Desjardins Group continues to post excellent results, reporting $443 million in surplus earnings in the third quarter and $1,266 million after nine months, up 9.6%

Blending cooperative and financial performance, Desjardins actively pursues development for the benefit of members and clients

Highlights

  • Surplus earnings of $443 million, an amount comparable to the same quarter of last year, and $1,266 million for the first nine months of the year.
  • Giving a total of $90 million back to members and the community, including the provision for member dividends, donations, sponsorships and bursaries.
  • Assets up to almost $200 billion.
  • Quality loan portfolio, with a gross impaired loans ratio of 0.41%.
  • Tier 1 capital ratio of 16.5%.
  • The Federation sold $422 million worth of capital shares during the quarter, for total sales of $713 million as at September 30, 2012.
  • On October 17, Caisse centrale Desjardins launched an $800 million issue of medium-term notes on the Canadian market.
  • Desjardins was one of the hosts for the successful first edition of the International Summit of Cooperatives, held in Quebec City in October 2012, welcoming close to 3,000 participants from 91 countries.
  • Desjardins recognized by Mediacorp Canada Inc. as one of Canada's Top 100 Employers for the second consecutive year.
  • Ranked 16th among the World's 50 Safest Banks by Global Finance, a New York-based magazine.

KEY FINANCIAL DATA

COMBINED INCOME      
(Unaudited, in millions of dollars and as a percentage)      
  Three-month periods
ended September 30
  Nine-month periods
ended September 30
  2012   2011   Change   2012   2011   Change
Net interest income $ 962     $ 968     (0.6) %   $ 2,883     $ 2,914     (1.1) %
Net premiums $ 1,278     $ 1,233     3.6 %   $ 3,801     $ 3,630     4.7 %
Other income $ 979     $ 1,525     (35.8) %   $ 2,737     $ 3,150     (13.1) %
Surplus earnings before member dividends $ 443     $ 445     (0.4) %   $ 1,266     $ 1,155     9.6 %
Return on equity   11.6 %     13.5 %           11.5 %     12.3 %      

FINANCIAL POSITION AND KEY RATIOS      
(Unaudited, in millions of dollars and as a percentage)      
  As at September 30,
2012
    As at December 31,
2011
 
Assets   $ 199,680       $ 190,137  
Equity   $ 15,562       $ 14,027  
Tier 1 capital ratio(1)     16.5 %       17.3 %
Total capital ratio     19.0 %       19.3 %
Gross impaired loans / gross loans ratio     0.41 %       0.41 %
(1)  The decline resulted from the end of the application of the deferred treatment of equity related to investments in insurance subsidiaries, prescribed by the Autorité des marchés financiers and effective in 2012.

 

LÉVIS, QC, Nov. 9, 2012 /CNW Telbec/ - At the end of its third quarter ended September 30, 2012, Desjardins Group posted surplus earnings before member dividends of $443 million, an amount comparable to surplus earnings for the same quarter of 2011.

Desjardins pursues growth for the benefit of its members and clients and, through this strong performance, makes a tangible contribution to the sustainable prosperity of the communities where it is present.

An amount of $90 million was recorded as given back to members and the community. This amount includes donations, sponsorships and bursaries as well as a $73 million provision for member dividends, compared to an amount of $60 million for the same period of 2011.

The caisse network, Desjardins Card Services and the insurance segments continued to post strong business volume growth, allowing Desjardins Group to pursue business development in its various market segments in Quebec and elsewhere in Canada.

"Desjardins Group's financial performance in the third quarter demonstrates once again how the cooperative model can excel in an increasingly competitive market," said Ms. Monique F. Leroux, Chair of the Board, President and Chief Executive Officer. "Our efforts to maintain a high level of capitalization continue to pay off and will be sustained. Not only does this contribute to the long-term viability of our financial group, it also allows us to continue carrying out our investment and growth program."

"I am also very proud of Desjardins Group's contribution as co-host of the recent International Summit of Cooperatives held in Quebec City," continued Ms. Leroux. "The Summit's Quebec Declaration underscores the strength and resilience of cooperatives and the important role they play in our economies. Once it has been presented to the General Assembly of the International Cooperative Alliance, in Manchester, it will be tabled at the United Nations on November 20, 2012."

Results for the third quarter of 2012

Total income for the third quarter came to $3,219 million, a decrease of $507 million or 13.6% from the same period of 2011. This was mainly due to lower investment income, as explained below.

Net interest income for the third quarter declined slightly to $962 million, compared to $968 million for the same period last year. Despite an $8.4 billion, or 6.8%, increase in aggregate outstanding loans over last year, this decrease was mainly due to the low interest rate environment and fierce competition in the mortgage lending market.

Net premiums increased 3.6% to $1,278 million due to business growth in insurance activities. This was mainly due to various growth initiatives in property and casualty insurance across Canada.

Other income stood at $979 million, down $546 million or 35.8% compared to the same quarter of 2011. This was mainly due to lower investment income from life and health insurance activities as a result of changes in interest rates in the bond portfolio. This decline was mostly offset by a decrease in investment contract liabilities included in expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities. The change in other income was also due to fluctuations in the fair value of various investment portfolios and hedging positions, as well as growth in credit card activities and commission income on insurance sales.

The provision for credit losses totalled $50 million for the third quarter of 2012, down $6 million or 10.7% from the same period of 2011.

Expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities stood at $1,235 million, down $515 million or 29.4% from the same period last year. This change was essentially due to a decrease in actuarial provisions in the Wealth Management and Life and Health Insurance segment.

Non-interest expense increased $30 million or 2.3% compared to the third quarter of 2011, to $1,355 million. This increase was mainly due to annual growth in salaries and fringe benefits as well as increased expenses as a direct result of growth in Desjardins Group's business volumes.

The productivity index reached 68.3% in the third quarter compared to 67.1% in the same quarter of 2011. This change was due to reduced income linked to the performance of investments in the third quarter of 2012.

Results for the first nine months of 2012

For the nine-month period ended September 30, 2012, Desjardins Group posted $1,266 million in surplus earnings before member dividends compared to $1,155 million one year earlier, an increase of 9.6%.

In the first nine months of 2012, a total of $249 million was given back to members and the community, including donations, sponsorships and bursaries as well as a $191 million provision for member dividends, compared to a $196 million provision for the same period last year. It should be recalled that an $18 million downward adjustment to the 2011 provision was recognized in the first quarter of 2012.

Total income stood at $9,421 million, down $273 million or 2.8% compared to the first nine months of 2011. Net premiums for the insurance segments grew $171 million or 4.7% to $3,801 million. Net interest income stood at $2,883 million, which was $31 million or 1.1% less than the same period of 2011. Despite a growing loan portfolio, pressure on interest rates generated this slight decline.

Other income came to $2,737 million, down $413 million or 13.1% compared to the same nine months of 2011. This was for the same reasons as those presented for the third quarter.

The provision for credit losses increased $11 million or 6.0% from the same period of 2011, in part as a result of increased loans outstanding in 2012 and recoveries made in the first nine months of 2011.

Expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities came to $3,406 million, down $442 million or 11.5% compared to the same period last year. This was for the same reasons as those presented for the third quarter.

Non-interest expense totalled $4,167 million, for a slight $21 million increase.

Due in part to tight control exercised over non-interest expense, the productivity index improved to 69.3% compared to 70.9% at the end of the same period in 2011.

Quality loan portfolio

The quality of Desjardins Group's loan portfolio remains excellent. Gross impaired loans stood at $536 million at the end of the third quarter, up $16 million from December 31, 2011. The ratio of gross impaired loans to the total gross loan portfolio was 0.41% at the end of the third quarter, or the same as at December 31, 2011. Desjardins Group still has one of the best ratios in Canadian banking.

Assets grew 5.0%, to $199.7 billion

Desjardins Group's total assets grew $9.5 billion, or 5.0%, since December 31, 2011, to $199.7 billion. This sustained growth was mainly due to a surge in demand from individuals for credit and, in particular, for residential mortgage loans.

Desjardins Group performed well in this highly competitive market in the first nine months of the year. Residential mortgage loans outstanding grew $5.0 billion or 6.3% since December 31, 2011, to $84.7 billion as at September 30, 2012. This type of financing represented 64.4% of the portfolio, 34.4% of which was guaranteed by governments and other public and parapublic institutions.

The portfolio of consumer loans, credit card finance and other personal loans stood at $18.3 billion as at September 30, 2012, up $304 million or 1.7% since the end of 2011. Loans to business and government came to $28.5 billion, up $581 million or 2.1% from December 31, 2011.

Growth in savings recruitment

As at September 30, 2012, Desjardins Group's outstanding deposits stood at $130.4 billion, up $7.0 billion or 5.6% since the end of 2011. More specifically, personal savings, which represent 65.0% of the total savings portfolio, grew $2.2 billion or 2.7%, to $84.7 billion.

Savings recruitment also includes deposits made by businesses and government. Deposits in this category totalled $33.7 billion as at September 30, 2012, representing a large $4.7 billion or 16.1% increase since December 31, 2011. Savings from deposit-taking institutions and other sources, such as securities issued on capital markets, grew $104 million or 0.9% since the beginning of the year, to $12.0 billion.

Finally, it is worth noting that in October 2012 Caisse centrale Desjardins issued $800 million in medium-term notes on the Canadian market.

Strong capital base 

Desjardins Group continues to be one of the best capitalized financial institutions in Canada, with Tier 1 and total capital ratios, measured under the Basel II regulatory framework, of 16.5% and 19.0%, respectively, as at September 30, 2012. As at December 31, 2011, these ratios were 17.3% and 19.3%, respectively.

Since the implementation of Basel II, Desjardins Group has applied the deferred treatment prescribed by the Autorité des marchés financiers. Under this treatment, which was in force until the end of fiscal 2011, equity related to investments in the Group's insurance subsidiaries made before January 1, 2007 was fully deducted from Tier 2 capital. Effective 2012, this equity must be deducted in equal shares of 50% from Tier 1 capital and from Tier 2 capital.

Ending application of this deferred treatment trimmed 141 basis points off the Tier 1 capital ratio as at September 30, 2012. However the total capital ratio is unchanged after the end of this deferred treatment.

Finally, on September 30, 2012 the Federation issued $713 million in capital shares as part of its program launched on June 18, 2012 to issue $1.2 billion in capital shares. This shows the confidence of Desjardins Group members in their financial cooperative.

Results by business segment

Personal Services and Business and Institutional Services

The Personal Services and Business and Institutional Services segment offers Desjardins Group's members and clients a comprehensive range of standard financial services and products that are mainly distributed by the caisse network. It also makes its products available through complementary distribution networks and mortgage representatives, by phone, online, via applications for mobile devices, as well as at ATMs.

At the end of the third quarter of 2012, surplus earnings before member dividends attributable to the Personal Services and Business and Institutional Services segment were $237 million, down $30 million or 11.2% from the same period of 2011.

The segment reported total income of $1,325 million, a slight decline from the third quarter of 2011. Net interest income rose slightly due to an increase in residential mortgages and business loans outstanding. On the other hand, the impact was mitigated by the continuing low interest rate environment and strong competition in the residential mortgage market. Other income declined $27 million or 6.3% due to reduced investment income in the third quarter of 2012, offset by growth in credit card activities, which led to an increase in other income.

The provision for credit losses stood at $50 million, down $5 million or 9.1% compared to the same period of 2011.

Non-interest expense increased $24 million or 2.6% compared to the same period of 2011. The change stemmed from growth in salaries and fringe benefits due to business growth and annual indexing and increased expenses resulting directly from growth in operations.

For the first nine months of 2012, surplus earnings attributable to the Personal Services and Business and Institutional Services segment were $627 million, down $70 million or 10.0% from the same period of 2011.

The segment reported total income of $4,002 million, a slight decline from the same period of 2011. This takes into account a $25 million or 0.9% decrease in net interest income. Other income came to $1,262 million, down $22 million or 1.7% compared to the first nine months of 2011.

The provision for credit losses grew $12 million or 6.6% from the same period of 2011. This increase resulted in part from the increase in loans outstanding in 2012 and recoveries made in the first nine months of 2011.

Non-interest expense increased $43 million or 1.5%, for the same reasons as given for the third quarter.

Wealth Management and Life and Health Insurance

The Wealth Management and Life and Health Insurance segment offers a range of services tailored to individuals', groups' and business's changing needs for asset management and financial security. These products and services are distributed to members of the caisse network and clients of complementary distribution networks, but also through financial planners in the caisse network and by phone, online and via applications for mobile devices.

At the end of the third quarter of 2012, the segment's surplus earnings stood at $87 million, up $48 million or 123.1% compared to the same quarter of 2011. This increase was essentially due to life and health insurance activities, which posted better performance in the third quarter of 2012 than in the same quarter of 2011.

Total income for the segment stood at $1,344 million, down $464 million or 25.7%, mainly due to a $497 million decrease in investment income from life and health insurance activities as a result of interest rate changes in the bond portfolio. This decrease was mostly offset by lower investment contract liabilities included in expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities. In addition, net insurance premiums grew $33 million, which was offset by a $21 million reduction in net annuity premiums. Growth in average assets under management from the distribution of various products also contributed to the growth in other income.

Expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities came to $851 million, down $521 million or 38.0% compared to the same quarter of 2011. This change was essentially due to a $532 million decrease in actuarial provisions included under "Insurance and investment contract liabilities," including changes in the fair value of investments. This decrease was offset by an unfavourable experience in group insurance.

Non-interest expenses increased $9 million or 2.4% to $384 million in the third quarter of 2012.

At the end of the first nine months of 2012, the segment's surplus earnings stood at $197 million, up $22 million or 12.6% compared to the same period of 2011.

Total income for the segment stood at $3,835 million, down $421 million or 9.9%, mainly due to a $510 million decrease in investment income from life and health insurance activities as a result of interest rate changes in the bond portfolio. This decrease was mostly offset by lower investment contract liabilities included in expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities. In addition, net insurance premiums grew $98 million, while net annuity premiums decreased $64 million compared to the same period of 2011. Finally, growth in average assets under management from the distribution of various products contributed to the growth in other income.

Expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities declined $474 million or 16.5% compared to the first nine months of 2011. This change was mainly due to a $491 million decline in actuarial provisions included under "Insurance and investment contract liabilities," including changes in the fair value of investments. This decrease was offset by an unfavourable experience in group insurance.

Non-interest expense increased $31 million or 2.7% to $1,186 million at the end of the first nine months of 2012.

Property and Casualty Insurance

The Property and Casualty Insurance segment directly offers a line of automobile and home insurance products to the public, members of partner groups and businesses. In addition to being sold through the caisse network, these products are distributed across Canada through several Client Contact Centres, over the Internet, via applications for mobile devices and by a large financial services and insurance product network that is one aspect of the operations of Western Financial Group Inc.

The segment's surplus earnings for the third quarter were $25 million, down $13 million or 34.2% compared to 2011, mainly due to a decrease in other income.

Total income for the segment stood at $581 million for the third quarter of 2012, an increase of $10 million or 1.8% compared to the same period of 2011. This performance was due to a $39 million increase in net premiums as a result of growth in the number of policies issued. Other income fell $28 million, due in part to decreased investment income.

Expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities increased $8 million or 2.1% compared to 2011. The change was mainly due to growth in the portfolio of automobile insurance policies in Ontario, which was largely offset by an improved claims experience. The loss ratio was 76.2% for the third quarter of 2012, down 4.7 basis points compared to the same period of 2011. This was mainly due to a reduction in claims due to more favourable weather conditions and an increase in the average earned premium compared to the same period of 2011.

Non-interest expense increased $20 million or 14.2%, mainly due to $12.0 million growth in the activities of Western Financial Group Inc. and increased computer and advertising expenses incurred to support business growth.

This sector's surplus earnings for the first nine months of 2012 were $142 million, up $40 million or 39.2% compared to the same period of 2011, mainly due to a more favourable claims experience.

The segment's total income came to $1,682 million, an increase of $181 million or 12.1% compared to the same period of 2011. This performance was due to the same reasons as given for the quarter, plus the increase in the commission income of Western Financial Group Inc. and greater gains realized on disposals of investments in the first quarter.

Expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities increased $39 million compared to the same period of 2011, for the same reasons as given for the quarter.

Non-interest expense increased $99 million or 25.9%, mainly due to the consolidation of Western Financial Group Inc. in an amount of $71 million, increased salaries and fringe benefits and higher computer expenses to support business growth.

Other

The "Other" category comprises financial information that is not specific to any one business segment. It consists mainly of treasury activities related to the operations of Caisse centrale Desjardins and financial intermediation between the caisses' liquidity surpluses and needs. The segment also includes the Federation's support functions, the activities of Capital Desjardins inc., those of the Fonds de sécurité Desjardins, and operating results related to the asset-backed term notes (ABTN) held by Desjardins Group. It also includes Desjardins Technology Group, which brings together all Desjardins Group's IT-related activities. This category captures various consolidation adjustments as well as eliminations of inter-segment balances.

At the end of the third quarter of 2012, the Other category posted $94 million in surplus earnings. They were mainly due to the $43 million positive change in the fair value of the ABTN portfolio, net of hedging positions, treasury activities and surplus earnings from investments made by Fonds de sécurité Desjardins.

At the end of the first nine months of 2012, the Other category posted $300 million in surplus earnings. They were mainly due to the $122 million positive change in the fair value of the ABTN portfolio, net of hedging positions, treasury activities, and lower provisions on the investment portfolio.

Cooperating in building the future

Ranked 16th among the World's 50 Safest Banks 2012 by Global Finance magazine and named Top Corporate Citizen in Canada by Corporate Knights magazine, Desjardins Group, the leading cooperative financial group in Canada, inspires trust around the world through the commitment of its people, its financial strength and its contribution to sustainable prosperity. Desjardins Group's mission is to contribute to improving economic and social well-being of people and communities. For more information, visit: www.desjardins.com.

SOURCE: DESJARDINS GROUP

For further information:

(for journalists only)

André Chapleau
Director, Media Relations
Desjardins Group
514-281-7229 - 1-866-866-7000, ext. 7229
media@desjardins.com
  
Daniel Dupuis, CPA, CA
Senior Vice-President, Finance and Chief Financial Officer
Desjardins Group