Desjardins Group Ends Its Third Quarter with Surplus Earnings of $464
million, Up 22.8%, and Posts Surplus Earnings of $1,253 million, Up 50.4%
After Nine Months

All the caisses and business segments are experiencing excellent growth, and Desjardins Group continues to strengthen its capitalization

LÉVIS, QC, Nov. 10 /CNW Telbec/ -

Highlights

• Strong balance sheet, with $13 billion in equity, up 16.5% since December 31, 2009.
• Tier 1 capital ratio of 17.6% as at September 30, 2010.
• Quality loan portfolio, with a gross impaired loans ratio of 0.45%, one of the best in the Canadian banking industry.
• Assets of $175.5 billion, up 11.6% after the first three quarters of 2010.
• Issue, by Caisse centrale Desjardins, of US$1 billion of fixed-rate, medium-term deposit notes on the U.S. market.
• Successful launch of Desjardins mobile services.
• Celebration of the 40^th anniversary of Développement international Desjardins.
• Release of the Social and Cooperative Responsibility Report.

Key financial data

RESULTS
	For the three months ended September 30							For the nine months ended September 30
(Unaudited figures in millions of $ or as a %)	2010		2009			Change		2010			2009			Change
Total income	$	3,275		$	3,070		6.7%		$	9,016		$	8,087		11.5%
Combined surplus earnings before member dividends	$	464		$	378		22.8%		$	1,253		$	833		50.4%
Return on equity		14.5%			14.4%		---			13.9%			10.9%		---

BALANCE SHEET AND RATIOS
	As at September 30, 2010			As at December 31, 2009
Assets	$	175,503		$	157,203
Equity	$	13,042		$	11,197
Tier 1 capital ratio	17.6		%	15.9		%
Total capital ratio	18.2		%	15.9		%
Gross impaired loans ratio	0.45		%	0.46		%

2010 Third Quarter Results

For the third quarter ended September 30, 2010, Desjardins Group, the largest cooperative financial group in Canada, recorded combined surplus earnings before member dividends of $464 million, compared to $378 million one year earlier, for an increase of close to 23%. Return on equity was 14.5% compared to 14.4% in the corresponding quarter of 2009. The Tier 1 capital ratio stood at 17.6%, compared with 15.9% as at December 31, 2009.

The results for this quarter reflect the major role played by the Personal Services and Business and Institutional Services segment, which contributed $287 million. This contribution was in part the result of increases in outstanding personal and business loans granted by the caisse network and in credit card and point-of-sale financing activities. The Wealth Management and Life and Health Insurance segment as well as the Property and Casualty Insurance segment contributed $76 million and $15 million, respectively. The Other segment contributed $86 million, mainly from treasury activities.

"Our activities experienced sustained growth through the quarter, both in the caisse network and in our business segments", said Monique F. Leroux, Chair of the Board, President and CEO of Desjardins Group. "With a view to prudent management, we also continued to strengthen our capitalization in light of the potential for new regulatory and accounting developments in this area. Our Tier 1 capital ratio is now 17.6%, one of the best in the Canadian financial industry. This confirms the strength of our cooperative financial group."

Desjardins successfully launched, in September, its Mobile Services that allow individual and business members to carry out many transactions and access information from their smartphones or PDAs.  Desjardins is the first Québec-based financial institution to launch these services, which were developed in accordance with industry best practices.

Increase in total income

Desjardins Group's total income for the third quarter of 2010 was $3,275 million, up $205 million or 6.7%. Net interest income grew 4.4% to $1 billion, due mainly to growth in personal loans outstanding, compared to the same quarter of 2009.

Other income increased by $184 million or 18.2% in the third quarter to $1,194 million, compared to $1,010 million in the same quarter of 2009. This growth was primarily due to trading income at the life and health insurance subsidiary and treasury activities. In addition, trading income was largely offset by an increase in actuarial liabilities.

Moderate increase in non-interest expense

Non-interest expense stood at $1,279 million, up $59 million or 4.8% from the third quarter of 2009, mainly due to the increase in salaries and fringe benefits resulting from the annual indexing of salaries.

Provisions for credit losses stood at $56 million for the third quarter of 2010, down $24 million from the same quarter of 2009. This decline was mainly due to smaller losses on the Desjardins Card Services  portfolio and on the business loan portfolio of Caisse centrale Desjardins.

Expenses related to claims, benefits, annuities and changes in insurance provisions totalled $1,320 million, up $104 million or 8.6% compared to the same quarter of 2009. This increase was due to a deteriorating automobile insurance loss experience in Ontario and by an increase in actuarial liabilities in life and health insurance related to growth in trading income.

The productivity ratio was 65.4% for the third quarter, compared to 65.8% in the same quarter of 2009. Desjardins Group's productivity index is calculated as non-interest expense to total income, net of expenses related to claims and annuities, and changes in insurance provisions.

Results for the first nine months of 2010

For the nine-month period ended September 30, 2010, Desjardins Group posted combined surplus earnings before member dividends of $1,253 million, a substantial increase of $420 million or 50.4% over $833 million one year earlier. Return on equity attained 13.9% compared to 10.9% the previous year. The provision for member dividends stood at $213 million compared to $239 million for the same period of 2009. The provision for the third quarter was $66 million.

This strong performance was the result of business volume growth in the caisse network and in credit card and point-of-sale financing activities, good performances from the insurance companies, and an increase in the fair value of the ABCP (ABTN) restructured term note portfolio.

"These results flowed from various growth, innovation and productivity initiatives that we emphasize in our strategic planning", said Ms. Leroux. "They allow our cooperative financial group to pursue development without losing sight of sustainable prosperity for the benefit of our members, clients and communities. We will continue to use our surplus earnings in a balanced and responsible manner, keeping in mind our objectives in terms of capitalization, product and service development, and redistributions to members."

Desjardins Group's total income stood at $9,016 million for the first nine months of 2010, a $929 million or 11.5% increase over the same period of 2009. Net interest income was $2,907 million, up $326 million from the same period of 2009. This increase was primarily due to growth in outstanding loans in the caisse network, as well as credit card and point-of-sale financing activities. In a highly competitive environment, net premiums still grew 0.6% to $3,185 million.

Other income stood at $2,924 million, up $583 million or 24.9%, compared to the same period of 2009. This increase is due to trading income, as well as income from available-for-sale securities and brokerage, investment fund and trust services. In addition, trading income was largely offset by an increase in actuarial liabilities applicable to life and health insurance activities.

Non-interest expense for the first three quarters of 2010 totalled $3,900 million, up $184 million or 5.0% from the same period of 2009. Over half of this increase was due to higher salaries and fringe benefits as a result of the annual indexing of salaries and expenses related to pay equity agreements.

Expenses related to claims, benefits, annuities and changes in insurance provisions stood at $3,253 million for the first nine months of 2010, up $268 million or 9.0% compared to one year earlier. A large part of this increase was mainly due to actuarial liabilities related to life and health insurance activities, which were higher because of an increase in the fair value of matched investments.

Desjardins Group's productivity ratio improved in the first nine months of 2010 to 67.7%, compared to 72.8% for the same period of 2009, as a result of income growth and ongoing Group-wide efforts to improve productivity.

Quality loan portfolio

The quality of Desjardins Group's loan portfolio remains excellent. Provisions for credit losses for the first nine months of 2010 stood at $164 million, down $21 million from the same period of 2009.

As at September 30, 2010, gross impaired loans outstanding were $529 million, up $20 million from December 31, 2009. The ratio of gross impaired loans to the total gross loan portfolio stood at 0.45% for the third quarter, virtually unchanged from December 31, 2009. This makes Desjardins Group's ratio one of the best in the Canadian banking industry.

Assets in excess of $175 billion, up 11.6%

As at September 30, 2010, Desjardins Group had $175.5 billion in total assets, compared to $157.2 billion at the end of 2009. This represents growth of $18.3 billion, or 11.6%. The Group's performance was due to growth in loans outstanding and an increase in the value of securities in the same period. Furthermore, despite the economic slowdown in Quebec and Ontario in the third quarter, consumer and business credit demand was relatively unchanged, fostering business development. Desjardins Group's loan portfolio, net of the allowance for credit losses, grew 5.1% or $5.7 billion since the end of 2009, to $115.6 billion as at September 30, 2010.

Desjardins continued to excel in residential financing, particularly in Quebec where it is a key player. Despite signs in both the construction and home resale sectors that residential activity was slowing in the third quarter of 2010, demand at the caisses for residential mortgages remained strong. As at September 30, 2010, Desjardins had $71.9 billion in residential mortgages outstanding, up 6.3% or $4.2 billion since the end of 2009. This portfolio represented 61.7% of the total loan portfolio as at September 30, 2010.

Desjardins Group's share of the consumer, credit card and other personal loans market grew 2.4% or $403 million since the end of 2009. As at September 30, 2010, the amount of consumer, credit card and other personal loans outstanding was $17.3 billion. Desjardins Group is also very active in businesses and governments financing; outstanding loans to businesses and governments grew 3.9% or $1.0 billion over the same period, to $27.3 billion for the third quarter.

Savings recruitment grows 5.8%

In savings recruitment activities, outstanding deposits totalled $112.3 billion, up 5.8% or $6.2 billion since the end of 2009. Personal savings, which is the main source of financing, grew 2.7% or $2.0 billion, to $77.5 billion. This represented 69.0% of the total savings portfolio as at September 30, 2010.

Desjardins Group was also very active in savings recruitment from businesses and governments. As at September 30, 2010, outstanding deposits by businesses and governments stood at $25.5 billion, up 11.5% or $2.6 billion since December 31, 2009. Savings from deposit-taking institutions and other sources, such as securities issued on capital markets, grew 19.1% or $1.5 billion during the same period, to $9.4 billion.

Increase in off-balance sheet savings

An upswing in Canadian stock market activity in the third quarter of 2010, reflected in a 9.5% jump in the Toronto S&P/TSX index, was good for the market for off-balance sheet savings products, and Desjardins Group took full advantage of this positive environment. Assets under administration or under management, comprised of investment funds and securities grew 9.0% or $3.8 billion since the end of 2009.

A strong capital base

Desjardins Group's Tier 1 capital ratio, determined under the regulatory framework of Basel II, was 17.6% as at September 30, 2010, compared to 15.9% as at December 31, 2009 and 16.7% as at June 30, 2010. This was above the Group's capitalization target of 15.0% and remains one of the best ratios in the industry. The total capital ratio was 18.2% as at September 30, 2010, compared to 15.9% as at December 31, 2009 and 17.5% as at June 30, 2010.

Funding and capital supply

In order to achieve an even better diversification of sources of financing and further extend the average term, on September 8, 2010, Caisse centrale Desjardins successfully floated an issue of fixed-rate, medium-term deposit notes in the United States for US$1 billion. This made Desjardins Group the first Canadian cooperative financial institution to issue senior debt on the U.S. market.

This was the fourth public issue of deposit notes made by Caisse centrale Desjardins since the beginning of 2010. In order to broaden its investor base, Desjardins Group has completed a series of securities issues worth CA$4.2 billion in Canadian, European and U.S. markets since the beginning of 2010. Like the major Canadian banks, Desjardins Group has been able to profit from institutional investors' enthusiasm for the Canadian banking industry.

In the third quarter, Caisse centrale Desjardins also participated in a Canada Mortgage and Housing Corporation securitization program in an amount of $363 million. On July 30, 2010, Capital Desjardins Inc. renewed its Canadian borrowing program for a period of 25 months.

Finally, caisse members also participated in the capitalization of their financial cooperative by purchasing $482 million of permanent shares in the first nine months of 2010. Since September 2009, $1.1 billion of shares have been sold

40^th anniversary of Développement international Desjardins

Worth mentioning is the 40^th anniversary of Développement international Desjardins, Since its foundation, this component of Desjardins Group has supported the creation, development and strengthening of financial institutions in over twenty countries in Africa, Latin America, the Caribbean, notably Haïti, Asia and Central and Eastern Europe.

Social and Cooperative Responsibility Report

Finally, Desjardins Group published its Social and Cooperative Responsibility Report. The report provides a complete overview of Desjardins Group's governance practices, its relationship with stakeholders, its community involvement, its environmental concerns and its human resources management. It can be viewed at www.desjardins.com/socialresponsibilityreport. 

Results by business segment

Personal Services and Business and Institutional Services

This segment includes "Personal Services", which is all the savings and financing operations offered by the caisse network as well as those related to developing, marketing and distributing the service offering for individuals, including payment cards. The segment also comprises "Business and Institutional Services", offered mainly by the caisse network, which is responsible for integrating the offer for small, medium-sized businesses and large corporations, including financing, securities, venture capital, and specialized and advisory services.

The Personal Services and Business and Institutional Services segment ended the third quarter of 2010 with $287 million in surplus earnings before member dividends, a 14.8% or $37 million increase over the same period of 2009. This increase was due to growth in personal and business loans outstanding generated by the Desjardins caisse network and the increase in surplus earnings from credit card and point-of-sale financing activities.

The segment's total income for the third quarter of 2010 was $1,441 million, for an increase of 6.7% or $91 million over the same quarter of 2009. This increase was primarily due to a $124 million or 14.0% increase in net interest income, as a result of growth in personal and business loans outstanding and credit card and point-of-sale financing activities. Other income declined 7.1% or $33 million compared to the same quarter of 2009.

Provisions for credit losses decreased by $25 million, mainly due to the good performance of the Desjardins Card Services portfolio as well as fewer impaired loans and a reduction in the Caisse centrale Desjardins business loan portfolio.

Non-interest expense rose 7.5% or $70 million compared to the same quarter of 2009, mainly due to increases in salaries and fringe benefits.

The segment's surplus earnings before member dividends were $723 million for the first nine months of 2010, up 37.5% or $197 million from the same period of 2009.

Total income for the segment grew $412 million or 11.1%, to $4.1 billion, including a $397 million or 16.8% increase in net interest income. The caisse network played a major role in this growth through an increase in mortgages and business loans outstanding. More specifically, substantial growth was recorded in outstanding mortgages to individuals, which were up $4.2 billion at the end of the first three quarters of 2010. This performance reflected the strong momentum in housing starts and the resale market, and a higher average selling price for properties, combined with a rate environment that continued to favour buyers. In addition, consumer spending boosted credit card and point-of-sale financing activities, which further enhanced net interest income.

Other income grew 1.1%, or $15 million, compared to the first three quarters of 2009. This increase was mainly due to higher transaction volumes, which generated additional service charges.

Provisions for credit losses declined $20 million or 10.9% compared to the first nine months of 2009. This was due to proactive risk management in the loan portfolio, and in credit card and point-of-sale financing activities.

Non-interest expense grew $186 million or 6.7%. This was mainly due to higher salaries and fringe benefits due to annual indexing and pay equity agreements, among other things.

Wealth Management and Life and Health Insurance

This segment is responsible for the development and distribution of specialized savings products and life and health insurance. It provides support for the integrated distribution of wealth management products and services throughout the caisse network, and it distributes specific products through complementary channels. This segment also helps Desjardins Group grow across Canada.

For the third quarter, the Wealth Management and Life and Health Insurance segment posted surplus earnings of $76 million, down 9.5% or $8 million compared to the same period of 2009. This change was largely due to online brokerage activities, where transaction volumes were lower as a result of less stock market activity in July and August 2010 as compared to the same period in 2009.

Total income for the segment was $1,484 million, up $85 million or 6.1% compared to the same period of 2009. This increase was mainly due to life and health insurance activities, where investment income grew $99 million. Net insurance premiums increased by $42 million, while net annuity premiums were down $83 million. The $125 million or 20.2% growth in other income was mainly attributable to higher investment income. This increase had no direct impact on surplus earnings, since it was offset by an equivalent increase in actuarial liabilities.

The $61 million or 6.3% increase in expenses related to claims, benefits, annuities and changes in insurance provisions was mainly due to higher actuarial liabilities to account for the rise in the fair value of matched investments as mentioned above.

Non-interest expense, consisting of commissions, remuneration paid to Desjardins caisses and general expenses, grew by $39 million or 12.1%, essentially due to increases in remuneration paid to the caisses as well as higher salaries and fringe benefits.

For the first nine months of 2010, the segment recorded surplus earnings of $236 million compared to $177 million for the same period in 2009, for an increase of 33.3%. This growth was mainly due to strong business in insurance and annuities and an increase in assets under management.

The segment's total income stood at $3,932 million, up $473 million or 13.7% compared to the same period of 2009. Other income grew $488 million or 39.3%, primarily as a result of a $365 million increase in investment income. Since this increase was offset by an equivalent change in actuarial liabilities, there was no impact on surplus earnings. Furthermore, a $125 million increase was recorded in income from fees earned on asset management, the distribution of savings products, brokerage services and private management.

The $278 million increase in expenditures associated with expenses related to claims, benefits, annuities and changes in insurance provisions was primarily due to higher actuarial liabilities resulting from an increase in the fair value of matched investments.

Non-interest expense grew $127 million, or 12.8%. This increase was mainly due to growth in commissions on sales of savings products, in remuneration paid to caisses, and in salaries and fringe benefits.

Property and Casualty Insurance

This segment is responsible for the development and distribution of property and casualty (P&C) insurance products as well as related customer service. It works with the caisse network, supports the network in product distribution and helps grow Desjardins Group's P&C insurance activities across Canada.

The Property and Casualty Insurance segment contributed $15 million to Desjardins Group's surplus earnings in the third quarter, or $17 million less than in the same quarter of 2009.

The segment's surplus earnings before non-controlling interests for the third quarter of 2010 were $17 million, $18 million less than the same quarter of 2009.

Total income for the segment was $419 million, a $28 million or 7.2% increase compared to the third quarter of 2009. This was due to higher net premium income as a result of a larger number of policies issued and a higher average premium. This increase in policies stemmed from growth initiatives in Greater Montreal, the contribution from insured groups, the visibility of the Desjardins General Insurance advertising campaign in Ontario and our private label partnership with a financial institution. Furthermore, the Desjardins caisse network contributed $20 million in gross premiums written in the third quarter of 2010, which was slightly more than the amount recorded one year earlier. Finally, the increase in other income was essentially due to lower interest rates on the markets, which helped drive up the fair value of bonds.

Expenses related to claims increased $44 million from the corresponding quarter of 2009, primarily because the automobile loss ratio in Ontario with regard to injury claims deteriorated during the quarter, increasing actuarial reserves for the quarter.

The increase in non-interest expense was due to a higher salaries expense, the result of having more employees to support business growth, and an increase in fringe benefits.

At the end of the first nine months of the year, the segment's surplus earnings before non-controlling interests had grown to $104 million, up $30 million or 40.5% from the same period of 2009. This increase was primarily due to a decline in expenses related to claims and an increase in net premiums. The better claims experience was mainly due to milder weather conditions in the first six months. This growth in surplus earnings before non-controlling interests was partly offset by a $15 million increase in income taxes.

The segment's total income stood at $1,184 million, up $42 million or 3.7% from the same period of 2009. In the nine months ended September 30, 2010, the caisse network contributed $57 million in gross premiums written, which was slightly more than the amount recorded for the first nine months of 2009.

Other

The "Other" segment consists mainly of treasury activities related to the operations of Caisse centrale Desjardins. The segment is also responsible for all ABTN securities held by Desjardins Group, and records consolidation adjustments for all the components of Desjardins Group. Since the second quarter, this segment has also included the activities of Capital Desjardins and Fonds de sécurité Desjardins, which were previously presented in the Personal Services and Business and Institutional Services segment.

The Other segment posted $86 million in surplus earnings for the third quarter, for a $74 million or 616.7% increase from the same quarter of 2009. This change was mainly due to treasury activities and adjustments related to employee future benefits.

For the first three quarters of 2010, the Other segment posted surplus earnings of $201 million up $138 million or 219.0% from the same nine-month period in 2009. This increase was largely due to a net positive change of $68 million in all items related to the ABCP (ABTN) restructured term note portfolio, treasury activities and the adjustment to employee future benefits, which generated a favourable variance in contributions in relation to the actuarial expense.

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.

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