2007 second-quarter results
Desjardins Group announces a significant increase of nearly 66% in surplus earnings
Increased profitability in the caisse network, which has recorded steady growth in business volume coupled with more effective cost controls, largely accounts for these results.
Financial highlights
Surplus earnings before member dividends to members were up $125 million in the second quarter and up $204 million in the first six months of 2007.
The Tier 1 capital ratio is still one of the best in the industry.
Assets grew by nearly 15% to $143 billion.
Net sales of Desjardins Funds were up 96% in the first six months of 2007.
For the three-month periods ended June 30 |
For the six-month periods ended June 30 |
|||||
|---|---|---|---|---|---|---|
2007 |
2006 |
Change |
2007 |
2006 |
Change |
|
Surplus earnings before member dividends to members |
$315M |
$190M |
65.8% |
$580M |
$376M |
54.3% |
Provision for member dividends to members |
$177M |
$111M |
59.5% |
$288M |
$201M |
43.3% |
Return on equity |
14.3% |
9.5% |
--- |
13.4% |
9.5% |
--- |
 |
||||||
Other financial data
For the three-month periods ended June 30 |
|||
|---|---|---|---|
2007 |
2006 |
Change |
|
Assets |
$143B |
$124.5B$ |
14.8% |
Equity |
$8.9B |
$8.1B |
9.2% |
Tier 1 capital ratio |
14.44% |
13.65% |
--- |
Growth in total loans |
7.3% |
8.7% |
--- |
Growth in total deposits |
7.1% |
7.6% |
--- |
|
|||
2007 second-quarter results
Lévis (Québec), August 15, 2007 - For the second quarter ended June 30, 2007, Desjardins Group, the largest integrated cooperative financial group in Canada, recorded a solid performance, with combined surplus earnings before member dividends to members of $315 million, up $125 million or 65.8% from the same quarter of 2006.
The return on equity (surplus earnings before member dividends to members divided by average equity) stood at 14.3%, compared to 9.5% for the same quarter one year ago.
"These excellent results stem from the concerted efforts of the caisse network and of all Desjardins Group components, as well as from the positive impact of the initiatives undertaken in 2006, aimed at achieving continuous improvement in the Desjardins Group's financial performance," said Alban D'Amours, President and Chief Executive Officer of Desjardins Group.
Solid second-quarter profitability was primarily attributable to the Personal and Commercial segment, particularly the caisse network, which posted a much improved financial performance. This segment recorded a significant increase in all income categories, as indicated in the analysis of the results by business segment later in this release. Profitability was also up in the insurance segment, particularly in the life and health insurance subsidiary, which recorded a 12.4% increase in insurance premium income.
Net interest income totalled $808 million, up $42 million or 5.5% from the same quarter last year, primarily due to higher business volume. Insurance premiums rose by $68 million or 8.0%, while annuity premiums were down by $60 million or 47.2%, thus bringing net insurance premiums back overall in line with the level of the second quarter of 2006. Other income benefited from a $30 million (or 21.3%) increase in income from brokerage, investment fund and trust services, a $17 million (or 21.3%) increase in income from lending fees and credit cards (reflecting, among other things, the caisse network's fine performance in this regard), and a $47 million increase in investing and trading income in the Personal and Commercial segment.
However, the positive impact of these substantial increases on total income was partially reduced by a $99 million decrease in investment income, primarily due to changes in accounting policies concerning the life and health insurance company's financial instruments. Nevertheless, this decrease was offset by an equivalent reduction in expenses related to claims, benefits, annuities and changes in insurance provisions.
Overall, Desjardins Group's total income stood at $2,210 million in the second quarter of 2007, compared to $2,249 million in the corresponding quarter of 2006.
The provisions for credit losses in the second quarter of 2007 totalled $41 million, compared to $36 million one year ago.
In the second quarter of 2007, expenses related to claims, benefits, annuities and changes in insurance provisions amounted to $543 million, down $260 million or 32.4% from the same quarter of 2006. This decrease was attributable to reduced annuity activity and to the negative change in investment income reported by the life and health insurance subsidiary, as mentioned previously.
Non-interest expenses totalled $1,177 million for the three-month period ended June 30, 2007, up $43 million or 3.8% from the second quarter of 2006, as a result of effective operating expense controls.
Results for the first six months of 2007
For the six-month period ended June 30, 2007, Desjardins Group declared combined surplus earnings before member dividends to members of $580 million, compared to $376 million for the corresponding period of 2006, or a 54.3% increase.
The return on equity stood at 13.4%, compared to 9.5% for the same period last year.
The provision for member dividends to members recorded in the first six months of 2007 was $288 million, compared to $201 million one year ago, for a 43.3% increase.
Desjardins still ranks among the best-capitalized financial institutions in Canada, with a Tier 1 capital ratio of 14.44% as at June 30, 2007. This level exceeded Desjardins Group's capitalization target and was one of the highest in the industry. The total capital ratio stood at 13.41%, compared to 13.73% as at June 30, 2006. This decrease stemmed from the repayment, on June 1, 2007, of Capital Desjardins Series B subordinated debt totalling $500 million.
The profitability improvements in the first six months of 2007 were attributable to the fine performance of all Desjardins Group components. In this respect, the Personal and Commercial segment's financial results were up significantly due in part to the caisse network's increased profitability and highly successful investment fund sales. The Personal and Commercial segment reported an increase in all income categories and maintained control over its operating expenses. In addition, the insurance subsidiaries turned in an excellent performance, thanks in part to strongly performing investments, effective cost controls, an improved life and health insurance claims experience and a favourable general insurance claims experience.
"These results are more than satisfactory. In particular, we must acknowledge the performance of the caisse network, which posted higher profitability and steady growth in business volumes. Similarly, some of the Desjardins subsidiaries are making remarkable gains across Canada. Thanks to this excellent performance, the caisses are contributing to the improvement of the collective wealth, for the benefit of their members and the collectivity," added Mr. D'Amours.
Desjardins Group's financial results for the first six months of 2007 were examined against the financial framework established at the creation of the 2006-2008 Strategic Plan. Indeed, the significant increase in profitability, combined with business growth and effective operating expense controls, made it possible to reach the goals that were set. In this respect, the sustained efforts of all Desjardins Group components to improve the gap between revenue growth and expense growth (i.e. operating leverage) should be noted. These efforts, together with the positive impact of initiatives focused on Desjardins Group's financial, real estate and operational synergies, resulted in overall improved productivity.
Higher business volume boosted net interest income by $80 million or 5.3%. Insurance premiums were up $126 million or 7.5% during the first half of 2007, while annuity premiums fell by $135 million or 53.9%, bringing net insurance premiums back in line with the level of the first six months of 2006. Other income reflected a $55 million (or 19.4%) increase in income from brokerage, investment fund and trust services, a $30 million (or 19.7%) increase in income from lending fees and credit cards and a $66 million increase in investing and trading income from the Personal and Commercial segment.
However, the positive impact of these significant increases on total income in the first six months of the year was reduced by a $300 million decrease in investment income, primarily due to changes in accounting policies concerning the life and health insurance company's financial instruments. Nevertheless, this decrease was offset by an equivalent reduction in expenses related to claims, benefits, annuities and changes in insurance provisions.
Overall, Desjardins Group's total income stood at $4,574 million in the first six months of 2007, in line with the $4,570 million recorded in the corresponding period of 2006.
The provisions for credit losses expense charged to income during the first half of the year totalled $85 million, compared to $67 million one year ago. The quality of Desjardins' loan portfolio remained excellent.
Expenses related to claims, benefits, annuities and changes in insurance provisions totalled $1,333 million for the first six months of 2007, down $358 million or 21.2% compared to one year ago. This decrease was attributable to the same reasons previously discussed in the quarterly results analysis.
Non-interest expenses totalled $2,334 million in the first half of 2007, or a limited increase of 2.7% compared to the same period last year, thus confirming the effectiveness of the operating expense controls.
Because revenue growth exceeded expense growth, the productivity ratio (Desjardins Group's non-interest expenses divided by its total income, net of expenses related to claims and insurance benefits) improved to 72.0% in the first six months of 2007, compared to 78.9% in the same period of 2006.
As at June 30, 2007, Desjardins Group's total assets stood at $143.0 billion, compared to $124.5 billion one year ago, up sharply by 14.8% (or $18.5 billion).
Results by business segment
Personal and Commercial
This segment primarily consists of the caisse network, the Fédération des caisses Desjardins du Québec, Caisse centrale Desjardins, the Fonds de sécurité Desjardins, Capital Desjardins inc., Desjardins Trust and the Ontario federation and caisses.
Thanks to a solid increase in all income categories and tight operating expense controls, the Personal and Commercial segment reported surplus earnings before member dividends to members of $396 million for the first six months of 2007, up $123 million or 45.1% compared to one year ago. The caisse network's improved financial performance and highly successful investment fund sales were contributing factors.
For the second quarter ended June 30, 2007, surplus earnings before member dividends to members totalled $207 million, up $70 million or 51.1% compared to the same quarter of 2006. Total income rose by $123 million or 11.5%, while net interest income increased by $43 million or 5.6%. Other income rose by $80 million, primarily due to a $47 million increase in investing and trading income, a $22 million increase in income from brokerage, investment fund and trust services, and a $16 million increase in income from credit card activities.
For the first six months of 2007, the Personal and Commercial segment reported total income of $2,354 million, up $241 million or 11.4% from the same period of 2006. Net interest income reached $1,584 million, up $79 million or 5.2%, primarily due to higher business volume.
Other income totalled $770 million during the first half of 2007, up $162 million or 26.6% from one year ago. Income from brokerage, investment fund and trust services increased by $36 million, fuelled by a more than 30% increase in Desjardins Funds outstanding, compared to June 30, 2006. Income from credit card activities rose by $30 million, partially as a result of higher business volume. In addition, investing and trading income increased by $66 million during the first six months of 2007.
The provisions for credit losses expense stood at $85 million for the first half of 2007, compared to $67 million for the same period of 2006. The proportion of gross impaired loans within the gross loan portfolio remained stable.
Non-interest expenses totalled $1,718 million, up $56 million or 3.4% from the first six months of 2006. Over 66% of this increase stemmed from higher salaries and fringe benefits, primarily due to the annual indexing of salaries.
In addition, Caisse centrale Desjardins contributed $51.7 million to the Personal and Commercial segment during the first half of 2007, up 4.5% compared to the corresponding period last year. All of Caisse centrale's business segments contributed to this result.
In the area of financing activities, the Personal and Commercial segment's loan portfolio grew by 7.0% (or $5.9 billion) on an annual basis by the end of the second quarter of 2007, totalling $89.7 billion as at June 30, 2007. This increase was attributable to steady demand for loans by business and government and, to a lesser extent, demand for residential mortgages.
Outstanding loans to business and government stood at $22.0 billion as at June 30, 2007, up 8.8% (or $1.8 billion) on an annual basis. Residential mortgages also posted relatively robust growth of 7.0% (or $3.5 billion). The boom in the existing home resale market and in new housing starts in Quebec largely accounts for the sustained growth recorded by the Personal and Commercial segment in terms of residential mortgage financing activity. In Ontario, the resale of existing homes also picked up, while new housing starts tapered off.
As regards Caisse centrale Desjardins' corporate financing activities, authorized new business totalled over $1.1 billion as at June 30, 2007, primarily due to the opening of a number of credit facilities for which Caisse centrale Desjardins acted as bank co-syndication agent. This business development was due in part to Caisse centrale's ability to assist businesses in new markets in Canada, the U.S. and Europe. New authorized corporate financing outside Québec accounted for approximately 45% of authorized business, thanks in part to the participation of Caisse centrale Desjardins U.S. Branch, which began operations in August 2006.
Desjardins Group's securitized mortgage loan program, involving Desjardins caisses in Québec and Ontario as well as Desjardins Credit Union, continued successfully. The cumulative total since the program was launched in September 2005 stands at nearly $2 billion.
As at June 30, 2007, accumulated deposits in the Personal and Commercial segment totalled $92.5 billion, up 6.9% (or $5.9 billion) on an annual basis. Savings from individuals, which represented 70.0% of the segment's deposit liabilities during the second quarter, rose by 5.9% (or $3.6 billion) on an annual basis, reaching $64.8 billion as at June 30, 2007.
The amounts outstanding of off-balance sheet savings products distributed by the caisse network, including Desjardins Funds, Northwest Funds, Millennia III Funds and the securities brokerage, increased by 20.9% (or $6.6 billion) over the past 12 months, totalling $38.1 billion as at June 30, 2007. These solid results compare favourably to the performance recorded by the industry in Quebec at the end of the second quarter of 2007.
Life and Health Insurance
In the first half of 2007, Desjardins Financial Security recorded a 70.8% increase in its net earnings, rising from $69.2 million in 2006 to $118.2 million as at June 30, 2007. The portion of net earnings attributable to the ultimate shareholders, the Desjardins caisses, amounted to $111.4 million, up $43.3 million. At 25.7%, the return on equity remains one of the best in the financial services industry.
For the second quarter of 2007, net earnings totalled $68.4 million, compared to $38.7 million one year ago. Insurance premium income reached $598.1 million, up 12.4%, while insurance sales totalled $112.0 million.
Gross insurance premium income in the first six months of 2007 reached $1,178.5 million, up $126.2 million or 12.0%. However, total income of $1,386.4 million was down 15.1% due to lower investment income following changes in accounting policies concerning financial instruments and to lower annuity premiums, although these were offset in net earnings by an equivalent change in expenses related to claims, benefits, annuities and changes in insurance provisions.
Insurance sales totalled $210.0 million, up $39.1 million compared to the first six months of 2006. This increase was attributable to the major group insurance contracts awarded in Ontario, as well as in Newfoundland and Labrador. Sales of individual savings products totalled $660.5 million, up $18.5 million. A 38.0% increase in mutual fund sales and a 27.0% increase in Millennia segregated fund sales offset the 36.0% decrease in sales of group retirement products, compared to the first half of 2006, when a number of major annuity payment contracts were signed.
Assets under management and administration totalled $22.4 billion, up 12.0% since December 31, 2006.
General Insurance
Desjardins General Insurance Group (DGIG) recorded net earnings of $71.9 million during the first six months of 2007, compared to $60.4 million for the corresponding period of 2006. The return on equity was 29.9%, up from 28.1% one year ago.
For the second quarter ended June 30, 2007, net earnings totalled $44.3 million, compared to $38.2 million one year ago. At 36.9%, the return on equity was comparable to that recorded last year.
The solid results in the first six months of 2007 stemmed from an improved property insurance claims experience, partially offsetting higher operating expenses. It should be noted that DGIG recently launched a number of major investment projects aimed at enhancing its competitive market position.
In addition, investment income increased by $17.9 million compared to one year ago, thanks to gains on foreign exchange contracts and to higher interest and dividend income resulting from the expanded investment portfolio.
Gross premiums written totalled $723.1 million, up slightly from the $722.6 million recorded in the first half of 2006, amid lower automobile insurance rates across the Canadian market.
Securities Brokerage, Asset Management, Venture Capital and Other
This segment primarily encompasses the operations of Desjardins Securities, Desjardins Asset Management and Desjardins Venture Capital.
Desjardins Securities recorded $158.7 million in revenue during the first six months of 2007, compared to $140.1 million in the same period of 2006. This 13.3% increase primarily stemmed from the Full-Service Brokerage, Corporate Finance and Strategic Capital divisions.
Desjardins Securities' net earnings for the first half of 2007 totalled $2.7 million, compared to a $2.2 million net loss in the same period of 2006, or a $4.9 million improvement.
It should be noted that Desjardins Securities turned in a fine performance during the first six months of 2007, posting income growth for the fifth consecutive year and pursuing efforts to develop new clients and markets.
During the second quarter of 2007, revenue totalled $77.9 million, compared to $64.4 million for the same period of 2006, or a 21% increase. Desjardins Securities reported net earnings of $1.0 million during the second quarter of 2007, compared to a net loss of $2.9 million in the same quarter of 2006.
Desjardins Asset Management (DAM) recorded net earnings of $4.0 million for the second quarter of 2007, compared to $6.4 million one year ago, bringing net earnings to $8.7 million in the first six months of 2007, compared to $14.6 million as at June 30, 2006.
It should be noted that DAM's 2006 results had been enhanced by a dilution gain relating to an interest in a company subject to significant influence. In addition, as a result of the commissioning agreement concluded in late 2006 with the Fédération des caisses Desjardins du Québec as part of efforts to promote structured savings products sold by the caisse network, net earnings were lower in the first half of 2007.
Assets under management rose from $46.7 billion as at December 31, 2006 to $51.7 billion as at June 30, 2007, a 10% increase primarily due to changes in securities and real estate investments, as well as in securities lending. The latter asset category, which is subject to significant fluctuations, rose by 24% during the first six months of 2007.
As a result of fluctuations in the value of their investments, the investment funds on Desjardins Group's balance sheet and managed by Desjardins Venture Capital generated net earnings of close to $1 million for the second quarter of 2007, compared to a net loss of more than $5 million for the corresponding quarter last year. This brought cumulative net earnings to $4 million for the first six months of 2007, compared to net earnings of $100,000 one year ago.
Desjardins Group's combined results also reflect various consolidation adjustments that were not included in the business segment results, particularly the employee future benefits expense, which recorded a significant $24 million after-tax decrease compared to one year ago, primarily due to the updating of certain actuarial assumptions.
Relying on the strength of its cooperative difference, its network of subsidiaries and its financial equilibrium, Desjardins Group seeks to become the leading financial institution in terms of meeting the needs of members and clients and fostering business development through an accessible, effective and comprehensive service offering. Desjardins Group's mission is to contribute to the economic and social well-being of both individuals and communities.
- 30 -
Our press releases are available in RSS format
Information (for journalists only):
André Chapleau
Director, Information and Media Relations
514-281-7229
1-866-866-7000, ext. 7229
Monique F. Leroux
Chief Financial Officer
Desjardins Group
