LÉVIS, QC, May 14 /CNW Telbec/ -
- Surplus earnings for the first quarter of 2010 increased $264 million,
compared to first quarter of 2009.
- Strong balance sheet, with $11.7 billion in equity and a quality loan
- Tier 1 capital ratio still among the best in the industry.
- Assets grew 5.3% since the beginning of the year, to $165.6 billion.
Key financial data:
For the three months
ended March 31
2010 2009 Change
member dividends $381 million $117 million 225.6%
Return on equity 13.5% 4.8% -
March 31 December 31
2010 2009 Change
Assets $165.6 billion $157.2 billion 5.3%
Equity $11.7 billion $11.2 billion 4.5%
Tier I capital ratio 16.13% 15.86% -
2010 first quarter results
For the first quarter ended March 31, 2010, Desjardins Group, the largest cooperative financial group in Canada, reports strong financial performance, with combined surplus earnings before member dividends of $381 million, as compared with a surplus of $117 million one year earlier, an increase of $264 million. Return on equity was 13.5%, compared with 4.8% one year earlier.
Financial performance in the first quarter benefitted from strong growth in trading income, mainly due to improved market conditions, and positive changes in the fair value of the portfolio of asset-backed term notes (ABTN). An $18 million increase in value was recorded to reflect an increase in the fair value of the entire portfolio of these notes, compared to a $101 million write-down recorded in the first quarter of 2009.
In addition, results for the quarter were excellent in property and casualty insurance due in part to a better claims experience resulting from milder climatic conditions last winter, while the life and health insurance business was strong in terms of both insurance and annuities, and benefited from the recovery of financial markets.
Furthermore, the caisse network reported strong growth. Surplus earnings were up 62.8%, to $127 million for the first three months of 2010 compared to $78 million for the same quarter of 2009. This was due in part to business volume growth, which had a positive impact on net interest income, despite lower interest rates.
Every quarter, Desjardins Group must establish the most accurate estimate possible of the amount that will be recorded for payment of member dividends at the end of the fiscal year. The estimate is based on potential surplus earnings in the caisse network. The Group therefore recorded a $76 million provision for member dividends for the first three months of 2010, vs. the $65 million provision recorded a year earlier.
Desjardins remains one of the best capitalized financial institutions in Canada; its Tier 1 capital ratio, assessed under the regulatory framework (the Basel II Accord), reached 16.13% as at March 31, 2010, compared to 13.67% one year earlier. The Tier 1 ratio therefore exceeds the Group's capitalization target and is one of the best in the industry. In addition, the total capital ratio stood at 16.13%, compared to 13.67% as at March 31, 2009.
"2010 is off to a strong start, and Desjardins has posted gains in several areas," said Monique F. Leroux, Chair of the Board, President and CEO of Desjardins Group. "It was an exceptional quarter for our caisse network. In addition, Desjardins is one of the best capitalized institutions in the country's financial services industry, which is prudent given the sustained fragility of the economy. We also exercised more rigorous control over costs through many initiatives taken throughout the organization, efforts that will continue throughout the year in order to further enhance Group performance for the benefit of members and clients."
In terms of income, Desjardins Group's total income reached $2,798 million at the end of the first quarter of 2010, for an increase of $553 million or 24.6% compared to the same quarter of 2009.
Although tempered by lower interest rates, the growth in business volumes in the caisse network, combined with good asset-liability management during the quarter, allowed the network to post $941 million in net interest income in the first quarter of 2010, up $146 million or 18.4% compared to the same quarter of 2009. Net premiums grew $43 million or 4.3%, mainly due to good insurance premium growth, particularly in life and health insurance.
Other income grew 82.0% to $808 million compared to $444 million reported for the same quarter of 2009. This growth is attributable to a $285 million increase in trading income and a $38 million increase in income from available-for-sale securities as a result of improved market conditions. The increase in trading income was offset by a $179 million increase in expenses related to claims, benefits, annuities and changes in insurance provisions in life and health insurance activities. Other income for the quarter benefited from a positive change in the fair value of the portfolio of restructured notes (ABTN), as mentioned above. Finally, this item also benefited from a $39 million or 31.5% increase in income from brokerage, investment fund and trust services, mainly due to more favourable market conditions.
The quality of Desjardins' loan portfolio remains excellent, with a ratio of gross impaired loans to gross loans of 0.47%. Provisions for credit losses for the first quarter of 2010 stood at $65 million, compared to $60 million a year earlier.
Expenses related to claims, benefits, annuities and changes in insurance provisions totalled $893 million, up $104 million or 13.2% compared to the first quarter of 2009. This growth is explained by an equivalent increase in investment income at the life and health insurance activities, as mentioned above. Expenses related to property and casualty insurance claims declined $79 million compared to the first quarter of 2009, due to fewer insurance claims as a result of more favourable climatic conditions.
Non-interest expense stood at $1,313 million, $92 million or 7.5% more than the same quarter of 2009. Much of this increase was due to increased salaries and fringe benefits related to the annual indexation of salaries.
Various initiatives taken to improve productivity at Desjardins Group, including the deployment of a new organizational structure announced last year, are beginning to pay dividends. The productivity ratio - Desjardins Group's non-interest expense to total income, net of expenses related to claims and insurance benefits - improved significantly to 68.9% in the first quarter of 2010, compared with 83.9% for the corresponding quarter a year earlier.
Total assets stood at $165.6 billion as at March 31, 2010 compared to $157.2 billion as at December 31, 2009, up $8.4 billion or 5.3%. This strong growth is explained in part by Desjardins Group's sustained financing of residential construction in Quebec and Ontario.
Desjardins Group posted excellent credit activity results for the first quarter of 2010. The improved economic environment fostered new business development, and Desjardins played an active role in its financing activities, particularly in Quebec. Loans outstanding, net of the allowance for credit losses, attained $111.8 billion as at March 31, 2010, up 1.6% or $1.8 billion since the end of 2009.
Similarly, Desjardins stood out in residential mortgage financing where it is a market leader, particularly in Quebec. Outstanding residential mortgage loans stood at $68.9 billion as at March 31, 2010, up 1.8% or $1.2 billion since December 31, 2009. It should be noted that this type of credit accounted for 61.1% of the total loans portfolio at the end of the quarter. New residential construction and sales of existing homes experienced considerable growth in the first quarter of 2010 in both Quebec and Ontario, where the average selling price of homes rose 10.5% and 20.2%, respectively.
Desjardins Group is also very active in business and government financing, where outstanding loans grew by 1.7% or $438 million since December 31, 2009, to $26.7 billion as at March 31, 2010. Consumer credit, credit cards and other personal loans grew 0.9% or $145 million, to $17.1 billion as at March 31, 2010.
In savings recruitment activities, outstanding deposits totalled $108.6 billion as at March 31, 2010, up 2.3% or $2.5 billion from the end of 2009. Personal savings stood at $74.9 billion as at March 31, 2010, down 0.6% or $475 million for the quarter. It should nevertheless be mentioned that personal savings accounted for 69.0% of the total savings portfolio as at this date, making it the main source of financing for the Group's expansion.
Deposits by businesses and governments grew 1.8% or $419 million since the end of 2009, to $23.3 billion as at March 31, 2010. Savings from deposit-taking and other institutions, such as securities issued on financial markets, grew 32.1% or $2.5 billion during the first quarter of 2010, to $10.4 billion.
Finally, there was moderate growth in Canadian stock market activity in the first three months of 2010. The index of the Toronto Stock Exchange (the S&P/TSX) rose 2.5% over the quarter. However, given that the markets were much less volatile, this performance created an environment that was rather favourable to the sale of off-balance sheet savings products. Desjardins Group's results are testimony to its ability to succeed in this market. Assets under administration or under management and securities rose 4.7% or $1.9 billion from December 31, 2009, to $41.9 billion as at March 31, 2010.
Funding and capital supply
During the first quarter of 2010, Caisse centrale Desjardins (CCD) completed the issuance of $400 million in medium-term deposit notes in Canada. It should also be remembered that at the beginning of March 2010, CCD issued (euro)1 billion in medium-term deposit notes due 2012. This issue is CCD's first since it renewed its European borrowing program in December 2009. Under this program, it can issue deposit notes totalling up to (euro)7 billion.
Furthermore, on May 5, 2010, Desjardins Group issued $900 million of 5.187% Series G Subordinated Debentures due 2020 through its subsidiary Capital Desjardins inc. This was the third issuance made by this subsidiary under a base shelf prospectus dated June 30, 2008, which provides for subordinated debentures to be issued for a maximum amount of $2 billion. The 25-month program will expire in July 2010.
Since early 2009, Desjardins Group has therefore completed issues of more than $6 billion under numerous capital funding programs on Canadian and international markets. The purpose of this record level of transactions on institutional markets over a period of 16 consecutive months was to better diversify and further optimize the matching of the maturities of Desjardins Group's funding sources.
Results by business segment
Since the first quarter of 2010 and under its new organizational structure, Desjardins reports segmented information for the following business segments: "Personal Services and Business and Institutional Services", "Wealth Management and Life and Health Insurance", "Property and Casualty Insurance", and "Other." Financial information is presented on the basis of activity-based costing based on the needs of members and clients as well as the markets in which Desjardins is active, rather than by legal entity, as was previously the case. This reflects the approach taken in the Group's internal management since January 1, 2010. Segmented information from the comparative period of 2009 has been reclassified to conform to the new basis of reporting.
Personal Services and Business and Institutional Services
This segment includes "Personal Services," which is the global caisse network activities that are related to the developing, marketing and distributing of the service offer for individuals, including the financing and savings activities as well as payment cards. The segment also comprises "Business and Institutional Services", which is responsible for integrating the offer for mid-sized and large businesses, including financing, securities, venture capital, and specialized and advisory services.
Among the main activities formerly reported under the Personal and Commercial segment, those related to investment funds and asset management are now disclosed in the Wealth Management and Life and Health Insurance segment, and treasury activities related to Caisse centrale Desjardins operations are now presented as part of the Other segment.
Surplus earnings before member dividends for Personal Services and Business and Institutional Services grew $99 million or 99% compared to the same quarter of 2009, to a total of $199 million for the quarter. This was due to a $148 million increase in total income, which was partially offset by a $39 million increase in non-interest expense and a $5 million increase in provisions for credit losses.
Total income grew $148 million or 13.1%, including a $67 million increase in net interest income. The growth in total income is partly attributable to strong growth in outstanding loans, which was partly offset by lower interest rates. There was significant growth in outstanding mortgages in the first quarter of 2010, particularly those of the caisse network. Outstanding mortgages grew $891 million in the first quarter of 2010 compared to $470 million in the same period of 2009. This trend is due to strong growth in housing starts and the resale market, combined with lower rates on mortgages with 5-year terms and the prospect of interest rate hikes in the short term. Significant growth in outstanding loans was also experienced in the Business and Institutional Services segment due to the economic recovery. Credit card and point-of-sale financing activities also benefited from the recovery in consumer spending, as well as a wider net interest spread.
In addition, no premium was recorded under Desjardins Group's securitization program in the first quarter of 2010. However, this difference was offset by premiums, including those received at the end of a portfolio assembly as part of "risk sharing". The combination of these two items generated a $10 million unfavourable variance.
Derivative products generated a $67 million favourable variance based on a 32.7% increase in funds outstanding as well as greater margins on these products.
Other income grew 23.6% or $81 million compared to the first quarter of 2009. This favourable variance is due to greater revenues from deposits (service charges), for both individuals and businesses, as well as fees paid to the caisses by the Wealth Management and Life and Health Insurance segment and the Property and Casualty Insurance segment. The growth in other income is also due to a gain realized on the sale of a portion of the shares in Visa Inc. obtained during its global restructuring and greater income from the Immigrant Investor Program due to an increase in the number of files.
Provisions for credit losses grew $5 million compared to the first quarter of 2009. This increase is due to the business loan and personal loan portfolios of the Group's American subsidiary, Desjardins Bank, which are still affected by the recent crisis in the United States. This increase was partly offset by lower provisions for credit losses at the Quebec and Ontario caisses, in the personal as well as business and institutional segments. In addition, lower losses were recorded in credit card activities due to improved economic conditions, since this segment was hard hit by the difficult economic environment of 2009.
Non-interest expense grew $39 million compared to the first quarter of 2009. Rigorous control of costs limited the growth of non-interest expense to 4.3%; this compares to a 13.1% increase in total income.
Wealth Management and Life and Health Insurance
This segment is responsible for the manufacturing and distribution of specialized savings products and life insurance. It provides support for the integrated distribution of wealth management products and services throughout the caisse network, and it distributes specific products through complementary channels. This segment oversees Desjardins Group's growth across Canada.
Some of the main activities added to the Wealth Management and Life and Health Insurance segment are portfolio and treasury management for securities transactions as well as for the management of securities and real estate investments, formerly presented in the Securities Brokerage, Asset Management and Venture Capital.
For the quarter ended March 31, 2010, surplus earnings before member dividends for the Wealth Management and Life and Health Insurance segment totalled $80 million compared to $47 million for the same quarter of 2009. This financial performance was mainly the result of strong business in life insurance and annuities, the recovery of financial markets, greater sales and higher net assets under management in brokerage and wealth management services as well as in specialized savings products.
Total income grew by $271 million over the first quarter of 2009, of which $258 million came from life and health insurance. Insurance premiums increased $37 million, $23 million of which were premiums on group insurance and commercial lines. The growth in other income is mainly due to a $203 million increase in investment income. However, a large portion of this increase - $179 million - was offset by increased expenses attributable to policyholders. The increase in income from fees earned on asset management, the distribution of savings, brokerage services and wealth management products totalled $33 million.
The $182 million increase in expenses attributable to policyholders was largely due to an increase in the fair value of investments, where temporary volatility of $70 million approximately has been reflected in increased equivalent insurance actuarial liabilities reported in 2010. It should be noted that a $109 million decline in the fair value of investments was recorded as at March 31, 2009.
Non-interest expense, consisting of commissions, remuneration paid to the caisses and administrative expenses, increased $45 million in 2010. This increase was essentially due to greater commissions on sales of savings products and growth in the remuneration paid to the caisses.
Property and Casualty Insurance
This segment is responsible for the manufacturing and distribution of property and casualty (P&C) insurance products as well as related client services. It works with the caisse network, supports product distribution in the caisse network and ensures the growth of Desjardins Group's P&C insurance activities across Canada.
The Property and Casualty Insurance segment contributed $50 million to Desjardins Group's results in the first quarter of 2010, compared to $7 million in the first quarter of 2009.
The segment's surplus earnings before non-controlling interests and member dividends increased $48 million compared to the same quarter of 2009. This is mainly due to a $79 million decline in expenses attributable to claims, which was partly offset by a $26 million increase in income taxes on surplus earnings.
Total income declined $3 million compared to the first quarter of 2009, mainly due to lower investment income and investment fund income. The decline in investment income is due to a portfolio restructuring in 2009 that resulted in gains on the disposal of bonds and by a lower effective yield on the bond portfolio, caused by lower interest rates. The decline in total income was nevertheless partly offset by growth in gross premiums written. Increases in the number of policies issued and in the average premium (due to inflation) enhanced business volumes. This growth was also due to a partnership with a Canadian financial institution, for which Desjardins Group is manufacturing and distributing property and casualty insurance products. Finally, the caisse network contributed $14 million in gross premiums written in the first quarter of 2010, a level similar to that recorded for the first quarter of 2009.
Expenses attributable to claims declined $79 million compared to the first quarter of 2009, mainly due to a decline in insurance claims following favourable climatic conditions. Last winter was particularly mild, and this had a positive impact on claims in the first quarter of 2010, which were lower than those of the same quarter of 2009.
Non-interest expense was largely unchanged over the year. However, income taxes rose $26 million as a result of growth in surplus earnings before non-controlling interests and member dividends.
The "Other" segment consists mainly of treasury activities related to the operations of Caisse centrale Desjardins. The segment is also responsible for all ABTN securities held by Desjardins Group and records consolidation adjustments for all the components of Desjardins Group.
This segment posted $52 million in net surplus earnings for the first quarter of 2010 compared to a $37 million net deficit for the same quarter of 2009. This increase was mainly due to a positive change in the fair value of the restructured ABTN portfolio.
In the first quarter of 2010, the Other segment's treasury activities produced $7 million less surplus earnings after income taxes compared to the same quarter of 2009. This is due to particularly favourable conditions in the financial markets in the first three months of 2009, which resulted in significant one-time gains on transaction and asset-liability management activities.
In addition, the combined results of Desjardins Group take into account various consolidation adjustments not reflected in the results of the business segments, including the adjustment related to the Group's employee future benefits expense, which declined $11 million after taxes compared to the first three months of 2009. This adjustment resulted primarily from the updating of certain actuarial assumptions.
Desjardins, 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 the economic and social well-being of people and communities. For more information, visit www.desjardins.com.
SOURCE Desjardins Group
For further information: For further information: (for journalists only): André Chapleau, Director, Media Relations, Desjardins Group, (514) 281-7229, 1-866-866-7000, ext. 7229, firstname.lastname@example.org; Raymond Laurin, Senior Vice-President, Finance, Treasury and Chief Financial Officer, Desjardins Group