Edward H. Gomez, Chief Financial Officer, commenting on the quarter's results, said: "Sustained interest rate declines and weak equity markets continued to depress revenues, a situation exacerbated by the horrific events of September 11. The diversification of our revenue streams does not fully protect us in this particular environment, and total revenue of $108 million was $6 million less than a year ago. This decline was largely due to narrowed spreads on free and low interest-bearing deposit balances after recent interest rate cuts, which resulted in a $5 million reduction in net interest income. We also strengthened our general bad debt reserve by $1.9 million in the quarter in recognition of the softening economic environment. However, non-interest income was up from a year ago with sustained strength in fees generated by our largest business, Global Fund Services, which were up 16%. This is an excellent achievement given the impact of stock market declines on client asset values. In addition, our expense control measures were effective in restricting operating expense growth to 1%, while we continued our investment in core businesses. Our emphasis at this time is on careful spending that ensures we protect and enhance our valuable infrastructure and are well positioned for strong growth when markets recover."
Chief Executive Officer Henry B. Smith added: "Our businesses remain fundamentally strong and we are confident that we are well positioned for long-term success. Certainly, our focus on
select markets that benefit from our specialised approach has served to sustain our fee streams in recent months and we believe will provide a firm base for future growth. Our most important asset is, however, our first-class people. I continue to be very proud of the people in this organisation who bring great professionalism, dedication and energy to serving our clients and growing our businesses. At this time I would particularly like to applaud the staff of our New York office for their spirit and performance during the terrible events of September 2001 as well as our global crisis management team who ensured seamless service delivery for our clients at this time. On behalf of all of our staff, I would like to take this opportunity to express our grief for the many friends of the Bank lost in the World Trade Centre disaster and offer our prayers to the thousands who lost loved ones in the events of September 11."
Third Quarter Financial Results
Quarter Ended 30 September 2001 compared with Quarter Ended 30 September 2000
Total revenue was $108 million compared with $114.3 million in the year-ago quarter. 58% of total revenue was comprised of non-interest income, which at $62.9 million was up $3.5 million or 5.8% from a year earlier.
Global fund services fees represented 47% of total non-interest income and increased 15.6% to $29.3 million for the third quarter 2001. All geographic regions reported growth driven by new business activity that compensated for the effect of market declines on the value of existing client assets. $1.7 million of the total $4 million increase was generated in the Far East and was driven primarily by revenues from Mandatory Provident Funds, which became effective at the beginning of the current year. Both revenues and client assets from these Hong Kong retirement schemes continue to exceed expectations. Other geographic regions also benefited from sustained strength of new flows into hedge funds and fund of funds vehicles, key segments of our client base. In particular, the Bermuda office reported higher global fund services fees of $1.4 million and Dublin, a focus for new business development, was up $0.7 million, a 33% increase.
Private trust fees were $7.2 million, down from $7.9 million a year earlier reflecting lower client asset values due to global equity market declines. The sharp drop in equity markets and reduced client trading activity also led to a $1.6 million fall in investment services fees to $9.7 million for the quarter. Increased fees from proprietary mutual funds in the quarter were more than offset by lower discretionary management and brokerage fees. Assets in Bank of Bermuda's range of mutual fund products totalled $5.9 billion at 30 September 2001, up from $5.3 billion a year earlier, with cash, bond and alternative categories reporting growth.
Foreign exchange earnings increased 10.5% to $10.0 million primarily due to increased volumes from Global Fund Services' clients. Banking services fees of $6.7 million were up $1 million with strong third quarter mortgage commitment fees being a key driver.
Net interest income was $47.8 million, down from $52.8 million in the prior year quarter, as reduced spreads on free and low interest-bearing deposit balances more than offset the return on higher volumes. Interest-earning assets averaged $10.6 billion in the quarter, up $0.8 billion from a year earlier. However, the net interest margin fell from 2.15% in the September 2000 quarter to 1.79% as sustained interest rate cuts eroded margins. Bank of Bermuda has maintained a short, matched-duration balance sheet, which provides market value stability but does not protect from margin erosion in the event of extreme interest rate reductions.
Investment and other income produced a net loss of $0.7 million during the quarter, compared with a $2.5 million gain last year when strong trading portfolio performance and some one-time realised gains were reported.
Operating expenses of $82.2 million were up 1.4% from the comparative period. The largest component of operating expenses is salaries, which were down $0.5 million due to reduced profit-related compensation accruals. Pension and staff benefits were $1 million higher than a year ago, reflecting increased headcount in areas of business growth. Systems and communications expenses were up $1.9 million while corporate, marketing and other expenses were $1.8 million lower, due largely to a reduction in professional fees.
Income taxes for the quarter fell by 10% to $2 million due to decreased taxable income in various locations. Net income from continuing operations after income taxes was $23.9 million, compared with $31 million a year earlier.
Balance Sheet
Total balance sheet assets at 30 September 2001 were $10.4 billion compared with $11.5 billion a year earlier. Bank of Bermuda's balance sheet assets are largely derived from the reinvestment of customer deposits, which fell by $1 billion over the past year.
Marketable securities at 30 September 2001 were $4.9 billion, compared with $4.5 billion a year earlier, while cash and deposits with banks of $3.8 billion were $1.4 billion lower than last year. Loans, less allowance for loan losses, of $1.4 billion were down slightly from the prior year.
Total shareholders' equity was $641.8 million at the reporting date, compared with $618.0 million a year earlier.
- Ends -
Notes to Editors
The Bank's results are stated in accordance with generally accepted accounting principles in the United States.
Forward Looking Statements
This media release may be deemed to include forward looking statements, such as statements that refer to business plans, financial goals, business prospects and similar matters, that indicate our beliefs and expectations for future performance. Such forward looking statements involve certain risks and uncertainties including worldwide economic conditions, success in business retention and obtaining new business and other factors. These, and other, risks and uncertainties could cause actual results to differ materially from those indicated by forward-looking statements. Bank of Bermuda's 2000 Annual Report includes additional information about factors that could affect actual results in the section entitled "Forward Looking Statements".
Bank of Bermuda
Bank of Bermuda is an international financial institution that provides banking, trust, asset management, fund administration and global custody services to its corporate, private and retail clients. Founded in 1889, its global headquarters are in Bermuda, and it has offices or subsidiaries in the Cayman Islands, Cook Islands, Dublin, Guernsey, Hong Kong, Isle of Man, Jersey, Luxembourg, New York, New Zealand, and Singapore. It has representative offices in Bahrain and London.
The Bank is a publicly-traded corporation, listed on the Bermuda Stock Exchange.
Further information on Bank of Bermuda is located on the Internet at www.bankofbermuda.com.
For more information please contact:
Alison J. Satasi, Head of Investor Relations
Bank of Bermuda
Telephone: (441) 299-6851
Facsimile: (441) 299-6543
E-mail: Investor_Relations@BankofBermuda.com