Edward H. Gomez, Chief Financial Officer, commented: "Third quarter net income sets a new record for the Bank. Total net income for the nine months ended March 31, 1999 is $55.4 million, also a record and a 27% increase from the same period last year. These results reflect continued strong interest earnings, as well as improvements in important fee based revenues and some non-recurring investment income. Indicators of an improving corporate trust market were reported throughout the Bank's network of offices. We are seeing a recovery of client asset values in Europe and the Americas, together with a more stable business environment in the Far East and excellent results from the Bank's other operating units."
President and CEO Henry B. Smith added: "These developments underscore our sound positioning for ongoing growth. We are continuing to expand the services offered to our clients; the new Swiss private bank, Banque Notz Stucki SA, is now open for business and we are looking forward to the launch of our new investment product, All Points Multi-Manager, next month, pending approval by the Central Bank of Ireland."
Third Quarter Performance Highlights
Revenues grew 20% to $94.3 million from $78.8 million in the third quarter 1997/98 reflecting continued strong interest earnings supplemented by some one-time investment gains.
Total non-interest income of $49.9 million was unchanged compared to the same quarter last year, as higher banking services fees and foreign exchange earnings offset a decline in corporate trust fees.
Although corporate trust fees have shown a significant recovery from the levels reported in the first half of the 1998/99 fiscal year, fees for the quarter of $21.1 million were down 6% compared to $22.5 million a year earlier. This decline is largely due to lower client asset values in the Far East. Although we have recently seen a more stable business environment and upturn in stock markets in the Far East, client asset values have yet to return to their record levels in the early part of fiscal year 1997/98.
Private trust fees in the Americas and the Far East fell slightly, reducing total private trust fees to $7 million, from $7.3 million in the prior year. The current quarter revenues are considered satisfactory and will be supplemented by new product offerings. Investment services fees of nearly $7.6 million were unchanged from last year while banking services fees increased 25% to $5.2 million. Higher banking services fees are largely the result of Bermuda Home revenue included in the Bank's results for the first time in the 1998/99 third quarter but also reflect improvements in the Bermuda and Luxembourg banking operations.
Foreign exchange fees of $8.7 million were up 6% from the third quarter of fiscal year 1997/98 as a slight widening of spreads compensated for reduced client activity.
Net interest income for the quarter totaled $39.5 million, $12.2 million higher than a year earlier. We have changed the composition of our asset portfolio over the past year by increasing holdings of floating rate securities and relying less on inter-bank deposits. These changes have generated improved interest earnings. Our results this quarter also benefited from a tightening of credit spreads and the inclusion of Bermuda Home's interest earnings for the first time.
Investment and other income was $4.9 million in the third quarter 1998/99 compared to $1.6 million for the same quarter last year as the Bank enjoyed some significant non-recurring investment gains in the current quarter.
Operating expenses were $69.9 million, 15% higher than the third quarter of fiscal year 1997/98. Bermuda Home expenses, included in the Bank's operating expenses for the first time in the current quarter, contributed $1.9 million to the year over year increase. The remaining increase largely relates to higher salaries and staff benefits resulting from necessary staff growth in Europe and annual pay rises at the start of the fiscal year. Systems upgrade expenses also contributed to higher costs in the current quarter. Cost control remains a priority for the Bank and we endeavor to restrict additional expenses to areas of business growth
Return on equity for the third quarter was 19.7%, up from 15.3% for the third quarter of 1997/98.
Balance Sheet
Total balance sheet assets at 31 March 1999 of $9.6 billion were little changed from $9.5 billion a year earlier. Total cash and deposits with banks were $4.6 billion, down from $5.8 billion a year earlier while the securities portfolio increased $800 million from $2.5 billion to $3.3 billion. Loans, less allowance for loan losses, was $617 million higher than a year earlier at $1.4 billion, mostly due to the inclusion of Bermuda Home loans in the current year figures. Customer deposits at 31 March 1999 of $8.9 billion were little changed from a year earlier. Total shareholders' equity increased 11% in the year to $475 million at 31 March 1999.