Desjardins Group results for the first quarter of 2016 - Desjardins Group records surplus earnings of $382 million

Assets and deposits increase in a competitive market

Q1 highlights

  • Surplus earnings of $382 million
  • Total assets of $255.1 billion, an increase of $7.0 billion
  • Tier 1A capital ratio of 15.8%
  • Assets under management and under administration, up $5.7 billion, to $409.0 billion
  • Net interest income up $54 million, or 5.4%
  • Guy Cormier, Senior Vice-President, Cooperative Network and Personal Services, elected to the position of Chair of the Board, President and CEO of Desjardins Group

A socially minded and innovative cooperative group 

First quarter results

LÉVIS, QC, May 12, 2016 /CNW Telbec/ - At the end of the first quarter ended March 31, 2016, Desjardins Group, Canada's largest cooperative financial group, posted $382 million in surplus earnings before member dividends—a decline of $82 million compared to the same quarter of 2015. The decrease was due to two events related to the first quarter of 2015: the gain realized on the acquisition of State Farm's Canadian activities and the favourable change in the fair value of derivative financial instruments used to hedge foreign currency deposits for all of Desjardins Group.

"Our performance is what allows us to fulfil our cooperative mission for our members and communities," said Guy Cormier, the newly elected Chair of the Board, President and CEO of Desjardins Group. "Desjardins manages to perform in an increasingly fierce competitive environment while the entire industry adapts to new processes. I am proud and above all honoured to lead Desjardins into this new era. During my mandate I intend to realize three major ambitions to make us first in people's hearts again. They are: reconnecting Desjardins with its purpose, harnessing its full potential for the benefit of members and clients alike, and to invest in people first."

The entire loan portfolio grew $7.4 billion in the last year, despite strong market competition and pressure on profit margins. The result was a $54 million increase in net interest income, to $1,049 million (Q1 2015: $995 million).

Other operating income(1) was $725 million, slightly lower than in the same quarter of 2015. The primary reason was the gain realized on the acquisition of State Farm's Canadian activities in the first quarter of 2015. This decrease was offset by growth in income from credit card and point-of-sale financing activities, as well as income related to assets under management from the sale of various products.

The provision for credit losses was up slightly to $91 million (Q1 2015: $89 million), mainly due to growth in the loan portfolios of Card and Payment Services.

Non-interest expense reached $1,797 million (Q1 2015: $1,752 million). This was due to business growth, particularly in credit card and point-of-sale financing activities, as well as annual salary indexing.

Total assets of $255.1 billion, up $7.0 billion 

As at March 31, 2016, total assets were $255.1 billion, up $7.0 billion since December 31, 2015. This was largely attributable to securities as a result of growth in market operations and deposits.

Strong capital base 

Desjardins Group maintains strong capitalization in compliance with Basel III rules. Its Tier 1A and total capital ratios were 15.8% and 16.9%, respectively, as at March 31, 2016, compared to 16.0% and 17.2%, respectively, as at December 31, 2015. In this regard, following an extensive consultation with members, they agreed on the importance of a financially strong cooperative, as it is the custodian of their assets. 

Segment results for the first quarter of 2016

Personal Services and Business and Institutional Services 

For the first quarter of 2016, surplus earnings before member dividends from the Personal Services and Business and Institutional Services segment were $211 million (Q1 2015: $196 million). The increase was largely due to increased sales of financial products by the caisse network and growth in credit card and point-of-sale financing activities.

Wealth Management and Life and Health Insurance

Surplus earnings generated by the Wealth Management and Life and Health Insurance segment were $97 million, relatively unchanged from the same period of 2015.  They were part of the segment's ongoing business development.

Property and Casualty Insurance 

For the first quarter of 2016, net surplus earnings of the Property and Casualty Insurance segment were $39 million (Q1 2015: $76 million). This was largely due to the gain realized on the acquisition of State Farm's Canadian activities in the first quarter of 2015. The decline in the segment's surplus earnings was nevertheless offset by more favourable claims experience in automobile insurance and organic business growth, compared to the first quarter of 2015. Like its peers in the insurance industry, Desjardins Group is following closely the developments in Alberta. Based on the information gathered to date, the estimated impact on its earnings is not considered significant.

Key Financial Data

FINANCIAL POSITION AND KEY RATIOS

(in millions of dollars and as a percentage)

As at March 31,
2016

As at December 31,
2015

Assets

$255,137


$248,128


Residential mortgage loans

$102,992


$102,323


Consumer, credit card and other personal loans

$21,115


$21,204


Business and government loans(2)

$36,570


$36,809


Total gross loans(1)

$160,677


$160,336


Equity

$21,824


$21,725


Tier 1A capital ratio

15.8%


16.0%


Tier 1 capital ratio

15.8%


16.0%


Leverage ratio

7.5%


7.8%


Total capital ratio

16.9%


17.2%


Gross impaired loans / gross loans and acceptances(3)

0.35%


0.34%


 

COMBINED INCOME



For the three-month periods ended

(in millions of dollars and as a percentage)

March 31,
2016

December 31,
2015

March 31,
2015

Operating income(2)

$3,495


$3,445


$3,604


Surplus earnings before member dividends

$382


$462


$464


Return on equity(2)

7.1%


7.9%


9.5%


 

CONTRIBUTION TO COMBINED SURPLUS EARNINGS BY BUSINESS SEGMENT


For the three-month periods ended

(in millions of dollars)

March 31,
2016

December 31,
2015

March 31,
2015

Personal Services and Business and Institutional Services

$211


$297


$196


Wealth Management and Life and Health Insurance

97


127


98


Property and Casualty Insurance

39


113


76


Other

35


(75)


94



$382


$462


$464


 

CREDIT RATINGS OF SECURITIES ISSUED


DBRS

STANDARD &
POOR'S

MOODY'S

FITCH

Caisse centrale Desjardins






Short-term

R-1 (high)

A-1

P-1

F1+


Medium and long-term, senior

AA

A+

Aa2

AA-

Capital Desjardins inc.






Medium and long-term, senior

AA (low)

A

A2

A+

 

More detailed information can be found in Desjardins Group's interim Management's Discussion and Analysis, which is available on the SEDAR site under the Capital Desjardins inc. profile.

About Desjardins Group

Desjardins Group is the leading cooperative financial group in Canada and the sixth largest cooperative financial group in the world, with assets of $255.1 billion. It has been rated one of the Best Employers in Canada by Aon Hewitt. To meet the diverse needs of its members and clients, Desjardins offers a full range of products and services to individuals and businesses through its extensive distribution network, online platforms and subsidiaries across Canada. Considered North America's strongest bank according to Bloomberg News, Desjardins has one of the highest capital ratios and credit ratings in the industry.

1 See the "Basis of presentation of financial information" section
2 Includes acceptances.
3 See the "Basis of presentation of financial information" section.

Caution concerning forward-looking statements 

Certain statements made in this press release may be forward-looking. By their very nature, forward-looking statements involve assumptions, uncertainties and inherent risks, both general and specific. It is therefore possible that, due to a number of factors, the predictions, projections or other forward-looking statements, as well as Desjardins Group's objectives and priorities, may not materialize or may prove to be inaccurate and that actual results differ materially. Various factors that are beyond Desjardins Group's control, and therefore whose impacts on Desjardins are difficult to predict, could influence the accuracy of the forward-looking statements in this press release. Additional information on these and other factors are available under the risk management section of Desjardins Group's 2015 Management's Discussion and Analysis. Although Desjardins Group believes that the expectations expressed in these forward-looking statements are reasonable, it can give no assurance or guarantee that these expectations will prove to be correct. Desjardins Group cautions readers against placing undue reliance on forward-looking statements when making decisions. Desjardins Group does not undertake to update any written or verbal forward-looking statements that could be made from time to time by or on behalf of Desjardins Group, except as required under applicable securities legislation.

Basis of presentation of financial information

To assess its performance, Desjardins Group uses IFRS measures and various non-IFRS financial measures. Non-IFRS financial measures, other than the regulatory ratios, do not have a standardized definition and are not directly comparable to similar measures used by other companies, and may not be directly comparable to any IFRS measures. Investors may find these non-IFRS measures useful in analyzing financial performance. The measures used are defined as follows:

Gross impaired loans / gross loans

The gross impaired loans / gross loans indicator is used to measure the quality of the loan portfolio. It is gross impaired loans expressed as a percentage of total gross loans.

Return on equity

Return on equity is used to measure profitability. Expressed as a percentage, it is equal to surplus earnings before member dividends, excluding the non-controlling interests' share, divided by average equity before non-controlling interests.

Income

Operating income

The concept of operating income is used to analyze financial results. This concept allows for better structuring of financial data and makes it easier to compare operating activities from one period to the next by excluding investment income. The analysis therefore breaks down Desjardins Group's income into two parts, namely operating income and investment income, which make up total income. This measure is not directly comparable to similar measures used by other companies.

Operating income includes net interest income, net premiums and other operating income such as deposit and payment service charges, lending fees and credit card service revenues, income from brokerage and investment fund services, management and custodial service fees, foreign exchange income as well as other income. These items, taken individually, correspond to those presented in the Combined Financial Statements.

Investment income

Investment income includes net income on securities at fair value through profit or loss, net income on available-for-sale securities and net other investment income. These items, taken individually, correspond to those presented in the Combined Financial Statements. Investment income also includes income from the insurance subsidiaries' matching activities and from derivative financial instruments not designated as part of a hedging relationship.

 

(in millions of dollars)

March 31,
2016


December 31,
2015


March 31,
2015

Presentation of income in the Combined Financial Statements

Net interest income

$1,049


$1,107


$995

Net premiums

1,721


1,641


1,876

Other income







Deposit and payment service charges

118


124


118


Lending fees and credit card service revenues

168


161


154


Brokerage and investment fund services

260


263


252


Management and custodial service fees

98


72


93


Net income on securities at fair value
  through profit or loss

512


230


1,174


Net income on available-for-sale securities

79


72


105


Net other investment income

50


48


44


Foreign exchange income

16


21


26


Other

65


56


90

Total income

$4,136


$3,795


$4,927

Presentation of income in Management's Discussion and Analysis

Net interest income

$1,049


$1,107


$995

Net premiums

1,721


1,641


1,876

Other operating income







Deposit and payment service charges

118


124


118


Lending fees and credit card service revenues

168


161


154


Brokerage and investment fund services

260


263


252


Management and custodial service fees

98


72


93


Foreign exchange income

16


21


26


Other

65


56


90

Operating income

3,495


3,445


3,604

Investment income







Net income on securities at fair value
  through profit or loss

512


230


1,174


Net income on available-for-sale securities

79


72


105


Net other investment income

50


48


44




641


350


1,323

Total income

$4,136


$3,795


$4,927

 

SOURCE Desjardins Group

For further information: (media inquiries only): André Chapleau, Public Relations, 514 281-7229 or 1 866 866-7000, extension 5557229, media@desjardins.com ; Daniel Dupuis, CPA, CA, Senior Vice-President of Finance and Chief Financial Officer, Desjardins Group


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