Results for the third quarter of 2016 - Desjardins Group records surplus earnings of $454 million, an increase of 12.4% Français
Operating income climbed 4.1%
Q3 highlights
- Surplus earnings of $454 million, up $50 million or 12.4%
- Increase in operating income of $141 million or 4.1%
- Assets of $260.2 billion, up $12.0 billion since December 31, 2015
- Tier 1A capital ratio of 16.3%
- Loans and acceptances up $4.4 billion or 2.8% since December 31, 2015
- Assets under management and administration up $27.9 billion or 6.9% since December 31, 2015, to $431.3 billion
A socially minded cooperative group with a focus on innovation
- In celebration of Co-op Week, Desjardins donated $1.8 million and over 7,000 of its elected officers and employees participated in some 420 projects designed to encourage young people in Quebec and Ontario to stay in school and strive for academic success.
- Successfully launched Apple Pay, allowing our members and customers to make secure payments on their iPhone, iPad and Apple Watch.
- Capital régional et coopératif Desjardins extended $9 million in financial support to two Quebec cooperatives, Unicoop and Citadelle.
- Desjardins was the official presenter of the 51st Finale des Jeux du Québec held in Montreal this past summer.
- Support from Développement international Desjardins for a project of entrepreneurship in Sri Lanka, in cooperation with SANASA, the largest cooperative financial institution in Sri Lanka.
- A proposed merger of Caisse centrale Desjardins and the Fédération des caisses Desjardins du Québec was announced to render the cooperative group more integrated and to simplify its structure.
Results for the quarter
LÉVIS, QC, Nov. 10, 2016 /CNW Telbec/ - For the third quarter ended September 30, 2016, Desjardins Group, Canada's leading cooperative financial group, recorded a $141 million increase in operating income(1) to $3,573 million. Surplus earnings before member dividends were $454 million, up $50 million from the same quarter of 2015. This increase stemmed mainly from results reported by the insurance segments, whose business grew in an environment marked by a difficult claims experience in automobile insurance. It should also be noted that surplus earnings for the third quarter of 2015 had been affected by high volatility in the capital markets, which resulted in the recognition of impairment losses that reduced investment income. Furthermore, the increase in surplus earnings was offset by an unfavourable fluctuation in the fair value of derivative financial instruments associated with Desjardins Group's hedging activities in the third quarter of 2016.
"Desjardins Group's strong results are largely attributable to the performance of our insurance subsidiaries and the stability of our financial intermediation activities," said Guy Cormier, Chair of the Board, President and Chief Executive Officer. "Our financial strength will allow us to further our mission and continue providing socioeconomic leadership in the communities and regions we serve. This includes a recently announced $100 million development fund intended to expand Desjardins's ability to support under the caisse network's initiative, notably in the regions, promising projects for the future of Desjardins and our communities."
Strong market competition continued to exert pressure on interest margins. Net income stood at $1,064 million, down $30 million from the same period last year, despite growth in the overall loans and acceptances portfolio.
Higher premiums in life and health insurance and in property and casualty insurance generated a $181 million or 10.7% increase in net premiums, which stood at $1,873 million as at September 30, 2016.
The provision for credit losses was $98 million, comparable to the provision of $102 million recorded for the third quarter of 2015.
Non-interest expense ended the quarter at $1,718 million (Q3 2015: $1,668 million). Despite a growth in business activities and costs related to severance benefits, the increase in non-interest expense was constrained by continued cost management efforts.
Results for the first nine months of 2016
At the end of the first nine months of 2016, operating income(1) was $10,571 million (2015: $10,460 million) and surplus earnings before member dividends were $1,263 million (2015: $1,497 million). It should be noted that surplus earnings for the first nine months of 2015 were affected by specific items such as the gain realized on the acquisition date of State Farm's Canadian operations as well as changes in actuarial assumptions related to life and health insurance activities, which enhanced surplus earnings. In 2016, property and casualty insurance was also marked by a higher claims experience, and an unfavourable change was recorded in the fair value of derivative financial instruments associated with Desjardins Group's hedging activities.
Total assets of $260.2 billion, an increase of $12.0 billion
As at September 30, 2016, Desjardins Group had total assets of $260.2 billion, up $12.0 billion or 4.8% since December 31, 2015. This increase was primarily due to a $4.4 billion expansion of the loans and acceptances portfolio and $3.6 billion growth in securities.
Strong capital base
Desjardins Group maintains very good capitalization levels in compliance with Basel III rules. Its Tier 1A and total capital ratios were 16.3% and 16.9% respectively, as at September 30, 2016 compared to 16.0% and 17.2% respectively, as at December 31, 2015.
Segment results for the third quarter of 2016
Personal Services and Business and Institutional Services
For the third quarter of 2016, surplus earnings before member dividends from the Personal Services and Business and Institutional Services segment were $270 million, relatively unchanged from the same period of 2015. Growth in the overall loans and acceptance portfolio and business growth, particularly in credit card and point-of-sale financing activities, were offset by strong competition in the market, which continued to exert pressure on interest margins.
For the first nine months of 2016, the segment posted $707 million in surplus earnings (2015: $703 million).
Wealth Management and Life and Health Insurance
In the third quarter of 2016, the Wealth Management and Life and Health Insurance segment generated net surplus earnings of $126 million (Q3 2015: $83 million). This 51.8% increase was primarily due to favourable investment performance and efficient management of expenditures in a context of business growth.
For the first nine months of 2016, the segment posted $347 million in surplus earnings (2015: $376 million).
Property and Casualty Insurance
Net surplus earnings from the Property and Casualty Insurance segment were $26 million for the third quarter of 2016, up $49 million from the same quarter of 2015 (Q3 2015: ($23) million). Even though the claims experience in automobile insurance in 2016 was higher than in the corresponding quarter of 2015, surplus earnings for the third quarter of 2015 were affected by highly volatile capital markets, resulting in the recognition of losses in value that reduced investment income.
For the first nine months of 2016, the segment posted $114 million in surplus earnings (2015: $247 million). This decline in surplus earnings was primarily due to a higher claims experience in 2016 as well as the gain realized on the acquisition of State Farm's Canadian operations in the first quarter of 2015.
1 See "Basis of presentation of financial information."
Key Financial Data
| FINANCIAL POSITION AND KEY RATIOS |
||||||
| (in millions of dollars and as a percentage) |
As at September 30, |
As at December 31, |
||||
| Assets |
$ |
260,157 |
$ |
248,128 |
||
| Residential mortgage loans |
$ |
105,908 |
$ |
102,323 |
||
| Consumer, credit card and other personal loans |
$ |
21,723 |
$ |
21,204 |
||
| Business and government loans (1) |
$ |
37,118 |
$ |
36,809 |
||
| Total gross loans (1) |
$ |
164,749 |
$ |
160,336 |
||
| Equity |
$ |
22,316 |
$ |
21,725 |
||
| Tier 1A capital ratio |
16.3 |
% |
16.0 |
% |
||
| Tier 1 capital ratio |
16.3 |
% |
16.0 |
% |
||
| Total capital ratio |
16.9 |
% |
17.2 |
% |
||
| Leverage ratio |
7.6 |
% |
7.8 |
% |
||
| Gross impaired loans/gross loans and acceptances (2) |
0.36 |
% |
0.34 |
% |
||
| COMBINED INCOME |
|||||||||||||||
| For the three-month periods ended |
For the nine-month periods ended |
||||||||||||||
| (in millions of dollars and as a percentage) |
Sept. 30, |
June 30, |
Sept. 30, |
Sept. 30, |
Sept. 30, 2015 |
||||||||||
| Operating income (2) |
$ |
3,573 |
$ |
3,513 |
$ |
3,432 |
$ |
10,571 |
$ |
10,460 |
|||||
| Surplus earnings before member dividends |
$ |
454 |
$ |
427 |
$ |
404 |
$ |
1,263 |
$ |
1,497 |
|||||
| Return on equity (2) |
8.3 |
% |
7.8 |
% |
7.6 |
% |
7.7 |
% |
9.5 |
% |
|||||
| CONTRIBUTION TO COMBINED SURPLUS EARNINGS BY BUSINESS SEGMENT |
|||||||||||
| For the three-month |
For the nine-month |
||||||||||
| (in millions of dollars) |
Sept. 30, |
June 30, |
Sept. 30, |
Sept. 30, 2016 |
Sept. 30, 2015 |
||||||
| Personal Services and Business and Institutional |
$ |
270 |
$ |
226 |
$ |
268 |
$ |
707 |
$ |
703 |
|
| Wealth Management and Life and Health Insurance |
126 |
124 |
83 |
347 |
376 |
||||||
| Property and Casualty Insurance |
26 |
49 |
(23) |
114 |
247 |
||||||
| Other |
32 |
28 |
76 |
95 |
171 |
||||||
| $ |
454 |
$ |
427 |
$ |
404 |
$ |
1,263 |
$ |
1,497 |
||
| 1 |
Includes acceptances. |
| 2 |
See "Basis of presentation of financial information." |
| CREDIT RATINGS OF SECURITIES ISSUED |
|||||
| DBRS |
Standard & Poor's |
Moody's |
Fitch |
||
| 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+ |
|
More detailed information can be found in Desjardins Group's interim Management's Discussion and Analysis, which is 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 $260.2 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 one 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 a number of factors, the predictions, projections 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 2015 Management's Discussion and Analysis. 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 these forward-looking statements when making decisions. Desjardins Group does not undertake to update any written or verbal 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.
Basis of presentation of financial information
The financial information in this document comes primarily from the unaudited Condensed Interim Combined Financial Statements for the quarter and nine-month period ended September 30, 2016. These statements have been prepared by Desjardins Group's management in accordance with 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 International Financial Reporting Standard (IFRS) measures and various non-IFRS financial measures. Non-IFRS financial measures, other than the regulatory ratios, do not have a standardized definition and are not directly comparable to similar measures used by other companies, and may not be directly comparable to any IFRS measures. Investors may find these non-IFRS measures useful in analyzing financial performance. The measures used are defined as follows:
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 investment income. 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, 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. Investment income also includes income from the insurance subsidiaries' matching activities and from derivative financial instruments not designated as part of a hedging relationship.
| For the three-month |
For the nine-month |
||||||||||
(in millions of dollars) |
Sept. 30, |
June 30, |
Sept. 30, |
Sept. 30, 2016 |
Sept. 30, 2015 |
||||||
| Presentation of income in the Combined Financial Statements |
|||||||||||
| Net interest income |
$ 1,064 |
$ 1,053 |
$ 1,094 |
$ 3,166 |
$ 3,146 |
||||||
| Net premiums |
1,873 |
1,740 |
1,692 |
5,334 |
5,266 |
||||||
| Other income |
|||||||||||
| Deposit and payment service charges |
128 |
119 |
125 |
365 |
365 |
||||||
| Lending fees and credit card service revenues |
158 |
155 |
149 |
481 |
459 |
||||||
| Brokerage and investment fund services |
278 |
286 |
255 |
824 |
774 |
||||||
| Management and custodial service fees |
94 |
92 |
90 |
274 |
274 |
||||||
| Net income on securities at fair value through profit or loss |
385 |
878 |
17 |
1,775 |
579 |
||||||
| Net income on available-for-sale securities |
99 |
99 |
34 |
277 |
246 |
||||||
| Net other investment income |
49 |
50 |
51 |
149 |
187 |
||||||
| Foreign exchange income |
20 |
22 |
20 |
58 |
67 |
||||||
| Other |
(42) |
46 |
7 |
69 |
109 |
||||||
| Total income |
$ 4,106 |
$ 4,540 |
$ 3,534 |
$ 12,772 |
$ 11,472 |
||||||
| Presentation of income in the Management's Discussion and Analysis |
|||||||||||
| Net interest income |
$ 1,064 |
$ 1,053 |
$ 1,094 |
$ 3,166 |
$ 3,146 |
||||||
| Net premiums |
1,873 |
1,740 |
1,692 |
5,334 |
5,266 |
||||||
| Other operating income |
|||||||||||
| Deposit and payment service charges |
128 |
119 |
125 |
365 |
365 |
||||||
| Lending fees and credit card service revenues |
158 |
155 |
149 |
481 |
459 |
||||||
| Brokerage and investment fund services |
278 |
286 |
255 |
824 |
774 |
||||||
| Management and custodial service fees |
94 |
92 |
90 |
274 |
274 |
||||||
| Foreign exchange income |
20 |
22 |
20 |
58 |
67 |
||||||
| Other |
(42) |
46 |
7 |
69 |
109 |
||||||
| Operating income |
3,573 |
3,513 |
3,432 |
10,571 |
10,460 |
||||||
| Investment income |
|||||||||||
| Net income on securities at fair value through profit or loss |
385 |
878 |
17 |
1,775 |
579 |
||||||
| Net income on available-for-sale securities |
99 |
99 |
34 |
277 |
246 |
||||||
| Net other investment income |
49 |
50 |
51 |
149 |
187 |
||||||
| 533 |
1,027 |
102 |
2,201 |
1,012 |
|||||||
| Total income |
$ 4,106 |
$ 4,540 |
$ 3,534 |
$ 12,772 |
$ 11,472 |
||||||
SOURCE Desjardins Group
(media inquiries only): André Chapleau, Media Relations, 514-281-7229 or 1-866-866-7000, ext. 5557229, [email protected] ; Réal Bellemare, Chief Financial Officer of Desjardins Group, Senior Vice-President of Finance,Treasury and Administration
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