The Bank of Butterfield became a billion-dollar bank yesterday ? thanks partly to Bank of Bermuda.

Butterfield's stock price gained $1.50 on the Bermuda Stock Exchange to close at $44, pushing its market capitalisation ? the combined value of its shares ? to $1.03 billion. Just over 1,500 shares worth $66,000 were traded.

The price has risen steadily from $35 a share since HSBC announced plans in October to acquire Butterfield's main competitor, Bank of Bermuda, for $1.3 billion. Investment professionals have speculated that the deal has cast a spotlight on the smaller bank and generated greater interest in its stock.

"People are asking 'who's next?'" said Anne Kast, the president of Kast Investment Management. My guess is that some people are buying on speculation that the Bank of Butterfield will be a future takeover candidate."

She added that some investors may have also purchased the stock in anticipation of increased demand if the Bank of Bermuda sale goes through and shareholders look for alternative local investments.

"People are going to put money into the Bank of Butterfield and you are going to see that across many stocks on the local exchange," she said.

The Bank of Bermuda-HSBC deal is still subject to shareholder and regulatory approval.

Ms Kast said the anticipated monetary injection from the proposed Bank of Bermuda sale has created unusual investment opportunities in Bermuda, but the fundamentals of the Bank of Butterfield appeared sound.

"People are being very complimentary about the Bank of Butterfield in terms of how good the management has been in recent history and how it has stayed with its strategy," she said.

The bank's net income has steadily improved for the last five years and in the most recent quarter it reported a record operating profit of $20.2 million.

Bank of Bermuda's market capitalisation first topped $1 billion in August 2000; at the time, the Bank of Butterfield was valued at $360.5 million and its share price was $17.75.

"The billion-dollar mark is a big milestone," Ms Kast said.

Since June, the Bank of Butterfield has repurchased and cancelled more than 190,000 of its shares ? an indication that management believed that the company's stock was undervalued. During November, the bank spent more than $2.5 million to buy back 66,920 shares.