More than two-thirds of the financial services companies in Investment Executive’s quarterly profit survey showed significant improvement on their bottom lines in the first calendar quarter of 2011 vs the corresponding period a year earlier.

However, one company fared very poorly and, as a result, the average increase in net income for the 46 companies as a whole was only 2.7%. Only two sectors — banks and the mutual fund and investment management firms — performed well as a group.

The company weighing on the survey average was airfax Financial Holdings Ltd. , which showed a sharp deterioration, posting a loss of US$239.5 million in the quarter vs net income of US$419.3 million in the corresponding period the year before. Without Fairfax, the survey average increases to 10.4%.

(The 46 companies exclude two firms that appear in the table, whose results are consolidated with another in the survey: Great-West Lifeco Inc. and IGM Financial Inc. , which are both majority-owned by Power Financial Corp. )

The quarter also saw 27 of the companies move to international financial reporting standards in their accounting. (See story below.)

Among the 16 deposit-taking institutions, 14 had increases in their net income and the sector had an average 12.2% increase in profit.

The 11 mutual fund and investment-management firms, including IGM, had an average earnings gain of 29.8%. There were increases in net income for eight firms and a profit vs a year-earlier loss for Matrix Asset Management Inc.

Four banks increased their quarterly dividends: Canadian Western Bank’s rose to 14¢ from 13¢; Laurentian Bank of Canada’s, to 42¢ from 39¢; National Bank of Canada’s, to 71¢ from 66¢; and Royal Bank of Canada’s, to 54¢ from 50¢.The only other dividend increases were Canaccord Financial Inc. ’s, to 10¢ from 7.5¢; and GMP Capital Inc. ’s, to 10¢ from 8¢.

Consolidation continued in the quarter, with Bank of Nova Scotia taking full ownership of DundeeWealth Inc.; AGF Management Ltd. acquiring Acuity Funds Ltd. and Acuity Investment Management Inc.; and Sprott Inc. purchasing three U.S.-based firms. All these transactions were completed in early February.

Outside of the mutual fund arena, Bank of Montreal’s acquisition of Milwaukee-based Marshall & Ilsley Corp. was approved by M&I’s shareholders in late April; BMO also completed its purchase of Hong Kong-based Lloyd George Management Inc. in the quarter. GMP announced the acquisition of New York-based Miller Tabak Roberts Securities LLC. Desjardins Group has acquired 94.1% of Western Financial Inc.’s shares as of April 15.

Here’s a closer look at the results by sector:

> Banks. Increases in net income in the quarter for 14 of the 16 deposit-taking institutions ranged from modest — 2.7% for Canadian Imperial Bank of Commerceand 3.9% for HSBC Bank (Canada) — to huge — 81.4% for Xceed Mortgage Corp. and 42.8% for Equitable Group Inc. First National Financial Corp. , which converted to a corporation from an income trust on Jan. 1, had a decline in earnings. Pacific & Western Credit Corp. , which continues to struggle, remained in the red.

The reports of many of the firms in this sector, including First National, referred to pressure on their interest rate margins as a result of increased competition. Scotiabank and Laurentian both saw some decline in personal and commercial banking, but most of the other firms saw increases in their personal and commercial banking. There were increases in earnings for wealth management for most of the banks. Earnings in the Big Five’s capital-markets businesses were down but up for Laurentian and positive for National Bank vs a loss a year earlier.

Across the sector, loan-loss provisions were generally lower, amounting to $1.4 billion vs $1.7 billion in the previous quarter, $1.9 billion in the corresponding period a year earlier, and $3.1 billion two years ago.

> Life Insurers. Earnings were up for Industrial Alliance Insurance and Financial Services Inc. as well as for Sun Life Fi-nan-cial Inc. They were down for GWL and Manulife Financial Corp. @page_break@Both Manulife and GWL took charges related to the massive earthquake in Japan — in GWL’s case, an earthquake in New Zealand as well — amounting to $151 million and $75 million, respectively.

In addition, Manulife had $1.3 billion in realized and unrealized losses on assets that support its insurance and investment contract liabilities and deposits; that contrasts with a gain of $1 billion in the corresponding quarter the year before. Sun Life and Industrial Alliance both saw earnings go up in most divisions or product areas.

Manulife’s and Sun Life’s U.S. wealth-management operations continued to do well. Those of GWL, whose funds had been in net redemptions, finally had net fund sales in the quarter.

> Property and Casualty Insurers. Intact Financial Corp. , the only P&C insurer to make a profit in its underwriting business — as shown by its combined ratio of 94.6% — had higher earnings. EGI Financial Holdings Inc. reported a profit vs a loss in the corresponding period a year earlier, its combined ratio having fallen to 100.3%.

Both Co-operators General Insurance Co. and Fairfax had bigger underwriting losses. That explains Co-operators’ decline in earnings. Fairfax’s loss, on the other hand, has more to do with a big swing in its investments: the company posted a US$101.5-million loss on investments vs a gain of US$597.8 million in the corresponding period the year before. Fairfax depends more on its investment expertise to produce increased shareholder value and makes aggressive bets on its investments, which results in more volatility in its earnings.

> Mutual Fund And Investment-Management Companies. The substantial earnings gains for Brookfield Asset Management Inc. (39.4%) and Gluskin Sheff & Associates Inc. (37.9%) came from strong operating results. But Fiera Sceptre Inc. ’s huge 513.3% increase in net income reflects the merger of Fiera Capital Inc. and Sceptre Investment Counsel Ltd. as of Sept. 1, 2010. CI Financial Corp. ’s results were enhanced by its purchase of Hartford Investments Canada Corp. last December. AGF and Sprott also benefited from their February acquisitions.

Among the three big independent mutual fund companies, CI and IGM both had net fund sales in the quarter, but AGF remained in net redemptions.

Matrix was the only firm that had lower assets under management, and this is reflected in a pretax loss of $1.3 million vs a pretax loss of $549,000 a year earlier. The reason Matrix had positive after-tax income was because of $2.7 million recovered in recognition of a future tax asset in one of its subsidiaries, which now is viewed as being “more probable to be realized.”

Integrated Asset Management Corp. and Stone Investment Group Ltd. were both in the red as they continue to struggle to establish their businesses.

> Distributors And Suppliers. Canaccord had a huge increase in earnings (277.5%) vs a very weak corresponding quarter in 2010. GMP reported positive net income vs a loss in the first quarter of 2010. Oppenheimer Holdings Inc. had a sizable decline (38.5%) in net income.

Canaccord thinks the global economic recovery has entered a “self-sustaining” phase but expects growth will be subdued in the medium term and may be subject to “sporadic setbacks.”

> Holding Companies. Desjar-dins’ weaker profit reflects poorer results in its wealth-management, life and health insurance, and P&C insurance divisions, which failed to offset good returns in its personal services and business and institutional services divisions.

Dundee Corp. , with the sale of DundeeWealth to Scotiabank, is now out of the mutual funds business. However, Dundee is still involved in investment-management and capital-markets activities, and has substantial real estate and resources investments. All of those businesses, except for resources, had weaker results. IE