Second Quarter Results
For the quarter ended September 30, 2005
To download the full report in PDF format, click here.
Message
to Stakeholders
ATB Financial Reports Profitable
Second Quarter
Edmonton - November 10, 2005 - ATB Financial
ATB Financial reported second quarter earnings of $54.4 million for the
period ended September 30, 2005, up 15.50 per cent since the same time last
year. ATB's equity now stands at $1.26 billion, up $200.8 million compared to
September 30, 2004.
"The net income increase this quarter was largely a result of continued
growth in loan and deposit volumes. The ongoing strength of the Alberta economy,
supplemented by a quality ATB product lineup, our commitment to our customers to
provide personal service, and a dedicated team of more than 3,500 associates
have shaped ATB's great performance," says Bob Normand, President &
CEO, ATB Financial.
During the second quarter ATB removed the remaining $6.0 million in the BSE
loan loss provision. The special reserve was no longer required given the
partial opening of the U.S. border and the fact that our exposure to any remaining BSE
residual fallout has now been fully incorporated into our specific loan
allowances and our normal general allowance calculations.
Financial
Highlights
Compared to the second quarter in fiscal year 2004-2005:
- Net income of $54.4 million, up 15.50 per cent.
- Total assets of $16.6 billion, up 12.77 per cent.
- Total loans at $14.0 billion, up 10.70 per cent.
- Total deposits of $14.9 billion, up 12.16 per cent.
- Net interest income of $111.7 million, up 14.82 per cent.
- Non-interest expenses of $95.7 million, up 8.73 per cent.
- Efficiency ratio (non-interest expenses as a percentage of operating
revenues) improved to 63.90 per cent from 66.81 per cent.
Personal
& Business Financial Services
Compared to one year ago, total operating revenues increased by $11.1 million
or 10.58 per cent to $116.1 million this quarter.
Business Financial Services (BFS) re-launched itself internally this quarter.
The BFS team has committed to an initiative to strengthen ATB's position in this
market. The team's plan calls for adding increased value to our customer
relationships and significantly growing our book of business within this
business line.
ATB continues to invest significant resources in the branch network to
enhance every customer's experience with ATB. New sales and service programs
continue to be tested and refined, and the new front-line transaction system
rollout is underway across our branch network. This rollout is expected to be
complete by the end of 2006.
Products - The popular Century guaranteed investment certificate (GIC),
a unique offer celebrating Alberta's 2005 Centennial, is a five-year,
non-redeemable product, featuring a contest to win $100,000 by all eligible
purchasers. This product is offered for a final time in autumn 2005 and the draw
for the winner will take place this December.
Branch Network - The new McKenzie Towne branch in southeast Calgary
opened August 2, 2005. ATB had been serving customers in the community,
operating out of a motorhome, during construction of the new facility. The new
5,650 square foot building is designed to resemble a train station and features
a drive-through automated banking machine (ABM), as well as a lobby ABM,
available 24 hours a day, seven days a week.
ATB Investor Services
Growth in this line of business continued to be strong over the summer
quarter, with assets under management and administration growing to $1.8
billion, an increase of $250 million from the previous quarter and a $1.0
billion increase from September 30, 2004.
The ATB Investor Services team now has a complement of 113 dedicated
financial advisors plus 188 representatives in the ATB branch network. Operating
revenue increased 114.86 per cent from same quarter last year.
Corporate Financial Services
Continued strong growth in both loans and deposits this quarter can be, in
part, attributed to a relationship management service model that takes advantage
of the ongoing momentum of the Alberta economy. Excellent growth numbers from
both net new business and existing clientele are being reported from each of the
division's three groups: Commercial, Energy and Food & Forestry.
Increasing competitive forces continue to place moderate pressure on interest
margins, which partially is offset by our investments in developing stronger
relationships with our clients and through our ongoing progress to develop new
products.
Second quarter operating revenue was $16.5 million, up 9.42 per cent in total
operating revenues from the previous quarter. Loan growth at the end of the
second quarter is up 8.37 per cent year-to-date (YTD). Deposits have also shown
strong growth YTD, up 25.74 per cent.
ATB in the
Community
This summer, ATB sponsored numerous events across Alberta including the
Ponoka Stampede, Klondike Days Parade in Edmonton, Grande Prairie Street
Performers Festival, CentreFest in Red Deer, Big Valley Jamboree in Camrose, and
the Lethbridge Air Show. ATB also sponsored chuckwagon driver, Chad Harden, at
the Calgary Stampede.
ATB's associate volunteer program, Community Stars, recognizes the time and
commitment of our associates who shine in their communities. ATB donates to a
variety of community organizations that our associates support. Some of the
organizations that received funding from ATB this quarter include: Hythe
Volunteer Fire Department, Jack & Jill Playschool, Lacombe Minor Hockey
Association, Prairie Rose Pony Club, Smoky Lake Curling Club, Uncles at Large,
Wood's Homes Foundation, and Wranglers Soccer Club.
ATB is proud to support STARS. Our annual fundraising campaign was held
August 22 to September 9 in 17 branch locations. Our customers and the community
supported the fundraising events organized by our associates that included
barbeques, silent auctions, wing eating contests, and a leg-waxing event. The
campaign raised $60,263.
During the quarter ATB made a $25,000 donation to the Canadian Red Cross in
support of Hurricane Katrina relief efforts.
Second Quarter - Economic Review and Outlook
Oil and gas prices remain high, and oil is generally expected to remain at or
above $50 per barrel through 2008 based on futures prices. Alberta, as Canada's
largest producer of oil and natural gas, benefits immediately from enhanced cash
flows to producers and to the provincial treasury. High energy prices are not
all good news: the Canadian and U.S. economies could see slowed growth due to
reduced consumer incomes and increased business expenses.
The Alberta economy is robust. Housing starts are strong, with starts
expected to be well over 30,000 units for the fifth straight year. Alberta leads
the nation in building permit growth for both residential and non-residential
permits issued year-to-date. Alberta growth will continue to be investment
driven, with the oil sands attracting worldwide interest, as major oil and gas
companies forge ahead with multi-year plans to develop the resource. Foreign
firms are bidding for a piece of the action, with U.S., Chinese and French firms
announcing major deals in recent months.
Employment in Alberta is very strong, with the unemployment rate sitting at
or below the 4 per cent threshold that many economists view as full employment.
Labour shortages will be a significant challenge for Alberta businesses in the
medium-term. Wage pressures will increase as all industries must compete with
the oil and gas sector for scarce labour. With the U.S. border partially open to
live Canadian cattle, the backlog of cattle has begun to shrink and the industry
is recovering.
Ron
P. Triffo Bob Normand
Chairman of the Board President & CEO
November 2005
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Management's Discussion and Analysis (unaudited)
Net Income
ATB Financial reported net income for its second quarter ended
September 30, 2005 of $54.4 million compared to $51.0 million for the
previous quarter and $47.1 million for the second quarter last year.
This represents a $3.4 million or 6.67 per cent increase from the
previous quarter's net income and an increase from last year's second
quarter net income of $7.3 million or 15.50 per cent.
The net income increase over the first quarter was driven largely by
continued growth in loans and deposits (on which the net interest
spreads were largely unchanged). Other income increased slightly and
non-interest expenses decreased slightly, and the net impact of all
these was sufficient to offset a $4.2 million decrease in credit
recoveries. The increase in net income over the same quarter last year
primarily reflects increased net interest income earned from both higher
loan and deposit volumes and increased margins earned plus increased
other income. Higher non-interest expenses and lower loan loss
recoveries partially offset these increases.
Net Interest Income
ATB's net interest income was $111.7 million for the second quarter
ended September 30, 2005 ("Q2"), an increase of $4.9 million
or 4.61 per cent compared to the previous quarter and up $14.4 million
or 14.82 per cent compared to the second quarter of last fiscal year.
The increase in net interest income from last quarter was mainly the
result of growth in average interest-earning assets of $578.6 million
partially offset by a one-half basis point decline net interest margin
earned on these assets. Average net interest margin earned over the
quarter was essentially flat at 2.72 per cent. Margins dipped by 4 basis
points in July, stabilized in August and then rebounded to above June 30
levels in September with the announced increases to the Bank of Canada
lending rates.
The increase in net interest income from the same period last year
reflects the combination of growth in average interest-earning assets of
$1.8 billion together with an increase in the average net interest
margin earned on those assets of almost five basis points.
Loan
Quality
Results
for the quarter ended September 30, 2005 include a $0.3 million net
recovery for credit losses as compared to a $4.5 million recovery last
quarter and a $3.4 million recovery in the second quarter last year. The
relatively small recovery this quarter reflects a $6.0 million reduction
of the BSE loan loss provision almost entirely offset by increased
general provisions due to continued growth in our loan portfolio. Over
the last six quarters, ATB has reported recoveries of credit losses
amounting to nearly $19.4 million of which $17.5 million is attributable
to decreases in the special general provision for loan losses arising
from BSE as we have come to better understand the eventual impact of BSE
on our customers and have incorporated any customer-specific provisions
necessary into our specific loan loss allowances. Credit performance
overall still reflects the continued strength of the Alberta economy.
Gross impaired loans (i.e. loan balances before deducting specific
allowances for credit losses) as at September 30, 2005 were $84.1
million compared to $80.6 million last quarter-end and $106.9 million a
year ago. The total specific and general allowances for credit losses
exceeded the gross amount of impaired loans by $75.6 million at
September 30, 2005 compared to $78.9 million last quarter and $73.2
million a year ago. Our loan portfolio continues to remain very strong.
Other
Income
Other income totaled $38.0 million for the second
quarter ended September 30, 2005, a slight increase from $37.0 million
earned the previous quarter as a decrease in credit fees earned
partially offset increases in all other components (most notably
revenues earned by Investor Services). Other income increased nearly
$3.6 million or 10.43 per cent from the second quarter last year. This
increase over the same quarter last year is mainly due to growth from
Investor Services, card revenues and service charges offset somewhat by
reduced credit fee revenue and lower "mark-to-market" gains on
the portion of our derivative portfolio that did not meet the stringent
criteria for hedge accounting.
Non-Interest
Expenses
Non-interest expenses were $95.7 million for the second quarter ended
September 30, 2005, a decrease of $1.6 million or 1.66 per cent compared
to the first quarter this year but up $7.7 million or 8.73 per cent
compared to the second quarter last year.
The decrease from the previous
quarter was primarily due to an adjustment recognized in Q2 relating to
the deposit guarantee fee, to reduced advertising expenditures and to a
reduction in insurance expense recognized. These improvements were
partially offset by increased spending on consulting, associate
compensation and data processing. Over half of the increase in
non-interest expenses compared to the second quarter last year relates
to wages, salaries and benefits. This is mainly attributable to a
combination of ongoing growth in our Investor Services business,
continued expansion of our branch network and annual increments. Other
areas with significant increases this Q2 over last year's were
consulting and professional costs as well as data processing. These
impacts were partially mitigated by reductions in expense for the deposit
guarantee fee.
ATB's efficiency ratio, expressed as the ratio of
non-interest expenses to operating revenue (net interest income before
loss provisions plus other income), was 63.90 per cent this second
quarter. This represents an improvement from the 67.67 per cent for the
first quarter and from 66.81 per cent for Q2 last year.
Balance
Sheet
ATB's total assets were $16.6 billion at September 30, 2005, an
increase of 3.10 per cent from $16.1 billion at June 30, 2005 and 12.77
per cent from $14.7 billion at September 30, 2004. Total loans, net of
allowance for losses, increased by $337.6 million or 2.47 per cent from
the previous quarter-end balance and increased nearly $1.4 billion or
10.70 per cent from the end of Q2 last year. Total deposits increased
$444.8 million or 3.07 per cent over the second quarter this year and
are $1.6 billion or 12.16 per cent higher than at September 30 last
year. In comparison, during the second quarter of last year, total
assets increased by 1.11 per cent, total loans increased by 1.61 per
cent and total deposits increased by 0.52 per cent.
ATB's total equity as at September 30, 2005 is nearly $1.3 billion,
up by $54.4 million from the end of the first quarter and up $200.8
million from a year ago.
Segmented
Information
On a segmented basis, total assets as at September 30, 2005 for
Personal and Business Financial Services increased by $356.5 million or
3.1 per cent during the quarter. Total assets for Corporate Financial
Services decreased over the second quarter by $0.2 million. Investor
Services' assets under management and administration grew to $1.8
billion at September 30, 2005, an increase of $250.0 million from June
30, 2005 and a $1.0 billion increase from September 30, 2004.
Operating revenues increased across all three business segments this
quarter but net income deteriorated from the previous quarter's in all
three. Personal and Business Financial Services increased revenues by
$2.0 million this quarter but an increase in specific loan loss
provisions (up $6.9 million from Q1) and increased non-interest expense
(of 4.2 million) resulted in the $9.1 million decrease in net income.
The higher loan loss provision this quarter reflected an increase in
both the general provision attributable to the "P&B" loan
portfolio as well as an increase in specific provisions. Corporate
Financial Services' net income decreased by $0.3 million, as credit
provisions increased $1.2 million and non-interest expenses increased
slightly (by less than $0.6 million), offsetting the $1.4 million
increase in revenues.
Investor Services' net loss grew slightly to $3.3 million for the
second quarter from $3.2 million in the first quarter. This business
will continue to report losses until the income generated from its
ongoing management of assets outpaces the costs of securing new
business. This is still expected to occur near the end of the next
fiscal year.
Compared against the corresponding second quarter of last fiscal
year, reported net income for the three months ended September 30, 2005
decreased by $1.1 million or 3.82 per cent for Personal and Business
Financial Services mainly due to increased allocation of general credit
provisions and increased non-interest expenses exceeding growth in
operating revenues.. Corporate Financial Services net income for the
second quarter this year increased by $2.3 million or 23.80 per cent
from the corresponding quarter last year, reflecting strong growth in
revenues more than offsetting increased credit provisions. Investor
Services net loss increased by $1.0 million over the second quarter last
year.
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