Bank of Bermuda Reports Record 1999 Earnings

For the full 1999 fiscal year, earnings per share increased 23% to $3.52, on a diluted basis, from $2.87 last year. Net income was $76.3 million, up 25% from $61.2 million a year ago. Return on shareholders' equity for the year was 16.3%.

Edward H. Gomez, Chief Financial Officer, said: "1999 was our seventh consecutive year of record earnings. It also marked a second straight year of more than 20% growth in earnings per share. These results are especially pleasing in a fiscal year that presented our fee-based businesses with significant challenges. Higher interest earnings made an important contribution to our record performance and were the result of improved productivity on both sides of our balance sheet.

"Strong results in the fourth quarter continued the trend of growth in core revenues reported in the previous two quarters. Improvements in fee revenues were particularly encouraging, with a quarter-to-quarter increase of 8% that included 11% growth in corporate trust fees."

Mr. Gomez added: "These excellent results enable us to provide our shareholders with a special dividend for the second year running. The declaration of a $0.50 per share special dividend reflects the commitment of our Board of Directors to ensuring that shareholders participate directly in the Bank's financial achievements, which have generated growth in net income of

2/ BANK OF BERMUDA REPORTS RECORD 1999 EARNINGS PER SHARE OF $3.52, UP 23%, AND FOURTH QUARTER EARNINGS PER SHARE OF $0.96, UP 17%. STOCK DIVIDEND AND SPECIAL CASH DIVIDEND ANNOUNCED

over 50% in the past two years. In addition, the Board is declaring a 10% stock dividend to shareholders of record on 31 August 1999. These actions demonstrate that the translation of financial performance into tangible value for our shareholders continues to be a high priority for Bank of Bermuda."

Henry B. Smith, President and Chief Executive Officer, commented: "We are obviously delighted with these results. We have made significant progress in the current year in tailoring our products and services to better meet the needs of our corporate, private and retail clients. Recent product additions and other achievements, including the acquisition of Bermuda Home, are already making a positive contribution. We believe that we will receive ongoing rewards from our advances this year and that, with signs of recovery in important fee-based businesses, we are well positioned for continued growth into the new millennium. The hard work and commitment of staff at all levels of our organisation have produced these results. It is our people and their creative dedication to customers that will continue to make Bank of Bermuda unique."

Financial Results

Fourth Quarter 1998/99 Compared to Fourth Quarter 1997/98

Total revenue increased 12% to $94 million, from $83.7 million in the fourth quarter of last year. The growth was largely generated by increased net interest earnings, which climbed 36%, while fee revenues were marginally higher than the same quarter a year ago.

3/ BANK OF BERMUDA REPORTS RECORD 1999 EARNINGS PER SHARE OF $3.52, UP 23%, AND FOURTH QUARTER EARNINGS PER SHARE OF $0.96, UP 17%. STOCK DIVIDEND AND SPECIAL CASH DIVIDEND ANNOUNCED

Fee revenues for the quarter of $54.1 million compared to $53.3 million a year earlier. Corporate trust fees of $23.5 million were considerably improved on the earlier quarters of the fiscal year and down just over 2% on the fourth quarter of last year. The recovery in corporate trust fees was mostly due to the upturn in the Asian financial markets and, after some significant declines in the earlier part of the fiscal year, our Far East offices reported fourth quarter revenue little changed from the same quarter last year.

Private trust fees, investment services fees and foreign exchange earnings all reported marginal changes from the same quarter last year. With the acquisition of Bermuda Home contributing about a third of the increase, banking services fees grew 36% to $6.1 million for the quarter reflecting the continued growth of our retail banking division.

Net interest income increased to $38.3 million compared to $28.1 million in the same quarter last year, reflecting the improved yields enjoyed throughout the year that were produced by a change in our deposit pricing approach as well as our move out of inter-bank deposits into high quality marketable securities.

Investment and other income for the fourth quarter was $1.5 million compared to $2.3 million a year earlier.

Operating expenses in the fourth quarter 1999 of $72.1 million, compared to $66.1 million in the same quarter last year, include $1.9 million of incremental expenses relating to Bermuda Home, acquired during the current year. The remaining increase mostly reflects higher salary and other staff related costs due to annual pay rises and staff growth.

4/ BANK OF BERMUDA REPORTS RECORD 1999 EARNINGS PER SHARE OF $3.52, UP 23%, AND FOURTH QUARTER EARNINGS PER SHARE OF $0.96, UP 17%. STOCK DIVIDEND AND SPECIAL CASH DIVIDEND ANNOUNCED

Full Year 1999 Compared to Full Year 1998

Revenues grew 14% to $353.9 million from $310.9 million last year as continued strong interest earnings and one-time investment gains more than offset declines in corporate trust fee revenues.

Fee revenues totalled $197.8 million, down 3% from $204.2 million in the prior year with significant changes reported in corporate trust fees, which fell 12%, and banking services fees, which were up 23% on last year.

Corporate trust fees, the largest component of fee revenue, were $83.8 million, compared to $95.4 million last year. Our Far East offices suffered 75% of the year on year decline as the regional financial crisis reduced client asset values and led to a fall in ad valorem fee revenues. The majority of the decline was reported in the first half-year, reflecting record revenues in the first half of the 1998 fiscal year. Returning confidence in the Asian markets in the latter part of the year led to an improvement in client asset values in the region, which finished the year higher than a year earlier. Corporate trust fees in the second half-year were up 14% on the first six months.

Private trust fees of $28.1 million were slightly higher than last year's figure of $27.7 million with improvements in Europe and the Americas more than offsetting a decline in the Far East. Investment services fees also reported a modest increase to $30.2 million, from $29.6 million a year earlier. Banking services fees climbed 23% to $21.5 million. Bermuda Home, acquired by Bank of Bermuda during the current year, generated approximately one quarter of the increase in banking services fees with the remaining growth largely driven by excellent performance by the

5/ BANK OF BERMUDA REPORTS RECORD 1999 EARNINGS PER SHARE OF $3.52, UP 23%, AND FOURTH QUARTER EARNINGS PER SHARE OF $0.96, UP 17%. STOCK DIVIDEND AND SPECIAL CASH DIVIDEND ANNOUNCED

Retail Clients Division. Foreign exchange earnings at $33.1 million matched the record performance in the prior year.

Net interest income of $146.2 million was a record and 46% higher than last year. The improved interest earnings were mostly generated by a more active approach to pricing our deposits as well as from improved asset yields. In addition, Bermuda Home contributed $5.3 million to current year interest earnings. We changed the composition of our treasury asset portfolio during the fiscal year by reducing our inter-bank deposits in favour of high quality floating rate securities, resulting in a higher overall yield.

Investment and other income was $9.9 million for the year, an increase of $3.3 million from last year reflecting some one-time investment gains and distributions.

Operating expenses totalled $272.7 million, up 12.9% from $241.5 million in the prior year. Over 60% of the year on year increase is due to higher salaries and related expenses resulting from annual pay rises at the start of the fiscal year and higher headcount to support business growth initiatives. Additional expense growth reflects systems upgrade costs, higher corporate and marketing expenses, and the impact of Bermuda Home costs, included in group results for the first time this year.

Balance Sheet

Total balance sheet assets at 30 June 1999 were $9.5 billion compared to $10.1 billion a year earlier and $9.6 billion at the end of the previous quarter. 1998 year end total

6/ BANK OF BERMUDA REPORTS RECORD 1999 EARNINGS PER SHARE OF $3.52, UP 23%, AND FOURTH QUARTER EARNINGS PER SHARE OF $0.96, UP 17%. STOCK DIVIDEND AND SPECIAL CASH DIVIDEND ANNOUNCED

assets were unusually high due to some significant short term deposits received shortly before the reporting date. Bank of Bermuda's balance sheet assets are derived from the reinvestment of customer deposits, which were relatively constant over the year as growth in client deposits was attracted into our off balance sheet money fund products.

The composition of balance sheet assets has changed significantly from a year ago. Cash and deposits with banks has declined from $6.5 billion to $4.4 billion ($4.6 billion at 31 March 1999), as funds were redirected into high quality marketable securities. Marketable securities totaled $3.4 billion, up $1 billion from a year earlier and slightly higher than the previous quarter. Loans, less allowance for loan losses, climbed from $950 million to $1.4 billion, at both 31 March and 30 June 1999, reflecting the consolidation of Bermuda Home assets during the third quarter.

Total shareholders' equity increased $49.3 million to $491 million at the reporting date, resulting from the retention of earnings.