Capital G Bank has reported significantly increased earnings for the year ending January 31, 2004. Net income for the year was $5 million, up over 500 percent, a huge improvement in performance in the bank's second full year of operation since receiving its banking licence in October 2001.

"Our results are evidence of strong business growth and the successful launch of several new products," said Sarah Farrington, president and chief executive officer.

"The implementation of our strategic plan has ensured the continued development of an infrastructure that allows us to deliver higher quality customer service, bring innovative new products to the market and complete the recruitment of key personnel to senior management positions."

Ralph Kern, executive vice president and chief financial officer, said: "Of particular note is that the return on equity is 13.37 percent versus 2.30 percent last year. Loans and deposits both increased by 15 percent and net interest income was up by $5.1 million or 41 percent. This reflects significant growth in our overall customer base and improvements in treasury and interest rate risk management techniques."

Other highlights of the results included an increase of 15 percent in total assets to $750 million, and total loans and mortgages provided to customers increasing to $576 million, which is $68 million or 15 percent more than the previous year. According to the bank this increase reflects continued strong customer demand for its lending products. And according to Mrs. Farrington the recent announcement by Bank of Bermuda regarding the lower 6 percent interest rate it now offers on its mortgages had not made any perceptible difference to this line of business at Capital G.

"The Bank of Bermuda rate has had little effect on us, we've had very few clients wanting to refinance their loans," she said. "But then we have always provided customised lending solutions for our customers that are tuned to their needs, as well as providing a good rate, and that won't change."

She added that all rates in Bermuda are variable and so there are no guarantees that any published rates will remain unchanged for the long-term.

Capital G also reported that gross credit card assets for the Bank grew by 83 percent to $8 million, as a result of the successful introduction of two new products ? the Visa Classic and Visa Prestige cards.

"The launch of these card services and our other new products during the year has driven a lot of new business for us and we're very pleased with their performance," said Mrs. Farrington. The other new products launched included the Bank's Stock Market CD (certificate of deposit), which is tied to the Standard and Poor's 500 Index, and the US$ denominated FedFunds Account, both of which in part helped to increase customer deposits by $91 million during the year.

"Our credit cards have the lowest interest rate in Bermuda and the Stock Market CD matches or outperforms any comparable product available here," said Mrs. Farrington. "We've always been known historically for giving good rates, so our competitive pricing has helped to drive new business in."

She added that the bank anticipated reporting further increases to its customer deposits as it had also benefited from investors looking to deposit and invest funds resulting from the sale of Bank of Bermuda to HSBC. "And our move to the new building on Reid Street has already helped to increase demand for deposit accounts," she said.

Capital G also reported a significant increase in liquid assets, which totalled $188 million compared to $166 million a year ago.

Loan loss provisions at January, 31 2004 were $4 million, or .76 percent of the total loan portfolio. Net non-performing loans were reduced by $2.2 million to $13 million, representing 2.5 percent of total loans, down from 3.3 percent a year ago.

Largely as a result of the reduced loan loss provisions and increased net interest income, net income for the year was $5 million, up from $0.8 million the previous year, although this was partially offset by lower non-interest income. Net interest income for the year, before loan loss provisions, rose to $17.5 million, an increase of $5.1 million, or 41 percent, reflecting growth in interest earning assets and continued improvements in treasury an interest rate risk management techniques.

"We hired a treasury consultant a while ago and as a result we've done a considerable amount of work that has helped to improve our financial position," said Mrs. Farrington.

Loan loss provisions charged to income totalled $1.1 million, down significantly from last year's provision of $4.1 million. The larger figure from the previous year was driven by what the Bank calls "unusual items", including an accounting policy change to provide for all non-performing loans over 90 days and a large provision for a single large non-performing loan.

On the downside, realised losses on the Bank's investment portfolio were $0.5 million, compared to realised gains of 0.1 million a year earlier.

"However, our overall returns on the portfolio are in line with our expectations and we do not regard this loss as being significant," said Mr. Kern.

Commission income was also down $0.6 million primarily due to the Bank exiting a relationship with a money transfer service provider, but fee income increased as a result of the launch of the Visa card products.

Operating expenses were up $3.1 million or 32 percent for the year, to $12.9 million from $9.8 million, mainly attributable to increased salaries and benefits.

"Because we want to become the primary bank for our customers we're trying to do in two years what other institutions have taken fifty years to do," said Mrs. Farrington. "We've introduced a lot of new products and services very quickly and that has meant hiring qualified personnel to support our business growth. We've also hired additional seasoned banking professionals to our senior executive team in the areas of credit cards, banking operations and credit card risk management."

Accordingly, the number of employees at the bank at the end of January was 105, compared to 76 in January 2003. Mr Kern, a 20-year veteran of the banking industry who himself joined Capital G in February from JP Morgan, said that he will maintain emphasis on developing a strong financial management operation for the organisation.

"I'm focused on bringing improved management reporting and analysis and supporting the business managers as we try to grow our products and services," he said. The bank also reported that the continued strong growth in its various business lines and the resulting improvement in operating income are reflected in certain key performance indicators. Return on shareholder's equity rose to 13.37 percent, compared to 2.3 percent a year ago, while the return on assets was .71 percent, up from .13 percent last year. The bank's operating efficiency ratio (operating expenses as a percentage of operating income before loan loss provisions) declined marginally to 68 percent from 67 percent in 2003.

Mrs. Farrington said that the bank will continue to provide good rates with excellent customer service to build on the rapid growth already achieved by the company: "Capital G Bank Limited remains focused on building market share in Bermuda via innovative and competitively priced products, with the aim of providing a full comprehensive banking service to its customers," she said.