Bank of N.T. Butterfield & Son Ltd. yesterday reported the best quarter it has ever had, despite the challenging economic environment, according to the bank's management.

The bank made a profit of $20.2 million - the highest operating profit it has ever made. Management yesterday said it would have been officially be the record highest quarter ever had the bank not recorded a one-off $17 million addition in the second quarter of 2002 for the sale of Hong Kong subsidiaries.

“It is a quarter of records, record net interest income and record non interest income,” said Richard Ferrett, the bank's chief financial officer and executive vice president. “It is the best quarter the bank has ever had.”

Bermuda's oldest bank reported that it had made $2.8 million or 15.9 percent more in the third quarter than it did for the same quarter in 2002, when its net income stood at $17.4 million.

“We continue to be pleased with the performance achieved by the bank in the current challenging economic environment and believe it demonstrates the effectiveness of our business model,” said Alan Thompson, president and chief executive officer of Bank of Butterfield in a release.

Mr. Thompson also pointed to the fact that during the quarter, the bank achieved a strategic objective by entering the Bahamas through two acquisitions and was named ‘Bank of the Year' in Bermuda for the second consecutive year.

“Particularly noteworthy is that both net interest income and non interest income for the quarter were at record levels” said Mr. Ferrett. “Net interest income, at $28.8 million, is up year on year by $5.1 million, or 21.5 percent, and up $0.6 million, or 2.3 percent, on the previous quarter, despite the challenges of declining interest rates.”

Mr. Ferrett said that this reflects both the success of the bank's asset/liability management strategies and the growth in their customer deposit base.

He said that fees and other income stood at $31.4 million and was up by $1.7 million, or 5.8 percent, on the like quarter a year ago and $0.5 million, or 1.6 percent, on the previous quarter.

The release said that this reflected in particular strong growth in revenues from trust and fiduciary services up 13.2 percent, investment and pension fund administration, up 11.1 percent and banking services, up 10.1 percent.

Mr. Ferrett added that in addition, the bank's return on equity remains over 20 percent, at 21.6 percent, up from 20.6 percent a year ago and the return on assets increased by 0.1 percent, to 1.3 percent, compared to a year ago.

During the quarter the bank made net provisions of $0.5 million in respect of credit losses, compared to $1.5 million a year ago.

The bank's total operating expenses increased year on year by 11.4 percent, compared to a 12.8 percent increase in total income.

Personnel related expenses were up 10.6 percent year on year, though remained flat compared to the previous quarter. The bank said the group's total headcount at 30 September 2003 was 1,259, including 37 employees in The Bahamas, compared to 1,241 a year earlier.

In Bermuda, the bank's net income from core business activities increased year on year by 15.8 percent to $13.6 million. Net interest income grew by 22.8 percent, reflecting an 11.0 percent increase in average interest earning assets and a 0.2 percent widening in the net interest margin, due in part to our asset/liability management. The quarter also saw increased revenues from banking services, investment and pension and investment services, added the release.

The board also declared a quarterly dividend of 35 cents per share payable on Friday 14 November 2003 to shareholders of record on Tuesday November 4, 2003. Taking into account the ‘1 for 10' stock dividend shareholders received in August 2003 this represents a 10 percent increase in the quarterly dividend and the bank said this was evidence of the bank's continuing commitment to enhancing shareholder value.