Second Quarter Results
For the quarter ended September 30, 2002
Message
to Stakeholders
CONSISTENT GROWTH FOR ATB FINANCIAL
Edmonton, December 20,2002 - ATB Financial reported second quarter
earnings of $50.5 million for the period ending September 30, 2002, compared to
$44.1 million reported for the same period last year, an increase of 14.58
percent. The significant increase over last year is due to a combination of
rising interest rates and recoveries of past provisions for credit losses.
This quarter's results increased ATB's equity to $679.7 million, as at
September 30, 2002.
"The consistent growth we have experienced over the past two years,
which is reflected in all lines of business, demonstrates our commitment to
Albertans in providing products and services that respond to their individual
needs," said Bob Normand, President and Chief Executive Officer of ATB
Financial. "While we are beginning to see evidence of financial
difficulties in the agricultural sector, we remain committed to our agri-industry
customers over the long term."
Financial Highlights
- Total assets of $12.8 billion is an increase of 2.87 percent over last
year.
- Total loans at $10.8 billion is an increase of 8.68 percent over last
year.
- Retail deposits of $11.1 billion is an increase of 7.39 percent over last
year.
- The allowance for credit losses, including specific and general loan loss
allowance, exceed gross impaired loans by $78.2 million. Net impaired loans
represent a negative 0.71 percent of total loans at September 30, 2002,
compared to a negative 0.70 percent at September 30, 2001.
- Net interest income of $93.5 million is a decrease of 1.44 percent from
$94.9 million for the same quarter last year. The decrease is due to a low
interest rate environment.
- Non-interest expenses of $74.3 million is an increase of 8.42 percent from
$68.5 million for the same quarter last year.
- ATB's efficiency ratio, non-interest expenses as a percentage of operating
revenues, is 64.08 percent compared to 58.52 percent for the same six-month
period last year.
Subsequent Event
A settlement has been reached resolving all claims and counterclaims arising
from litigation matters related to Alberta Treasury Branches (ATB) and West
Edmonton Mall. The parties have exchanged formal releases as part of the
settlement and have agreed to discontinue all actions against each other without
costs. The financial impact of the settlement on ATB will be reflected in the
third quarter financial statements, resulting in an increase in net income of
$45.0 million, due to a recovery of previously reported credit losses.
Products and Services
ATB customers who want to manage some of their own investments now have
access to an online brokerage platform. Qtrade Investor was selected to provide
turnkey online brokerage services to ATB Financial's customers. Through this
partnership, Qtrade Investor will provide ATB Financial with a dedicated and
co-branded online brokerage website, accessible either online or by phone
through Qtrade Investor's call centre.
Consumers continue to look at short-term investments while waiting for
interest rates to rise. ATB Financial's selection of fixed date products and
rates are extremely competitive and meet these short-term objectives. Sales of
an 18-month GIC product were extended into August, and a 12-month GIC product
was offered during the month of September. The Century GIC, only available
during the month of October until 2005, responds to the demand for a uniquely
Albertan investment that fits today's market.
ATB Financial recognizes the impact that drought and poor harvesting
conditions have on the agricultural industry in Alberta. At ATB Financial, we
believe that solutions are unique to each customer and that the best way to
assist is to work with our customers on an individual basis as we help them deal
with their short-term debt servicing deficiency, whatever the cause. Our trained
staff continues to proactively identify customers who may experience financial
difficulties in the near future and will present various options to assist
wherever possible.
Small businesses are an important part of Alberta's economy and during Small
Business Week in October, ATB Financial sponsored a seminar to help
entrepreneurs understand the difference between being profitable and being able
to meet their day-to-day financial commitments.
Through the "Real Cash Real Profit" seminar, some 80 small business
owners learned more about the business of being in business at seminars held in
Edmonton and Calgary, and an additional 95 entrepreneurs participated in an
expanded two-day seminar.
A new version of Internet banking for our business customers was also
launched. Several upgrades have been made to the service, which include such
features as future-dated bill payments and transfers, secure messaging, along
with the ability to view transaction history for a business MasterCard account.
Access
We continue to expand our presence in major urban centres, with two branches
recently opening in Calgary. The new Douglas Glen branch at 11488 - 24th Street
SE is a 5000 square foot facility to serve the rapidly growing Douglasdale area.
The Forest Lawn branch relocated to 3620 - 17th Avenue SE. This 5,700 square
foot building features a mural that celebrates the Portuguese community in
Calgary with a painting by Martinho Correia. In addition to our branch network
of 145 branches and 132 agencies, ATB Financial has 225 automated bank machines
and a 180-seat Call Centre available to provide services to our customers.
Community Partnerships
Ten central Alberta branches participated in a fundraising campaign for
STARS. This second annual campaign featured the sale of $2 paper helicopters to
customers and a variety of fundraising events such as auctions, raffles, walk-a-thons
and a dunk tank. In support of this campaign, ATB hosted the ATB STARS
Invitational Golf Tournament on September 19, 2002. Through these events, ATB
Financial raised $42,550 for STARS.
ATB Financial was a major supporter of the successful Say Hay concerts for
drought relief, hosted in Edmonton and Calgary in October. In addition to a cash
contribution, ATB Financial maintained the Say Hay Trust Account, and promoted
Say Hay to its customers via customer statement inserts. Support for this
campaign continues and almost $2 million has been raised, more than double the
original goal of $1 million.
Economic Update
The global economy remains subject to many uncertainties, including the
sustainability of the US economic recovery.
The uncertainty has led to a general tightening in business lending and
higher interest costs to lower quality borrowers. The continuing stock market
gyrations in both the US and abroad have also led to a "flight to
quality" leaving yields on long-term US Treasuries at 40-year lows. Other
global uncertainties include the threat of war in Iraq, Japan's continuing
deflationary pressure and financial sector crises, weak economic growth in
Europe and debt and banking system troubles in Latin America.
For Alberta the threat of war in the Middle East has meant rising oil prices.
To date, rising energy prices have not been broadly reflected in greater
oilpatch activity. Through September, drilling activity has fallen by 27.48
percent and this is reflected in a 24.65 percent decline in employment in the
mining and oil and gas extraction sector. A contributing factor to lower
investment spending is the conversion of many smaller exploration and
development companies into royalty trusts, whose purpose is to distribute cash
flow as opposed to increasing reserve levels through exploration activity.
In Alberta, housing starts are up 37.09 percent year to date, including a
58.63 percent rise in the Edmonton area. Strong wage and salary growth continues
to buoy retail sales. Interest sensitive sectors such as furniture, appliances
and motor vehicles also grew strongly. In the agricultural sector, lower crop
yields due to poor weather and falling livestock prices have cut into farm cash
receipts.
For the Alberta economy as a whole, the uncertainty around the Government of
Canada's Kyoto implementation plan has caused some investment plans to be put on
hold. ATB Financial will continue to monitor developments in this area as many
of its business customers are directly or indirectly influenced by investment
intentions of the energy sector.
Ron P. Triffo
Chairman of the Board
Bob Normand
President &
Chief Executive Officer
December 2002
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Management's Discussion and Analysis (unaudited)
Net Income
ATB reported net income of $50.5 million for the second quarter
ended September 30, 2002 compared to $37.2 million for the first
quarter ended June 30, 2002 and $44.1 million in the second quarter
last year. Second quarter net income exceeded the previous quarter's
net income by 35.90 percent and last year's second quarter net income
by 14.58 percent. The significant increase over the previous quarter
is primarily due to a combination of rising interest rates and
recoveries of past provisions for credit losses. Net income is $87.6
million for the six months ended September 30, 2002, an increase of
$2.6 million or 3.08 percent over net income for the same period last
year.
Net Interest Income
Net interest income for the second quarter ended September 30, 2002
is $93.5 million, up $5.0 million or 5.67 percent from the first
quarter and a decrease of $1.4 million or 1.44 percent from the second
quarter last year. The increase in net interest income over the
previous quarter is mainly due to a 10 basis point increase in the net
interest margin.
For the six months ended September 30, 2002, net interest income is
$182.0 million, a decrease of $5.5 million or 2.92 percent over the
same period last year. This decrease from last year is due to a low
interest rate environment, which causes a downward pressure on
interest margins. The net interest margin decreased to 2.90 percent
for the six months ended September 30, 2002 from 3.11 percent for the
same period last year. Although short-term market rates have climbed
recently, the average prime lending rate is lower by 193 basis points
from the same period last year.
Credit Quality
The quality of ATB's loan portfolio continued to improve over the
past year. Gross impaired loans (before deducting the allowance for
credit losses) at the end of the quarter are $91.0 million, compared
to $100.2 million a year ago. The allowance for credit losses exceeds
the gross amount of impaired loans by $78.2 million at September 30,
2002 compared to $71.0 a year earlier. The impact on the income
statement for the second quarter ended September 30, 2002 was a
recovery of credit losses of $4.7 million, compared to a charge of
$1.3 million in the previous quarter and a charge of $6.2 million in
the second quarter of last year.
The ratio of credit losses to average loans improved to a negative
0.06 percent at September 30, 2002 compared to a positive 0.25 percent
a year earlier. The recovery is due to a reversal of a general
provision established in the wake of September 11, 2001 events as well
as some specific recoveries of previous write-offs.
Other Income
Other income for the second quarter ended September 30, 2002 is
$26.5 million, an increase of $.5 million or 1.81 percent from the
first quarter and $2.7 million or 11.26 percent from the second
quarter last year.
For the six-months ended September 30, 2002, other income is $52.6
million, up $5.4 million or 11.48 percent from last year. The increase
is attributable to credit fees, primarily in the individual financial
services segment due to customers renegotiating their fixed-term loans
to lock in the low interest rates. Card fee revenue also increased due
to increased number of cards in circulation.
Non-interest Expenses
Non-interest expenses are $74.3 million for the second quarter
ended September 30, 2002, a decrease of 2.36 percent compared to
non-interest expenses last quarter and a 8.42 percent increase
compared to non-interest expenses for the second quarter last year.
For the six months ended September 30, 2002, non-interest expenses
increased 9.47 percent compared to the same period last year. This
increase in non-interest expenses is primarily due to increased
salaries and employee benefit costs, higher amortization expense due
to new technology systems, and higher transaction volumes.
Non-interest expenses in the individual financial service segment
increased by 14.55 percent from the same six-month period last year,
due to a number of new initiatives under-way, such as expansion of
wealth management services, centralization of mortgage processing and
improvements in our retail delivery channels. While these initiatives
currently consume higher percentage of resources, once implemented,
the efficiency ratio will improve due to both higher revenues and
higher productivity.
The efficiency ratio, expressed as a percentage of non-interest
expenses to operating revenue (net interest income plus other income)
is 64.08 percent for the six months ended September 30, 2002, compared
to 58.52 percent for the same period last year. This negative change
is largely due to lower net interest margins.
Balance Sheet
ATB's total assets are $12.8 billion at September 30, 2002, an
increase of 1.14 percent from June 30, 2002. Total loans grew by 2.49
percent this quarter and deposits by 0.68 percent. In comparison, the
second quarter results last year show total assets growth of 2.43
percent, total loan growth of 3.08 percent and deposit growth of 1.96
percent.
Over the twelve-month period, total loans grew by 8.68 percent
compared to 6.13 percent for the same period last year. Deposit growth
over the past year is 1.82 percent compared to 9.17 percent the year
before. Both asset and deposit growth rates reflect management's
decision to retire some high-interest institutional deposits and
reduce short-term investments.
On a segment basis, the largest growth was recorded for individual
financial services. Average loans increased by 11.52 percent from a
year ago, average deposits by 10.69 percent, and total assets grew by
12.37 percent from September 30, 2001. In the independent business and
commercial financial services the average loans increased by 6.93
percent from a year ago.
The total equity as at September 30, 2002 is $679.7 million, up by
$87.6 million from March 31 and $160.5 million from a year ago..
Caution Regarding Forward Looking Statements
This report includes forward-looking statements. ATB Financial
from time to time may make forward-looking statements in other written
or verbal communications. These statements include objectives for the
short and medium term and strategies to achieve those objectives. ATB
cautions readers not to place undue reliance on the forward-looking
statements as actual results may differ materially from plans,
objectives and expectations.
By their very nature forward looking statements involve
uncertainties and can change due to a variety of reasons including
legislative or regulatory changes, competition, technological changes,
and changes in interest rates and general economic conditions. The
foregoing list is not exhaustive and when relying on forward looking
statements these factors as well as other factors should be considered.
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