November 2012
In This Issue
· Summary Results….Page 1
· Sector Financial
Highlights………….Page 3
· Sector Financial Statements………..Page 5
· Selected Performance
Trends …………...Page 6
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.
Ce document est également disponible en français.
Contact Us http://www.dico.com
ELECTRONIC PUBLICATION:
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 www.dico.com.
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 October 26, 2012. /
Summary Results 3Q 2012
Selected Aggregate Sector Performance Indicators / As at September 302012 / 2011
Total Assets Class 1 Institutions (millions) / $543 / $578
Total Assets Class 2 Institutions (millions) / $35,249 / $32,544
Total Sector Assets (millions) / $35,791 / $33,122
Number of Class 1 Institutions / 35 / 43
Number of Class 2 Institutions / 112 / 114
Total Number of Insured Institutions / 147 / 157
Number of Members (000’s) / 1,576 / 1,593
Regulatory Capital (Aggregate Leverage Ratio) / 7.24 % / 7.30 %
# institutions not meeting minimum regulatory capital level / 1 / 0
Class 1 Institutions (Leverage) / 8.06 % / 8.14%
Class 2 Institutions (BIS) / 13.78 % / 13.78 %
Liquidity / 12.47 % / 13.81 %
Asset Growth / 8.06 % / 7.89 %
Total Loan Delinquency (greater than 30 days) / 1.11 % / 1.16 %
Commercial Loan Delinquency (greater than 30 days) / 2.09% / 2.25%
Year to Date (annualized)
Net Interest Income (Financial Margin) / 2.42 % / 2.51 %
Other Income / 0.63 % / 0.65 %
Return on Average Assets (ROAA) Class 1 Institutions / 0.24% / 0.40%
ROAA Class 2 Institutions / 0.37% / 0.63%
Total Sector ROAA / 0.37 % / 0.63 %
Return on Regulatory Capital / 6.07 % / 9.47 %
Efficiency Ratio (before dividends & interest rebates) / 82.6 % / 79.1 %
Capital
Despite a $170.1 million increase in capital during the latest twelve months, the Regulatory Capital Aggregate Leverage Ratio declined by 6 basis points (bps) as growth in sector assets outpaced net income. However, almost 25% of the growth in sector assets results from the requirement under International Financial Reporting Standards (IFRS) to report mortgage securitizations as balance sheet assets.
The low interest rate environment continues to result in reduced financial margins and a decrease in net income despite efforts by insured institutions to reduce operating expenses. Almost 50% of the growth in capital was attributable to the issuance of higher cost investment shares and the payment of dividends in the form of non-redeemable investment shares amounting to approximately $80 million.
Growth
Growth in sector assets of 8.1% was largely due to year over year growth of 11.6% in residential mortgage loans. However, just over one-third of this growth is attributable to growth of $635 million in securitizations which is now reported on balance sheet as a result of the adoption of IFRS accounting standards. Mortgage securitizations currently represent $1.5 billion in sector assets. Growth in deposits continues to remain relatively stable at just over 5% for the past 3 years. Off-balance sheet assets decreased by
$259 million (4.98%) to $4.95 billion.
Profitability
Lower interest and investment income combined with an increase in loan write-offs of
7 bps resulted in a decrease in net income of 26 bps from 3Q11. It should be noted that if a one-time extraordinary gain reported in 2011 of 13 bps was excluded the difference would be 13 bps.
As a result, the efficiency ratio, as measured by total operating expenses divided by total income, continued to deteriorate to 82.6% from 79.1% at 3Q11.
Credit Risk
Overall loan delinquency continued to improve. However, the write-off of a large commercial loan increased loan costs by 7 bps. Removing this impact would result in loan costs remaining stable year over year at 8 bps.
Loan Mix
Personal loans continue to represent a declining portion of the loan mix. In contrast, residential mortgage loans experienced relatively strong growth as borrowers capitalize on current low interest rates. Approximately 35% of the 11.6% year over year growth is attributable to impacts from the adoption of IFRS. Commercial loans demonstrate continued strong growth of 10% as credit unions seek higher rates of return. The increase in commercial lending activity has translated to an increase in overall portfolio risk for the Ontario sector.
Product / % of loan portfolio / Change
($ millions) / % Change in Outstanding Loans
2012 / 2011
Personal Loans / 9.80% / 10.86% / ($0.04) / -1.19%
Mortgage Loans / 57.92% / 56.87% / $1.81 / 11.60%
Commercial Loans / 27.92% / 27.82% / $0.76 / 9.97%
Agricultural Loans / 4.36% / 4.45% / $0.08 / 7.45%
Loan Yields
Loan yields in each category continue to decline as interest rates have remained consistently low for close to two years as borrowers renew loans at lower rates.
Selected Loan Yields (YTD annualized) * / As at September 30
2012 / 2011
Total Loans / 4.57 % / 4.67 %
· Personal Loans / 6.40 % / 6.47 %
· Residential Mortgage Loans / 3.92 % / 3.98 %
· Commercial Loans / 5.16 % / 5.32 %
· Agricultural Loans / 4.52% / 4.59 %
*Loan Yields adjusted for securitizations.
Liquidity and Borrowings
Borrowings grew by $857.3 million mostly as a result of the requirement of IFRS to record offsets to mortgage securitization in borrowings. This has also resulted in a year over year reduction in sector liquidity of almost 135 bps to the currently reported 12.47%.
3Q12 SECTOR OUTLOOK, November 2012 2
Sector Financial Highlights 3Q 2012
3Q12 SECTOR OUTLOOK, November 2012 2
Sector Financial Statements
Balance Sheet 3Q 2012
3Q12 SECTOR OUTLOOK, November 2012 6
Sector Financial Statements
Income Statement 3Q 2012
3Q12 SECTOR OUTLOOK, November 2012 6
Selected Financial Trends
3Q12 SECTOR OUTLOOK, November 2012 6