Commenting on the March quarter results, Edward H. Gomez, Chief Financial Officer, said: "These results were achieved in a demanding economic environment and reflect sustained strong earnings while continuing to invest for future growth of our businesses. In comparing the quarter's results with a year ago, it's worth noting that the earlier period was a time of record earnings due to exceptionally robust market performance and trading volumes. In contrast, the current combination of weakened sentiment in global equity markets and declining interest rates represents a restraint on both fee revenues and interest income. Nevertheless, net interest income was up 7%, as we continued to attract increased deposit volumes and achieve improved yields on balance sheet assets, and we also saw promising new business in key fee-based products. Our important global fund services revenue maintained a steady upward trend as new business offset the impact of the decline in equity markets. Non-interest income also continues to benefit from increased client foreign exchange activity. Disciplined expense control remains an ongoing commitment with cost increases focused on areas of business growth. Expenses in this period were 7% higher than a year ago with over half of the increase arising in Hong Kong, where we have invested in people to service the new Mandatory Provident Fund business."
Henry B. Smith, President and Chief Executive Officer, commented: "We are proud to announce steadfast net income growth against a particularly challenging economic backdrop. Growth in net income over the same quarter last year demonstrates improvement in recurring revenue sources and strong underlying business trends. We continue to believe that our businesses have great opportunities and view the future with excitement."
Financial Results in Detail
Quarter Ended 31 March 2001 Compared with Quarter Ended 31 March 2000
Total revenue for the quarter was $118.7 million, a record level and 4.9% higher than a year ago. Non-interest income was $63.5 million, compared with $64.6 million for the same quarter last year, representing 53% of total revenue.
The largest component of non-interest income, global fund services fees, was 6.5% 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. Increased global fund services fees were reported in the Americas and Dublin, fuelled by heightened interest in the alternative fund products in which Bank of Bermuda specialises. For example, the Bank's Dublin office recently commenced servicing the 14 offshore funds of a New York based hedge fund specialist. This contributed to 34% year on year global fund services revenue growth for that office. In Hong Kong, revenue from retirement schemes administration was $1 million, or 92%, higher than the prior year's quarter as fees commenced on the Bank's servicing of new retirement funds mandated by Hong Kong's government, the "Mandatory Provident Funds". However, the impact on custody fees of asset value declines and fund redemptions in the Far East resulted in an overall decline in the Hong Kong office's global fund services fees.
Private trust fees of $8 million were 5% higher than the same quarter last year with increases reported across the Bank's operating regions. Investment services fees of $10.3 million were 25.2% lower than last year's record $13.7 million, due largely to a sharp decline in brokerage fees. Bank of Bermuda's total assets under management in mutual fund products at 31 March 2001 was $5.3 billion, compared with $4.7 billion a year earlier, as growth in money, bond and alternative fund products more than offset a market driven decline in equity funds.
Foreign exchange earnings in the current quarter were $12 million, up 11.5% from last year, as Bank of Bermuda continued to experience strong foreign exchange activity as clients repositioned their assets and currency exposures. Banking services fees were $1 million lower at $5 million, with a reduction in loan commitment fees in Bermuda representing a significant part of the decline.
Net interest income grew $3.4 million, or 6.9%, driven by improvement in both volumes and margins. Higher margins were generated by a more productive asset mix and the short-term benefits of a falling interest rate environment as Bank of Bermuda's assets reprice, on average, at a slightly slower pace than its liabilities. Amounts provided for bad debts were $(0.3) million for the quarter compared with $(0.1) million for the same quarter last year.
Operating costs were 7.3% higher than a year earlier with the increase concentrated in the Far East where Bank of Bermuda added staff to service the new Mandatory Provident Fund retirement fund business, revenues from which commenced during the current quarter. Of the total increase in salaries of $4.8 million, $2.3 million, nearly 50% was incurred in Hong Kong. Pensions and staff benefits were $2.5 million higher than a year ago due to a combination of the higher salary base, increased temporary staff cost and higher employee benefits. Reductions were achieved in other operating expense categories as the result of a close management focus on reducing costs. In particular, systems and communications expenses were down $1 million from a year earlier and corporate, marketing and general expenses were also $1 million lower.
Income taxes for the quarter were $2 million, $1 million less than the same quarter last year due to reduced net income in taxable jurisdictions, notably Hong Kong where the revenues from the new Mandatory Provident Fund business have not yet compensated for the cost of investment in necessary staff and systems.
Balance Sheet
Total balance sheet assets at 31 March 2001 were $10.9 billion compared with $10.7 billion a year earlier. Our balance sheet assets are derived from the reinvestment of customer deposits, which grew in Hong Kong over the past year.
We have been steadily increasing investments in marketable securities and continued this trend in the current quarter. Marketable securities at 31 March 2001 were $4.7 billion, compared with $4.1 billion a year ago. Cash and deposits with banks of $4.3 billion were $0.4 billion lower than last year as we continued to redirect deposit assets to investment in marketable securities. Loans, less allowance for loan losses, of $1.5 billion were unchanged from a year earlier.
Total shareholders' equity was $632.7 million at the reporting date compared with $602.8 million a year earlier. Excluding accumulated other comprehensive income, shareholders' equity was $66 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