The core operating results for the quarter exclude a net charge of $24.6 million, $0.86 per share, representing the net cost to the Bank of the preliminarily approved court settlement of the U.S. Cash 4 Titles class action litigation announced on July 9, 2001 and related adjustments. After the charge, net earnings for the quarter were $3.1 million.
Commenting on the June quarter results, Edward H. Gomez, Chief Financial Officer, said: "This has been a particularly challenging quarter for Bank of Bermuda. Obviously, the quarter was impacted by the substantial charge to establish a reserve in connection with the Cash 4 Titles litigation. Looking at our core business performance, underlying business trends remain positive and we continue to expand our client base. However, economic conditions have constrained revenue growth. The effect of increased deposit volumes was more than offset by pressure on our net interest margin due to declining interest rates, and careful investment in the future also contributed to higher operating costs. We maintain our forward-looking focus and the current quarter's operating costs include some one-time items to position our businesses to take advantage of new opportunities. The main driver of the remaining increase in operating costs is our Hong Kong office's investment in people and systems to support the Mandatory Provident Fund business, the revenue flows from which are continuing to build and to exceed expectations."
Henry B. Smith, President and Chief Executive Officer, commented: "We believe that our long-term prospects remain very strong and we continue to be proactive in identifying opportunities to build on our particular competitive advantages. Clearly, this quarter has presented the Bank with some unique demands but it has also placed us on a sound footing to move forward. I would like to thank both our staff and shareholders for their continued support of Bank of Bermuda."
Financial Results in Detail
Quarter Ended 30 June 2001 compared with Quarter Ended 30 June 2000
Total revenue for the quarter was $119.7 million, a record level and 11.4% higher than a year ago. Non-interest income was $63.1 million, compared with $58.2 million for the same quarter last year, and represented 52.7% of total revenue.
The largest component of non-interest income, global fund services fees, was $4.8 million, or 19.6% higher than a year earlier as revenues from new business more than compensated for the effect of global equity market declines on existing client assets. 73% of the increase in GFS fees was generated in the Americas where new business flows were particularly strong, driven by heightened interest in the hedge fund and fund of funds businesses, in which Bank of Bermuda specialises. In Hong Kong, revenue from retirement schemes administration was $1.3 million, or 117%, higher than the prior year's quarter as fees on the Mandatory Provident Funds, government mandated retirement schemes, commenced at the start of the current calendar year. In total, GFS fees in the Far East were up $1.8 million from last year. In Europe, GFS fees reported an overall decline of $0.5 million.
Private trust fees of $8 million compared with $6.4 million a year earlier, when results were reduced by a non-recurring adjustment of $1.9 million. Excluding this prior year item, private trust fees were slightly lower. Investment services fees were little changed at $10.1 million as a decline in brokerage and execution fees due to reduced trading volumes was offset by higher revenue on proprietary investment products. Bank of Bermuda's total assets under management in mutual fund products at 30 June 2001 was $5.5 billion, compared with $5.1 billion a year earlier, with growth in money, bond and alternative fund products more than offsetting a market driven decline in equity funds. To build on its base of established investment products and strong reputation as a provider of fiduciary services, Bank of Bermuda's Private Client Services division has recently introduced a new structure, based around Client Relationship Management teams, that it anticipates will enable it to both expand its client base and increase revenues from existing clients by providing a more integrated wealth management service.
Foreign exchange earnings in the current quarter were $9.7 million, compared with $9.8 million a year earlier, as foreign exchange markets were quieter than recent quarters. Banking services fees were $1 million lower at $5.9 million, with a reduced credit card processing fees representing a significant part of the decline.
Net interest income of $50.4 million was little changed from $50.6 million in the year ago quarter. Volumes were higher with increased customer deposits in Bermuda and European offices driving an increase in average interest earning assets to $10.5 billion from $9.5 billion a year earlier. However, declining interest rates suppressed margins by reducing yields on free and low interest paying balances, offsetting the impact of improved volumes. The provision for bad debts for the quarter was $0.3 million compared with $0.2 million last year.
Bank of Bermuda reported investment and other income of $6.6 million for the quarter (June 2000 quarter - $0.3 million expense) due to realised gains on the disposal of a non-strategic investment held by a European subsidiary and some available for sale securities.
Operating costs totalled $90.3 million, up 14.8% from last year with the main increase in corporate, marketing and other costs. The largest component of operating costs, salaries, were 4.6% higher than a year earlier with $1.6 million of the total $1.9 million increase reported in the Far East where Bank of Bermuda added staff to service the Mandatory Provident Fund retirement fund business, revenues from which commenced at the start of the current calendar year. Pensions and staff benefits were $13.6 million compared with $14.1 million a year ago. Systems and communications expenses were up $1.9 million from a year earlier. This category included a non-recurring charge of $2.6 million to write off the carrying value of a system in the current quarter. Corporate, marketing and other expenses were $15.5 million. In the same quarter last year, corporate, marketing and other expenses were unusually low at $6.6 million. Compared with the March 2001 quarter, which was more representative of the usual costs in this category at $13.4 million, the current quarter expense was up $2.1 million. This variance was substantially the result of higher legal fees in connection with the Cash 4 Titles litigation and investment in an evaluation of new business opportunities designed to leverage its position in reputable off-shore jurisdictions to add additional value to multi-national companies. Bank of Bermuda plans to announce a new business venture resulting from this work in the next quarter.
Income taxes for the quarter were up $0.8 million to $1.7 million as a result of increased taxable earnings in Hong Kong. Net operating income, excluding the impact of adjustments relating to the litigation settlement, was $27.7 million, compared with $28.7 million in the same quarter last year.
A net amount of $29.5 million was provided in the quarter to reflect the cost to the Bank of the preliminarily approved court settlement of the U.S. Cash 4 Titles class action litigation. This net amount represents the Bank's maximum payment under the terms of the settlement of $67.5 million less amounts confirmed to date as recoverable from insurers of $38 million. While the settlement of the class action would resolve the bulk of the Bank's potential liability for Cash 4 Titles-related litigation, a pending action in the Cayman Islands is excluded from the U.S. settlement. Bank of Bermuda is continuing to work with its insurers and is hopeful that additional coverage will be confirmed in due course. Accruals for profit-related compensation based on the Bank's total performance were reduced by $4.9 million to reflect the effect of the settlement on the Bank's results. Including the settlement provision and related compensation adjustments, Bank of Bermuda's net income for the quarter was $3.1 million.
Balance Sheet
Total balance sheet assets at 30 June 2001 were $11.5 billion compared with $10.4 billion a year earlier. Bank of Bermuda's balance sheet assets are largely derived from the reinvestment of customer deposits, which grew by $1.1 billion over the past year.
Marketable securities at 30 June 2001 were $4.6 billion, compared with $4.0 billion a year earlier, while cash and deposits with banks of $5.0 billion were $0.6 billion higher than last year. Loans, less allowance for loan losses, of $1.6 billion were unchanged from a year earlier.
Total shareholders' equity was $628.6 million at the reporting date compared with $604 million a year earlier. Excluding accumulated other comprehensive income, shareholders' equity was $43 million higher than a year ago with the increase primarily reflecting the retention of earnings.
- 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, Vice President Investor Relations
Bank of Bermuda
Telephone: (441) 299-6851
Facsimile: (441) 299-6544
E-mail: Investor_Relations@BankofBermuda.com