Bermuda Commercial Bank Reports 11% Growth In Net Income

Despite an interest rate environment at lows last experienced in 1961, BCB has not deviated from its policy to preserve a highly liquid balance sheet, whilst maintaining a low risk, fee income driven profile. Specifically, BCB continues to invest customer deposits in the interbank market and money market funds; cash and cash equivalents as a percentage of total assets were 99.1%, 98.6%, and 97.7% at March 31, 2003, September 30, 2002, and March 31, 2002, respectively.

Whilst the balance of customer deposits at March 31, 2003 increased to $788.53 million compared to $533.23 million at financial year-end September 30, 2002 and $396.42 million one year ago, this must be viewed as part of a normal business fluctuation. While total assets and customer deposits have increased, we note that during the six-month reporting period, balances matched or were below those year-end balances as clients sought more aggressive investment opportunities. However, some of our clients invested large amounts at the end of March, thus emphasizing the point that the size of the balance sheet changes over time reflecting levels of client activity.

While BCB's investment policy creates an extremely liquid, low risk balance sheet for its clients and shareholders, it also exposes the Bank's net income to vulnerability with changes to the interest rate environment. Net interest income declined from $2.65 million at March 31, 2002 to $2.47 million at March 31, 2003, a decrease of $180,000 or 6.8%.

Despite declining net interest income, total revenues increased from $4.53 million at March 31, 2002 to $5.07 million at March 31, 2003, an increase of $540,000 or 11.9%. Offsetting the declining net interest income, other income - primarily fees and commissions and exchange gains - increased from $1.88 million at March 31, 2002 to $2.60 million at March 31, 2003, an increase of $720,000 or 38.3%.

The increase in fees and commissions is attributable to new business in International Corporate Management of Bermuda Limited, a wholly owned subsidiary of the Bank, and an update of the Bank's fee structures for all fee based product offerings.

Mr. Timothy Ulrich, the Bank's President and Chief Operating Officer, stated, "As with all companies in the international financial services business, BCB is experiencing a challenging period as we have had to come to terms with the ongoing and far reaching effects of the tragic events of September 11th and the war against terrorism on the already depressed global economies. As the cost of doing business has increased everywhere after the terrorist attacks, BCB, like most international banks, had to increase its fees to match the increases in administrative expenses and the costs of compliance with the requirements to identify and prevent the trafficking of terrorist and criminal funds around the world."

Mr. Ulrich also noted that the majority of BCB's fees had been held steady since 1993. The adjustments were made to the fee structures both to bring BCB and its subsidiaries in line with their international competitors and to ensure that the cost of providing quality banking, corporate, and financial services to their clients is adequately covered. It is

essential to maintain a required level of profitability to safeguard the Bank's ongoing viability, competitive ability, and long-term business aims.

Total expenses increased from $3.52 million at March 31, 2002 to $3.87 million at March 31, 2003, an increase of $350,000 or 9.9%. Bank Management is pleased that the growth of costs did not surpass the increase in revenues in this difficult economic environment. The Bank's efficiency ratio remained fairly constant at 76.3% at March 31, 2003 compared to 76.6% at March 31, 2002.

At March 31, 2003, basic earnings per share increased to $0.28 per share compared to $0.25 per share one year ago while diluted earnings per share rose to $0.27 per share compared to $0.24 per share.

Mr. John Deuss, Chairman and Chief Executive Officer of the Bank, announced that the Bank will maintain the half-yearly dividend of $0.225 per share to be paid on May 29, 2003 to shareholders of record as of May 21, 2003. The distribution represents 80.4% of earnings for the six months ending March 31, 2003. He added that the semiannual dividend generates an annual yield of 7.2% based on the Bermuda Stock Exchange bid price of $6.25 for the Bank's common stock at March 31, 2003. The Bank's stock continues to trade below book value, currently at 57.5% of its book value of $10.87 per share.

Mr. Deuss reported that he was pleased with the first half yearly results considering BCB's policy to preserve a highly liquid balance sheet, whilst maintaining a low risk, fee income driven profile. In the upcoming six months, BCB will continue with back office upgrades moving towards full automation and to expand the functionality of the eBank platform.

Mr. Ulrich advised that the next eBanking upgrade would include online dual and tiered authorization of financial transactions in order to mirror electronically the paper based signatory requirements of a corporate entity; and eInvest offering clients the ability to make online subscriptions and redemptions from BCB's offerings of Barclays Global Investors' AAA rated money funds in dollars, sterling, and euros, as well as global equity index and fixed income funds. In addition, BCB recently launched a platform for its Fund Administration clients named €˜eFund', which provides Fund Managers and the Shareholders of their funds real-time, online access to all relevant Fund transaction and net asset value information.