Bermuda Commercial Bank saw its assets grow by 43.9 percent during the first half of the year after customer deposits soared compared to the same period a year earlier.

The company's assets grew from $582.74 million at the financial year end September 30, 2002 to $838.30 million at March 31, 2003, an increase of $255.56 million. Total assets at March 2002 were $445.07 million.

The bank saw profits grow by 11 percent during the first six months of the year - despite a “challenging” year, according to the company's president.

Net income increased from $1.08 million for the first six months of 2002 to $1.2 million for the same period this year - an increase of $120,000.

And the cost of banking to its customers grew after the bank had to comply further with international requirements to prevent money laundering and terrorist money going through the system.

In a statement from the bank, its chairman and chief executive officer John Deuss said he was pleased with the first half year results “considering Bermuda Commercial Bank's policy to preserve a highly liquid balance sheet whilst maintaining a low risk, fee income driven profile.''

He also said that during the next six months the bank will continue to upgrade its back office systems and move towards full automation and expand its e-banking platform.

The balance of customer deposits at March 31, 2003 grew to $788.53 million compared to $533.23 million at the financial year end of September 30, 2002 and $396.42 million a year earlier in March 2002. The bank, in its statement, said that this increase must been seen as part of normal business fluctuation.

“While total assets and deposits have increased, we note that during the six month reporting period, balances matched or were below those year-end balances as clients sought more aggressive investment opportunities. However, some of our clients invested large amounts at the end of March, thus emphasising the point that the size of the balance sheet changes over time reflecting levels of client activity.”

Timothy Ulrich, the bank's chief operating officer and president, said: “As with all companies in the international financial services business, Bermuda Commercial Bank is experiencing a challenging period as we have had to come to terms with the ongoing and far-reaching effects of the tragic events of September 11, 2001 and the war against terrorism on the already depressed global economies.

“As the cost of doing business has increased everywhere after the terrorist attacks, Bermuda Commercial Bank, like most international banks, had to increase its fees to match the increases in administrative expenses ant he costs of compliance with the requirements to identify and prevent the trafficking of terrorist and criminal funds around the world.”

Mr. Ulrich also said that the majority of the bank's fees had been held steady since 1993.

The bank added: “Despite an interest rate environment at lows last experienced in 1961, Bermuda Commercial Bank has not deviated from its policy to preserve a highly liquid balance sheet, whilst maintaining a low risk, fee income driven profile. Specifically, Bermuda Commercial Bank continues to invest customer deposits in the interbank market and money market funds; cash and cash equivalents as a percentage of total assets were 99.1 percent, 98.6 percent, and 97.7 percent at March 31, 2003, September 30, 2002, and March 31, 2002, respectively.”

The bank added that while its investment policy created “an extremely liquid, low risk balance sheet for its clients and shareholders”, it also exposed the bank's net income to vulnerability with changes to the interest rate environment. Net interest income declined from $2.65 million at March 31, 2002 to $2.47 million at March 31, 2003, a decrease of $180,000 or 6.8 percent.

But it said that despite declining net interest income, total revenues increased from $4.53 million at March 31, 2002 to $5.07 million at March 31, 2003, an increase of $540,000 or 11.9 percent.

It said that offsetting the declining net interest income, other income - primarily fees and commissions and exchange gains - increased from $1.88 million at March 31, 2002 to $2.60 million at March 31, 2003, an increase of $720,000 or 38.3 percent.

The bank said the increase in fees and commissions was attributable to new business in International Corporate Management of Bermuda Ltd., a wholly owned subsidiary of the bank, and an update of the bank's fee structures for all fee based product offerings.