Desjardins Group records $1,591 million in surplus earnings for fiscal 2012
Desjardins pursues growth for the benefit of its members and clients and maintains its leadership position in its various market segments
- Surplus earnings before member dividends of $325 million in the fourth quarter and $1,591 million for fiscal 2012.
- Giving a total of $364 million back to members and the community, including the provision for member dividends, sponsorships and donations.
- Tier 1 capital ratio of 16.8%, attesting to Desjardins Group's financial stability.
- Operating income up 3.3%, to $11.3 billion.
- Group insurance premiums in force reached the $2 billion threshold.
- Total asset growth of 3.5%, to $196.7 billion.
- Residential mortgage loans outstanding up $6.2 billion over the year, to $85.9 billion.
- Quality loan portfolio, with a gross impaired loans ratio of 0.35%.
- Savings recruitment increased 5.0%, to $129.6 billion.
- Assets under administration grew $32.1 billion over the year, to $313.1 billion.
- Attained $1 billion of sales of capital shares in the Federation in fiscal 2012.
- On February 4, 2013, Desjardins Group announced that it had invested in Qtrade Financial Group, a leading Canadian online brokerage platform.
Key Financial Data
|FINANCIAL POSITION AND KEY RATIOS|
|(in millions of $ and as a %)||As at Dec. 31, 2012||As at Dec. 31, 2011|
|Tier 1 capital ratio (1)||16.8%||17.3%|
|Total capital ratio (1)||19.3%||19.3%|
|Gross impaired loans/gross loans ratio||0.35%||0.41%|
For the years
ended December 31
For the three months
ended December 31
|(in millions of $ and as a %)||2012||2011||Change||2012||2011||Change|
|Surplus earnings before member dividends||$||1,591||$||1,582||0.6||%||$||325||$||427||(23.9)||%|
|Return on equity||10.4%||12.2%||―||7.3%||11.9%||―|
|(1)||The decline resulted from the end of the application of the deferred treatment prescribed by the Autorité des marchés financiers, effective in 2012, of equity related to investments in insurance subsidiaries.|
|(2)||Operating income includes net interest income, net premiums and other operating income (primarily net premiums and fees collected on: deposits and payments, loans and credit cards, brokerage activities, investments and trust funds).|
|CREDIT RATINGS OF SECURITIES ISSUED|
|Caisse centrale Desjardins|
|Short term||R-1 (high)||A-1||P-1||F1+|
|Medium and long term, senior||AA||A+||Aa2||AA-|
|Capital Desjardins inc.|
|Medium and long term, senior||AA (low)||A||A2||A+|
LÉVIS, QC, Feb. 22, 2013 /CNW Telbec/ - For the fourth quarter ended December 31, 2012, Desjardins Group, the leading cooperative financial group in Canada, posted surplus earnings before member dividends of $325 million, compared to $427 million for the same period of 2011.
The caisse network, Card and Payment 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.
Results for fiscal 2012
For fiscal 2012, Desjardins Group recorded surplus earnings before member dividends of $1,591 million, similar to the amount posted one year earlier. Return on equity was 10.4%, compared to 12.2% in 2011. This decrease resulted from an increase in equity following the issuance of $1.0 billion of capital shares in the Federation and growth in retained earnings.
"I am very satisfied with the financial performance of our cooperative financial group in 2012," said Monique F. Leroux, Chair of the Board, President and CEO of Desjardins Group. "It demonstrates the depth of our members' and clients' trust, year after year, and how Desjardins Group's offer adds value. We worked on improving our service offer throughout the year, both in the Personal Services and Institutional Services segment and in wealth management and insurance. I am also pleased with our business growth, as evidenced by a major increase in our insurance premiums and the success of both the business ownership transfer program and the Ready-to-Drive Loan program, our innovative auto financing offer.
"Declared by the United Nations the International Year of Cooperatives, 2012 was also the year we held the first International Summit of Cooperatives, allowing us to demonstrate the major role played by cooperatives in our economies," added Ms. Leroux. "More than ever, the cooperative model has made inroads around the world, and of course Desjardins Group will continue to provide leadership in this area, for the benefit of its members and clients as well as that of our communities."
Operating income stood at $11,300 million, up $364 million, or 3.3%, from 2011. Much of this increase was the result of higher net premiums, comprising premiums on life and health insurance, property and casualty insurance and annuity premiums. It also includes a $109 million contribution from Western Financial Group Inc. Net interest income fell $73 million, or 1.9%, mainly because of the ongoing low interest rate environment and strong competition in the market. Lastly, other operating income grew $162 million, or 7.5%, primarily due to commission income generated by Western Financial Group Inc.
Investment income reached $1,178 million at the end of the year, down $1,091 million, or 48.1%, compared to fiscal 2011. This was mainly attributable to investment income related to life and health insurance activities, due to a $1,073 million change in the fair value of assets used to support liabilities. This decline was almost fully offset by a decrease in the related actuarial provisions.
Expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities came to $4,397 million, down $895 million, or 16.9%, from one year earlier. This change was primarily due to a decline in actuarial provisions included under "Insurance and investment contract liabilities," in particular as a result of changes in the fair value of investments.
Non-interest expense totalled $5,760 million, compared to $5,623 million for the same period of 2011, up $137 million or 2.4%. The increase was mainly due to growth in salaries and fringe benefits as a result of business growth and 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 71.3% for fiscal 2012, a level comparable to the previous year.
Desjardins Group's approach to distributing surplus earnings seeks a healthy balance between development and capitalization. For fiscal 2012, the liability provision for member dividends - calculated on the basis of the surplus earnings of the caisse network - was $305 million, compared to $331 million in 2011. A $23 million downward adjustment was recorded as provision for member dividends in 2012 to account for the reversal of the amount provisioned in 2011. Adding donations and sponsorships to the provision for member dividends, a total of $364 million was given back to members and the community, compared to $401 million in 2011.
Quality loan portfolio
The quality of Desjardins Group's loan portfolio remains excellent. Gross impaired loans outstanding stood at $466 million as at December 31, 2012, compared to $520 million at the end of 2011. The ratio of gross impaired loans to the total gross loan portfolio was 0.35% as at December 31, 2012, an improvement over the ratio of 0.41% posted one year earlier. Desjardins Group has one of the best ratios in Canadian banking. It should also be noted that loans guaranteed by governments and other public and parapublic institutions represented 30.4% of the total gross loan portfolio.
Assets of $196.7 billion, up 3.5%
As at December 31, 2012, Desjardins Group's total assets stood at $196.7 billion, up $6.6 billion, or 3.5%, from one year earlier. Despite slower economies in Canada and elsewhere in the world, the Group continued to expand in 2012 due in large part to strong credit demand from individuals, including for residential mortgage finance.
As at December 31, 2012, the portfolio of outstanding loans, net of the allowance for credit losses, was up $7.4 billion, or 5.9%, on an annual basis, to $132.6 billion. This compares to an increase of $6.9 billion, or 5.8%, recorded in 2011 and despite economic upheavals.
The financing, which included residential mortgages, consumer loans, credit card advances and other personal loans, represented 78.5% of the total portfolio, slightly more than that recorded at the end of 2011. More specifically, these loans outstanding, which totalled $104.5 billion at the end of December 2012, were up $6.8 billion, or 6.9%, for the year, compared to an increase of $5.7 billion, or 6.2%, in 2011. This difference was in particular due to the quality and diversity of Desjardins Group's mortgage loan products, combined with the strength of its large distribution network. To a lesser extent it was also due to progress made by the Card and Payment Services in automobile financing.
Moreover, Desjardins Group was also very active in business financing. Its loans outstanding in this sector, which stood at $26.9 billion as at December 31, 2012, were up $871 million, or 3.4%, for the year. This compares with an increase of $1.2 billion, or 4.9%, in 2011.
Savings recruitment grows 5.0%
Savings recruitment remained strong in 2012, totalling $129.6 billion as at December 31, 2012, up $6.2 billion, or 5.0%, from one year earlier. This compares with an increase of $8.7 billion, or 7.6%, in 2011.
The composition of Desjardins Group's deposit portfolio remained at practically the same level as 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. These savings formed a base that alone accounted for 98.3% of Desjardins Group's deposit liabilities as at December 31, 2012, versus 98.5% at the end of 2011. Deposits by individuals, which stood at $84.4 billion at the end of 2012, were up $1.9 billion, or 2.3%, for the year, compared to an increase of $3.7 billion, or 4.7%, recorded a year earlier.
Despite the economic slowdown in 2012, off-balance sheet savings products sold briskly. These products, administered and managed by Desjardins for its members and clients, totalled $53.0 billion as at December 31, 2012, up $4.4 billion, or 9.0%, over the year. This compares with growth of $160 million, or 0.3%, recorded at year-end 2011.
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 16.8% and 19.3%, respectively, as at December 31, 2012 (17.3% and 19.3%, respectively, as at December 31, 2011). The Tier 1 capital ratio was above the 15% objective set by Desjardins.
Stable and diversified funding
In order to ensure stable and diversified refinancing, Caisse centrale Desjardins (CCD) diversifies its sources of financing on the institutional capital markets.
This strategy led CCD to issue debt securities on various markets during fiscal 2012. This includes issuing medium-term covered bonds in an amount of US$1.5 billion on the U.S. market. In October, CCD launched an issuance of $800 million of medium term deposit notes. This was the largest issuance of its kind on the Canadian market and was well received by investors.
CCD remained active in the securitization market for mortgage loans guaranteed by the federal government under the Canada Mortgage Bonds (CMB) Program. In 2012 it participated in the Program's new issues in an amount of $1.5 billion. The Program's primary objective is to obtain a source of long-term financing at the lowest price on the market.
Credit ratings still among the best in the country
On December 13, 2012 and January 28, 2013, Standard & Poor's and Moody's downgraded the credit ratings of Caisse centrale Desjardins and Capital Desjardins inc.
Management believes that this decision was founded more in the agencies' concerns over economic conditions in Canada than the quality of Desjardins Group's loan portfolio or financial position.
Even downgraded, the credit ratings of Caisse centrale Desjardins and Capital Desjardins inc. remain among the best in the industry and compare favourably with those of many 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. 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.
At the end of the fourth quarter of 2012, surplus earnings before member dividends attributable to the Personal Services and Business and Institutional Services segment were $262 million, down $28 million, or 9.7%, from the same period of 2011.
Operating income stood at $1,396 million, compared to $1,379 million for the same quarter of 2011 due, primarily to the $33 million, or 7.7%, increase in other operating income that was offset by a slight decline in net income attributable to low interest rates.
Results for 2012
For fiscal 2012, the segment's surplus earnings before member dividends were $889 million, down $98 million, or 9.9%, compared to 2011.
Operating income benefited from a $45 million increase in other operating income, due to growth in credit card activities and point-of-sale financing as well as increased sales, in the caisse network, of products designed by subsidiaries. There was also an increase in income generated by loan sales. However, net interest income declined $25 million, or 0.7%, given the ongoing low interest rate environment and strong competition in the residential mortgage market. The decline in net interest income compared to 2011 was mitigated by a $6.3 billion increase in residential mortgages outstanding as well as increased other consumer and business loans outstanding.
Investment income decreased $49 million compared to one year earlier, essentially due to a lower return on surplus liquidities and investments in the caisse network as a result of the low interest rate environment. It should also be noted that trading income was lower due to the volatility in financial markets. However, these decreases were mitigated by the disposal of an investment, which generated a $21 million gain.
Despite growth in the loan portfolio, the provision for credit losses was comparable to that for 2011, primarily due to adjustments related to changes in provisioning parameters.
Non-interest income increased $107 million, or 2.7%, compared to fiscal 2011. The change stemmed from growth in salaries and fringe benefits as a result of business growth and annual indexing.
Wealth Management and Life and Health Insurance
The Wealth Management and Life and Health Insurance segment offers a range of services tailored to the changing needs of individuals, groups, businesses and cooperatives 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.
At the end of the fourth quarter, surplus earnings for the Wealth Management and Life and Health Insurance segment were $44 million, down $61 million, or 58.1%, from the same period of 2011. The decline was essentially due to changes in the assumptions used to value life and health insurance activities that were, in turn, partially offset by improved claims experience and a gain realized on investment transactions.
Operating income benefited from a $56 million increase in net insurance premiums and a $14 million increase in annuity premiums compared to 2011.
Results for 2012
For fiscal 2012, the segment's surplus earnings before member dividends were $241 million, down $39 million, or 13.9%, from the same period of 2011, essentially due to life and health insurance activities.
Operating income benefited from a $155 million increase in net insurance premiums, while annuity premiums declined $50 million from fiscal 2011. Other operating income increased $50 million from 2011, in particular due to growth in assets under management arising from the distribution of various savings products.
The decline in returns on investment activities in life and health insurance and the change in the fair value of assets supporting liabilities led to a $1,073 million decrease in investment income. Almost the entire drop was offset by the change in actuarial provisions.
As at December 31, 2012, expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities declined $929 million, or 23.3%, compared to year-end 2011. This change was in large part due to a $987 million decrease in actuarial provisions included under "Insurance and investment contract liabilities," in particular due to changes in the fair value of investments. Changes to assumptions used to value actuarial provisions, made in the normal course of operations, resulted in a $60 million increase in such provisions, compared to a $43 million decrease in fiscal 2011.
The $55 million, or 3.5%, increase in non-interest expense came primarily from increased salaries and fringe benefits as a result of business growth; from the acquisition, in October 2011, of MGI Financial Inc., which led to additional expenses; and from the increased cost of technology operations.
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, via applications for mobile devices and by a large financial services and insurance product network, one aspect of operations at Western Financial Group Inc.
For the fourth quarter of 2012, surplus earnings for the Property and Casualty Insurance segment were $63 million, up $21 million from the same period of 2011. The main reasons were a more favourable claims experience and growth in premium income.
Results for 2012
At the end of fiscal 2012, this segment's surplus earnings were $205 million, up $61 million or 42.4% compared to fiscal 2011, again due to a more favourable claims experience in automobile and commercial insurance. Overall, the loss ratio was 69.1% for fiscal 2012, down 4.0 points from 2011.
Operating income benefited from an increase in net premium income from the growing number of policies issued, including a $109 million contribution from Western Financial Group Inc. This increase can be traced to initiatives targeting mass markets and groups, both in Quebec and across the country. It also stemmed from the development of white label partnerships, the insurance offer for businesses, and an increase in the average premium in certain market segments. Other operating income increased $46 million, in particular due to increased commission income from Western Financial Group Inc.
As at December 31, 2012, investment income had decreased $23 million compared to one year earlier, mainly because of a lower increase in the value of investments in 2012 than in 2011. This decrease was nevertheless mitigated by gains realized on disposals of investments, most of which were made in the first quarter.
Expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities increased $44 million compared to fiscal 2011, essentially due to growth in the portfolio of automobile insurance policies in Ontario. This increase was largely offset by a lower claims experience, in part due to a lower cost of losses in Ontario.
Non-interest expense grew $111 million or 20.2%, mainly due to the consolidation of Western Financial Group Inc. in an amount of $74 million following its acquisition in the second quarter of 2011. Lastly, the increase in non-interest expense was also due to increased salaries and fringe benefits as well as greater technology expenses incurred to support business growth.
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 of Desjardins Group's IT-related activities. In addition to the various adjustments required to prepare the combined financial statements, this category captures eliminations of inter-segment balances.
For the fourth quarter, this segment recorded a deficit of $44 million. The deficit is above all due to the employee benefits expense and the revaluation of assets, offset by the positive change in the fair value of the ABTN portfolio, net of hedging positions.
Results for 2012
Net surplus earnings for fiscal 2012, before member dividends, were $256 million. They were primarily attributable to the $159 million positive change in the fair value of the ABTN portfolio, net of hedging positions, treasury activities, and lower provisions on the investment portfolio.
Cooperating in building the future
Ranked 16th 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.
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 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.
Conference call :
A conference call for journalists only will be held on Friday, February 22, 2013 at 10:00 a.m. (ET). To participate, please dial: 514-861-2255 or 1-877-405-9213. Access code: 1529525.
SOURCE Desjardins Group