First Quarter Results
For the quarter ended June 30, 2005
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Message
to Stakeholders
ATB Financial Reports Outstanding First Quarter
Edmonton - August 25, 2005 - ATB Financial
ATB Financial reported first quarter earnings of $51.0 million for the period
ended June 30, 2005, up 13.72 per cent since the same time last year. ATB's
equity now stands at $1.2 billion, up 19.20 per cent compared to June 30, 2004."ATB Financial started the year in a very strong position and I am
pleased to report one of the best first quarter results for ATB," says Bob
Normand, President & CEO, ATB Financial. "We are experiencing growth in
all three of our business lines which reflects the confidence and momentum in
Alberta's economy."The highlights of our results include very high growth in business volumes
and a continued strong loan portfolio. In particular, the personal financial
services line is seeing more Albertans buying homes or accessing equity in their
homes. Consumers are also investing for their future as is evidenced by the
continued success of ATB Investor Services. Business and corporate activity was
also strong in both deposits and loans as excess cash is invested and, from a
consumer's perspective, favourable interest rates make borrowing attractive to
finance operations and business ventures. However, the continued soft interest
rate and very competitive pricing environment continues to challenge ATB's
interest margins and reduce our profits.
Financial
Highlights
Compared to the first quarter in fiscal year 2004-2005:
- Net income of $51.0 million, up 13.72 per cent.Total assets of $16.1 billion, up 10.60 per cent.Total loans at $13.6 billion, up 9.77 per cent.Total deposits of $14.5 billion, up 9.39 per cent.Net interest income of $106.8 million, up 14.44 per cent.Non-interest expenses of $97.3 million, up 7.74 per cent.
- Efficiency ratio (non-interest expenses as a percentage of operating
revenues) improved to 67.67 per cent from 72.07 per cent.
Personal
& Business Financial Services
Compared to a year ago, deposit growth increased by $497.7 million or 4.33
per cent, while loan growth was even stronger, up $682.0 million or 6.26 per
cent.During the quarter, we launched a significant new tool for our frontline
associates that provides them with comprehensive information to better meet our
customers' needs. By the end of August we will have completed a two-year effort
to reduce administrative work in our busiest branches through re-defined roles,
centralized administration, and the implementation and training to our customer
service standards. We will be making similar changes in our other branches
starting in the near future.To further improve on our personal customer service abilities, we are also
piloting a new sales and service model accompanied by additional leadership
training in several branches, for rollout to our network starting later in the
fiscal year. In the second quarter we will start the pilot of our new front-line
transaction system for rollout across our branch network over the next 18
months.We are responding to the opportunities in independent business and agri-business
by streamlining our credit underwriting processes, strengthening our customer
support methods and increasing the number of customer-focused associates in
sales and service roles. We opened our first ever centralized underwriting
centre in Edmonton in June and another one is in the works for opening in
Calgary in the second quarter.Products - Our Spring Initiative this year focused on a number of
campaigns to attract and retain younger customers who are interested in saving
for or purchasing their first home by promoting ATB Financial as the Home of
First Homes. We are taking a unique approach to addressing needs of younger
customers by focusing on advice and education. We are offering a comprehensive
solution to customers by bundling several product service packages. We
introduced HomeofFirstHomes.com, an interactive website for customers to learn
about purchasing a home and "Win Your Payments for a Year" contest. We
also promoted Lower Than Prime," a key mortgage product; "Genworth
Financial Home Buyers Privileges;" "Springboard Savings" product
and GIC products. We were also present at a number of home shows across the
province to promote our offer.Branch Network - The new Rocky Ridge branch in northwest Calgary
opened on May 30, 2005, the first of four new branches planned in Calgary for
the fiscal year. We continue to make investment in both the Calgary and Edmonton
markets to grow awareness of ATB Financial's personal service brand under our
"More people. More branches. More face-to-face." campaign.ATB Investor Services Growth of Investor Services continues to exceed expectations, with growth of
assets under management and administration of more than $300 million, which is
double the first quarter's performance last year. In this same period, the
investment industry as a whole also did very well, growing at a rate of 10.70
per cent. For the quarter ending June 30, 2005 the industry experienced net
sales of $3.5 billion, a level not reached since the first quarter of 2001.This was another strong quarter for our Compass Portfolio program. Compass
holdings are now more than $800 million. Assets under management and
administration are now $1.6 billion.Corporate Financial Services
Strong commodity prices and equity
markets are reducing many of our clients' needs for debt financing. We
nevertheless continue to grow our loan portfolio, which is a direct result of
our improved standing in the Alberta mid-market segment. We continue to make
progress towards increasing the non-lending services we can offer our clients,
to retain clients who grow in sophistication, and to significantly increase our
non-interest revenue stream. Training remains an important component of our
activities as we strive to develop and maintain strong relationship with our
clients.ATB in the
Community
The 2005 Teddy for a Toonie campaign in support of the Alberta Children's and
Stollery Children's Hospital Foundations wrapped up at the end of May. The
campaign raised $272,673 for children's health. Together with our associates and
customers, we have now donated $1.2 million to the two foundations since the
campaign began in 2000.At ATB Financial, we recognize the importance of actively supporting Alberta
communities. During this quarter, ATB participated as a sponsor of the Edmonton
Corporate Challenge, St. Albert International Children's Festival, Spruce
Meadows, Ponoka Stampede, Edmonton Eskimos and Calgary Stampeders..BSE Update
Canadian
cattle producers received positive news from a recent decision by the U.S. 9th
Circuit Appeals Court to overturn the temporary injunction on Canadian cattle
under the age of 30 months. The opening of the U.S. border has for the time
being brought some improvement to cull cow prices and more normalized pricing
between Canadian and U.S. feeder cattle markets. Final impact relative to basis
levels (or price spreads between U.S. and Canadian cattle markets),
transportation issues and possible appeals by U.S. cattle lobby groups have yet
to unfold. As a result, this quarter we reduced our BSE provision by an
additional $2 million to $6 million overall.
Economic Review and Outlook Alberta's economic prospects remain very positive, driven by the investment
boom in the oil and gas sector and a strong housing sector. With oil prices at
historic highs (in nominal dollars) and with global supply concerns remaining,
considerable international attention is being paid to Alberta's vast tar sands
wealth. With technological risks more manageable and a stable political
structure, accelerated development in the Wood Buffalo area is creating major
challenges for municipal governments and project managers from a housing, labour
and infrastructure perspective.The unemployment rate fell to 3.6 per cent in July, down from 4.6 per cent
the previous July. Over the past year nearly 37,000 jobs have been created and
the number of unemployed has fallen to 67,000 from 85,000. Calgary's
unemployment rate of 3.2 per cent leads the country. The strong growth in
employment and income is reflected in ATB's retail and business deposit growth.The second pillar of growth has been the housing sector. In Edmonton,
year-to-date starts are up over 25 per cent. In Fort McMurray, the number of new
housing starts has doubled over last year. In Calgary, sales of existing homes
are booming and transactions in homes of more than $500,000 in this market are
up significantly over the past year. As a consequence, ATB Financial is
experiencing strong increases in residential mortgages.
Ron
P. Triffo Bob NormandChairman of the Board President & CEO
August 2005
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Management's Discussion and Analysis (unaudited)
Net Income ATB Financial reported net income for the first quarter ended June
30, 2005 of $51.0 million compared to $44.7 million for the previous
quarter and $44.8 million for the first quarter last year. This amounted
to a $6.3 million or 14.09 per cent increase from the previous quarter's
net income and exceeded last year's first quarter net income by $6.1
million or 13.72 per cent.The net income increase over the previous quarter was driven by
strong asset growth offset by reduced net interest margin, increases in
loan loss recoveries and reduction of non-interest expenses. The
increase in net income over the same quarter last year primarily
reflects increased net margin as the interest rate environment began to
recover and increases to other income. Higher non-interest expenses and
lower loan loss recoveries offset these increases.Net Interest IncomeATB's net interest income was $106.8 million for the first quarter
ended June 30, 2005, an increase of $2.6 million or 2.48 per cent
compared to the previous quarter and up $13.5 million or 14.44 per cent
compared to the first quarter of last year.The increase in net interest income from last quarter was mainly the
result of growth in average assets of $382.7 million offset by a 3 basis
point decrease in ATB's net interest margin. Net interest margin
decreased to 2.73 per cent from 2.76 per cent, reflecting the continuing
soft interest rate environment and competitive pressures.The increase in net interest income from the same period last year
was a combination of growth in average assets of $1.4 billion plus an
increase in net interest margin of 12 basis points.
Loan
QualityA
$4.5 million recovery for credit losses was recorded in the Consolidated
Statement of Income for the quarter ended June 30, 2005 as compared to a
$2.7 million recovery last quarter and a $9.8 million recovery in the
first quarter of last year. The recoveries this quarter included a
reduction of the BSE loan loss provision of $2.0 million. The recoveries
of credit losses over the last several quarters have been mainly due to
a high performing loan portfolio and a strong economy. Impaired loans
(before deducting the allowance for total credit losses) as at June 30,
2005 were $80.6 million compared to $89.6 million last quarter-end and
$103.5 million a year ago. The allowance for credit losses exceeds the
gross amount of impaired loans by $78.9 million at June 30, 2005
compared to $78.6 million last quarter and $79.1 million a year ago. Our
loan portfolio continues to remain very strong.
Other
Income
Other income totaled $37.0 million for the first
quarter ended June 30, 2005, a slight decrease over the previous quarter
as increased credit fees, card service fees and revenue from Investor
Services were offset by reduction in remaining components. These
reductions were partially a result of $3.6 million income recognition
last quarter in respect to ATB's mortgage life insurance program, which
did not occur this quarter. Other income had an increase of $5.0 million
or 15.67 per cent from the first quarter last year. The increase over
the same quarter last year was mainly attributed to growth in our card
fees and commissions from Investor Services.
Non-Interest
Expenses
Non-interest expenses were $97.3 million for the first quarter ended
June 30, 2005, a decrease of $2.0 million or 2.01 per cent compared to
last quarter and a $7.0 million or 7.74 per cent increase compared to
the same quarter last year.The decrease from the previous quarter was primarily due to certain
adjustments recognized in the prior quarter to salary and benefit and
premises and equipment costs. The increase in non-interest expenses
compared to the first quarter last year was mainly attributable to a
combination of 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 67.67 per cent for the this quarter,
an improvement from the 70.28 per cent and 72.07 per cent for the
previous quarter and for the same period last year, respectively.
Balance
Sheet
ATB's total assets were $16.1 billion at June 30, 2005, an increase
of 4.62 per cent from $15.4 billion at March 31, 2005 and 10.60 per cent
from $14.5 billion at June 30, 2004. Total loans, net of allowance for
losses, increased by $501.2 million or 3.81 per cent from the previous
quarter-end balance and increased $1.2 billion or 9.77 per cent from
June 30, 2004. Total deposits have increased $655.7 million or 4.74 per
cent during the first quarter and were $1.24 billion or 9.39 per cent
higher than at the same date last year. In comparison, in the first
quarter of last year, total assets increased by 1.71 per cent, total
loans increased by 2.43 per cent and total deposits increased by 1.67
per cent.ATB's total equity as at June 30, 2005 was $1.2 billion, up by $51.0
million from March 31, 2005 and up $193.5 million from a year ago.
Segmented
Information
On a segmented basis, total assets as at June 30, 2005 increased
during the quarter by $319.3 million or 2.84 per cent in Personal and
Business Financial Services and $178.7 million or 9.13 per cent in
Corporate Financial Services. Investor Services total assets were $41.0
million at June 30, 2005 compared to $35.7 million at March 31, 2005.
Assets under management and administration with Investor Services at
June 30, 2005 were $1.6 billion, an increase of $307.7 million this
quarter and an $882.5 million increase from June 30, 2004.This quarter's net income increased from the previous quarter's net
income in all three-business segments. Personal and Business Financial
Services increased earnings by $7.0 million this quarter as a result of
reduction in non-interest expense (of $2.5 million) and a reduction in
the loan loss provision (of $4.5 million). A lower loan loss provision
this quarter was a combination of a better credit quality in our credit
card portfolio and high performing loan portfolio. Corporate Financial
Services increased its net income by $3.4 million, which reflects an
increased in net interest and other income, and a reduction in
non-interest expenses. Non-interest expense reduction in both Personal
and Business Financial Services and Corporate Financial Services was
partially the result of a change in the allocation methodology for
expenses to the these lines of business.Investor Services' net loss remained unchanged at $3.2 million from
the previous quarter. This business will begin earning a positive net
income when the income generated from its ongoing management of assets
outpaces the costs of securing new business. This is currently expected
to occur in the next fiscal year.Compared against the corresponding first quarter of last year, net
income for the three months ended June 30, 2005 increased by $9.8
million or 35.62 per cent for Personal and Business Financial Services
mainly due to increased net margin resulting in higher net interest
income. Corporate Financial Services net income for the first quarter
this fiscal year increased by $2.8 million or 29.58 per cent from the
corresponding quarter last year, primarily due to increased revenues
more than offsetting increased loan loss provision. Investor Services
net loss increased slightly by $.2 million over the first quarter last
year.Caution Regarding Forward Looking StatementsThis 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