Bermuda Commercial Bank Limited Reports 48% Growth In Net Income

Hamilton, Bermuda: 11 May 2005 - Bermuda Commercial Bank Limited ("BCB" or "the Bank") is pleased to announce financial results for the six months ended March 31, 2005.  Net income increased from $1.51 million at March 31, 2004 to $2.23 million at March 31, 2005, an increase of $720,000 or 47.7%.  Total assets grew from $586.38 million at financial year-end September 30, 2004 to $629.48 million at March 31, 2005, an increase of $43.10 million or 7.4%.  Total assets at March 31, 2004 were $1.04 billion. 

With interest rates rebounding from a period of historical lows, BCB has continued to benefit from its policy of preserving a highly liquid balance sheet, whilst maintaining a low risk, fee income driven profile.  The Bank has maintained it's commitment to a liquid Balance Sheet with cash and cash equivalents now making up over 99% of total assets.  This policy along with the Bank's solid history of profitability has contributed to BCB generating a substantial capital base and industry-leading capital ratios.

Customer deposit balances at March 31, 2005 were $574.90 million compared to $534.28 million at financial year-end September 30, 2004 and $990.84 million one year ago while average customer deposits remained at similar levels to the prior year.  President and Chief Operating Officer, Mr. Timothy W. Ulrich, stated that he is especially pleased that BCB has, this year, managed to consolidate the high growth levels achieved in deposit balances over the last number of years as this positions the Bank to maximize revenue streams from the current rising interest rate environment.   He noted however, that significant fluctuations in deposit balances must be viewed as part of the Bank's normal business operations and are due to client cash flow requirements, emphasizing the fact that the size of the balance sheet is strongly driven by changes in client activity over time.

BCB's investment policy creates an extremely liquid, low risk balance sheet for its clients and shareholders and in times of rising interest rates, it also offers the potential for strong income growth.  Net interest income increased from $2.24 million at March 31, 2004 to $3.76 million at March 31, 2005, an increase of $1.52 million or 67.9%.  Commencing in June 2004 the US Federal Reserve implemented seven 0.25% increases in the Fed Funds Rate resulting in a strong year on year increase in interest earned by BCB on its core US Dollar deposits.   The average base rate for the six months ended March 31, 2005 was 2.19% as compared to 1.00% for the corresponding 2004 period with all indicators pointing towards a continued, gradual rise in interest rates.

Total revenues increased from $5.16 million at March 31, 2004, to $6.96 million at March 31, 2005, an increase of $1.80 million or 34.9%.  Complementing the growth in net interest income, other income - primarily fees, commissions, and foreign exchange gains - increased from $2.92 million at March 31, 2004 to $3.20 million at March 31, 2005, an increase of $280,000 or 9.6%.

The increase in fees and commissions was driven by a strong contribution from fee-based activity generated by clients utilizing our traditional banking and custodial services, together with new and existing clients availing themselves of our on-line services.   The Bank also benefited from continued turbulence in the international currency markets with double-digit growth in foreign exchange commission fee income. 

As the Bank holds no investments other than cash and cash equivalents, no investment income was reported for the six months ended March 31, 2005 or 2004.  

Total expenses increased from $3.65 million at March 31, 2004 to $4.73 million at March 31, 2005, an increase of $1.08 million or 29.6%.  $230,000 of this increase is attributable to a prior year net recovery on mortgages within the Bank's declining loan portfolio.  Excluding this non-recurring item, total expenses increased by $850,000 or 21.9%.   The Bank continues to invest in its employees and technology with these areas accounting for the largest portion of this increase.  The other major components of the increase in total expenses were higher legal costs and increased marketing and compliance costs.  The rising interest rate environment and Management's strict cost discipline have resulted in the Bank's efficiency ratio improving to 68.0% at March 31, 2005, compared to 70.8% at March 31, 2004, reflecting a positive improvement of 3.9% and maintaining the encouraging downward trend of recent years.

Basic earnings per share increased to $0.51 per share for the six months ended March 31, 2005 compared to $0.35 per share one year ago while diluted earnings per share rose to $0.45 per share compared to $0.30 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 26, 2005, to shareholders of record as of May 18, 2005, representing 44.1% of earnings for the six months ending March 31, 2005.  He added that based on the Bermuda Stock Exchange bid price of $9.00 for the Bank's common stock at March 31, 2005, this semiannual dividend generates an annualized yield of 5.0% to the Bank's shareholders.  This bid price of $9.00 represents a 21.2% discount to the Bank's book value of $11.42 per share at March 31, 2005.  Mr. Deuss further advised that BCB shares traded between $7.10 and $10.00 during the first six months of the financial year, and that warrant holders exercised 1,237 warrants during the same period, resulting in additional Shareholders' Equity of approximately $9,000.   

In recent years BCB has invested heavily in enhancing and upgrading its core banking and internet banking systems and the Bank's Senior Vice President, Mrs. Dominique Smith, commented that BCB is now seeing the benefits of this investment with increased back office efficiencies, a more user friendly staff interface as well as improved client service functionality.  Mrs. Smith added that BCB has always been a relationship-driven bank and that these new systems have been designed in close collaboration with our customers' changing requirements.   The latest upgrade to our eBanking system includes Global Clearing functionality, improved client payroll processing facilities and online dual and tiered authorization for eInvest offerings. 

Mrs. Smith advised that the Bank's eInvest system allows clients to process online subscriptions and redemptions into the BCB Offshore Investment Fund Limited share classes.  These share classes invest directly into Barclays Global Investors' AAA rated money market, global equity index, and fixed income funds and offer same day liquidity in US dollar money funds.

Mr. Deuss confirmed that BCB's strategy continues to emphasize full automation, on-line 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 increasingly enhanced products and services to the Bank's expanding client base.  

The following table depicts selected financial data to accompany the preceding narrative.