The Bank of Bermuda yesterday reported its net income in the fourth quarter had jumped by nearly 70 percent to $28.1 million.

The bank, which also reported earnings of $92.5 million for the year, said it has been able to achieve its stellar results despite increases in operating costs and salary and benefits being constant with the previous period, in spite of its trimming 100 staff from its global operations.

The bank's quarterly results, an increase of 69 percent over its earnings for the previous period, compared to $16.6 million in the fourth quarter of 2002.

For the year, the bank reported net income of $92.5 million, a 19 percent gain on the previous year when it posted $77.7 million in earnings. Bank of Bermuda shares closed up one cent at $45.03; the shares rallied to $45.10 during trading yesterday.

The bank's CFO Edward Gomez, pinned the company's solid numbers on a growth in non-interest income, management of operating costs.

"In 2003, we were successful in growing non-interest income and managing our operating costs carefully. Results were also bolstered by one-time items both in the fourth quarter and full year. Record foreign exchange earnings were achieved, largely as a result of volumes and volatility that are considered unlikely to continue long term.

"Interest earnings remained weak in the low rate environment, with growth in customer deposits offset by reduced margins. Tight controls over personnel costs and capital projects resulted in good expense performance in 2003, but will be difficult to sustain in the face of intensified cost pressures driven by competitive conditions, technology and regulatory compliance requirements."

CEO Henry Smith added: "We were assisted by a number of non-core items as well as by volatile markets that, while benefiting our core operations, may not continue. Looking forward, we see building cost pressures that must be addressed if we are to maintain the specialised, high-touch business model that has underpinned our historical success."

Yesterday's earnings release could mark the last time Mr. Smith and Mr. Gomez speak to the Bank of Bermuda's financial performance. A proposed sale to multinational banking giant HSBC will be decided by shareholders next month, and if voted through will see the bank's profile as Bermuda largest bank, with operations around the globe, change to being a Bermuda-only subsidiary of HSBC.

Both Mr. Smith and Mr. Gomez are to step down within a short time of the bank's sale to HSBC. The bank also confirmed yesterday that HSBC plc chairman Sir John Bond was slated to visit the Island in the coming weeks.

Broken down by share, the bank's fourth quarter diluted earnings calculated out to net income of 94 cents while full year diluted earnings were broken out as $3.13 per share.

On the operating side, the bank said its costs had increased by $6.4 million year-over-year to $98.9 million. Salaries and staff benefits totalling $65.3 million were little changed from $64.2 million a year earlier, in spite of a reduction in 100 positions.

The bank said the fact that there was no real savings on the salary said could be attributed to the effect of adverse exchange rate movements on overseas salaries expenses and certain other staff related increases.

Property expenses were also up by $1.3 million due to investments in overseas offices., while systems and communications costs were slightly lower. General corporate expenses increased by $4.3 million which was attributed to higher insurance costs from the fourth quarter in 2002.

Income tax expenses were also higher in the quarter, reaching $1.8 million, compared with $168,000 in the same quarter for 2002, with income tax being impacted by the release of some tax losses brought forward from prior years in Hong Kong.

Although hit by some higher costs, the bank said its net income for both the quarter and the year were positively influenced by gains from litigation and investment recoveries.

In specific, the bank's fourth quarter results included a $800,000 gain on their December sale of a minority holding in Swiss bank, Banque Notz Stucki. During the quarter, the bank also made recovery of a "non-core investment" written down in 2001 of $1.3 million. Taking away items that did not relate to core operations, diluted earnings per share were 87 cents, breaking out to a net income from core operations of $26 million.

The bank's full year results were also positively impacted by a litigation recovery from 2001 of $3.2 million and a $649,000 gain on the sale of real estate by the bank's Channel Islands subsidiary. Total diluted earnings per share from non-core operations stood at 20 cents, which meant net income from core operations broke out to $2.93 per share or a total of $86.58 million for the year.

In comparison, non-core items for the fourth quarter of 2002 were nil and only three cents per share for the full year.

Total revenue for the 2003 fourth quarter was $128.7 million, up from $109.3 million during the fourth quarter of 2002. Of that, 67 percent was contributed by non-interest income, which totalled $86 million compared with $67.1 million last year.

Net interest income, before provision for loan losses was $42.9 million, down $800,000 from $43.7 million in the comparative quarter. Investment and other income of $2.4 million compared with a loss of $1.5 million in the prior year.

Looking at which divisions within the bank had contributed to this growth in non-interest income, Global Fund Services (GFS) reportedly led the way with its contribution of $41.2 million ? $10.4 million more than a year earlier ? as the largest portion of non-interest income.

HSBC executive Iain Stewart said, speaking at a press conference announcing the bank's proposed sale in October, that HSBC was keen to buy the bank for a number of reasons including its successful fund administration business, where the bank has been a leader and holds market share in Asia. The bank's private banking business was also said to be a draw for HSBC.

On the GFS side, the bank said fees were linked to the value of client assets under administration which were up year-over-year due to new business and rising equity markets. Broken down by geographic regions, the bank said GFS business around the globe had reported growth.

In the Far East, GFS fees were up $5.1 million, primarily in Hong Kong and driven by additional pension fund and hedge fund assets from both new and existing clients. And in Europe, GFS fees were up $3.1 million, with the majority of the growth generated in the Dublin and Luxembourg offices. In the Americas, the New York office was the key driver of a $2.2 million growth in fees.

Private trust fees increased $600,000 to $7.8 million, while foreign exchange earnings of $16.4 million were $4.8 million higher than in the fourth quarter of 2002.

In addition the bank reported that significant fourth quarter, 2003 volatility in major currencies generated an approximately 40 percent increase in volume as clients actively managed their exposures. Banking services fees were $6.5 million, compared with $5.9 million a year ago, and were positively impacted by growth in debit and credit card fees as well as the bank's decision to halt a credit card rewards scheme ? which had given back money to clients based on card use ? during 2002.

On the interest income side, the bank said, before allowance for loan losses, its income had decreased from $43.7 million to $42.9 million on the back of a decline in net interest margins only partly offset by the effect of growth in customer deposits.

Net provisions for loan losses were $2.6 million, compared with $51,000 during the same period last year, reflecting loan book growth and deterioration in an unspecified Bermuda-based loan, described as "substandard". Impaired loans in total remained unchanged at $20.2 million.