Results for the second quarter of 2017 - Desjardins Group records surplus earnings of $581 million, up 36%

The amount returned to members and the community reached $74 million, up $22 million

Q2 highlights

• Surplus earnings of $581 million, up $154 million from 2016
• Increase of $398 million, or 11.4%, in operating income⁽¹⁾
• Rigorous cost control limited expense growth to 1.3%
• Outstanding residential mortgages increased by $3.0 billion since December 31, 2016
• Total capital ratio of 17.5% as at June 30, 2017
• Desjardins Funds now total $30 billion in assets under management and those of the market-linked guaranteed investments are at $20 billion
• Transaction to sell Western Financial Group and Western Life Assurance to Trimont Financial Ltd., a subsidiary of The Wawanesa Mutual Insurance Company, closed on July 1, and due to be recognized in Q3 2017

A socially minded and innovative cooperative group 

• Some Desjardins employees offered close to 2,000 hours in support of people affected by the floods this past spring in Quebec
• Ranked second in Corporate Knights' 2017 Best 50 Corporate Citizens in Canada ranking
• Provided financial support to Alloprof through the Desjardins Foundation to help 20,000 students prepare for rewrite exams throughout the summer
• Added Android Pay to its mobile payment offering
• Won two OCTAS awards in recognition of Desjardins's innovative solutions, including the "My Savings Plan" tool, which encourages young people to save
• The Desjardins's Economic Studies team received top honours from the international firm FocusEconomics for the accuracy of their Canadian economic and financial forecasts

Results for the second quarter

LÉVIS, QC, Aug. 11, 2017 /CNW Telbec/ - For the second quarter ended June 30, 2017, Desjardins Group, Canada's largest cooperative financial group, continued to report business growth and posted an 11.4% increase in operating income,⁽¹⁾ to $3,900 million.  

This allows Desjardins Group's to post $581 million in surplus earnings before member dividends, up $154 million from the same quarter of 2016. The increase is due to the contribution of the caisse network, which continues to grow, and to good investment performance and a decrease in actuarial liabilities arising from changes made to the credit ratings of the securities matched to these liabilities in the Wealth Management and Life and Health Insurance segment. The Property and Casualty Insurance segment benefited from favourable developments in prior years' claims.

The amount returned to members and the community was $74 million (Q2 2016: $52 million), including a $40 million provision for member dividends (Q2 2016: $22 million); $23 million in sponsorships, donations and scholarships (Q2 2016: $22 million); and $11 million in Member Advantages (Q2 2016: $8 million).

"Our cooperative financial group's performance over the last quarter is a great achievement, and reflects strong business growth," said Guy Cormier, Chair of the Board, President and Chief Executive Officer. "When Desjardins succeeds, all its members and clients succeed as well. This allows us to play an even larger role as a socioeconomic leader and to give back even more to our members and the community."

Net interest income was $1,087 million, up slightly from the same period of 2016. Expanding financing activities in mortgages, business loans and point-of-sale financing mitigated the pressure on interest margins in a highly competitive market.

The growth in life and health insurance operations and in property and casualty insurance, combined with the impact of the reinsurance treaty signed as part of the acquisition of the Canadian operations of State Farm, led to a 19.3% increase in net premiums, to $2,076 million (Q2 2016: $1,740 million).

Other operating income⁽¹⁾ stood at $737 million, up $36 million from the same period of 2016. Lending fees and credit card service revenues, consisting mainly of income from the various payment solutions offered by Desjardins's Card and Payment Services, totalled $154 million (Q2 2016: $136 million) and came from business growth. Income from brokerage and investment fund services stood at $307 million (Q2 2016: $286 million). This growth was primarily due to greater assets under management arising from the sale of various financial products.

Desjardins Group's loan portfolio continued to be of high quality. The gross impaired loans ratio, expressed as a percentage of the total gross loans and acceptances portfolio, was 0.28% as at June 30, 2017, down from 2016. The provision for credit losses totalled $76 million, relatively unchanged from the same period of 2016.

Non-interest expense stood at $1,878 million (Q2 2016: $1,854 million). Rigorous cost control limited the increase to 1.3%, despite business growth, in particular in credit card and point-of-sale financing activities, as well as the impact of the reinsurance treaty signed as part of the acquisition of the Canadian operations of State Farm.

Total assets of $272.0 billion, up $13.6 billion 

As at June 30, 2017, Desjardins Group had total assets of $272.0 billion, up $13.6 billion or 5.3% since December 31, 2016. This increase was largely due to growth in the securities portfolio and the net loans and acceptances portfolio.

Strong capital base 

Desjardins Group maintains very good capitalization levels in compliance with Basel III rules. Its Tier 1A and total capital ratios were 17.1% and 17.5%, respectively, as at June 30, 2017, compared to 17.3% and 17.9% as at December 31, 2016.

Results for the first six months of 2017

At the end of the first six months of 2017, operating income⁽¹⁾ was $7,655 million (2016: $6,973 million), up 9.8%, and surplus earnings before member dividends were $964 million (2016: $809 million), an increase of 19.2%. This difference is due to the same reasons given for the second quarter results.

^1	See "Basis of presentation of financial information."

Segment results for the second quarter of 2017

Personal and Business Services 

For the second quarter of fiscal 2017, the Personal and Business Services segment reported surplus earnings before member dividends of $272 million (Q2 2016: $251 million). This increase was mainly due to growth in credit card and point-of-sale financing activities, good performance in the caisse network, and income from mergers and acquisitions in the capital markets.  

For the first six months of 2017, surplus earnings totalled $518 million (2016: $483 million).

Wealth Management and Life and Health Insurance

Net surplus earnings generated by the Wealth Management and Life and Health Insurance segment were $189 million at the end of the quarter (Q2 2016: $124 million). This 52.4% increase was largely due to good investment performance and the decrease in actuarial liabilities arising from changes made to the credit ratings of the securities matched to these liabilities.

For the first six months of 2017, surplus earnings totalled $332 million (2016: $221 million).

Property and Casualty Insurance 

The Property and Casualty Insurance segment recorded net surplus earnings of $98 million in the second quarter of 2017 (Q2 2016: $49 million). This increase was essentially due to favourable development on prior years' claims, offset in part by an increase in the year-to-date claims experience in automobile insurance and property insurance compared to the second quarter of 2016. 

For the first six months of 2017, surplus earnings totalled $80 million (2016: $88 million).

Key Financial Data
FINANCIAL POSITION AND KEY RATIOS
(in millions of dollars and as a percentage)	As at June 30, 2017			As at December 31, 2016
Assets	$	271,983		$	258,367
Residential mortgage loans	$	109,740		$	106,695
Consumer, credit card and other personal loans	$	22,832		$	22,150
Business and government loans ^(1)	$	39,298		$	37,637
Total gross loans ^(1)	$	171,870		$	166,482
Equity	$	23,843		$	23,293
Tier 1A capital ratio	17.1		%	17.3		%
Tier 1 capital ratio	17.1		%	17.3		%
Total capital ratio	17.5		%	17.9		%
Leverage ratio	7.9		%	8.1		%
Gross impaired loans/gross loans and acceptances ratio ^(2)	0.28		%	0.32		%
^(1) Includes acceptances.
^(2)See "Basis of presentation of financial information."

COMBINED INCOME
	For the three-month periods									For the six-month periods
	ended									ended
(in millions of dollars and as a percentage)	June 30, 2017			March 31, 2017			June 30, 2016			June 30, 2017			June 30, 2016
Operating income^(1)	$	3,900		$	3,755		$	3,502		$	7,655		$	6,973
Surplus earnings before member dividends	$	581		$	383		$	427		$	964		$	809
Return on equity^(1)	9.9		%	6.8		%	7.8		%	8.4		%	7.4		%
^(1) See "Basis of presentation of financial information."

CONTRIBUTION TO COMBINED SURPLUS EARNINGS BY BUSINESS SEGMENT
	For the three-month periods									For the six-month periods
	ended									ended
(in millions of dollars)	June 30, 2017			March 31, 2017			June 30, 2016			June 30, 2017			June 30,  2016
Personal and Business Services	$	272		$	246		$	251		$	518		$	483
Wealth Management and Life and Health Insurance		189			143			124			332			221
Property and Casualty Insurance		98			(18)			49			80			88
Other		22			12			3			34			17
	$	581		$	383		$	427		$	964		$	809

CREDIT RATINGS OF SECURITIES ISSUED
		DBRS	STANDARD & POOR'S	MOODY'S	FITCH
Fédération des caisses Desjardins du Québec
	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+

More detailed financial information can be found in Desjardins Group's interim Management's Discussion and Analysis, which will be available on the SEDAR website under the Capital Desjardins inc. profile.

About Desjardins Group

Desjardins Group is the leading cooperative financial group in Canada and the sixth largest cooperative financial group in the world, with assets of $272 billion. It has been rated one of the Best Employers in Canada by Aon Hewitt. To meet the diverse needs of its members and clients, Desjardins offers a full range of products and services to individuals and businesses through its extensive distribution network, online platforms and subsidiaries across Canada. Counted among the world's strongest banks according to The Banker magazine, Desjardins has some of the highest capital ratios and credit ratings in the industry.

Caution concerning forward-looking statements 

Certain statements made in this press release may be forward-looking. By their very nature, forward-looking statements involve assumptions, uncertainties and inherent risks, both general and specific. It is therefore possible that, due to many factors, these predictions, forecasts or other forward-looking statements as well as Desjardins Group's objectives and priorities may not materialize or may prove to be inaccurate and that actual results differ materially. Various factors that are beyond Desjardins Group's control, and therefore whose impacts on Desjardins are difficult to predict, could influence the accuracy of the forward-looking statements in this press release. Additional information on these and other factors are available under the risk management section of Desjardins Group's 2016 annual Management's Discussion and Analysis. Although Desjardins Group believes that the expectations expressed in these forward-looking statements are reasonable, it cannot guarantee that these expectations will prove to be correct. Desjardins Group cautions readers against placing undue reliance on these forward-looking statements when making decisions. Desjardins Group does not undertake to update any verbal or written forward-looking statements that may be made from time to time by or on behalf of Desjardins Group, except as required under applicable securities legislation.

Basis of presentation of financial information

The financial information in this document comes primarily from the 2017 quarterly financial statements. Those statements have been prepared by Desjardins Group's management in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), and the accounting requirements of the Autorité des marchés financiers (AMF) in Quebec, which do not differ from IFRS. Unless otherwise indicated, all amounts are in Canadian dollars ($).

To assess its performance, Desjardins Group uses IFRS measures and various non-IFRS financial measures. Non-IFRS financial measures, other than the regulatory ratios, do not have standardized definitions and are not directly comparable to similar measures used by other companies, and may not be directly comparable to any IFRS measures. Investors, among others, may find these non-IFRS measures useful in analyzing financial performance. The measures used are defined as follows:

Adjusted net surplus earnings for the Property and Casualty Insurance segment

The net surplus earnings of the Property and Casualty Insurance segment are adjusted to exclude the expenses, net of income taxes, incurred as part of the sale of Western Financial Group Inc. and Western Life Assurance Company as well as those incurred as part of the acquisition of the Canadian businesses of State Farm Mutual Automobile Insurance Company (State Farm), completed on January 1, 2015. The latter expenses include the costs related to the transaction and the integration of operations as well as processing expenses.

Gross impaired loans/gross loans and acceptances ratio

The gross impaired loans/gross loans and acceptances ratio is used to measure loan portfolio quality and is equal to gross impaired loans expressed as a percentage of total gross loans and acceptances. 

Return on equity

Return on equity is used to measure profitability. Expressed as a percentage, it is equal to surplus earnings before member dividends, excluding the non-controlling interests' share, divided by average equity before non-controlling interests.

Income

Operating income

The concept of operating income is used to analyze financial results. This concept allows for better structuring of financial data and makes it easier to compare operating activities from one period to the next by excluding the volatility of results specific to investments, particularly regarding the extent of life and health insurance and P&C insurance operations, for which a very large proportion of investments are recognized at fair value through profit or loss. The analysis therefore breaks down Desjardins Group's income into two parts, namely operating income and investment income, which make up total income. This measure is not directly comparable to similar measures used by other companies.

Operating income includes net interest income, generated mainly by the Personal and Business Services segment and the Other category, net premiums and other operating income such as deposit and payment service charges, lending fees and credit card service revenues, income from brokerage and investment fund services, management and custodial service fees, foreign exchange income as well as other income. These items, taken individually, correspond to those presented in the Combined Financial Statements.

Investment income

Investment income includes net income on securities at fair value through profit or loss, net income on available-for-sale securities and net other investment income. These items, taken individually, correspond to those presented in the Combined Financial Statements. The life and health insurance and P&C insurance subsidiaries' matching activities, which include changes in fair value, gains and losses on disposals and interest and dividend income on securities, are presented with investment income, given that these assets back insurance liabilities, for which the results are recognized under expenses related to claims, benefits, annuities and changes in insurance contract liabilities in the Combined Financial Statements. In addition, this investment income includes changes in the fair value of investments for the Personal and Business Services segment, recognized at fair value through profit or loss.

			For the three-month periods						For the six-month periods
			ended						ended
(in millions of dollars)			June 30, 2017		March 31, 2017		June 30, 2016		June 30, 2017		June 30, 2016
Presentation of income in the  Combined Financial Statements
Net interest income			$	1,087	$	1,057	$	1,061	$	2,144	$	2,115
Net premiums				2,076		1,982		1,740		4,058		3,461
Other income
	Deposit and payment service charges			122		120		119		242		237
	Lending fees and credit card service revenues			154		172		136		326		285
	Brokerage and investment fund services			307		278		286		585		546
	Management and custodial service fees			106		101		92		207		180
	Net income on securities at fair valuethrough profit or loss			476		301		878		777		1,390
	Net income on available-for-sale securities			181		80		99		261		178
	Net other investment income			54		54		50		108		100
	Foreign exchange income			20		19		22		39		38
	Other			28		26		46		54		111
Total income			$	4,611	$	4,190	$	4,529	$	8,801	$	8,641
Presentation of income in the Management's Discussion and Analysis
Net interest income			$	1,087	$	1,057	$	1,061	$	2,144	$	2,115
Net premiums				2,076		1,982		1,740		4,058		3,461
Other operating income
	Deposit and payment service charges			122		120		119		242		237
	Lending fees and credit card service revenues			154		172		136		326		285
	Brokerage and investment fund services			307		278		286		585		546
	Management and custodial service fees			106		101		92		207		180
	Foreign exchange income			20		19		22		39		38
	Other			28		26		46		54		111
Operating income				3,900		3,755		3,502		7,655		6,973
Investment income
	Net income on securities at fair value through profit or loss			476		301		878		777		1,390
		Net income on available-for-sale securities		181		80		99		261		178
	Net other investment income			54		54		50		108		100
				711		435		1,027		1,146		1,668
Total income			$	4,611	$	4,190	$	4,529	$	8,801	$	8,641

SOURCE Desjardins Group

(media inquiries only): André Chapleau, Public Relations, 514-281-7229 or 1-866-866-7000, ext. 5557229, [email protected]; Réal Bellemare, Executive Vice-President, Finance, Treasury and Administration, and Chief Financial Officer of Desjardins Group

Related Links

https://www.desjardins.com/