Ontario Credit Unions and Caisses Populaires SYSTEM OUTLOOK 4Q00

Transcription

1 Ontario Credit Unions and Caisses Populaires SYSTEM OUTLOOK 4Q00 INSIDE Economic Highlights: Growth in 2001 forecast to slow to less than 3 % Page 1 Focus on Interest Rates: Rates in 2001 to decline Page 2 System Highlights: Assets, capital and earnings increase Page 3 Off-balance sheet activity summary Page 4 Differential Premium System update Page 4 System Financial Statements Pages 5, 6 and 7 Prepared by Deposit Insurance Corporation of Ontario Policy & Research Department systemoutlook@dico.com February, 2001 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.

2 Electronic Publication: The System Outlook is available in PDF format (portable document file format), which can be read using Adobe Acrobat Reader. It can be downloaded from the Member Institution section on DICO s website at or you can subscribe for an electronic copy by ing us at systemoutlook@dico.com.

3 Ontario Economic Highlights Growth in 2000 to Exceed 5% Overall growth for 2000 was expected to reach 5.3%, as a result of strong exports and solid domestic demand. This is well above earlier forecasts of 4.5%. However, economic growth softened significantly in the fourth quarter, due to a rapid slowdown in the U.S. economy. This slowdown has resulted in a decline in exports, particularly in the auto sector. Forecast for 2001: Growth to slow to less than 3% Projections for provincial economic growth have now been revised downward to 2.6% given the recent deceleration in the economy. In fact, the latest forecast is for zero growth in the first quarter as a result of a projected 4% decline in auto related exports and a reduction in outstanding inventory levels. On a positive note, consumer confidence has remained strong. Disposable income will get a further boost from additional tax reductions, and is expected to increase by more than 5%, while consumer spending is forecast to rise by 3.6%. Overall, domestic demand is expected to see growth of 4.8%, and will help offset the projected weakness in exports % 1.6 Continued Growth Expected: Ontario Real GDP Growth Actual Forecast After a strong first quarter, housing starts are expected to decline to 70,000 units for the year compared to 73,000 in Employment growth has also remained strong. Since the beginning of September, almost 100,000 full-time jobs have been created, with particular gains in the manufacturing and trade sectors. As the economy starts to cool, however, growth is expected to moderate. 5.9 Implications for credit unions Economic and business conditions in Ontario remain healthy, although growth in 2001 will be significantly less than in While asset growth may slow, the impact on the system, as a whole, is not expected to be significant. Consumer confidence remains high and disposable incomes continue to grow. Residential housing remains strong and will continue to provide additional lending opportunities. The planned layoffs and slowdown in the auto and telecommunications sectors are likely to impact certain regions, and specific member institutions. It is important, therefore, that member institutions closely monitor changing economic and business conditions, and assess the need for additional non-specific loan provisions in accordance with DICO By-law No. 6. Note: Economic data is provided by the Conference Board of Canada Q00 SYSTEM OUTLOOK, February, 2001 Page 1

4 Focus on Interest Rates Rates in 2001 to decline Source: The Conference Board of Canada The Fed Hits the Panic Button Concerned about a sharp slowing in U.S. economic growth, the Federal Reserve Board chopped the Fed funds rate by 50 basis points on January 3 and again on January 31. During this same period, the Bank of Canada has lowered the Bank rate by 25 basis points. Recent Developments Since yielding 5.62 per cent at the end of last November, 3-month Treasury bills have slipped 49 basis points to 5.13 per cent as of mid-february. Yields for shorter-term instruments were down by a similar magnitude during this time period. In contrast, long-term bond yields have increased 20 basis points during this timeframe. With possible further cuts in short-term rates in the near future, the yield curve is expected to remain in positive territory through the near term period. The story is similar in the U.S. market. The torrent of bad economic news over the last 10 weeks, in addition to remarks by the Fed Chairman, have turned the general focus away from an economy that is still operating close to full capacity. Rates Set to Fall Further With their current focus primarily on immediate-term prospects, the Bank of Canada and the Fed are likely to lower short-term interest rates further in the coming months. The Fed reduced its forecast for the U.S. economy to the per cent range, well below earlier forecasts. However, sluggish economic performance is not expected to persist indeed, a recession will be avoided and the danger is more that current monetary policy moves will overstimulate the economy later in the year, rekindling inflation fears. Canada faces a similar dilemma. The Bank of Canada has lowered its forecast for growth in With signs of slowing already evident, particularly in the manufacturing sector, lower interest rates would help although as in the U.S. case they may come too late. What may keep the Bank from cutting aggressively is the weak dollar. Elimination of the negative spread in Canada-U.S. short-term interest rates was thought to be a plus for the dollar. Instead, the loonie has sunk further, in step with lower energy prices and the perception that weaker U.S. growth will dampen Canadian growth significantly. T-bill rate: Canada vs. U.S. T-bill rate (%) Q to 2000 actual, 2001 forecasts 4Q98 2Q99 4Q99 Canada Long-term Forecasts 2001 & 2002 [2000 actual results] Month Treasury Bill Yield 5.5% 5.7% 5.7% Chartered Bank Prime Lending Rate 5-year GIC Rate year Mortgage Rate year and Over GOC Bond Rate Focus on Interest Rates and forecasts are provided by the Conference Board of Canada. Forecasts as at February Q00 4Q00 U.S. 2Q01 4Q01 4Q00 SYSTEM OUTLOOK, February, 2001 Page 2

5 System Highlights System Assets, Capital and Earnings Increase Ontario system assets increased by almost $259 million during the last quarter, and almost $1 billion, or 6.6%, for the year. The increase in deposits was over $250 million during the quarter and $822 million or 6.3% for the year. Lending activity has increased by $800 million or 7.2% during the latest twelve months. Approximately 50%, or $420 million, of this growth has come from commercial and agricultural lending, which has increased 21% for the same period. Aggregate system earnings have improved. Annualized ROA of 52 basis points is a 13% improvement from 4Q99. Much of this improvement is a result of the 28 basis points, or 9.5% increase in net interest income over the latest twelve months. During 2000, total system capital increased by over $83 million. Total aggregate capital has declined to 6.72% due to system asset growth this quarter. However, this is an increase from 6.64% as at 4Q99. A total of 317 member institutions, representing 99.4 per cent of system assets, now meet the minimum regulatory capital requirements. This compares to 98.4 per cent of regulatory compliance as at 3Q99 and 98.2% as at 4Q00. Commercial Loans: Delinquency Concerns Total gross delinquency (over 30 days) has increased from 1.34 per cent to 1.41 per cent during the quarter, although it remains below the 1.48 per cent level as at 4Q99. Of particular note is the increase in delinquency in the day period. During the latest quarter, this has increased by 11% in total, and for commercial loans, by over 20%. Basis Points Loan Costs and Loan Allowances as a % of Total Assets: 3Q97 to 4Q00 3Q97 3Q98 3Q99 3Q00 4Q00 Loan Costs Loan Allowances During this latest quarter, total loan allowances have increased by almost 6%. Much of this is a result of an increase in allowances for commercial loans, which have increased by 7% in the latest quarter. In contrast, over the last twelve months, total loan allowances for all loan categories have declined by 1% and loan costs have remained stable at approximately 15 basis points. With the slowing rate of economic growth, it will be important to closely monitor the rising levels of commercial delinquency. 4Q00 SYSTEM OUTLOOK, February, 2001 Page 3

6 Financial Highlights 4Q00 Off-balance Sheet Highlights The following table summarizes the volume of non-interest income producing activities that are not reported on the credit union s balance sheet, as well as the level of relative income generated at 4Q00. This information is compared to results at 4Q99. Highlights include: Income from off-balance sheet activities now accounts for more than 10% of other income Net mutual fund balances have declined 10% from 4Q99 Credit card receivables has almost doubled in the latest twelve months Off-balance Sheet Activity 4Q00 ($ 000) 4Q99 ($ 000) 4Q00 % of total 4Q99 % of total Balance of administered loans at the end of the period 193, ,313 26% 30% Net mutual funds sold through mutual fund alliances 440, ,134 58% 62% Credit card receivables managed by credit card providers 24,835 12,903 3% 2% Other (incl. letters of credit and guarantees) 96,780 51,040 13% 6% Total off-balance sheet activity 755, , % % Total system assets and off-balance sheet activity 16,107,789 15,188,273 Income earned on off-balance sheet activity 14,398 N/A 1 Off-balance sheet income as a % of other income 10.55% N/A 1 Number of MIs engaged in off-balance sheet activity N/A = Information not available Differential Premium System Update DPS ratings used to calculate premiums for the 2001 transition period were based on the latest available information. This included unaudited information for the latest quarterly filing and the latest OSV report. A summary of DPS ratings used for transition premiums is provided below. DPS Ratings used for Transition Premiums Premium Tier DPS Rating Number of MIs % of assets 1 85 to 100 points 33 8% 2 70 to 84.9 points % 3 55 to 69.9 points 91 29% 4 40 to 54.9 points 39 15% 5 Less than 40 points 12 1% Total % The average DPS rating was 71 points. 4Q00 SYSTEM OUTLOOK, February, 2001 Page 4

7 Financial Highlights 4Q00 Dollars are expressed in millions Percentages are % of average assets 1 4Q00 3Q00 4Q99 Total Number of Member Institutions Number of Member Institutions below 5% Capital Net Interest and Investment Income $501 $475 $437 (Income from lending and investment activities) 3.37% 3.24% 3.10% Loan Costs $23 $21 $ % 0.14% 0.15% Gross Delinquency greater than 30 days $168 $156 $160 (as a percentage of total loans) 1.41% 1.34% 1.48% Other (non-interest) Income $136 $129 $118 (Fees and Commission Income) 0.92% 0.88% 0.84% Net Interest, Investment and Other Income $615 $583 $534 (Total Income) 4.15% 3.99% 3.79% Total Non-Interest Expenses $523 $511 $471 (Costs of Operations-excluding loan costs) 3.53% 3.50% 3.35% Net Income/(Loss) before Taxes and $92 $72 $63 Non-recurring & Extraordinary items 0.62% 0.49% 0.46% Net Income/(Loss) $77 $59 $ % 0.40% 0.46% Gross Liquidity as per Sections of Ont Reg.76/ % 17.21% 18.11% Average Assets per member institution $47.8 $45.6 $42.0 Median Assets $14.9 $14.2 $12.2 Regulatory Capital as at 4Q00 Number of MIs DPS Tier Leverage Ratio Total Assets ($000's) % of Assets Tier % and above 135 2,918,063 19% Tier % to 7.50% 109 7,752,430 50% Tier % to 6.25% 73 4,593,971 30% Tier % to 5.00% 1 2,142 0% Tier 5 Less than 3.75% 3 85,454 1% ,352, % 1. Average assets do not include off-balance sheet items. Totals may not agree due to rounding. 4Q00 SYSTEM OUTLOOK, February, 2001 Page 5

8 System Balance Sheet 4Q00 Percentage of Total Assets 1 4Q00 4Q99 4Q00 4Q99 ($000) ($000) ASSETS Cash and Investments 3,076,804 2,950, % 20.5% Personal Loans 2,807,210 2,710, % 18.8% Residential Mortgage Loans 6,669,389 6,384, % 44.3% Commercial Loans 1,985,165 1,606, % 11.2% Institutional Loans 33,046 25, % 0.2% Unincorporated Association Loans 11,824 20, % 0.1% Agricultural Loans 412, , % 2.6% Total Loan Allowances (70,975) (72,380) (0.5%) (0.5%) Capital (Fixed) Assets 287, , % 2.0% Intangible & Other Assets 140, , % 0.8% Total Assets 15,352,060 14,396, % 100.0% LIABILITIES Demand Deposits 4,002,520 3,634, % 25.2% Term Deposits 4,791,292 4,321, % 30.0% Registered Deposits 4,589,890 4,495, % 31.2% Other Deposits 551, , % 4.6% Borrowings 45,380 30, % 0.2% Other Liabilities 330, , % 2.1% Total Liabilities 14,311,269 13,439, % 93.3% MEMBERS' EQUITY & CAPITAL Membership Shares 87,976 98, % 0.7% Retained Earnings 711, , % 4.3% Other Tier 1 & 2 Capital 241, , % 1.7% Total Members' Equity & Capital 1,040, , % 6.7% Total Liabilities, & Members' Equity & Capital 15,352,060 14,396, % 100.0% Average Assets 14,861,305 14,093, Average assets do not include off-balance sheet items. Totals may not agree due to rounding. 4Q00 SYSTEM OUTLOOK, February, 2001 Page 6

9 System Income Statement 4Q00 (with Industry Comparison) ONTARIO SYSTEM Percentage of Average Assets 1 Canadian Chartered Banks2 12 Months to 4Q00 4Q99 4Q00 4Q99 4Q00 ($000) ($000) Interest and Investment Income Loan Interest Income 887, , % 5.48% 4.46% Investment Income 144, , % 0.86% 1.43% Total Interest and Investment Income 1,031, , % 6.33% 5.49% Interest Expense Interest Expense on Deposits 496, , % 3.07% 3.50% Other Interest Expense and Dividends 34,270 21, % 0.16% 0.61% Total Interest Expense 530, , % 3.23% 3.70% Net Interest & Investment Income 501, , % 3.10% 1.79% Loan Costs 22,505 21, % 0.15% 0.27% Net Interest & Investment Income after Loan 478, , % 2.95% 1.51% Costs Other (non-interest) Income 136, , % 0.84% 2.28% Net Interest, Investment & Other Income 615, , % 3.79% 3.79% Non-Interest Expenses Salaries and Benefits 246, , % 1.55% 1.50% Occupancy 42,280 39, % 0.28% Computer, office & other equipment 63,309 58, % 0.41% Advertising & Communications 30,651 27, % 0.19% Member Security 36,840 35, % 0.25% Administration 60,295 56, % 0.40% Other 42,904 36, % 0.26% 1.18% Total Non-Interest Expenses 523, , % 3.35% 2.68% Net Income/(Loss) Before Taxes and Nonrecurring 91,832 62, % 0.46% 1.11% & Extraordinary items Non-recurring & Extraordinary gains/(losses) 2,952 13, % 0.11% 0.00% Taxes 18,006 11, % 0.09% 0.38% Minority Interests 0.02% Net Income/(Loss) 76,778 64, % 0.46% 0.71% Average Assets -$000 14,861,305 14,093,192 1,357,150, Average assets do not include off-balance sheet items. Totals may not agree due to rounding. 2. Source: Canadian Bankers Association, Detailed Financial Statistics. Consolidates all subsidiaries, such as investment dealers. 4Q00 SYSTEM OUTLOOK, February, 2001 Page 7