Desjardins Group posts strong surplus earnings of $387 million for the second quarter

LÉVIS, QC, Aug. 8, 2013 /CNW Telbec/ -

Highlights

Desjardins, an outstanding and growing organization

Desjardins, a cooperative financial group dedicated to serving its members and communities

  • Named one of the Top 50 Socially Responsible Companies by Maclean's and L'actualité magazines, in partnership with Sustainalytics.
  • Ranked eighth among the Best Corporate Citizens in Canada by Corporate Knights magazine.
  • Held the 21st Congress of Elected Officers, which led, among other things, to the adoption of a resolution to improve the balance of men and women on caisse boards of directors.
  • Announcement of the second International Summit of Cooperatives to be held in Quebec City in October 2014.
  • Significant support for the victims of the tragic train accident at Lac-Mégantic and the victims of floods in High River, Alberta.

Key Financial Data

FINANCIAL POSITION AND KEY RATIOS

 
(in millions of $ and as a %) As at June 30,
2013
As at December 31,
2012(1)
Assets(1) $204,751   $196,818  
Equity(1) $16,682   $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 0.33 % 0.35 %

COMBINED INCOME

 
  For the quarters
ended June 30
For the six-month periods
ended June 30
(in millions of $ and as a %) 2013 2012(1) Change 2013 2012(1) Change
Operating income $2,939   $2,836   3.6 % $5,798   $5,609   3.4 %
Surplus earnings before member dividends $387   $380   1.8 % $765   $778   (1.7) %
Return on equity 9.4 % 10.9 %   9.6 % 11.3 %  

(1)      Data for 2012 have been restated in accordance with the application of new accounting policies that took effect on January 1, 2013.
   
(2)      The 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 Accord.

CREDIT RATINGS OF THE 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 second quarter of 2013

At the end of the second quarter ended June 30, 2013, Desjardins Group (www.desjardins.com), the leading financial cooperative group in Canada, posted $387 million in surplus earnings before member dividends, compared to $380 million for the same quarter of 2012. Return on equity was 9.4%, compared to 10.9% for the same quarter of 2012.

"All our business segments, and in particular the Wealth Management and Life and Health Insurance, posted higher surplus earnings for the second quarter of 2013," explained Monique F. Leroux, Chair of the Board, President and Chief Executive Officer. "Our caisses continued to lead the field in mortgage credit, with 3% growth in their loan portfolio. Our assets grew by 4% and the institution continues to be financially strong, with capitalization that is still among the best in the country. The second quarter was also marked by a congress during which important decisions were made on the Group's direction, including a resolution to improve the balance of men and women on caisse boards of directors. This makes Desjardins a Canadian leader in this area."

Operating income was $2,939 million, up $103 million or 3.6% compared to the same quarter of 2012.

Despite strong competition in the market, which placed pressure on margins, and low interest rates, net interest income was stable at $953 million. Business growth related to insurance activities generated a $45 million or 3.5% increase in net premiums, which reached $1,340 million. Other operating income was $646 million, up $74 million or 12.9% compared to the same quarter of 2012. This increase was in part due to higher income relating to various programs and growth in brokerage activities, including the Group's acquisition of an interest in Qtrade Canada Inc. in the second quarter of 2013. The increase in other operating income was also due to greater assets under management and growth in credit card activities and point-of-sale financing.

Investment income declined $1,009 million due to changes in the fair value of assets associated with life and health insurance activities supporting the liabilities. This decline was offset by the change in actuarial liabilities, leading to a $1,030 million decrease in expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities. These changes were due to increases in short-term and medium-term interest rates at the end of the second quarter of 2013.

Non-interest expense stood at $1,533 million, up $145 million or 10.4% compared to the second quarter of 2012. The increase was, among other things, due to the reversal in 2012 of provisions related to the investment portfolio, which had a major impact by reducing non-interest expense. Had it not been for this reversal, the increase would have been 5.1%. In addition, in the second quarter of 2013 non-interest expense rose as a result of business growth, and this in turn affected salary growth. It was also due to the annual indexing of commission expenses.

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 second quarter was therefore $27 million, compared to $67 million for the same period of 2012.

"Our caisse network continues to evolve to reflect our desire to adapt to changes in the spending habits of our members and improve service delivery," said Ms. Leroux. "In this respect, many caisses have implemented innovative solutions. And others have entered into partnership agreements with municipalities to share premises or even resources, allowing them to maintain a more affordable service offer in various communities. Desjardins remains the financial institution with the strongest presence in our regions."

Results for the first six months of 2013

Surplus earnings for the first six months of the year were $765 million, compared to $778 million for the same period of 2012. Operating income was $5,798 million, up $189 million or 3.4% from the first six months of 2012.

Net interest income declined $46 million to $1,887 million, compared to $1,933 million for the same period one year earlier. Business growth related to insurance activities generated a $140 million or 5.5% increase in net premiums, which came to $2,663 million. Other operating income stood at $1,248 million, up $95 million or 8.2% compared to the same period of 2012.

Investment income decreased $962 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 changes in actuarial liabilities, leading to an $855 million decrease in expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities. These changes were due to increases in short and medium-term interest rates at the end of the second quarter of 2013. The other decreases resulted from changes in the investments of other segments.

The provision for credit losses was $128 million, down $16 million or 11.1% compared to the same period of 2012. This change resulted from an adjustment to the collective allowance recorded in 2012 due to changes in credit risk.

Non-interest expenses reached $3,061 million, up $157 million or 5.4% compared to the first six months of 2012.

Assets of $204.8 billion, up 4.0%

As at June 30, 2013, Desjardins Group had total assets of $204.8 billion, up $7.9 billion or 4.0% from December 31, 2012. Demand for credit was steady, as evidenced by changes in the loan portfolio during the quarter.

As at June 30, 2013, the loan portfolio, net of the allowance for credit losses, was $136.7 billion, up $4.2 billion or 3.1% since December 31, 2012. Residential mortgage loans, which accounted for 64.6% of the total credit portfolio, grew $2.7 billion or 3.1% during the first six months of 2013, to $88.6 billion. These are excellent results given the slowdown in the Quebec and Ontario housing markets during this period, and they are a clear indication that the caisses are providing services that are aligned with their members' needs.

Business and government loans grew $1.2 billion or 4.4% over the same period, to $29.8 billion at the end of the first six months of 2013.

Quality loan portfolio

Desjardins Group maintained a quality loan portfolio. At the end of the second quarter, gross outstanding impaired loans stood at $446 million, down $20 million from December 31, 2012. As at June 30, 2013, the ratio of gross impaired loans to the total loan portfolio was 0.33%, which is similar to the ratio obtained as at December 31, 2012. It remains one of the best ratios in Canadian banking.

Savings recruitment grows

As at June 30, 2013, Desjardins Group's outstanding deposits stood at $134.7 billion, up $5.1 billion or 3.9% from December 31, 2012. Personal savings grew $1.9 billion or 2.2% over the same period, to $86.3 billion. Personal savings represented 64.1% of the total loan portfolio on this date.

Deposits from businesses and governments increased $3.2 billion, or 7.5%, since the end of fiscal 2012, to $46.2 billion as at June 30, 2013. Deposits from deposit-taking institutions and other sources stood at $2.2 billion on the same date, up $12 million or 0.6% at the end of the first six months 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 16.4% and 19.2%, respectively, as at June 30, 2013. The Tier 1a ratio is 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 changes to the regulatory framework, these latest ratios are not comparable to the 2012 ratios.

Results by business segment

Personal Services and Business and Institutional Services

- Results for the second quarter of 2013

For the second quarter of 2013, surplus earnings before member dividends attributable to the Personal Services and Business and Institutional Services segment were $197 million compared to a year ago, thanks due to the strength of a large network of caisses with close ties to their members and clients.

"We offered many new products and services to our members and clients in the second quarter," said Ms. Leroux. "Some notable examples of these new initiatives are: the prepaid Visa Desjardins chip card, assistance services (offered to our members free of charge) and the www.espaceauto.com site. The Group also created the Émerillon fund in partnership with Crédit Mutuel (France), which makes investments in technology companies. The Capital Croissance PME fund, founded in partnership with the Caisse de dépôt et placement du Québec, continued to assist Quebec SMEs and demonstrates our shared desire to support them and help build prosperous communities."

The segment's operating income totalled $1,357 million, up $35 million. Net interest income remained stable despite strong market competition, which places pressure on margins, and low interest rates, which have had a negative impact on net interest income despite growth in the entire loan portfolio. Other operating income increased $39 million or 9.7% compared to the second quarter of 2012. This increase was primarily due to increased income from various programs as well as growth in credit card activities, point-of-sale financing and the caisse network's sales of miscellaneous Desjardins products developed by subsidiaries.

Non-interest expense stood at $1,039 million, up $19 million or 1.9% from the same period of 2012. This change was due in part to higher commission expenses as a result of increased income in several programs, as well as a higher salaries expense due to business growth and annual indexing. However, the increase in non-interest expense was limited by a reduced pension expense.

- Results for the first six months of 2013

For the first six months of 2013, surplus earnings before member dividends attributable to the Personal Services and Business and Institutional Services segment were $366 million, down $8 million or 2.1% compared to the same period of 2012.

Despite a $21 million or 1.1% decline in net interest income, operating income grew due to a $41 million or 5.1% increase in other operating income, linked to growth in the segment's activities.

Wealth Management and Life and Health Insurance

- Results for the second quarter of 2013

The segment's net surplus earnings for the second quarter were $92 million, up $47 million or 104.4% from the same period of 2012. This increase was essentially due to life and health insurance activities. Operating income stood at $1,128 million, up $36 million or 3.3% from the second quarter of 2012.

"I am particularly proud of Desjardins Financial Security's success with group insurance," said Ms. Leroux. "No fewer than 913 policies were signed with major employers representing 11,000 employees across Canada, for a total contribution of $24 million in premiums. Also, our interest in Qtrade brings us closer to credit unions in Canada and expands our wealth management offer, in particular, to their members."

Operating income stood at $1,128 million, up $36 million or 3.3% from the second quarter of 2012. Net insurance and annuity premium income was $877 million compared to $865 million for the same period of 2012, an increase of 1.4%. Net insurance premiums grew 9.2% to $834 million, essentially due to $62 million growth in group insurance.

Premiums for group insurance purchased by Desjardins Group members increased 4.8%, while those from other clients grew 11.5%. Annuity premiums decreased $59 million. Other operating income grew $24 million or 10.6% as a result of income from 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 $911 million due to changes in the fair value of assets associated with the life and health insurance activities supporting the liabilities. This decrease was offset by the change in actuarial liabilities, which led to a $1,000 million decrease in expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities. These changes were due to higher short and medium-term interest rates at the end of the second quarter of 2013.

Non-interest expense was $451 million, up $59 million or 15.1% from the same quarter of 2012. This increase was primarily due to higher remuneration paid to the caisses, expenses related to growth in brokerage activities (in particular, $11 million for Qtrade Canada Inc.), increased salaries and fringe benefits, and expenses related to growth in assets under management. Finally, expenses in the second quarter of 2012 were reduced by a non-recurring reversal in 2012 of provisions related to the investment portfolio.

- Results for the first six months of 2013

The segment's net surplus earnings for the first six months of 2013 were $218 million, up $116 million or 113.7% from the same period of 2012.

Net operating expenses grew as a result of a $63 million increase in premium income and income from QTrade Canada Inc. In addition, expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities declined in the first quarter of 2013 due to a $41 million downward adjustment, the result of a review of certain actuarial assumptions. 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 second quarter of 2013

Net surplus earnings from this segment were $47 million, up $2 million or 4.4% compared to the same quarter of 2012. Results for this quarter were affected by a more favourable claims experience loss ratio, which was offset by lower investment income.

"In automobile insurance, clearly the second quarter stands out thanks to the launch of Ajusto in Quebec and Ontario," added Ms. Leroux. "This program rewards good driving habits by providing our insureds with an additional discount on their insurance premiums of up to 25%. Ajusto has proved highly successful since its launch, with over 20,000 insureds enrolled today. And Western Financial Group consolidated its presence in British Columbia by acquiring Coast Capital Insurance Services from Coast Capital Savings."

Operating income grew due to a $35 million or 7.2% increase in net premiums, generated by the growing number of policies issued. This increase is the result of many growth initiatives across all segments and regions.

Investment income decreased $42 million from the same period of 2012. This was essentially due to a decline in the value of fixed income securities in the higher interest rate environment of the second quarter of 2013, compared to a positive change in their value recorded for the same period of 2012.

The loss ratio for the property and casualty segment's insurers rose from 70.7% in the second quarter of 2012 to 61.7% in the same period of 2013. This improvement was primarily due to an increase in the interest rates used to establish provisions, compared to 2012, and a lower cost for losses in group insurance in Quebec, despite the floods in Alberta that marked the quarter. It should be noted that torrential rains in Quebec at the end of May 2012 led to many higher claims during this period.

Non-interest expense for the second quarter was $191 million, up $23 million or 13.7% compared to the same period of 2012. This increase was primarily attributable to technology and marketing expenses as well as the salaries and fringe benefits incurred to support and stimulate business growth in the segment.

- Results for the first six months of 2013

Net surplus earnings for this segment were $71 million, down $42 million or 37.2% compared to the first six months of 2012. This decline was essentially due to a poorer loss ratio for the period, as the ratio for the same period of 2012 was particularly favourable.

Operating income grew due to $84 million or an 8.8% increase in net premium income. This increase was the result of many growth initiatives across all segments and regions.

Other

- Results for the second quarter of 2013

Net surplus earnings before member dividends from the activities grouped in the Other category stood at $51 million for the second quarter of 2013, compared to $96 million for the same period of 2012. They were, among other things, attributable to treasury activities and surplus earnings from investments made by the Fonds de sécurité Desjardins, which were offset by net unfavourable impacts of the fair value of derivatives.

- Results for the first six months of 2013

Surplus earnings before member dividends totalled $110 million at the end of the first six months, compared to $189 million for the same period of 2012. They were, among other things, attributable to treasury activities; a positive change in the fair value of the ABTN portfolio, net of hedging positions; and surplus earnings from investments made by the Fonds de sécurité Desjardins, which were offset by net unfavourable impacts of the fair value of derivatives associated with hedging activities.

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.

For more detailed financial information, consult the MD&A on the SEDAR information site. 

 

SOURCE Desjardins Group



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