Management's Discussion and Analysis (unaudited)
Net Income
ATB Financial reported net income for its first
quarter ended June 30, 2007 of $64.5 million compared to $49.2 million for the
previous quarter and $62.1 million for the first quarter last year. This
represents a $15.3 million or 31.02 per cent increase from the previous
quarter's net income and an increase from last year's first quarter net income
of $2.4 million or 3.93 per cent.
The increase in net income over the previous quarter is largely due to an increase
in operating revenues of $11.2 million, together with a reduction in credit
losses of $4.7 million. Non-interest expenses remained largely flat
quarter-on-quarter.
The increase in net income compared to the same quarter last year is due to an
increase of $30.6 million in operating revenues, offset by an increase of $5.2
million in the provision for credit losses and an increase of $22.9 million in
non-interest expenses.
The results for the current quarter reflect the
implementation of the new Financial Instruments standards as discussed in Note
2 to the Interim Consolidated Financial Statements. The standards have been
implemented prospectively and therefore comparatives have not been restated.
Net Interest Income
ATB's net interest income was $158.9 million for the first
quarter ended June 30, 2007, an increase of $12.8 million or 8.76 per cent
compared to the previous quarter, and $24.8 million or 18.45 per cent compared
to the first quarter of last fiscal year. This was due to growth in average
interest-earning assets of $631.4 million, and an increase in spread of
thirteen basis points. Of this increase, $8.7 million arose as a result of the
new Financial Instruments standards that became effective this quarter (refer
to Note 2). Excluding the impact of Financial Instruments, spread would have declined
by four basis points, due primarily to the impact of declining loan yields only
partially offset by the impact of rising deposit yields.
ATB's net interest income has increased significantly year-over-year, largely driven
by an increase in average interest-earning assets of $2.5 billion.
Other Income
Other income totaled $48.3 million for the first
quarter ended June 30, 2007, a decrease of $1.6 million compared to last
quarter. Decreases in insurance, credit fees, and service charges were partially
offset by increases in sundry other income, investor services, card fees and
foreign exchange. Losses
on derivative financial instruments, reflecting the new accounting standards
for Financial Instruments (refer to Note 2), further reduced other income by
$1.4 million this quarter.
Other income increased by $5.9 million or 13.84
per cent compared to the first quarter last year, with increases in every major reporting category (with the exception of
credit fees which decreased by $3.2 million). Revenues from the Investor Services portfolio grew by $3.4
million or 54.73 per cent, reflecting strong year-over-year growth in this line
of business. 'Sundry' other income increased year-over-year by $2.5 million
(the majority of which is considered to be non-recurring), card fees increased
by $1.9 million and insurance by $1.1 million.
Provision
for Credit Losses
Results for the quarter ended June 30, 2007 include a $6.6 million net provision for
credit losses, compared to a $11.3 million net provision last quarter and a
$1.4 million net provision in the first quarter last year.
The general loan loss expense for the quarter was $6.4 million compared to an
expense of $9.8 million last quarter and a $2.9 million expense for the same
quarter last year.
The net specific loan loss provision was $0.2 million this quarter, compared to an
expense of $1.5 million last quarter and a recovery of $1.5 million in the same
quarter last year.
Total specific and general allowances for credit losses exceeded gross impaired loans
by $116.4 million at June 30, 2007 compared to $107.1 million last quarter and
$105.0 million a year ago. Loan quality remains strong, with less than one per
cent of our total gross loan portfolio classified as impaired at the end of the
current quarter.
Non-Interest Expenses
Non-interest expenses were $136.1 million for the
first quarter ended June 30, 2007, an increase of $0.6 million or 0.45 per cent
compared to the prior quarter, and an increase of $22.9 million or 20.28 per
cent compared to the first quarter last year.
The increase from the previous quarter was
primarily due to a significant increase in associate compensation costs and
data processing costs, largely offset by decreased expenditure on 'other'
non-interest expenses, and professional and consulting costs. Compared to the
first quarter last year, non-interest expenses increased across almost all
lines, with the majority relating to associate compensation. This reflects both
an increase in the number of associates as well as rising salary costs.
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
65.68 per cent this quarter. This represents an improvement from 69.13 per cent for the prior quarter and
deterioration from 64.08 per cent for the first quarter last year.
Balance Sheet and Changes in Equity
ATB's total assets were $21.44 billion at June 30, 2007, an increase of 5.65 per cent
from $20.29 billion at March 31, 2007 and 14.09 per cent from $18.79 billion at
June 30, 2006. Total loans, net of allowance for loan losses, increased by
$706.9 million or 4.16 per cent compared to the previous quarter and by $2.39
billion or 15.64 per cent compared to the first quarter last year. Total
deposits increased by $1.05 billion or 5.75 per cent compared to the prior
quarter and by $2.33 billion or 13.74 per cent compared to the end of quarter
one last year.
A new line of equity, accumulated other comprehensive income, is presented on the
interim consolidated balance sheet. This also results from the Financial
Instruments implementation (refer to Note 2), and stands at negative $12.2
million at the end of the quarter.
ATB's total equity as at June 30, 2007 is $1.67
billion, up by $42.2 million from the end of the prior quarter and up $254.6 million
from a year ago.
Asset Backed Commercial Paper
As of August 24, ATB Financial held $945 million of non-bank asset backed
commercial paper. As also announced on that date, we acquired an additional
$255 million of these investments through an exchange of ATB Money Market
investments held through our Investor Services subsidiaries. These $1.2 billion
of assets are now held in our corporate investment portfolio.
As is the case with other institutional investors and financial institutions, ATB
Financial invests a portion of our assets in investment grade (R1-high)
instruments for short-term liquidity purposes. Recent market instability has
brought the liquidity of this particular category of non-bank asset backed
commercial paper into question. We continue to have confidence in the quality
of the underlying assets and cash flows. ATB Financial, as a signatory to the
"Montreal Accord", will participate actively in ensuring an orderly
restructuring of these assets to longer-term financial instruments.
While the short-term liquidity of these investments has been affected, ATB maintains
a strong liquidity position and the re-categorization of these assets will not
affect our ability to maintain and increase our growth in the province.
Segmented
Information
On a segmented basis, total assets for Personal and Business Financial Services
increased by $489.0 million or 3.58 per cent during the first quarter and by
$1.48 billion or 11.71 per cent from a year ago. Total assets for Corporate
Financial Services increased in the quarter by $94.8 million or 2.74 per cent
and by $957.0 million or 36.92 per cent from a year ago. Investor Services'
assets under management and administration grew to $3.95 billion at June 30,
2007, an increase of $228.7 million or 6.15 per cent from March 31, 2007 and a
$1.33 billion or 50.62 per cent increase from June 30, 2006.
Operating revenues increased across all lines of business this quarter, and this combined
with a reduction in the credit loss provision, resulted in improvements to net
income across all the lines of business.
The impact of the implementation of the new
Financial Instruments standards is included within Other Business Units.
Caution Regarding Forward Looking Statements
This report may include forward-looking statements. ATB Financial from time to time may make
forward-looking statements in other written or verbal communications. These
statements may involve, but are not limited to, comments relating to ATB's
objectives or targets for the short and medium term, strategies or actions
planned to achieve those objectives, targeted and expected financial results
and the outlook for operations or the Alberta economy. Forward-looking
statements typically use the words "anticipate," "believe," "estimate,"
"expect," "intend," "may," "plan," or other similar expressions or future or
conditional verbs such as "could," "should," "would," or "will."
By their very nature,
forward-looking statements require ATB's management to make numerous
assumptions and are subject to inherent risks and uncertainties, both general
and specific. A number of factors could cause actual future results,
conditions, actions, or events to differ materially from the targets,
expectations, estimates, or intentions expressed in the forward-looking
statements. Such factors include, but are not limited to: changes in
legislative or regulatory environment; changes in ATB's markets; technological
changes; changes in general economic conditions, including fluctuations in
interest rates, currency values and liquidity conditions; and other
developments, including the degree to which ATB anticipates and successfully
manages the risks implied by such factors.
ATB cautions readers
that the aforementioned list is not exhaustive. Anyone reading and relying on
forward-looking statements should carefully consider these and other factors
that could potentially have an adverse affect on ATB's future results, as 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