That which doesn't kill us makes us strong, or so the expression goes, and the trials and tribulations of 2002 may see the emergence of a "leaner, meaner" Bank of Bermuda.

The bank's president, Joseph Johnson, reviewed the year at the AGM on Wednesday and described the increasing costs to the corporate community of increasing regulations. The bank now has 75 full time compliance employees, an area that produces zero income.

Mr. Johnson said the current environment was "unrelentingly challenging, with depressed markets and low interest rates". In addition banks are facing a hostile geopolitical atmosphere: "The conflict with Iraq, continuing fears of terrorist activity and the release of economic data which has been, at best, mixed, have done nothing to ease market unrest."

He predicted that it may take some time before the conditions significantly improve.

An immediate issue facing the bank's Asian operation is the SARS outbreak. Mr. Johnson paid tribute to the staff in their Asian offices and said that a Global Crisis Command Centre has been established in response to the crisis.

If there was a silver lining to the past year, it was that difficult conditions have forced the bank to focus on operations and structure. An effort which Mr. Johnson said had led to consolidation and freed up executives to focus on sales and business development. They have also been discovering their niche plays. As a small but global player, the bank is increasingly focusing on niche markets both on-shore and off-shore. 2002 would be remembered for several new products such as EasyLink Online, Global Connect, GFSTrade and two new funds.

It was also the year of the NASDAQ listing, which on the negative side led to an initial decline in the share price, but on the bright side gave the bank access to an adequate supply of capital at fair market rates.

In Bermuda, this was also the year when the bank found the political will to dispense with a standard clause in its mortgage contracts which to some observers had an insidious effect in the community. The clause enabled the bank to call in a mortgage on 90 days notice even if there was no default - an anachronism which harks back to a time when banks acted on behalf of a private lender rather than being the lender itself.

These days the clause is regarded as out-dated and unused, but at one time it may have brought pressure to bear on members of the community whose interests were not aligned with the establishment.

Mr. Johnson said that at one time the clause "contributed historically to Bermuda's climate of fear, and therefore we decided unilaterally not to include it in any new mortgages, and we have publicly confirmed our intent not to rely on the clause in any existing mortgages."

Looking forward, the bank will continue to seek efficiencies and Mr. Johnson outlined several areas where things were being tightened up. Staffing levels will continue to come under scrutiny: "Positions that are either duplicated or are no longer needed, will not be kept. If we can re-assign affected staff we will, but redundancies cannot always be avoided," said Mr. Johnson.

Directors, too, will have to justify their salaries and will be formally appraised. There will be increasing responsibilities and time commitments for directors and the compensation for non-executive directors was recently reviewed by independent consultants with results expected in the second quarter.