May2013
In This Issue
- Summary Results….Page 1
- Sector Financial
- Sector Financial Statements………..Page 5
- Selected Performance
The information presented in this report has been prepared using a variety of sources, including unaudited reports submitted to DICO by Ontario’s credit unions and caisses populaires. While DICO believes that the information contained in this report would be useful to readers, and considers the financial statements to be reliable, their accuracy and completeness cannot be guaranteed.
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The Sector Outlook is available in PDF format (readable using Adobe Acrobat Reader) and can be downloaded from the Insured Institution section on DICO’s website at
NOTE:
Income Statement results are based on aggregate year to date annualized information for each institution. Comparative results may not always agree with previously reported information for the same period as a result of additional information received after the reporting date.
Results are based on the latest available information as at May 3,2013. /
Summary Results 1Q13
Selected Aggregate Sector Performance Indicators / As at March 312013 / 2012
Total Assets Class 1 Institutions (millions) / $501 / $544
Total Assets Class 2 Institutions (millions) / $36,475 / $33,903
Total Sector Assets (millions) / $36,977 / $34,292
Number of Class 1 Institutions / 31 / 37
Number of Class 2 Institutions / 106 / 113
Total Number of Insured Institutions / 137 / 150
Number of Members (000’s) / 1,566 / 1,570
Regulatory Capital (Aggregate Leverage Ratio) / 7.18% / 7.17%
# institutions not meeting minimum regulatory capital level / 2 / 1
Class 1 Institutions (Leverage) / 8.13% / 8.22%
Class 2 Institutions (BIS) / 13.79% / 13.40%
Liquidity / 12.88% / 13.08%
Asset Growth / 7.83% / 7.96%
Total Loan Delinquency (greater than 30 days) / 1.10% / 1.14%
Commercial Loan Delinquency (greater than 30 days) / 1.91% / 2.10%
Year to Date (annualized)
Net Interest Income (Financial Margin) / 2.27% / 2.33%
Other Income / 0.58% / 0.64%
Return on Average Assets (ROAA) Class 1 Institutions / 0.58% / 0.28%
ROAA Class 2 Institutions / 0.43% / 0.37%
Total Sector ROAA / 0.43% / 0.37%
Return on Regulatory Capital / 6.02% / 5.09%
Efficiency Ratio (before dividends & interest rebates) / 81.2% / 85.3%
Capital
Aggregate regulatory capital for the sector remained stable at 7.18%, or $2.63 billion since 1Q12. Retained earnings represents just over 60% of regulatory capital whileinvestment and patronage shares account for 36% and membership shares about 3%. Growth in retained earnings continues to be constrained by the persistent low interest rate environment, which limits the ability of institutions to generate improvements in net interest income.
Growth
The consolidation of the sector continuedover the last twelve months, with the number of institutions decreasing by 13 to 137 at 1Q13. Almost half of this decrease (6 institutions) occurred in 1Q13. This trend is expected to continue, as some institutions recognize that their viability is beingthreatened in the current economic and competitive environment. Mergers (asset purchases and amalgamations)appear to be the preferred strategy to protect the long term interests of members and provide a larger asset base to improve economies of scale and provide a wider range of products and services. The number of Class 1 institutions declined by 6 to 31 with aggregate assets for this group declining by $43 million to $501 million. The number of Class 2 institutions decreased by 7 to 106, however, realized an overall asset growth of approximately $2.7 billion or 7.8%.
Total sector assetsgrew by7.8%to $36.8 billion as at 1Q13,largely due to strong growth in residential mortgage loans of 10.2%. Of the $18 billion of residential mortgages on the books of institutions, $1.58 billion were mortgage securitizations; a 38% increase over 1Q12 but a decline of $39 million from 4Q12. Commercial lending grew by7.8% during the previous 12 months. While these loans generally have a better rate of return, they also carry an increased level of risk due to their complexity. Agriculturalloans demonstrated strong growth of 9.5% since 1Q12 with most of this activity occurring in 4Q12 amongst three institutions.
Deposits grew by6.6% since1Q12. Growth in demand deposits was a modest 2.6% (compared to a high from 2009 of 11%), while registered deposits grew by 7.2% and term deposits grew by almost 10.7% over the past year. Fifteen institutions attract deposits through brokers which accounts for slightly over 2% of total deposits. On average, these 15 institutions obtained 5.0% of their deposits through brokers.
Profitability
The low interest rate environment continues to have a downward impact on interest and investment income. Loan interest income decreased by 24 bps, which was partially offset by a 7 bps increase in investment income mainly in the form of gains realized from the sale of investmentsin 1Q13. To compensate, institutions were able to reduce loan costs by 5 bps, expenses relating to interest paid on deposits by 13 bps and salaries and benefits paid by 11 bps. Overall, net income before extraordinary items increased by 11 bps from 0.42% in 1Q12 to 0.53% in1Q13. As a result of these strategies, the efficiency ratioimproved to81.2% from 85.31% in 1Q12. Return on average assets(ROAA) increased to 42 bps in 1Q13from 37 bps in 1Q12. Class 1 institutions realized a significant improvement in ROAA over the last 12 months (58 bps in 1Q13 as compared to 28 bps in 1Q12) due to the recognition of capital gains from the sale of investments held which accounted for almost all of the 30 bps increase over 1Q12.
Credit Risk
Loan costs fell significantly and reached an all-time low of 4 bps as compared to 9 bps in 1Q12. Loan delinquency continued to show improvement from the highs of 2.58% reached during the recent recession. Gross delinquency greater than 30 days improved to 1.10% from 1.14% in 1Q12. Delinquency improved in each loan category from 2012. Commercial loan delinquency was 1.91%in 1Q13 as compared to 2.06% in 1Q12.
Loan Mix
Personal loans continue to represent a declining portion of the loan mix and decreased by $29 million,or 1% from 1Q12. Residential mortgage loans continued to experiencerelatively strong growth as borrowers capitalize on current low interest rates. Commercial loansdemonstratedsofter growthof 7.8% resulting in a net increase in overall portfolio risk for the Ontario sector. Agricultural loans grew by 9.1% from 1Q12 however, most of this growth occurred in the 4Q12 primarily in three large institutions. The number of credit unions engaged in agricultural lending also increased slightly over the last two quarters.
Product / % of loan portfolio / Change
($ millions) / % Change in Outstanding Loans
2013 / 2012
Personal Loans / 9.44 / 10.32 / (29.4) / (1.0)
Mortgage Loans / 58.11 / 57.09 / 1,940 / 11.88
Commercial Loans / 28.10 / 28.22 / 787 / 9.76
Agricultural Loans / 4.35 / 4.37 / 109.8 / 9.50
*Totals may not agree due to rounding
Loan Yields
Loan yields in each category continue to decline as interest rates have remained consistently low for three years and borrowersrenew loans at lower rates.
Selected Loan Yields (YTD annualized) * / As at March 31 (%)
2013 / 2012
Total Loans / 4.49 / 4.74
- Personal Loans
- Residential Mortgage Loans
- Commercial Loans
- Agricultural Loans
*Loan Yields adjusted for securitizations.
Liquidity and Borrowings
Borrowings grew by $554million, mostly as a result of the IFRS requirement to record offsets to mortgage securitization in borrowings. This also resulted in a year over year reduction in sectorliquidity of 19 bps,to 12.67%.
1Q13 SECTOR OUTLOOK, May 2013 1
Sector Financial Highlights 1Q 2013
1Q13 SECTOR OUTLOOK, May 2013 1
Sector Financial Statements
Balance Sheet 1Q 2013
1Q13 SECTOR OUTLOOK, May 2013 1
Sector Financial Statements
Income Statement 1Q 2013
1Q13 SECTOR OUTLOOK, May 2013 1
Selected Financial Trends
1Q13 SECTOR OUTLOOK, May 2013 1