Desjardins Group posts results for the first quarter of 2013 - Surplus earnings reach $378 million and assets surpass $200 billion
Strong business growth driven by the added value of the service offer
Desjardins, dedicated to serving its members and committed to developing communities
- Ranked third among Most Sustainable Co-operatives in the World according to the Toronto-based magazine Corporate Knights.
- Among the 30 best employers in Quebec according to an Aon Hewitt study.
- More assistance to SMEs with the launch of Phase II of the Capital Croissance PME fund, which is funded by Capital régional et coopératif Desjardins and the Caisse de dépôt et placement du Québec.
- Giving a total of $52 million back to members and the community in the first quarter, including the provision for member dividends, sponsorships and donations.
Desjardins, an outstanding and growing organization
- Surplus earnings before member dividends of $378 million in the first quarter of 2013.
- Tier 1a capital ratio of 16.0% under the new Basel III rules, attesting to Desjardins Group's financial stability.
- Operating income up 3.1%, to $2.9 billion for the first quarter.
- Residential mortgage loans outstanding up $6.0 billion, or 7.4%, over the year to $86.6 billion.
- Acquisition of 40% of the outstanding shares of Qtrade Financial Group, one of Canada's leading online brokers.
- Announcement on April 5 of the creation of an international payment solutions partnership by Desjardins Group and Crédit Mutuel-CIC Group, from France.
- AccèsD Services client contact centres received COPC certification for the ninth consecutive year.
Key Financial Data
|FINANCIAL POSITION AND KEY RATIOS|
|(in millions of $ and as a %)||
As at March 31,
As at December 31,
|Assets (1)||$ 201,633||$ 196,818|
|Equity(1)||$ 15,991||$ 15,459|
|Tier 1a capital ratio(2)||16.0||%||N/A|
|Total capital ratio(2)||18.9||%||19.3||%|
|Gross impaired loans/gross loans ratio||0.35||%||0.35||%|
For the quarters ended
|(in millions of $ and as a %)||2013||2012(1)||Change|
|Operating income||$ 2,859||$ 2,773||3.1||%|
|Surplus earnings before member dividends||$ 378||$ 398||(5.0)||%|
|Return on equity||9.8||%||11.7||%||―|
|(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|
|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+|
LÉVIS, QC, May 10, 2013 /CNW Telbec/ - At the end of the first quarter ended March 31, 2013, Desjardins Group (www.desjardins.com), the leading financial cooperative group in Canada, posted $378 million in surplus earnings before member dividends, compared to $398 million for the same quarter of 2012. For purposes of comparison, the data from 2012 have been restated in accordance with the application of new accounting policies that took effect on January 1, 2013. Return on equity was 9.8%, compared to 11.7% for the same quarter of 2012.
"Our caisse network and our insurance companies have posted strong business volume growth," explained Monique F. Leroux, Chair of the Board, President and Chief Executive Officer. "This is clear evidence of the added value of our service offer. However, the low interest rate environment has affected our profit margin and profitability, which we take as an incentive to continue exercising sound and prudent management of the Group's affairs. This includes maintaining the Group's solid capitalization, which remains one of the best in the Canadian financial industry."
Operating income for this first quarter was $2,859 million, up $86 million or 3.1% compared to the same quarter of 2012. Despite the fact that the overall loan portfolio grew $8.0 billion or 6.3% over the last year, net interest income suffered due to the low interest rate environment, falling $30 million in the first quarter of 2013, to $934 million. Business growth in insurance activities generated a 7.7% increase in net premiums, which stood at $1,323 million. Other operating income reached $602 million, up $21 million or 3.6% from the same quarter of 2012.
Investment income for the first quarter of 2013 stood at $132 million, up $47 million or 55.3% compared to the same period last year. This increase was largely the result of investment income related to life and health insurance activities due to an increase in the fair value of assets used to support liabilities. This increase was partially offset by an increase in related actuarial liabilities.
The provision for credit losses for the first quarter of 2013 totalled $60 million, down $22 million or 26.8% compared to the same quarter of 2012. This change resulted from an adjustment to the credit allowance due to changes in credit risk developments in 2012.
Expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities came to $921 million, up $175 million or 23.5% from the same quarter of 2012. This change was primarily due to an increase in actuarial liabilities included under "Insurance and investment contract liabilities," in particular as a result of changes in the fair value of investments. It should be recalled that particularly mild weather conditions in the first quarter of 2012 led to lower claims for the period.
Non-interest expense reached $1,528 million, up $12 million or 0.8% compared to the first quarter of 2012. This was primarily due to an expansion of the workforce to support business growth and the annual indexing of salaries.
A total of $52 million was given back to members and the community in the first quarter, including donations and sponsorships. The provision for member dividends was $36 million compared to $51 million for the same period last year. Each of these amounts takes into account the adjustment to the previous year's provision. Desjardins Group's approach to distributing surplus earnings seeks a healthy balance between development and capitalization, for the benefit of members and clients.
Assets of $201.6 billion, up 2.4%
As at March 31, 2013, Desjardins Group had $201.6 billion in total assets, up $4.8 billion or 2.4% from December 31, 2012. Despite a less favourable economic environment, particularly in the housing market, demand for credit remained vigorous as shown by the sustained growth in loan portfolio during the quarter.
As at March 31, 2013, the loan portfolio, net of the allowance for credit losses, was $134.1 billion, up $1.5 billion or 1.1% since December 31, 2012. Residential mortgage loans, which accounted for 64.4% of the total credit portfolio on the same date, grew $705 million or 0.8% during the first quarter of 2013, to $86.6 billion. These are excellent results given the pronounced slowdown in the Quebec and Ontario housing markets during this period. And this is a clear indication that the caisses are providing services that are aligned with their members' needs.
Loans to business and government grew $809 million or 2.8% over the same period, to $29.4 billion at the end of the first quarter.
Quality loan portfolio
The quality of Desjardins Group's loan portfolio remains excellent. As at March 31, 2013, gross impaired loans outstanding stood at $469 million, up $3 million from December 31, 2012. The ratio of gross impaired loans to the total gross loan portfolio was 0.35% at the end of the first quarter. This was identical to the ratio obtained as at December 31, 2012. It remains one of the best ratios in Canadian banking.
Savings recruitment grows
As at March 31, 2013, Desjardins Group's outstanding deposits stood at $131.1 billion, up $1.4 billion or 1.1% from December 31, 2012. Personal savings grew $1.1 billion or 1.3% over the same period, to $85.5 billion. It should be mentioned that personal savings represented 65.3% of the total loan portfolio on this date.
Deposits from businesses and governments increased $259 million, or 0.6%, since the end of fiscal 2012, to $43.3 billion as at March 31, 2013. Deposits from deposit-taking institutions and other sources stood at $2.2 billion on the same date, up $70 million or 3.2% at the end of the first quarter of 2013.
A strong capital base
Despite applying new capitalization rules (the Basel III Accord), Desjardins Group continues to be one of the best capitalized financial institutions in Canada. Its Tier 1a and total capital ratios were 16.0% and 18.9%, respectively, as at March 31, 2013, well above the 15% objective set by Desjardins Group. The Tier 1 and total capital ratios as at December 31, 2012 were 16.8% and 19.3%, respectively. However, because of the changes to the regulatory framework, the ratios for the first quarter of 2013 cannot be compared to the fiscal 2012 ratios.
Stable and diversified funding
In order to ensure stable and diversified funding, Caisse centrale Desjardins (CCD) diversifies its sources of financing on the institutional capital markets.
This strategy led CCD to participate in new issues of mortgage securities under the National Housing Act as part of the Canada Mortgage Bonds Program. In the first three months of 2013, CCD was active in this market for a total participation of $465 million.
Credit ratings still among the best in the country
In the first quarter of 2013, Moody's downgraded the credit ratings of CCD and Capital Desjardins inc. as well as the ratings of five other Canadian financial institutions. The agency stated that this decision was essentially due to the economic situation in Canada, which shows troubling signs, including high household debt levels and elevated housing prices.
Even after the downgrade, the credit ratings of CCD and Capital Desjardins inc. remain among the best in Canada and compare favourably with those of several large international and Canadian financial institutions.
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, but also by its Desjardins Business Centres and the major accounts team. The segment also makes its products available through complementary distribution networks and mortgage representatives, by phone, online, via applications for mobile devices, as well as at ATMs.
For the first 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 $169 million, down $11 million or 6.1% from one year earlier.
The segment posted operating income of $1,303 million, down $24 million from the same quarter of 2012. This decline resulted from a $17 million or 1.9% decrease in net interest income, mainly due to the ongoing low interest rate environment. The drop in net interest income was mitigated by an $8.3 billion increase in the entire portfolio of outstanding loans over the last year. Other operating income declined $7 million or 1.7% from the first quarter of 2012, to $409 million.
Investment income stood at $17 million, down $34 million from one year earlier. This was primarily due to the disposal of an investment that generated a non-recurring $21 million gain in the first quarter of 2012 and a lower return on the caisse network's surplus liquidities and investments due to the ongoing low interest rate environment. This decrease was offset by higher trading income as a result of a market environment that was less volatile than one year earlier.
The provision for credit losses was $60 million in the first quarter of 2013, down $22 million or 26.8% from the same quarter of 2012. The change was due to a credit allowance adjustment following changes in credit risk developments in 2012.
Non-interest expense for the quarter was $1,047 million, $12 million or 1.1% less than the same period of 2012. The difference was due to a lower pension expense, which was partially offset by growth in the sector's operations and credit card rewards program.
Wealth Management and Life and Health Insurance
The Wealth Management and Life and Health Insurance segment offers the members and clients of Desjardins Group a range of services tailored to the changing wealth management and financial security needs of individuals, groups, businesses and cooperatives. These products and services are distributed through the caisse network and complementary distribution networks, by phone, online and via applications for mobile devices.
For the first quarter of 2013, the segment posted $126 million in surplus earnings, up $69 million or 121.1% from the same quarter of 2012. The increase was essentially due to life and health insurance activities.
Operating income stood at $1,100 million, up $70 million due to a $61 million increase in net insurance premiums, while annuity premiums fell $10 million. Group insurance premiums purchased increased 9.1% compared to the first quarter of 2012. Other operating income rose $19 million, primarily due to growth in assets under management arising from the distribution of various savings products. Investment income increased $119 million to $39 million, compared to an $80 million loss recorded in the same quarter of 2012. This difference was largely the result of an increase in investment income associated with life and health insurance activities due to an increase in the fair value of assets used to support liabilities. The increase was offset by changes in actuarial liabilities.
Expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities totalled $547 million, up $92 million or 20.2% from the first quarter of 2012. The increase was due to a $44 million increase in benefits, arising primarily from growth in group insurance activities. It was also due to the $35 million increase in actuarial liabilities included in "Insurance and investment contract liabilities," which included a $106 million increase in the fair value of investments and a $41 million downward adjustment resulting from a review of certain actuarial assumptions.
Non-interest expenses for the first quarter of 2013 came to $424 million, an increase of $4 million or 1.0%, compared to the corresponding quarter in 2012.
Property and Casualty Insurance
The Property and Casualty Insurance segment offers insurance products that provide the members and clients of Desjardins Group with protection in the event of a loss. It includes the activities of Desjardins General Insurance Group Inc. and Western Financial Group Inc. In addition to being sold through the caisse network, the products of this segment are distributed by many Client Contact Centres and Desjardins Business Centres, by a network of brokers, by a network of exclusive agents in the field, over the Internet and via applications for mobile devices.
This segment's surplus earnings for the first quarter were $24 million, down $44 million or 64.7% from the same period of 2012. This decrease was primarily due to a less favourable loss ratio in 2013 in all segments and in all parts of the country.
Operating income was $551 million, due in large part to a $49 million increase in net premium income as a result of an increase in policies issued following multiple growth initiatives. All segments and regions contributed to this increase. Other operating income was up $4 million, essentially because of higher commission income from Western Financial Group Inc. Investment income was down $4 million from the end of the same period of 2012, to $29 million. This decline was nevertheless mitigated by the gains realized on disposals of investments, offset by an increase in the value of investments in 2013 (compared to a decrease recorded in the same quarter of 2012).
The loss ratio for property and casualty segment's insurers rose from 63.3% in the first quarter of 2012 to 74.8% one year later. The main cause was an increase in claims as a result of less favourable weather in early 2013. The loss ratio for the first quarter of 2013 was more representative of past claims experience for this time of year. It should be recalled that the weather was particularly mild in the first quarter of 2012, and this resulted in fewer claims during the period.
Non-interest expense was $173 million at the end of the quarter, up $15 million or 9.5% from the same period of 2012. This increase is mainly attributable to Western Financial Group Inc., given the growth in its activities.
The "Other" category does not correspond to a specific area of activities. It mainly includes treasury activities related to the operations of Caisse centrale Desjardins and financial intermediation between the caisses' liquidity surpluses and needs. The segment also includes the results for the Federation's support functions, the activities of Capital Desjardins Inc., those of Fonds de sécurité Desjardins and operating results related to the asset-backed term notes (ABTN) held by Desjardins Group. The category also includes Desjardins Technology Group, which brings together all of Desjardins Group's IT-related activities. In addition to the various adjustments required to prepare the interim combined financial statements, this category captures eliminations of inter-segment balances.
Surplus earnings before member dividends for the Other category stood at $59 million, mainly due to a $27 million 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.
Cooperating in building the future
Ranked 23rd among the World's Safest Banks 2013 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 the social and economic well-being of people and communities. For more information, visit: www.desjardins.com.
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.
SOURCE Desjardins Group