBermudian university graduates to careers in this field,continued the success of the previous year and will beexpanded in fiscal year 2003.

The introduction of Butterfield Direct has enabled the Bank’scustomers to use the Internet to execute online foreignexchange transactions for amounts up to $100,000 or thecurrency equivalent. This feature has proven to be very popularand improved our ability to manage significantly moretransactions while simplifying the process for customers.Our foreign exchange earnings rose 9.3%, reflecting increasedcustomer volumes.

This year we implemented a new payment system, PAYplusRTGS, which moved the Bank from manual processing to fullautomation. This has significantly improved our efficiency inthe straight-through processing of wire transfers.

Bermuda

P.20

Asset Management and Administration

Three subsidiary companies comprise our Asset Managementand Administration business in Bermuda: Butterfield AssetManagement Limited, Butterfield Corporate Services Limitedand Butterfield Trust (Bermuda) Limited. International in scope,these businesses serve institutional and individual clients,including high net worth individuals and their families.

These areas receive support from the recently restructuredInvestment Services Group. All agency and back-officeoperations have been consolidated within the InvestmentServices unit of Butterfield Trust. This consolidation hasresulted in improved efficiencies and a reduction in the numberof people employed in this area. In addition, InvestmentServices provides orientation training for all new employees inany unit of the Asset Management and Administration area.

Butterfield Asset Management Limited

Butterfield Asset Management Limited (BAM), our investmentmanagement subsidiary, provides discretionary portfoliomanagement for institutional and private clients and managesthe award-winning family of Butterfield Funds, as well as theBank’s own investment portfolios.

For the fifth consecutive year Butterfield Funds receivedprestigious performance awards in the offshore fund categoriesfrom Standard & Poor’s Micropal (S&P). The Bank won two firstplace awards for the Butterfield Capital Appreciation Bond Fundin the five-year and one-year categories and a first place awardfor the Butterfield International Balanced Fund in the five-yearcategory. In addition, the entire family of Butterfield Funds wonsecond place in the world for their five-year performance.

We were particularly pleased with this year’s awards as theydemonstrate that our investment strategy has consistentlyoutperformed over the long term across all sectors. Thisaccomplishment is the result of the team effort of our Bermuda,Cayman and Guernsey investment managers

Our net income of $6.3 million was an increase of 8.4% over2001. Assets under management grew 14.5% during the year to$5.9 billion. Butterfield Funds overall increased 22.5% over lastyear to $3.7 billion. The most significant increases were achievedby the AAf Standard & Poor’s rated Liquid Reserve Fund, whichgrew by 79% to $376 million, the AA-f Standard & Poor’s ratedUS Dollar Bond Fund, which increased by 64% to $56 million,and the AAAm Standard & Poor’s rated Money Market Fund,which increased by 20% to $3.3 billion.

Butterfield Select Fund also experienced strong growth,albeit from a lower base. Our business with private clientsexperienced significant growth of 21.4%.

Through the evolution of Butterfield Direct Internet Banking, wewere able to provide significant added value to our investmentclients this year. We now offer online access to investmentaccounts, including all Butterfield Funds. Accessing investmentaccounts over the Internet is a very convenient way for ourclients to manage their money.

The opening of the Barbados office provided entry to a promisingnew market for the services of Butterfield Asset Management.This new office was established to promote our investmentmanagement services to a specialised market similar to that foundin Bermuda, the Cayman Islands and Guernsey, specifically theinternational banking and insurance sectors as well asinternational businesses and trusts.

'98 '99 '00 '01 '02

Assets Under Management by ButterfieldAsset Management ($m)

Butterfield Funds1,492 1,862 2,369 3,061 3,749

Discretionary821 1,844 1,963 2,091 2,151

Total2,313 3,706 4,332 5,152 5,900

'98 '99 '00 '01 '02

Asset Management & Administration, Bermuda Net Income ($m)

5.6 6.0

8.1

11.7

10.4

P.21

BermudaP.22

Butterfield Corporate Services Limited

Butterfield Corporate Services Limited (BCSL) markets thirdparty fund and pension fund administration services under thebanner of Butterfield Fund Services. BCSL provides a full rangeof accounting, corporate and shareholder services to offshorehedge funds and mutual funds. Our clients include a number ofthe world’s leading investment management groups withmainly institutional investors. BCSL also administers theButterfield group of mutual funds for Butterfield AssetManagement and provides accounting services in respect ofthe Bank’s own investment portfolios in Bermuda, Guernseyand the UK.

During the year the introduction of the USA PATRIOT Act andensuing guidance and directives affected parties to our funds.BCSL’s own anti-money laundering procedures already inoperation are believed by management to be as stringent asany of the proposals being made in reference to this Act.

Total income for BCSL declined 6.7% in the year, from $7.5 million to $7.0 million, as a direct result of internalrestructuring which transferred some fund and corporatecustody business, together with the associated income andexpense, to our Trust operations. When excluding the impact of this restructuring, underlying net income increased by $1.8 million, or 24.0%.

Customers of BCSL continued to provide substantial businessto other areas of the Group, such as Butterfield AssetManagement, Treasury and Credit.

Butterfield Trust (Bermuda) Limited

Butterfield Trust (Bermuda) Limited provides trust, estate,pension administration and company management services tolocal and international clients.

Our Trust and Global Custody operations in Bermuda achievednet income of $3.6 million, down $1.2 million, or 25.0%, onlast year, reflecting the impact of declining interest rates andlower equity values across major markets on fee income.

We continue to attract high quality personal and corporatetrusts, although the level of new business gained was lowerthan in recent years. We have been particularly successful atgrowing the services we provide to insurance companies basedin Bermuda and providing trustee services to multi-nationalcompanies establishing pension and other employee benefittrusts for their international work force. The importance weplace on our relationships with the settlors and beneficiaries of the trusts we administer is rewarded through our high levelof business retention.

Our appointment as a Qualified Intermediary for USwithholding taxes has been a key contributor to thedevelopment of our Investment Services and the provision of custody services to overseas investors.

In continuing to enhance our services, we successfully linkedour investment system to Butterfield Direct Internet Banking toenable clients to have convenient online access to valuationsand daily transaction reports.

P.23Barbados

In October 2001 the Bankopened Butterfield(Barbados) Limited, theexclusive Barbadosrepresentative office for theinvestment managementservices of the Group.Barbados is a promisingmarket for us because, likeBermuda, the CaymanIslands and Guernsey, it is a significant domicile for captive insurancecompanies, as well asinternational businessesand trusts. We provide theexperience and expertise tomeet the investment needsof these types of clientsthrough our Group offices.

Caroline J. Prow Vice President,Butterfield (Barbados) Limited

Cayman IslandsP.24

The Cayman Islands is one

of the most successful

international financial centres

in the world with over thirty

years of sustained growth.

The financial industry

comprises banking, trust,

captive insurance and mutual

fund administration which

have all contributed to this

success. A United Kingdom

overseas territory with a

population of about 40,000,

the Cayman Islands is a

popular tourist destination

with in excess of one million

visitors annually.

In the last two years the Cayman Islandshas introduced stringent legislation,regulations and guidelines to combatmoney laundering and to ensure thatCayman becomes a model for allinternational financial centres in theworld. This, when allied to the enhancedsupervision of the financial industry,ensures that Cayman continues to attract quality institutional and privateclient business.

The Cayman Islands Monetary Authorityissued guidelines on anti-moneylaundering regulations in 2001 requiringretrospective due diligence on all theBank’s clients by 31 December 2002.Consequently, Cayman will be one of thefirst jurisdictions in the world whereinstitutions maintain all customer files tothe latest due diligence standards.

Bank of Butterfield International(Cayman) Ltd. is a leading financialinstitution in the Cayman Islands in boththe domestic market and the internationalmarket. We offer a comprehensive rangeof community and commercial bankingservices to private and corporatecustomers and provide portfoliomanagement, stock brokerage, trust andcompany administration and mutual andpension fund administration services. In2002 we were selected Business of theYear (Financial Services) by the CaymanIslands Chamber of Commerce.

The Bank performed well despitehistorically low US interest rates and aslow tourist season following the tragicevents of last September in the US. Weachieved net income of $17.9 million,which was down $4.6 million, or 20.5%,from the previous year resulting from asteep decline in net interest income afterprovision for credit losses of $5.5 millionor 22.5%.

The strength of our performance was innon-interest revenues, which increasedyear over year by 18.2% to $21.2 millionwhile expenses increased 12.1% year overyear, primarily reflecting our investment inpersonnel and technology over the pasttwo years.

The balance sheet remained strongthroughout the year with total assets,at $1.2 billion, above $1 billion for the second year in a row. Strong loanand investment portfolio growth should improve net interest marginsgoing forward. Return on equity was asolid 16.8%.

Community Banking

With five locations, seven ATMs includinga drive-through, a web site, online bankingand debit and credit cards allied to acomprehensive range of credit facilities,we are a leader in Community Bankingoperations in the Cayman Islands.

Community Banking activities representa core activity for Bank of Butterfield inthe Cayman Islands. Our personal andcorporate banking business is aided byour strong reputation for good customerservice and innovative delivery channels.

Corporate Banking experienced goodgrowth, particularly from the captiveinsurance industry. The Butterfield Onlinebanking service is being used extensivelyby our corporate banking customers,which augurs well for continued growth.

Two and five year fixed rate depositswere introduced this year, providinghigher interest rates for clients seekingto save funds over a longer duration. Wealso introduced fixed rate loans, offeringopportunities for borrowers to lock ininterest rates for periods of three andfive years.

P.25

Community Bankingactivities represent

a core activity for Bank of Butterfield in

the Cayman Islands

Cayman Islands

P.26

E-Commerce & Electronic Banking

This year we continued to usetechnology to enhance our services tocustomers, improve efficiency and takeadvantage of new business opportunities.

Over 3,560 customers have registeredfor Butterfield Online Internet Bankingsince its product launch in May 2001.One quarter of the Bank’s customers arenow using Butterfield Online with anaverage of 12,000 user log-ins permonth. One of our top priorities is toensure the service evolves to meetcustomers’ needs and demands. Inaddition to transferring funds betweenaccounts, checking account balances orprinting statements, customers can makeutility bill and credit card paymentsonline. They can also order drafts andchequebooks, request wire transfers andissue instructions on fixed deposits.

More than 25% of the Bank’stransactions processed are nowautomated, and considerable resourcesare being directed to increasing thisfigure in the coming year.

The Butterfield Debit Card wasintroduced last year as an effectivealternative to carrying cash and writingcheques. Some 3,000 Visa Debit Cardshave been issued to clients since thecard was introduced in July 2001.In addition to providing a convenientproduct for our customers, this hasresulted in efficiency gains fromautomated processing of transactions.The card is accepted at local andinternational merchants that display theVisa logo. Transactions are completed inlocal currency with the funds deductedfrom the cardholder’s primary account.

Our web site, www.bankofbutterfield.ky,was re-launched in May 2002 andprovides information not only on thebank’s services but also on investing,how to qualify for a personal loan ormortgage, world and financial news andeven the local weather.

Lending

We experienced continued strong creditdemand with 12.7% in net loan growththis year to $214.1 million. We continueto be a leading player in the residentialmortgage market while continuing tosuccessfully grow our commercial loanportfolio. The loans to total asset ratioremains low, however, at 17.8%reflecting the highly liquid nature of ourbalance sheet.

Although general economic conditionshave deteriorated in the past year, theoverall quality of our loan portfolioremains good and adequatelyprovisioned thanks to our sound lendingpractices over the years.

Letters of Credit were in strong demandin Cayman’s captive insurance industry,and volume growth saw revenues rise31.4% in the year.

Treasury

In addition to the primary functions ofmanaging cash flows, liquidity andinterest rate and foreign exchange risk,Treasury offers a range of foreignexchange and money market productsand services to customers.

Treasury also provides support to thefront office, managing all internationalwire payments and receipts.

'98 '99 '00 '01 '02

Cayman Net Income ($m)

15.5 16.0

21.422.6

17.9

'98 '99 '00 '01 '02

Cayman Efficiency Ratio (%)

44.2 46.143.5 45.9

55.1

'98 '99 '00 '01 '02

Cayman Return on Equity (%)

19.7 18.8

22.019.8

16.8

Pictured at Left, Left to Right:

Conor J. O'Dea, Managing DirectorSheree L. Ebanks, Director & Head ofAsset ManagementBarry J. Yetton Director & Head of Banking

P.27

Asset Management andAdministration

Meeting clients’ needs by providingsuitable vehicles for asset managementis a strategic focus for Bank ofButterfield in the Cayman Islands.Our products and services, outlinedbelow, include brokerage, safe custody,portfolio management, the award-winning array of Butterfield Funds, trustand corporate services and third partymutual fund and pension administration.During the year under review, revenuegrowth of 19.4% to $12.1 million wasachieved across our asset managementand administration services.

We are currently focusing on developingand expanding our offshore assetmanagement business, and havestrengthened our team to accomplish this.

Investment Services

Our Investment Services departmentprovides discretionary portfoliomanagement for institutional and private clients, stock brokerage and safecustody services.

We obtained Qualified IntermediaryStatus for US withholding taxes, whichallows us to develop further our globalcustody business for overseas customers.

Our Investment Services team in theCayman Islands contributed toButterfield Funds winning Standard & Poor’s Micropal (S&P) offshore fundawards this year. Butterfield InternationalBalanced Fund, managed by this team,won first place in the five-yearperformance category.

Trust & Corporate Services

For private clients we offer wealthmanagement through the establishmentand administration of trusts andcompanies and estate administration.

The Bank has a good reputation in theCayman Islands’ private client marketand has been the beneficiary of thefinancial industry’s consolidation thisyear. We anticipate continuing businessgrowth in the coming year.

Services to corporate and institutionalclients include company formation andadministration, managed bank and trustcompany services and administration ofemployee-benefit plans. The managedbank business was the primary growthengine during the year under review.Our ongoing relationship with highlyreputable financial institutions is a resultof our commitment to outstanding client service.

Trust and Corporate Servicesexperienced growth in revenues of20.7% to $3.9 million, while assetsunder administration totalled $4.1 billionat the year-end.

Third Party Fund & Pension Fund Administration

We provide full administration services,under the banner of Butterfield FundServices, to offshore hedge funds, mutualfunds and pension funds. We achievedrevenue growth of 38.1% to $3.9 millionthis year with funds under administrationrising to $6.2 billion. In addition toproviding these services to third parties,we act as administrator, registrar andtransfer agent to the ButterfieldInternational Balanced Fund and theButterfield Global Blue Chip Fund.

Our relationships with professionalintermediaries at the local andinternational level continue to developand will drive new business growth inthe coming year.

GuernseyP.28

Guernsey is a long-

established and highly

competitive financial centre,

with particular expertise in

the areas of banking,

investment management,

trustee services, captive

insurance and mutual fund

administration.

A British Crown dependency with apopulation of almost 60,000, it is selfgoverning and is responsible for its owninternal affairs. It is not a member ofthe European Union but benefits fromthe free movement of goods, personsand capital between the EU and theChannel Islands.

Guernsey is a high quality, well-regulatedjurisdiction. In 2001, it became one ofthe first jurisdictions in the world tointroduce a comprehensive system forthe regulation and supervision ofproviders of trust and corporate services.As a result, Butterfield Trust (Guernsey)Limited has been licensed under TheRegulation of Fiduciaries, AdministrationBusinesses and Company Directors, etc.(Bailiwick of Guernsey) Law, 2000.

Guernsey also has in place an effectiveframework of legislation in respect ofinformation exchange in line with the

OECD’s policies on criminal tax mattersand, having achieved agreement with theOECD, has not been included on theirrecent list of uncooperative jurisdictions.

Bank of Butterfield’s presence inGuernsey dates back almost 30 years,and our businesses provide a broadrange of services to private clients andfinancial institutions. These includeinvestment management and custody,banking and treasury, trust and thirdparty fund administration services.

In July 2001 we acquired for cash theGuernsey operations of CIBC, asignificant acquisition which continuesour strategy of building on core activitiesand strengths. These operations hadassets of $414.8 million and liabilities of$400.1 million at the time of acquisition.Legal amalgamation took effect inDecember 2001 and most of the work to achieve full business integration hasbeen completed. During the year,an agreement was signed to leaseprestigious new premises from 2004,which will enable our operations to bebrought together in one building.

As a result of the acquisition, we haveconsiderably strengthened our marketposition in all business lines. Totalrevenues for the year were $25.2 million,84.0% up from $13.7 million the previousyear. Within this figure, non-interestincome more than doubled, rising from$7.8 million to $18.1 million, reflectingthe acquisition and organic growth. Totalclient assets under management andadministration increased significantly

from $4.2 billion to $10.2 billion.During the year, substantial investmentwas made in information technologysystems and there is now a modern,efficient, investment banking and fiduciarysystems platform providing a strong basisfor future development. The costs ofintegration, together with the investmentin systems, resulted in a deterioration ofour efficiency ratio, from 63.9% to 75.2%.As productivity gains are captured, andwith the one-off costs of achievingintegration having now been met, weexpect this ratio to improve significantlyover the next year.

Net income after taxation andamortisation of intangible assetsincreased by 14.7% to $4.4 million.Pre-tax return on equity was 10.9%.We expect this to improve with enhancedproductivity and continuing growth ofnon-balance sheet based fee income.Fee income rose to 71.8% of totalrevenues in 2002 from 57.1% theprevious year. At the same time, ourbalance sheet remained strong, with a risk asset ratio of 17.8% for ourcombined Guernsey operations and a loans to assets ratio of 11.4%.

Building long-term, mutually beneficialrelationships with clients, based on highquality service, remains at the heart ofour business strategy. Our mission is tomaintain this focus in a business whichhas grown substantially throughacquisition and organic growth.

Pictured Left to Right:

Robert S. Moore Managing DirectorJohn B. S. Robinson Deputy Managing DirectorPatrick A. S. Firth Managing Director, Butterfield Fund Managers (Guernsey) LimitedAndrew W. Gardner Managing Director, Butterfield Trust (Guernsey) Limited

P.29

Proactive service-based relationships are central to our private client businessdevelopment. The strategy for growth in institutional administration is tocapitalise on our leading position inadministered banking and breadth ofexperience in fund administration tocapture new business, while at the sametime maintaining the highest levels ofservice to existing clients.

Also core to our strategy is to protectour reputation by applying the higheststandards of regulatory compliance andemployment of best practice throughoutour business.

Banking

We provide a comprehensive bankingservice to high net worth individuals andinstitutions. Customer deposit balancesgrew to $857.9 million, an increase of46.9% on the previous year.

Credit

The demand for credit has been relativelylow during the past year, and scheduledrepayments of loans have resulted in netgrowth in our loan portfolio from $91.1million to $108.8 million. The loanportfolio includes exposure to property,both residential and commercial, in the UKand in Guernsey, as well as cash-backedand securities-backed facilities. Despitedifficult economic conditions, the qualityof the portfolio has been maintained.

Treasury

Our Treasury operations manage cashflows, liquidity, interest rate risk andforeign exchange risk. Approximately15% of our balance sheet assets areinvested in short term paper of aminimum rating of A. Our US dollarfloating rate note portfolio is rated byStandard & Poor’s at AAf – credit and S1– volatility and our UK Sterling floatingrate note portfolio is rated A+f and S1.Our Treasury operations are profitableand income from foreign exchange inparticular doubled to $2.6 million.

Asset Management andAdministration

Asset management and administrationservices include the provision ofdiscretionary investment portfoliomanagement, investment administrationand custody services to institutional andindividual investors. They also include theprovision of custodian and trusteeservices to collective investment schemes.

Assets under investment managementincreased to $432 million. In addition tomanaging our clients’ portfolios, theGuernsey investment team also made animportant contribution to themanagement of the award winningButterfield Funds.

Income from custody and custodiantrustee services for collective investmentfunds grew almost threefold to $1.9million based on a growth in assets underadministration of 155% to $561 million.

'98 '99 '00 '01 '02

Guernsey Net Income ($m)

1.92.3

2.9

3.94.4

'98 '99 '00 '01 '02

Guernsey Efficiency Ratio (%)

67.2 66.7 68.763.9

75.2

'98 '99 '00 '01 '02

Guernsey Return on Equity Pre-Tax (%)

17.519.4

17.515.7

10.9

Hong KongP.30

Guernsey

Trust & Corporate Services

Our fiduciary services are providedthrough Butterfield Trust (Guernsey)Limited, which specialises in private clienttrusteeship and company administrationservices to both individuals andinstitutions. This business line has grownsignificantly through the acquisition andassets under administration grew to $2.0billion, while revenues grew from $1.6million to $3.9 million.

Administered Bank Services

Our core business includes the provisionof financial administration services toother financial institutions andencompass the provision ofadministratively based outsourcingsolutions to banks, fund managers andtrust companies wishing to conductfinancial activities in or from Guernsey.

We are now leaders in Guernsey in theprovision of administered bank services to branches and subsidiaries of highlyreputable financial institutions. Weanticipate continued growth in thisbusiness line arising from our leadership position.

Third Party FundAdministration

This is provided through Butterfield FundManagers (Guernsey) Limited (BFM),which focuses on the provision ofspecialist third party fund administrationservices. BFM experienced substantialgrowth with assets under administrationincreasing from $2.6 billion to $3.4billion and revenues increasing from $2.3 million to $3.6 million.

During the year under review

the Hong Kong operations

produced net income of

$1.4 million, up 41.6%, or

$0.4 million, on the previous

year. This was primarily

due to increased fee income

generation, up $0.6 million,

or 10.4%.

In June 2002 we sold an 80% controllinginterest in our Hong Kong subsidiaries toDexia BIL. A profit of $17.0 million wasmade on this disposal, and is shown inthe Consolidated Statement of Income as‘Gain on sale of subsidiaries’. The sale is consistent with our overall strategy tofocus on core strengths while enhancingshareholder value.

In addition to acquiring a majorityinterest in our Trust and CorporateServices operations, Dexia BIL will takeover the business of the restrictedlicence branch once they have regulatoryapproval. As at 30 June 2002, the Branchhad assets of $148.8 million, primarilyconsisting of deposits with banks of$135.6 million. Loans were modest at $0.5 million.

This transaction will enable us tocontinue to participate in the highlycompetitive Hong Kong market throughan alliance with a major global providerof administration and custody servicesto the investment and pension fundindustries. We will continue to provideservices to our Hong Kong basedcustomers who maintain accounts inBermuda, the Cayman Islands, Guernseyand the United Kingdom.

P.31United Kingdom

The United Kingdom is one

of the most dynamic and

competitive banking centres

in the world. Bank of

Butterfield re-entered this

market in 2001, and our

presence in London

complements our other

businesses and enables us to

offer UK banking facilities to

our international client base.

Our core activities in the UK aremulticurrency deposits, foreignexchange, secured credit facilities andcustody of investment portfolios. TheBank’s stable and growing customerbase consists of corporate, institutionaland private clients.

Over the past year we successfullyintegrated this business into Bank ofButterfield, with good co-operation andincreasing business referrals fromBermuda, the Cayman Islands andGuernsey. We have upheld our reputationfor quality service and experiencedexcellent client retention during thetransition period following the acquisition.

During the year under review wemaintained a strong and highly liquidbalance sheet and our favourable Fitchratings were reaffirmed. Total assets weresteady throughout the year and averaged$332.7 million. We are pleased with thereception given to the Bank in the LondonMoney Market and expect to see balancesheet growth in the coming year.

Net income for the year was $0.2million, down from $0.4 million achievedduring the five months in fiscal 2001 inwhich we were a member of theButterfield Group. Profitability has beenadversely affected by the low level ofglobal interest rates, which impacts onearnings from shareholder’s funds.There was also a lower volume ofcustomer foreign exchange activitycompared to the previous year. Inaddition, the change of ownership hasadded to our stand-alone administrativecosts with the integration into theButterfield Group and as we invest forprofitable growth and development.

The introduction of a new UK regulatoryregime in December 2001 increased ourcompliance obligations. We anticipatethat this will continue to add to costs aswe ensure that we continue to observefully our regulatory requirements andbest practice.

Banking

We have developed a proactive marketingstrategy, which includes the launch of ourweb site at www.bankofbutterfield.co.uk,and the design of customer presentationsand information packs. Additionally, theBank has introduced targeted mailing andvisiting programmes and conductedlimited product specific advertising.We continued to develop our range ofservices with the introduction ofchequebooks. These initiatives havedeveloped new relationships resulting inthe opening of additional corporate,private client and custody accounts.

Lending

We provide secured credit facilities insterling and other currencies for avariety of purposes. One of ourspecialties is the provision of mortgageloans for UK residential propertypurchases by expatriates and foreignnationals whether resident in the UK ornot. These loans are available for owneroccupied or investment property.

Treasury

Our treasury dealers provide acomprehensive service to corporate andprivate clients utilising our deposit andforeign exchange facilities. We continueto accept funds from a wide range ofpublic and private sector entities that arelocated both in the UK and overseas.

Private Client Services

We provide a range of banking and otherservices to high net worth families andindividuals who require detailed attentionto their financial affairs. We havetargeted this area for growth and haveconsequently added experienced peopleto our team.

Pictured Left to Right :

Alan S. Gray Managing DirectorRichard Doughty Director & Head of Banking

P.32

Banking is above alla people business

A Capable and Motivated TeamP.33

Banking is, above all,

a people business.

Without our motivated,

customer-focused team of

employees, we would never

be able to achieve any degree

of success.

At Bank of Butterfield, we employ adiverse group of men and women who are dedicated to accomplishing our shared goals of outstandingcustomer service and efficient,effective performance.

We not only recruit carefully, but wealso encourage employees to furtherdevelop their abilities once they arehired. We extend their technical andbusiness skills, their customer servicefocus and their management andleadership competence through internaland external training and development,on-the-job coaching and cross-functional postings. Our employeesmake a significant effort to gainknowledge and achieve qualificationsthat will benefit the Bank and furthertheir own careers. They know there isan interesting and rewarding careerpath for those willing to make thecommitment and work hard.

We are pleased to support the manyemployees currently undertaking studythat will lead to professionalqualifications in banking, treasury,trust, accounting, information systemsand other fields, in addition to thosewho already hold such qualifications.

In Bermuda our Management, RetailFast Track and Treasury TrainingProgrammes prepare young employeesfor rewarding careers in the Bank’svarious business areas. Traineesreceive hands on experience and arementored by senior employees.

In the Cayman Islands, theintroduction of scholarships foremployees will provide opportunitiesfor them to continue their educationand advance their careers whilegaining work experience.

In Guernsey, following last year’sapplication to join the Investors inPeople (IIP) programme, we receivedour Certificate of Commitment fromIIP and continue to work towardsaccreditation. The IIP is aninternationally recognised standard fororganisations committed to achievingbusiness goals through thedevelopment of their employees.

During the year we introduced theEmployee Communication Council(ECC) to encourage employeeinvolvement in a variety of Bankcommunication initiatives. With theparticipation of employees throughoutthe Group, the ECC facilitateddiscussion and followed through onrecommendations to enhance internalcommunications and foster acustomer-focused, co-operativeemployee culture.

Our investments in employeedevelopment and communication areintended to benefit our team throughincreased job satisfaction, ourcustomers through improved service,and our shareholder value throughlong term improvements in results.