Desjardins Group posts strong performance in the fourth quarter and records $1,582 million in surplus earnings for fiscal 2011
Feb 24, 2012, 09:31 ET
Total income for fiscal 2011 was up 14.4%, assets grew 6.3% and the capitalization ratio remains one of the best in the industry
LÉVIS, QC, Feb. 24, 2012 /CNW Telbec/ -
- Surplus earnings before member dividends of $427 million in the fourth quarter and $1,582 million for fiscal 2011.
- Giving a total of $401 million back to members and the community, including the provision for member dividends, sponsorships, donations and bursaries.
- Tier 1 capital ratio of 17.3%, attesting to Desjardins Group's financial stability.
- Desjardins Group (www.desjardins.com/en) is recognized around the world as a financial institution with a solid foundation, and with credit ratings among the best in the Canadian industry.
- Total asset growth of 6.3%, to $190.1 billion as at December 31, 2011.
- Residential mortgage loans outstanding up $5.2 billion over the year, to total $79.7 billion.
- Quality loan portfolio, with a gross impaired loans ratio of 0.41%.
- Savings recruitment increased 7.6%, to $123.4 billion.
- Assets under administration grew $6.2 billion over the year to $283.3 billion.
- Robust growth in operations at Western Financial Group, a financial services company operating in Western Canada, acquired on April 15, 2011.
- Acquisition of mutual fund dealer MGI Financial on October 5, 2011.
- Agreement to acquire Staples/Bureau en gros Canada credit card portfolio.
- Recognized among the 10 best companies to work for in Canada for 2012.
- Implementation of the Co-opme Program, dedicated to financial education and cooperation.
- Launch of the United Nations International Year of Cooperatives.
- Opening of a representation office in Paris, in January 2012.
| For the years
ended December 31
| For the three months
ended December 31
in millions of $ and as a %)
|Net interest income||$3,921||$3,892||0.7||%||$1,007||$982||2.5||%|
|Surplus earnings before member dividends||$1,582||$1,386||14.1||%||$427||$171||149.7||%|
|Return on equity||12.2||%||12.2||%||―||11.9||%||5.6||%||―|
Key Financial Data
In 2011, Desjardins Group adopted as a new basis of accounting the International Financial Reporting Standards (IFRS) to prepare its financial statements. This transition has had no significant impact on its financial results and its operations. The financial data from 2010 have been restated accordingly.
|FINANCIAL POSITION AND KEY RATIOS|
|As at Dec. 31, 2011||As at Dec. 31, 2010|
|Tier 1 capital ratio (1)||17.3||%||17.7||%|
|Total capital ratio (1)||19.3||%||18.7||%|
|Gross impaired loans/gross loans ratio||0.41||%||0.43||%|
|(1)||As required by the Autorité des marchés financiers, the 2011 regulatory capital ratios are calculated using financial data prepared in accordance with IFRS. The 2010 regulatory capital ratios were calculated using financial data prepared in accordance with Canadian GAAP.|
For the fourth quarter ended December 31, 2011, Desjardins Group, the leading cooperative financial group in Canada, posted surplus earnings before member dividends of $427 million, compared to $171 million for the same period of 2010. It should be noted that uncommon items affected profitability in the fourth quarter of 2010. Return on equity was 11.9%, compared to 5.6% for the same quarter of 2010.
"Both our caisse network and our business lines reported strong performance in the fourth quarter", said Monique F. Leroux, President and CEO. "Efforts made at all levels of the organization have allowed us to post year-end surplus earnings that provide compelling evidence of vigorous growth in our financial group."
The caisse network, Desjardins Card Services and the insurance subsidiaries continued to post strong growth in business volumes throughout the fourth quarter, allowing Desjardins Group to pursue business development in its various market segments. Surplus earnings growth during the quarter was also due to income attributable to treasury and investment activities.
"These achievements are due", added Ms. Leroux, "to the commitment and dedication of tens of thousands of elected officers and employees who serve our members and clients who number in the millions. We are particularly proud of the numerous recognitions we received this year, particularly of our rise among the 10 best companies to work for in Canada for the year 2012.
Results for fiscal 2011
For fiscal 2011, surplus earnings before member dividends were $1,582 million, up $196 million or 14.1% compared to 2010. Return on equity was 12.2%, unchanged from 2010.
"In 2011, Desjardins Group experienced growth in all of its business lines, expanded its member and client base as well as its employee base, and extended its financial services network, including through acquisitions made in Western Canada," said Ms. Leroux. "Our caisses continued to actively contribute to the vitality of their communities and support their local economies. In line with our mission, we have successfully launched our extensive Co-opme Program, dedicated to financial education and cooperation. Finally, in 2012, the International Year of Cooperatives, we will continue efforts to further promote cooperation and show its relevance and contribution to a pluralist economy."
Desjardins Group's approach to surplus earnings distributions seeks a healthy balance between development, capitalization and sustainability. For fiscal 2011, the provision for member dividends - calculated on the basis of surplus earnings of the caisse network - was $320 million, compared to $299 million in 2010. An additional amount of $81 million was returned to the community in the form of sponsorships, donations and bursaries. In all, $401 million was returned to members and their communities.
"As in other years, part of these surplus earnings will be used to consolidate our capitalization, which is our guarantee of safety in a still fragile economy. A stronger capital base will also help us grow by allowing us to support the projects of members and clients. We will also make major investments in information technologies in order to meet the ever growing expectations of our members and clients", explained Ms. Leroux.
Total income up 14.4%
Total income, consisting of net interest income, net premiums and other income, stood at $13,206 million, up $1,663 million or 14.4% from the same period of 2010. Net interest income, generated primarily in the Personal Services and Business and Institutional Services segment, remained relatively stable compared to 2010, at $3,921 million. Net premiums grew 11.3% to $4,851 million, mainly due to growth in life and health insurance and property and casualty insurance activities.
Other income stood at $4,434 million, up $1,143 million or 34.7%. This increase was mainly due to changes in the fair value of investments, which were largely offset by an increase in the actuarial provisions associated with life and health insurance activities. The growth in other income was also due to a $106 million contribution that resulted on consolidation of Western Financial Group, which was acquired during the year.
Expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities came to $5,292 million, up $1,156 million or 27.9% over the year. The change was primarily due to higher actuarial provisions under "Insurance and investment contract liabilities", which includes an increase in the fair value of investments. Furthermore, the benefit expense grew as a result of business growth.
Non-interest expense totalled $5,624 million compared to $5,380 million for the same period of 2010, up $244 million or 4.5%. This was essentially due to investments of $85 million in information technologies and $122 million to integrate the activities of Western Financial Group, as well as higher salaries and fringe benefits as a result of annual indexing.
The productivity index - calculated as non-interest expense to total income, net of expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities - was 71.1% for fiscal 2011, compared to 72.6% for fiscal 2010.
Quality loan portfolio
The quality of Desjardins Group's loan portfolio remains excellent. Gross impaired loans outstanding stood at $520 million as at December 31, 2011, compared to $512 million at the end of 2010. The ratio of gross impaired loans to total gross loan portfolio was 0.41% as at December 31, 2011, an improvement over the ratio of 0.43% posted on the same date last year. It should also be noted that loans guaranteed by governments and other public and parapublic institutions represented 28.9% of the total gross loan portfolio.
Assets of $190.1 billion, up 6.3%
As at December 31, 2011, Desjardins Group's total assets stood at $190.1 billion, up $11.2 billion or 6.3% from a year earlier, compared to an increase of $21.5 billion or 13.6%, at the end of 2010. In spite of the uncertainty of economic conditions in Canada and elsewhere in the world, the Group continued to expand in 2011 due to growth in its loan portfolio and securities.
As at December 31, 2011, the portfolio of outstanding loans, net of the allowance for credit losses, was up $6.9 billion, or 5.8%, on an annual basis, to $125.2 billion, compared to an increase of $8.0 billion, or 7.2%, in 2010 when the economic environment was more favourable.
Loans granted to individuals, comprising residential mortgages, consumer loans, credit card advances and other personal loans, form the largest category of the loan portfolio. As at December 31, 2011, these loans accounted for 77.7% of the entire loan portfolio, up slightly from the end of 2010. More specifically, loans outstanding to individuals, which totalled $97.7 billion at the end of December 2011, were up $5.7 billion, or 6.2% for the year, compared to an increase of $7.4 billion, or 8.7%, in 2010. The difference was due in part to the decline in residential construction and home resales in Quebec.
Moreover, Desjardins Group was also very active in business and government financing. Its loans outstanding in this sector, which stood at $27.9 billion as at December 31, 2011, were up $1.2 billion, or 4.4% for the year, compared with an increase of $518 million, or 2.0%, in 2010.
Savings recruitment grows 7.6%
Savings recruitment remained strong in 2011, totalling $123.4 billion as at December 31, 2011, up $8.7 billion or 7.6% from one year earlier. This compares with an increase of $8.5 billion or 8.0%, in 2010.
The composition of Desjardins Group's deposit portfolio remained practically the same in 2011. Savings entrusted by its members and clients - individuals, businesses and governments - still made up its main source of funding to ensure the growth of its operations. It formed a base that alone accounted for 90.3% of its deposit liabilities as at December 31, 2011, versus 90.6% at the end of 2010. Deposits by individuals, which stood at $82.5 billion at the end of 2011, were up $3.7 billion or 4.7% for the year, compared to an increase of $3.3 billion, or 4.4%, recorded a year earlier.
Sales of off-balance sheet savings products were affected by an economic environment unfavourable to business development in 2011 due to the substantial volatility in the world's financial markets. Outstanding off-balance sheet savings administered and managed by Desjardins for its members and clients totaled $48.6 billion as at December 31, 2011, up $160 million or 0.3% over the year. This compares with a growth of $6.1 billion, or 14.4%, recorded at year-end 2010.
A strong capital base
Desjardins Group is one of the best capitalized financial institutions in Canada: its Tier 1 and total capital ratios, measured under the Basel II regulatory framework , stood at 17.3% and 19.3%, respectively, as at December 31, 2011 (17.7% and 18.7%, respectively, as at December 31, 2010). Desjardins Group therefore still has excellent capitalization, with a Tier 1 capital ratio above its 15% objective. The high level of Tier 1 capital accordingly demonstrates the financial strength of Desjardins Group, even in a more challenging economic environment.
Stable and diversified funding
In order to keep its funding stable, Desjardins Group diversifies its sources of financing on the institutional capital markets. It therefore regularly trades on Canadian and international money markets when conditions are favourable. From time to time the Group makes public and private issuances of medium-term notes on all these markets.
This strategy led Caisse centrale Desjardins to issue debt securities on various markets during fiscal 2011. A first issuance of $500 million of medium term deposit notes was launched on the Canadian market, followed by an issuance of covered bonds on the U.S. market, for a total value of US$1.0 billion. This issuance, the first of its kind for Desjardins Group, was well received by investors.
Caisse centrale Desjardins continued to take part in the securitization market for mortgage loans guaranteed by the federal government under the Canada Housing Trust Program. In 2011 it participated in the Program's new issues in an amount of $1.5 billion. The Program's objective is to obtain a source of long-term financing at the lowest price on the market.
Results by business segment
Personal Services and Business and Institutional Services
The Personal Services and Business and Institutional Services segment offers Desjardins Group's members and clients a comprehensive range of standard financial services and products that are mainly distributed by the caisse network. Its products are also available through complementary networks.
For the fourth quarter of 2011, surplus earnings before member dividends attributable to the Personal Services and Business and Institutional Services segment were $290 million, up $55 million or 23.4% from the same period of 2010.
This segment's total income for the quarter grew $132 million or 10.4%, to $1,405 million. Net interest income declined $12 million or 1.2%, primarily due to low interest rates. Other income grew $144 million or 46.3%.
Results for 2011
For fiscal 2011, this segment posted $987 million in surplus earnings before member dividends, up 5.7% or $53 million from fiscal 2010.
Total income grew $222 million or 4.2%, to $5,454 million. These results include a $36 million or 1.0% increase in net interest income, generated in part by growth in residential mortgage and credit card loans outstanding. They were also due to a $1.4 billion increase in corporate credit commitments, clear evidence of the relevance of the Group's development strategies. Higher net interest income was also due to $237 million growth in the average volume of the medium-sized businesses segment and deposits from clients of banking services.
Other income increased $186 million or 12.0% due to increased sales, in the caisse network, of products designed by subsidiaries, growth in credit card business and increased assets under management.
The provision for credit losses rose $32 million or 15.7% since the end of fiscal 2010. This difference was mainly due to growth in loans outstanding.
Non-interest expense rose $105 million or 2.8% compared to fiscal 2010. This change was due in part to an increase in funds committed to information technology investments, Canada-wide development and the Co-opme Program, as well as the increased cost of the BONUSDOLLARS Reward Program. This weak growth in non-interest expense is testimony to rigorous cost control practised by this segment and in the caisse network.
Wealth Management and Life and Health Insurance
The Wealth Management and Life and Health Insurance segment offers Desjardins Group's members and clients a range of advisory services and products tailored to individuals' changing needs for wealth management and financial security. These products are distributed by the caisse network and through complementary networks.
For the fourth quarter of 2011, surplus earnings for the Wealth Management and Life and Health Insurance segment were $105 million, up $61 million or 138.6% from the same period of 2010.
The segment's total income for the quarter stood at $1,646 million, an increase of $602 million or 57.7% from the same period of 2010.
Results for 2011
For fiscal 2011, this segment's surplus earnings were $280 million, up $31 million or 12.4% from fiscal 2010. These excellent results were due in part to active financial management in business growth, rigorous cost control, investment management and optimized matching activities and despite a difficult environment of low interest rates and weak capital markets.
This segment's total income stood at $5,902 million, up $1,045 million or 21.5%. This growth was mainly due to the $715 million increase in investment income associated with life and health insurance activities, which was partly offset by an increase in life insurance actuarial liabilities. The growth was also due to a $209 million increase in net insurance premiums and a $37 million increase in net annuity premiums. Finally, other income also benefitted from growth in assets under management due to the distribution of various savings products.
Expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities were $3,994 million, up $913 million or 29.6% compared to fiscal 2010. The change was due to a $741 million increase in actuarial provisions included under "Insurance and investment contract liabilities", including an increase in the fair value of investments, and to a $164 million increase in benefits and annuities, mainly due to business growth.
Non-interest expense increased $104 million or 7.1%, to $1,560 million for fiscal 2011, due essentially to growth in fees on the sale of savings products, remuneration paid to the caisses and increased salaries and fringe benefits resulting from business growth and annual indexing.
Property and Casualty Insurance
The Property and Casualty Insurance segment directly offers a line of automobile and home insurance products to Desjardins members and clients, individuals and businesses alike. In addition to being sold through the caisse network, these products are distributed across Canada by several Client Contact Centres, over the Internet and, for some products, by smartphone. Since April 15, 2011, this segment includes the activities of Western Financial Group.
For the fourth quarter of 2011, surplus earnings for the Property and Casualty Insurance segment stood at $42 million, up $28 million from the same period of 2010.
This segment's total income for the quarter was $547 million in 2011, up $115 million or 26.6% compared to the same period of 2010.
Results for 2011
For fiscal 2011, this segment's surplus earnings were $144 million, up $13 million or 9.9% compared to fiscal 2010. The change was primarily due to the $16 million contributed by Western Financial Group since it was acquired on April 15, 2011.
This segment's total income for fiscal 2011 stood at $2,048 million, an increase of $416 million or 25.5% over fiscal 2010. This performance was due to a $261 million increase in net premiums, stemming from an increase in the number of policies issued due to growth initiatives that targeted mass markets and groups, both in Quebec and across the country. The development of white-label partnerships and business insurance should also be noted, as well as a higher average premium in certain segments, particularly in automobile insurance in Ontario. Western Financial Group contributed $71 million to net premiums since its acquisition. Other income grew $144 million, due in large part to a $106 million contribution from Western Financial Group and disposals of investments.
Expenses related to claims, benefits and changes in insurance contract liabilities increased $243 million or 23.0% compared to fiscal 2010. This change was mainly due to growth in the portfolio of automobile insurance policies in Ontario, which recorded a higher loss ratio than other business lines, particularly with respect to bodily injury coverage.
Furthermore, the decline in interest rates has increased the present value of the provisions for claims. The loss ratio (expenses related to claims divided by net premiums) was 72.8% in fiscal 2011, up 3.5 points over 2010. This change was due in part to Hurricane Irene, which affected southern Quebec and the Atlantic provinces, to higher insurance provisions for businesses, and to a higher loss ratio in property insurance compared to an exceptionally low ratio reported for fiscal 2010. Finally, an increase of $43 million is due to adding the activities of Western Financial Group.
Non-interest expense grew $161 million or 41.4%, primarily as a result of integrating Western Financial Group, which contributed $122 million to non-interest expense.
The "Other" category consists mainly of the treasury activities of Caisse centrale Desjardins and financial intermediation between the caisses' liquidity surpluses and needs. The segment also includes the activities of Capital Desjardins inc., the Fonds de sécurité Desjardins, the FCDQ's support functions, all asset-backed term notes (ABTN) held by Desjardins Group and various consolidation adjustments and eliminations of inter-segment balances. Finally, since January 1, 2011 the "Other" category includes a new entity, "Desjardins Technology Group", which brings together all Desjardins Group's IT-related activities.
For the fourth quarter, this segment recorded a deficit before member dividends of $10 million due to investments made to modernize information technologies and the net unfavourable impacts of changes in the fair value of derivatives, offset by treasury activities.
Results for 2011
For fiscal 2011, surplus earnings stood at $171 million; they were primarily attributable to treasury activities, favourable net impacts of changes in the fair value of derivatives used in hedging transactions, and a positive change in the fair value of ABTN portfolios and related items. To this should be added the investment income of Fonds de sécurité Desjardins. The segment's total surplus earnings also included investments related to modernizing information technologies, as per Desjardins Group's annual financial plan.
Cooperating in building the future
Ranked 20th among the World's 50 Safest Banks 2011 by Global Finance magazine, Desjardins Group, 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 economic and social well-being of people and communities. For more information, visit: www.desjardins.com.
For further information:
(for journalists only):
Director, Media Relations
1-866-866-7000, extension 7229
Raymond Laurin, FCA
Senior Vice-President, Finance
Treasury and Chief Financial Officer
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