Butterfield Bank's investments in in US residential mortgage-linked securities total $479 million — but the Bank is weathering the sub-prime crisis well, chief executive officer Alan Thompson told shareholders yesterday.

Speaking at the Bank's annual general meeting, Mr. Thompson said the Bank expected to collect all amounts due from the investments.

"In the latter half of 2007, the global financial system face severe challenges connected to the collapse of the US sub-prime mortgage market," Mr. Thompson said.

"Venerable institutions from Northern Rock in the UK to Bear Stearns in the US have come close to collapse because of the turmoil in the markets.

"Butterfield Bank has weathered the storm well due to a number of factors, including the geographic and business line diversity we have built into our operations and the Bank's conservative approach to lending and investing.

"As at December 31, 2007, the Bank's investment in US residential collateralised mortgage obligations (CMOs) totalled $479 million, with a fair value of $371 million, reflecting the general widening of credit spreads.

"Based on our analysis, we believe the bank will collect all amounts due."

He added that the Bank had ceased further investment in asset-backed securities in the first half of last year, which had "proved a wise decision".

As stated in its 2007 annual report, the Bank's residential CMO holdings represent 12.8 percent of its total held to maturity investments. CMOs are securities backed by pools of mortgages. Investors buy bonds of different tranches, which each carry their own levels of risk. Butterfield Bank's policy is to invest in the most senior — or least risky — tranches.

Mr. Thompson told shareholders of a successful year, which had yielded record profits of $146 million, up 8.9 percent on 2006, and which saw assets grow seven percent to just under $12 billion.

Mr. Thompson added: "There was an unrealised loss of $6.25 million on a credit derivative transaction with the Bank's Money Market Fund, where the Bank provided financial support to protect investor interests."

Money market funds typically invest in government securities, certificates of deposits, commercial paper of companies, and other highly liquid and low-risk securities. Butterfield Bank's money market fund is rated AAAm, the highest possible credit rating, by Standard & Poor's.

Last year's annual general meeting saw the end of an era as long-time chairman James King stepped down to be replaced by former Ace Ltd. CEO Brian Duperreault. In February, Mr. Duperreault resigned after being appointed chief executive officer of global insurance brokerage Marsh & McLennan.

Robert Mulderig, who took over as the Bank's chairman told the meeting: "Brian tendered his resignation in February, having accepted a very challenging position in New York, that would have made it difficult, if not impossible for him to continue to serve on the Bank's board".

Before the meeting, Mr. Mulderig told The Royal Gazette that Mr. Duperreault's departure had been a surprise, but he was delighted to have been elected chairman.

Mr. Mulderig, who has been a director of the Bank for 12 years, said: "The Bank expanded tremendously over the years when Dr. King was chairman. We have a terrific management team and I hope we will be able to continue careful expansion, but whether we can achieve the same rate of growth remains to be seen." The Bank's priority was customer service, he added.

Mr. Muldering was one of three directors re-elected to the Bank's board, along with Mr. Thompson and John Wright.

Approval was given for the number of directors on the board to be increased from 12 to 13 and three new directors were elected. They were Butterfield Bank vice-president, international Graham Brooks, KeyTech CEO Sheila Lines and executive vice-president of Ace Bermuda, Patrick Tannock.

The meeting approved an increase in the Bank's share capital from $100 million to $260 million, through the addition of 160 million new ordinary shares of par value $1.

The Bank's three-for-one stock split in August last year, together with a recent stock dividend, pushed the number of issued shares to 98.4 million, approaching the previously approved share capital of $100 million.

"The increase in share capital facilitates the possibility of future stock splits, stock dividends or similar corporate actions," read a statement from the Bank.