Bermuda Commercial Bank (BCB) yesterday reported that net income for the six months ended March 31, 2002 - including provisions for unusual items and discontinued operations - was $1.1 million compared to $7.8 million for the six months ended March 31, 2001.

The bank noted that $70,000 had been recovered from $2.5 million that a former employee misappropriated in 2001.

Releasing results yesterday BCB said: "As reported in the Bank's 2001 Annual Report, BCB recorded a reserve for unauthorised transactions of a former bank employee that were identified during the year. During the first six months ended March 31, 2002, BCB recorded a net recovery of $70,000 related to these unauthorised transactions.

"The Supreme Court of Bermuda awarded BCB a summary judgment in the amount of $2.5 million against the former employee. A small portion of these funds has been collected to date but was offset by further costs associated with the investigation. Management continues to vigorously pursue insurance coverage on these losses and will record a receivable from its insurance provider when both the amount and collectibility are reasonably determinable."

Despite the decline in revenue, the directors of BCB announced that the Bank would pay a dividend of 22.5 cents per share on May 22, 2002 to shareholders of record as of May 15, 2002. The distribution represents 89.4 percent of earnings for the six months ending March 31, 2002.

John Deuss, chairman and chief executive officer of the Bank, said the semiannual dividend generated an annual yield of 6.4 percent based on the current market value of $7.00 for the Bank's common stock, which currently trades at 69.6 percent of its book value of $10.06 per share.

The bank reported net income for the six months ended March 31, 2002, before unusual items and discontinued operations, of $1.1 million compared to $2.4 million for the six months ended March 31, 2001 and said that the downturn in BCB's ordinary net operating income is largely the result of the exceptionally low level of current interest rates and the significant affect low interest rates have on BCB's income due to its low risk operating philosophy and near one hundred percent balance sheet liquidity.

Basic and fully diluted earnings per share before unusual items and discontinued operations are calculated at $0.24 and $0.19, respectively at March 31, 2002, compared to $0.56 and $0.46, respectively, at March 31, 2001.

Basic and fully diluted earnings per share are calculated at $0.25 and $0.20 at March 31, 2002, respectively, compared to $1.83 and $1.19, respectively, at March 31, 2001.

BCB reported total revenues before unusual items and discontinued operations of $4.4 million compared to $5.8 million for the six months ending March 31, 2002 and 2001, respectively. Net interest income declined to $2.6 million from $3.5 million because of the lower interest rate environment.

From March 31, 2001 to March 31, 2002, the US Federal Reserve Bank cut the Fed Funds rate eight times, from five percent to 1.75 percent.

The bank said that because of BCB's low risk nature, the impact of these rate cuts is more noticeable than with some other banks and the lower rates resulted in reduced net interest income.

In the first six months of the 2000/2001 financial year, BCB sold its investment in the Bermuda Stock Exchange and recorded a gain of $179,000, and said that since no further investments are held, no investment income was recorded for the six months ended March 31, 2002.

Total expenses for the period ended March 31, 2002 were $3.44 million compared to $3.40 million at March 31, 2001, an increase of 1.2 percent.

Despite significant efforts to control costs, demonstrated by the increase in expenses below the Bermuda published cost of living increase, the bank's efficiency ratio increased to 77.4 percent from 58.5 percent during that same period.

The bank exited the property management business through the divestiture of a subsidiary, which owned the building that the bank occupied through early December 2001. The March 31, 2001 net income contained $5.4 million related to discontinued operations - net income before discontinuance on March 31, 2001 of $260,000 plus an estimated gain on the divestiture of $5.1 million. There were no discontinued operations as of March 31, 2002.