Third Quarter Results
For the quarter ended December 31, 2004
Message
to Stakeholders
ATB Financial Assets Surpass $15 Billion
Edmonton - February 11, 2005 - ATB Financial reported third quarter earnings of $50.7 million for the period ending December
31, 2004, compared to $46.7 million for the same quarter last year, an increase
of 8.58 per cent. Year-to-date net income is $142.6 million, an increase of
20.99 per cent over the same nine-month period last year.
"ATB Financial continues to grow with Alberta. We've been successful in
leveraging the strong economic fundamentals in this province," says Bob
Normand, President & CEO, ATB Financial. "Despite the pressures on our
interest rate spreads, each of our three lines of business are doing very well.
Our plan to significantly increase our capabilities in Investor Services and
Energy and Commercial Banking is delivering the expected boost to our growth.
Our focus on personal service is also translating very nicely into stronger
relationships with customers."
Our strategy around diversification of revenue source primarily through the
expansion of Investor Services is delivering reduced reliance on spread income,
as other income has increased by 23.21 per cent over the same quarter last year.
Investor Services products and services are mainly fee based.
This quarter's results increased ATB's equity to $1.1 billion as at December
31, 2004, an increase of 21.65 per cent from the same period last year.
Financial
Highlights
Compared to the third quarter in fiscal year 2003-2004:
- Net income of $50.7 million, up 8.58 per cent.
- Total assets of $15.2 billion, up 8.11 per cent.
- Total loans at $12.9 billion, up 6.50 per cent.
- Total deposits of $13.8 billion, up 7.20 per cent.
- Net interest income of $103.8 million, up 3.29 per cent.
- Non-interest expenses of $87.7 million, up 8.48 per cent.
- Efficiency ratio (non-interest expenses as a percentage of operating
revenues) declined slightly to 62.77 per cent from 62.35 per cent.
Personal
& Business Banking
ATB has experienced strong deposit growth during the quarter, primarily in
business current accounts and retail savings accounts. This is indicative of a
strong economy in the small business sector and consumer demand for more
flexible savings vehicles and away from traditional short-term products to our
high-interest savings accounts. Demand for loans has been slightly lower than
expected, due mainly to continuing weak demand in the agricultural sector, a
fallout of the Bovine Spongiform Encephalopathy (BSE) situation.
Products - The popular Century GIC, a unique offer celebrating
Alberta's 2005 Centennial, was back as a five-year non-redeemable product,
featuring a contest to win $100,000 by all eligible purchasers. The product will
be offered for the last time later in the autumn of 2005 and the draw for the
winner will be held in December 2005. ATB Financial is the only financial
institution offering an investment product commemorating Alberta's centennial.
The Fall Mortgage Campaign, which ran from October 1 to November 30, 2004
offered a "Lower Than Prime" mortgage product with a contest to win
mortgage payments for a year.
Branch Network - Re-investment in our retail network continues. The
Rimbey Branch celebrated its grand re-opening on October 28, 2004. The new
Southbrook branch in Edmonton opened on November 15, 2004, making it the third
branch to open in the Edmonton area this fiscal year, after new branches opened
in Edmonton Hawkstone in May 2004 and in St. Albert in April 2004. We broke
ground in both Rocky Ridge and McKenzie Town branches in Calgary, the first two
of five that we plan to open in the next fiscal year. These investments are a
part of ATB's commitment to expand its presence in Edmonton and Calgary, in part
by building 25 new branches between 2003 and 2008.
Operations - Investment in our technology infrastructure includes a
major project to provide our frontline associates with a new customer service
application by end of 2006. This new system will provide for a consistent level
of personalized customer service and enhance the level of service delivered in
branches and other sales channels.
ATB
Investor Services
In December, ATB Investor Services reached a significant milestone, passing
$1 billion in assets under management, well ahead of plan. This was achieved by
strong asset growth of $180 million for the quarter and the addition of 1,600
customers. The Investment Funds Institute of Canada (IFIC) estimates that
Canadian industry net sales for the quarter were $1.4 billion, of which ATB
Investor Services' net sales were $140 million or 10 per cent. The results
indicate that ATB Investor Services is growing through rapid market share gains
in Alberta.
Investor Services continued to expand its advisory team, adding seven
advisors and a new director of investment operations.
Energy & Commercial
Banking
Energy & Commercial Banking, comprising the energy, commercial, food and
forestry sectors, had another successful quarter with asset growth of 5.64 per
cent and a year-over-year growth of 18.96 per cent despite the high commodity
prices which reduced clients' borrowing needs.
ATB in the
Community
In October 2004, ATB associates participated in the 11 United Way association
campaigns across the province - from Medicine Hat to Fort McMurray. Our
associates raised $293,104 for the campaign and ATB provided 50 per cent
corporate matching dollars for a grand total of $439,656. This is now the most
successful fundraising campaign in ATB's history.
In November 2004, ATB Financial sponsored the opening ceremonies at the
Canadian Finals Rodeo in Edmonton. Customer contests were held at 46 Edmonton
and area branches with a grand prize of a $2,500 rodeo prize pack.
In December 2004, all Edmonton and area branches participated in a
fundraising campaign for the Christmas Bureaus of Edmonton, St. Albert and
Sherwood Park. More than $32,000 was raised for these worthwhile organizations.
ATB held a memorial ceremony to mark the one-year anniversary of the tragic
death of one employee and injury to several others due to a car crash into the
Calgary Northpointe branch on December 10, 2003. In memory, ATB Financial has
set up a $10,000 endowment scholarship fund for the Southern Alberta Institute
of Technology's Emergency Medical Technician program. Employees, customers and
Albertans donated the funds and a corporate contribution by ATB was also made to
the dedicated trust account.
ATB Financial supported the December 2004 Asia Earthquake and Tsunami
disaster with a corporate donation through the Canadian Red Cross. The Canadian
Red Cross trust account at ATB has already received generous donations from
associates, customers and Albertans in the amount of $580,000 as at February 1,
2005. The fundraising continues.
BSE Update
The announcement of the discovery of two more cases of BSE at the end of 2004
and in early January 2005 is not unexpected as higher levels of testing are
undertaken. In March 2005, a rule designating Canada as a minimal-risk region
for BSE is expected to take effect although Congress has yet to complete its
review of the rule, and intervening parties may oppose the designation. If
additional cases of BSE are discovered, U.S. regulators could delay the
implementation of the rule. Nonetheless, the anticipated partial reopening of
borders to live cattle is expected to bring cattle prices into closer alignment
with U.S. markets and provide more price competition for Canadian cattle,
resulting in a more functional and stable market for Canadian cattle producers.
ATB Financial continues to support the industry during this transition period.
ATB has not made any further adjustments to our special general BSE reserve
this quarter, which currently stands at $11.0 million. The original provision,
set in June 2003, was $29.4 million. Our decision is based on the ongoing review
of the two new cases of BSE subsequent to the announcement of trade resumption.
The provision will be re-addressed after March 7, 2005 and adjusted as events
unfold.
Economic Outlook
Oil prices, which peaked above $55 U.S. in the last week of October, have
declined into the mid-$40 U.S. range. Natural gas prices have also slightly come
down but remain about $8 CDN per mcf. These prices provide good returns to
resource owners. As a result, 2004 was the best year on record for drilling with
wells drilled in western Canada estimated to be over 21,300. The Canadian
Association of Oilwell Drilling Contractors is forecasting over 24,000 wells
will be drilled in 2005 in western Canada. However, the oil sands industry
continues to be pressured by cost and availability of labour.
Alberta continues to have the lowest unemployment rate in the country at 4.5
per cent. Employment growth has tended to outpace labour force growth as
in-migration levels have slowed from other provinces. A strong employment
picture has supported double-digit growth levels of retail sales. With
historically low interest rates, housing starts have continued to be strong,
especially in the Calgary market. The robust housing market has resulted in
rising apartment vacancy rates.
Looking forward, in 2005 real economic growth in Alberta is expected to
between 3.5 and 4.0 per cent. Interest rates are not expected to be materially
higher in 2005, as the effects of a higher Canadian dollar on the economy
reduces import costs and weaker export earnings slow the pace of employment
growth.
Ron
P. Triffo Bob Normand
Chairman of the Board President & CEO
February 2005
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Management's Discussion and Analysis (unaudited)
Net Income
ATB Financial reported net income for the third quarter ended
December 31, 2004 of $50.7 million compared to $47.1 million for the
previous quarter and $46.7 million for the third quarter last year. This
amounted to a $3.6 million or 7.74 per cent increase from the previous
quarter's net income and exceeded last year's third quarter net income
by $4.0 million or 8.58 per cent.
This increase in net income over the previous quarter primarily
reflects increased net margin as the interest rate environment began to
recover, and increases to other income. The net income increase over the
same quarter last year is driven by strong asset growth offset by
reduced net interest margin, increases in other income and a slightly
lower loan loss provision.
Net Interest Income
ATB's net interest income is $103.8 million for the third quarter
ended December 31, 2004, an increase of $6.5 million or 6.71 per cent
compared to the previous quarter and up $3.3 million or 3.29 per cent
compared to the third quarter of last year.
The increase in net interest income from last quarter reflects an 8
basis point (a basis point is 1/100th of a per cent) increase in ATB's
net interest margin, and growth in average assets of $200.3 million or
1.39 per cent. ATB's net interest margin increased to 2.75 per cent from
2.67 per cent, reflecting an increase in the prime-lending rate this
quarter.
The increase in net interest income from the third quarter of last
year is a result of growth in average assets of $887.7 million, offset
by an 11 basis point reduction in net interest margin.
Loan
Quality
A $1.3 million provision for credit losses is recorded in the
Consolidated Statement of Income for the quarter ended December 31, 2004
as compared to a $3.4 million recovery last quarter and a $2.1 million
loan loss provision in the third quarter of last year. The recovery last
quarter included a reduction of the BSE loan loss provision of $3.2
million. The BSE special provision remains unchanged from last quarter
as we are awaiting clarification around the opening of the Canadian/US
border. Impaired loans (before deducting the allowance for total credit
losses) as at December 31, 2004 are $99.7 million compared to $105.4
million last quarter-end and $105.4 million a year ago. The allowance
for credit losses exceeds the gross amount of impaired loans by $76.9
million at December 31, 2004 compared to $73.2 million last quarter and
$101.9 million a year ago. Our loan book continues to remain very
strong.
Other
Income
Other income totals $35.8 million for the third
quarter ended December 31, 2004, an increase of $1.4 million or 4.00 per
cent from the previous quarter, and an increase of $6.7 million or 23.21
per cent from the third quarter last year. The increases over the
earlier results are attributed to significant growth in commissions from
Investor Services and recognition of a non-recurring $1.3 million
insurance-related earnings after a review of the mortgage insurance
plan.
Non-Interest
Expenses
Non-interest expenses are $87.7 million for the third quarter ended
December 31, 2004, a decrease of $0.37 million or 0.42 per cent compared
to last quarter and a $6.9 million or 8.48 per cent increase compared to
the same quarter last year.
The increase in non-interest expenses compared to the third 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 62.77 per cent for this quarter, an
improvement from the 66.81 per cent figure for the previous quarter and
comparable to 62.35 per cent 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 $15.2 billion at December 31, 2004, an
increase of 3.55 per cent from $14.7 billion at September 30, 2004 and
8.11 per cent from $14.1 billion at December 31, 2003. Total loans, net
of allowance for losses, increased by $236.8 million or 1.88 per cent
from the previous quarter-end balance and increased $785.6 million or
6.50 per cent from December 31, 2003. Total deposits have increased
$493.9 million or 3.71 per cent during the third quarter and are $927.6
million or 7.20 per cent higher than at the same date last year. In
comparison, in the third quarter of last year, total assets increased by
2.25 per cent, total loans increased by 1.90 per cent and total deposits
increased by 2.12 per cent.
ATB's total equity as at December 31, 2004 is $1.1 billion, up by
$142.6 million from March 31, 2004 and up $196.8 million from a year
ago.
Segmented
Information
On a segmented basis, total assets as at December 31, 2004 increased
during the quarter by $173.8 million or 1.58 per cent in Personal and
Business Banking and $95.2 million or 5.64 per cent in Energy and
Commercial Banking. Investor Services total assets were $29.8 million at
December 31, 2004 compared to $54.3 million at September 30, 2004.
Assets under management with Investor Services at December 31, 2004 were
$1.0 billion, an increase of $179.7 million this quarter and a $641.6
million increase from December 31, 2003.
This quarter's net income increased from the previous quarter's in
two business segments and decreased slightly in one. Personal and
Business Banking increased earnings by $4.0 million this quarter as a
result of revenue increases (of $1.8 million), reduction in non-interest
expense (of $1.0 million) and a reduction in the loan loss provision (of
$1.3 million). A lower loan loss provision this quarter was a result of
a slightly better credit quality in our personal loan portfolio.
Energy and Commercial Banking increased its net income by $0.3
million as increased net interest and other income was largely offset by
an increase in non-interest expenses. The increase in non-interest
expenses is primarily a result of increased volume.
Investor Services increased its net loss by $1.1 million or 46.30 per
cent as non-interest expenses increases outpaced revenue growth. The
increase in non-interest expense was mainly the result of increased
staffing required to support increased volume as we continued to grow
our Investor Services business. This business will begin earning an
accounting return when the annuity income generated from its ongoing
management of assets outpaces the costs of securing new business.
Compared against the corresponding third quarter of last year, net
income for the three months ended December 31, 2004 decreased by $8.3
million or 19.95 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 third
quarter this fiscal year increased by $1.6 million or 19.37 per cent
from the corresponding quarter last year, primarily due to increased
revenues more than offsetting increased non-interest expenses. Investor
Services incurred a $3.4 million loss this quarter, $1.4 million or
65.74 per cent greater than the loss incurred in the third quarter last
year (reflecting a $2.9 million increase in non-interest expenses only
partially offset by a $1.5 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