2008 second quarter results - Desjardins Group announces surplus earnings of $338 million for the second quarter



    The caisse network continues to turn in a solid performance

    
    Financial highlights

    Surplus earnings before member dividends of $338 million at the end of
    the second quarter of 2008, up 7.3% over the corresponding quarter of
    2007.
    Profitability up 29% for the caisse network in the second quarter of
    2008.
    Tier I capital ratio still among the best in the industry.
    Assets of $151.9 billion, an increase of 6.3%.

    -------------------------------------------------------------------------
                For the three months             For the six months
                   ended June 30                   ended June 30
    -------------------------------------------------------------------------
                2008          2007 Change         2008          2007  Change
    -------------------------------------------------------------------------
    Surplus
     earnings
     before
     member
     divi-
     dends
        $338 million  $315 million  7.3%  $405 million  $580 million  (30.2%)
    -------------------------------------------------------------------------
    Surplus
     earnings
     before
     member
     dividends
     excluding
     ABCP
     impact
        $333 million  $315 million  5.7%  $560 million  $580 million  (3.4%)
    -------------------------------------------------------------------------
    Return
     on
     equity    14.3%         14.3%    -           8.7%         13.4%      -
    -------------------------------------------------------------------------


    Other financial data:
    ---------------------------------------
    Assets
      $151.9 billion  $143.0 billion  6.3%
    ---------------------------------------
    Equity
        $9.6 billion    $8.9 billion  8.0%
    ---------------------------------------
    Tier I
     capital
     ratio    13.98%          14.44%    -
    ---------------------------------------
    Growth
     in
     total
     loans      8.2%            7.3%    -
    ---------------------------------------
    Growth
     in
     total
     deposits   9.5%            7.1%    -
    ---------------------------------------
    

    2008 second quarter results

    LEVIS, QC, Aug. 15 /CNW Telbec/ - For the second quarter ended June 30,
2008, Desjardins Group, the largest integrated cooperative financial group in
Canada, announced surplus earnings before member dividends of $338 million, up
$23 million or 7.3% compared to the same quarter in 2007. Return on equity was
14.3%, as in the second quarter of 2007.
    It is important to emphasize the performance of the Personal and
Commercial segment and more particularly that of the caisse network, which
recorded strong growth in profitability with surplus earnings of $179 million,
an increase of about 29% compared to $139 million in the second quarter of
2007.
    Combined surplus earnings for the second quarter include a $22 million
appreciation ($15 million after income taxes) arising from the valuation of
the ABCP portfolio and more specifically the impact of the restructuring of
securities held in certain trusts not part of the Montréal Accord.
    The overall profitability of the Group was affected by a decline in
results at its general insurance subsidiary in the second quarter of 2008
compared to the same quarter a year earlier. This subsidiary recorded higher
loss experience in home insurance due to poor weather conditions, which
impacted it very negatively during the first two quarters of 2008, as it did
the industry as a whole.
    Moreover, the life and health insurance subsidiary's financial
performance shows a slight decline in the second quarter of 2008, mainly
because of deteriorating claims experience compared to the corresponding
quarter of 2007, which had been particularly good.
    The provision for member dividends recorded in the second quarter of 2008
amounted to $172 million, compared to $177 million a year ago.
    "If you exclude factors related to economic conditions that are beyond
our control, our results show a continuing improvement in the financial
performance of Desjardins Group and the key role played in this by the
caisses," said Monique F. Leroux, Chair of the Board, President and CEO of
Desjardins Group.
    As for income, net interest income amounted to $858 million, an increase
of $43 million or 5.3% compared to the same quarter of 2007, mainly due to
higher business volume. Net premiums grew by $48 million or 5.1% chiefly
because of brisk growth in insurance premiums, both in life and health
insurance and general insurance, which increased overall by $72 million or
7.9%, while annuity premiums dropped by around 30%. Other income was up as a
result of increased investment income at the life and health insurance
subsidiary as the result of a change in the fair value of investments, with an
equivalent amount affecting claims, benefits, annuities and changes in the
subsidiary's insurance provisions. Other income also benefited from the
$22 million appreciation arising from the impact of the ABCP portfolio
valuation referred to above, as well as the $14 million increase in revenue
from securitization activities.
    Income from brokerage, investment fund and trust services, however,
declined by $35 million or 19.1% mainly because of the difficult conditions on
capital markets.
    Overall, Desjardins Group's total income was $2,442 million for the
second quarter of 2008, an increase of $232 million or 10.5% over the
corresponding quarter of 2007.
    Provisions for credit losses totalled $46 million, a level similar to
that for the second quarter of 2007. Desjardins continues to enjoy a
high-quality loan portfolio with a ratio of gross impaired loans to the gross
loan portfolio of 0.39%.
    Expenses related to claims, benefits, annuities and changes in insurance
provisions amounted to $777 million for the three months ended June 30, 2008,
representing an increase of $234 million or 43.1% compared to the same quarter
a year earlier. A large part of this increase was due to an equivalent
increase in the life and health insurance subsidiary's investment income, as
previously mentioned.
    Non-interest expense amounted to $1,166 million for the second quarter of
2008, unchanged from the corresponding quarter of 2007, reflecting good
control of operating expenses.

    Capital markets and ABCP

    Although it did not issue this type of financial product to its clients,
Desjardins Group has investments in the Canadian market for non-bank
asset-backed commercial paper (ABCP) subject to the restructuring plan of the
Montréal Accord. At the beginning of the crisis in 2007, to safeguard its
members and clients, Desjardins Group purchased ABCP assets in the money
market investment funds managed by it and in the securities lending operations
of Desjardins Trust clients for which it had not originally assumed the risk.
It also holds investments on the Canadian market for non-bank asset-backed
commercial paper excluded from the restructuring plan and investments in
Canadian bank-sponsored asset-backed commercial paper, including certain
vehicles that experienced distress in early 2008.
    On April 25, 2008, approximately 96% of ABCP noteholders voted in favour
of the restructuring plan and, on June 5, 2008, the Ontario Superior Court of
Justice approved the restructuring plan. A group of investors then appealed
the decision. The Court of Appeal for Ontario has not yet rendered its
decision.
    On June 30, 2008, Desjardins Group updated the assessment of the fair
value of its ABCP holdings. Given the restructuring of certain trusts and the
slight improvement in market conditions, the fair value of the ABCP portfolio
covered by the Montréal Accord rose from $1.300 billion to $1.345 billion as
at June 30, 2008. A $7 million appreciation was recorded in net income. The
balance of $38 million was posted to the Combined Statements of Comprehensive
Income according to accounting standards in force. In addition, a $15 million
recovery was recorded in net income related to restructured trusts during the
second quarter.

    Results for the first six months of 2008

    For the six months ended June 30, 2008, Desjardins Group had combined
surplus earnings before member dividends of $405 million compared to $580
million for the corresponding period of 2007. Return on equity was 8.7% versus
13.4% a year earlier. It is important to note the solid profitability of the
caisse network, whose surplus earnings totalled $358 million in the first half
of 2008, up 28% over the same period last year.
    Despite the good financial performance shown by Desjardins Group in the
second quarter, financial results for the first half of 2008 were down,
particularly because of the ABCP write-down of $220 million ($150 million
after income taxes) recorded during the first quarter. Taking into account the
appreciation of $22 million ($15 million after income taxes) recorded in the
second quarter of 2008, the decline in value of the ABCP securities recorded
in net income for the first half of 2008 was $198 million ($135 million after
income taxes). Most of this sum was attributed to Personal and Commercial
segment results. Moreover, since the purchase of the ABCP securities on
Desjardins Group's balance sheet, financing costs and the opportunity cost in
terms of the accrued interest on these securities resulted in an additional
negative impact amounting to approximately $20 million after income taxes on
combined surplus earnings for the six months. Had it not been for the ABCP
impact, Desjardins Group's combined surplus earnings before member dividends
would have been around $560 million and return on equity, 11.6%.
    The profitability of the Personal and Commercial segment during the first
six months of 2008 was also reduced by other factors including an $8 million
decrease in income arising from the change in the fair value of derivatives,
the ineffective portion in hedge accounting, and a $25 million write-off of
deferred charges recorded in the first quarter of 2008.
    The profitability of the insurance subsidiaries decreased in the first
half of 2008. The decline in financial results at the general insurance
subsidiary is largely due to higher loss experience in home insurance because
of poor weather conditions since the beginning of the year, which severely
affected the industry as a whole. The subsidiary also saw its investment
income decrease due to the sharp decline on markets.
    The decline in the life and health insurance subsidiary's results at the
end of the first half of 2008 was due to the ABCP write-down recorded in the
first quarter of 2008 and deteriorating experience during the first
six months. However, experience had been particularly favourable in 2007.
    Moreover, securities operations have been affected by the unfavourable
conditions on capital markets since the beginning of the year. The
profitability of investment funds managed by the venture capital subsidiary
was reduced by the drop in the fair value of certain investments in public
companies because of changes in their market price.
    Every quarter, Desjardins Group must establish the most accurate possible
estimate of the amount that will be recorded for payment of member dividends
at the end of the fiscal year. For the first half of 2008, the provision for
member dividends totalled $294 million compared to $288 million a year
earlier.
    Desjardins is one of the best capitalized financial institutions in
Canada; its Tier I capital ratio was 13.98% as at June 30, 2008, compared to
14.44% a year ago, which exceeds its own minimum target capitalization and is
one of the best in the industry. The total capital ratio was 13.17% compared
to 13.41% as at June 30, 2007. Caisse centrale Desjardins continues to enjoy
high credit ratings from Standard & Poor's (AA-) and Moody's (Aa1), reflecting
the financial soundness of Desjardins Group and its caisse network.
    "Despite particularly difficult market conditions and the financial
crisis under way since summer 2007, Desjardins Group maintains a financial
soundness that gives it the ability to cope with disruptions on capital
markets, while being able to reassure its members and clients and pursue its
long-term development," said Ms. Leroux.
    As for income, growth in business volume led to an increase of
$70 million or 4.4% in net interest income. Net premiums were up by
$135 million or 7.3%, an increase attributable to insurance premiums, which
grew by $146 million or 8.1% after six months, while annuity premiums showed a
slight decrease. Other income benefited from an increase of $16 million or
8.8% in lending fees and credit card revenues and an increase of $36 million
in revenue from securitization activities. However, these increases affecting
total income for the first half of the year were reduced by a $180 million
decrease in investment income, in large part due to the decline in value
related to ABCP, and a $52 million or 14.6% drop in income from brokerage,
investment fund and trust services associated with the unfavourable market
situation.
    Overall, Desjardins Group's total income was $4,614 million at the end of
the first half of 2008, a slight increase of 0.9% compared to $4,574 million
for the same period of 2007.
    Provisions for credit losses charged to income for the first half of 2008
amounted to $90 million compared to $85 million a year earlier. The quality of
Desjardins' loan portfolio remains excellent.
    Expenses related to claims, benefits, annuities and changes in insurance
provisions stood at $1,600 million for the first half of 2008, an increase of
$267 million or 20.0% compared to a year earlier for the same reasons as those
listed in the analysis of quarterly results.
    Non-interest expense amounted to $2,378 million for the six months ended
June 30, 2008 for an increase limited to 1.9% over the first half of 2007,
reflecting good control of operating expenses by the caisse network and all
components of Desjardins Group.
    The productivity ratio is determined by calculating the ratio of
Desjardins Group's non-interest expense to total income, less claims and
insurance benefits. It takes into account the write-down of ABCP securities
recorded against investment income for the first half of 2008. The
productivity ratio was 78.9% for the first six months of 2008, compared to
72.0% for the same period a year earlier. Excluding the ABCP impact on the
first half of 2008, the productivity ratio would be 73.5%.
    Finally, Desjardins Group's total assets amounted to $151.9 billion as at
June 30, 2008, compared with $143.0 billion a year earlier, representing an
increase of $8.9 billion or 6.3%.

    Results by business segment

    Personal and Commercial

    This segment primarily consists of the caisse network, the Fédération des
    caisses Desjardins du Québec, Caisse centrale Desjardins, the Fonds de
    sécurité Desjardins, Capital Desjardins inc., Desjardins Trust and the
    Ontario federation and caisses.

    For the second quarter of 2008, surplus earnings before member dividends
in the Personal and Commercial segment were $269 million, an increase of
$62 million or 30.0% over the corresponding quarter last year. The excellent
financial performance of the caisse network contributed to this increase.
    For the first half of 2008, surplus earnings before member dividends for
the segment dropped from $396 million for the first six months of 2007 to $304
million for the same period of 2008. This decrease resulted from the
write-down of $179 million ($122 million after income taxes) in ABCP
securities recorded during the first six months of the year, and from the
opportunity cost of about $20 million after income taxes related to the
purchase of the ABCP portfolio described earlier. In addition, the specific
items referred to above reduced the semi-annual results of the Personal and
Commercial segment.
    Total income of the Personal and Commercial segment stood at
$2,317 million for the first half of 2008, down $37 million or 1.6% from a
year ago. Net interest income totalled $1,672 million, an increase of
$73 million or 4.6%, mainly due to higher business volume.
    Other income amounted to $645 million after the first six months of 2008,
a decrease of $110 million or 14.6% from the same period in 2007. Other income
benefited from a $16 million or 8.7% increase in credit card revenue and a
$36 million increase in revenue from securitization activities. The growth of
other income was nevertheless affected by a decline of $27 million or 15.1% in
income from brokerage, investment fund and trust services, the ABCP write-down
as well as the $8 million drop in income resulting from the change in the fair
value of derivatives and the ineffective portion in hedge accounting.
    Provisions for credit losses were $90 million for the first six months of
2008, an increase of $5 million compared with a year earlier. The ratio of
gross impaired loans to the gross loan portfolio remained stable.
    Non-interest expense was $1,833 million for the first half of 2008, an
increase of $115 million or 6.7% versus the same period in 2007. More than 38%
of this increase stemmed from the annual indexing of salaries and increased
fringe benefits. The $25 million write-off of deferred charges in the first
quarter also affected this item.
    In addition, Caisse centrale Desjardins contributed $45.3 million to the
Personal and Commercial segment for the first six months of 2008, up 65% on a
year-over-year basis.
    As for financing activities, the Personal and Commercial segment posted
annual growth in its outstanding loan portfolio of 8.9% or $8.1 billion as at
June 30, 2008, to total $98.5 billion. This growth was achieved against a
backdrop of declining loan demand from business and government, while demand
for residential mortgages and consumer loans (including credit card advances
and other personal loans) remained strong. The amount outstanding in the
latter loan category was $16.7 billion, representing an annual increase of
$1.2 billion or 8.1%.
    Loans outstanding to businesses and government, which stood at
$25.2 billion as at June 30, 2008, increased by 14.9% or $3.3 billion
annually. As for business financing activities carried on by Caisse centrale
Desjardins (CCD), private loans outstanding grew by almost 20% since the
beginning of 2008, mainly because of several Canada-wide and U.S. projects,
including some in which CCD acted as banking syndication and co-syndication
agent. On the other hand, despite a somewhat less favourable housing market in
Québec and Ontario, residential mortgages in the Personal and Commercial
segment maintained growth similar to the previous quarter. They grew by 6.7%
or $3.6 billion, reaching a volume of $56.6 billion as at June 30, 2008,
compared with an annual increase of 6.6% or $3.4 billion in the previous
quarter. In fact, despite the decline in resale housing transactions during
the first half of this year compared to 2007 (1.4% in Québec and 10.6% in
Ontario), the Personal and Commercial segment was able to take advantage of a
rebound in residential construction in these two provinces (4.0% and 26.4%,
respectively) and the still solid growth in renovation spending (a little over
7.0%). The increase of about 5.0% in the average price of properties played a
role in these results.
    Desjardins Group's mortgage loan securitization program, introduced in
September 2005, continued successfully, with mortgage loans provided by the
Desjardins caisse network in Québec and Ontario, and by Desjardins Credit
Union. During the second quarter, CCD participated in a $424 million issue
under the Canada Mortgage Bonds program of the Canada Mortgage and Housing
Corporation, bringing the cumulative total to more than $3.9 billion since the
adoption of this strategy. One credit union from Western Canada took part in
our securitization program.
    Deposit recruitment in the Personal and Commercial segment was extremely
dynamic in the second quarter of 2008. Indeed, deposit liabilities outstanding
registered an annual increase of 10.1% or $9.3 billion as at June 30, 2008, to
settle at $101.8 billion. More specifically, personal savings, which stood at
$69.4 billion as at June 30, 2008, accelerated significantly since March 2008,
for growth of 7.2% or $4.7 billion. They constituted 68.2% of Desjardins
Group's deposit liabilities at the end of June. Deposits from business and
government continued to progress rapidly, by 33.7% or $5.7 billion, to total
$22.6 billion as at June 30, 2008. As for other financing sources available to
the Personal and Commercial segment, including deposits related to securities
issues on capital markets, they fell again, amounting to $9.8 billion as at
June 30, a decrease of 9.5% or $1.0 billion annually.
    Finally, great volatility in stock market activity during the second
quarter of 2008 was not conducive to the sale of off-balance sheet savings
products, such as investment funds and other types of securities. Despite the
8.4% rebound in the S&P/TSX index between March and June, the risk of
corrections is still very present. At the end of July, the same index had
already lost more than it had gained during the first six months. Nonetheless,
the Personal and Commercial segment did well in this market. The amount of
outstanding investment funds and assets held in custody in the securities
brokerage segment in fact decreased by only 0.5% or $122 million annually,
totalling $26.7 billion as at June 30, 2008.

    Life and Health Insurance

    For the second quarter of 2008, the contribution of Desjardins Financial
Security (DFS) to the combined results of Desjardins Group amounted to
$55.0 million, compared to $63.0 million in 2007. Net earnings were
$59.3 million compared to $68.4 million for the equivalent quarter of 2007.
Income from insurance premiums amounted to $625.5 million. Insurance sales
totalled $57.8 million.
    In the first half of 2008, DFS's contribution to the combined results of
Desjardins Group stood at $90.0 million, compared to $111.4 million in 2007.
Income from insurance premiums amounted to $1,243.6 million, up $120.3 million
or 10.7%, while insurance sales totalled $108.9 million.
    After the first six months of 2008, DFS recorded net earnings of
$95.6 million for a return on shareholder's equity of 24.2%, one of the best
in the financial services industry.
    Since the beginning of the second quarter of 2008, developments in the
restructuring of investments held in the form of ABCP have enabled DFS to
maintain its provisions at a level basically equivalent to that of March 31,
2008 and limit losses related to ABCP, unlike the previous three consecutive
quarters. Nevertheless, the valuation of its ABCP holdings led to a
$12.2 million decline in value in net income for the first six months.
    In group insurance, the volume of gross premiums from groups and
businesses and those related to plans offered through financial institutions,
including Desjardins caisses, reached $1,062.7 million, an increase of
$114.5 million compared with the corresponding period in 2007. Sales totalled
$88.2 million.
    In individual insurance, the volume of gross premiums amounted to
$239.7 million, or $9.3 million more than last year. Sales totalled
$20.7 million.
    In savings, aggregate sales of $526.4 millions were $133.5 million lower
than last year. In individual savings, sales totalled $167.0 million, an
increase of $24.5 million compared to the first half of 2007, while in group
retirement savings, sales reached $67.3 million compared to $136.7 million in
2007. Mutual funds sales amounted to $292.1 million, down $88.6 million or
23.3% compared to last year.
    Lastly, assets under management and under administration totalled
$22.1 billion.

    General Insurance

    For the second quarter of 2008, Desjardins General Insurance Group (DGIG)
contributed $15.3 million to Desjardins Group's results, compared to
$44.3 million for the corresponding quarter of 2007, bringing its cumulative
contribution to $13.1 million in the first half of 2008 compared to
$71.9 million in 2007.
    Like the majority of property and casualty insurers in Canada, DGIG was
very adversely affected by the abundant snowfall in central Canada and severe
storms with hail in Québec. Weather conditions were much more favourable in
2007. Overall loss experience was up by 10 points, with home insurance
primarily accounting for the increase since it was up 26 points over 2007. As
for automobile insurance, loss experience was similar to that of last year.
    The decline in profitability was also attributable to reduced investment
income, reflecting the major slump in stock markets that led to a significant
reduction in gains from the disposal of equities.
    Income from premiums written grew by 4.4% to $754.5 million. All business
units are growing. In addition, helped by a major advertising campaign
launched last March, the individual insurance subsidiary in Ontario, whose
products now carry the Desjardins brand, showed growth of 10%. Business
development also continues in the Desjardins caisse network as well as in
group insurance, thanks to the addition of new groups.
    In addition, major strategic investments in technology, e-commerce and
advertising have increased the operating expense ratio compared to 2007, from
23.1% to 24.3% at the end of the first half of 2008, but it still ranks among
the best in the industry.

    Securities Brokerage, Asset Management, Venture Capital and Other

    The Securities Brokerage, Asset Management and Venture Capital segment
    primarily encompasses the operations of Desjardins Securities, Desjardins
    Asset Management and Desjardins Venture Capital.

    This sector posted net earnings of $1 million in the second quarter of
2008 compared to $7 million in the corresponding quarter of 2007. For the
first six months, it had a net loss of $3 million as against net earnings of
$16 million a year earlier. The decline in profitability is mainly due to the
unfavourable conditions on capital markets and the reduced value of certain
investments in public companies because of changes in their market price.
    Lastly, the combined results of Desjardins Group also take into account
the various consolidation adjustments not reflected in the results of the
business segments, including the recording of the adjustment related to the
Group's employee future benefits expense, which declined by $23 million after
income taxes compared to the corresponding period in 2007. This adjustment
resulted primarily from the updating of certain actuarial assumptions.

    Relying on the strength of its cooperative difference, its network of
subsidiaries and its financial equilibrium, Desjardins Group seeks to become
the leading financial institution in terms of meeting the needs of members and
clients and fostering business development through an accessible, effective
and comprehensive service offering. Desjardins Group's mission is to
contribute to the economic and social well-being of both individuals and
communities. Please visit Desjardins Group's website at www.desjardins.com.




For further information:

For further information: (for journalists only): André Chapleau,
Director, Information and Media Relations, (514) 281-7229, 1-866-866-7000,
ext. 7229, andre.chapleau@desjardins.com; Raymond Laurin, Chief Financial
Officer, Desjardins Group


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