Edmonton - February 14, 2006 -
ATB Financial reported third quarter earnings of $41.4 million for the period
ending December 31, 2005, down $9.3 million since the same time last year.
Increased non-interest expenses impacted this quarter's net income. Salary,
wages and benefits (and to a lesser degree professional and consulting costs)
were up $10.9 million. ATB's equity now stands at $1.3 billion, up $191.4
million compared to December 31, 2004.
"The real story during this quarter was our Investor Services line of
business surpassing the $2 billion milestone in assets under management and
administration," said Bob Normand, President and CEO, ATB Financial.
"We are confident our Investor Services team has a compelling offer for the
marketplace and clearly our customers agree. What makes this success even more
noteworthy, this line of business has only been operating at ATB for about three
years."
Financial
Highlights
Compared to the third quarter in fiscal year 2004-2005:
- Net income of $41.4 million, down 18.37 per cent.
- Total assets of $17.4 billion, up 14.40 per cent.
- Net loans of $14.5 billion, up 12.75 per cent.
- Total deposits of $15.7 billion, up 13.67 per cent.
- Net interest income of $119.6 million, up 15.13 per cent.
- Non-interest expenses of $104.8 million, up 19.60 per cent.
- Efficiency ratio (non-interest expenses as a percentage of operating
revenues) declined to 68.38 per cent from 62.77 per cent.
Personal
& Business Financial Services
In October ATB opened its second Business Loan Centre in Calgary. This
location houses all of our area business account managers in the Calgary market
and enables ATB to leverage our service and credit skills in one location. The
Business Loan Centre will provide faster turnaround times for customer requests
on loans under $5.0 million.
ATB MasterCard launched its first Business Balance Account Transfer program
in November. This offer allows business customers to transfer balances from
other financial institutions to their ATB Business MasterCard and receive a rate
of 3.90 per cent for a limited period of time.
ATB also launched its first on-line application form for MasterCard products.
This new tool allows Albertans to apply for credit directly from the ATB
website.
Products -
During the third quarter ATB announced winners from two customer contests. In
October Lyle Tuchscherer of Bow Island was the winner of "Win Your Payments
for a Year" mortgage contest and in December a Calgary customer, Gary
Gallant, was the winner of our "Win a Car Contest" - a promotion aimed
at customers of our two newest branches in Calgary.
The ATB "Century GIC Contest" winner was selected in December.
Joseph and Margaret Lachappelle from Edmonton were the lucky winners of the
$100,000 draw. This contest has run since 2000 and for every $5,000 a customer
invested in the Century GIC, they were automatically entered into the grand
prize draw. Bob Normand, President & CEO, ATB Financial, personally
congratulated the winner.
Branch Network - ATB continues to assess building sites for new
branches in Alberta's two major cities. The "heated" Alberta economy
presents its own set of challenges on the building of new branches, especially
speed to market. ATB continuously invests in the branch network for renovations
and upgrades as required.
ATB Investor Services
In December, ATB Investor Services reached a substantial milestone - $2.1
billion in assets under management and administration, well ahead of plan. This
was achieved by strong asset growth of $201 million for the quarter.
Also during the quarter the Compass Portfolio funds celebrated their third
anniversary with ATB and surpassed the $1 billion milestone of funds under
management.
Corporate Financial Services
This line of business (LOB) continues to see strong growth in both its loan
and deposit portfolios. Over the past quarter, gross loan balances increased by
8.23 per cent to $2.3 billion, while client deposits were up a further 20.14 per
cent to $1.5 billion.
During the same period, loan authorizations increased by 8.60 per cent, while
the utilization of these authorized amounts declined slightly from 48.90 per
cent to 48.70 per cent. This decrease in utilization is largely driven by
continued strong cash flows within the energy sector.
The LOB continues to increase its capabilities and position in the Alberta
mid-market.
ATB in the
Community
ATB is committed to supporting all 11 United Way associations in the
province. The United Way campaign is ATB's single largest fundraising campaign.
Along with 50 per cent corporate matching, ATB associates raised $500,000 to
help make Alberta communities a better place to live.
In November, ATB again sponsored the Canadian Finals Rodeo held annually in
Edmonton. A total of 45 Edmonton and area ATB branches participated in a contest
for a chance to win a $2,500 rodeo prize pack. Associates dressed in their
western wear and decorated their work locations in a western theme.
ATB's employee volunteer program, Community Stars, was established to
recognize our associates who are actively involved as volunteers in their
community. ATB makes a $200 donation to the not-for-profit organizations that
are important to our associates. Some of the approximately 60 organizations that
received funding from ATB for this quarter include: Fort McMurray Boys &
Girls Club; Lloydminster Soccer Association; Manning Figure Skating Club;
Special Olympics Edmonton; STARS Air Ambulance; Strathmore Cheer Team;
Wainwright Minor Hockey; Wildwood Community Association.
ATB associates and customers joined together to raise a record $41,236 for
ATB's Edmonton Christmas Bureau campaign. Edmonton and area branches organized
numerous fundraising activities.
Third Quarter - Economic Review and Outlook
Oil prices remain high and are generally expected to remain at or above $50
per barrel through 2008, based on futures prices. Natural gas prices have
moderated, but are still quite strong. Alberta's businesses and government
continue to reap the rewards of strong energy prices, and consumers don't seem
to be feeling pinched since annual gains in retail sales are amongst the highest
in the nation, well above the national average gains.
The Alberta economy continues to charge ahead. According to the ATB Financial
Business Sentiments Index, most businesses expect strong growth in the first
quarter of 2006. The survey of over 300 businesses was conducted by the Western
Centre for Economics Research at the University of Alberta Business School. This
quarter, the business sentiments index was 149.7, representing vigorous
expansion in the Alberta economy led by the oil and gas sector. The related
Hiring Intentions Index revealed that about two-thirds of Alberta businesses
will look to hire additional staff over the next three months.
It is expected that during 2006, new home construction will slow as interest
rates rise and demand falls in step. The upside risk to this outlook is, as new
people move to Alberta to participate in the labour force, they will keep demand
high in already tight housing markets. Alberta led the nation in building permit
growth for both residential and non-residential permits in 2005. Alberta's
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. Currently, over $70 billion in projects are
planned for the oil sands.
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 have begun to increase, as all industries must
compete with the oil and gas sector for scarce labour. As of November 2005,
Alberta had the highest level of year-to-date wage growth among the provinces.
Ron
P. Triffo Bob Normand
Chairman of the Board President & CEO
February 2006
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Management's Discussion and Analysis (unaudited)
Net Income
ATB Financial reported net income for its third quarter ended
December 31, 2005 of $41.4 million compared to $54.4 million for the
previous quarter and $50.7 million for the third quarter last year. This
represents a $13.0 million or 23.86 per cent decrease from the previous
quarter's net income and a decrease from last year's third quarter net
income of $9.3 million or 18.37 per cent.
The net income decrease over the second quarter was driven largely by
a reduction in other income, combined with an increase in non-interest
expenses and provisions for credit losses. Other income decreased by
$4.3 million and non-interest expenses increased by $9.1 million. This,
together with an increase of $7.4 million in the credit loss provision,
drove the reduction in net income of $13.0 million. Also included was a
$7.8 million increase in net interest income, driven by continued growth
in loans and deposits (on which the net interest spreads earned
increased by nine basis points). The decrease in net income over the
same quarter last year primarily reflects these same drivers.
Net Interest Income
ATB's net interest income was $119.6 million for the third quarter
ended December 31, 2005 ("Q3"), an increase of $7.8 million or
6.99 per cent compared to the previous quarter and up $15.7 million or
15.13 per cent compared to the third 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 $545.3 million
combined with an increase of nine basis points in the net interest
spread earned on these assets. Average net interest margin earned over
the quarter grew to 2.81 per cent, an increase of nine basis points.
This is primarily due to increases in prime interest rates of 0.25 per
cent in both October and December 2005.
The increase in net interest income over 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
spread earned on those assets of six basis points.
Loan
Quality
Results
for the quarter ended December 31, 2005 include a $7.1 million provision
for credit losses, as compared to a $0.3 million recovery last quarter
and a $1.3 million provision in the third quarter last year. The
apparent increase over the second quarter is due mainly to a credit
recovery last quarter of $6.0 million against the specific provision for
BSE. The quarter two recovery reduced the provision to $Nil at September
30, completing the reversal of this provision. ATB remains satisfied
that the current impact on our credit portfolio has been thoroughly
identified and that any exposures are incorporated into account-specific
impairment allowances, or are adequately addressed through the
conventional general loan loss allowance. The total specific and general
allowances for credit losses exceeded the gross amount of impaired loans
by $90.8 million at December 31, 2005 compared to $75.6 million last
quarter and $76.9 million a year ago. Credit performance overall
reflects the continued strength of the Alberta economy, and our loan
portfolio remains very strong.
Other
Income
Other income totaled $33.8 million for the third
quarter ended December 31, 2005, a decrease from $38.0 million earned
the previous quarter. This was in part due to a decrease in credit fees
earned and foreign exchange gains. The principal cause was a decline in
derivative related revenues as discussed below. These decreases were
only partially offset by increases in other components, most notably
Investor Services. Other income decreased by $2.0 million or 5.70 per
cent from the third quarter last year. Revenues from the Investor
Services portfolio grew by $2.6 million or 120.84 per cent reflecting
the continued growth in this line of business. Other increases included
revenues from service charges and card fees. However, these were offset
by "mark -to-market" losses on the portion of our derivative
portfolio that did not meet the stringent criteria for hedge accounting.
Non-Interest
Expenses
Non-interest expenses were $104.8 million for the third quarter ended
December 31, 2005, an increase of $9.1 million or 9.54 per cent compared
to the second quarter this year, and an increase of $17.2 million or
19.60 per cent compared to the third quarter last year. The increase
from the previous quarter was primarily due to increased expenditure on
associate compensation, data processing and public relations this
quarter. Almost half of the increase in non-interest expenses compared
to the third 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 compensation increases. Other areas with significant
increases this Q3 over last year's were consulting costs, as well as
data processing. These impacts were partially mitigated by reductions in
expenses for telecommunications. 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 68.38 per cent
this third quarter. This represents an decline from the 63.90 per cent
for the second quarter and from 62.77 per cent for Q3 last year. This
relatively high efficiency ratio is not expected to continue.
Balance
Sheet
ATB's total assets were $17.4 billion at December 31, 2005, an
increase of 5.05 per cent from $16.6 billion at September 30, 2005 and
14.4 per cent from $15.2 billion at December 31, 2004. Total loans, net
of allowance for losses, increased by $526.0 million or 3.76 per cent
from the previous quarter-end balance and increased by $1.6 billion or
12.75 per cent from the end of Q3 last year. Total deposits increased
$762.6 million or 5.10 per cent over the second quarter of this year and
were $1.9 billion or 13.67 per cent higher than at December 31 last
year. In comparison, during the third quarter of last year, total assets
increased by 3.55 per cent, total loans increased by 1.88 per cent and
total deposits increased by 3.71 per cent over the prior quarter.
ATB's total equity as at December 31, 2005 is $1.3 billion, up by
$41.4 million from the end of the second quarter and up $191.4 million
from a year ago.
Segmented
Information
On a segmented basis, total assets as at December 31, 2005 for
Personal and Business Financial Services increased by $366.9 million or
3.11 per cent during the quarter. Total assets for Corporate Financial
Services increased in the third quarter by $174.4 million or 8.37 per
cent. Investor Services' assets under management and administration grew
to $2.1 billion at December 31, 2005, an increase of $201.0 million or
10.80 per cent from September 30, 2005 and a $1.0 billion or 98.85 per
cent increase from December 31, 2004.
Operating revenues increased in all three lines of businesses this
quarter. Net income increased in both Corporate Financial Services and
Investor Services, but decreased in Personal and Business Financial
Services.
Personal and Business Financial Services increased operating revenues
by $1.1 million this quarter, although net income decreased by $3.9
million. The decrease in net income was due to increases in both
non-interest expenses and the provision for credit losses.
Corporate Financial Services' operating revenue increased by $0.3
million this quarter, as did net income. Non-interest expenses and the
credit loss provision combined, remained relatively flat.
Investor Services' net loss decreased by $1.4 million for the third
quarter from $3.3 million in the second 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 to the corresponding third quarter of last fiscal year, net
income for the three months ended December 31, 2005 decreased by $4.8
million or 14.41 per cent for Personal and Business Financial Services.
Corporate Financial Services net income for the third quarter this year
decreased by $2.0 million or 20.27 per cent from the corresponding
quarter last year. Investor Services net loss decreased by $1.5 million
over the third 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