Bank of Bermuda's profits have slumped again by over 20 percent in the first quarter of 2002, with management blaming weak equity markets and low interest rates for the slump.

Net income on core operations fell by $6.6 million from $31.5 million in the first quarter of 2000 to $24.9 million in the first quarter of 2001.

This follows a disastrous year in 2001, when profits fell by 48 percent from $115.8 million in 2000 to $60.01 million in 2001.

“Our long-term prospects remain excellent,” said Henry Smith, chief executive officer of the Island's biggest bank said yesterday. “Our focus is on developing our core businesses, all of which we believe have great opportunities for future growth by leveraging their established positions in niche markets that value skill and industry knowledge.

“We also continue to constantly evaluate the way we conduct our operations with a view to achieving greater efficiencies.” On a US GAAP basis, net income was $26.6 million for the March 2002 and $31.7 million for the March 2001 quarter.

The bank also reported diluted earnings per share from core operations of $0.80, compared with $1.00 from core operations in the year ago quarter and $0.80 in the quarter ended 31 December 2001.

The bank also revealed it had got back $5.5 million in connection with the Cash 4 Titles litigation. The bank's Cayman offices have been involved in the Ponzi scheme scandal, which the bank settled out of court for $67.5 million last year, but recovered $34.1 million during the 2001 period from insurance. The bank last year also put aside another $10 million for the court cases involved in this litigation.

“Bank of Bermuda's core businesses continued to perform well, despite the sustained joint pressures of weak equity markets and very low interest rates,” said. Edward Gomez, chief financial officer at the bank. “Global Fund Services, our largest business, is generating ongoing fee revenue growth, up 11 percent from the same quarter last year, particularly in the Far East where it is building on a strong position as a service provider to the recently introduced Hong Kong government-mandated pension funds. “The March 2002 quarter's results also reflected successful expense control. Operating expenses were $81.4 million, down from $85 million a year ago and $85.4 million last quarter.”

Total revenue for the first quarter of 2002 was $105.4 million, down from $118.7 million a year earlier, due primarily to a drop in net interest earnings, which fell from $53.4 million to $43.2 million for the current quarter, the bank said.

Non-interest income was $63.7 million, compared with $63.5 million for the same quarter last year, and represented 60.4 percent of total revenue.

Mr. Gomez added: “Our largest cost category is salaries and, after excluding a one-time restructuring charge of $1.5 million to rationalise our Cayman operations, these were also down from a year ago and the prior quarter.”

The bank added that salaries, the largest category of expense, were $44.4 million for the quarter, including the Cayman restructuring charge. Excluding this one-time charge, salary costs were down by 1 percent from last year, largely reflecting lower profit-related compensation and a reduction in salary increases in the current year. Pension and staff benefits were down $0.5 million, or 3.7 percent, the banks said.

Mr. Gomez added: “The quarter's core operating performance was dampened by the sustained low interest rate environment, which resulted in a drop in net interest earnings of $10.2 million compared with the March 2001 quarter and a decrease of $2.4 million from last quarter.

“We are well positioned to benefit as interest rates rise and equity markets recover. In the meantime, we continue to concentrate on strengthening our client base, expanding our product range, and maintaining discipline over discretionary spending.”

Net interest income was $42.9 million, down $10.2 million from last year, as the sustained low interest rate environment eroded margins on the reinvestment of free and low interest-bearing balances.

Investment and other income was a net loss of $1.5 million for the quarter, reflecting a decline in value of marketable securities. In the March 2001 quarter, investment and other income was a net gain of $1.7 million.

Total balance sheet assets at 31 March 2002 were $10.8 billion, little changed from $10.9 billion last year. The composition of the balance sheet was also largely consistent with a year earlier. Cash and deposits with Banks of $4.3 billion were unchanged while marketable securities of $4.5 billion compared with $4.7 billion at 31 March 2001. Loans, less allowance for loan losses, were $1.7 billion, up from $1.5 billion a year ago.

Total shareholder's equity was $649 million at 31 March 2002, up from $633 million in the prior year.