Bermuda Commercial Bank Reports 44% Increase In Total Assets

The increase in total assets is fueled by growth in customer deposits placed with BCB. At September 30, 2003, customer deposits totaled $785.94 million compared to $533.23 million at September 30, 2002, an increase of $252.71 million or 47.4%. President and Chief Operating Officer, Mr. Timothy W. Ulrich, stated that he is pleased with the growth in customer deposits considering that the US dollar interest rate environment is at lows last experienced in 1958. The average balance of customer deposits for the entire 2003 fiscal year was only slightly higher when compared to average balances held during fiscal year 2002. Significant fluctuations must be viewed as part of normal business driven by client cash flow requirements.

While BCB's investment policy creates an extremely liquid, low risk balance sheet for its clients and shareholders, it exposes the Bank's net income to vulnerability with changes to the interest rate environment. Net interest income declined from $5.38 million at September 30, 2002 to $4.76 million at September 30, 2003, a decrease of $620,000 or 11.5%, largely a result of exceptionally low interest rates.

Total revenues increased to $10.19 million for the year ending September 30, 2003 compared to $9.48 million for the prior year, an increase of $710,000 or 7.5%, due to a 30.7% increase in fees and commissions and a 40.4% increase in net foreign exchange gains which contributed $1.28 million in additional client generated revenues. The increase in fees and commissions is attributable to a combination of new business and a modification of the Bank's fee structure, which had not been changed since 1993. As the Bank holds no investments other than cash and cash equivalents, no investment income was reported for fiscal year 2003 or 2002.

In May 2003, Mr. Ulrich stated, "As with all banks and 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 and the cost of doing business after the terrorist attacks."

Total expenses for the year ended September 30, 2003 were $7.54 million compared to prior year expenses of $7.44 million, an increase of only 1.3% as a result of significant efforts to control costs. Increasing revenues coupled with relatively static expenses resulted in the Bank's Efficiency Ratio - excluding discontinued operations and unusual items - decreasing to 74.1% from 78.4% during the prior period.

Net income before discontinued operations and unusual items for the year ended September 30, 2003 increased $590,000, or 28.8%, to $2.64 million from $2.05 million. BCB reported net income after discontinued operations and unusual items of $2.64 million for the year ended September 30, 2003 compared to $5.28 million for the year ended September 30, 2002. There were no discontinued operations or unusual items in the current fiscal year. In the year ended September 30, 2002, unusual items of $2.38 million were reported representing net recoveries associated with unauthorized transactions of a former employee in 2001. In 2002, $857,000 was recorded as an addition to net income within discontinued operations as a result of the Bank divesting its holding in a property management subsidiary.

Basic and diluted earnings per share as at September 30, 2003 are calculated at $0.62 and $0.58, respectively. Basic and diluted earnings per share after discontinued operations as at September 30, 2002 were $1.23 and $1.16, respectively; basic and diluted earnings per share before discontinued operations were calculated at $1.03 and $0.97, respectively in 2002.

The Bank's Chairman and Chief Executive Officer, Mr. John Deuss, announced that the Bank would maintain the half-yearly dividend of $0.225 per share to be paid on December 11, 2003 to shareholders of record as of December 4, 2003, or $963,000. The annual dividend of $0.45 per share, or $1.93 million, matches the dividends for the preceding two financial years ended September 30, 2002 and 2001 and represents 72.6% of annual 2003 earnings. Mr. Deuss added that the semi-annual dividend generates an annual yield of 6.9%, an attractive yield considering the current low interest rate environment, based on the Bermuda Stock Exchange bid price of $6.50 for the Bank's common stock. The Bank's stock continues to trade below book value, currently at 59.2% of its book value of $10.98 per share.

During the year, BCB announced the appointment of Mrs. Dominique Smith to the new position of Senior Vice President with responsibility to oversee the day-to-day management of the Bank and its subsidiaries, including business development and quality control. Recently, the Bank announced the addition to its Management Team of Mr. Glendall Phillips as the General Manager, Banking & Custodial Services.

Mrs. Smith advised that in the latter half of 2002, BCB invested in new custody and fund administration systems, both to provide enhanced reporting to clients and management, and to increase efficiency and accuracy via the automation of manual procedures, resulting in overall cost efficiencies to the Bank. These systems were fully implemented and enhanced during 2003. In the upcoming year, BCB intends to upgrade its trust system and main banking system with the continued objective of improving efficiency and reporting to clients and management.

BCB also upgraded its Internet Banking System to include online dual and tiered authorization of financial transactions in order to mirror electronically the paper based signatory requirements of a corporate entity; launched a platform for its Fund Administration clients named €˜eFund', which provides Fund Managers and the Shareholders online access to all relevant Fund and Shareholder transactions together with all relevant net asset value information; and implemented its eInvest product, granting 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.

Mr. Ulrich stated that "BCB's philosophy of working closely with clients to determine product needs has resulted in offering a new share class in the eInvest platform that allows for same day liquidity in a US dollar money fund." In the upcoming year, enhancements will be added to eFund allowing Fund Managers greater reporting capabilities and access to further information, and the Internet Banking System will be further upgraded to meet client needs.

Mr. Deuss confirmed that BCB's strategy continues to emphasize full automation, digital delivery of services, and a liquid balance sheet. A low, almost no-risk, fee income driven profile will be maintained. The Bank will continue to provide personal, flexible service, as both the Bank and the eBanking platform are continually upgraded, to offer an increasingly enhanced products and services to the Bank's expanding client base.