Weak equity markets and low interest rates continued to make it harder for financial institutions to match the plump profits of previous years.

Yesterday, the Bank of Bermuda announced good first quarter results with profits of $21.6 million, down from $26.6 million in the same quarter a year ago.

The bank's earnings were up from the previous quarter, said chief financial officer Edward H. Gomez, but "compared with a year ago, earnings were down as costs outpaced revenue growth, which continued to be restrained by an adverse economic climate."

Diluted earnings per share of $0.73 compared with $0.56 in the previous quarter and $0.85 per share in the same quarter a year ago.

Operating expenses for the period were up at $84 million compared with $76.6 million in the prior period. The expenses reflected higher insurance costs, continued investment in people and technology in areas of business growth, and the effect of currency movements.

The insurance cost increases stemmed from having to renew a broad corporate needs policy during the current hard insurance market.

Bank executives described it as a "solid start to the financial year" and indicated that the strategy going forward will be a continued focus on spending.

Chief executive officer Henry Smith underlined the need to balance long-term growth with the need to deliver return on equity, admitting that it's a tall order in this difficult environment, but the bank is meeting the challenge through greater selectivity:

"We are adding new, profitable business though growth in select target markets where we have a sustainable competitive advantage."

One example of a growth area is the Global Funds division where a number of technology initiatives have been implemented.

Global Funds Services contributed fees of $31.8 million to the noninterest income for the quarter and continued its record as the highest earning division of the Bank. Within the division, the Dublin office has had a particularly "purple patch" with Global Funds Services fees up more than $0.9 million for the same quarter last year due to growth in hedge funds business in that location.

The bank's revenue divides into noninterest income and interest income. Noninterest income has provided the greater share of revenue for the past two years and this continued in the first quarter. Three out of five of the noninterest businesses produced increased profits compared to last year.

The interest income results were less robust. Interest rates ought to be a case of "swings and roundabouts" with declining interest rates affecting both the assets and liabilities columns of the balance sheet. For example, the bank has to pay out a lower interest rates on liabilities such as customer deposits, but they also earn a lower rate on assets such as loans.

However the average interest rates for the first quarter compared to the same period last year, indicate that the rate of the decline for interest rates on liabilities is not as high as the decline in interest rates on interest earning assets. This means that the decline in interest rates is not working in the bank's favour.

Interest on deposits and interest on marketable securities were both down for this first quarter with interest on loans steady. Interest on the bank's outsourced portfolio of securities declined significantly because the bank reduced the size of this portfolio from $1.3 billion to $501 million in the current quarter.

Proceeds from the disposal of securities in this portfolio were reinvested by the Bank of Bermuda as part of its internally managed portfolios.