Desjardins Group Continues to Develop, Reporting Strong Business Growth

First-Quarter Surplus Earnings of $357 Million

LÉVIS, QC, May 13 /CNW Telbec/ -

Highlights

  • Ongoing efforts to energize local communities, in particular by giving back to members and the community, including the provision for member dividends, donations, sponsorships and bursaries - in an amount of $81 million - as well as by supporting local and regional businesses, and by helping various community organizations.
  • Launch of an extensive program to further develop Desjardins Group's educational and cooperative activities through the "Co-opme.D" program.
  • Assets of $184.5 billion, up 3.0% after the first quarter of 2011.
  • Strong growth of close to 11% in net premiums.
  • Investment funds and other securities outstanding increased $2 billion, to $50.5 billion.
  • Quality loan portfolio, with a gross impaired loans ratio of 0.42%, still one of the best in the Canadian banking industry.
  • Tier 1 capital ratio of 17.6% as at March 31, 2011, showing the Group's financial strength.
  • Prestigious COPC (Customer Operation Performance Center) certification, received by the Client Contact Centres for the seventh consecutive year.
  • Acquisition of 94.1% of the outstanding common shares of Western Financial Group on April 15, 2011.
  • Rating outlook for Caisse centrale Desjardins improved from Aa1 negative to Aa1 stable, as announced by Moody's ratings agency on April 7, 2011.

Key financial data

COMBINED RESULTS
    For the three months
ended March 31
(unaudited, in millions of $ or as a %)   2011 2010 Change
Net interest income (1)   $ 967 $ 944   2.4%
Net premiums (1)   $ 1,159 $ 1,047   10.7%
Surplus earnings before member dividends (1)   $ 357 $ 371   (3.8)%
Return on equity (1)     12.0%   14.2%   ---

BALANCE SHEET AND RATIOS
  As at March 31, 2011 As at Dec. 31, 2010
Assets (1) $ 184,462   $ 179,036  
Equity (1) $ 12,267   $ 12,156  
Tier 1 capital ratio (2) 17.6 % 17.7 %
Total capital ratio (2) 19.1 % 18.7 %
Ratio of gross impaired loans/gross loans (1) 0.42 % 0.43 %

(1)  The financial data from 2010 have been adjusted to conform to international financial reporting standards (IFRS).
(2) The regulatory capital ratios for 2011, as required by the Autorité des marchés financiers, are calculated using financial data prepared in accordance with IFRS. The regulatory capital ratios for 2010 were calculated from financial data prepared in accordance with GAAP.

Results for the first quarter of 2011

For the first quarter ended March 31, 2011, Desjardins Group, the leading cooperative financial group in Canada, posted surplus earnings before member dividends of $357 million, compared to $371 million one year earlier, for a 3.8% decrease. Return on equity was 12.0% compared to 14.2% in the same quarter of 2010. The Tier 1 capital ratio was 17.6%, comparable to the ratio as at December 31, 2010. An amount of $81 million was given back to members and the community in the first quarter, including donations, sponsorships and bursaries, as well as a $65 million provision for member dividends, compared to a provision of $76 million for the same period one year earlier.

Given growing business volumes in the caisse network, Desjardins Group made significant investments in information technology and business development. The Group's results for the first quarter of 2011 were primarily due to these investments as well as a higher loss ratio in the Property and Casualty Insurance segment. It should be remembered the first quarter of 2010 was characterized by excellent returns from the market and a particularly low loss ratio for the Property and Casualty Insurance segment.

"Through the commitment of some 6,000 elected officers and our dedicated staff, all across our territory, our caisse network continues to post strong growth, actively contributing to vibrant communities for the benefit of our members and clients," said Monique F. Leroux, Chair of the Board, President and CEO. "Furthermore, and in line with our mission, we launched the Co-opme.D program, to support various educational and cooperation initiatives."

Significantly, since January 1, 2011, Desjardins Group has become the first Canadian banking institution to adopt international financial reporting standards (IFRS) as its accounting framework for the preparation of combined interim and annual financial statements. This conversion has not resulted in any significant changes to the Group's strategic activities. Furthermore, it has had no significant impact on financial results, cash management, risk management or business activities. It should be noted that comparative data from 2010 have been adjusted as a result of changes made to apply IFRS.

Total income

Increase in net interest income and net premiums

Desjardins Group's total income for the first quarter of 2011 was $2,737 million, down $50 million or 1.8% from the first quarter of 2010. Net interest income grew 2.4% to $967 million. This increase was primarily due to loan portfolio growth in the caisse network and at Desjardins Card Services, which was offset by higher interest expense on interest rate swaps designated as part of a hedging relationship. Net premiums grew 10.7% to $1,159 million, largely because of growth in insurance premiums in the Life and Health Insurance segment as well as the Property and Casualty Insurance segment.

Other income declined $185 million, or 23.2%, from the same quarter of 2010, to $611 million. This was primarily due to lower investment income associated with life and health insurance activities. Most of this decline was offset, however, by the change in provisions for insurance related to investment contract liabilities.

Growth in non-interest expense

Non-interest expense totalled $1,406 million, up $81 million or 6.1% over the first quarter of 2010. This change was mainly due to higher salaries and fringe benefits as a result of annual indexing and business development as well as increased investment in information technologies.

The provision for credit losses was $44 million for the first quarter of 2011, representing a $17 million decline from the same period of 2010 due to a general improvement in the quality of the portfolio.

Expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities totalled $821 million, declining $64 million or 7.2% from the corresponding quarter of 2010. This change was due in particular to lower provisions following a decline in the fair value of the related investments.

The productivity index was 73.4% for the first quarter, compared to 69.7% one year earlier. This decline in productivity was due to lower investment income, significant IT investments and business growth. Desjardins Group's productivity index is calculated as non-interest expense to total income, net of expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities.

Quality loan portfolio

The quality of Desjardins Group's loan portfolio remains excellent. As at March 31, 2011, gross impaired loans outstanding stood at $500 million, down $12 million from December 31, 2010. The ratio of gross impaired loans to the total gross loan portfolio was 0.42% at the end of the first quarter, similar to the ratio posted as at December 31, 2010. Desjardins Group continues to have one of the best ratios in the Canadian banking industry.

Assets of $184.5 billion, up 3.0%

As at March 31, 2011, Desjardins Group's total assets were $184.5 billion, up $5.4 billion or 3.0% from December 31, 2010. Securities borrowed or purchased under reverse repurchase agreements grew $3.5 billion or 49.4% as at March 31, 2011, compared to December 31, 2010. The growth in capital market activities for this type of investment was due to an increase in short-term liquidities. This increase in liquidities resulted when deposits grew faster than loans. In fact, members' and clients' demand for credit slowed slightly in the first quarter compared to the last quarter of 2010, particularly among individuals, due to a slowdown in the housing market.

Desjardins Group's loan portfolio, net of the allowance for credit losses, amounted to $119.3 billion for the first quarter of 2011, versus $118.3 billion posted at the end of 2010. Desjardins Group therefore posted $1.0 billion or 0.8% growth in the first quarter of the year. This growth was limited by slower demand for personal loans as a result of less new construction and lower sales of existing homes in Québec.

Housing starts declined 12.2% in the first quarter of 2011 compared to the same period of 2010, while the number of sales transactions slipped 10.9%. As at March 31, 2011, residential mortgages outstanding nevertheless totalled $75.4 billion, up 1.2% or $890 million from the end of 2010. It should be noted that this type of credit represented 62.9% of the entire Desjardins portfolio at the end of the first quarter.

Finally, consumer, credit card and other personal loans declined slightly, by 0.3% or $47 million during the first quarter of 2011, to $17.5 billion as at March 31, 2011, in part due to slower retail sales in Québec in the first three months of the year. Desjardins Group is also very active financing businesses and governments, with outstanding loans to business and government of $26.9 billion as at March 31, 2011, up 0.6% or $153 million since the end of 2010.

Savings recruitment up 1.8%

As at March 31, 2011, Desjardins Group's outstanding deposits stood at $116.7 billion, up 1.8% or $2.0 billion since the end of 2010. Personal savings and deposits from government and business grew 1.4% or $1.5 billion during the same period, to $105.4 billion. This amount represents 90.3% of all the Group's deposits on this date. It should be mentioned that, in contrast to personal savings, deposits from government and business are often more volatile due to the fluctuating nature of the liquidities held by these clients. Moreover, personal savings are by far the main source of funds supporting Desjardins Group's development. Savings from deposit-taking institutions and other sources, such as securities issued on capital markets, grew 5.1% or $548 million during the same period, to $11.3 billion.

Increased off-balance sheet savings

Markets were more volatile in the first quarter of 2011, above all because of a particularly difficult geopolitical situation, including the crises across north-western Africa. However, stock market activity in Canada remained rather steady, with the S&P/TSX index rising 5.0% during the quarter. This favoured the market for off-balance sheet savings products, where Desjardins Group is very active. Combined with the Group's strong sales initiatives, investment funds and other securities outstanding totalled $50.5 billion, up 4.2% or $2.0 billion as at March 31, 2011.

A strong capital base

Desjardins Group is one of the best capitalized financial institutions in Canada: its Tier 1 and total capital ratios, measured under the new regulatory framework (Basel II), were 17.6% and 19.1%, respectively, as at March 31, 2011, compared to 17.7% and 18.7%, respectively, as at December 31, 2010.

Desjardins Group therefore still enjoys excellent capitalization, with a Tier 1 capital ratio above the Group's 15% objective.

As part of its Integrated Capital Management Framework, the Group's Tier 1 capital ratio objective has been maintained at a minimum of 15%, given the global economic environment, the new regulatory requirements of Basel III (in effect January 1, 2013) and the implementation of IFRS.

Funding and capital supply

In order to keep its funding stable and diversified, Desjardins Group, through Caisse centrale Desjardins and Capital Desjardins inc., diversifies its sources of financing in the institutional capital markets.

With this in mind, Caisse centrale Desjardins issued five-year covered bonds in an amount of US$1.0 billion on the U.S. market on March 17, 2011. This has effectively made Desjardins Group the first cooperative financial group in Canada to issue this type of debt on the U.S. market.

In accordance with its mandate and in order to refinance issues of public debt maturing in the first quarter of 2011, on February 8, 2011 Caisse centrale Desjardins successfully issued CA$500 million in three-year floating-rate deposit notes on the Canadian market.

During the first quarter, Caisse centrale Desjardins also took part in the Canada Mortgage and Housing Corporation's securitization program, in an amount of $496 million.

Caisse centrale Desjardins issued a total of $2.0 billion in medium-term debt in the first quarter of 2011 to offset European deposit notes maturing during the same period.

Finally, caisse members also participated in the capitalization of their financial cooperative by purchasing $6 million in permanent shares in the first three months of the year.

Results by business segment

Personal Services and Business and Institutional Services

The Personal Services and Business and Institutional Services segment offers members and clients of Desjardins Group a comprehensive range of standard financial services and products that are mainly distributed by the caisse network. Its products are also available through complementary networks.

For the first quarter of 2011, surplus earnings before member dividends attributable to the Personal Services and Business and Institutional Services segment were $220 million, up $36 million or 19.6% from the same period of 2010.

The segment reported total income of $1,353 million, up $47 million or 3.6% compared to the same period of 2010. These results included an $84 million or 9.9% increase in net interest income. The dynamic caisse network and Desjardins Card Services made a major contribution to this increase through greater loans outstanding. More specifically, residential mortgages outstanding at the end of the first quarter of 2011 had grown $6.6 billion from one year earlier, despite a decline in housing starts and fewer transactions in the resale market since the first quarter of 2011. Finally, consumer, credit card and other personal loans grew $371 million compared to the same period last year. This also contributed to net interest income.

In contrast, other income declined $37 million or 8.1% compared to the same period of 2010. This was in part due to gains on the disposal of investments recognized in 2010 and a reduction in income on service fees charged on member deposits.

As a result of proactive management of the loan portfolio, expenses related to the provision for credit losses declined $17 million or 27.9% from 2010. Similarly, an improvement in the general quality of the portfolio resulted in a smaller allowance for credit losses.

Finally, non-interest expense rose $28 million or 2.8%.

Wealth Management and Life and Health Insurance

The Wealth Management and Life and Health Insurance segment offers members and clients of Desjardins Group a range of advisory services and products tailored to individuals' changing needs for asset management and financial security. These products are distributed by the caisse network and through complementary networks.

For the first quarter of 2011, the Wealth Management and Life and Health Insurance segment posted $63 million in surplus earnings before member dividends, down $2 million or 3.1% from the same period of 2010.

Total income for the segment declined $129 million from the same period of 2010, to $1,025 million. This reduction was primarily due to a $204 million reduction in investment income associated with life and health insurance operations. However, the decline was mostly offset by a change in provisions, included under Claims, benefits, annuities and changes in insurance and investment contract liabilities. The decline in total income was counterbalanced by a $42 million increase in insurance premiums, $23 million growth in annuity premiums and a $20 million increase in other income arising from the growth in assets under management for the distribution of savings products, brokerage services and private management.

Expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities decreased by $125 million as a result of lower provisions following a negative change in the fair value of the related investments. This reduction was partially offset by an increase in disability benefits due to more beneficiaries than in the first quarter of 2010.

Property and Casualty Insurance

The Property and Casualty Insurance segment directly offers a line of automobile and home insurance products to Desjardins members and clients, individuals and businesses alike. In addition to being sold through the caisse network, these products are distributed across Canada by several Client Contact Centres, over the Internet and, for some products, by smartphone.

For the first quarter of 2011, surplus earnings before member dividends for the Property and Casualty Insurance segment declined by $22 million or 34.9% from the same period in 2010, to $41 million. This decline was primarily due to a loss ratio that was less favourable than during the first quarter of 2010, when the segment's loss ratio was particularly low. The loss ratio, which corresponds to claims expenses divided by net premiums earned, was 66.7% in the first quarter of 2011, up 10.8 points over the results for the same period of 2010.

The sector's total income was $425 million, up $42 million or 11.0% from the same period of 2010. This excellent performance was due to the $40 million increase in net premiums as a result of the larger number of policies issued and a higher average premium in some business lines, particularly in property insurance. In fact, gross premiums written grew more than 10% from the same period of 2010 due, in particular, to the benefits from advertising campaigns, a private label partnership agreement with a Canadian financial institution, new partnerships and renewals of group insurance agreements.

"In accordance with the orientation adopted at our 2009 Meeting, we also pursued our expansion strategy by acquiring Western Financial Group," said Ms. Leroux. "This transaction will expand our presence in Western Canada, benefitting in particular our Property and Casualty Insurance subsidiary."

Expenses attributable to claims, benefits, annuities and changes in insurance and investment contract liabilities grew $66 million compared to the same period of 2010 because of a higher loss ratio.

The 8.9% increase in non-interest expense was close to the 11.0% rate of growth in income and will support business growth in the sector.

Other

The "Other" category consists mainly of the treasury activities of Caisse centrale Desjardins and financial intermediation between the caisses' liquidity surpluses and needs. The segment also includes the activities of Capital Desjardins inc., all ABTN securities held by Desjardins Group and various consolidation adjustments. Finally, since January 1, 2011 the "Other" category includes a new entity, "Gestion Technologies Desjardins inc.," which brings together all Desjardins Group's IT-related activities.

For the first quarter of 2011, surplus earnings before member dividends of the "Other" category declined $26 million or 44.1% from the same quarter of 2010, to $33 million. This was primarily due to gains that were realized in 2010 but non-recurring in 2011, as well as results attributable to hedge accounting.

Cooperating in building the future

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  
      Raymond Laurin
Senior Vice-President, Finance,
Treasury and Chief Financial Officer
Desjardins Group  

 

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