Desjardins Group Announces Surplus Earnings of $378 Million for the Third
Quarter of 2009

LÉVIS, QC, Nov. 16 /CNW Telbec/ -

    
    Financial highlights

    - Surplus earnings before member dividends of $378 million for the third
      quarter of 2009, compared to $149 million for the same period of 2008.
    - Surplus earnings before member dividends of $833 million for the first
      nine months of 2009, up 50.4% compared to the same period one year
      earlier.
    - Strong balance sheet with $10.7 billion in capitalization and a quality
      loan portfolio.
    - Tier 1 capital ratio still among the best in the industry.
    - Assets grew 8.6% to $163.2 billion.
    - Good growth in financing activities, which expanded over 6%.

    Key financial data:

    -------------------------------------------------------------------------
                       For the three months          For the nine months
                        ended September 30            ended September 30
    -------------------------------------------------------------------------
                      2009      2008    Change      2009      2008    Change
    -------------------------------------------------------------------------
    Surplus
     earnings
     before
     member
     dividends        $378      $149     153.7%     $833      $554      50.4%
                   million   million             million   million
    -------------------------------------------------------------------------
    Return on
     equity           14.4%      6.2%        -      10.9%      7.8%        -
    -------------------------------------------------------------------------

    --------------------------------------------
    Assets          $163.2    $150.3       8.6%
                   billion   billion
    --------------------------------------------
    Equity           $10.7      $9.7      10.4%
                   billion   billion
    --------------------------------------------
    Tier 1
     capital
     ratio*        14.94%    14.15%        -
    --------------------------------------------
    Growth in
     total loans       6.1%      8.9%        -
    --------------------------------------------
    Growth in
     total
     deposits          5.1%      7.0%        -
    --------------------------------------------

    * The 2009 ratio is calculated according to the new rules of the
        Basel II Capital Accord, while the 2008 ratio was assessed under the
        former regulatory framework or Basel I.
    

2009 third quarter results

For the third quarter of 2009, Desjardins Group, the largest cooperative financial group in Canada, posted higher profitability, with surplus earnings before member dividends of $378 million, compared to $149 million one year earlier. Return on equity was 14.4%, compared to 6.2% on a year-over-year basis.

Financial performance for the third quarter benefitted from strong growth in trading income, despite lower interest rates, which restrained net interest income at the caisses and, at the same time, limited their profitability. The quarter also provided good results in insurance activities, particularly in the life and health insurance subsidiary, and in securities activities, as well as growth in business volumes.

In terms of income, Desjardins Group's total income reached $3,070 million at the end of the third quarter of 2009, for an increase of $1,060 million or 52.7% compared to the same quarter of 2008.

Net interest income stood at $958 million in the third quarter of 2009, up $76 million or 8.6% as compared to the same quarter last year, in particular due to asset-liability management activities, which successfully foresaw market changes during the quarter. At $1,102 million, net premiums were stable compared to the third quarter of 2008.

Other income stood at $1,010 million, as compared to $17 million in the same quarter of 2008. This significant growth was due to a $943 million increase in trading income and a $146 million increase in income from available-for-sale securities as a result of improved markets. Of the trading income, an amount of $726 million came from the life and health insurance subsidiary and was offset by a $669 million increase in expenses related to claims, benefits, annuities and changes in this subsidiary's insurance provisions. It is worth noting that the higher income from available-for-sale securities came primarily from the Personal and Commercial segment.

The quality of Desjardins' loan portfolio remains excellent, with a ratio of gross impaired loans to gross loans of 0.46%. Provisions for credit losses for the third quarter of 2009 stood at $80 million, compared to $65 million a year earlier.

Expenses related to claims, benefits, annuities and changes in insurance provisions totalled $1,216 million, up $637 million or 110.0% compared to the third quarter of 2008. A large part of this growth is explained by an equivalent increase in investment income at the life and health insurance subsidiary, as mentioned above.

Non-interest expenses stood at $1,220 million, a $75 million or 6.6% increase over the same quarter of 2008. Much of this increase was due to increased salaries and fringe benefits related to the annual indexation of salaries. The cumulative results for the third quarter of 2009 also include a $37 million expense for severance benefits, professional fees, assets impairment and others, presented as part of reorganization expenses.

Funding and capital supply

During the third quarter of 2009, Desjardins Group successfully completed a $500 million offering of medium term deposit notes maturing in 2011 and 2012 - through the Caisse centrale Desjardins (CCD). This was CCD's first issuance of notes under a simplified base shelf prospectus dated March 14, 2008 that allows to issue up to $5 billion in notes.

Results for the first nine months of 2009

For the nine-month period ended September 30, 2009, Desjardins Group announced surplus earnings before member dividends of $833 million, as compared to $554 million for the same period of 2008. This represents an increase of 50.4%. Return on equity was 10.9%, compared to 7.8% one year earlier.

Profitability for the first nine months of 2009 benefitted from improved market conditions, which had a positive impact on trading income and income from available-for-sale securities, as well as a write-down of the portfolio of restructured ABCP notes that was smaller than the write-down recorded in the same period of 2008. An amount of $68 million was recorded in the first nine months of 2009 as a decline in the fair value of all the portfolios of restructured ABCP notes and the write-off of an ABCP security excluded from the moratorium of the Montreal Accord. This compares to a write-off of $292 million recorded for the same period of 2008. It is also worth noting that financial performance improved in insurance and securities activities. As for the caisse network, it posted a 33.9% drop in surplus earnings, from $570 million for the first nine months of 2008 to $377 million for the same period of 2009, primarily due to lower interest rates, which had a negative impact on net interest income.

"Desjardins Group is seeing solid growth in all its main segments," said Monique F. Leroux, Chair of the Board, President and CEO of Desjardins Group. "We are beginning to reap the benefits of major efforts made over the last year, since Desjardins has posted stronger financial results and one of the highest capitalization rates in the industry across the country," she stated. "But we must continue to manage our cooperative financial group prudently in an economic environment that still harbours uncertainties, while actively working to raise productivity levels and always maintaining our capitalization at such a high level."

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 $239 million provision for member dividends for the first nine months of 2009, compared to $304 million a year earlier. The provision for 2009 includes a $29 million positive adjustment compared to 2008 dividends.

Desjardins remains one of the best capitalized financial institutions in Canada; its Tier 1 capital ratio, assessed under the new regulatory framework (the Basel II Accord), reached 14.94% as at September 30, 2009, compared to 14.15% as assessed under the former regulatory framework (Basel I Accord) 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, assessed under the Basel II Accord, stood at 14.94%, compared to 13.45% as assessed under the Basel I Accord as at September 30, 2008.

Desjardins Group's total income stood at $8,087 million at the end of the first nine months of 2009, an increase of $1,443 million or 21.7% compared to the same period one year earlier.

Net interest income stood at $2,581 million, a $43 million or 1.7% increase from the same period of 2008. Net premiums grew $61 million or 2.0% as a result of good growth in insurance premiums, particularly in life and health insurance. Other income was up $1,339 million due to a $1,167 million increase in trading income and a $289 million increase in income from available-for-sale securities as a result of improved market conditions. Of the trading income, an amount of $868 million, came from the life and health insurance subsidiary and was offset by a $795 million increase in expenses related to claims, benefits, annuities and changes in this subsidiary's insurance provisions. Other income benefitted from a write-down of the portfolio of restructured ABCP notes that was $224 million less than the write-down recorded in the same period of 2008. This item was also enhanced by a $23 million or 7.6% increase in lending fees and credit card service revenues. Income from brokerage, investment fund and trust services fell $66 million or 13.7%, primarily due to uncertainty in the markets.

The quality of Desjardins' loan portfolio remains excellent, even though provisions for credit losses grew to a total of $185 million, as compared to $155 million one year earlier.

Expenses related to claims, benefits, annuities and changes in insurance provisions reached $2,985 million at the end of the first nine months of 2009, up $806 million or 37.0% compared to one year earlier. A large part of this growth is explained by an equivalent increase in investment income at the life and health insurance subsidiary, as mentioned above.

At $3,716 million, non-interest expenses increased $173 million or 4.9% compared to the first nine months of 2008. Over 46% of this increase resulted from increased salaries and fringe benefits, in particular as a result of the annual indexation of salaries. The cumulative results for the first nine months of 2009 include a $65 million expense for severance benefits, professional fees, assets impairment and others. It is also worth noting that the non-interest expenses reported in 2008 included a $25 million write-off of deferred expenses related to technological developments.

The productivity ratio is calculated as Desjardins Group's non-interest expense to total income, net of expenses related to claims and insurance benefits. The ratio was 72.8% at the end of the first nine months of 2009, an improvement over the 79.4% ratio posted for the same period of 2008. It should be recalled that various initiatives were taken to improve productivity, such as implementing a new organizational structure for Desjardins Group, announced in May 2009.

Desjardins Group had $163.2 billion in total assets as at September 30, 2009, compared to $150.3 billion one year earlier. This represents growth of $12.9 billion or 8.6%.

Results by business segment

Personal and Commercial

    
    This segment primarily encompasses 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. It should be noted that, since the first
    quarter of 2009, the companies created specifically to hold the ABCPs
    repurchased by Desjardins Group and previously included in the Personal
    and Commercial segment are now presented in the "Other" segment. The
    information of past quarters has been reclassified to conform to the new
    presentation.
    

At the end of the third quarter of 2009, surplus earnings before member dividends in the Personal and Commercial segment stood at $260 million, up $63 million or 32.0% compared to the third quarter of 2008.

For the nine months ended September 30, 2009, surplus earnings before member dividends for this segment totalled $617 million, a decline of $19 million or 3.0% from the same period one year earlier, due in part to lower financial results in the caisse network. Caisse centrale Desjardins nevertheless reported improved profitability.

For the nine months of 2009, total income for the Personal and Commercial segment stood at $3,905 million, up $122 million or 3.2% compared to the same period a year earlier. Net interest income was $2,613 million, up $25 million or 1.0%.

Other income reached $1,292 million for the first nine months of 2009, an increase of $97 million or 8.1% from the same period one year earlier. As mentioned above, other income was enhanced by a $150 million increase in trading income and $84 million increase in income from available-for-sale securities as a result of improved markets. This item also benefitted from a $23 million or 7.5% increase in income related to credit card activities. However, the growth of other income was tempered by a $29 million or 11.0% drop in income from brokerage, investment fund and trust services, among other things.

Provisions for credit losses for the first nine months of 2009 totalled $184 million, compared to $155 million for the same period one year earlier.

Non-interest expense totalled $2,877 million, an increase of $137 million or 5.0% compared to the first nine months of 2008. Much of this increase stemmed from an increase in salaries and fringe benefits expense, due in part to the annual indexation of salaries. It should be recalled that $25 million in deferred expenses related to technological developments were written off during the first nine months of 2008.

In addition, net income of Caisse centrale Desjardins (CCD) stood at $33.3 million for the third quarter of 2009. This brought cumulative net income for the first nine months of 2009 to $116.5 million, an increase of $107.7 million over the same period of 2008. It should be recalled that the results for the third quarter of 2008 were affected by the financial crisis that was ravaging world markets. CCD therefore was obliged to record an other-than-temporary decline in value of $78.3 million on financial asset-backed bonds. Had it not been for this one-time item, net income would have risen $46.9 million from the same period one year earlier. This excellent performance was due to the results posted by all of CCD's segments, particularly the Group Treasury segment, which reported $122.1 million more income for the first nine months of 2009 as compared to the same period of 2008. This was primarily due to trading activities, as well as asset-liability management and its management of cash resources. CCD's contribution to the Personal and Commercial segment was $111 million, compared to $8 million in 2008.

In the Personal and Commercial segment's financing activities, loans outstanding net of the allowance for credit losses grew 7.0% or $7.0 billion on a year-over-year basis, to $107.2 billion as at September 30, 2009. These excellent results were due to personal finance activities, including residential mortgages and consumer, credit card and other personal loans, which were responsible for close to 83.3% of total portfolio growth for the period.

More specifically, residential loans outstanding grew 6.0%, or $3.4 billion, over the year to a total of $61.1 billion as at September 30, 2009. Consumer, credit card and other personal loans increased 14.0%, or $2.4 billion, to $19.6 billion on the same date. Loans to businesses and governments increased 4.6% or $1.2 billion on a year-over-year basis to a total of $27.3 billion as at September 30, 2009.

As at September 30, 2009, deposit liabilities outstanding in the Personal and Commercial segment stood at $106.6 billion, up 5.4% or $5.4 billion from one year earlier. Deposits by individuals, which represented 69.7% of deposit liabilities on this date, grew 7.2% or $5.0 billion over the same period, to $74.3 billion at the end of the third quarter. Deposits by businesses and governments grew 5.1% or $1.1 billion, to $23.7 billion as at September 30, 2009. The other sources of financing available to the Personal and Commercial segment, consisting primarily of deposits related to securities issued on capital markets, fell 7.6% or $711 million on a year-over-year basis, to $8.6 billion.

Lastly, Canadian stock markets continued to rally in the third quarter of 2009. For example, the S&P/TSX index of the Toronto Stock Exchange grew 9.8% for the quarter, even making an impressive 50.6% jump since the bottom of the trough on March 9, 2009. The Personal and Commercial segment is very active in the sale of so-called off-balance sheet savings products such as investment funds and securities brokerage, posting excellent results as at September 30, 2009. For example, assets under administration or under management consisting of investment funds and securities grew 6.5% or $1.6 billion on a year-over-year basis, to $26.6 billion.

Life and Health Insurance

For the third quarter of 2009, the contribution of Desjardins Financial Security (DFS) to the Group's combined results was $65 million, compared to $20 million in 2008. Net income for the quarter was $67.6 million, compared to $16.4 million for the same quarter of 2008. Insurance premium income stood at $682.4 million, and insurance sales totalled $43.6 million, compared to $31.3 million posted for the same quarter in 2008.

At the end of the first nine months of 2009, DFS recorded $150.9 million in net income and a return on shareholders' equity of 26.3%, one of the best in the financial services industry. Its contribution to Desjardins Group's combined results stood at $146.5 million, compared to $109.8 million in 2008. Insurance premium income for this period was $2,027.3 million, up 2.0%, while insurance sales totalled $159.9 million. Sales also grew in retirement savings, attaining $1,260.3 million as compared to $844.8 million for the same period of 2008. It is worth noting that DFS continues to have excellent financial strength and a superb capitalization.

In group insurance, the volume of gross premiums from groups and companies and those related to the plans provided through financial institutions, including Desjardins caisses, stood at $1,650.5 million, up $26.6 million from the results for the same period of 2008. Sales totalled $126.7 million.

In personal insurance, the volume of gross premiums was $376.8 million. Sales totalled $33.2 million.

In savings, aggregate sales stood at $1,260.3 million. In personal savings, sales totalled $725.4 million, or three times the amount recorded for the same period of 2008, while sales of group retirement savings were $309.4 million. Sales of mutual funds totalled $225.5 million.

Lastly, assets under management and under administration were $21.9 billion.

General Insurance

Desjardins General Insurance Group (DGIG) contributed $32 million to the Group's results for the third quarter of 2009 compared to $25 million for the same period of 2008.

The loss experience in automobile insurance was comparable to the same quarter of 2008, but all subsidiaries reported more home insurance claims as a result of bad weather conditions in July.

Premium income grew at all the DGIG brands. The 3.3% increase in gross premiums written, from $362.2 million in the third quarter of 2008 to $374.2 million for the same period of 2009, was primarily due to growth in home insurance premiums. Investment income stood at $26.4 million for the quarter, compared to $6.6 million for the third quarter of 2008.

The combined contribution to the Group's results at the end of the first nine months of 2009 was $67 million, as compared to $38 million for the same period of 2008. DGIG's return on equity was 17.1%, compared to 11.7% on the same date one year earlier. This performance was primarily due to a favourable claims experience in automobile insurance and improved results in home insurance. Favourable climatic conditions in the first six months of 2009 and less frequent automobile claims in Québec continued to have a positive impact on claims ratios.

The improved return was also explained by greater investment income. Investment income since the start of 2009 stood at $68.9 million, compared to $43.0 million for 2008. This year, lower interest rates and narrower credit spreads resulted in higher bond values, and the portfolio reorganization conducted in the first quarter led to gains on bond dispositions.

The operating expense ratio was slightly higher than last year but continues to compare favourably with the industry as a whole.

DGIG's capitalization exceeds regulatory requirements by a wide margin, since the profits realized in 2009 and the significant increase in the value of equity investments have expanded equity.

Securities Brokerage, Asset Management and Venture Capital

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

This segment posted net earnings of $13 million in the third quarter of 2009 compared to a net loss of $7 million in the same quarter of 2008, bringing cumulative net income to $23 million for the first nine months of 2009 compared to a net loss of $10 million one year earlier. This improved financial performance was fostered by a gradual recovery in the markets, which had a favourable impact on securities and venture capital activities. It is nevertheless worth noting that the financial results for asset management activities declined, since in 2008 the damage produced by the financial crisis provoked a disinvestment program in the underlying investments for structured products. The full impact of this program was felt in 2009.

Other

    
    Since the first quarter of 2009, the "Other" segment has included the
    results of companies that were specifically created to hold the ABCPs
    repurchased by Desjardins Group and previously included in the Personal
    and Commercial segment. It should also be recalled that since the second
    quarter of 2009, all ABCP securities held by Desjardins Group are
    reported by this segment following their sale into newly created
    entities.
    

This segment posted $8 million in net income for the third quarter of 2009 compared to an $86 million net loss for the same quarter of 2008. This increase was due in part to a positive change in the fair value of the portfolio of restructured ABCP notes.

The Other segment posted a net loss of $21 million for the first nine months of 2009 compared to a net loss of $220 million for the same period one year earlier. These results were, above all, the result of a change in the fair value of the ABCP restructured notes portfolio and the write-off of an ABCP security excluded from the moratorium of the Montreal Accord.

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 rose $3 million after taxes compared to the first nine months of 2008. 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 Web site at: 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, andre.chapleau@desjardins.com; Raymond Laurin, Senior Vice-President, Finance, Treasury and Chief Financial Officer, Desjardins Group


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