A big increase in fee income helped the Bank of Butterfield to ride out weak equity markets in the first quarter and record an increase in net income from continuing operations of 2.9 percent, it said yesterday.

The bank said it recorded net income of $17.45 million or 91 cents a share for the three months ending September 30, an increase of 2.9 percent over the same period last year from continuing operations.

Earnings per share were up three cents compared to the same period the previous year. Overall, the bank, which is in the process of selling a controlling interest in its Hong Kong subsidiary, recorded a 1.45 percent increase in net income from all operations compared to the first quarter of 2001 when it earned $17.2 million.

"We are pleased with this strong performance in the current economic environment, with sustained low interest rates in both the USA and UK and significant declines seen across all major world stock markets," said president and chief executive officer Alan Thompson.

"Particularly noteworthy is the 14.1 percent year on year increase in fee income generation, reflecting significant increases achieved in our investment management and corporate services operations."

Mr. Thompson said the bank would continue to control expenses and to focus on its core business. Chief financial officer Richard Ferrett said the bank had achieved a return on equity of more than 20 percent and its efficiency ratio improved to 62.8 percent from 64.9 percent for the same quarter in 2001.

"Also particularly noteworthy is the performance of our asset management group of businesses in Bermuda, where net income is up year on year by 47.6 percent to $3.55 million. Our asset/liability management strategies have performed well, in line with expectations, with net interest income up on the previous quarter. We remain pleased with the overall performance of our in-house managed investment portfolios." The bank said that net interest income before credit-related provisions was down by $1.71 million or 6.2 percent as a result of low interest rates in the US and the UK. But the bank said there had been some improvement from the previous quarter. That decline was offset by the 14.1 percent jump in total fees and other income, which totalled $29.7 million. Revenues from investment services rose 11.7 percent, corporate services jumped 26.8 percent and foreign exchange rose by 24 percent.

The bank also controlled expenses, which increase just 2.1 percent to $35.8 million. The bank's reduced its employees by 38 to 1,241 employees as a result of the sale in June of the Hong Kong subsidiaries. The bank also recorded a $500 million increase in assets, which rose to a record $6.04 billion fuelled by a $408 million increase in the total assets of Bermuda-based operations. The bank also reported that total investments rose $150 million (eight percent) to $2.04 billion. The bank also announced that it had to write down an equity investment of $966,000 during the quarter.

That sale is expected to be approved by the end of the year by Hong Kong regulators, the bank said. Assets under management jumped 30.1 percent to $4.09 billion year over year, the bank said. The bank's overseas subsidiaries reported mixed results: the Cayman operation recorded net income of $4.97 million, down 1.1 percent; the Guernsey operation was off $640,000 to $740,000; and UK operations lost $50,000 compared to a profit of $120,000 in 2001.