The underlying trends for the business remain positive at the Bank of Bermuda, according to the bank's chief financial officer.

Edward Gomez said that the bank was continuing to expand its client base, but said that economic conditions have constrained revenue growth.

He said: "The effect of increased deposit volumes was more than offset by pressure on our net interest margin due to declining interest rates, and careful investment in the future also contributed to higher operating costs

"We maintain our forward-looking focus and the current quarter's operating costs include some one-time items to position our businesses to take advantage of new opportunities."

He said the main driver of the remaining increase in operating costs was the Hong Kong office's investment in people and systems to support the Mandatory Provident Fund business, adding "the revenue flows from which are continuing to build and to exceed expectations".

The bank reported return on equity was 17.6 percent for the quarter and diluted earnings per share were $0.97, compared with $1.04 a year earlier.

Henry B. Smith, President and chief executive officer, said: "We believe that our long-term prospects remain very strong and we continue to be proactive in identifying opportunities to build on our particular competitive advantages."

He added: "I would like to thank both our staff and shareholders for their continued support of Bank of Bermuda."

Total revenue for the quarter was $119.7 million, a record level and 11.4 percent higher than a year ago.

Non-interest income was $63.1 million, compared with $58.2 million for the same quarter last year

Private trust fees of $8 million compared with $6.4 million a year earlier, when results were reduced by a non-recurring adjustment of $1.9 million.

Bank of Bermuda's total assets under management in mutual fund products at 30 June 2001 was $5.5 billion, compared with $5.1 billion a year earlier, with growth in money, bond and alternative fund products more than offsetting a market driven decline in equity funds.

Foreign exchange earnings in the current quarter were $9.7 million, compared with $9.8 million a year earlier, as foreign exchange markets were quieter than recent quarters.

Banking services fees were $1 million lower at $5.9 million, with reduced credit card processing fees representing a significant part of the decline.

Net interest income of $50.4 million was little changed from $50.6 million in the year ago quarter.

Bank of Bermuda reported investment and other income of $6.6 million for the quarter (June 2000 quarter - $0.3 million expense) due to realised gains on the disposal of a non-strategic investment held by a European subsidiary and some available for sale securities.

Operating costs totalled $90.3 million, up 14.8 percent from last year with the main increase in corporate, marketing and other costs. The largest component of operating costs, salaries, were 4.6 percent higher than a year earlier with $1.6 million of the total $1.9 million increase reported in the Far East where Bank of Bermuda added staff to service the Mandatory Provident Fund retirement fund business, revenues from which commenced at the start of the current calendar year.

Total shareholders' equity was $628.6 million at the reporting date compared with $604 million a year earlier. Excluding accumulated other comprehensive income, shareholders' equity was $43 million higher than a year ago with the increase primarily reflecting the retention of earnings.