Bermuda National yesterday posted a first-quarter profit of some $3 million on “strong operating performance” of its major subsidiary Bermuda Commercial Bank.BNL, a financial services investment holding company, also announced that it was “currently in exclusive discussions to acquire a financial services business in the UK and will update shareholders at the appropriate time”.BCB saw a more than fivefold increase in profit, to $4.4 million for the December 31, 2012 quarter compared with $0.8 million for the period ended December 31, 2011. BCB’s total revenues for the period were $9.1 million compared to $4.0 million in the prior year period.BNL said BCB saw continued customer deposit growth during the three months ended December 31.And it said the bank’s capital position improved following gains in the market value of its financial investments portfolio and both capital ratios and liquidity levels remain solid.BCB interest income for the quarter was $4.3 million compared to $4.5 million in 2011 resulting from a small reduction in average yields on the bank’s financial investments portfolio.Total non-interest income was $5.6 million for the quarter, up from $0.3 million in 2011. BNL said this increase was driven by strong capital gains from the Bank’s financial investments.Fees and commissions reduced to $1.1 million for the quarter from $1.2 million a year earlier following the bank’s exit from the fund administration business.BNL stated: “As part of BCB’s risk and liquidity management process, portfolio securities are sold from time to time resulting in gains and losses for the Bank. With the Bank’s investment portfolio currently performing strongly, most sales during the quarter resulted in solid gains for the bank.“While welcome, these gains have inflated the Bank’s quarterly profit over normal expected levels.”BCB payroll costs for the quarter were $2.9 million compared with $1.9 million in the prior year. The bank said 2012 costs were inflated by $0.5 million of annual performance based compensation expenses.Additionally, BNL said the bank’s employee headcount increased to 70 from 57 one year ago following the continued broadening and strengthening of the bank’s employee base in response to increased customer numbers and expanding business requirements.General and administrative expenses of $1.6 million also increased relative to 2011 ($1.3 million) with the increase due principally to higher investment management fees resulting from the increase in value of the Bank’s investment portfolio.BNL said total assets increased marginally to $592.3 million at December 31, 2012 from $572.0 million at September 30, 2012. Cash, money market funds and term deposits increased to $243.8 million from $226.9 million at September 30, 2012 following a similar increase in customer deposit balances.Financial investments increased to $260.9 million from $256.8 million at September 30, 2012. This increase resulted from continued improvements in the market valuations of the Bank’s investment portfolio following a strong quarter for global bond markets.The bank’s financial investment portfolio consists primarily of corporate debt securities and debt securities issued by insurance companies, along with a number of asset-backed securities.The bank’s investment in equities was further reduced during the quarter, following the sale of the majority of the Bank’s Bermuda equities to Bermuda First Investment Company Limited.Total customer deposit balances increased to $469.8 million from $457.5 million at September 30, 2012.BNL said despite the increase in overall deposits, term deposit balances decreased over the quarter driven by the operational activities of a number of large customers. BCB’s customer position improved as measured by its other key customer performance metrics, customer numbers and customer concentration, resulting in a deeper, more stable deposit base. Other balance sheet liabilities remained at similar levels to September 2012.The bank’s capital position increased to $112.3 million at December 31, 2012 from $104.8 million at September 30, 2012. This improvement resulted from unrealised mark to market gains on the Bank’s financial investments portfolio.The bank’s regulatory capital ratio was 21.57 percent at December 31, 2012 while the tier one ratio was 23.25 percent.The bank had total risk weighted assets of $385.5 million. BCB maintained its extremely conservative ‘risk asset’ leverage ratio of less than 4:1 comparing favourably to industry averages of more than 12:1. Risk assets include loans, mortgages and other investments and banks with a higher ratio of these risk assets to capital are more vulnerable to movements in valuation.The quarter was BNL’s first as a public company, following the restructuring of BCB, which completed on October 1, 2012.BNL said shareholders’ equity was approximately $133.8 million.BNL said Westhouse Holdings plc has taken measures to reduce costs as a result of poor trading conditions and the Company’s other investments continue to perform in line with expectations. BNL holds a 46 percent interest in Westhouse.BNL said it also completed private placing with Utilico Investments Limited to raise approximately $15 million and the acquisition of Utilico’s interest in Ascot Lloyd Holdings Limited, a UK independent financial adviser.Other highlights included post-quarter end, issue of bonus warrants to qualifying shareholders on a one for three basis with an exercise price of $12.00 per share, to provide the company with a flexible funding structure to be used in future corporate investments and acquisitions.Commenting on the results, BNL chairman Warren McLeland said: “BNL’s first quarter results highlight the strong performance at the Company’s main subsidiary, BCB.“BCB continues to improve on all its key metrics and we continue to see the benefits of BCB operating a highly liquid balance sheet with its assets invested in a combination of cash and a diversified bond portfolio.“The completion of the private placing with Utilico and the recent bonus warrant issue gives the Company additional funding in order to move ahead with its stated strategy to make corporate investments and acquisitions in the financial services sector.“The Company said it intends to pay dividends to shareholders on a semi annual basis.