Mr. John Deuss, Chairman and Chief Executive Officer of the Bank, commented that the semiannual dividend generates an annual yield of 6.4% based on the current market value of BD$7.00 for the Bank's common stock. The Bank's stock continues to trade below book value, currently at 69.6% of its book value of BD$10.06 per share.
The Directors reported net income for the six months ended March 31, 2002, before unusual items and discontinued operations, of BD$1.0 million compared to BD$2.4 million for the six months ended March 31, 2001. The downturn in BCB's ordinary net operating income is largely the result of the exceptionally low level of current interest rates and the significant affect low interest rates have on BCB's income due to its low risk operating philosophy and near one hundred percent balance sheet liquidity. Net income including unusual items and discontinued operations was BD$1.1 million compared to BD$7.8 million for the six months ended March 31, 2001. Basic and fully diluted earnings per share before unusual items and discontinued operations are calculated at BD$0.24 and $0.19, respectively at March 31, 2002, compared to BD$0.56 and BD$0.46, respectively, at March 31, 2001. Basic and fully diluted earnings per share are calculated at BD$0.25 and BD$0.20 at March 31, 2002, respectively, compared to BD$1.83 and BD$1.19, respectively, at March 31, 2001.
BCB reported total revenues before unusual items and discontinued operations of BD$4.4 million compared to BD$5.8 million for the six months ending March 31, 2002 and 2001, respectively. Net interest income declined to BD$2.6 million from BD$3.5 million because of the lower interest rate environment. From March 31, 2001 to March 31, 2002, the U.S. Federal Reserve Bank cut the Fed Funds rate eight times, from 5% to 1.75%. Because of BCB's low risk nature, the impact of these rate cuts is more noticeable than with some other banks. In order to offer a highly liquid, lower risk balance sheet, BCB's strategy is to accept customer deposits and place them in the interbank market along with the Bank's capital funds. Lower rates result in reduced net interest income.
In the first six months of the 2000/2001 financial year, BCB sold its investment in the Bermuda Stock Exchange and recorded a gain of BD$179,000. Since no further investments are held, no investment income was recorded for the six months ended March 31, 2002.
Total expenses for the period ended March 31, 2002 were BD$3.44 million compared to $3.40 million at March 31, 2001, a minimal increase of 1.2%. Despite significant efforts to control costs, demonstrated by the increase in expenses below the Bermuda published cost of living increase, the Bank's Efficiency Ratio increased to 77.4% from 58.5% during that same period. The lower revenues but relatively static costs resulted in the increased efficiency ratio.
The Bank exited the Property Management business through the divestiture of a subsidiary, which owned the building that the Bank occupied through early December 2001. The March 31, 2001 net income contained BD$5.4 million related to discontinued operations - net income before discontinuance on March 31, 2001 of $260,000 plus an estimated gain on the divestiture of BD$5.1 million. There were no discontinued operations as of March 31, 2002.
As reported in the Bank's 2001 Annual Report, BCB recorded a reserve for unauthorized transactions of a former Bank employee that were identified during the year. During the first six months ended March 31, 2002, BCB recorded a net recovery of $70,000 related to these unauthorized transactions. The Supreme Court of Bermuda awarded BCB a summary judgment in the amount of $2.5 million against the former employee. A small portion of these funds has been collected to date but was offset by further costs associated with the investigation. Management continues 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.
Due to the Bank's low risk business strategy, which has led to lower returns in the current environment, performance ratios declined during the first six months of the 2001/2002 financial year. Return on Assets, before unusual items and discontinued operations, are reported at 0.21% for the six month period as compared to 0.55% in the prior year's first six months with return on equity being 2.3% compared to 7.1%.
Management of the Bank has maintained the well-defined policy, developed in 1993, of pursuing a highly liquid balance sheet. Total cash and balances with other banks of BD$434.7 million represent 97.7% of the total assets of the Bank at March 31, 2002, which is comparable to BD$481.6 million, or 97.9% of total assets, at September 30, 2001. As of March 31, 2002, total assets have declined to BD$445.1 million from BD$492.2 million at September 30, 2001. This decline reflects a reduction in customer deposits that are invested in the interbank market. While total assets are below those at September 30, 2001 year-end, we note that during the six month reporting period balances matched or exceeded those year-end balances. However, some of our clients made large payments at the end of March, thus emphasizing the point in time nature of the balance sheet.
Mr. Timothy W. Ulrich, President and Chief Operating Officer of the Bank, confirmed the continuing strategy of the Bank to provide superior client service through the use of top-quality systems and tailored customer service. BCB continues with back office upgrades moving towards full automation as well as with expanding the features of the eBank platform.
The initial launch of the platform, which was almost a year ago, gave our clients the capacity to examine individual and summary account balances, to view account histories from inception, and to open new call and fixed deposit accounts in different currencies instantly. The straight through processing for wire payments and internal and intra account transfers enables clients to work more efficiently. BCB's platform also permits the client to set-up standing orders for one-time or frequent transactions. New features introduced to the platform are dual authorization, the automation of the test key protocol, and single user login. Further development of the eBank platform allows our clients the option of either bricks-and-mortar banking or electronic banking to service all of their banking needs. BCB's eBanking website can be accessed at www.bermuda-bcb.com/bcb.