Mr. John Deuss, Chairman and Chief Executive Officer of the Bank, commented that "The semiannual dividend generates an annual yield of 7.2% based on the current market value of $6.25 for the Bank's common stock. In view of the current low interest rate environment, a yield of 7.2%, combined with the liquid, low risk nature of the Bank's balance sheet, represents an attractive return to investors."
President and Chief Operating Officer, Mr. Timothy W. Ulrich stated that, "In 1993 a well-defined policy to pursue a low risk, highly liquid balance sheet was developed. In the prior year, BCB took the final steps to achieve that objective by divesting its shareholding in the owner of the building the Bank previously occupied, and selling its holdings in both the Bermuda Stock Exchange and a residential real estate property. The Bank's mortgage portfolio remains in run-off with mortgage loans declining to $4.1 million from $6.6 million at September 30, 2001, further consistent with the Bank's goal to reduce its outstanding debtor balances."
At September 30, 2002, cash and cash equivalents represented 98.6% of total assets compared to 97.9% at September 30, 2001.
As of September 30, 2002, total assets have increased to $582.7 million from $492.2 million one year ago, an increase of $90.5 million or 18.4%. The larger balance reflects an increase in customer deposits invested in the interbank market and money market funds. At September 30, 2002, customer deposits totaled $533.2 million compared to $442.5 million at September 30, 2001, an increase of $90.7 million or 20.5%.
Effective September 30, 2002, Somers Mortgage and Finance Limited, the Bank's wholly owned mortgage subsidiary, and BCB Securities Limited, the Bank's wholly owned local market trading subsidiary, were amalgamated with the Bank. As a result of the amalgamation, the two subsidiaries no longer have separate existence from the Bank, and their operations have been fully merged into the Bank. While there is no effect on the consolidated Shareholders' Equity, the Bank's stand-alone capital has been increased as a result of the amalgamation allowing for acceptance of additional customer deposits in the Bank under the risk weighted capital requirements of the Bermuda Monetary Authority.
Total Shareholders' Equity has increased from $42.9 million at September 30, 2001 to $46.3 million at September 30, 2002, an increase of $3.4 million, or 7.9%.
The Board of Directors have resolved to recommend to shareholders and warrant holders that the exercise period for the Bank's warrants be extended for two years, through May 31, 2005, given the current adverse economic conditions, the current interest rate environment, and depressed equity values. Consequently, meetings of both the Bank's warrant holders 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 57.8% of its book value, $10.81 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 Board also has resolved to recommend to shareholders that the Bank's outstanding options should also be extended for two years from their expiry dates. Consequently, a special meeting of the Bank's warrant holders will be held immediately following the Annual General Meeting of its common shareholders on December 11, 2002. Warrant holders and shareholders will be asked to consider, and if thought fit, approve the extension of the expiry dates of the outstanding warrants from May 31, 2003 to May 31, 2005, and the shareholders will be asked to approve the extension of the expiry dates of the outstanding options.
Mr. Deuss reported net income for the year ended September 30, 2002 of $5.3 million, compared to $6.3 million for the year ended September, 2001, and net income before discontinued operations of $4.4 million compared to $2.2 million. Basic and diluted earnings per share after discontinued operations as at September 30, 2002 are calculated at $1.23 and $1.16, respectively, compared to $1.47 and $1.31, respectively, as at September 30, 2001. Basic and diluted earnings per share before discontinued operations as at September 30, 2002 are calculated at $1.03 and $0.97 respectively, compared to $0.51 and $0.46, respectively, as at September 30, 2001.
BCB reported total revenues before unusual items and discontinued operations of $9.3 million compared to $11.7 million for the years ending September 30, 2002 and 2001, respectively. Net interest income declined to $5.4 million from $6.6 million because of the lower interest rate environment. The downturn in interest income is largely the result of the exceptionally low level of interest rates and the significant effect low interest rates have on BCB's income due to its low risk operating philosophy and near one hundred percent balance sheet liquidity.
In the 2000/2001 financial year, BCB sold its investment in the Bermuda Stock Exchange and recorded a gain of $179,000. Since no further investments are held, no investment income was recorded for the year ended September 30, 2002.
Total expenses for the year ended September 30, 2002 were $7.3 million compared to $7.2 million at September 30, 2001, an increase of only 1.4% as a result of significant efforts to control costs. However, despite relatively static costs, lower revenues resulted in the Bank's Efficiency Ratio - excluding discontinued operations and unusual items - increasing to 78.02% from 61.08% during the same period. Mr. Ulrich pointed out that the reality is that one of the components of the efficiency ratio, net interest income, is severely impacted by the current interest rate environment.
The September 30, 2001 net income contained $4.1 million related to discontinued operations of the property management subsidiary, which was divested, and included reserves for lease commitments on the Bank's new rental premises once it had been determined that the space would not be utilized. Effective July 1, 2002, the Bank surrendered the lease for the unoccupied space. Prior year reserves of $857,000 were reversed and are included as an addition to net income within discontinued operations.
As reported in the Bank's 2001 Annual Report, unauthorized transactions of a former Bank employee were identified during the 2001 financial year, the financial impact of which was estimated by management at $2.4 million before insurance recoveries. Management pursued insurance coverage and recovery from the former employee. Successful net recoveries of $2.4 million were recorded during 2002, including recovery of expenses incurred in pursuing this matter. These balances are included in the income statement as unusual items.
As a result of the unauthorized transaction noted in the prior year, the Bank reviewed its operating functionalities. Furthermore, due to the close alignment of the operational requirements of the Corporate Treasury and Global Custody departments, the Bank determined to conduct both its treasury and custody business through a single operations department. Accordingly, in August 2002, the Bank merged these departments into a combined department called "Banking & Custodial Services."
During the year, BCB announced the appointments of Mr. Ishwar Narayanan to the position of Internal Auditor and Ms. Amani Lawrence as Corporate Secretary/Legal Compliance Officer.
BCB's continuing strategy is based on full automation, digital delivery of services, and a liquid balance sheet. A low, almost no risk, fee income driven profile will be maintained. Mr. Ulrich stressed that, "The Bank will continue to provide personal, flexible service, as both the bricks-and-mortar bank, and the e commerce platform are continually upgraded, to offer an increasingly enhanced service to the Bank's expanding client base".