Desjardins Group posts strong performance in the first quarter of 2012, reporting $421 million in surplus earnings
Total income increases 4.2% and assets are up 3.3%, to $196.4 billion
LÉVIS, QC, May 11, 2012 /CNW Telbec/ -
- Surplus earnings of $421 million in the first quarter of 2012, up 17.9% from the same quarter of 2011.
- Giving a total of $69 million back to members and the community, including the provision for member dividends, sponsorships, donations and bursaries.
- Residential mortgage loans outstanding increased $1.0 billion or 1.3% since the start of the year, to $80.7 billion.
- Quality loan portfolio, with a gross impaired loans ratio of 0.43%.
- Tier 1 capital ratio of 16.0% as at March 31, 2012, attesting to the institution's financial stability.
- Western Financial Group acquired Brown & Ward Insurance Ltd., a leading property and casualty insurance broker in Alberta, and Roblin Insurance Travel and Realty Agencies Ltd., based in Manitoba.
- Issuance of US$1.5 billion in medium-term covered bonds in the U.S. market.
- Credit ratings maintained by rating agencies.
- Ranked 18th among the World's Safest Banks 2012, according to a mid-year survey by Global Finance magazine (4th in North America).
Key Financial Data
For the first quarter ended March 31
(unaudited, in millions of dollars and as a percentage)
|Net interest income||$958||$967||(0.9)||%|
|Surplus earnings before member dividends||$421||$357||17.9||%|
|Return on equity||12.1||%||12.0||%||-|
FINANCIAL POSITION AND KEY RATIOS
(unaudited, in millions of dollars and as a percentage)
|As at March 31, 2012||As at December 31, 2011|
|Tier 1 capital ratio (1)||16.0||%||17.3||%|
|Total capital ratio||19.2||%||19.3||%|
|Gross impaired loans/gross loans ratio||0.43||%||0.41||%|
(1) The decline resulted from the end of the application of the deferred treatment, of equity related to investments in insurance subsidiaries, prescribed by the Autorité des marchés financiers, effective in 2012.
Results for the first quarter of 2012
For the first quarter ended March 31, 2012, Desjardins Group (www.desjardins.com) posted surplus earnings before member dividends of $421 million, compared to $357 million one year earlier, a 17.9% increase. Return on equity was 12.1%, compared to 12.0% for the same quarter of 2011.
A total of $69 million was given back to members and the community, compared to $81 million in the same quarter of 2011. This amount includes donations, sponsorships and bursaries as well as a $51 million provision for member dividends, compared to $65 million for the same period of 2011 due primarily to an $18 million downward adjustment recorded in 2011.
The caisse network, Desjardins Card Services and, in particular, the Property and Casualty Insurance segment posted strong growth in business volumes, allowing Desjardins Group to pursue business development in its various market segments.
The first quarter was also marked by increased other income due to a positive change in the fair value of certain investments and a more favourable claims experience than one year earlier, particularly in the Property and Casualty Insurance segment.
"In this the International Year of Cooperatives, these results show that Desjardins is capable of performing at a high level both as a cooperative and financially. We also contribute in a tangible way to the sustainable prosperity of our members, clients and their communities," said Monique F. Leroux, Chair of the Board, President and Chief Executive Officer. "Desjardins Group is in growth mode in terms of achieving sustainable development in Quebec and in the other provinces of Canada."
Surplus income up 17.9%
Total income for the quarter stood at $2,852 million, an increase of $115 million or 4.2% from the same period of 2011.
Net interest income declined slightly in the first quarter of 2012, to $958 million, compared to $967 million for the same period last year. This was primarily due to low interest rates combined with strong competition in mortgage lending.
Business growth in insurance activities resulted in a 6.0% increase in net premiums, to $1,228 million. This increase was mostly due to expanded group insurance activities and various growth initiatives undertaken in property and casualty insurance.
Other income stood at $666 million for the quarter, up $55 million or 9.0% from the same quarter of 2011. This was mainly due to a positive change in the fair value of certain investments and the disposal of investments. The increase was also due to $26 million in other income that was generated by Western Financial Group (acquired in the second quarter of 2011).
The provision for credit losses totalled $82 million for the first quarter of 2012, up $38 million compared to the corresponding quarter in 2011, primarily as a result of a collective allowance adjustment due to changes in credit risk, an increase in loans outstanding, and recoveries made in the first quarter of 2011.
Expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities came to $746 million, down $75 million or 9.1% from the same period of last year.
Non-interest expense grew $64 million to $1,470 million, up 4.6% from the first quarter of 2011. This was mainly due to the integration of the activities of Western Financial Group in an amount of $43 million. The rest came essentially from controlled annual growth in salaries and fringe benefits as a result of annual indexing.
The productivity index, calculated as the ratio of non-interest expense to total income, net of expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities, improved considerably, to stand at 69.8% for the first quarter, compared to 73.4% for the first quarter of 2011.
Growth strategy gives positive results
Desjardins Group actively pursues development opportunities across Canada and elsewhere in the world, with promising results. This can be seen in the various agreements that have been signed by the Group over the last few months and as part of its strategic plan. For example, the Group opened a representation office in Paris as part of a cooperation agreement with Crédit Mutuel de France; entered into an agreement with Coast Capital Savings, one of the largest financial cooperatives in Western Canada, for card services; implemented a service offer to support the development of cooperatives and mutuals; and, finally, launched an investment program to improve the Group's technological infrastructure and accelerate the digital transition underway in its caisse and subsidiary network.
Quality loan portfolio
The quality of Desjardins Group's loan portfolio remains excellent. Gross impaired loans stood at $548 million at the end of the first quarter, up $28 million from December 31, 2011. The ratio of gross impaired loans to the total gross loan portfolio was 0.43% at the end of the first quarter, slightly higher than the 0.41% posted for December 31, 2011 but still one of the best ratios in Canadian banking.
Assets grow 3.3%, to $196.4 billion
Desjardins Group's total assets grew $6.3 billion, or 3.3%, since December 31, 2011, to $196.4 billion. Most of this growth in the first quarter was provided by securities growth, including securities borrowed or purchased under reverse repurchase agreements, but it was also due to an increase in Desjardins Securities' receivables and, to a lesser extent, an expanded loan portfolio.
At the end of the first quarter of 2012, cash and deposits with financial institutions as well as securities stood at $43.8 billion, compared to $42.6 billion at the end of 2011. This represents an increase of $1.2 billion or 2.8%.
Still very active in home finance, Desjardins Group performed well in this market in the first quarter of 2012. Residential mortgage loans outstanding grew $1.0 billion or 1.3% since December 31, 2011, to $80.7 billion as at March 31, 2012. This type of financing accounted for 63.8% of the portfolio at the end of the quarter, 29.3% of which was guaranteed by governments and other public and parapublic institutions.
The portfolio of consumer loans, credit card finance and other personal loans was relatively stable, at $17.9 billion as at March 31, 2012. The same was true of loans to businesses and government, which stood at $27.9 billion at the end of the first quarter of 2012.
Growth in savings recruitment
As at March 31, 2012, Desjardins Group's outstanding deposits stood at $125.2 billion, up $1.8 billion or 1.5% from $123.4 billion as at December 31, 2011. More specifically, personal savings, which represent 66.4% of the Group's total savings portfolio, grew $676 million or 0.8%, to $83.2 billion at the end of the quarter.
Savings recruitment also includes deposits made by businesses and government. Deposits in this category totalled $29.4 billion as at March 31, 2012, up $410 million or 1.4% since the end of 2011. Savings from deposit-taking institutions and other sources, such as securities issued on capital markets, grew $688 million or 5.8%, to $12.6 billion.
Desjardins Group profited from an environment that was more favourable to the recruitment of what is known as off-balance sheet savings. For example, the Group's assets under administration or management for its investment funds and securities grew $2.1 billion or 4.3% from December 31, 2011, to $50.7 billion as at March 31, 2012.
In order to keep its funding stable, Desjardins Group diversifies its sources of financing on the institutional capital markets.
In this respect, Caisse centrale Desjardins issued debt securities in the U.S. market in the first quarter of 2012. This includes issuing medium-term covered bonds in an amount of US$1.5 billion.
Furthermore, Caisse centrale Desjardins took part in the securitization market for mortgage loans guaranteed by the federal government under the Canada Housing Trust Program. Its participation in new issues totalled $357 million in the first quarter of 2012.
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, were 16.0% and 19.2%, respectively, as at March 31, 2012. As at December 31, 2011, these ratios were 17.3% and 19.3%, respectively.
Since the implementation of Basel II, Desjardins Group has applied the deferred treatment prescribed by the Autorité des marchés financiers, under which equity related to investments in its insurance subsidiaries made before January 1, 2007 was fully deducted from Tier 2 capital until fiscal 2012. Effective 2012, this equity must be deducted in equal shares of 50% from Tier 1 capital and Tier 2 capital.
The end of the application of this deferred treatment had an unfavourable impact of 147 basis points on the Tier 1 capital ratio during the first quarter of 2012, but the total capital ratio was unchanged. Initiatives are being taken to improve the Tier 1 capital ratio in 2012, in particular by issuing capital shares through the Federation, with the launch planned for fiscal 2012.
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. It 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 2012, surplus earnings before member dividends attributable to the Personal Services and Business and Institutional Services segment were $189 million, down $42 million or 18.2% from the same period of 2011.
The segment reported total income of $1,372 million, an amount comparable to one year earlier. Net interest income declined $26 million or 2.8% due to an ongoing low interest rates environment, and due to strong competition on the mortgage market.
The increase in other income was in part due to the disposal of an investment that generated a $21 million gain. Furthermore, the sustained growth in households' consumer spending and increased credit card activities led to greater income through business volumes.
The provision for credit losses was $82 million for the first quarter of 2012, up $38 million compared to the same period of 2011. This increase resulted in part from an adjustment to the general allowance due to changing credit risks, growth in the portfolio of loans outstanding, and funds recovered in the first quarter of 2011.
Non-interest expense rose $20 million or 2.0% compared to the same period of fiscal 2011.
Wealth Management and Life and Health Insurance
The Wealth Management and Life and Health Insurance segment offers a range of services tailored to individuals', groups' and business's changing needs for asset management and financial security. These products and services are distributed to members of the caisse network and clients of complementary distribution networks, but also through financial planners in the caisse network and by phone, online and via applications for mobile devices.
For the first quarter of fiscal 2012, this segment's surplus earnings were $61 million, down $2 million or 3.2% from the same quarter of fiscal 2011.
The segment's total income declined $79 million or 7.7%, to $950 million. This was mainly due to $102 million less investment income from life and health insurance activities, which was partly offset by a decrease in insurance and investment contract liabilities included in expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities.
Expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities declined $102 million or 18.3% from the first quarter of 2011, to $455 million. This change was essentially due to a $113 million decrease in actuarial provisions included under "Insurance and investment contract liabilities," including a change in the fair value of investments. On the other hand, benefits related to disability coverage increased $30 million.
Non-interest expense increased $24 million or 6.1%, to $415 million for the first quarter of 2012. This increase was essentially due to growth in fees on the sale of savings products and remuneration paid to the caisses, increased salaries and fringe benefits resulting from business growth, and the acquisition of MGI Financial Inc. in October 2011.
Property and Casualty Insurance
The Property and Casualty Insurance segment directly offers a line of automobile and home insurance products to the public, members of partner groups and businesses. In addition to being sold through the caisse network, these products are distributed across Canada through several Client Contact Centres, over the Internet and, for some products, by smartphone.
For the first quarter of 2012, this segment's surplus earnings were $70 million, up $29 million or 70.7% compared to the same quarter of 2011. This was mainly due to increased net premiums, an improved claims experience, and a $6 million contribution from Western Financial Group.
This segment's total income for the first quarter of 2012 stood at $533 million, an increase of $108 million or 25.4% over the same period of 2011. This performance was due to a $66 million increase in net premiums stemming from an increase in the number of policies issued. This increase resulted from growth initiatives targeting mass-market clienteles and groups, both in Quebec and across Canada; the development of white label partnerships; the development of business insurance; and an increase in the average premium in certain segments of activity. Western Financial Group also contributed $24 million to net premiums. Other income grew $38 million, due in large part to a $26 million contribution from Western Financial Group and gains realized on disposals of investments.
Expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities increased $22 million or 8.2% compared to 2011. The change was mainly due to growth in the portfolio of automobile insurance policies in Ontario and a $3 million increase attributable to the addition of the activities of Western Financial Group.
The loss ratio was 62.0% for the first quarter of 2012, down 4.7 points from 2011. This change was mostly due to fewer claims as a result of more favourable weather conditions and an increase in the average earned premium compared to the same period of 2011.
Non-interest expense increased $57 million or 58.2%, mainly due to a $43 million investment made to integrate Western Financial Group and increased salaries and fringe benefits as a result of growth and annual indexing.
The "Other" category comprises financial information that is not specific to any one business segment. It consists mainly of 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 Federation's support functions, the activities of Capital Desjardins inc., those of the Fonds de sécurité Desjardins, and operating results related to the asset-backed term notes (ABTN) held by Desjardins Group. It also includes Desjardins Technology Group, which brings together all Desjardins Group's IT-related activities. This category captures various consolidation adjustments as well as eliminations of inter-segment balances.
At the end of the first quarter of 2012, the Other category posted $101 million in surplus earnings before member dividends. They were above all due to an $80 million positive change in the fair value of the ABTN portfolio net of hedging positions, to treasury activities and to surplus earnings from Fonds de sécurité Desjardins.
Cooperating in building the future
Ranked 18th among the World's 50 Safest Banks 2012 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.
SOURCE DESJARDINS GROUP