Bank of Bermuda has produced "robust earnings" during a "very challenging economic environment", after the bank's profits rose 58 percent to $22.3 million for the third quarter of 2003.

But the bank's net income is still not up to levels in 2001 and is still 28 percent down on levels reached for this quarter in 2000. Both years hit the bottom line of banks around the world after a fall in interest rates and weak equity markets,

Chief executive officer Henry Smith said in an official release that Bank of Bermuda had bucked the trend and successfully grown the bank's business in niche markets.

"Our dedicated staff and strict discipline have produced robust earnings in what can still be described as a very challenging economic environment," said Mr. Smith.

Net income rose from $14.1 million in the third quarter last year when earnings where knocked hard by a worldwide decline in the equities markets. In 2001 the third quarter profits were $23.9 million.

Chief financial officer Edward Gomez said the quarter's results reflect "excellent performance" by the bank's fee-based business lines and he and Mr. Smith picked out Global Fund Services as the top money-making line of business.

Mr. Smith also said that the bank's results showed some success at growing its business in "carefully selected niche markets" where their "relationship-driven approach" gave them a strategic advantage.

Mr. Smith added: "We have continued to expand our global presence in the current quarter through our recently announced South Africa and Tokyo offices."

Mr. Gomez said the rise in the bank's fortunes was also attributable to the foreign exchange earnings which had another strong quarter as client trading volumes remained strong during more volatile market conditions.

He said also that the bank's net interest earnings should be considered together with associated hedge costs, included in investment losses.

The bank reported that net interest income, before provision for loan losses, decreased by $3.7 million while investment losses on their out-sourced trading portfolio (which represents the change in value of the net hedged portfolio) were $8.6 million lower than the prior year quarter.

"Together, these lines are slightly higher than a year ago, reflecting improved performance by our out-sourced trading portfolio, offset partly by the effects of continued margin pressure," added Mr. Gomez.

Mr. Gomez said about Global Fund Services: "Our largest business, Global Fund Services, led the way with a 16 percent growth in fee revenues, which drove our overall non-interest income to a record $76.6 million for the quarter," he said. "The effects of our continuing new business growth are being realised and the value of existing client assets are starting to recover from their recent depressed levels."

Fees from Global Fund Services products, the largest portion of non-interest income, increased $5.2 million to $37.4 million. The bank said the increase resulted from a rise in the value of its hedge fund and fund-of-funds client base in North America and Europe, as well as hedge fund and pension fund assets in the Far East. All of Global Fund Services' key locations demonstrated growth as fees in Hong Kong were up $2 million reflecting growth of pension assets, while fees in New York and Dublin were each up $1.2 million.

Mr. Smith also singled out Global Fund Services. He said: "Another key focus is developing innovative technology tailored to the needs of our client base, and we have recently achieved the launch of new products for our Global Fund Services client base that we anticipate will improve both service and revenues."

Total revenue in the quarter rose from $100.2 million in 2002 to $117 million in 2003, equivalent to a 17 percent increase.

Non-interest income, which accounts for 65 percent of total revenue, increased by 15 percent to $76.6 million.

Investment losses on the trading portfolio decreased from $12.4 million to $3.8 million. The bank said these losses were more than offset by interest earnings so that on a net basis the out-sourced portfolio contributed $0.4 million to net income in the 2003 third quarter on an average portfolio balance of $503 million.

A year earlier, when the average portfolio size was $1.3 billion, it contributed $0.2 million to net income on the same basis.