Eastern Caribbean Home Mortgage Bank

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1 Eastern Caribbean Home Mortgage Bank 1

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3 TABLE OF CONTENTS 5 Performance & Highlights Corporate Information 7 Message from the Chairman 10 Message from the General Manager (Ag) 12 Financial Highlights 13 Snapshot of the Bank 15 Management s Overview of Operations 21 Board of Directors 23 Governance 26 Report of the Board of Directors 28 Identifying and Managing Risks 33 Audited Financial Statements e Our Vision The Bank aspires to be the principal financial intermediary for providing affordable and sustainable sources of housing finance to Primary Lenders operating within the Member States and that its securities are investments of choice on the regional capital market. Our Mission To promote the development of the secondary mortgage market in Anguilla, Antigua and Barbuda, Commonwealth of Dominica, Grenada, Montserrat, St. Christopher and Nevis, Saint Lucia, Saint Vincent and the Grenadines, and bring additional benefits, by facilitating the development of the money and capital market, improving liquidity management in the financial system and promoting home ownership throughout the Member States s Access full PDF downloads of this report, or watch a summary of the year at: 3

4 Focused Mission Shared Vision Clear Strategic Direction ECHMB s low credit risk business model and robust stewardship have enabled the Bank to deliver solid results in turbulent conditionss 4 4

5 PERFORMANCE & HIGHLIGHTS 2014 Net Income Earnings per share $7.00 $6.00 $5.00 $5.60 $5.76 $4.36 $25.00 $20.00 $16.14 $20.84 $21.43 $16.23 $4.00 $3.00 $2.00 $1.00 $1.18 $3.35 $15.00 $10.00 $5.00 $9.46 $ $ $30.00 $25.00 $20.00 $21.59 Interest Income $25.21 $25.55 $24.44 $20.69 $ $ $ $ $ Yield on Mortgages $ $ $ $15.00 $ $10.00 $5.00 $50.00 $18.59 $20.75 $17.52 $16.23 $14.78 $ $ Mortgage Income $ $ $ $ $ $ $80.00 $60.00 $40.00 $20.00 $- Yield on Investments $ $ $ $98.77 $65.54 $2.99 $4.46 $8.02 $8.21 $ $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $- Net Profit for the Year & Dividends $5.60 $5.76 $4.36 $3.35 $2.68 $2.68 $2.68 $1.18 $1.60 $ Cash and Investments Income Profit for Year Dividends Earning Assets Mix Income Mix Mortgage Loans Portfolio Bank deposit Investment income Cash & Cash Equivalents Securities Purchased Under Agreements to Resell Mortgage Loans Portfolio Available-for-sale Investments Borrowings Capital Structure Shareholders' equity 25% 9% 6% 17% 45% 4% 71% 40% 83% 5

6 CORPORATE INFORMATION Registered Office Postal Office Address Website Address ECCB Agency Office, Monckton Street, St. George's, Grenada ECCB Complex, Bird Rock Road, P.O. Box 753, Basseterre, St. Kitts com Telephone Number (869) Fax Number (869) Chairman Corporate Secretary External Auditors Internal Auditors Bankers Honourable Sir K Dwight Venner Maria Barthelmy Grant Thornton Cnr. Bank Street & North Independence Square, Basseterre, St. Kitts. Roosevelt Maloney & Associates Chartered Certified Accountants Basseterre, St.Kitts St. Kitts Nevis Anguilla National Bank Limited Central Street, Basseterre, St. Kitts The Bank of Nova Scotia Fort Street, Basseterre, St. Kitts Affiliation Regulator Caribbean Association of Audit Committee Members Eastern Caribbean Securities Regulatory Commission Shareholders Name Percentage Holding Eastern Caribbean Central Bank 24.86% National Co-operative Credit Union Limited (Dominica) 7.63% CLICO Internation Life Insurance Company Limited (Barbados) 7.44% Dominica Social Security 5.58% Other Financial Institutions 54.49% 6 6

7 MESSAGE FROM THE CHAIRMAN On behalf of the Board of Directors of the Eastern Caribbean Home Mortgage Bank (ECHMB), I am pleased to present the Annual Report of the ECHMB with the audited financial statements for the year ended 31 March The global economic recovery gained strength in Global economic activity is expected to improve in 2014 mainly as a result of on-going economic recovery in advanced economies and a resumption of export growth in emerging economies. The improved global prospect to a great extent is predicated on the positive outlook for the United States of America, the world s largest economy. The Euro area and Canada are also projected to recover in With the world economic recovery gaining momentum, economic recovery for the member states of the Eastern Caribbean Currency Union (ECCU) continued in 2013 and is provisionally expected to strengthen in Preliminary data suggests that economic activity in the ECCU expanded in Growth in Real Gross Domestic Product for 2013 is provisionally estimated at 1.1 per cent compared to a decline of 0.3 per cent in This was attributed to a number of factors including a recovery in foreign direct investment inflows and higher levels of domestic private and public investment. For 2014, economic activity in the ECCU is forecasted to grow by 1.7 per cent with all ECCU member countries expected to record positive growth. This is largely to be driven by recovery in the construction sector as well as accelerated activity in the tourism industry. The improvement in the tourism industry is expected to spill over to related sectors. Construction activity, a major contributor to economic activity in the ECCU, is expected to increase as a result of developments in the both the public and private sectors. Notwithstanding these positive signals, potential threats still exist. Fiscal challenges may emerge as official grant flows diminish and international Honourable Sir K Dwight Venner Chairman capital markets look to finance development opportunities in emerging economies. The recovery of the ECCU member countries continues to lag that of the global economy and this is likely to continue in the short to medium term. The ECCU member countries have not sufficiently recovered from the global economic and financial crisis to achieve growth levels sufficient to spur job creation and substantially increase per capita incomes. Critical to the recovery process is a change to the region s current economic policies and models to lower costs, increase productivity and expand market size. 7

8 Key to this change is the need for greater leveraging of the OECS Economic Union through the expeditious implementation of the provisions of the Revised Treaty of Basseterre, the creation of a single economic and financial space and the maximization of production possibilities for the transformation of the ECCU economies. The OECS Economic Union provides the framework to address the fundamental economic impediment of insufficient size and scale that continues to hinder the achievement of sufficient growth and development. The issue of fragmentation and fractionalization in all sectors of the economy must be addressed in order to achieve greater economic gains. The key issues for the ECCU remain as follows: Growth and Competitiveness; Fiscal and Debt Sustainability; and Financial Stability. For the ECHMB, these issues are of great importance as they impact the economic environment within which the ECHMB operates. Within the financial sector efforts continue towards stabilizing, consolidating and developing the financial system in the ECCU in the following context: Single economic and financial space Consolidated supervision Consolidation of institutions Restructured economy The financial sector development strategy involved the establishment of the ECHMB, the Eastern Caribbean Securities Exchange Limited (ECSE) and its subsidiaries, the Eastern Caribbean Enterprise Fund (ECEF) and the Eastern Caribbean Unit Trust (ECUT). The critical issue for the ECHMB at this juncture is to become innovative in this current environment. Over the 2013/14 financial year, the ECHMB continued to demonstrate its resilience despite the relatively subdued economic conditions. The institution played a creditable role in the ECCU s money and capital markets by raising funds through its bond issues. During the 2014 financial year, the ECHMB raised three corporate bonds totaling $86.18m bringing the total bond issue of the ECHMB over its nineteen years of existence to $732.22m. Over 100 corporate and individual investors have benefited from the $129.28m bond interest payout. The ECHMB continues to obtain favourable rates on the market. The coupon rate on the ECHMB s instruments lowered from 6.0 per cent in 2009 to an average of 4.42 per cent by the second quarter We anticipate that the cost of bonds will decline to 4.0 per cent over the 2014/2015 financial year. While the purchase of mortgage loans from Primary Lenders decreased in the 2013/2014 financial year, the ECHMB was able to achieve its mandate through the acquisition of mortgage loans amounting to $14.89m. As at 31 March 2014, the ECHMB s mortgage portfolio stood at $148.48m compared to $200.46m in the previous financial year. Given the high liquidity at some institutions, Primary Lenders opted to repurchase $56.78m of the mortgage loan portfolio. The ECHMB has acquired in excess of $350.0m in mortgages from fourteen (14) Primary Lenders and has paid $18.06m to Primary Lenders for the administration of the mortgages. For the financial year ended 31 March 2014, the Bank generated a net income of $4.36m compared to $5.76m in 2013, representing a decrease of $1.40m (24.31 per cent). This decrease was mainly as a result of a decline in the coupon rates offered on investment securities and lower income from the mortgage loans portfolio as a result of the $56.78m repurchased by Primary Lenders. Notwithstanding the decline in Net Income during the 2013/2014 financial year, the ECHMB continued to generate a positive return for its shareholders. For the financial year ended 31 March 2014, the Board of Directors will recommend the payment of dividends of $10.0 per share. This will result in a $2.69m payout in dividends to shareholders. Since inception, the ECHMB has recorded a total payout of $19.42m to its shareholders. 8

9 Shareholders equity increased by 2.54 per cent from $55.18m in 2013 to $56.85m in As at 31 March 2014, the ECHMB s cash reserves stood at $179.09m with resources adequate to finance future projects. During the year, the ECHMB hosted its 14 th Home Ownership Day Event in St Kitts and Nevis in collaboration with the St Kitts Nevis Anguilla National Bank. One hundred and twenty five (125) persons participated and the event continued to be supported by Primary Lenders and other key stakeholders. I also thank the Board of Directors, management and staff for their efforts during the course of the 2013/2014 financial year. The Honourable Sir K Dwight Venner Chairman I am pleased to note that the ECHMB continues its efforts in conducting mortgage underwriting courses. These courses are of great significance in assisting to improve the mortgage underwriting standards within the region. Improving mortgage underwriting standards in the region is critical in minimizing the level of non-performing loans in the system thereby maintaining overall financial stability. During the financial year, the Board met in retreat to reflect upon the operations of the ECHMB since inception, take stock of the achievements and challenges over the years and explore strategies for the future. Accordingly, in going forward the ECHMB will focus its efforts on the following: 1. Re-evaluating its strategic vision; 2. Revisiting the ECHMB s mandate; 3. Redefining its operating domain; 4. Exploring the development of a new suite of products; 5. Re-tooling its human resources; 6. Exploring options to increase efficiency; 7. Facilitating institution building such as the promotion of housing cooperatives; and 8. Developing partnerships. As we move into another year of operations, I would like to thank the shareholders for your unstinting support over the years. 9

10 MESSAGE FROM THE GENERAL MANAGER (Ag) Strategic Progress Over 19 Years The attainment of the Bank s five (5) Strategic Pillars of (1) excellence in product delivery; (2) sound financial performance; (3) effective risk management; (4) excellence in corporate governance; and (5) care and development of human resource, continues to deliver results. Summary of where we are. Total net profit for the year $ 39.19m Total corporate bonds issued $732.22m Total bond interest paid $129.28m Total dividends paid $ 19.42m Mortgages purchased >$350.0m Delivering Results Although Interest Income declined from $24.44m in 2013 to $20.69m in 2014, the ECHMB generated a Net Profit for the Year of $4.36m; this has resulted in accumulated Net Profit for the Year of $39.19m over the Bank s nineteen (19) years of operations. The excellent financial outturn has increased Shareholders Equity from $55.18m in 2013 to $56.85m in Book Value per Share increased from $ in 2013 to $ in This represents a capital gain of $51.55 (32.22%) on the last issue price of $160.0 per share. In addition to the capital gain, Shareholders received annual dividends of $10.0 per share. The Capital Gains on ECHMB's Shares Mr. Randy R. Lewis General Manager (Ag) $2.69m paid in dividends in 2014 resulted in total dividends paid of $19.42m over the Bank s existence. Another noticeable effect resulting from growth in Shareholders Equity was an improved Debt-to-Equity Ratio which declined from 4.95:1 in 2013 to 4.74:1 in As a result of the strong financial outturn in 2014, the Bank s fundamentals remained steadfast. Achieving Objectives Issued Price Book value Capital gain The demand for ECHMB s funding of Primary Lenders through the purchase of mortgage loans declined in This was attributed to increased cash and cash equivalents being retained by Primary Lenders. Notwithstanding the aforesaid, the ECHMB was very successful at advancing its objectives of promoting and maintaining the availability of affordable home financing. These objectives were accomplished 10

11 through the placement of Investment Securities totaling $90.26m and the acquisition of mortgage loans in the amount of $14.89m. The ECHMB also provided an avenue for Primary Lenders to reduce their surplus cash and cash equivalents by repurchasing mortgage loans totaling $56.78m. The table shows that, notwithstanding the decrease in demand for funding from the purchase of mortgage loans, the ECHMB continued to promote and increase the efficient mobilisation and allocation of long-term savings for investment in housing (50.00) (100.00) (150.00) Source and Use of Funds Cash Inflows from Repurchased Mortgages Cash inflow from Bond issues Mortgages Purchased Placement of Term Deposits Contributing to the growth and development of the money and capital market remains high on ECHMB s agenda. During the 2014 financial year, the Bank issued three (3) Corporate Bonds in the amount of $86.18m; this brings total Corporate Bonds issued to $732.22m over the Bank s existence. Licensed intermediaries placed thirty two (32) bids, with an aggregate value of $100.4m. The over subscription of $14.22m (16.50%) is a stark demonstration of the confidence individual and institutional investors continue to place in ECHMB s instruments. The Bank continued to meets its obligation to bondholders and paid interest totaling $11.37m in Total interest paid to bondholders now stands at $129.28m over the preceding nineteen years Oversubscription of the Bank's Bonds Place on the ECSM Transforming the Business The Bank continued to upgrade its information technology platform in the Mortgage Underwriting Department by rolling out phase two (2) of the emims s Project. This system provides Primary Lenders with easy and convenient access to the mortgage pools managed on behalf of the ECHMB. As a result, Management notes significant improvement in Primary Lenders reporting. In keeping with the theme of improving the Bank s information technology, a decision was taken to revamp the website. In addition to facilitating the emims, it is the intent that this medium will be leveraged to disseminate information on home ownership, mortgage underwriting, and advice on home financing. The Bank is also exploring this medium for the compilation of online surveys as well as promotion of its funding instruments. Looking Ahead Management presented a draft strategic plan for the triennium 2015 to 2017 to the Board of Directors. In this regard, during the forthcoming financial year, major emphasis will be placed on improving the Bank s internal systems, human capital and strengthening internal governance. It is expected that at the sojourn of the 2015 financial year, the ECHMB will be a leaner institution poised to exploit the opportunities created by the recovering economies of the Eastern Caribbean Currency Union. Appreciation I am profoundly grateful to the Chairman and the Board of Directors for their support and guidance in undertaking the strategic decisions of the Bank in fiscal Likewise, I would like to extend gratitude to my colleagues for their support and to our valued business associates whose continued relationships would no doubt enable the ECHMB to achieve its mandate across the ECCU Bond (Tranche 2) 24 Bond (Tranche 3) Subscription Bids 25 Bond (Tranche 1) Randy Lewis General Manager (Ag) 11

12 Financial Highlights (Expressed in Eastern Caribbean dollars) YOY Change Year Ended 31 March $ 000 $ 000 $ 000 $ 000 $ 000 $ 000 % OPERATING RESULTS Interest Income (3.75) % Net Interest Income (2.04) % Net Income For Year (1.40) % FINANCIAL POSITION Total Assets (1.68) -0.51% Mortgage Portfolio (51.98) % Short-term securities % Borrowings (3.48) -1.28% Shareholders Equity % SHARE INFORMATION EPS (Dollars) (5.20) % Gross Dividends % Book Value per Share ($) % FINANCIAL RATIOS Net Interest Income 39.42% 37.84% 41.53% 43.41% 41.42% (1.99)% -4.59% Return on Total Assets 0.40% 1.01% 1.70% 1.75% 1.33% -0.42% % Interest Cover (0.06) -4.24% Debt-to-Equity 8.61:1 5.63:1 5.30:1 4.95:1 4.74:1 (0.21) 4.31%

13 Snapshot of the Bank 13

14 Invest in ECHMB CORPORATE BONDS Secure & Predictable Returns 14

15 MANAGEMENT S OVERVIEW OF OPERATIONS Management s Overview of Operations should be read in conjunction with the audited financial statements included in this Annual Report. The financial statements have been prepared in accordance with International Financial Reporting Standards and are expressed in Eastern Caribbean dollars. Summary of Financial Results For the financial year ended 31 st March 2014, the ECHMB reported a Net Profit for the Year of $4.36m, down $1.40m (24.31%) from the $5.76m reported in The decrease in Net Profit for the Year was attributed to lower Interest Income which declined by $3.75m (15.34%) from $24.44m reported in 2013 to $20.69m in 2014, but offset by $2.32m (12.41%) reduction in Total Expenses. Interest Income Total Assets declined marginally by $1.68m (0.51%) from $329.70m reported in 2013 to $328.02m in The decline was attributed to the $3.0m (14.29%) repaid on Borrowings, offset by $1.67m (3.03%) increase in Total Equity. Earnings Assets were maintained at 99.86% of Total Assets. The Mortgage Loans Portfolio which constitutes the higher income earning assets, declined from $200.46m or 60.80% of Total Assets in 2013 to $148.48m or 45.27% of Total Assets in Consequently, lower interest earning Cash and Cash Equivalents and Investment Securities increased from $128.78m or $39.06% of Total Assets in 2013 to $179.09m or 54.60% of Total Assets in As a result of the significant changes in the edifice of Total Assets, Interest Income declined by $3.75m (15.34%) in

16 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $- $60.00 $50.00 $40.00 $30.00 $20.00 $10.00 $- $(10.00) $(20.00) $(30.00) $(40.00) $3.02 $- Income Mix $4.40 $5.52 $0.07 $2.49 $5.05 $0.84 $3.14 $5.06 $18.57 $20.75 $17.52 $16.23 $ Mortgage Income Investment Income Bank Deposits Mortgage Loans Portfolio Faced with the cost of holding increased liquidity, some Primary Lenders opted to repurchase $56.78m of their Mortgage Loans Portfolio from the ECHMB. This included $23.0m from the $29.31m acquired during the 2013 financial year. The repurchase of mortgages by Primary Lender contributed to the decline in the Bank s Mortgage Loans Portfolio from $200.46m in 2013 to $148.48m in Accordingly, Mortgage Income declined by $1.45m (8.93%) from $16.23m reported in 2013 to $14.78m in Movement in the Mortgage Loan Portfolio $49.75 $30.07 $29.31 $(19.00) $10.29 $14.89 $(1.62) $(10.44) $(1.20) $(23.71) $(11.83) $(31.40) $(0.59) $(3.25) $(25.38) Purchase of Mortgages Mortgages repurchase/replaced Resale of Mortgages Bank Deposits and Investments The ECHMB business model advocates the rolling over of Bonds at maturity. This enables the Bank to play a significant role in promoting growth and development of the capital market. During the 2014 financial year, the Bank successfully rolled-over $86.18m in matured Bonds. The aforementioned, coupled with the $56.78m repurchase of mortgages by Primary Lenders, contributed to $179.09m being held in Cash and Cash Equivalents and Investment Securities as at 31 March However, in February 2013 the coupon rate on the Bank s deposit account was reduced from 7.0% to 2.5%. The deposit account was an integral part of the Bank s treasury strategy, as it provided the flexibility of stockpiling Cash and Cash Equivalents at a coupon rate which exceeded the Bank s weighted average cost of Bonds. The deposit account therefore enabled a positive interest spread to be generated while growth in the Mortgage Loans Portfolio was pursued. As illustrated below, the ECHMB had experienced declines in the yield on investment securities over the prevailing three (3) years. 9.00% 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% Rates of return on Bank Deposits and Investment Securities 8.50% 7.00% 7.00% 7.00% 6.13% 5.90% 7.00% 4.28% Return on Marketable Securities Deposit Account Interest 4.14% 2.50% The reduction in the coupon rate on the deposit account necessitated a modification to the Bank s treasury strategy. Cash and Cash Equivalents were reallocated to higher yielding Investment Securities which increased from $53.13m in 2013 to $129.86m in As a result, Interest Income from bank deposits declined from $5.07m in 2013 to $0.85m in 2014, representing a decline of $4.22m (83.23%), but offset by the $1.92m (37.94%) increase in Interest from Investment Securities in

17 Investment of Cash and Cash Equivalents Cost of Borrowings $ $ $ $80.00 $60.00 $40.00 $62.94 $57.00 $41.25 $74.52 $31.42 $55.62 $53.13 $ $ % 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 5.83% 5.93% 5.27% 5.48% 5.38% 5.15% 4.80% 4.09% 3.84% 4.97% 4.88% 3.83% 4.22% 4.14% 4.31% $20.00 $- $ Deposit Account Term Deposits 0.00% Weighted average cost of bonds CDB loan interest Weighted Average Cost of Borrowings Interest Expenses In order to maintain Net Interest Income above 40.0%, the decline in the yield on assets needed to be matched by a reduction in the cost of the Bank s Borrowings. As at 31 March 2014, the Bank was funded by $269.30m or 82.57% Borrowings with Shareholders Equity accounting for $56.85m. It should be noted that Corporate Bonds constituted 92.83% of Borrowings. In a bid to lower the cost of borrowing, the Bank adopted the strategy of issuing Corporate Bond via Competitive Bid Auction on the Eastern Caribbean Securities Exchange (ECSE). During the 2014 financial year, the 21 st Bond in the amount of $61.2m (6.0%) was rolled over to tranches 2 and 3 of the 24 th Bond at coupon rates of 3.75% and 3.749% respectively. In addition, the 1 st tranche of the 22 nd Bond totaling $24.98m (6.0%) was rolled-over to 1 st tranche of the 25 th Bond at a coupon rate of 4.0%. As a result of the lowering of the coupon rate on Corporate Bonds, the weighted average cost of Bonds declined from 5.27% in 2012 to 4.22% in Although the coupon rate on Borrowing from Caribbean Development Bank (CDB) increased from 3.83% in 2013 to 4.14% in 2014, Interest Expense declined by $1.70m (12.30%) from $13.82m in 2013 to $12.12m in Net Interest Income Net Interest Income, the difference between Interest Income ($20.69m) and Interest Expense ($12.12m), amounted to $8.57m, equivalent to 41.42%, compared to the 2013 outturn of $10.61m or 43.41%. The decline was attributed to the lower interest earned on Total Assets. Expenses Expenses totaled $4.25m for the year ended 31 March 2014, compared with $4.87m reported in The $0.62m reduction was primarily in General and Administrative Expenses which declined by $0.45m (20.09%) from $2.24m in 2013 to $1.79m in The decline was attributed to savings of $0.27m (16.67%) in Salaries and Related Cost and $72k in Home Ownership Day expenses as a result of hosting one (1) event in There was a decline of $0.2m (11.30%) in Mortgage Administrative Fees in This was due to the $56.78m repurchase of mortgages by Primary Lenders. The increase in Other Operating Expenses by $21k represents an adjustment to Board of Directors Fees coupled with holding additional Board Committee meetings. These expenses were offset by savings of $113k in Impairment Losses on Investment Securities. 17

18 $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $- $3.42 $2.03 Operating Expenses $0.94 $0.94 $0.87 $1.88 $1.88 $1.77 $1.88 $2.24 $2.24 $2.24 $0.89 $1.57 $ General & Administrative Expenses Other Operating Expenses Operating Statistics Mortgage Administrative Fees Return on Total Assets declined from 1.75% in 2013 to 1.33% in The Interest Cover Ratio remained healthy at 1.36 times, notwithstanding the marginal decline from 1.42 times in Shareholders Equity increased from $55.18m in 2013 to $56.85m in 2014, resulting in an improved Debt-to-Equity Ratio from 4.95:1 in 2013 to 4.74:1 in As a result of the excellent outturn for the 2014 financial year, Net Assets per Share increased from $ in 2013 to $ in Dividends of $10.0 per share, totaling $2.69m were paid during the 2014 financial year. $60.00 $50.00 $40.00 $30.00 $20.00 $10.00 $- Shareholders' Equity Shareholders' Equity Social Responsibility Equitable Human Resource Practices The development of the human capital is an integral part of the Bank s Strategic Plan. In this regard, significant resources were devoted to implementing the recommendations of the Review of Human Management Systems undertaken by KPMG. The consultation was not only designed to improve the Bank s working environment, but also to increase the efficiency and effectiveness of personnel. Training continues to be high on the Bank s agenda and employees are encouraged to register in professional courses. It is against this backdrop that the ECHMB continues to support Administrative Professionals Day. In addition to an annual donation, the Bank s administrative professionals continue to play an integral part in the annual celebrations. Mortgage Underwriting Course (MUC) For the past thirteen (13) years, ECHMB, in collaboration with the Real Estate Institute of Canada, has been involved in a training programme for officers who are involved in decision-making, lending, and administration of mortgages at their respective institutions. The Mortgage Underwriting Programme (MUC) is undertaken in three (3) modules over a period of eighteen (18) months and is designed to equip participants with a level of training, in partial fulfillment of the eligibility requirements for accreditation as a Certified Residential Underwriter (CRU). This is a professional accredited programme and is recognized throughout the mortgage finance industry as a mark of professionalism. The MUC addresses the major issues that are likely to impact on the efficiency of the mortgage underwriting processes and servicing practices including titles, development planning, land use, structural integrity of buildings, property valuation and credit assessment. A total of fifty two (52) participants attended the two (2) courses which were held in Dominica and Antigua respectively. To date, in excess of (52) persons have attained the CRU designation. 18

19 of financial management to improve their creditworthiness. The Event also provided a forum for senior policy makers from St. Kitts and Nevis to speak on significant policy initiatives, geared in particular at enforcing the Building Codes. Mortgage Underwriting Course November 2013, Antigua Community Support ECHMB hosted its 2013 edition of the annual Home Ownership Day Event in St. Kitts and Nevis on 30 November One hundred and twenty-five (125) persons attended the Event which was held in collaboration with the St. Kitts-Nevis-Anguilla National Bank. The Event was designed to provide information to homeowners on pertinent issues related to the proper construction and maintenance of their homes, as well as on the responsibilities of personal financial management. Key stakeholders in the mortgage industry, including primary lenders, architect/planners, contractors and a lawyer, made presentations on the following topics: obtaining credit and managing mortgage obligations; planning for residential home; the OECS Building Code and Guidelines; legal requirements for mortgages; post construction maintenance to sustain the value of homes; and alternative investment opportunities in the ECCU. The 2013 Home Ownership Day Event focused on enabling customers to become more astute in borrowing by instilling in them the virtues Home Ownership Day St. Kitts, November 2013 ECHMB continued to support the 2013 edition of Financial Information Month (FIM). In addition to monetary support, the staff of the Bank volunteered time and expertise to the various FIM events. Go Green Initiatives The Bank continues to implement policies geared at reducing its carbon footprint. These initiatives have largely been in the areas of reduced consumption of stationery, printing and enhanced use of information technology. While these initiatives may seem inconsequential, the impact on the environment is nevertheless welcome. Further, Management has noted significant improvements in the Bank s bottom line from the savings in expenses and increased staff productivity. Outlook Management is of the view that the ECCU market is likely to remain liquid over fiscal year 2015 and as a result, Primary Lenders are expected to continue the trend of repurchasing their pools of mortgages. The Bank intends to eliminate existing inefficiencies in its operations by utilizing synergies in staffing, information technologies and outsourcing in areas of skill shortages. Further, being mindful of the 19

20 prevailing economic conditions, effort will be devoted to updating operating policies, including the system of accounting and internal control and enterprise risk management. In order to effectively undertake these initiatives, Management recognizes the importance of improving the skill set of the Bank s human capital. Already, significant resources have been expended in training and job enrichment, and this will be continued. In conclusion, Management wishes to thank all stakeholders for their unwavering support and patronage during the year under review and look forward to forging a stronger partnership in the future. THE TEAM Sitting: Mr. Randy R Lewis - General Manager (Ag), Ms. Cynthia Joseph - Chief Mortgage Portfolio Officer Back Row: L-R: Mrs. Miriam Etienne - Executive Assistant/ Human Resource Officer, Mr. Dennis Cornwall - Research & Compliance Officer, Mr. Justin Skeete - Systems Officer, Ms. Sanginee Rattan - Mortgage Portfolio Assistant, Ms. Sharon Pyke - Administrative Professional II Missing: Ms. Shanna Herbert - Chief Financial Officer (Ag) 20

21 BOARD OF DIRECTORS

22 1. The Honourable Sir K Dwight Venner is Governor of the Eastern Caribbean Central Bank (ECCB), a position he has held since December 1989.He was appointed to the Board of Directors of the ECHMB in 1996, representing the ECCB, the Class A shareholder. Prior to that he served in the position of Director of Finance and Planning in the Saint Lucian Government between November 1981 and November The Honourable Sir K Dwight Venner is an Economist by training and was educated at the University of the West Indies, Mona, Jamaica where he obtained both a Bachelor of Science (BSc) and a Master of Science (MSc) Degree in Economics. He served as a Junior Research Fellow at the Institute of Social and Economic Research at the University of the West Indies and then as a Lecturer in Economics from 1974 to The Honourable Sir K Dwight Venner has written and published extensively in the areas of Monetary and International Economics, Central Banking, Public Finance, Economic Development, Political Economy and International Economic Relations. Currently, he is a member of the Board of Directors of the Eastern Caribbean Securities Exchange Limited, the Caribbean Knowledge and Learning Network, and a member of the Commission for Growth and Development, World Bank. He is also Chairman of the UWI Open Campus Council and was Chairman of the OECS Economic Union Task Force. The Honourable Sir Dwight received the award of Commander of the British Empire (CBE) in 1996 in Saint Lucia and was recognised as a Distinguished Graduate of the University of the West Indies on its 50th Anniversary in July In June 2001 he was awarded Knight Commander of the Most Excellent Order of the British Empire (KBE) in St Vincent and the Grenadines for services to the financial sector. 2. Mr. Gordon Derrick holds a BSc./ Mechanical Engineering from the Florida Institute of Technology and a MBA/Social Science from UWI Cave Hill Campus, Barbados. He was appointed to the Board of Directors in July 2008, representing Class C shareholders. Mr. Derrick holds the international designation of Accredited Director from the Institute of Chartered Secretaries and Administrators (ICSA). He is a Vice Chairman of Antigua Commercial Bank and Chairman of the ACB Mortgage &Trust, Antigua. Mr. Derrick is the General Secretary of the Antigua and Barbuda Football Association and has been elected the new President of the Caribbean Football Union. 3. Mr. Dexter Ducreay is the General Manager of A.C. Shillingford & Company Limited, Dominica. He holds a B Sc. (Hons) in Accounting from St. John s University- New York. He was appointed to the Board of Directors in July 2008, representing Class D shareholders. He is a former General Manager of Dominica Water and Sewage Company and is credited with leading the amalgamation of five (5) credit Unions in Dominica which is currently referred to as the National Co-operative Credit Union. He is the Vice President of the National Cooperative Credit Union Limited, Dominica and has sixteen (16) years of senior level management experience. 4. Mr. Henry Hazel is currently the Chief Executive Officer of Eastern Caribbean Amalgamated Bank (ECAB). He is a seasoned financial services executive with a sterling track record of exemplary leadership and significant industry accomplishments. His impressive combination of leadership, technical skills and broad industry experience distinguishes him as a leading expert in the ECCU banking arena where, for in excess of 20 years, he was employed in financial sector regulation, banking supervision and as a Chief Executive Officer in retail banking. Mr. Hazel is a Certified Public Accountant (CPA) conferred by the Maryland State Board of Public Accountancy having undertaken studies at the University of Maryland, USA. He holds Bachelors of Arts (BA) Degrees in Accounting (summa cum laude) and Mathematics (summa cum laude) from the University of the US Virgin islands. He is also a Chartered Banker and member of The Chartered Institute of Bankers in Scotland, and holds a MBA in Banking and Finance from Bangor University in Scotland, UK. 5. Mr. Louis Williams is the Finance Manager of the National Insurance Scheme, Grenada and holds a Licentiate in Accounting from the University of Camaguey, Cuba. Mr. Williams has over twenty seven (27) years experience in the field of Accounting and Finance. He is a former Executive Secretary of the Grenada Co-operative Nutmeg Association where he served for ten years before moving on to the National Insurance Scheme in the current capacity where he has been for over seventeen (17) years. Mr. Williams was appointed to the Board of Directors in July 2010, representing Class B shareholders. He is the Chairman of the Board of Directors of the Presentation Brothers College, a secondary school in Grenada. 22

23 GOVERNANCE Governance Structure The Board of Directors (the Board ) has ultimate responsibility for ECHMB s corporate governance and risk management. Each year, the Executive Committee of the Board approves and reviews risk appetite and risk management policies. The Board delegates the role of identifying, assessing and managing risk to Senior Management. In keeping with its principal responsibilities, the Board of Directors of the ECHMB continues to ensure that the highest standards in corporate governance are maintained, with the objectives of reinforcing confidence and trust of investing financial institutions, increasing Primary lenders satisfaction and building a strong and ethical regional institution. On an annual basis, the ECHMB adopts the latest developments in corporate governance in an effort to ensure that its procedures are in line with international best practice. The fundamental approach adopted is to ensure that the right executive leadership, corporate strategy, internal controls and risk management procedures are in place. Notwithstanding the aforesaid, the Board continuously reviews its governance model to ensure relevance and effectiveness as the Bank faces future challenges exacerbated by uncertain economic conditions. Board Charter The Board is guided by its Charter and the Eastern Caribbean Home Mortgage Bank Agreement which provide references for directors in relation to their roles, powers, duties and functions. Apart from reflecting current best practices and applicable rules and regulations, the Charter and the Eastern Caribbean Home Mortgage Bank Agreement outline processes and procedures to ensure the effectiveness and efficiency of the Bank s Board and its Committees. The Charter is updated at regular intervals to reflect changes to the Bank s policies, procedures and processes as well as to incorporate amended relevant rules and regulations. Roles and Responsibilities of the Board It is the responsibility of the Board to periodically review and approve the overall strategies, business, organisation and significant policies of the Bank. The Board also sets the Bank s core values and adopts proper standards to ensure that the Bank operates with integrity.the responsibilities of the Board include the following:- reviewing and approving the strategic business plans for the Bank; identifying and managing principal risks affecting the Bank; reviewing the adequacy and integrity of the Bank s internal controls systems; approving the appointment and compensation of the Chief Executive Officer and senior management staff; approving new policies pertaining to staff salaries and benefits; and approving changes to the corporate organization structure. Directors Independence and Independent Non-executive Directors The Board consists entirely of Non-Executive Directors, which help to provide strong and effective oversight over senior management. The Directors do not participate in the day-to-day administration of the Bank and do not engage in any business dealings or other relationships with the Bank (other than in situations permitted by the applicable regulations) in order to ensure that they remain truly capable of exercising independent judgement and act in the best interests of the Bank and its shareholders. Further, the Board is satisfied and assured that no individual or group of Directors has unfettered powers of decision that could create a potential conflict of interest. Additionally, the Board ensures that all Independent Non-Executive Directors possess the following qualities: ability to challenge the assumptions, beliefs or viewpoints of others with intelligent questioning, constructive and rigorous debating, and dispassionate decision making in the interest of the Bank; and 23

24 willingness to stand up and defend his own views, beliefs and opinions for the ultimate good of the Bank; as well as a good understanding of the Bank s business activities in order to appropriately provide responses on the various strategic and technical issues confronted by the Board. Quality and Supply of Information to the Board In order to effectively discharge its duties, the Board has full and unrestricted access to all information pertaining to the Bank s business and affairs as well as to the advice and services of the Senior Management. In addition to formal Board meetings, the Chairman maintains regular contact with the General Manager (Ag) to discuss specific matters, and the latter assisted by the Corporate Secretary ensures that frequent and timely communication between the Senior Management and the Board is maintained at all times as appropriate. The Board is regularly kept up to date on and apprised of any regulations and guidelines. Corporate Secretary The Corporate Secretary is responsible for advising the Board on issues relating to corporate compliance with the relevant laws, rules, procedures and regulations affecting the Board and the Bank, as well as best practices of governance. She is also responsible for advising the Directors of their obligations and duties to disclose their interest in securities, disclosure of any conflict of interest in a transaction involving the Bank, prohibition on dealing in securities and restrictions on disclosure of price-sensitive information. All Directors have access to the advice and services of the Corporate Secretary. Conflict of Interest In accordance with Article 27 of the Eastern Caribbean Home Mortgage Bank Agreement a Director who is in any way interested, whether directly or indirectly in a contract or proposed contract with the Bank or whose material interest in a company, partnership, undertaking or other business is likely to be affected by a decision of the Board shall disclose the nature of his interest at the first meeting of the Board at which he is present after the relevant facts came to his knowledge. Article 27 further provides that after the disclosure the Director making it shall not vote on the matter and, unless the Board otherwise directs, shall not be present or take part in the proceedings of any Meeting at which the matter is being discussed or decided by the Board. Structured Training Programme for Directors Directors are expected to participate in the Directors Accreditation Programme ( DEAP ). This is an advanced director training course, aimed at preparing directors for the important role that they play in the governance of the Bank. The DEAP was developed by the Institute of Chartered Secretaries and Administrators/ Chartered Secretaries Canada (ICSA/CSC), in partnership with the law firm of Borden Ladner Gervais, and with contributions from AON Canada. Executive Committee Article 22 of the Eastern Caribbean Home Mortgage Bank Agreement provides that the Board may appoint an Executive Committee of the Board, consisting of not less than three Directors drawn from three different classes of shareholders, the General Manager and the Chief Financial Officer of the Bank, to supervise asset and liability management and examine and approve financial commitments in accordance with the regulations and policies established by the Board. The Committee is comprised of the following members:- Honourable Sir K Dwight Venner Chairman Gordon Derrick Dexter Ducreay Randy Lewis Audit Committee The Audit Committee provides guidance on the Bank s systems of accounting and internal controls, thus ensuring the integrity of financial reporting. This Committee also serves as an effective liaison between Senior Management and the External 24

25 Auditors. The Committee is comprised of the following members:- Dexter Ducreay - Chairman Louis A Williams Mr. Henry Hazel The 2014 activities of the Committee included: reviewed the Bank s compliance with financial covenants; approved the 2014 audit engagement letter; reviewed and approved the external audit plan and timetable; evaluated the performance of the External Auditors and approved their remuneration; reviewed the External Auditors 2014 management letter and report on the 2014 audit; reviewed monthly management accounts; examined the implications of changes to International Financial Reporting Standards; and approved the 2014 Internal Audit Plan, Internal Audit report and monitored Management s implementation of Internal Auditors recommendations; Strategy Committee The Strategy Committee considers and approves the ECHMB s Strategic Plan and is comprised of the following members:- Gordon Derrick - Chairman Dexter Ducreay Louis A Williams Henry Hazel The responsibilities of the Strategic Committee include the following: reviewing and recommending strategic actions to be taken by the Bank for the Board s approval; developing and fostering a risk aware culture within the Bank; reviewing and approving risk management strategies, risk frameworks, policies, risk tolerance and risk appetite limits, adequacy of risk management policies and framework in identifying, measuring, monitoring and controlling risks and the extent to which they operate effectively; ensuring infrastructure, resources and systems are in place for risk management, i.e. that the staff responsible for implementing risk management systems perform those duties independently of the financial institution s risk taking activities; reviewing and assessed the appropriate levels of capital for the Bank, vis-à-vis its risk profile; Human Resources Committee The Human Resources Committee is responsible for staff compensation and the approval of amendments to staff policies. The Committee is comprised of the following members:- Gordon Derrick- Chairman Dexter Ducreay Louis A Williams The ECHMB Best Practice Since incorporation, ECHMB s Board of Directors has been chaired by a non-executive Chairman to ensure independent leadership. Shareholders appoint directors every two (2) years in accordance with the Eastern Caribbean Home Mortgage Bank Agreement. The five (5) directors are non-executive and are required to declare their interests in any transaction that the ECHMB undertakes. Board Committees have the authority to retain independent advisors, as determined necessary by each Committee. The Internal Audit function is undertaken by an independent contractor. The Audit Committee meets separately with the Internal Auditors. 25

26 REPORT OF THE BOARD OF DIRECTORS The Directors have the pleasure in submitting their Report for the year ended 31 st March Financial Results and Dividends $ 000 Net Profit for Year attributed to shareholders 4,362 Final dividends of $10.00 per share for 2013 (2,687) Transfer to reserves (670) Net Income for Year after distribution 1,005 Retained Earnings at beginning of year 10,138 Retained Earnings at end of year 11,143 Dividends The Directors have recommended a Dividend of $10.00 per share for the year ended 31 st March, 2014, amounting to $2.69m Substantial Shareholder interests in Share Capital Fully as at Paid 31 up March 2014% of issued Ordinary Shares Share Capital Eastern Caribbean Central Bank 66, % Central Co-operative Credit Union Ltd. 20, % CLICO International Life Insurance Ltd, Barbados 20, % Dominica Social Security Board 15, % There have been no changes in these interests occurring between the end of the ECHMB s financial year and the date of the Notice convening the Annual General Meeting. Statement of Affairs In the opinion of the Directors there were no significant changes in the state of the affairs of the Bank during the financial year. 26

27 Directors Article 15 (1) of the Eastern Caribbean Home Mortgage Bank Agreement provides that (a) a director holds office for two (2) years and shall be eligible for re-appointment; (b) a vacancy in the Board shall be filled by the Class of shareholders which appointed the director to be replaced; and (c) a director appointed to fill a vacancy holds office for the un-expired term of his predecessor. The two (2) year term of office of the current Board of Directors expires at the 19 th Annual General Meeting in 2014 and all Members are eligible for re-appointment except that Mr. Henry Hazel who has indicated that he will not be offering himself for re-election. None of the Directors hold shares in the Bank. No Director had, during the year or at the end of the year, any interest in any contract pertaining to the Bank s business. Events Subsequent to Statement of Financial Position Date The Directors are not aware of any transaction which has arisen since 31 st March 2014 that has a material effect on the operations of the Bank, and for which adequate disclosures have not been made in the financial statements. Auditors Article 23 of the Eastern Caribbean Home Mortgage Bank Agreement provides that shareholders shall at each Annual General Meeting appoint an auditor to hold office from the conclusion of the meeting until the conclusion of the next Annual General Meeting. The Auditors, Grant Thornton, retire at the financial year ending 31 March The Auditors are elegible for re-appointment and have offered themselves as External Auditors for the year ending 31 March, The Board of Directors recommends their re-appointment. 27