First Quarter Results
For the quarter ended June 30, 2004
Message
to Stakeholders
ATB Financial Surpasses $1 Billion in Equity and Still Growing
Edmonton - August 17, 2004 - ATB Financial reported first quarter earnings of $44.8 million for the period ending June 30,
2004. This compares to $25.0 million for the same period last year, reflecting a
general improvement in the quality of the loan portfolio and an increased
understanding of the risks associated with the current issues facing the cattle
industry.
The first quarter results boosted ATB's equity to more than
$1.0 billion as at June 30, 2004, an increase of 23.51 per cent from one year
ago. "This is a milestone for ATB Financial. It is a positive reflection of
the direction the company is taking," said Bob Normand, President & CEO
of ATB Financial.
"Our current strategy, which is focused on the
fundamentals of customer service, coupled with our investment in diversifying
our portfolio in wealth management and energy and commercial banking, is adding
strength to our income streams," said Normand. "We continued to
perform well, considering the dragging effects of the current interest rate
environment and historic events in the agri-industry. We were able to leverage
the positives offered by a buoyant Alberta economy."
Financial
Highlights
- Net income of $44.8 million, is an increase of 79.26 per cent over last
year.
- Total assets of $14.5 billion is an increase of 6.52 per cent over last
year.
- Total loans at $12.4 billion is an increase of 6.64 per cent over last
year.
- Total deposits of $13.3 billion is an increase of 5.45 per cent over last
year.
- Net interest income of $93.3 million is an increase of 7.13 per cent from
the same quarter last year.
- Non-interest expenses of $90.3 million is an increase of 10.98 per cent
from $81.4 million for the same quarter last year.
- ATB Financial's efficiency ratio (non-interest expenses as a percentage of
operating revenues) has declined to 72.07 per cent, compared to 62.84 per
cent for the same three-month period last year.
ATB
Investor Services
Since
the launch of ATB Securities in July 2003, ATB Investor Services has continued
to grow its assets under management at a pace surpassing forecasts. Assets under management as of June 30, 2004 were $730 million compared to
$245 million for the same period in 2003, nearly one-half billion dollars more.
The
Compass Portfolio Series represents the largest part of ATB Investor Services
growth, increasing by $64 million over the quarter ended March 31, 2004.
ATB
Investor Services continues to recruit and build its team of financial advisors
across Alberta.
Energy & Commercial
Banking
This line of business had a successful first quarter with
asset growth of 10.92 per cent over the quarter ended March 31, 2004. Energy and
Commercial banking is realizing the benefits of industry specialization,
launched in 2003.
BSE Update
ATB Financial continues to closely
monitor the evolving situation surrounding Bovine Spongiform Encephalopathy (BSE).
By working with our customers on an individual basis, ATB is making every effort
to mitigate the impact of the situation through our personal lending approach.
Each customer situation is being treated as a unique case requiring a unique
financial solution. ATB recognizes the difficult circumstances our customers
face, and we will allow as much latitude and flexibility as permitted by prudent
financial practices.
During the current quarter, ATB
reduced the BSE loan loss provision by $3.3 million. In June 2003, a special
provision was established for BSE related losses. This special provision has
been reduced as we are now better positioned to assess the risk associated with
BSE. At June 30, 2004, $14.2 million of this special provision was still in
place.
ATB in the
Community
The fifth annual Teddy for a Toonie
fundraising campaign for the Alberta Children's Hospital Foundation and the
Stollery Children's Hospital Foundation took place at all ATB Financial branches
and agencies during May. Customers and the community generously donated to this
campaign, raising a record $262,100.
In the southern half of the province
$112,000 was raised for the Alberta Children's Hospital Foundation. The money
will be directed toward the purchase of a Leica microscope, used for pediatric
limb surgery and the detailed suture work with arteries, veins and nerves.
The $150,100 raised in the northern
half of the province was for the Stollery Children's Hospital Foundation. For
the second year, the funds will be directed to the Hematology and Thrombosis
research team.
In May, ATB was a sponsor of the
Edmonton Corporate Challenge. More than 100 ATB Financial associates
participated in one or more of the 20 athletic events. In June, ATB was a
corporate sponsor at Spruce Meadows in Calgary as well as the Ponoka Stampede.
Branch Update
During the
first quarter, ATB opened two new branches: Edmonton Hawkstone, serving the
residents of southwest Edmonton; and St. Albert North, serving the residents of
St. Albert and surrounding communities.
Also during
this quarter, the Medicine Hat Carry Drive branch celebrated its grand opening
at its new premises.
A major ATB
initiative to replace or upgrade the entire ATB Financial network of ABMs was
completed in June 2004. ATB Financial now has one of the most technologically
advanced fleet of ABMs in the world. These machines feature superior security
and the potential for an expanded array of customer service options.
Economic Outlook
The economic outlook remains positive for both Canada and
Alberta. Exports, that had been weak through 2003 as the Canadian dollar
strengthened, have rebounded due to rising commodity prices, a very strong North
American housing market and a very stimulative monetary and fiscal policy in the
United States. Economic growth in China has been exceptionally strong and is a
factor in rising demand for commodities.
Oil prices have averaged over $30 U.S. per barrel since the
beginning of 2003 and have moved over $40 for several months due to demand
pressures as well as geo-political concerns. Cash flow to the Alberta energy
industry has supported large capital expenditure budgets and 2004 drilling
levels are expected to exceed record 2003 levels. New oil sands projects will be
proceeding in northeastern Alberta and most industry players have already lined
up the requisite financing. A key challenge for the industry will be managing
the costs of these massive projects.
Alberta's beef sector faces continued uncertainty in its
ability to access U.S. and foreign markets. Government programs and low interest
rates have assisted producers but further consolidation and restructuring in
this industry is likely.
Overall we expect the Alberta economy will grow in the
range of 3.5 to 4.0 per cent in 2004 and 2005, driven by high employment levels
and strong capital investment. Interest rates are anticipated to rise gradually
over the next 18 months, producing a slowdown in the housing sector.
Ron
P. Triffo Bob Normand
Chairman of the Board President & CEO
August 2004
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Management's Discussion and Analysis (unaudited)
Net Income
ATB
Financial reported net income for the first quarter ended June 30, 2004
of $44.8 million compared to $54.1 million for the previous quarter and
$25.0 million for the first quarter last year. First quarter net income
decreased $9.3 million or 17.19 per cent from last quarter's but
exceeded last year's first quarter net income by $19.8 million or 79.26
per cent.
This
significant increase in net income from the same period last year
reflects a significant recovery in loan loss provisions due to continued
emphasis on good credit practices by ATB, the strong Alberta economy and
our increased understanding of the impact of BSE (allowing a $15.2
million reduction in specific provisions since last year). These
increased recoveries more than offset the increased non-interest
expenses and decreased net interest income (driven by reductions in the
net interest margin rate earned only partially offset by net asset
growth).
Net Interest Income
ATB's
net interest income is $93.3 million for the first quarter ended June
30, 2004, down $3.5 million or 3.65 per cent compared to last quarter
and down $7.2 million or 7.13 per cent compared to the first quarter of
last year.
The
decrease in net interest income from last quarter reflects a 16 basis
point decrease in ATB's net interest margin, partially offset by growth
in average assets of $503.3 million or 3.64 per cent. ATB's net interest
margin decreased from 2.77 per cent to 2.61 per cent, reflecting the
continuing soft interest rate environment and competitive pressures.
The
decrease in net interest income from the first quarter of last year is
due to similar factors with a 37 basis point reduction in net interest
margin, partially offset by growth in average assets of $802.5 million
or 5.93 per cent.
Loan
Quality
A
$9.8 million recovery of provision for credit losses is recorded in the
Consolidated Statement of Income for the quarter ended June 30, 2004 as
compared to a $12.9 million recovery last quarter and a $23.1 million
loss provision in the first quarter of last year. The recovery of
provision is mainly due to a high performing loan book and a strong
economy. Further, during the current quarter, ATB reduced the BSE loan
loss provision by $3.3 million. The special provision for BSE, first
established in June 2003, has been reduced by a cumulative $15.2 million
as we are now better positioned to assess the risks associated with BSE.
At June 30, 2004, $14.2 million of this special provision is still in
place, down from the $29.4 million initially provided in June 2003.
Impaired
loans (before deducting the allowance for total credit losses) as at
June 30, 2004 are $103.5 million compared to $108.8 million last
quarter-end and $158.6 million a year ago. The allowance for credit
losses exceeds the gross amount of impaired loans by $79.1 million at
June 30, 2004 compared to $84.1 million and $45.6 million last quarter
and a year ago, respectively.
Other
Income
Other income totals $32.0 million for the first
quarter ended June 30, 2004, an increase of $3.3 million or 11.52 per
cent from the previous quarter, and an increase of $3.0 million or 10.23
per cent from the first quarter last year. The increases over the
earlier results are attributed to growth in commissions from Investor
Services, credit fees, (primarily in the Personal and Business Banking
segment as a result of strong loan growth) and $1.0 million of
"mark-to-market" gains on derivatives resulting from ATB's
implementation of new accounting standards (see note 2 to the Interim
Consolidated Financial Statements).
Non-Interest
Expenses
Non-interest
expenses are $90.3 million for the first quarter ended June 30, 2004, an
increase of $6.0 million or 7.13 per cent compared to last quarter and a
$8.9 million or 10.98 per cent increase compared to the same quarter
last year.
The
continued increase in non-interest expenses compared to last quarter and
to the first quarter last year is mainly attributable to a combination
of higher transaction volume, increased compensation and employee
benefit costs plus continued expansion of our branch network.
The
efficiency ratio, expressed as a percentage of non-interest expenses to
operating revenue (net interest income before loss provisions plus other
income), was 72.07 per cent for the three months ended June 30, 2004,
higher than the 67.16 per cent figure for the previous quarter. For the
same period of last year, the efficiency ratio was 62.84 per cent. These
decreases from previous results are largely due to reduced net interest
income and increased compensation and benefit costs. This trend is as
planned as we continue to build our Investor Services business and make
investment in our infrastructure.
Balance
Sheet
ATB's
total assets are $14.5 billion at June 30, 2004, an increase of 1.71 per
cent from $14.3 billion at March 31, 2004 and 6.52 per cent from $13.7
billion a year ago. Total loans, net of allowance for losses, increased
by $294.6 million or 2.43 per cent from the previous quarter-end balance
and increased $774.1 million or 6.64 per cent from June 30, 2003. Total
deposits have increased $216.6 million or 1.66 per cent during the first
quarter and are $685.4 million or 5.45 per cent higher than at the same
date last year. In comparison, in the first quarter of last year, total
assets increased by 3.46 per cent, total loans decreased by 0.34 per
cent and total deposits increased by 3.88 per cent.
ATB's
total equity as at June 30, 2004 is $1.0 billion, up by $44.8 million
from March 31, 2004 and up $191.8 million from a year ago.
Segmented
Information
On
a segmented basis, total assets as at June 30, 2004 increased during the
quarter by $126.7 million or 1.18 per cent in Personal and Business
Banking and increased by $157.4 million or 10.92 per cent in Energy and
Commercial Banking. Assets under management with Investor Services were
$729.6 million as at June 30, 2004 compared to $244.9 million for the
same date last year.
Compared
against the corresponding first quarter of last year, net income for the
three months ended June 30, 2004 decreased $6.9 million or 20.00 per
cent for Personal and Business Banking mainly due to reduced net margin
earned and increased compensation and benefit costs driven, in large
part, by our continued expansion of ATB's branch network. Energy and
Commercial Banking's net income for the first quarter this fiscal year
increased to $9.5 million from $2.2 million for the corresponding
quarter last year, primarily due to reduced loan loss provisions.
Investor Services incurred a $3.0 million loss this past quarter, $0.9
million or 43.90 per cent more than the loss incurred in the first
quarter last year (reflecting $2.1 million increase in non-interest
expense only partially offset by a $1.2 million increase in other income
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.
By their very nature, forward-looking statements require us to
make assumptions, are subject to inherent risks and 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.
ATB cautions readers there is a significant risk that
forward-looking statements will not prove to be accurate. Readers should
not place undue reliance on forward-looking statements as actual results
may differ materially from plans, objectives and expectations. ATB does
not undertake to update any forward-looking statement contained in this
report.
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Highlights