Second Quarter Results
For the quarter ended September 30, 2004
Message
to Stakeholders
ATB
Financial Achieves 30th Consecutive Profitable Quarter
Edmonton - November 10, 2004 - ATB Financial reported second quarter earnings of $47.1 million for the period ended
September 30, 2004. This compares to $46.2 million for the same period last
year, continuing to reflect a significant recovery in loan loss provisions due
to ATB's ongoing emphasis on strong credit practices, the continued strength of
the Alberta economy and further enhancements of our understanding of the impact
of BSE on our clients. Net income for the quarter includes a recovery of $3.4
million in loan loss provisions compared to a loan loss provision of $3.5
million in the same quarter last year.
The second quarter results increased ATB's equity to $1.1 billion as at
September 30, 2004, an increase of $192.8 million from last year.
"ATB Financial continues to execute our business plan and produce strong
results," said Bob Normand, President & CEO, ATB Financial. "The
strong Alberta economy, a full ATB product lineup, our commitment to provide our
customers with personal service, and a motivated team of more than 3,200
associates have all contributed to the strong position we are now in."
Financial
Highlights
- Net income of $47.1 million is an increase of 1.97 per cent over the same
quarter last year.
- Total assets of $14.7 billion is an increase of 6.75 per cent over last
year.
- Total loans at $12.6 billion is an increase of 6.53 per cent over last
year.
- Total deposits of $13.3 billion is an increase of 5.55 per cent over last
year.
- Net interest income of $97.3 million is a decrease of 2.06 per cent from
the same quarter last year.
- Non-interest expenses of $88.0 million is an increase of 11.22 per cent
from the same quarter last year.
- ATB Financial's efficiency ratio (non-interest expenses as a percentage of
operating revenues) has declined to 66.81 per cent, compared to 61.42 per
cent for the same three-month period last year.
ATB
Investor Services
ATB Investor Services continues to grow its assets ahead of the forecasted
rate. Assets under management as of September 30, 2004 were $857 million
compared to $296 million for the same period in 2003, an increase of more than
$561 million in one year.
ATB Investor Services continues to actively recruit across the province to
build its financial advisor team.
Energy & Commercial
Banking
This line of business generated a successful second quarter
with asset growth of 5.65 per cent over the first quarter ended June 30, 2004.
Though the Energy and Commercial business unit is facing pressure from high
commodity prices, in particular oil and gas, the banking team continues to
benefit from its industry specialization approach introduced in 2003.
In September ATB Financial launched a "Lower than Prime" mortgage
campaign. One lucky customer will win free mortgage payments for one year.
Marketing
ATB's exclusive Century Guaranteed Investment Certificate (GIC) was again
made available this fall. Each year since 2001, a Century GIC maturing in 2005 -
Alberta's centennial year - has been available for investment. In 2005, ATB will
draw for the $100,000 prize among those who purchased the product.
BSE Update
ATB Financial continues to monitor and respond to the Bovine Spongiform
Encephalopathy (BSE) situation that first presented itself in May 2003. ATB's
approach to work with our customers on an individual basis and then determine
the best solution has not altered since the outset of BSE. ATB recognizes the
challenging circumstances our customers face, and we are committed to take every
prudent step to assist them.
During this current quarter, ATB reduced the BSE loan loss provision by $3.2
million. Established in June 2003, the original $29.4 million special provision
for BSE-related losses has now been reduced to $11.0 million. We have again
reduced this provision due to our enhanced understanding of the risks associated
with BSE.
ATB in the
Community
The fourth annual ATB Financial/STARS campaign took place at numerous ATB
branches in August and September. With the generous support of our customers and
associates, this campaign raised $53,391. ATB Financial has donated more than
$378,000 to STARS since 1998.
During the summer months, ATB was a corporate sponsor of many events across
Alberta, including: Calgary Stampede; Edmonton Klondike Days Parade; Cold Lake
Airshow; CentreFest in Red Deer; Big Valley Jamboree in Camrose; Street
Performers Festival in Grande Prairie; Lethbridge International Airshow; and the
Alberta Summer Games in Okotoks.
Branch Update
During the quarter, ATB Financial opened up a temporary trailer adjacent to
the site of the new Southbrook branch in south Edmonton. In advance of the new
branch construction slated for mid-November 2004, the Southbrook team has been
introducing itself to the local community and building the book of business.
ATB Financial remains committed to building more than 20 new branches in the
coming four to five years, especially in the larger urban markets where ATB is
under-represented compared to its competition.
Economic Outlook
Oil prices have continued to climb as worries about supply and capacity have
pushed prices well over $50 U.S. per barrel. Alberta, as Canada's largest
producer of oil and natural gas, benefits immediately from enhanced cash flows
to producers and to the provincial treasury. Uncertainties about Iraq and
political instability in a number of OPEC countries contributed to oil futures
markets indicating that oil prices may stay near or above $40 U.S. for up to
three years. Such an adjustment is expected to reduce consumer incomes and
increase business expenses and thereby slow down American and Canadian growth
rates.
Another key development is the rise of the Canadian dollar from 75-77 cents
to 82 cents relative to the U.S. dollar - levels not seen since the early 1990s.
This rapid increase will lower the cost of imports, while profit margins on
exports, representing about 40 per cent of Canada's GDP, will shrink. Canadian
industry's competitiveness, and the efficient use of capital and labour, will
become increasingly important as the secular decline of the U.S. dollar
continues. Short-term interest rates have risen by 50 basis points in Canada
over the past three months. The rising Canadian dollar may give the Bank of
Canada some flexibility to moderate rate increases.
Alberta's agriculture sector has reported some improvement in cash flow in
2004 relative to 2003, with the greatest improvement in the grains sector.
Uncertainty remains with respect to the export of live cattle to U.S. markets.
Federal and provincial assistance programs are playing an important role in
guiding the industry through transition.
Ron
P. Triffo Bob Normand
Chairman of the Board President & CEO
November 2004
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Management's Discussion and Analysis (unaudited)
Net Income
ATB Financial reported net income for the second quarter ended
September 30, 2004 of $47.1 million compared to $44.8 million for the
previous quarter and $46.2 million for the second quarter last year. Net
income this quarter increased $2.3 million or 5.03 per cent from the
previous quarter's net income and exceeded last year's second quarter
net income by $0.9 million or 1.97 per cent.
This increase in net income from last quarter reflects increased net
interest income and other income and reduced non-interest expenses
largely offset by a decrease in the recovery of loan loss provisions.
The minor increase in net income compared to the second quarter last
year reflects increased other income and recoveries of loan loss
provisions offset by reduced net interest income and increased
non-interest expenses. The improvement in loan loss provisions this
quarter (a $3.4 million recovery) reflects ATB's continued emphasis on
good credit practices, the continued strength of the Alberta economy and
the continual improvement in our understanding of the impact of BSE on
our clients.
Net Interest Income
ATB's net interest income is $97.3 million for the second quarter
ended September 30, 2004, an increase of $4.0 million or 4.26 per cent
compared to the previous quarter and down $2.0 million or 2.06 per cent
compared to the second quarter of last year.
The increase in net interest income from last quarter reflects a 6
basis point increase in ATB's net interest margin, and growth in average
assets of $72.9 million or 0.51 per cent. ATB's net interest margin
increased from 2.61 per cent to 2.67 per cent, reflecting an increase in
the prime-lending rate this quarter.
The decrease in net interest income from the second quarter of last
year is a result of a 21 basis point reduction in net interest margin,
partially offset by growth in average assets of $797.9 million.
Loan
Quality
A $3.4 million recovery of provision for credit losses is recorded in
the Consolidated Statement of Income for the quarter ended September 30,
2004 as compared to a $9.8 million recovery last quarter and a $3.5
million loan loss provision in the second quarter of last year. The
recovery of provision is mainly due to a high performing loan book and
the continued strength of Alberta's strong economy. Also during the
current quarter, ATB reduced the BSE loan loss provision by $3.2
million. The special provision for BSE established in June 2003, has now
been reduced by a cumulative $18.4 million as we continue to better
understand the risks associated with BSE. At September 30, 2004, $11.0
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 September 30, 2004 are $105.4 million compared to $103.5
million last quarter-end and $148.2 million a year ago. The allowance
for credit losses exceeds the gross amount of impaired loans by $73.2
million at September 30, 2004 compared to $79.1 million last quarter and
$57.3 million a year ago.
Other
Income
Other income totals $34.4 million for the second
quarter ended September 30, 2004, an increase of $2.4 million or 7.64
per cent from the previous quarter, and an increase of $4.9 million or
16.73 per cent from the second quarter last year. The increases over the
earlier results are attributed to growth in commissions from Investor
Services, credit fees in both Energy and Commercial, and Personal and
Business Banking, and recognition of $2.0 million of insurance-related
earnings after a review of the mortgage insurance plan.
Non-Interest
Expenses
Non-interest expenses are $88.0 million for the second quarter ended
September 30, 2004, a decrease of $2.3 million or 2.56 per cent compared
to last quarter and a $8.9 million or 11.22 per cent increase compared
to the same quarter last year.
The increase in non-interest expenses compared the second quarter
last year is mainly attributable to a combination of higher transaction
volumes, growth in our Investor Services business, continued expansion
of our branch network and inflation.
The efficiency ratio, expressed as a percentage of non-interest
expenses to operating revenue (net interest income before loss
provisions plus other income), was 66.81 per cent for the second
quarter, an improvement from the 72.07 per cent figure for the previous
quarter and a decrease from 61.42 for the same period last year. The
improvement over last quarter's result is due to improvements in all
components, reduced non-interest expenses plus increased net interest
income and increased other income.
Balance
Sheet
ATB's total assets are $14.7 billion at September 30, 2004, an
increase of 1.11 per cent from $14.5 billion at June 30, 2004 and 6.75
per cent from $13.8 billion at September 30, 2003. Total loans, net of
allowance for losses, increased by $200.4 million or 1.61 per cent from
the previous quarter-end balance and increased $773.9 million or 6.53
per cent from September 30, 2003. Total deposits have increased $68.8
million or 0.52 per cent during the second quarter and are $700.6
million or 5.55 per cent higher than at the same date last year. In
comparison, in the second quarter of last year, total assets increased
by 0.89 per cent, total loans increased by 1.72 per cent and total
deposits increased by 0.43 per cent.
ATB's total equity as at September 30, 2004 is $1.1 billion, up by
$91.9 million from March 31, 2004 and up 192.8 million from a year ago.
Segmented
Information
On a segmented basis, total assets as at September 30, 2004 increased
during the quarter by $82.4 million or 0.76 per cent in Personal and
Business Banking and $90.3 million or 5.65 per cent in Energy and
Commercial Banking. Investor Services total assets were $54.3 million at
September 30, 2004 compared to $23.7 million at June 30, 2004. Assets
under management with Investor Services at September 30, 2004 were
$857.3 million an increase of $128.7 million this quarter and $561.2
million increase from September 30, 2003.
This quarter's net income increased slightly from the first quarter's
in two business segments and decreased slightly in one. Investor
Services reduced its net loss by $0.6 million or 21.46 per cent as
revenues increased and non-interest expenses decreased. Energy and
Commercial Banking increased its net income by $0.07 million as
increased net interest and other income was largely offset by increases
in provisions for credit losses while non-interest expenses were held
flat. Personal and Business Banking earned $0.49 million less this
quarter as revenue increases (of $1.3 million) and significant
reductions in non-interest expense (of $4.2 million) were more than
offset by a $6.0 million negative swing in the provision for credit
losses.
Compared against the corresponding second quarter of last year, net
income for the three months ended September 30, 2004 decreased by $14.4
million or 34.85 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 second
quarter this fiscal year increased by $1.3 million or 16.15 per cent
from the corresponding quarter last year, primarily due to increased
revenues more than offsetting increased non-interest expenses. Investor
Services incurred a $2.3 million loss this quarter, $0.5 million or
30.23 per cent greater than the loss incurred in the second quarter last
year (reflecting a $1.9 million increase in non-interest expenses only
partially offset by a $1.4 million increase in revenue).
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