Profits at Bermuda's largest bank, Bank of Bermuda, have fallen nearly 23 percent for the third quarter from $31 million last year to $23.9 million for the same period this year.

The figures show the net income from continuing operations, which took a $1.5 million gain from a change in accounting procedures in the third quarter 2000, out of the balance sheet equation.

Revenues were down nearly six percent or $6 million due to a fall in interest rates and weak equity markets, the bank said in its quarterly report.

The earnings, released yesterday showed that fall in profits at the company had also hit its employees, with profit share down $500,000 during the third quarter of 2001.

Henry Smith, chief executive officer, said that the bank's business was strong and praised the "first class people" who work in the bank.

The release also pointed to the bank's established business in niche markets, (such as hedge funds and funds of funds) which has increased cash flow and will now be one of the building blocks for the bank's long term future.

Mr. Smith said: "Our businesses remain fundamentally strong and we are confident that we are well positioned for long-term success. Certainly, our focus on selected markets that benefit from our specialised approach has served to sustain our fee streams in recent months and and we believe it will provide a firm base for future growth."

The bank also reported third quarter diluted earnings per share of $0.84, compared with $1.10 from continuing operations in the September 2000 quarter.

"Sustained interest rate declines and weak equity markets continued to depress revenues, a situation exacerbated by the horrific events of September 11," said Edward Gomez, chief financial officer of the bank.

"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 due to the narrow 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."

Mr. Gomez said the bank also strengthened its general bad debt reserve by $1.9 million in the quarter because of the "softening economic environment".

Non-interest income was up from a year ago with sustained strength in fees generated by its largest business, Global Fund Services, which was up 16 percent.

Mr. Gomez said: "This is an excellent achievement given the impact of stock market declines on client asset values."

Operating expenses were up by 1.4 percent to $82.2 million quarter to quarter, while foreign exchange earnings increased 10.5 percent to $10 million, primarily due to increased volumes from Global Fund Services' clients. Banking service fees were up $1 million to $6.7 million, with strong third quarter mortgage commitment fees being the key driver, the bank said.

Customer deposits fell by $1 billion in the past year, which led to a fall in balance sheet assets which are largely derived from the reinvestment of customer deposits. Total balance sheet assets at 30 September stood at $10.4 billion, down from $11.5 billion in the same period the year before.

But shareholder equity was up from $618 million to $641.8 million for the comparable quarters in 2000 and 2001.

Mr. Gomez said: "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."