Chairman and CEO Mr. John Deuss stated that in 1993 a well-defined policy to pursue a highly liquid balance sheet was developed. In the current year, BCB has taken the final steps to achieve that objective by divesting its shareholding in the owner of the building the Bank currently occupies and selling its holdings in the Bermuda Stock Exchange and a residential real estate property. The Bank's mortgage subsidiary, Somers Mortgage and Finance Limited, remains in run-off with mortgage loans declining to $6.5 million from $14.2 million at September 30, 2000.
The following chart represents the increasing liquidity of BCB since 1993, when First Curacao International Bank N.V. ("FCIB") assumed management responsibility.
As of September 30, 2001, total assets have declined to $492 million from $566 million. This decline reflects a reduction in customer deposits that are invested in the interbank market and have been partially offset by the liquidity gains realized on the sale of assets as outlined above.
During the 2000/2001 financial year, the final steps were taken to achieve a virtually total liquid balance sheet. In May 2001, it was announced that the Minister of Finance had granted BCB a license under Section 114B of the Companies Act 1981 relieving BCB from non-Bermudian ownership restrictions. In addition, the Minister also approved FCIB acting alone or in combination with one of its affiliates becoming 50% shareholder controllers of BCB.
During the year, BCB also announced the appointments of Mr. Timothy W. Ulrich to the position of President and Chief Operating Officer, Mr. Michael Cranfield as General Manager of Information Technology, and Mr. Paul Kneen as General Manager of International Corporate Management of Bermuda Limited, the Bank's wholly-owned subsidiary that provides corporate and partnership management, corporate registrar and financial services.
Whilst the development process has taken longer than originally envisaged, BCB's eBanking platform went live in April 2001 and is now in use by selected large customers, including financial services intermediaries and trust companies. The initial reception has been very favorable. BCB's online banking products emphasize global payment and cash management services. The Bank is actively engaged in marketing its online financial services to strategic financial service providers in other jurisdictions. The eBanking platform will gradually be made available to a broader client base by lowering the minimum account balance requirements.
In May 2001, the Board of Directors announced that at Special General Meetings of the Warrantholders and the Shareholders, approvals were given to extend the expiry date of the Bank's Warrants from May 31, 2001 to May 31, 2002. Of the 1,625,036 issued warrants, 4,163 have been exercised through September 20, 2001.
The Board of Directors have resolved to recommend to shareholders and warrantholders that the warrants be further extended for another year, through May 31, 2003, given the current adverse economic conditions, the current interest rate environment, and depressed equity values. Consequently, meetings of both the Bank's warrantholders and common shareholders will be held to obtain approvals to further extend the expiry date. Based on the current market value of $6.25, the Bank's common stock generates an annual yield of 7.2% and is selling at 62.31% of its book value, $10.03 per share. The Board of Directors determined that a further extension was in the best interests of BCB's shareholders and warrant holders in addition to allowing for a further increase in capital.
The Bank's Shareholders approved amendments to the Bank's Bye-laws, which were required to comply with certain provision of the Section 114B License, including those relating to significant share acquisitions by non Bermudian shareholders. Shareholders also approved changes to the Bank's Incorporating Act, including the elimination of the "double indemnity" provisions, which will allow the shares to trade in The Bermuda Stock Exchange's new clearing, settlement and depository service.
On August 14, 2001, BCB incorporated the BCB Offshore Investment Fund Limited with BCB as the investment manager of the fund. The Fund has been organized with fourteen different share classes representing money market, bond, and equity funds denominated in U.S. Dollars, Pounds Sterling, and Euros. The investments of the share classes will be limited to investment in a single, corresponding Barclays Global Investors Limited ("BGI") Fund. Each BGI Fund, in turn, invests in multi-disciplined investment products available through the global portfolio of BGI. BCB selected BGI due to their expertise and experience in world financial markets and in the development of investment funds products, Barclays being one of the world's largest international managers of institutional assets.
This product will be offered in conjunction with BCB's eBanking platform and copies of the Prospectus and Application procedure will be available on-line to existing BCB eBanking clients.
Net income after discontinued operations and unusual items has reached a record high while expenses remain remarkably controlled. Net income has increased to $6.29 million, or 16.1%, from $5.42 million in the prior year. However, net income before discontinued operations and unusual items declined to $4.56 million from $4.94 million, or 7.7%, with total income declining to $11.73 million from $12.02 million. BCB experienced lower total income across all of its business segments due to worldwide interest rate declines, lower client foreign exchange activity, and a repositioning of its fee-based portfolio of clients through a combination of termination of service and lost business. These declines are offset by gains on the disposal of the Bank's investment in the Bermuda Stock Exchange and in a residential property, respectively.
Total expenses have been contained to a nominal increase of 1.3%, or $90,000, to $7.16 million from $7.07 million a year ago, despite additional rental expense associated with the divestiture of the Bank's property management subsidiary.
The Bank continues to strive for an efficiency ratio of 50%; achieving 53.24% for the year ended September 30, 2001 as compared to 56.60% at September 30, 2000. Excluding discontinued operations and unusual items, the efficiency ratio increased to 61.08% from 58.87%.
The Bank exited the Property Management business through the divestiture of a subsidiary, which owned the building that the Bank currently occupies. Income from discontinued operations consists of the net income earned before discontinuance on March 31, 2001 of $260,000, compared to $481,000 through September 30, 2000, plus the gain on the divestiture of $5.12 million offset by related expenses of $1.28 million for the reserves for lease commitments and write off of leasehold improvements. The reserves for lease commitments represent the cost of portions of the Bank's new rental premises that will not be utilized and, therefore, have no future benefit to the Bank.
Unusual items consist of a reserve taken for unauthorized transactions of a former Bank employee that were identified during the year. Management of the Bank has estimated the financial impact of these unauthorized transactions at $2,369,623 before insurance recoveries. Management intends to vigorously pursue insurance coverage on these losses and will record a receivable from its insurance provider when both the amount and collectibility are reasonably determinable.
Basic and fully diluted earnings per share are calculated at $1.47 and $0.97, respectively, compared to $1.27 and $0.92 at September 30, 2000. Basic and fully diluted earnings per share before discontinued operations and unusual items are calculated at $1.07 and $0.75, respectively, compared to $1.16 and $0.86 at September 30, 2001. After discontinued operations and unusual items, Return on Equity has increased to 15.45% from 14.77% while Return on Assets has increased to 1.19% from 1.05%. Before discontinued operations and unusual items, Return on Equity decreased to 11.21% from 13.46% and Return on Assets decreased to 0.86% from 0.96%.
BCB's strategy going forward will be based on full automation, digital delivery of services, and a bulletproof balance sheet to help overcome the small size of the bank when marketing. A low, almost no risk, fee income driven profile will be maintained. The following chart demonstrates the increasing net income, after discontinued operations and unusual items, of the Bank since 1993.