Desjardins Group continues developing business, ending its third quarter with $414 million in surplus earnings
Desjardins Group's strength recognized by the Bloomberg News agency, which ranks it 13th among the world's 20 strongest banks
Highlights
Desjardins, an outstanding and growing organization
- Surplus earnings before member dividends of $414 million for the third quarter of 2013 and $1,179 million for the first nine months of 2013.
- Asset growth of close to 7% since the beginning of the year, to $210.0 billion.
- Residential mortgages outstanding up $4.1 billion or 4.8% since December 31, 2012, to $90.1 billion.
- Tier 1a capital ratio of 16.4%, attesting to Desjardins Group's financial stability.
- Held on to the 4th position in the annual ranking of North America's safest banks, ahead of all the U.S. banks, according to the New York magazine Global Finance.
- Issuances by Caisse centrale Desjardins in October 2013, of medium-term notes in amounts of $400 million and US $500 million respectively on the Canadian and U.S. markets.
Desjardins, a cooperative financial group dedicated to serving its members and communities
- Launch of Desjardins Wealth Management, a one-stop service in which advisors are supported by experts in investment, financial security and wealth management.
- Launch of Life LTC Advance, Canada's first-ever life insurance policy to offer additional income to elderly people requiring home care.
- Development for non-profit humanitarian community organizations of a unique service that is better suited to their reality.
- Recognized by Mediacorp Canada as one of Canada's 100 Top Employers for a third consecutive year.
Key Financial Data
| FINANCIAL POSITION AND KEY RATIOS | ||||
| (in millions of $ and as a %) | As at September 30, 2013 | As at December 31, 2012 | ||
| Assets (1) | $210,048 | $196,818 | ||
| Equity (1) | $17,292 | $15,459 | ||
| Tier 1a capital ratio (2) | 16.4 | % | N/A | |
| Total capital ratio (2) | 19.2 | % | 19.3 | % |
| Gross impaired loans / gross loans ratio | 0.35 | % | 0.35 | % |
| COMBINED INCOME | ||||||||||||
| For the quarter ended September 30 |
For the nine-month period ended September 30 |
|||||||||||
| (in millions of $ and as a %) | 2013 | 2012(1) | Change | 2013 | 2012(1) | Change | ||||||
| Operating income | $2,994 | $2,827 | 5.9 | % | $8,792 | $8,436 | 4.2 | % | ||||
| Surplus earnings before member dividends | $414 | $419 | (1.2) | % | $1,179 | $1,197 | (1.5) | % | ||||
| Return on equity | 9.7 | % | 11.5 | % | - | 9.6 | % | 11.3 | % | - | ||
| CONTRIBUTION TO CONSOLIDATED SURPLUS EARNINGS, BY BUSINESS SEGMENT |
||||||||||||
| For the quarter ended September 30 |
For the nine-month period ended September 30 |
|||||||||||
| (in millions of $ and as a %) | 2013 | 2012(1) | Change | 2013 | 2012(1) | Change | ||||||
| Personal Services and Business and Institutional Services | $240 | $226 | 6.2 | % | $606 | $600 | 1.0 | % | ||||
| Wealth Management and Life and Health Insurance | 94 | 83 | 13.3 | 312 | 185 | 68.6 | ||||||
| Property and Casualty Insurance | 51 | 23 | 121.7 | 122 | 136 | (10.3) | ||||||
| Other | 29 | 87 | (66.7) | 139 | 276 | (49.6) | ||||||
| $414 | $419 | (1.2) | % | $1,179 | $1,197 | (1.5) | % | |||||
| (1) | Data for 2012 have been restated in accordance with the application of new accounting policies that took effect on January 1, 2013. |
| (2) | Ratios for 2013 have been calculated according to the guideline on adequacy of capital base standards applicable to financial services cooperatives, issued by the AMF under the Basel III Accord, while the ratios for 2012 were calculated under the Basel II Capital Accord. |
| 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+ | |
| Senior medium and long term | AA | A+ | Aa2 | AA- | |
| Capital Desjardins inc. | |||||
| Senior medium and long term | AA (low) | A | A2 | A+ | |
Results for the third quarter of 2013
LÉVIS, QC, Nov. 13, 2013 /CNW Telbec/ - For the third quarter ended September 30, 2013, Desjardins Group, the leading cooperative financial group in Canada and the fifth largest in the world, as ranked by the World Co-operative Monitor, recorded surplus earnings before member dividends of $414 million, compared to $419 million in the corresponding quarter of 2012. Return on equity was 9.7%, compared to 11.5% for the same quarter of 2012. This decline was primarily due to the issuance of $1.5 billion in capital shares by the Fédération des caisses Desjardins du Québec.
"This quarter was marked by strong growth in our loan portfolio and particularly in mortgage loans, a market in which the performance of Desjardins caisses continues to stand out," said Monique F. Leroux, Chair of the Board, President and CEO. "The result has been a 7% increase in assets to $210 billion. The Group's other segments contributed to these results as well, including Life and Health Insurance segment and the Property and Casualty Insurance segment, whose subsidiaries do very well across Canada. The Group therefore continues to develop business, with an emphasis on satisfying its members and clients through an integrated service offer that we adapt to their changing needs."
Operating income was $2,994 million, up $167 million or 5.9% compared to the same quarter of 2012.
Growth in the loan portfolio allowed the Group to maintain net interest income at $975 million for the quarter, despite strong competition in the market, which placed pressure on margins. Business growth related to insurance activities generated a $102 million or 8.0% increase in net premiums, which reached $1,380 million. Other operating income was $639 million, up $57 million or 9.8% compared to the same quarter of 2012. This increase was in part due to growth in brokerage activities, credit card activities and point-of-sale financing as well as greater assets under management.
Investment income decreased $388 million, mainly due to changes in the fair value of assets associated with the life and health insurance activities supporting the liabilities. This decline was offset by the change in actuarial liabilities, leading to a $342 million decrease in expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities. This was mainly due to the increase in short-term and medium-term interest rates in 2013.
The provision for credit losses for the third quarter of 2013 totalled $76 million, up $26 million or 52.0% compared to the same quarter of 2012. This change resulted from growth in the loan portfolio and a downward adjustment to the collective allowance recorded in 2012 due to changes in credit risk.
Non-interest expense stood at $1,473 million, up $74 million or 5.3% compared to the third quarter of 2012. This increase was in particular due to sustained business development, which expanded the payroll, as well as annual indexing. Non-interest expense for the third quarter of 2013 also takes into account integration of the operating expenses of Qtrade Canada Inc. in an amount of $12 million, after an interest was acquired in this business in the second quarter of 2013.
The productivity index was 69.8% for the third quarter, compared to 70.3% at the end of same quarter of 2012. The productivity index is established by calculating the ratio of non-interest income to total income, net of claims, benefits, annuities and changes in insurance and investment contract liabilities.
Desjardins Group has continued to exercise caution when allocating surplus earnings in response to enhanced capitalization requirements (the result of regulatory changes affecting financial institutions around the world) as well as the ongoing low interest rate environment, which has had an impact on the profitability of the caisses. The provision for member dividends for the third quarter was therefore $50 million, compared to $73 million for the same period of 2012. It should be noted that this provision is not established on the Group's total surplus earnings but rather on part of the caisse's surplus earnings, based on a percentage approved by a vote at the general meeting of each savings and loan cooperative. Added to this is an amount of $20 million given to various organizations as donations and sponsorships, including bursaries. By the end of this quarter, Desjardins Group had therefore returned a total amount of $70 million to the community, compared to $90 million in the same period of 2012.
"The caisses' involvement in their communities represents the finest expression of our difference, whether this is through their Community Development Fund, which supports many development projects in our communities, bursaries awarded to students or donations and sponsorships to various local organizations," added Ms. Leroux.
Results for the first nine months of 2013
Surplus earnings for the first nine months of the year were $1,179 million, compared to $1,197 million for the corresponding period of 2012. Operating income was $8,792 million, up $356 million or 4.2% from the first nine months of 2012.
Net interest income for the first nine months of 2013 stood at $2,862 million, which was similar to the amount posted one year earlier, essentially due to strong competition in the market. This situation, combined with a low interest rate environment, placed pressure on interest margins and, in particular, on those in the caisse network, despite a growing loan portfolio. Business growth related to insurance activities generated a $242 million or 6.4% increase in net premiums, which came to $4,043 million. Other operating income stood at $1,887 million, up $152 million or 8.8% compared to the first nine months of 2012.
Investment income decreased $1,350 million, mainly due to changes in the fair value of assets associated with the life and health insurance activities supporting the liabilities. This decline was offset by the change in actuarial liabilities, leading to a $1,197 million decrease in expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities. These changes were primarily due to increases in short-term and medium-term interest rates in 2013.
The provision for credit losses was $204 million, up $10 million or 5.2% compared to the same period of 2012. This change resulted from growth in the loan portfolio, which was partially offset by the downward adjustment to the collective allowance recorded in 2012, due to changes in credit risk.
Non-interest expense reached $4,534 million, up $231 million or 5.4% compared to the first nine months of 2012, for the same reasons as given for the third quarter. It should also be noted that the reversal in 2012 of provisions related to the investment portfolio had a major impact, reducing non-interest expense.
Assets of $210.0 billion, up 6.7%
As at September 30, 2013, Desjardins Group had total assets of $210.0 billion, up $13.2 billion or 6.7% from December 31, 2012. This sustained growth came from credit demand, as evidenced by the growth in the loan portfolio since the beginning of fiscal 2013.
As at September 30, 2013, the loan portfolio, net of the allowance for credit losses, was $138.8 billion, up $6.2 billion or 4.7% since December 31, 2012. Residential mortgage loans, which accounted for 64.7% of the total credit portfolio, grew $4.1 billion or 4.8% during the first nine months of 2013, to $90.1 billion. This growth was achieved despite a highly competitive environment and a slowdown in the Quebec and Ontario housing markets during this period.
Business and government loans grew $1.4 billion or 4.8% over the same period, to $29.9 billion at the end of the first nine months of 2013.
Quality loan portfolio
The quality of Desjardins Group's loan portfolio remains excellent. At the end of the third quarter, gross outstanding impaired loans stood at $485 million, representing a slight $19 million increase from December 31, 2012. As at September 30, 2013, the ratio of gross impaired loans to the total loan portfolio was 0.35%, identical to the ratio obtained as at December 31, 2012. The Group's ratio remains one of the best in Canadian banking.
Savings recruitment grows
As at September 30, 2013, Desjardins Group's outstanding deposits stood at $135.4 billion, up $5.8 billion or 4.5% from December 31, 2012. Personal savings totalled $85.2 billion, up $737 million or 0.9%, and represented 62.8% of the total portfolio.
Deposits from businesses and governments increased $4.4 billion, or 10.3%, since the end of fiscal 2012, to $47.5 billion as at September 30, 2013. Deposits from deposit-taking institutions and other sources stood at $2.8 billion on the same date, up $645 million or 29.6% at the end of the first nine months of 2013.
A strong capital base
Despite application of the Basel III capitalization rules, Desjardins Group continues to be one of the best capitalized financial institutions in Canada. Its Tier 1a and total capital ratios were 16.4% and 19.2%, respectively, as at September 30, 2013. The Tier 1a capital ratio was well above the 15% objective set by Desjardins. The Tier 1 and total capital ratios as at December 31, 2012 were 16.8% and 19.3%, respectively, as measured under the Basel II Accord.
Results by business segment
Personal Services and Business and Institutional Services
Results for the third quarter of 2013
For the third quarter of 2013, surplus earnings before member dividends attributable to the Personal Services and Business and Institutional Services segment, on the strength of a large network of caisses with close ties to their members and clients, were $240 million, up $14 million or 6.2% from the same quarter of 2012. This increase was essentially due to business growth related to credit activities, combined with the tight control exercised over non-interest expense.
"In response to the specific needs of our younger clients, we developed our Youth financial plan, which includes a balance sheet and a list of typical projects undertaken by young people 18-30 years old," said Ms. Leroux. "We have also recently announced the creation of over 350 jobs at Trois-Rivières where we are locating our third call centre to improve service delivery to the members of our caisses."
"Additionally, business sustainability remains an important issue," continued Ms. Leroux. "This is why we are pursuing more opportunities to support entrepreneurs in their business transfer projects, thereby encouraging local business ownership and maintaining valuable jobs in our regions. We have also developed a unique service offer for non-profit humanitarian community organizations that is better suited to their reality."
The segment's operating income totalled $1,377 million, up $47 million. A slight, $8 million increase in net interest income was sustained by $7.9 billion or 6.2% growth in the entire portfolio of outstanding loans over the last year, despite the pressure exercised on margins by strong market competition and low interest rates that had a negative impact on net interest income. Other operating income increased $39 million or 9.7% compared to the third quarter of 2012. This increase was primarily due to growth in credit card activities, point-of-sale financing and the caisse network's sales of miscellaneous Desjardins products developed by subsidiaries, as well as greater income generated by various programs.
The provision for credit losses for the third quarter of 2013 totalled $76 million, up $26 million or 52.0% compared to the same quarter of 2012. This change resulted from growth in the loan portfolio and a downward adjustment to the collective allowance recorded in 2012, due to changes in credit risk.
Non-interest expense stood at $1,000 million, up $14 million or 1.4% from the same period of 2012.
Results for the first nine months of 2013
Surplus earnings before member dividends attributable to the Personal Services and Business and Institutional Services segment in the first nine months of 2013 were $606 million, comparable to the amount posted for the same period in 2012.
Operating income totalled $4,037 million, up $67 million or 1.7% due to growth in activities.
Wealth Management and Life and Health Insurance
Results for the third quarter of 2013
The segment's net surplus earnings for the third quarter were $94 million, up $11 million or 13.3% from the same period of 2012. The increase was essentially due to life and health insurance activities.
"Recently, we launched Desjardins Wealth Management, a new offer under which each caisse has all the expertise that members and clients may require in investments, financial security and private management," said Ms. Leroux. "This segment has also developed new insurance and savings products to meet specific needs expressed by members and clients."
Operating income stood at $1,141 million, up $102 million or 9.8% from the third quarter of 2012. Net insurance and annuity premium income for the third quarter of 2013 was $888 million, compared to $828 million for the same period of 2012, an increase of 7.2%. More specifically, net insurance premiums grew 9.4%, to $847 million. This growth came essentially from group insurance activities, which increased $67 million.
Other operating income grew $42 million or 20.0% as a result of income on the sale of brokerage services generated by Qtrade Canada Inc. and growth in assets under management arising from the sale of various products.
Investment income declined $360 million due to changes in the fair value of assets associated with the life and health insurance activities supporting the liabilities. This decline was offset by the change in actuarial liabilities, leading to a $326 million decrease in expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities. These changes were mainly due to increases in short-term and medium-term interest rates in 2013.
Non-interest expense was $431 million, up $41 million or 10.5% from the same quarter of 2012. This increase was primarily due to an $11 million increase in the remuneration paid to the caisses, increased salaries and fringe benefits, and the integration of $15 million in operating expenses arising from the interest acquired in Qtrade Canada Inc.
Results for the first nine months of 2013
The segment's net surplus earnings for the first nine months were $312 million, up $127 million or 68.6% compared to the same period of 2012.
Operating income grew due to a $123 million increase in net premium income and income from QTrade Canada Inc. It should also be noted that the change in investment income due to changing interest rates was offset by a change in expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities, for the same reasons as explained for the quarter.
Property and Casualty Insurance
Results for the third quarter of 2013
Net surplus earnings from this segment were $51 million, up $28 million or 121.7% compared to the same quarter of 2012. This quarter was marked by growth in premium income and an improved claims experience.
"Once again, our property and casualty insurance company has brought our values to the fore," said Ms. Leroux. "Through an agreement signed with the Red Cross, Desjardins Insurance will allow our members who do not have home insurance and who are affected by a disaster to be referred by Red Cross volunteers to the Desjardins Support Fund. In the same spirit, Western Financial Group, which operates a large brokerage network in Western Canada, has made a substantial contribution to the Western Communities Foundation."
The segment's operating income totalled $596 million, up $55 million. This growth was due to a $44 million or 8.7% increase in net premiums, generated by the growing number of policies issued. This increase is the result of many growth initiatives across all market segments and regions.
Investment income declined $14 million from the same period of 2012.
The loss ratio for property and casualty segment's insurers went from 77.5% in the third quarter of 2012 to 71.1% for the same period of 2013. This improvement was primarily due to a lower cost for losses, despite the Lac-Mégantic tragedy, the flooding experienced in Toronto and the heavy rain and violent winds that hit Quebec during the quarter. It should be noted that difficult weather conditions in Quebec at the end of the third quarter of 2012 led to many higher claims during this period.
Non-interest expense for the third quarter was $183 million, up $20 million or 12.3% compared to the same period of 2012. This increase was mainly due to business growth in the segment, which led to an increase in salaries and fringe benefits as well as all other expenses, including commissions.
Results for the first nine months of 2013
Net surplus earnings for this segment were $122 million, down $14 million or 10.3% compared to the same period of 2012.
Operating expenses grew as a result of a $128 million or 8.8% increase in net premiums. This increase is the result of many growth initiatives across all market segments and regions.
Other
Results for the third quarter of 2013
Net surplus earnings from the activities grouped in the Other category stood at $29 million for the third quarter of 2013, compared to $87 million for the same period of 2012. The surplus earnings were, among other things, attributable to a positive change in the fair value of the ABTN portfolio, net of hedging positions; treasury activities; and surplus earnings from investments made by the Fonds de sécurité Desjardins, as well as the net favourable impacts of changes in the fair value of derivatives associated with hedging activities.
Results for the first nine months of 2013
Net surplus earnings totalled $139 million at the end of the first nine months of 2013, compared to $276 million for the corresponding period one year earlier. In 2012, an adjustment to provisions on the investment portfolio had a favourable impact on net surplus earnings.
About Desjardins Group
Desjardins Group is the fifth largest cooperative financial group in the world with assets close to $210 billion. To meet the diverse needs of its members and clients, Desjardins offers a full range of products and services through its extensive distribution network, online platforms and subsidiaries across Canada. The group has one of the highest capital ratios and credit ratings in the industry, and outranks all American banks as the fourth safest and strongest bank in North America according to Global Finance magazine and Bloomberg News respectively. In keeping with their cooperative nature, Desjardins Caisses' surplus earnings are reinvested into the communities they serve.
Caution concerning forward-looking statements
Certain statements made in this press release may be forward-looking. Forward-looking statements, by their very nature, are subject to inherent risks and uncertainties that may be general or specific and are based on several assumptions which may give rise to the possibility that actual results or events could differ materially from our expectations expressed in or implied by such forward-looking statements. Various factors beyond Desjardins Group's control could influence the accuracy of the forward-looking statements in this press release. 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 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.
For more detailed financial information, consult the MD&A on the SEDAR information site.
SOURCE: Desjardins Group
(for journalists only):
André Chapleau
Spokesperson
Desjardins Group
514 281-7229
1 866 866-7000, ext. 7229
[email protected]
Daniel Dupuis, CPA, CA
Senior Vice-President Finance and
Chief Financial Officer
Desjardins Group
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