provision against potential loan losses stemming from its expensive foray into the United Kingdom banking market.

But the bank still recorded record earnings of $10.23 million for its third quarter, up 11.1 percent over the result recorded for the three months to March 31, 1999 and 4.7 percent up on the second quarter in this financial year. The bank also said it was increasing its quarterly dividend by one cent to 18 cents per share. The dividend was last increased by one cent in November.

The Bank said it was taking the $14.5 million charge against discontinued operations now to ensure that the bank was not affected if any of the UK borrowers defaulted in the future.

The Bank got out of the UK loan business in 1997 and took a $20.6 million charge then to cover potential loan losses. In 1998, the bank took a $26 million charge against further potential loan losses.

The charge announced yesterday means that the bank has been forced to set aside $61.1 million since 1997 to cover potential losses. To fund the latest charge, $12.29 million in provisions against bad loans related to continuing operations were "reversed'' and credited to net interest income in the quarter, the bank said.

Bank chief financial officer Richard Ferrett said the bank's strong earnings performance meant it was possible to reverse the provision against continuing operations.

Bank chief executive officer Calum Johnston said: "The portfolio of loans remaining from the discontinued business in the United Kingdom has proved more difficult to collect than was originally anticipated.

"Arranging for other banks to take over the accounts in many cases has been frustrated by the borrowers' lack of capital,'' he said. "Undercapitalised companies are vulnerable to declines in the economy and to ensure that losses arising from any such declines in the future do not have a negative effect on our steadily improving results we have increased the provision for losses from discontinued business by $14.54 million.

"This was accomplished in the third quarter by reversing $12.29 million of general provisions previously provided against loans relating to continuing operations. Accounting convention requires this amount to be credited to interest income and deducted from net income from continuing operations for the quarter under review.'' Mr. Johnston added: "The discontinued loan book totalled $35.74 million as at 31 March 2000, against which the Bank has specific and general provisions totalling $21.56 million, or 60.3 percent of the portfolio. We believe these provisions will be sufficient to meet any losses arising in the course of the complete liquidation of this portfolio.

"Provisions also exist in respect of the Bank's continuing business. Specific provisions of $10.71 million are in place in respect of all anticipated losses arising from the book of non-performing loans totalling $21.06 million.

"In addition, we have a general provision of $16.63 million in respect of the book of performing loans, which represents 1.20 percent of those loans.'' The bank said that net income after losses from discontinued operations for the first nine months of the current financial year was $29.40 million, also a record and up $2.39 million, or 8.8 percent, on the like period in 1999. Net income per share, including discontinued operations, for the first nine months increased by 12.7 percent, or 18 cents, to $1.60 cents compared to the same period the previous year.

Return on equity was the annualised equivalent of 16.0 percent, up 15.5 percent from 1999.

Total assets March 31, 2000, were $4.82 billion compared to $4.38 billion a year ago. The bank said the 10.1 percent increase reflected the bank's acquisition of the ANZ Bank (Guernsey) Ltd. in January this year.

Mr. Ferrett said: "All businesses are now producing significantly increased contributions, many at record levels. This is particularly the case in Bermuda in our community banking and asset management businesses.

"Net income of $29.40 million for the first nine months, after losses of $14.54 million from discontinued operations, was a record for the bank and highlights the substantial progress achieved at the Bank over the past two years,'' he added.

Mr. Ferrett said fee income had increased 6.2 percent in the first nine months to $64.13 million.

He said the bank's loan portfolio was also improving in size and quality, jumping 19 percent to $212 million and the bank's "high quality'' investment portfolios also increased 6.6 percent to $108 million.

Expenses rose year on year by $8.29 million, due mainly to an 8.1 percent increase in employee salaries and benefits and planned investment in the Bank's operating systems in Bermuda.

Mr. Ferrett said the bank was confident that it had now set aside sufficient money to cover any losses in the discontinued UK loan portfolio, adding that the provisions were a hedge in the event that the UK economy weakened.

"We are quietly pleased, but obviously not complacent about the performance of the bank both here and overseas,'' he said.

Bank CEO Calum Johnston: `The portfolio of loans remaining from the discontinued business in the UK has proved more difficult to collect than was originally anticipated.'