Commercial Banks: ATLAS BANK LIMITED (Formerly Dawood Bank Limited) - Half Year Ended June 30, 2006 (Un-audited)

The Chairman in his Review states that the merger of Atlas Investment Bank Limited (AIB) with Atlas Bank Limited (Formerly Dawood Bank Limited) was completed on July 29, 2006.
According to him, the merged entity ie Atlas Bank has emerged more of a sound and healthy bank with an equity of Rs 3.12 billion, assets Rs 18.70 billion, deposits Rs 8.59 billion and 11 branches. The company plans to increase nine more branches by the end of the year and thereafter 15-20 branches every year. Further, AIB, when merged had credit rating of "A+" and "A-1". Atlas Bank had credit rating of "BBB-" and "A-3". It is hoped that the merged entity will have an improved rating which will help the bank's future business.
Atlas Bank was incorporated in Pakistan on July 17, 2003 as a public limited company (unlisted) under the Companies Ordinance, 1984 with the object of conducting banking business and related services. The bank was incorporated pursuant to the joint venture agreement dated March 17, 2003 between the Dawood Group and the Bank of Ceylon (BOC), Colombo whereby the business of BOC Pakistan operations was amalgamated into the bank in accordance with the scheme of amalgamation. The bank had commenced its commercial operations effective March 25, 2004.
During the year 2005, the majority shareholding of Atlas Bank held by Dawood Group was acquired by Shirazi Investment (Private) Limited, a company of the Atlas Group, with the consent of the SBP.
The Auditors in their Review Report to the Members state that without qualifying their opinion, they draw attention to note 1.3 to the financial statements which describe that the State Bank of Pakistan has sanctioned the scheme of amalgamation between Atlas Bank and AIB which would be effective from July 29, 2006. Accordingly, the minimum capital requirement for Atlas Bank has been extended by the SBP upto the effective date of amalgamation.
Note 1.3 initially describes the SBP requirements in 2004 of increasing the minimum paid up capital of the banks from Rs 1 billion to Rs 2 billion and then additional requirements of annual increase, raising minimum paid up capital of the banks to Rs 6 billion by December 31, 2009. Thereafter the amalgamation scheme and the milestones are briefly mentioned.
The shareholders of Atlas Bank and AIB, in their respective shareholders meetings held on May 18, 2006 approved scheme of amalgamation which was approved by the SBP on June 30, 2006. In accordance therewith, the Boards of Directors of the banks resolved that the effective date of amalgamation would be July 29, 2006. The scheme envisages:
the transfer and vesting in the Atlas Bank the entire undertaking of AIB inclusive of all its assets, liabilities and obligations;
The issue of 158,891,642 ordinary shares of Rs 10 each of Atlas Bank to the shareholders of AIB ie in the ratio of 3.14 ordinary shares of Atlas Bank for each share of AIB, as consideration of the amalgamation; and
the dissolution, without winding up, of AIB.
In view of the above, the SBP vide letter dated July 5, 2006 has extended the minimum capital requirement for Atlas bank upto the effective date of amalgamation, which according to the notes to the financial statements has been subsequently met on July 29, 2006.
Atlas Bank saw 18% increase in its Total Assets to Rs 9.4 billion as on June 30, 2006 compared to Rs 7.9 billion on December 31, 2005. During the period under review, Advances increased by 172% to Rs 2.17 billion (December 31, 2005: Rs 0.799 billion) whereas Investments decreased to Rs 1.39 billion (December 31, 2005: Rs 1.73 billion).
Atlas Bank's Advances at Rs 2.17 billion as on June 30, 2006 comprised 23% of Total Assets (10% of TA as on December 31, 2005). As on June 30, 2006, gross NPLs were Rs 40 million (December 31, 2005: Rs 13 million). In percentage terms gross NPLs on June 30, 2006 were 1.8% of gross Advances (2005: 0.6% of GA). Atlas Bank has made full provision against NPLs according to the SBP criteria.
Total mark up income of Atlas Bank for the first six months of 2006 increased by 141% to Rs 312 million compared to Rs 129 million for the corresponding six months of the previous year. However, net mark up income (after mark up expensed and provisions) for the six months period under review decreased by 7% to Rs 54 million (corresponding six months of 2005: Rs 58 million). Total mark up-interest expense represented 82% of total mark up income for six months ended June 30, 2006 (2005: 53%). Relatively higher payout to the Depositors has an impact on bank's profitability margins.
Administrative expenses saw 89% increase during six months under review. Consequently, the bank had pre-tax loss of Rs 18 million. However, due to adjustments in income tax for prior years and deferred tax, the six months were closed with After-tax Profit at Rs 11.6 million (2005: Rs 4.9 million). ROE for the six months is below 1%. Performance statistics are given below.

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Performance Statistics           (Un-audited)    (Rs, 000)

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Balance Sheet                     As June 30,   As Dec. 31

                                        2006          2005

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Total Assets:                      9,403,529     7,951,719

Cash, balances with banks:           634,402       233,026

Lending to financial institutions: 4,789,411     4,847,386

Investments-Net:                   1,392,667     1,735,015

Advances-Net:                      2,174,163       799,411

Borrowing from fin. Institutions:  2,173,908     4,096,777

Deposits, other accounts:          5,364,769     2,186,005

Total Liabilities:                 7,967,892     6,422,339

Net Assets:                        1,435,637     1,529,380

Share Capital:                     1,537,000     1,537,000

Reserves & Un-app. Profit:            -6,838       -18,515

Sub total-Equity:                  1,530,162     1,518,485

Surplus on Revalue, Assets:          -94,525        10,895

Equity incl. Revalue Surplus:      1,435,637     1,529,380

Subordinated Loan:                         0             0

Equity & Sub. Loans:               1,435,637     1,529,380

Advances-Gross:                    2,189,278       812,876

Gross NPLs:                           40,053        13,468

Total Provision:                      15,115        13,465

Conting. & Commitments:              309,037       297,140

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Ratios:

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Cash & bank/Total Assets:                  7%           3%

Investments/Total Assets:                 15%          22%

Advance-Net/Total Assets:                 23%          10%

Gross NPLs/Advances-Gross:               1.8%         0.6%

Gross NPLs/Total Equity:                   3%           1%

Net NPLs/Advances-Net:                   1.1%         0.0%

Provision/Advances-Gross:                0.7%         1.7%

Deposits/Total Assets:                    57%          27%

Total Liabilities/Total Assets:           85%          81%

Total Equity/Total Assets:              15.3%        19.2%

Equity & SLoans/T. Assets:              15.3%        19.2%

Deposits/Equity-Times:                   3.7           1.4

Advances/Deposits (ADR):                  41%          37%

Investments/Deposits:                     26%          79%

Conting.& Comm./Equity-X:               0.22          0.19

Book Value Per Share:                   9.34          9.95

Quoted Price - Rs:                Not Listed             -

Price/Book Value Ratio:           Not Listed             -

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Income Statement (6M)                   2006          2005

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Markup- interest earned:             312,366       129,382

Markup- interest expensed:           256,900        69,641

Net Markup- interest income:          55,466        59,741

Provisions and write offs:             1,650         1,599

Net mark up income (aft. Prov.):      53,816        58,142

Total non-markup income:              30,478         3,943

Income bef. Admn. Exp.:               84,294        62,085

Admin Expenses, etc:                 102,372        54,071

Profit before Taxation:              -18,078         8,014

Current & deferred tax:              -29,755         3,041

Profit after taxation:                11,677         4,973

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Ratios: (6-Month Basis)

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Markup earned/Total Assets:              3.3%         1.6%

Net Markup Income/TA:                    0.6%         0.8%

Net markup (aft. Prov.)/TA:              0.6%         0.7%

Non-Markup Income/TA:                    0.3%         0.0%

Income before AE/TA:                     0.9%         0.8%

Admin Expenses/TA:                       1.1%         0.7%

Profit before Taxation/TA:              -0.2%         0.1%

Profit after taxation/TA:                0.1%         0.1%

Profit after tax/Total Equity:           0.8%         0.3%

EPS- (Period-end paid up)-Rs:           0.08          0.03

Price/Earnings Ratio:             Not Listed             -

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Cash flow Summary (6M)                  2006          2005

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Net Cash flow, Operations:           223,076       180,423

Net Cash flow, Investing:            178,300      -606,784

Net Cash flow, financing:                  0       477,000

Change in Net Liquidity:             401,376        50,639

Net Liquidity at beginning:          233,026        67,380

Net Liquidity at end:                634,402       118,019

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