The Island's oldest bank ? the Bank of Butterfield ? yesterday posted earnings for 2003 of $76.5 million.

The bank said the year results meant a 14.6 percent jump on 2002 earnings, if you exclude the $17 million gain on the sale of subsidiaries in Hong Kong in 2002, and broke out to $3.73 per share. Fourth quarter earnings stood the same as the previous year at $20 million, or 97 cents per share.

The company's solid results led it to vote in a dividend increase of three cents for shareholders. The dividend now stands at 38 cents per share, with payments going out to shareholders on February 18 to shareholders of record on February 10.

Chief executive officer Alan Thompson said: "We believe our results continue to demonstrate the effectiveness of our business model. During the quarter we acquired a community bank in Barbados, a significant event in our strategic development, and our acquisitions in the Bahamas in the summer of 2003 have performed fully in line with our expectations."

Chief financial officer Richard Ferrett said the bank had been able to do well, partly as a result of its returns on equity, despite a continued low interest rate environment.

"Particularly noteworthy is that the Return on Equity (ROE) remains over 20 percent, at 20.5 percent for the fourth quarter and 20.9 percent for the full year. Despite the continued challenge of a sustained low interest rate environment, net interest income for the year was a record $112.2 million, up $14.7 million, or 15.1 percent, year on year and up $2.5 million, or 8.5 percent, on the previous quarter.

"This reflects significant growth in the customer deposit base and our asset/liability management strategies. In addition, shareholder value, measured in terms of appreciation in the bank's stock price and dividends reinvested, increased year on year by 65.2 percent." The bank said the increase in shareholder value was measured as the share price plus re-investment of dividends in the bank's shares.

Looking at the make up of its strong earnings for the year, the bank reported that one area of growth was its fees, with it earning $126 million, up year on year by $11.2 million.

The areas seeing strongest growth in fees were the bank's investment services department (up 15.3 percent), investment and pension fund administration (up 10.7 percent), banking services (up 6.9 percent) and customer driven foreign exchange (up 5.4 percent). The bank also posted record net interest income before credit related provisions of $114.6 million, and was up year on year by $13.9 million, or 13.8 percent reflecting balance sheet growth and wider margins. The net interest margin for the year was 1.9 percent compared to 1.8 percent for the same period a year ago. While, during the last quarter, the bank made net provisions of $0.9 million in respect of credit losses, bringing the total for the year to $2.4 million compared to $3.2 million a year ago. On the back of growth, the bank saw a ten percent increase in its total operating expenses which were up year on year by $14.7 million compared to a $25.9 million, or 12.2 percent, increase in total revenues over the same period when excluding the 2002 gain on the sale of subsidiaries.

Personnel related expenses were up 10.4 percent year on year, reflecting an increase in personnel due to a number of acquisitions made by the bank. The group's total headcount at December 31, 2003 was 1,381, including 37 employees in the Bahamas and 115 in Barbados, compared to 1,200 a year ago. In Bermuda, net income from core business activities increased year on year by 13.1 percent to $49.3 million. Of that, earnings from community banking grew by 9.9 percent, reflecting an 11.1 percent increase in average interest earning assets and a 14 basis points widening in the net interest margin.

Meanwhile, the bank's wealth management and fiduciary services businesses achieved a 27.2 percent growth in net income to $15.6million, reflecting significant growth in client assets under management through Butterfield Funds, which increased year on year by 10.7 percent to $4.6 billion.

The Investment & Pension Fund Administration business saw a 36.8 percent growth in net income to $4.0 million, reflecting an 8.2 percent growth in client assets under administration in Bermuda. The bank's global business accounted for 35.6 percent of its total net income which was up from 34.7 percent the previous year. Earnings broke out as net income of $24.6 million from its Caymans operations, while Guernsey saw a net income drop of $0.5 million to $2.8 million.

In the UK, a post tax loss of $0.9 million was recorded for the year, which the bank said was in line with expectations as Butterfield Private Bank executed a strategic plan to focus on the provision of banking services to high net worth individuals.

New acquisition Bank of Butterfield (Bahamas) Limited, in its first four months as part of the Butterfield group, recorded net income of $0.3 million on revenues of $1.4 million.

And in December, the bank acquired The Mutual Bank of the Caribbean Inc., a community bank in Barbados with total assets of $156 million.

Although a late year acquisition, there was net income of $0.2 million achieved, which the bank said was in line with expectations. The bank will be renamed Bank of Butterfield (Barbados) Limited early this year. The bank's acquisitions also pushed up its total loan portfolio which increased year on year by $169 million, or 9.5 percent to $1.9 billion.

The bank reported the growth being attributed in part to its acquisition of The Mutual Bank, whose loan portfolio was $62 million at year-end, coupled with increased loan demand in Bermuda and Cayman.

The bank reported that its loan portfolio had fallen off slightly with it now representing 25.2 percent of total assets, compared to 29.4 percent a year ago. Loan provisions totalled $23.5 million at December 31, 2003, representing a coverage ratio of 137 percent of non-accrual loans and 1.2 percent of total loans.

The bank changed its reporting year end from June 30 to December 31 during 2002, meaning that this release of 2003 results is the first January to December release of full-year earnings.