Management's Discussion and Analysis (unaudited)
Net Income
ATB Financial reported net income for its first quarter ended June
30, 2006 of $62.1 million compared to $52.0 million for the previous quarter and
$51.0 million for the first quarter last year. This represents a $10.1 million
or 19.43 per cent increase from the previous quarter's net income and an
increase from last year's first quarter net income of $11.1 million or 21.74 per
cent.
The net income increase over the previous quarter was driven largely by an
increase in net interest income and a decrease in non-interest expenses. Net
interest income increased by $10.0 million and non-interest expenses decreased
by $7.5 million. This, together with a decrease of $4.4 million in other income
and an increase of $3.0 million in the credit loss provision, generated an
increase in net income of $10.1 million. The increase in net interest income was
driven by continued growth in loans and deposits (on which the net interest
spreads earned increased by six basis points). The increase in net income over
the same quarter last year primarily reflects these same drivers.
Net Interest Income
ATB's net interest income was $134.1 million for the
first quarter ended June 30, 2006 ("Q1"), an increase of $10.0 million
or 8.06 per cent compared to the previous quarter and up $27.3 million or 25.56
per cent compared to the first 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 $786.9 million combined with an
increase of six basis points in the net interest spread earned on these assets.
Average net interest margin earned on ATB's total assets grew over the quarter
to 2.96 per cent. These increases are primarily due to increases in prime
interest rates of 0.25% in both April and May 2006.
The increase in net interest income over the same period last year reflects
the combination of growth in average interest-earning assets of $3.8 billion
together with an increase in the average net interest margin earned on those
assets of almost 23 basis points. The prime interest rate has been consistently
increasing since the end of Q1 last year.
Other
Income
Other income totaled $42.4 million for the first quarter ended
June 30, 2006, a decrease from $46.8 million earned the previous quarter. This
decrease is due principally to two elements of "other" other income
where large gains were recognized last quarter but not this quarter. Income from
our creditor insurance programs was $2.2 million higher last quarter as the
program administrator adjusted premium reserves this quarter. We also recognized
lower "mark-to-market" gains this quarter on the portion of our
derivative portfolio that did not meet the stringent criteria for hedge
accounting - down $5.1 million from last quarter. These decreases were only
partially offset by increases in other components, most notably Credit fees and
Investor Services.
Other income increased by $5.4 million or 14.62 per cent from the first
quarter last year. Revenues from the Investor Services portfolio grew by $2.4
million or 62.36 per cent, reflecting the strong growth in this line of business
year-over-year. The remaining increase was due to higher revenues from service
charges, card fees, and foreign exchange gains partially offset by decreased
credit fees.
Provision
for Credit Losses
Results for the quarter ended June 30, 2006
include a $1.4 million provision for credit losses, as compared to a $1.6
million recovery last quarter and a $4.5 million recovery in the first quarter
last year. The increase over the previous quarter is due mainly to a $2.9
million increase in the general allowance this quarter (driven by increasing
loan balances) as compared to a $0.2 million reduction last quarter (when
increasing loan balances were more than offset by adjustments to loss
expectations).
The increase over the first quarter a year ago is also due mainly to
increases in the provision for general allowances. Q1 last year saw a $3.4
million reduction in general allowances due to very positive credit experience
together with a $2.0 million recovery against the special general provision for
BSE.
The total specific and general allowances for credit losses exceeded the
gross amount of impaired loans by $105.0 million at June 30, 2006 compared to
$98.9 million last quarter and $78.9 million a year ago. Credit performance
overall reflects the continued strength of the Alberta economy, and our loan
portfolio remains very strong.
Non-Interest
Expenses
Non-interest expenses were $113.1 million for the first
quarter ended June 30, 2006, a decrease of $7.5 million or 6.18 per cent
compared to the prior quarter, and an increase of $15.8 million or 16.24 per
cent compared to the first quarter last year. The decrease from the previous
quarter was primarily due to decreased expenditure on associate compensation,
data processing, professional and consultant costs and deposit guarantee fee.
Nearly all of the increase in non-interest expenses compared to the first
quarter last year relate 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, annual compensation
increases and higher costs of benefits. 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 64.08 per cent this first quarter. This
represents an improvement from the 70.54 per cent for the prior quarter and from
67.67 per cent for Q1 last year, driven by increased operating revenues and
fluctuations in non-interest expenses as discussed above.
Balance
Sheet
ATB's total assets were $18.8 billion at June 30, 2006, an
increase of 6.49 per cent from $17.6 billion at March 31, 2006 and 16.79 per
cent from $16.1 billion at June 30, 2005. Total loans, net of allowance for
losses, increased by $460.3 million or 3.10 per cent from the previous
quarter-end balance and increased by $1.7 billion or 12.23 per cent from the end
of Q1 last year. Total deposits increased $1.1 billion or 6.93 per cent over the
prior quarter and by $2.5 billion or 17.07 per cent from the end of Q1 last
year. In comparison, during the first quarter of last year, total assets
increased by 4.62 per cent, total loans increased by 3.81 per cent, and total
deposits increased by 4.74 per cent over the prior quarter.
ATB's total equity as at June 30, 2006 is $1.4 billion, up by $62.1 million
from the end of the prior quarter and up $209.8 million from a year ago.
Segmented
Information
On a segmented basis, total assets as at June 30, 2006
for Personal and Business Financial Services increased by $340.8 million or 2.77
per cent during the quarter and $1.2 billion or 10.52 per cent from a year ago.
Total assets for Corporate Financial Services increased in the first quarter by
$122.1 million or 4.94 per cent and $491.7 million or 23.41 per cent from a year
ago. Investor Services' assets under management and administration grew to $2.6
billion at June 30, 2006, an increase of $165.0 million or 6.72 per
cent from March 31, 2006 and a $1.0 billion or 62.57 per cent increase from
June 30, 2005.
Operating revenues and net income increased in both Personal and Business
Financial Services and Corporate Financial Services segments this quarter as
operating revenues were up and non-interest expenses were down compared to the
previous quarter. Both lines experienced lower net income compared to first
quarter last year (driven primarily by increased provisions for credit losses as
increased revenues were largely offset by increased non-interest expenses).
Though Investor Services' operating revenues declined slightly this quarter
compared to last, net income increased this quarter as non-interest expenses
were lower.
Personal and Business Financial Services experienced strong growth in
operating revenues - up by $11.4 million this quarter, primarily reflecting
higher loan and deposit balances. A $6.4 million decrease in non-interest
expenses was partially offset by a $1.4 million additional provision for credit
losses. Overall, the Line's contribution to net income increased by $16.4
million over the preceding quarter's.
Corporate Financial Services' operating revenue increased by $1.8 million
this quarter but this gain was largely offset by a $1.4 million increase in the
allocated provision for credit losses. With non-interest expenses remaining
relatively flat, the Line's contribution to net income increased by $0.6
million.
Investor Services' net loss decreased to $0.6 million for the first quarter
from $0.9 million in the prior quarter. This line of 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 this fiscal year.
Compared to the corresponding first quarter of last fiscal year, net income
for the three months ended June 30, 2006 decreased by $0.6 million for Personal
and Business Financial Services. Corporate Financial Services' net income for
the first quarter this year decreased by $0.9 million from the corresponding
quarter last year. Investor Services' net loss decreased by $2.5 million over
the first 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.
Highlights