Desjardins Group posts strong performance, ending the third quarter of 2011 with $445 million in surplus earnings

Total income was up 16%, assets grew 6% and the capitalization ratio remains one of the best in Canada

LÉVIS, QC, Nov. 10, 2011 /CNW Telbec/ - Highlights

  • Ranked 20th among the World's 50 Safest Banks 2011 by Global Finance, a New York-based magazine (ranked 25th in 2010).
  • Desjardins named by Mediacorp Canada Inc. as one of Canada's Top 100 Employers.
  • Disnat, a subsidiary of Desjardins Securities, ranked highest among Canadian discount brokers by J.D. Power and Associates for investor satisfaction.
  • Surplus earnings of $445 million for the third quarter of 2011, up 3.0% from same period in 2010.
  • Giving a total of $77 million back to members and the community, including the provision for member dividends, donations, sponsorships and bursaries.
  • Supporting local and regional businesses as well as various community organizations, a demonstration of the caisses' ongoing participation to the vitality of local communities.
  • Total income up 16.0% and a 6.0% increase in assets since the beginning of the year, due to a $4.4 billion increase in the loan portfolio.
  • Tier 1 capital ratio of 17.0% as at September 30, 2011, demonstrating the institution's financial strength.
  • Implementation of an international securities issuance program at Capital Desjardins, which will give the Group access to American and European markets.
  • Signing of a cooperation agreement with Crédit Mutuel, a first-rate credit union in France, in order to continue carrying out various innovative business initiatives for the benefit of members of both groups.
  • Acquisition of the credit card portfolio of the Canadian network of Staples/Bureau en Gros stores.

Key Financial Data

COMBINED RESULTS
   For the three months
ended September 30
  For the nine months
ended September 30
(unaudited,
in millions of $ and as a %)
2011 2010 Change   2011 2010 Change
Net interest income(1) $ 968 $ 999 (3.1)%   $ 2,914 $ 2,910 0.1%
Net premiums(1) $ 1,233 $ 1,079 14.3%   $ 3,630 $ 3,179 14.2%
Surplus earnings before member dividends(1) $ 445 $ 432 3.0%   $ 1,155 $ 1,215 (4.9)%
Return on equity(1)   13.5%   14.6%     12.3%   14.6%

FINANCIAL POSITION AND KEY RATIOS
  As at Sept. 30, 2011   As at Dec. 31, 2010
Assets(1) $ 189 767   $ 179 036 
Equity(1) $  13 690    $ 12 156
Tier 1 capital ratio(2) 17.0%    17.7% 
Total capital ratio(2) 18.3%    18.7%
Gross impaired loans/gross loans ratio(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 third quarter of 2011

For the third quarter ended September 30, 2011, Desjardins Group (www.desjardins.com), the leading cooperative financial group in Canada, posted surplus earnings before member dividends of $445 million, compared to $432 million one year earlier, a 3.0% increase. Return on equity was 13.5% compared to 14.6% in the same quarter of 2010. An amount of $77 million was returned to members and the community, compared to $83 million in the same quarter of 2010; this includes donations, sponsorships and bursaries, as well as a $60 million provision for member dividends, which was similar to the amount posted one year earlier.

The caisse network, Desjardins Card Services and the insurance subsidiaries continued to record solid growth in business volume, allowing Desjardins Group to pursue its development in various market segments. The third quarter was also characterized by a higher loss ratio than in the same quarter of 2010, particularly in the property and casualty insurance segment..

"These results reflect concerted effort made in our caisses as well as in or active business sectors across the country," said Monique F. Leroux, Chair of the Board, President and CEO. "Despite the uncertainties in the economy, Desjardins posts solid growth in revenues and assets while preserving a level of capitalization that remains one of the best in the Canadian finance industry. The implementation of the Co-opme Program at the start of the year demonstrates the importance the Group places in financial education and in increasing cooperation within the community. I am very proud of the many initiatives which have taken place in the last months."

Higher total income

Desjardins Group's total income for the third quarter of 2011 was $3,726 million, up $513 million or 16.0% from the third quarter of 2010. This business growth was based in particular on the signing of new contracts and an increase in the number of policies in both the Life and Health Insurance and the Property and Casualty Insurance segments, which allowed premiums to grow 14.3%, to $1,233 million. Despite a 5.0% increase in loans outstanding over the year, low interest rates resulted in a 3.1% decline in net interest income in the third quarter, to $968 million.

Other income stood at $1,525 million, up $390 million or 34.4% compared to the same quarter of 2010, mainly due to an increase in investment income associated with life and health insurance activities that was offset by higher insurance provisions included in expenses. The increase was also due to other income reported by Western Financial Group, which was acquired in the second quarter of 2011, and by growth in credit card business.

Non-interest expense grew $55 million to $1,325 million, up 4.3% compared to the third quarter of 2010, mainly as a result of integrating the activities of Western Financial Group Inc. and investments related to transforming information technologies. The rest was mostly due to higher salaries and fringe benefits as a result of annual indexing.

Expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities totalled $1,750 million, up $440 million or 33.6% from the same period in 2010. This change was due in particular to the increase in insurance contract liabilities as a result of business growth, the increase in the fair value of investments that back these liabilities, and the deterioration in the loss ratio attributable to Hurricane Irene and to automobile insurance outside Québec.

The productivity index - calculated as non-interest expense to total income, net of expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities - was 67.1% at the end of the third quarter. This compares to 66.7% one year earlier.

Results for the first nine months of 2011

For the nine-month period ended September 30, 2011, Desjardins Group posts surplus earnings before member dividends of $1,155 million compared to $1,215 million one year earlier, down 4.9%.

Return on equity was 12.3%, compared to 14.6% for the same period of 2010. The Tier 1 capital ratio was 17.0%, compared to 17.7% as at December 31, 2010.

An amount of $252 million was returned to members and the community, including donations, sponsorships and bursaries as well as a $196 million provision for member dividends. This compares to $213 million in the same period of 2010.

Higher total income

Desjardins Group's total income for the first nine months of 2011 was $9,694 million, up $785 million or 8.8% from the same period of 2010. Net interest income was $2,914 million after nine months, relatively unchanged, while net premiums increased $451 million to $3,630 million. Other income grew $330 million or 11.7 % to $3,150 million compared to the same period of 2010.

Non-interest expense totalled $4,146 million, up $239 million or 6.1%, mainly due to amounts invested to transform information technologies and integrate the activities of Western Financial Group as well as higher salaries and fringe benefits as a result of annual indexing. The provision for credit losses was $183 million, up $22 million.

Expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities were $3,848 million, up $619 million or 19.2%, largely due to business growth, higher provisions related to an increase in the fair value of the investments that back these expenses, and the deterioration of the loss ratio in property and casualty insurance.

The productivity index was 70.9% at the end of the first nine months of 2011, compared to 68.8% for the same period of 2010. Excluding investments of $63 million made in the first nine months of 2011 to transform information technologies, the productivity index would have been 69.8%.

Quality loan portfolio

The quality of Desjardins Group's loan portfolio remains excellent. As at September 30, 2011, gross impaired loans outstanding stood at $522 million, up $10 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 third quarter, an improvement over the ratio of 0.43% posted on December 31, 2010. Desjardins Group continues to have one of the best ratios in the Canadian banking industry.

Assets of $189.8 billion, up 6.0%

As at September 30, 2011, Desjardins Group's total assets were $189.8 billion, up $10.7 billion or 6.0% since December 31, 2010. Sustained growth in the loan portfolio and securities outstanding over the same period explain 65.3% of the growth observed since the beginning of 2011. This performance was also due to Desjardins Securities' increased receivables from clients, brokers and financial institutions and an increase in the fair value of derivative financial instruments.

At the end of the third quarter of 2011, cash and deposits with financial institutions as well as securities stood at $41.5 billion, compared to $39.0 billion at the end of 2010, an increase of $2.5 billion or 6.4%. Desjardins Group's loan portfolio, net of the allowance for credit losses, totalled $122.6 billion, up $4.4 billion or 3.7% since December 31, 2010. As in the preceding quarters, most of this growth was due to residential mortgages granted by the caisses, which accounted for 87.3% of the increase. Residential mortgage loans represented 63.6% of the portfolio at the end of the third quarter of 2011.

Despite a less favourable housing market in Québec, Desjardins Group remains the market leader in residential finance. Desjardins Group's residential mortgage portfolio stood at $78.3 billion as at September 30, 2011, up $3.8 billion or 5.1% since the end of 2010.

In the market for consumer loans, credit card finance and other personal loans, Desjardins Group's funds outstanding had grown $404 million or 2.3% since the end of 2010, to $17.9 billion as at September 30, 2011. The Group is also active in the market for loans to businesses and governments. Outstanding loans in this category grew $154 million or 0.6% over the same period, to $26.9 billion at the end of the third quarter.

Growth in savings recruitment

As at September 30, 2011, Desjardins Group's outstanding deposits totalled $121.6 billion, up $6.9 billion or 6.0% since the end of 2010. It should be mentioned that personal savings, which represents the Group's main source of financing, grew $2.4 billion or 3.1%, to $81.2 billion.

Desjardins Group is also very active in savings recruitment from businesses and governments. As at September 30, 2011, outstanding deposits from businesses and governments stood at $28.9 billion, a leap of $3.7 billion or 14.9% since December 31, 2010. Savings from deposit-taking institutions and other sources, such as securities issued on capital markets, grew $771 million or 7.2% over the same period, to $11.5 billion.

The difficult economic environment, particularly in Europe and the U.S., and a setback in Canadian stock markets had an impact on the market for off-balance sheet savings. As a result, Desjardins Group's assets under administration or management for its investment funds and securities declined $1.2 billion or 2.5% since December 31, 2010, to $46.3 billion as at September 30, 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 17.0% and 18.3%, respectively, as at September 30, 2011. As at December 31, 2010, these ratios were 17.7% and 18.7%, respectively. Desjardins Group therefore still enjoys excellent capitalization, with a Tier I capital ratio above its 15% objective.

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 markets. It therefore regularly conducts transactions on the Canadian money market and American and European money markets when conditions are favourable. Furthermore, from time to time the Group makes public and private issues of term notes and subordinated debt on the Canadian, American and European markets. This allows the Group to have sufficient reserves to meet the capital needs of the caisse network and subsidiaries.

Caisse centrale Desjardins issued a total of $1.5 billion in medium-term debt since the beginning of 2011 to offset $2.1 billion in deposit notes maturing in the same period. In addition, Caisse centrale Desjardins continued to take part in Canada Mortgage and Housing Corporation's securitization program in a total amount of $1.1 billion for the first three quarters of 2011.

Finally, it should also be noted that Desjardins Group holds very little sovereign debt from countries besides Canada and the United States.

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 third quarter of 2011, surplus earnings before member dividends attributable to the Personal Services and Business and Institutional Services segment were $267 million, down $16 million or 5.7% from the same period of 2010.

The segment reported total income of $1,348 million, up $16 million or 1.2%. Net interest income declined $23 million or 2.4%, in particular due to low interest rates and despite an increase in outstanding loans during the quarter in the Personal Services and Business and Institutional Services segment. Other income increased $39 million or 10.0%, mainly due to the caisses reporting higher sales of Desjardins products manufactured by subsidiaries and business growth in credit card activities.

Finally, non-interest expense for the quarter increased $42 million or 4.7%, to $936 million. This change was the result of investments in information technologies and higher salaries and fringe benefits as a result of annual indexing.

For the first nine months of 2011, surplus earnings before member dividends attributable to the Personal Services and Business and Institutional Services segment were $697 million, a level comparable to the same period of 2010.

Total income for the segment grew $90 million or 2.3%, to $4,049 million. These results include a $48 million or 1.8% increase in net interest income. The caisse network contributed to this growth with a $6.8 billion increase in outstanding residential mortgage loans compared to the same period of 2010. In addition, an increase in consumer spending favoured credit card and point-of-sale financing activities.

Other income grew $42 million or 3.4%, primarily due to increased sales by the caisse network of Desjardins products manufactured by subsidiaries and growth in credit card business.

The provision for credit losses rose $21 million or 13.0% compared to the same period of 2010. This change was mainly due to an increase in loans outstanding related to credit card financing and reversals of provisions as a result of favourable economic conditions and the collections made on some non-productive loans recognized in the third quarter of 2010.

Non-interest expense rose $68 million or 2.4% compared to the same period of 2010.

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 third quarter of 2011, the Wealth Management and Life and Health Insurance segment posted surplus earnings before member dividends of $39 million, down $38 million or 49.4% from the same period of 2010. This was essentially due to the economic situation.

Total income for the segment grew $361 million or 24.9% from the same period of 2010, to $1,808 million. This growth was mainly the result of a $283 million increase in other income, which was largely due to a $265 million increase in investment income from life and health insurance activities. Moreover, net premiums rose $79 million, in part due to the signing of new group insurance contracts. On the other hand, other income also rose due to growth in assets under management from the distribution of savings products, in brokerage services and in private management.

Expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities increased $360 million. This growth was due to a $335 million increase in changes in insurance and investment contract liabilities, including an increase in the fair value of investments, and a $24 million increase in benefits paid.

Non-interest expense increased $43 million or 13.0%, due essentially to growth in commissions on the sale of savings products, remuneration paid to the caisses and increased salaries and fringe benefits resulting from business growth and annual indexing.

Surplus earnings before member dividends for the Wealth Management and Life and Health Insurance segment for the first nine months of 2011 were $175 million. This represents a decline of $30 million or 14.6% compared to the same period of 2010. These results were essentially due to the economic situation.

The segment's total income for the first nine months was $4,256 million, $443 million or 11.6% more than the same period of 2010. This increase was mainly due to a $158 million increase in net insurance premiums and a $118 million increase in net annuity premiums. Moreover, a $108 million increase in investment income associated with life and health insurance activities was partly offset by an increase in actuarial liabilities included in expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities. Finally, other income also benefitted from growth in assets under management from the distribution of various savings products.

Expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities grew $398 million or 16.1% compared to the first nine months of 2010. The change was due to a $243 million increase included under "Insurance and investment liabilities," including a decline in the fair value of investments, and $149 million in benefits and annuities.

Non-interest expense increased by $94 million or 8.9% in the first nine months of the year for the same reasons as those presented for the third quarter.

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. Since April 15, 2011, this segment includes the activities of Western Financial Group Inc.

For the third quarter of 2011, surplus earnings before member dividends for the Property and Casualty Insurance segment rose $17 million or 81.0% from the same period in 2010, to $38 million. This increase was due in part to an increase in other income, despite a higher loss ratio in the third quarter of 2011 compared to the same period of 2010.

The segment's total income was $571 million, up $147 million or 34.7% from the same period of 2010. This performance was due to a $79 million increase in net premiums, mainly due to the acquisition of Western Financial Group Inc., and a larger number of policies issued due to the benefits of advertising campaigns, a private label partnership agreement with a Canadian financial institution, new partnerships, renewals of group insurance agreements and higher average premiums in some business lines. Excluding the activities of Western Financial Group Inc., during the quarter the segment broke through the ceiling of 2 million in-force policies. Other income rose $65 million, in particular due to the disposal of an investment and the acquisition of Western Financial Group Inc.

Expenses attributable to claims, benefits, annuities and changes in insurance liabilities grew $79 million from the same period of 2010. This figure includes $16 million attributable to adding the activities of Western Financial Group Inc. The loss ratio (expenses related to claims divided by net premiums) for the third quarter was 80.9%, 3.9 points higher than it was one year earlier. This change was due in part to Hurricane Irene, which mainly affected Québec and the Maritime Provinces. The automobile claims experience in Ontario related to coverage of bodily injury remains high.

The $47 million increase in non-interest expense was essentially due to the integration of $37 million of activities of Western Financial Group Inc., as well as increased investment to support business growth in the segment.

Surplus earnings before member dividends for the segment were $102 million for the first three quarters of 2011, down $15 million or 12.8% from the same period of 2010. This decline was primarily due to a less favourable claims experience compared to the first nine months of 2010.

For the same reasons as those given for the third quarter, the segment reported $1,501 million in total income for the first nine months of 2011, up $301 million or 25.1% from the same period of 2010.

Expenses attributable to claims, benefits, annuities and changes in insurance liabilities grew $221 million from the same period of 2010, for the same reasons as those presented for the third quarter.

Non-interest expense grew $106 million or 38.4%, primarily as a result of integrating the activities of Western Financial Group Inc. in an amount of $73 million.

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 asset-backed term notes (ABTN) held by Desjardins Group and various consolidation adjustments and eliminations of inter-segment balances. Finally, since January 1, 2011 the "Other" category includes a new entity, "Groupe Technologies Desjardins inc.", which brings together all Desjardins Group's IT-related activities.

For the third quarter of 2011, $101 million in surplus earnings before member dividends of the "Other" category were primarily attributable to treasury activities and the net favourable impact of changes in the fair value of derivatives associated with hedging activities.

For the first three quarters of 2011, the "Other" category posted $181 million in surplus earnings before member dividends, for the same reasons as those presented for the third quarter.

Cooperating in building the future

Ranked 20th among the World's 50 Safest Banks 2011 by Global Finance 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

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

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