YTD 2013 vs. YTD 2012
Year-to-date non-interest expenses were up 11% ($19.5 million) over 2012 reflecting a 12% ($13.7 million) increase in salaries and benefits driven by staff complement, annual salary increments, and higher stock-based and variable compensation. General expenses rose 9% ($2.8 million), while premises and equipment costs were up 10% ($2.8 million).
The third quarter efficiency ratio (teb), which measures non-interest expenses as a percentage of total revenues (teb), was 45.9%, compared to 42.8% in the third quarter last year and 47.3% in the previous quarter. The improvement compared to the prior quarter mainly reflects the combined positive impact of three additional revenue-earning days and an improved net interest margin, partially offset by the modest negative impact from McLean & Partners. Excluding claims expense specifically related to the catastrophic southern Alberta floods, the third quarter efficiency ratio was 44.4%. The negative change in the efficiency ratio compared to the same quarter last year reflects constrained revenue growth resulting from the year-over-year decline in net interest margin, increased non-interest expenses to facilitate business growth, and the impact of McLean & Partners, partially offset by the benefit of strong loan growth. Based on the year-to-date efficiency ratio of 46.2%, and in consideration of expected fourth quarter revenues and planned expenditures, management believes its 2013 efficiency ratio target of 46% or better is attainable, but it will be challenging.
The third quarter effective income tax rate (teb) was 25.2%, compared to 26.2% in the same quarter last year. The effective income tax rate (teb) for the first nine months of 2013 was 25.6%, down 100 basis points from the same period one year ago reflecting the non-tax deductible charge related to the 2012 fair value contingent consideration changes and a 150 basis point decrease in the basic federal income tax rate effective on January 1, 2012.
Comprehensive income is comprised of net income and other comprehensive income (OCI), all net of income taxes, and totaled $37.7 million for the third quarter, compared to $50.5 million in the same period last year. The net decrease in comprehensive income was driven by unrealized losses from changes in fair value of available-for-sale securities of $10.4 million and a slight decline in net income. The change in fair value of available-for-sale securities mainly relates to declines in the market value of the Bank's preferred share portfolio. Fluctuations in the value of preferred shares are generally attributed to changes in interest rates, movements in market credit spreads and shifts in the interest rate curve. Market fluctuations during the third quarter, particularly the impact of a steepening interest rate curve, led to a 5% decline in the reference S&P/TSX preferred share laddered index, compared to a 4% decline in fair value of the Bank's preferred share portfolio. While the combined dollar investment in preferred shares and common equities is relatively small in relation to total liquid assets, it increases the potential for comparatively larger fluctuations in OCI.
Year-to-date comprehensive income of $140.6 million was down from $146.9 million in 2012 mainly resulting from an increase in unrealized losses from changes in fair value of available-for-sale securities. The 5% ($7.1 million) increase in net income was more than offset by the realization of $9.4 million of gains on securities, net of tax, through the income statement, and a $2.5 million loss, net of tax, from changes in fair value of available-for-sale securities, primarily reflecting market dynamics for preferred shares, described above.
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