MDRP9-003 • Desjardins • Rapport annuel 2008 • Mouvement des caisses desjardins Section : Couverture • Version : Anglaise • épreuve : Finale • envoyé le : 11-03-2009 • format fermé : 9” x 11 3/4” • format ouvert : 18 7/16” x 11 3/4” • COULEURs : CMYK + pantone 347

2008 ANNUAL REPORT Cooperate to shape our destiny REPORT 2008 ANNUAL

“Cooperation benefits us all— that’s what makes it so appealing.”

– Alphonse Desjardins

desjardins.com

36099_Couv_ENG.indd 1 12/03/09 10:32:38 Cooperate A STRONG PRESENCE to shape IN THE COMMUNITIES

The economic and social well-being of individuals and the communities THE IMAGE MILL BY ROBERT LEPAGE our destiny it serves is intrinsic to Desjardins Group’s mission. That is why, each year, AND EX-MACHINA IN QUÉBEC CITY Desjardins supports cooperative, economic, cultural, educational, charitable, social and athletic projects and organizations, not only through For over a hundred years, cooperation has been the heart and soul sponsorships, donations and scholarships, but also through individual HEAD OFFICE caisse Community Development Funds. The proximity of the caisses and of Desjardins, the largest cooperative financial group in Canada, subsidiaries to their members and clients helps Desjardins Group maintain and serving members has been its driving force. Resolutely looking Fédération des caisses Desjardins du Québec an active presence in outlying regions as well as in major urban centres, towards the future, Desjardins is changing. It changes through 100, rue des Commandeurs Lévis (Québec) G6V 7N5 both in Québec and elsewhere in Canada, among people of all ages, across active cooperation, maintenance of its values and drawing on Canada all sectors of activity and from many different cultural communities. every talent, to further its development. Telephone: 418-835-8444 1-866-835-8444 In 2008, Desjardins Group commitments amounted to $80 million, for total MADAMA BUTTERFLY AT THE OPÉRA DE MONTRÉAL Fax: 418-833-5873 returns to the community of close to $216 million over the past three years. Each day, its cooperative nature is demonstrated through the caisse model and is expressed through democratic governance, accessibility One very important partnership in 2008 involved celebrations held in honour and openness to all people, regardless of their financial means, and VERSION FRANÇAISE of the 400th anniversary of the founding of Québec City. The festivities brought by sharing its surplus earnings with its members and the community, together people from all across Québec and attracted visitors from other Canadian provinces and the world over. As a Major Partner, Desjardins Group provided as financial circumstances allow. On peut obtenir la version française de ce substantial financial support that made it possible to present some fifteen Rapport annuel sur demande. large-scale events. As always, the fundamental strength of Desjardins is found in the richness This annual report was produced by the of its human capital: more than 5.8 million members, 6,299 elected Institutional Affairs Administrative Division of Elsewhere in the province and across Canada, Desjardins Group supported a wide Desjardins Group (Communications and Public variety of initiatives in sectors as diverse as arts and culture, sports and leisure, FESTIVAL EN CHANSON DE PETITE-VALLÉE officers and 42,000 employees. Its cooperative business model has SONG FEST IN GASPÉSIE Affairs Division) and the Financial Executive economic development, education, and health and community services. enabled Desjardins to generate financial wealth that provides leverage Division of Desjardins Group (Control, Planning for furthering its development and influence. It is this same vital strength and Financial Performance Management In the field of arts and culture, this support included funding provided to the that allows the organization to make further headway towards meeting Division; Disclosure and Accounting Opéra de Montréal, the Théâtre du Nouveau Monde, the Festival en chanson Standardization Executive Department). the challenges of tomorrow. de Petite-Vallée song fest, the Musée national des beaux-arts du Québec, as well as Canadian tours of the Cirque du Soleil.

As the real driving force behind Desjardins Group, the caisses, bolstered Desjardins also backed several sports and leisure activities, signing partnerships by their subsidiaries, are active participants in the organization’s growth with the Fédération de soccer du Québec and Canadian Interuniversity Sport and advancement. To strengthen the entrepreneurial capacity of the for annual events throughout the province and the country, as well as with CANADIAN TOUR OF cooperative network, elected officers and general managers must directly Tennis Canada’s Rogers Cup. Various festivals also received funding from Desjardins, CIRQUE DU SOLEIL’S CORTEO contribute to the development of Desjardins Group as a whole. Thus, such as the Festival Western Saint-Tite, the Traversée internationale du lac for the 2010-2012 Strategic Plan, caisse general managers represent Memphrémagog, the Québec City Summer Festival, Montréal’s Francofolies event and Québec City’s Carnaval. more than 50% of all participants on the task forces created to propose ways to deal with Desjardins Group’s greatest issues and challenges. Numerous organizations that oversee the economic development of their sector or community also received assistance from Desjardins Group, as did certain This is where cooperation is at its best. This is where the ever growing educational organizations such as the Literacy Foundation and the Commerce Games. Desjardins also entered into a partnership with La Presse to support the collective strength of Desjardins Group drives itself to reach greater distribution of free newspapers to some 15,000 students in multicultural high heights and to make Desjardins the most admired financial institution schools in five French- and English-language school boards in Montréal. in Canada; as well as the most respected in terms of its mission, its TENNIS CANADA’S ROGERS CUP IN TORONTO cooperative values and the close ties that exist between its caisses Finally, health and community services will always remain a main concern for and their communities. Desjardins Group, which includes donations to Centraide/United Way among its many commitments in that area, as well as volunteer action by its employees. Its overall contribution to this charity amounted to nearly $3 million in Québec and some $3.9 million across Canada.

This report was printed on paper containing 100% post-consumer fibers certified FSC (Forest Stewardship Council), processed chlorine free and manufactured using biogas energy. Paper Graphic design: lg2boutique made with FSC certified fiber and bearing the FSC logo is your guarantee that it has come from Production: lg2fabrique responsibly managed forests that maintain the highest environmental and social standards according to the Forest Stewardship Council. Photos: Éventus Printing: J.B. Deschamps FESTIVAL WESTERN SAINT-TITE Committed to sustainable development, Desjardins Group favours the use of paper that is manufactured in Canada in accordance with recognized environmental standards. PRINTED IN CANADA

36099_Couv_ENG.indd 2 16/03/09 16:41:42 MDRP9-003 • Desjardins • Rapport annuel 2008 • Mouvement des caisses desjardins Section : Section 1 • Version : anglaise • épreuve : finale • approuvée le : 11-03-2009 • format : 9” x 11 3/4” • COULEURs : CMYK + pantone 347

1

01 Annie P. Bélanger President, Caisse populaire Desjardins MOBILIZING ALL OF Mer et montagnes (Grande-Vallée) 02 Alain Leprohon Vice-President (VP), Finance, Control and DESJARDINS TO WORK FOR Compliance, Caisse centrale Desjardins 03 Jean-François Lessard Financial Planner, Caisse populaire Desjardins de Québec OUR MEMBERS AND CLIENTS 04 Yanick Gagné VP, Canadian Business Strategies, Fédération des caisses Desjardins du Québec 01 03 02 05 Claude Ouellet President, Caisse Desjardins de Dolbeau-Mistassini 06 Hubert M. Makwanda 06 Advisor, Human Resources Planning and Development, Desjardins Group 07 Michel Truchon General Manager (GM), Caisses Desjardins 05 des Rivières (Forestville) 08 Anne Langevin GM, Caisse d’économie Desjardins 04 du personnel municipal (Québec City) 07 09 Virginie Jobin Advisor, Québec-Portneuf Desjardins Business Centre 09 10 Natalie Corsi 08 GM, Caisse Desjardins de Coniston Inc. (Coniston, Ontario) 11 Josiane Moisan Senior Director, Strategic Recruitment and Executive Succession Management, Desjardins Group 10 12 Sylvie CampbeLl 12 GM, Caisse populaire Desjardins de Farnham 11 13 Normand Bergeron Regional Manager – Sales and Business Development, Merchant Accounts Québec, 13 Desjardins Card Services 14 Guy Cormier 14 GM, Caisse populaire Desjardins d’Outremont 15 15 Soofun Lee Personal Finance Advisor, Caisse Desjardins du Quartier Chinois 16 Christiane Bouillé 17 Officer, Caisse populaire Desjardins de Montmagny 16 18 17 Brigitte Dupuis VP, Resource Regions and Cooperatives, Desjardins Venture Capital 18 Grégoire Léger Fixed-Income Securities Trader, Desjardins Securities 19 Nathalie Tremblay Health Insurance Products Manager, 22 Desjardins Financial Security 19 20 20 Jacinta Amâncio GM, Caisse d’économie des Portugais de Montréal 21 Chantal St-Amand GM, Caisse d’économie de la Sûreté 21 du Québec 23 22 Jocelyn Gilbert GM, Caisse Desjardins des Chutes Montmorency 23 Lorrain Barrette President, Caisse Desjardins 26 de Rouyn-Noranda 25 24 Michel Verreault Senior Vice-President, Distribution, Desjardins General Insurance Group 24 25 Joé Bélanger GM, Caisse Desjardins Thérèse-De Blainville 26 Mariano A. De Carolis GM, Caisse populaire Desjardins Canadienne Italienne

36099_p01a12et17a30_ENG.indd 1 15/03/09 10:07:26 2 THE EXTENT OF THE DESJARDINS GROUP NETWORK

Desjardins stands out from other financial institutions through its cooperative difference, which places members above all else. Thanks to the dedication of its elected officers and its employees, the complete range of products and services it offers, its unparalleled physical and virtual accessibility, its diversity of locations across the country and abroad, as well as its financial stability, Desjardins Group today has become a major player in the financial services industry. More than 100 years after the founding of the first caisse, Desjardins is now the number one financial institution in Québec and the largest cooperative financial group in Canada. It just goes to show that, more than ever, the cooperative formula brings success while acting as a measure of our achievements.

• Assets of $152.3 billion

• Approximately 5.8 million members, including nearly 400,000 businesses

• 6,299 elected officers in Québec and Ontario

• Approximately 42,000 dedicated employees nationwide

• 1,396 points of service in Québec and Ontario: 513 caisses and 883 service centres

• 113 points of service in Manitoba and New Brunswick: 36 affiliated caisses and 77 service centres

• 48 business centres in Québec and three in Ontario

• 32 Desjardins Credit Union points of service in Ontario

• Approximately 20 subsidiary companies offering a full range of financial services, with many of them active in several Canadian provinces

• Three Desjardins Bank branches in Florida and a branch of Caisse centrale Desjardins in the United States

• A state-of-the-art, high-tech virtual network of ATMs and online services

36099_p01a12et17a30_ENG.indd 2 12/03/09 13:18:01 3 PROUD TO BE THE LARGEST COOPERATIVE FINANCIAL GROUP IN CANADA

Backed by the trust of its 5.8 million members, both individuals TABLE of contents and businesses, as well as clients from across the country, Desjardins Group is the largest cooperative financial group inC anada and Organization Chart 4 the eighth-largest in the world. Desjardins is also the top financial Business Sectors 5 institution in Québec, sixth-largest in Canada, eighteenth in North America and one of the top 100 in the world. What’s more, Financial Highlights 6 Desjardins Group is listed among Canada’s 50 Best Employers for Message from the Chair of the Board, 2009 by the prestigious Report on Business magazine ranking. President and CEO 8

The proximity between the caisses and their members, the commitment Board of Directors 12 of the elected officers and the expertise of the staff in all the components Our Human Capital 14 enables Desjardins Group to offer an extensive range of financial products and services adapted to the needs of its members and clients. In addition, Councils of Representatives 15 because the notion of “money working for people” is so inherent to its Best Employer in Canada 16 cooperative nature, Desjardins is more closely involved in the community Highlights 18 than any other financial institution and thereby actively contributes to improving the economic and social well-being of people and the The Caisses’ Proximity to Members and their Communities Gives communities in which they live. Desjardins its Unique Strength 18 Consumer Market 18 An emblematic figure in the financial sector in Québec, Desjardins Group Business Market 20 maintains its unique presence in the province through its caisses, business Venture Capital 21 centres, subsidiary distribution networks and virtual access networks. Life and Health Insurance 22 Elsewhere in Canada, Desjardins is associated with the caisses populaires General Insurance 23 in Ontario, Manitoba and New Brunswick, as well as with Desjardins Credit Securities 24 Union in Ontario. Several subsidiaries are also active in all the Canadian Asset Management 24 Continued Expansion across Canada 25 provinces. In the United States, members and clients can count on the Making the Advantages of our services offered by Desjardins Bank and Caisse centrale Desjardins to Cooperative Difference More Concrete 26 help facilitate their business development or travel in the United States. Moving Forward on the Road Worldwide, Desjardins has been a leader in international cooperation for to Excellence 28

nearly forty years. Desjardins supports the creation and development of A Gift that will Stand the collectively owned financial institutions, helping nearly six million families Test of Time: Québec City’s in over twenty developing or emerging countries. Promenade Desjardins 30

Management’s Discussion Driven by the values of integrity and rigour, solidarity and commitment, and Analysis 31 Desjardins Group believes even more strongly than ever in its distinctive Additional Information 100 strengths, in cooperation, in its engaged and committed human capital, as well as in the proximity of the caisses to their members and of the Glossary 112 subsidiaries to their clients, as being unique and promising tools for Combined Financial Statements the development and greater well-being of its individual and business of Desjardins Group 115

members and clients. Caisses and Federations of Manitoba and New Brunswick 172

Corporate Governance 173

The Social and Cooperative Impact of Desjardins Group 187

36099_p01a12et17a30_ENG.indd 3 14/03/09 19:18:02 4

an extensive network of caisses and subsidiaries serving our members and clients

5,742,252 MEMBERS 53,025 DCU MEMBERS 234,613 MEMBERS and 12,303 CLIENTS in New Brunswick in Québec and Ontario in Ontario and Manitoba

513 CAISSES POPULAIRES AND CAISSES D’ÉCONOMIE 36 CAISSES Desjardins in New Brunswick Credit Union in Québec and Ontario and Manitoba

Desjardins New Brunswick Ontario and Manitoba Financial Services federation Firm federations

FÉDÉRATION Desjardins Trust DES CAISSES DESJARDINS t DU QUÉBEC Caisse centrale Développement Société Fonds de sécurité Desjardins international Fondation historique Desjardins Desjardins Alphonse- Desjardins Caisse centrale Desjardins Desjardins U.S. Branch Capital Desjardins Desjardins Bank

ation c h a r Org ani z ation Desjardins Desjardins Desjardins Desjardins Desjardins Securities General Insurance Venture Capital Financial Security Asset Management Group Disnat

LP and Desjardins Desjardins Gestion Desjardins Desjardins Capital régional The Personal Certas Direct, Desjardins Desjardins Valeurs Securities Securities regional et coopératif Financial development Insurance Insurance General Security Sigma Assistel Global Asset Fiera Capital* mobilières international Financial Desjardins(1) Company* Company* Insurance* Management Desjardins Services funds Investments

Desjardins Certas Desjardins The Personal DGAM Desjardins Market General General Home and Auto Securities / Perspectives Holding Property Insurance* Insurance Insurance Company Management Bodiam Services* Company*

(1) Venture capital, public fund managed by Desjardins Venture Capital. ____ Ownership link ____ Auxiliary members As at December 31, 2008 * Shared ownership Note: Chart does not reflect the legal ownership structure. d esjar ins

OTHER INFORMATION

As at December 31, 2008

2008 2007 Manitoba Manitoba Desjardins and New Desjardins and New Group (1) Brunswick(2) Group (1) Brunswick (2) Number of employees(3) 41,921 1,436 40,345 1,425 Number of members 5,795,277(4) 234,613 5,796,312 239,116 Number of elected officers 6,299 355 6,545 380 Number of member caisses 513 36 536 39 Number of service centres 915 77 919 75 Number of automated teller machines 2,764 142 2,769 141

(1) Including Desjardins Credit Union (DCU) data. DCU service centres are included in the Number of service centres line. (2) Federations and caisses of Manitoba and New Brunswick. (3) Includes employees working for subsidiaries that operate outside Québec. (4) Total members in all caisses in Québec and Ontario, in addition to DCU members.

36099_p01a12et17a30_ENG.indd 4 12/03/09 13:18:01 5

GENERAL INSURANCE

ACTIVE ACROSS ALL Seventh-largest general (property and casualty) insurer of individuals in Canada through the Desjardins General Insurance Group (DGIG) subsidiary BUSINESS SECTORS n The leading direct insurance provider, with one million insured in Québec n Second-largest in the Canadian group insurance market, under DGIG’s FINANCIAL INTERMEDIATION The Personal banner n Establishments in several cities (Lévis, Québec City, Montréal, Ottawa, Mississauga and Calgary) and agents present throughout This sector consists of the Québec and Ontario caisses, the network of the Desjardins caisse network, across Québec. affiliated caisses populaires in Ontario, Desjardins Credit Union, the Fédération des caisses Desjardins du Québec and its business units (Desjardins Card www.dgig.ca Services, Financial Services, Financing Services and Desjardins Payroll and www.desjardinsgeneralinsurance.com Human Resources Services), as well as Caisse centrale Desjardins, Fonds www.thepersonal.com de sécurité Desjardins and Capital Desjardins n Leading market shares in Québec in savings activities, residential mortgage credit, business financing SECURITIES and consumer credit n Pioneer and leader in online services in Québec n The most visited financial Web site in Québec and one of the most visited Full-service securities brokerage with advisory services (Desjardins in Canada n Largest credit card issuer in Québec (VISA Desjardins). Securities) and online brokerage without advisory services (Disnat division) n Brokerage services for businesses and institutions n 48 full-service www.desjardins.com brokerage points of service in Québec and Ontario n Nearly $16 billion under administration.

INVESTMENT FUNDS AND SPECIALIZED rs SAVINGS PRODUCTS www.ds.ca www.disnat.com

One of the largest manufacturers of investment funds and other www.dsia.ca ecto s specialized savings products in Québec n Desjardins Funds n Northwest www.disnatdirect.com

Mutual Funds n Desjardins Private Management. ss ASSET MANAGEMENT ine

www.desjardinsfunds.com s www.northwestfunds.com Manages more than $38 billion in assets coming primarily from the www.desjardinsprivatemanagement.com equity of the insurance subsidiaries and from management authorization Bu assignments entrusted by other Desjardins components n Real estate and TRUST SERVICES securities investment management, mortgage and institutional financing n Development of investment and savings products n 21% shareholder A multi-disciplinary approach to consumer trust services n Testamentary in Fiera Capital Management Inc., a firm specialized in institutional fund services n Estate liquidation n Trust administration n Administration in case management n Offices in Québec City, Montréal, Toronto and Vancouver. of incapacity n Leader in securities administration and custody in Québec. www.desjardinsassetmanagement.com www.desjardinstrust.com VENTURE CAPITAL LIFE AND HEALTH INSURANCE Desjardins Venture Capital is Desjardins Group’s venture capital manager Top life and health insurer in Québec and fifth in Canada for total direct n Manages assets for seven Desjardins private funds (Desjardins Venture premiums underwritten through the Desjardins Financial Security subsidiary Capital, L.P. and six Desjardins regional investment funds), Capital régional n Over five million clients (individuals, groups and businesses) n Extensive et coopératif Desjardins and Desjardins – Innovatech S.E.C. n 24 business range of life and health insurance and retirement savings products, distributed locations throughout Québec n Partner of 313 businesses, including through a variety of channels, including, in Québec, the Desjardins caisses cooperatives, thereby helping to protect some 34,000 jobs. and the SFL Partner of Desjardins Financial Security financial centres, and d esjar ins in the other Canadian provinces, the Desjardins Financial Security Independent www.dcrdesjardins.com Network and Desjardins Financial Security Investments financial centres n Offices across the country (Vancouver, Calgary, Winnipeg, Toronto, Ottawa, Montréal, Québec City, Lévis, Halifax and St. John’s).

www.desjardinsfinancialsecurity.com

For the purposes of financial disclosure, in the financial review of this document, as when we disclose our quarterly results, the business segments are classified differently: “Personal and Commercial”, “Life and Health Insurance”, “General Insurance” and “Securities Brokerage, Asset Management, Venture Capital and Other”.

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THE STRENGTH OF THE COOPERATIVE BUSINESS MODEL

While every country around the world has been affected by today’s unprecedented financial crisis, they are also all part of the solution. We are currently witnessing a level of concerted global action and cooperation that has not been seen in a very long time, indicating that the Desjardins Group cooperative business model is the way of the future.

While Desjardins was not spared the effects of this past year’s financial storm, it has weathered the situation quite well in terms of its basic RETURNED TO the COMMUNITY activities. The caisses, which make up the very foundation of Desjardins (in millions of $) Group, have once again recorded excellent operating results, as did our main subsidiaries. Had it not been for specific items primarily tied to 1,200 the financial crisis and asset-backed commercial paper (ABCP), Desjardins would have posted surplus earnings before member dividends of 1,000 101 approximately $1.2 billion in 2008—slightly higher than in 2007. 1, 800 988

Desjardins remains one of the highest capitalized financial institutions 600 in Canada. Its Tier 1 capital ratio was 13.39% as at December 31, 2008, 664

400 547 compared with 14.17% as at the same date in 2007; this rate exceeds Desjardins Group’s capitalization objective and stands as one of the best 200 295 78 FINANCIAL H I GH LI T S in the industry. Its total capital ratio was 12.85%, compared with 13.59% 0 as at December 31, 2007. Furthermore, Caisse centrale Desjardins

has an excellent credit rating and Desjardins is also holding its own 2006 2007 2008 at the head of the class among Canadian financial institutions. Surplus earnings after income taxes and before member dividends

Portion of surplus earnings returned to the community as member dividends, sponsorships, donations and scholarships

SURPLUS EARNINGS BEFORE PROVISION FOR TOTAL ASSETS OF MEMBER DIVIDENDS MEMBER DIVIDENDS DESJARDINS GROUP d esjar ins

20 95 96 97 180 16 1,200 12.1 12.3 0.8 600 100 9.4 11.6 5.7 18 160 16 14 1,000 500 140 80 14 120 12 800 12 400 60 100 10 600 10 300 80 8 8 40 129.1 144.1 400 200 60 152.3 6 6 78 101 592 215 483 988 4 40

1, 20 200 100 4 2 20 0 0 0 0 0 2 2006 2007 2008 2006 2007 2008 2006 2007 2008

In millions of $ In millions of $ In billions of $

Percentage of caisses paying out Return on equity (%) Growth (%) member dividends

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FINANCIAL POSITION – BALANCE SHEET AND OFF-BALANCE SHEET(1)

As at December 31 (in millions of $ and as a %)

Change 2008-07 2008 2007(2) 2006(2) Total assets 5.7 % $ 152,298 $ 144,059 $ 129,140 Liquid assets (7.1) 30,711 33,059 28,377 Loans 9.5 104,462 95,403 88,646 Deposits and subordinated debentures 5.8 102,184 96,624 89,510 Equity 6.4 9,873 9,282 8,553 Assets under administration (4.3) 201,647 210,683 224,280 Assets under management (24.1) 29,292 38,569 36,049 Tier 1 capital ratio (as per BIS standards) — 13.39 % 14.17 % 14.18 %

(1) Excluding caisses and federations in Manitoba and New Brunswick. (2) Data restated to reflect the presentation adopted in 2008.

OPERATING INCOME(1)

Years ended December 31 (in millions of $ and as a %)

Change 2008-07 2008 2007(2) 2006(2) Total income (13.4) % $ 8,373 $ 9,671 $ 9,419 Provisions for credit losses 23.4 243 197 139 Non-interest expense 2.1 4,800 4,702 4,534

Surplus earnings after income taxes and before member dividends (92.9) 78 1,101 988 FINANCIAL HIGHLIGHTS Provision for member dividends (63.7) 215 592 483 Return on equity — 0.8 % 12.3 % 12.1 %

(1) Excluding caisses and federations in Manitoba and New Brunswick. (2) Data restated to reflect the presentation adopted in 2008.

CREDIT RATINGS

The financial solidity of Desjardins Group as reflected in the excellent credit ratings of Caisse centrale Desjardins.

Senior medium Short term and long term desjardins Standard and Poor’s A-1+ AA- Moody’s P-1 Aa1 Dominion Bond Rating Service R-1 (high) AA

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To me, Alphonse Desjardins was the greatest entrepreneur, the greatest financier and the greatest cooperator in the entire history of Canada. His model for a caisse that is close to the people is still relevant today. Attention to members’ needs, mastery of finance, innovation, service to the community and the cooperative values he put forth are still at the heart of the success of our caisses and of Desjardins Group.

“There’s nothing more deserving […] of our attention, than to give the caisses a great and wonderful reputation […] in doing so, we will win a clientele that, in the future, will promote their long-term prosperity.” Alphonse Desjardins had a great deal of foresight.

Global crisis of confidence

The year 2008 was marked by a worldwide economic and financial crisis. The scope of the crisis in fact had a lot to do with confidence. From the real estate collapse in the United States to the recession we are experiencing today in the world’s major economies, we have seen a general demise in consumer and investor confidence with respect to the economy and market operations. Recovery depends unmistakably on our ability to rebuild that confidence, both at home in our domestic markets and on an international scale.

Within Desjardins Group, what comforts us is the conviction that the relationship of trust we maintain with our members and clients is based on our expertise and our accessibility. This trust is also dependent on our financial solidity and credibility. Trust cannot be bought—it is built, day by day, as a result of our capacity to align our actions with our words and our promises.

A YEAR OF MAJOR FINANCIAL CHALLENGES

Financially, 2008 was characterized by major crisis-related challenges that monique F. leroux affected all financial markets worldwide. Combined surplus earnings before Chair of the Board, President and CEO, member dividends totalled $78 million, compared to $1.1 billion in 2007. Desjardins Group If it hadn’t been for the specific items resulting from asset-backed commercial paper (ABCP) and a decline in investment value resulting from the worldwide

Me ss a g e f r o m t h c ai of b oa rd , P s i d ent an CEO financial crisis, Desjardins Group would have posted surplus earnings before member dividends of approximately $1.2 billion, which is in line with the objectives we had set for ourselves.

Two main factors account for the decrease observed. First, the direct and indirect impact of ABCP and guaranteed-capital structured products, which Live Desjardins with amounted to $831 million. The sharp decline in investment performance trust and confidence and the high volume of asset write-offs led to a further $341 million in losses. Naturally, I am not satisfied with our 2008 results, despite the fact that d esjar ins At the end of March 2008, I began my mandate they must be viewed in the context of an unprecedented global financial crisis. Desjardins Group, like other financial institutions around the world, as President, ready to promote the values of trust was not spared the effects of the crisis, and we must learn from this. That and confidence in furthering the development is why, in 2008, I asked our internal auditor and several external experts of Desjardins Group. to perform a thorough analysis of our risk management and investment practices. Our members and clients can rest assured the action plan drawn up following this process is currently being implemented, with Management At the time, I encouraged the vital forces behind our institution to “live and the Board of Directors closely monitoring its progression. Desjardins with trust and confidence.” I stressed the word “live” because Desjardins is part of a movement in which democracy is so intensely alive. I spoke of “trust and confidence” because Desjardins, as a cooperative financial group, must inspire trust, and because our success is gained through our officers’ and employees’ confidence in the future. But the future is always a work in progress, built with pride in our roots and in our history.

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Solid financial foundations Sustained business development

While ABCP and the effects of the financial crisis adversely affected The year 2008 was also extremely productive on the business development our results in 2008, our various basic activities remain sound and profitable. front. Despite the upheavals affecting the financial markets and the increasingly The cooperative network, the business units, the insurance subsidiaries fierce competition, consumer savings and investment recruitment showed and Caisse centrale Desjardins all posted very good operating results. encouraging results, thanks to constant efforts by the caisses. This allowed The caisses saw their surplus earnings grow by nearly 11% in 2008 us to maintain our market share in this segment in Québec. The progress compared to the previous year. made in 2008 also helped us corner new market share in residential mortgage loans, commercial, industrial and farm credit, as well as card-based payment and financing. Desjardins Group also remains a very solid and well-capitalized institution. Our capitalization is still one of the best in the Canadian financial sector, with a Tier 1 capital ratio of 13.39% and a total capital ratio of 12.85% Insurance premium volumes continued to grow for both life and health as at December 31, 2008. Caisse centrale Desjardins has excellent credit insurance and general insurance, both in Québec and in the rest of Canada. ratings and Desjardins remains one of the leading financial institutions The efforts made in this respect, in particular a broad advertising campaign, in Canada in this regard. contributed to a significant increase in brand awareness for Desjardins and its insurance subsidiaries in Ontario. Aware of the growing importance of capital in the current market environment, we have taken steps to strengthen the capitalization of the The concerted efforts of the caisses and components toward developing caisses. We have therefore opted for a balanced and responsible approach the Greater Montréal market also continued throughout last year. Visibility, with respect to the distribution of the 2008 surplus earnings, an approach brand awareness and business development of Desjardins in the Greater that takes into account both the expectations of our members and our Montréal Area all increased in 2008. communities, and the capitalization needs of Desjardins Group. MARKET SHARES IN QUÉBEC – An increasingly dominant presence A YEAR OF NOTEWORTHY ACHIEVEMENTS Trend Ever growing member and client satisfaction Product Market share (versus 2007) With its 6,299 elected officers and 42,000 employees, Desjardins Group Residential mortgages 39.3 % + 0.2 % continued to serve its members and clients consistently and professionally Farm loans 46.9 % + 0.4 % in 2008, with an eye on continuous improvement. Commercial and industrial loans 25.0 % + 1.2 % Personal savings 43.9 % stable The overall average satisfaction index among individual members Investment funds 16.5 % + 0.3 % with respect to services received, which measures seven aspects of our Securities brokerage 14.1 % + 0.8 % service offering, rose again by one percentage point. Business member General insurance (individuals) 20.3 % stable satisfaction also showed an ongoing increase in 2008, thus crowning Life and health insurance 18.0 % stable all the efforts and advances made to optimize service delivery in the Desjardins business centres. Ongoing work with respect to Basel II Service quality and client satisfaction were also among the criteria Desjardins Group also continued working very hard last year on being M ess ag e f r o m t he c h ai of b oa d, Pres id nt and C E O considered in the audit of our AccèsD call ­­centres, which obtained recognized for using the advanced methods defined by the Basel II Accord. COPC (Customer Operations Performance Center) certification for Our application for certification by the Autorité des marchés financiers the fourth consecutive year in 2008. (AMF) was filed as planned in January 2009. The new approaches developed will enable us to optimize our risk management and also to better match Desjardins, Best Employer regulatory capital requirements with the risks incurred. On our very first foray into this initiative, Desjardins Group made it to the list of top 50 Best Employers in Canada, as established by the HR consulting A positive social and cooperative impact firm, Hewitt Associates. This recognition gives Desjardins a competitive edge Social responsibility has always been intrinsic to Desjardins Group’s activities. in a market where attracting and retaining talent is of key strategic value. Because we are a cooperative, our priority is to contribute to improving desjardins The responses obtained from over 15,000 of our employees (of the 20,000 the social and economic well-being of the people and communities we who received a survey), as well as the considerable feedback we received, serve. Thus, over the years, Desjardins Group has adopted high standards, constitute a mine of information that we will draw on in the future. not only in matters of governance but also in terms of human resources, investment, commitments to the community, the environment, health and safety in the workplace, and human rights.

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In 2008, Desjardins Group took this one step further by adhering more 2009 WILL BE A YEAR OF CHANGE formally to Global Reporting Initiative (GRI) indicators, an approach that will allow the organization to compare its social responsibility achievements Five main convictions central to my mandate for 2009 with other players in its sector of activity, while taking its cooperative Despite a difficult economic climate requiring great discipline and vigilance (1) nature into consideration. on our part, our ability to move Desjardins Group forward is still based on our ability to see things from a long-term perspective. Five major convictions Desjardins Group also continued to affirm its leadership in terms of motivate me in this regard, which I describe as “generators of change.” sustainable development in 2008. As part of our commitments under the When I was elected President, I was determined to use those convictions Changing the world, one step at a time institutional campaign, we made as the focus for our achievements in the coming years. noteworthy advances with regard to environmentally friendly transportation, the energy efficiency of the buildings we own, and raising awareness My first and fundamental conviction is that the caisses are the driving among our various stakeholders about sustainable development issues. force of Desjardins Group. We have everything to gain at Desjardins from strengthening caisse entrepreneurship through the direct contribution A participatory approach of the officers and general managers to the life and growth of our In keeping with my commitments, in 2008 we set up new communication organization. Our work and operating methods will enable us to fully mechanisms with caisse elected officers and general managers, both with draw on all the experience, business sense and knowledge of our officers respect to reflection and planning activities as well as in the follow-up and general managers. of day-to-day operations. Several telephone and online communications, in addition to our various meetings and other specific initiatives, enabled My second conviction is that the FCDQ and the subsidiaries are there to us to increase the participation of caisse officers and general managers, work for the caisses and their members. Considering the development and along with Desjardins Group Management and its various decision-making growing maturity of the network and the caisses, the role of the FCDQ bodies, in discussions on Desjardins-related issues and orientations. needs to change as well, so as to play a greater role in Desjardins-wide orientation and integration. In November, we also organized a Rendez-vous of young leaders who act as either Desjardins officers or managers or who represent various My third conviction is that the growth and strategic development of youth-oriented organizations. Their discussions and the results of an online Desjardins Group comes through the caisses, supported by the subsidiaries. survey of young people gave us valuable feedback for our reflections on Greater caisse involvement in Desjardins Group’s strategic reflection policies toward young people. process will help us move ahead under the sign of profitable growth, marrying organic growth and external growth. This will allow us to strengthen our position as a leader in Québec and develop our activities in Ontario and elsewhere in Canada.

The incredible force of Desjardins group’s human capital Me ss a g e f r o m t h ec ai of b oa rd , P s i d ent an CEO All of our accomplishments in 2008, as well as all the challenges we had to meet, required an enormous amount of care and effort by Desjardins Group, and greater than usual attention towards our members. To the officers, general managers, management staff and employees of Desjardins Group caisses and components, I am especially grateful for the support you provided and the enormous collective effort you made in 2008. It is thanks to you, your engagement, your motivation and the way you embody the values of cooperation that Desjardins was recognized as one of Canada’s Best Employers. I would like to thank Alban D’Amours, who ended his eight-year term as President of Desjardins Group at the start of 2008. Under his leadership, Desjardins Group grew into its own as an integrated cooperative financial group. Thanks also to the members of the councils of representatives, who look out for the interests of the members of your caisses, while participating d esjar ins in the long-term development of Desjardins Group. Throughout the various meetings and discussions we have held, I have appreciated your frankness and your constructive spirit. I would like to extend my most heartfelt thanks to the members of the FCDQ Board of Directors, as well as the FCDQ and Desjardins Group Executive Committee and Management Committees, for making yourselves so available in a year in which we were implementing new ways of working together, while at the same time rigorously monitoring and managing the fallout from the worst financial market crisis the world has seen in decades. If not for your unwavering support, I would have been very alone in facing these challenges. I would like to thank Pierre Grenon, who left the Board in 2008, and welcome Denis Duguay, who replaced him. A special thank-you goes out to Jude Martineau, who retired after 14 years at the head of Desjardins General Insurance Group (DGIG). The company saw substantial growth under Mr. Martineau’s direction. I am certain that DGIG’s new President and Chief Operating Officer, Sylvie Paquette, will ensure the dynamic and successful development of this subsidiary in the years to come, thanks to her thorough knowledge of the business. To Bruno Morin, I would like to express my utmost gratitude for having agreed to take on the leadership of Caisse centrale Desjardins in 2008 and for having successfully assumed this responsibility in a particularly difficult time for the markets. I am more convinced than ever that together, we, the men and women of Desjardins Group, have the power to make this organization the most admired financial institution in Canada and the most respected for its mission, its cooperative values, the close ties between its caisses and their communities, and its achievements in all respects.

(1) See the section entitled “The Social and Cooperative Impact of Desjardins Group” on pages 187 to 196 at the end of this Annual Report.

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My fourth conviction is that our human capital is our greatest asset and With the building block on collaboration, participation and connection our strength for the future. To ensure the success and continuity of with the network, we will set up the mechanisms by which our network Desjardins Group, we will work very hard, not only to be a Best Employer resources—those best placed to understand the needs of our members— for our management staff and employees but also to ensure that our will be able to take an even more active role in actions carried out on a methods of governance, our democratic management processes and Desjardins-wide scale. It is under the theme of Cooperate to Better Contribute our operating procedures provide us with true leverage for engaging that work relating to this fourth building block will be undertaken. and mobilizing our officers and general managers. The final building block involves mobilizing all of Desjardins Group’s human My fifth and final conviction is that our cooperative values form the capital, culture and values to support the implementation of changes basis of our ambitions and must always remain central to our actions. within Desjardins by guiding and supporting the individuals whose roles These cooperative values must shape the way we work together and responsibilities will be changing. Relying on a culture of participation, to build our future. service and performance, and under the theme of Cooperate to Be Our Best, we will thus enable Desjardins Group to benefit more from the intelligence To prepare for the changes needed to fully bring these convictions to life, and collective experience of our human capital, while respecting our in the last quarter of 2008, we drew up a Desjardins Group Development cooperative values. Plan. The cooperative network and all the components are involved in defining and implementing this plan which, through its five building Cooperating to shape our destiny blocks, will offer us an outlook on our future and define the means by which we will achieve our ambitions. What has always set Desjardins apart is its incredible ability to engage elected officers, management staff and employees, as well as its constant concern for maintaining a strong connection with its members. That’s A DEVELOPMENT PLAN FOR DESJARDINS how member trust and confidence has enabled Desjardins to build solid The five building blocks launched under the Desjardins Group Development financial capital over the years. Plan will bring about changes in 2009 and for the coming years. The first building block, relating to Desjardins Group’s strategic growth and With the economic and financial crisis persisting, the future of Desjardins development, was launched as a priority, with a view to the adoption of lies in great caution and increased vigilance in the face of the challenges Desjardins Group’s 2010-2012 Strategic Plan. The definition of this Plan coming in the short term and possible new market disturbances. The is an ongoing process, fuelled by the recommendations of various task future of Desjardins also lies in a shared confidence in our abilities and in forces made up of representatives from all the Desjardins components. the strength of our solidarity. The future of Desjardins also lies, more than ever, in the values of cooperation. Cooperate to Shape Our Destiny is what, Our business development (savings recruitment; the business sector; with all our will and all our might, we will endeavour to accomplish in the relations with young people and cultural communities; growth in the years to come. non-urban regions, Greater Montréal and throughout Canada), the productivity and efficiency of our organization, the engagement and In 1912, Alphonse Desjardins wrote that: “Two qualities triumph management of talent as well as social responsibility and sustainable over all: Knowledge of what needs to be done and vigorous and development are among the growth issues and challenges facing Desjardins, self-determined perseverance based on the conviction that we and the specific focus of our attention and our work. The results of this are on the right track.” building block will also be used to optimize Desjardins Group’s financial performance. Cooperate to Grow is the theme we have chosen for Our mission is clear and our values are strong. In carrying out our mission,

this first project. we enable the members and communities served by Desjardins to live M essa g e from t h c air of b oard , P resident and CEO better, to feel supported and protected, to know that they are not alone The building block on the changing role of the FCDQ, as well as the as they carry out their plans and projects, throughout all the stages of one devoted to optimizing FCDQ and subsidiary performance, will lead to their lives. Our mission is what gives our day-to-day work its full meaning. various initiatives in 2009, including the adoption of a new organizational It embodies the human and social aspects of our activities, which has never structure. While assuring effective and efficient support to the caisses, been more relevant. the aim will be to re-focus the FCDQ’s role as a hub of orientation and support for Desjardins Group, to increase the productivity and cohesiveness With our widespread accessibility based on caisses that are firmly rooted

of our organization and to optimize its overall performance. Cooperate in all regions, with our ability to adapt to all kinds of needs, with our constant desjardins to Inspire and Cooperate to Perform are the themes associated with these desire to inform and educate people about cooperation and finance, with second and third building blocks. the active support we give to community development and, above all, with the exceptional commitment of thousands of officers elected by our members, we can be fully confident in our ability to continue to contribute to the growth of Desjardins Group.

Monique F. Leroux, FCA, FCMA Chair of the Board, President and CEO, Desjardins Group

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05 Boa rd of d i r ecto rs d esjar ins

36099_p01a12et17a30_ENG.indd 12 14/03/09 19:18:10 MDRP9-003 • Desjardins • Rapport annuel 2008 • Mouvement des caisses desjardins Section : Gatefold • Version : Anglaise • épreuve : finale • Approuvée le : 11-03-2009 • format ouvert : 8 5/8” x 11 3/4” • format fermé : 16 3/4” x 11 3/4” • COULEURs : CMYK + Pantone 347

13 14 OUR HUMAN CAPITAL IS OUR GREATEST ASSET AND THE

01 monique F. leroux* 09 JACQUES BARIL** 17 DANIEL LAFONTAINE Desjardins Group President President of the Est de Montréal Caisse General Manager, STRENGTH OF OUR FUTURE and Chief Executive Officer, Council of Representatives Member of the Centre-du-Québec Chair of the Board End of term: 2011 Council of Representatives End of term: 2012 End of term: 2011 10 THOMAS BLAIS** Desjardins Group is the largest financial institution in Québec and the leading cooperative financial group in 02 PIERRE TARDIF*/** President of the Caisses populaires de l’Ontario 18 ANDRÉE LAFORTUNE** President of the Rive-Sud de Montréal Council of Representatives President of the Ouest de Montréal Canada because of its human capital—the 6,299 officers and 42,000 employees among its ranks. To ensure Council of Representatives, End of term: 2011 Council of Representatives Desjardins Group’s success and longevity, we aim to be not only a Best Employer for our managers and Vice-Chair of the Board End of term: 2010 employees, but also a Group that earns the engagement of our officers and general managers. End of term: 2009 11 LAURIER BOUDREAULT Caisse General Manager, 19 MARCEL LAUZON** 03 CLÉMENT SAMSON*/** Member of the Québec-Ouest–Rive-Sud President of the Laval–Laurentides President of the Québec-Ouest–Rive-Sud Council of Representatives Council of Representatives Council of Representatives, End of term: 2010 End of term: 2009 Board Secretary “We are, all together, as officers and employees of both the caisse End of term: 2010 12 SERGES CHAMBERLAND** 20 PIERRE LEBLANC** President of the Saguenay–Lac-Saint-Jean– President of the Mauricie 04 LOUISE CHARBONNEAU* Charlevoix–Côte-Nord Council of Representatives network and the components, the builders of our future.” Caisse General Manager, Council of Representatives End of term: 2011 Member of the Est de Montréal End of term: 2011 – Monique F. Leroux Council of Representatives 21 MICHEL ROY** End of term: 2009 13 Denis Duguay** President of the Kamouraska–Chaudière-Appalaches President of the Richelieu-Yamaska Council of Representatives 05 ANDRÉ GAGNÉ*/** Council of Representatives End of term: 2011 President of the Québec-Est End of term: 2011 Council of Representatives 22 SYLVIE ST-PIERRE BABIN** End of term: 2010 14 ALAIN DUMAS President of the Abitibi-Témiscamingue– Caisse General Manager, Nord et Ouest du Québec 06 DANIEL MERCIER*/** Member of the Mauricie Council of Representatives President of the Centre-du-Québec Council of Representatives End of term: 2011 Council of Representatives End of term: 2010 End of term: 2009 23 SERGE TOURANGEAU** 15 NORMAN GRANT** President of the Group Caisses 07 DENIS PARÉ*/** President of the Bas-Saint-Laurent Council of Representatives President of the Estrie et Gaspésie–Îles-de-la-Madeleine End of term: 2009 Council of Representatives Council of Representatives End of term: 2009 End of term: 2010 24 BENOÎT TURCOTTE** Vice-President of the Abitibi-Témiscamingue– 08 DOMINIQUE ARSENAULT** 16 ANDRÉ LACHAPELLE** Nord et Ouest du Québec 2,136 PARTICIPANTS ATTENDED THE DESJARDINS MORE THAN 180 PEOPLE WERE PART OF THE Vice-President of the Bas-Saint-Laurent President of the Lanaudière Council of Representatives, ANNUAL GENERAL MEETINGS IN QUÉBEC CITY task forces THAT MET IN BROMONT ON et Gaspésie–Îles-de-la-Madeleine Council of Representatives Managing Director ON MARCH 28 AND 29, 2008. SEPTEMBER 19, 2008. Council of Representatives End of term: 2010 End of term: 2011 Managing Director End of term: 2010 * Member of the Executive Committee ** Unrelated director

1,100 CAISSE PRESIDENTS AND GENERAL MANAGERS ATTENDED THE RENDEZ-VOUS MEETINGS IN QUÉBEC CITY ON NOVEMBER 28 AND 29, 2008.

ACTIVE PARTICIPATION BY ALL IN THE DESJARDINS GROUP DEVELOPMENT PLAN. The members of the Board of Directors of the Fédération des caisses Desjardins du Québec are also directors of Caisse centrale Desjardins, MEMBERS OF THE COLLABORATION, PARTICIPATION AND CONNECTION WITH THE Desjardins Venture Capital, Capital Desjardins inc. and Desjardins Trust. The Board of Directors is made up of 22 members who are elected NETWORK building block task force. 01 by the Regional General Meeting, Group Caisses General Meeting or the Assembly of Representatives of the FCDQ. The following are members of the Board: the 17 presidents of the councils of representatives, the four caisse general managers elected by the Assembly of Representatives and the President and Chief Executive Officer of Desjardins Group. For the Bas-Saint-Laurent et Gaspésie–Îles-de-la-Madeleine and Abitibi-Témiscamingue–Nord et Ouest du Québec regions, the vice-president of the council of representatives sits on the board as YOUNG LEADERS’ MEETING – “CHALLENGES a managing director. FOR 2012” – LAVAL, NOVEMBER 6 AND 7, 2008.

36099_Gatefold_ENG.indd 1 16/03/09 14:57:03 the councils of representatives: concrete expression of our democracy

01 WESTERN REGION 06 CENTRAL REGION 01 Rive-Sud de Montréal Council of Representatives 06 Centre-du-Québec Council of Representatives Alain Boutin, General Manager (GM), Caisse populaire Desjardins Pierre-Boucher, Pierre Baril, GM, Caisse populaire Desjardins de Lévrard, Marc-André Joyal, President, Lorne Bouchard, GM, Caisse Desjardins Charles-LeMoyne, Pierre Tardif, President Caisse populaire Desjardins de l’Est de Drummond, Daniel Mercier, President of the of the Council of Representatives and President, Caisse Desjardins de Longueuil, Council of Representatives and President, Caisse populaire Desjardins de Victoriaville, Yvan Poulin, Vice-President (VP), Caisse Desjardins des Berges de Roussillon, Serge Cousineau, GM, Caisse Desjardins de Drummondville, Jean Pinard, Officer, André Ménard,Officer, Caisse populaire Desjardins Beauharnois, Isabelle Bourgeois, Caisse Desjardins Godefroy, Martin Lemay, GM, Caisse Desjardins du Sud de Lotbinière, President, Caisse Desjardins des Grandes-Seigneuries, Rollande Girard-Di Lalla, Pierre Levasseur, President, Caisse populaire Desjardins du Bas-Saint-François, Paul President, Caisse Desjardins Grande-Allée de Saint-Hubert, Martin Bergeron, Lafrance, Officer, Caisse Desjardins de Drummondville, Daniel Lafontaine, GM, Officer, Caisse Desjardins de Boucherville, Yves Léveillé, GM, Caisse Desjardins Caisse Desjardins de Nicolet, Guy Morin, VP, Caisse populaire Desjardins de l’Est de du Haut-Saint-Laurent, Lorraine Simoneau, GM, Caisse populaire Châteauguay, Drummond, André Grenier, President, Caisse Desjardins de L’Érable, Diane Tétreault, René Ouellet, GM, Caisse Desjardins de Varennes, Gilles Sicotte, President, Caisse VP, Caisse populaire Desjardins de Gentilly, Benoit Bélanger, GM, Caisse populaire Desjardins de Saint-Pierre-Apôtre, Robert Bourguignon, President, Caisse Desjardins Desjardins du Sud des Bois-Francs, Éric Béchard, Officer, Caisse populaire Desjardins du Mont-Saint-Bruno, René Rougeau, President, Caisse Desjardins des Moissons, de Grantham-Wickham Not Pictured: Laurent Soucy, President, Caisse Desjardins Yvon Vinet, VP of the Council of Representatives and President, Caisse Desjardins de Daveluyville de Salaberry-de-Valleyfield 02 07 07 Mauricie Council of Representatives 02 Laval–Laurentides Council of Representatives Isabelle Garceau, GM, Caisse populaire de Maskinongé, Yves Ricard, Board Secretary, Pierre Durocher, GM, Caisse populaire Desjardins des Pays-d’en-Haut, Alain Grégoire, Caisse populaire Desjardins Cité de Shawinigan, Pierre Leblanc, President of the Council VP, Caisse Desjardins Thérèse-De Blainville, Marcel Lauzon, President of the Council of Representatives and President, Caisse Desjardins du Sud Des Chenaux, Paul Jordan, of Representatives and President, Caisse populaire Desjardins de Saint-Jérôme, André GM, Caisse Desjardins de Saint-Boniface, René Parent, Officer, Caisse populaire Desjardins Chaput, President, Caisse populaire Desjardins de Mirabel, Pierre L. Lambert, VP of de la Moraine, Michel St-Onge, President, Caisse Desjardins du Haut Shawinigan, Alain the Council of Representatives and President, Caisse populaire Desjardins des Mille-Îles, Dumas, GM, Caisse Populaire de St-Tite, René J. Lemire, VP, Caisse Desjardins de l’Ouest Nancy Wilson, President, Caisse populaire Desjardins de Mont-Tremblant, Jacques de la Mauricie, Gilles Baril, GM, Caisse populaire Desjardins de Sainte-Thècle-Saint- Laramée, GM, Caisse populaire Desjardins de Sainte-Agathe-des-Monts, Maurice Adelphe, Pierre Bordeleau, President of the Board of Supervision, Caisse Populaire Émond, President, Caisse populaire de Saint-Claude, Sylvain Courcelles, GM, Caisse de Saint Severin de Proulxville, Robert Frappier, Officer, Caisse Populaire de St-Alexis- populaire Les Grands Boulevards, Jean-Claude Faucher, President, Caisse Desjardins de des-Monts, Carole Chevalier, VP of the Council of Representatives and Officer, Caisse Saint-Antoine-des-Laurentides, Gilles Daviault, President, Caisse populaire Desjardins Desjardins Les Estacades, Denis Boudreau, President, Caisse Desjardins Laviolette de l’Envolée, Yvon Dubois, President, Caisse populaire Desjardins de Vimont–Auteuil, Not Pictured: Daniel Fleurant, GM, Caisse populaire Desjardins du Passage, Claude Jean Boisvert, President, Caisse Desjardins du Nord de Laval Not Pictured: Richard Gervais, Officer, Caisse populaire Desjardins des Cascades Tassé, GM, Caisse Desjardins de Saint-Eustache–Deux-Montagnes, Gilles Aubé, GM, Caisse Desjardins du Marigot de Laval 03 08 08 Estrie Council of Representatives Roger Durand, President, Caisse Desjardins du Nord de Sherbrooke, Michel Nadeau, 03 Ouest de Montréal Council of Representatives GM, Caisse Desjardins des Hauts-Boisés, Denis Paré, President of the Council of Gilles Metcalfe, Officer, Caisse populaire Desjardins Sainte-Geneviève de Pierrefonds, Representatives and President, Caisse Desjardins de l’Est de Sherbrooke, Lise Perreault, Gabrielle Gosselin, Officer, Caisse Desjardins Cité-du-Nord de Montréal, Gilbert Officer, Caisse Desjardins du Mont-Bellevue de Sherbrooke, Robert Lussier, GM, Caisse Thibeault, VP of the Council of Representatives and President, Caisse Desjardins Desjardins du Lac des Nations de Sherbrooke, Johanne Rock, GM, Caisse populaire Lachine /Saint-Pierre, Micheline D. Legault, President, Caisse populaire Saint-Joseph- Desjardins de East Angus, Roch Sicotte, President, Caisse Populaire de Waterloo, Alain de-Bordeaux, Serge Cloutier, GM, Caisse Desjardins Allard–Saint-Paul, Johanne Boucher, GM, Caisse Desjardins des Métaux blancs, Agathe Fillion, VP of the Council Perron, GM, Caisse Desjardins du Quartier-Latin de Montréal, Pierre F. McDuff, of Representatives and President, Caisse populaire Desjardins des Verts-Sommets de l’Estrie, Officer, Caisse populaire Desjardins de LaSalle, Andrée Lafortune, President of the Jacques Sansoucy, President, Caisse Desjardins de Granby–Haute-Yamaska, Manon Council of Representatives and President, Caisse populaire Desjardins d’Outremont, Morin, President, Caisse Desjardins de l’Ardoise, René Grimard, President, Caisse Denis Rousseau, Officer, Caisse populaire Desjardins du Centre d’Ahuntsic, Sylvain populaire Desjardins des Horizons, Gabriel Morin, Officer, Caisse Desjardins du Bélisle, GM, Caisse Desjardins de Vaudreuil-Soulanges, Serge Verrier, President, Lac-Memphrémagog, Yvan Laroche, President, Caisse populaire Desjardins de la Caisse Desjardins du Parc Sir-G.-E.-Cartier de Montréal, Bertrand Fortier, President, Région-Ouest-de-Mégantic Not Pictured: Stéphane Benjamin, GM, Caisse populaire Caisse populaire Saint-Stanislas de Montréal, Bernard Circé, GM, Caisse Desjardins Desjardins de Brome-Missisquoi Atwater-Centre, Gilbert Demers, GM, Caisse populaire Desjardins de Saint-Laurent, Moustafa Magar, Officer, Caisse populaire Desjardins de Côte-des-Neiges 04 09 09 Richelieu-Yamaska Council of Representatives 04 Est de Montréal Council of Representatives Benoît Noël, President, Caisse populaire Desjardins d’Acton Vale, Diane Hébert Dubé, Michel Bélisle, VP, Caisse Desjardins De Lorimier, Camille Montpetit(1), GM, President, Caisse Desjardins de la Seigneurie de Ramezay, André Paquette, President, Caisse populaire Desjardins de Villeray, Jacques Baril, President of the Council of Caisse populaire Desjardins Sieur-d’Iberville, Raymonde Faucher, Officer, Caisse populaire Representatives, and President, Caisse populaire Desjardins de Pointe-aux-Trembles, de St-Antoine-sur-Richelieu, Denis Duguay, President of the Council of Representatives Robert Guerriero, President, Caisse populaire Desjardins Canadienne Italienne, and Officer, Caisse populaire Desjardins de Farnham, Alain Durivage, President, Caisse Claudette Lagacé, Board Secretary, Caisse Desjardins de Saint-Léonard, Louise Desjardins de la Vallée-des-Forts, Pierre Grenon, President, Caisse Desjardins de Charbonneau, GM, Caisse populaire Desjardins de Saint-Michel, Denis Laferrière, Beloeil–Mont-Saint-Hilaire, Jean-Marie Viens, President, Caisse Populaire de St-Charles GM, Caisse populaire Desjardins de Montréal-Nord, Francine Le Grand, President, sur le Richelieu, Claude Frenière, GM, Caisse populaire Desjardins de Bedford, Angélina Caisse populaire Desjardins du Sault-au-Récollet, Jean Laporte, President, Caisse Lagacé, President, Caisse Populaire de Rougemont, Robert Giasson, GM, Caisse populaire Desjardins de Jean-Talon–Papineau, Denis Risler, President, Caisse populaire Desjardins de Saint-Damase and Caisse populaire Desjardins de Saint-Pie-de-Bagot, Desjardins d’Anjou, Pierre Trahan, GM, Caisse Desjardins de Tétreaultville, Daniel Jean-Pierre Bessette, GM, Caisse populaire Desjardins de Saint-Jean-sur-Richelieu, Blais, GM, Caisse populaire Desjardins Préfontaine–Hochelaga, Jean-J. Brossard, Christian Gagnon, GM, Caisse populaire Desjardins de Cavignac, Jacques President, Caisse populaire Desjardins de Rosemont, Michel Tourangeau, VP of the Sylvestre, VP of the Council of Representatives and Officer, Caisse Desjardins Council of Representatives and President, Caisse Desjardins de Mercier-Rosemont, de Saint-Hyacinthe, Rémy Lavoie, GM, Caisse Populaire Riviera Florent Tanguay, President, Caisse populaire Desjardins de Mont-Rose–Saint-Michel 05 10 10 Lanaudière Council of Representatives 05 Abitibi-Témiscamingue— Claude Ladouceur, President, Caisse populaire St-Paul-l’Ermite, Lucie Tremblay, Nord et Ouest du Québec Council of Representatives President of the Board of Supervision, Caisse populaire Desjardins de Ste-Julienne, Claire Christiane Carle, GM, Caisse populaire Desjardins de la Haute-Gatineau, Luc Cloutier, Sarrazin, Board Secretary, Caisse Desjardins de Joliette, Gabriel Garneau, President, President, Caisse Desjardins d’Amos, Benoît Turcotte, VP of the Council of Representatives Caisse Desjardins de Charlemagne, Michel Ménard, GM, Caisse populaire Desjardins and President de la Caisse Desjardins de la Vallée de l’Or, Marcelin Grenier, GM, Caisse de Lavaltrie, Line Lemelin, President, Caisse populaire Desjardins Le Manoir, Alain Raîche, Desjardins de Béarn-Fabre-Lorrainville and Caisse populaire Desjardins de Témiscaming, GM, Caisse Desjardins Les Méandres, André Lachapelle, President of the Council of Claude Tremblay, President, Caisse Desjardins de Mont-Laurier, Sylvie St-Pierre-Babin, Representatives and President, Caisse Desjardins de la Nouvelle-Acadie, Gaston Robert, President of the Council of Representatives and VP, Caisse Desjardins de Hull, Normand President, Caisse populaire Desjardins de Montcalm, Ronald Thériault, GM, Caisse Achim, Officer, Caisse populaire Desjardins de la Basse-Lièvre, Evelyne Brochu-Côté, Desjardins de Kildare, Guy Tremblay, GM, Caisse Desjardins de Saint-Donat, André President, Caisse populaire Desjardins du Sud de l’Abitibi-Ouest, Jean-Claude Jalbert, Shatskoff, GM, Caisse populaire Desjardins Terrebonne, Robert Bellerose, President, GM, Caisse Desjardins de Hull, Bernard W. Morissette, President, Caisse populaire Caisse populaire Desjardins de Saint-Félix-de-Valois, Jean-Robert Laporte, VP of the Desjardins de Gatineau, Guy Bélisle, GM, Caisse populaire Desjardins du Coeur-des- Council of Representatives and President, Caisse populaire Desjardins du Christ-Roi (Joliette), vallées, Lorrain Barrette, President, Caisse Desjardins de Rouyn-Noranda, Marcel Jean Paul Campagna, President, Caisse populaire Desjardins de Berthier-et-des-Îles Cardinal, Officer, Caisse Desjardins de La Sarre, Claude Castonguay, GM, Caisse populaire Desjardins de l’Est de l’Abitibi and Caisse populaire Desjardins de Lebel-sur- Quévillon, André Racicot, President, Caisse populaire Desjardins d’Aylmer Composition of councils of representatives as at December 31, 2008 In standard order, from left to right and bottom to top (1) Deceased in 2008 during his term.

36099_Gatefold_ENG.indd 2 13/03/09 21:05:39 11 EASTERN REGION 16 GROUP CAISSES 11 Bas-Saint-Laurent et Gaspésie–Îles-de-la-Madeleine 16 Council of Representatives Council of Representatives Jacques Dextradeur, President, Caisse Desjardins des policiers et policières, Emanuel Yvon Cormier, GM, Caisse populaire Desjardins de Fatima, Francis Bérubé, GM, Linhares, President, Caisse d’Économie des Portugais de Montréal, Serge Tourangeau, Caisse Desjardins du Bic, Dominique Arsenault, VP of the Council of Representatives President of the Council of Representatives and Officer, Caisse Desjardins du personnel and Officer, Caisse Desjardins de Tracadièche, Lise Saint-Pierre, VP, Caisse Desjardins de l’Administration et des Services publics, Michel Laforge, GM, Caisse d’économie de Rimouski, Annie P. Bélanger, President, Caisse populaire Desjardins Mer et montagnes, Desjardins des employé(e)s du Secteur industriel (Montréal), Léopold Beaulieu, Donald Beaulieu, President, Caisse populaire Desjardins du Portage, René Lévesque, Senior VP, Caisse d’économie solidaire Desjardins, Réjean Bellemare, President, Board Secretary, Caisse populaire Desjardins des Versants du Mont-Comi, Sonia Caron, Caisse d’économie Desjardins des Travailleurs unis, Bernard Beauregard, VP of the GM, Caisse populaire Desjardins de la Vallée des lacs, Jean-Claude Lévesque, Council of Representatives and President, Caisse d’économie des employés de la President, Caisse populaire Desjardins de La Haute-Gaspésie, Patrick Côté, President, S.T.C.U.M., Chantal St-Amant, GM, Caisse d’économie Desjardins Sûreté du Québec, Caisse populaire Desjardins Du Parc and Villeray, Pierre Hudon, GM, Caisse populaire Hélène Gariépy, President, Caisse d’économie Desjardins de Sept-Îles, Ronald Desjardins du Centre-sud gaspésien, Vincent Dumont, Officer, Caisse populaire Pichette, President, Caisse Desjardins du Réseau de la santé, Claude Gagné, GM, Desjardins de Rivière-du-Loup, Norman Grant, President of the Council of Representatives Caisse d’économie Desjardins de la Vallée de l’Amiante, Anne Langevin, GM, and Chair of the Board of Supervision, Caisse populaire Desjardins du Rivage et des Caisse d’économie Desjardins du personnel municipal (Québec), Jean-Guy Bureau, Monts, Claude Saint-Laurent, Officer, Caisse populaire Desjardins de Matane President, Caisse d’économie Desjardins des Cantons, Réal Guilbert, President, 12 Caisse d’économie Desjardins de l’Éducation Patrice Bergeron, GM, Caisse 12 Kamouraska–Chaudière-Appalaches Council Desjardins de la Défense nationale of Representatives Robert Lavoie, President, Caisse Populaire de Kamouraska, Christiane Bouillé, VP of the Council of Representatives and Officer, Caisse populaire Desjardins de Montmagny, 17 Michel Roy, President of the Council of Representatives and President, Caisse Desjardins (1) de Beauceville, Marc Couture, GM, Caisse populaire Desjardins de Kennebec, Serge CAISSES POPULAIRES DE L’ONTARIO Lemay, President, Caisse Desjardins de Thetford Mines, Paulo Pépin, President, Caisse 17 Council of Representatives Desjardins de Saint-Georges, Denis Bilodeau, GM, Caisse populaire Desjardins de Sylvie Cloutier, GM, Caisse populaire Welland limitée, Robert Boucher, VP of Beaurivage, Sylvie Leblond, President, Caisse populaire Desjardins de Saint-Bernard, the Council of Representatives and President, Caisse populaire Nolin de Sudbury inc., Yves Genest, GM, Caisse populaire Desjardins des Abénakis, Martin Jacques, President, Thomas Blais, President of the Council of Representatives and Officer, Caisse populaire Caisse Desjardins de Beauce-Centre, Yves Gilbert, GM, Caisse Desjardins des Hauts- Trillium inc., Michel Picard, Officer, Caisse populaire Rideau d’Ottawa inc. Carole Reliefs, Michel Duval, President, Caisse populaire Desjardins de Saint-Pascal, Bruno Kairovicius, President, La Caisse populaire LaSalle inc., Roger Leduc, President, Gagnon, GM, Caisse Desjardins de L’Islet Not Pictured: Érik Asselin, President, Caisse Caisse populaire Val Caron limitée, Lise Lauzon, GM, Caisse populaire de la Vallée inc., populaire Desjardins de Trois-Saumons, Robert Carrière, President, Caisse Desjardins Jacques St-Aubin, President, Caisse populaire de Hawkesbury Ltée, Yvon Toupin, des Seigneuries de Bellechasse GM, La Caisse populaire de New Liskeard limitée, Denis Vallée, President, Caisse 13 populaire de Cochrane Limitée, Michel Yelle, Officer, Caisse populaire Pointe-aux- 13 Québec-Est Council of Representatives Roches–Tecumseh inc., Donat Boulerice, President, Caisse populaire Vision inc., Josyane Douvry, Officer, Caisse populaire Desjardins du Centre-ville de Québec, Jean Bisson, GM, Caisse populaire Vermillon inc., Pierre Landry, Officer, Caisse Josée Auclair, Officer, Caisse populaire Desjardins de Lac-Saint-Charles, André Gagné, populaire de Cornwall inc., Paul Doré, GM, Caisse populaire Nouvel-Horizon inc. President of the Council of Representatives and President, Caisse Desjardins des Chutes Montmorency, Yves Picard, President, Caisse Populaire de Saint-Rodrigue, Roger (1) The officers on the Caisses populaires de l’Ontario Council of Representatives also Ricard, Officer, Caisse Desjardins du Plateau Montcalm, Gaston Bédard, GM, Caisse make up the Board of Directors of the Fédération des caisses populaires de l’Ontario. Desjardins de Limoilou, Mario Simard, VP of the Council of Representatives and President, Caisse populaire Desjardins Mont-Sainte-Anne, Hélène Drouin, GM, Caisse Desjardins du Plateau Montcalm, Jacques Bérubé, GM, Caisse Desjardins du Vieux-Moulin (Beauport), Denis Breton, President, Caisse populaire Desjardins Bellevue de Québec, Michel Poulin, President, Caisse Desjardins du Petit-Pré, Charles-Henri Verret, VP, Caisse populaire Desjardins de Charlesbourg, Murielle Drapeau, President, Caisse Desjardins de Beauport, Julien Paré, GM, Caisse Desjardins de L’Île-d’Orléans Not Pictured: André Marceau, GM, Caisse populaire Desjardins de Québec

14 14 Québec-Ouest–Rive-Sud Council of Representatives Hélène Lee-Gosselin, Officer, Caisse populaire Desjardins de l’Université Laval, Claude Rochette, GM, Caisse Desjardins de Pont-Rouge–Saint-Basile, Laurier Boudreault, GM, Caisse Desjardins des Rivières Chaudière et Etchemin, Clément Samson, President of the Council of Representatives and President, Caisse populaire Desjardins de Lévis, Madeleine Roy, President, Caisse Desjardins de la Chaudière, Jean Veillette*, GM, Caisse Desjardins de la Chaudière, Sylvie Larouche, VP of the Council of Representatives and President, Caisse populaire Desjardins de Saint-Augustin-de-Desmaures, Jean-Paul Gaumond, Officer, Caisse Desjardins de Bienville, Klara De Pokomandy, Officer, Caisse Desjardins de l’Ouest de Portneuf, Réjean Lemieux, GM, Caisse Desjardins de Sillery–Saint-Louis-de- France, Pierre Bellavance*, GM, Caisse populaire Desjardins du Vallon, Amélie Beauchesne, Officer, Caisse populaire Desjardins du Piémont laurentien, Jean-Guy Noël, President, Caisse Desjardins de Donnacona, Teresa Alvarez, President, Caisse populaire Desjardins Pointe-Platon de Lotbinière Not Pictured: Jean-Yves Parent, President, Caisse populaire Desjardins du Moulin des Mères

15 15 Saguenay–Lac-Saint-Jean–Charlevoix et Côte-Nord Council of Representatives Denis Guay, GM, Caisse populaire Desjardins de Chicoutimi, Réjean Perron, President, Caisse populaire Desjardins Sieur-de-Roberval, Serges Chamberland, President of the Council of Representatives and Officer, Caisse Desjardins d’Arvida-Kénogami, Lise Gagné, GM, Caisse populaire Desjardins de Pointe-Bleue, Ghislain Villeneuve, Officer, Caisse populaire Desjardins de La Baie, Michel Truchon, GM, Caisse Desjardins des Rivières, Danielle Amyot, Officer, Caisse populaire Desjardins de La Malbaie, Raymond Poirier, GM, Caisse populaire Desjardins de l’Estuaire (Charlevoix), Germain Perron, President, Caisse Desjardins de la Rive-Nord du Saguenay, Régis Tremblay, President, Caisse populaire Desjardins d’Alma, Clermont Tremblay, VP of the Council of Representatives and President, Caisse populaire Desjardins de Port-Cartier, Camil Maltais, Officer, Caisse Desjardins des Cinq-Cantons, André Martel, Officer, Caisse Desjardins de Dolbeau- Mistassini, Gemma Brisson, President, Caisse Desjardins du Saguenay–Saint Laurent, Jean Brassard, GM, Caisse Desjardins Cap-Martin de Charlevoix

* No longer members of the council of representatives as of December 16, 2008. Replaced by, respectively, Sylvain Gaudreau, GM, Caisse populaire Desjardins de Saint-Agapit– Saint-Gilles and Armand Paré, GM, Caisse Desjardins de Wendake

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ATTRACTING AND KEEPING EMPLOYEES AND A GROUP THAT EARNS BEST EMPLOYER CONTRIBUTING TO THEIR DEVELOPMENT

Like many other organizations, Desjardins must meet a sizeable challenge THE ENGAGEMENT IN CANADA in the next decade: to maintain enough qualified employees to meet the needs of its members and clients. OF ITS OFFICERS Ranked among the 50 Best Employers in Canada in 2009, Desjardins considers it quite natural to In this sense, Desjardins has undertaken a major revision of both its pension plan and group insurance plan. In addition to helping Desjardins Our challenge: To make every effort to ensure that offer its employees a stimulating environment that Group stand out from the competition, these plans promote employee the councils of representatives effectively position is conducive to their personal and professional retention and longer careers. Other steps are being undertaken to Desjardins in the regions and that they implement development. With nearly 42,000 employees, facilitate gradual retirement to accommodate employees nearing retirement age who are interested in different work arrangements. our strategic vision as an integrated cooperative its human capital is no doubt Desjardins Group’s financial group within their respective region or group. greatest strength. Desjardins innovated in 2008 in order to promote participation by all officers, managers and employees in Desjardins Group’s Democratic power is the cornerstone of the Desjardins cooperative In December 2008, Desjardins was ranked among the 50 Best Employers development, asking them to contribute in various ways to its difference. Among the 5.8 million member-owners of the caisses, on the prestigious list published in the Globe and Mail’s Report on strategic reflection process. there are 6,299 people that have taken their commitment to the Business magazine and in La Presse newspaper. This ranking is based next level by becoming elected officers. In that capacity, they see on the results of an engagement survey carried out by Hewitt Associates Nearly 2,000 officers, caisse general managers and senior executives to the major orientations of the cooperative and participate in its ASSEMBLY OF REPRESENTATIVES AT THE LÉVIS among 20,000 Desjardins employees and managers in the spring of 2008. were invited to take an active part in Desjardins Group’s development CONVENTION CENTRE ON JUNE 7, 2008. decision-making process. by participating in the main meetings and events held to bring The survey gave respondents an opportunity to identify what they out innovative ideas to further the cooperative’s ambitions. Member participation extends to several levels. Whether it be consider to be the strengths and weaknesses of their working the local caisse level, the regional level (councils of representatives/ Finally, the 17 presidents of the councils of representatives sit on the experiences at Desjardins. With a response rate of 75%, Desjardins OPENING UP TO DIVERSITY Assembly of Representatives), or the national level (such as the FCDQ FCDQ Board of Directors, which plays a dual role: one to direct the could immediately conclude that engagement is an issue of great Desjardins has created strategies and stepped up its initiatives to obtain Board of Directors), members are involved in the governance of all FCDQ as a business and the other as the body in charge of Desjardins interest to its employees. tangible results with respect to the representation of women, young of Desjardins Group, through their elected officers. Group’s strategic management. Five general managers from the caisses, people, English speakers and people from cultural communities. Desjardins elected by the Assembly of Representatives, and the President and Chief A GREAT SENSE OF PRIDE is also more and more widely recognized by government bodies as a To work together on a regional basis, the caisses are grouped under Executive Officer of Desjardins Group are also members of the Board. 17 councils of representatives, whose boards of directors are composed The major trends culled from this survey are very positive. In fact, 80% responsible enterprise with outstanding diversity and equity programs. In fact, Desjardins Group was a finalist for the Québec government’s of the caisses’ elected officers and general managers. The councils Called upon to further push their commitment and play an even more of respondents said they would not hesitate to speak favourably of 2008 Prix Égalité (equality award). of representatives each adopt a regional business plan and ensure its determining role the development of Desjardins, the members of the Desjardins and recommend it as an employer to a friend looking for a application, following up on the chosen strategies. They help identify councils of representatives are now working with the caisse general job. More than 70% of respondents said that they would not like to For the past several years, Desjardins has also been a member of the regional development issues, and are responsible for verifying member managers on the Collaboration, Participation and Connection with have to leave Desjardins; they also said that their employer encourages Canadian advisory committee for Catalyst, the leading non-profit satisfaction. Each council is responsible for the associative aspect of the Network building block, the mandate of which is to review and them to give the best of themselves every day. membership organization working globally with businesses and the activities involving the caisses in its region or group and the Fédération update our mechanisms for collaborating and communicate with the professions to build inclusive workplaces and expand opportunities des caisses Desjardins du Québec (FCDQ). Another important part of network on operational matters. Desjardins Group’s values remain central to its development and are a their function is to provide a presence in the regions and guarantee main distinguishing feature for its employees. For example, the measures for women and business. With offices in the United States, Canada that the caisses’ concerns are noted and represented. taken to promote sustainable development are highly appreciated and and Europe, and more than 400 pre-eminent corporations as members, In standard order, from left to right and bottom to top recognized by most employees, who also say that they are very sensitive Catalyst is the trusted resource for research, information, and advice about women at work. The 255 officers and managers of the 17 councils of representatives 01 Collaboration, Participation and Connection to the concrete gestures Desjardins has made to open up to diversity. Finally, make up the Assembly of Representatives, an exclusive forum with the Network building block task force its employees say they are proud that Desjardins is a cooperative movement. for consultation, establishing orientations and exchanging ideas. Yvon Vinet, President, Caisse Desjardins de Salaberry-de-Valleyfield,Madeleine Roy, WATCHING OVER THE HEALTH OF This is the body that elects Desjardins Group’s President and Chief President, Caisse populaire Desjardins de Saint-Nicolas, Serge Cloutier, General MEETING THE CHALLENGES AHEAD OUR EMPLOYEES Executive Officer. The councils of representatives are currently actively Manager (GM), Caisse Desjardins Allard—Saint-Paul, Denis Laforest, GM, Caisse populaire Desjardins du Centre-ville de Québec, Danielle Lortie, GM, Caisse populaire participating in the reflections that will lead to Desjardins Group’s To successfully meet the challenges of the next few years, Desjardins will More than ever, Desjardins Group wants to remain among the leaders Desjardins de l’Ouest de Laval, André Shatskoff, GM, Caisse populaire Desjardins in terms of a healthy workplace. To achieve this aim, it has put forth a new Strategic Plan for 2010-2012 and its related projects. Terrebonne, Claude Lambert, GM, Caisse Desjardins de Beauce-Centre, Raynald be calling upon strengths that are recognized by its employees and that Bisson, Central Region Executive Division, FCDQ, Louise Gaudreault, GM, Caisse distinguish it from other players on the financial markets. Desjardins is number of health-promoting initiatives and illness prevention strategies d’économie Desjardins de la Métallurgie et des Produits forestiers Not pictured: Lise very proud to include among its assets a respectful working atmosphere, to benefit its employees, families and retirees, a great many of whom Lauzon, GM, Caisse populaire de la Vallée inc. managers who support their employees and encourage their success, have participated in these programs. opportunities for training and development, employee benefits, pension 02 Officer Advisory Commitee Emanuel Linhares, President, Caisse d’économie des Portugais de Montréal, plans and mechanisms to promote employee life/work balance. Among its major achievements, Desjardins is particularly proud to have Claire Sarrazin, Director, Caisse Desjardins de Joliette, Aline Bouchard, President, set up rapid intervention services for its employees, thereby becoming Caisse populaire Desjardins de La Malbaie, Francine LeGrand, President, Caisse a leader in terms of employee illness prevention programs. populaire Desjardins du Sault-au-Récollet, Yvon Vinet, President, Caisse Desjardins de Salaberry-de-Valleyfield, Annie P. Bélanger, President, Caisse populaire Desjardins Recognized both internally and externally as a Best Employer due to its Mer et montagnes, Gilles A. Pelletier, President, Caisse populaire Desjardins de human approach and distinctive values, Desjardins intends to remain the Rivière-du-Loup, Claude Ouellet, President, Caisse Desjardins de Dolbeau-Mistassini, Lorrain Barrette, President, Caisse Desjardins de Rouyn-Noranda Madeleine Roy, preferred choice for its current employees and for those seeking a job. President, Caisse populaire Desjardins de Saint-Nicolas, Bernard W. Morissette, President, Caisse populaire Desjardins de Gatineau, Réjean Bellemarre, President, Caisse d’économie Desjardins des Travailleurs unis, Michel Blouin, President, Caisse populaire Desjardins du Centre-ville de Québec, Martin Jacques, President, Caisse UNDER THE DESJARDINS GROUP DEVELOPMENT Desjardins de Beauce-Centre, Jacques Sylvestre, Secretary, Caisse Desjardins de PLAN, AN ADVISORY COMMITTEE MADE UP Saint-Hyacinthe, Yvan Laurin, Vice-President, Cooperation and Quality, FCDQ, Michel OF ELECTED OFFICERS WAS MANDATED TO Picard, Vice-President, Caisse populaire Rideau d’Ottawa inc. Not pictured: Amélie PROVIDE THE task forces WITH INFORMATION Beauchesne, Secretary, Caisse populaire Desjardins du Piémont Laurentien, Carole ON OFFICERS’ CONCERNS AND INITIATIVES Chevalier, Director, Caisse Desjardins Les Estacades, Gabrielle Gosselin, Director, LIKELY TO MOTIVATE AND MOBILIZE THEM. Caisse Desjardins Cité-du-Nord de Montréal, André Jean, President, Caisse Desjardins de Drummondville, Daniel Rousseau, President, Caisse Desjardins de Chomedey, 02 Jacques Sansoucy, President, Caisse Desjardins de Granby—Haute-Yamaska

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SOOFUN LEE, Personal Finance Advisor, LEAH URSULIAK, Specialized Support Clerk – IT Project Management Office GIL-OLIVIER RAYNAL, Business Coordinator, Asset Management, NATHALIE TREMBLAY, Health Insurance Products Manager OUR HUMAN CAPITAL OUR HUMAN CAPITAL

As such, Desjardins the employer wants to share this recognition DESJARDINS: with its approximately 42,000 employees, thanks to whom Desjardins is one of the largest employers to appear on the list of the Best Employers in Canada. We would like to thank them for their constant efforts, THE EMPLOYER WITH for their willingness to see Desjardins progress on a national—and even international—level. It’s because of them that Desjardins is one of the THE BEST EMPLOYEES country’s best employers!

This honour is of great importance for Desjardins, first and foremost For Desjardins Group, being among the 50 Best because it confirms that our employees are engaged. Second, because Employers in Canada is an honour we owe to each this enviable position should help us gain national brand awareness, of our 42,000 employees. Because cooperative values thereby enabling us to meet the challenges of the upcoming labour shortage by providing us with an additional asset for attracting are the basis of what makes us different, it is our

new talent. desjardins employees who, day after day, through their talent and commitment, make the largest cooperative THE HEART OF OUR ORGANIZATION

financial group one of the best employers in At Desjardins, our employees are the heart of our organization; as such, the country. they are central to all our activity. They are therefore the ones who will benefit from the direct and concrete advantages of this honour. In fact, All of Desjardins is very proud of the results of the employee engagement today more than ever, Desjardins Group will continue to do everything survey carried out in 2008. When it signed up for the first time for it can to offer them a stimulating workplace where they can grow the Best Employers in Canada study, Desjardins Group simply hoped to professionally, and it will continue to take their opinions to heart gain a portrait of engagement levels in its organization and to measure in its efforts towards continuous improvement. itself against the best employers in the country, whether they employ 400 people or more than 42,000! Gaining access to the prestigious 50 Best Employers in Canada rating for 2009 was well beyond expectations, especially in the context of today’s economic turmoil.

36099_p01a12et17a30_ENG.indd 17 13/03/09 21:10:12 18 THE CAISSES’ PROXIMITY TO MEMBERS AND THEIR COMMUNITIES GIVES DESJARDINS ITS UNIQUE STRENGTH

The growth and development of Desjardins Group rely on the caisses—its driving force—and their direct link with individual and business members throughout the regions and among the groups. Each Desjardins Group subsidiary works for the caisses, thereby enabling them to offer the best possible range of services. Together, the caisses and subsidiaries contribute to the growth of Desjardins by developing new markets, particularly in the Greater Montréal Area, in Ontario and elsewhere across Canada.

The top mortgage lender in Québec, Desjardins saw its outstandings CONSUMER MARKET for residential financing jump by $4.1 billion. A review of business practices helped strengthen our relationship with borrowers. Outstandings for consumer financing increased by $1.5 billion: $704.3 million at the caisses Close proximity to our members and their needs will and $747.2 million via credit cards, including the Accord D financing always remain the key to our success. The strength of program. Marketing of the Versatile Line of Credit and increasingly HIGHLIGHTS the caisses to act locally with our members, combined widespread use of credit cards have created a very favourable context for future development. with the strength of a Group that also enables us to act globally, still constitutes our greatest strategic advantage. Throughout 2008, Desjardins maintained and even strengthened its It is the strong position of the caisses, backed by their enviable position in the payment and credit card financing industry. subsidiaries, that will enable Desjardins Group to become Desjardins Card Services in fact saw a 15.08% growth in business volume, for a total of $49.9 billion – $43.4 billion in Québec and $6.5 billion the main financial wealth manager of consumers and, in the rest of the country. Operating results rose by 14% to exceed among other things, to continue to achieve solid $180.8 million. operating results. Some 2.1 million users carried out 759 million automated transactions through AccèsD—an increase of 12.9% over 2007. In 2008, 61% of individual members of Desjardins said they were very satisfied with the services provided by their caisse, up 1% over 2007. This rise was due mainly to increased consideration and forethought shown by Desjardins staff towards members. Results showed a 3-point improvement in each of these service aspects, which leads to greater member loyalty— very important given today’s economic turmoil. Leadership in the Greater Montréal Area and the cultural Thus, despite the financial turbulence at the end of the year and communities increasingly strong competition, Desjardins still stood out on the consumer desjardins market in 2008. Through its offer of personalized services in a dozen different languages, the With respect to savings and investment, net sales for the cooperative professionals at Carrefour Desjardins, network totalled $5.7 billion, representing growth of 62.07% over 2005. devoted to developing the downtown Since the start of 2006, Desjardins Group’s investment-savings outstandings Montréal markets, showed sales of rose by $0.3 billion. Capital market fluctuations, however, affected $85.6 million, which augurs well for the future and brings cumulative results in Q2. results to $161.5 million since its 2007 opening. An institutional advertising campaign aimed at increasing brand awareness of Desjardins and understanding of its cooperative difference among cultural communities was carried out in 2008 in the Greater Montréal Area, thus complementing the actions of the caisses already present in this area and facilitating business development.

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Socially responsible investing viewed as a plus According to a poll carried out by SOM on behalf of Desjardins, 71% of Quebecers say they are attracted by the notion of socially responsible investing (SRI). Up to 59% of those surveyed would consider investing a portion of their savings in such products. In fact, 62% of Quebecers say they would feel pride in purchasing shares of an SRI fund, while 69% place importance on the ability to influence corporate behaviour. Some 64% believe that financial institutions have a duty to offer SRI funds to their clientele.

ASSURING GREATER FLEXIBILITY AND SECURITY ENABLING SOCIALLY RESPONSIBLE INVESTMENT FOR OUR MEMBERS In accordance with its cooperative values and principles, Desjardins plans In signing up for a new federal government registered savings vehicle to consolidate its position as leader in socially responsible investing by called the tax-free savings account (TFSA), Desjardins worked hard to enable constantly broadening its offering of this type of products to its members. its members to start using this new savings tool as of January 1, 2009 and thus reduce their tax burden. The strategic partnership signed between Desjardins and Canada’s provincial credit union centrals to buy 50% of The Ethical Funds Company, In one of the most recent technological developments, the chip card— the largest manufacturer of socially responsible funds in the country, led which offers increased security for Desjardins cardholders—was launched to the development of the SocieTerra Portfolios, a unique offer not found in the Saint-Jérôme area in 2008. Rollout in the rest of the province anywhere else in Canada. HIGHLIGHTS will continue throughout 2009. These new socially responsible investment portfolios enable Desjardins Still under the heading of ensuring the security of transactions, Desjardins members to join together in growing their investments while helping added a new feature to the AccèsD service known as “Strong Authentication”. protect the environment, affirming their sense of social responsibility This measure reduces the risk of fraud and illustrates Desjardins Group’s and encouraging companies to display better governance. desire to protect the personal information of its members. The SocieTerra Portfolios are unique for two reasons. First of all, because Meanwhile, the AccèsD overhaul carried out in 2008 completely they are the only socially responsible funds that are grouped in profile remodelled the system, creating a better tool for transactions, product portfolios and second, because they enable their unitholders to “make acquisitions, decision-making and communication between the caisse and a difference” with their investments. This is because, thanks to the its members. Members will now be able to receive notices and targeted commitment made by the shareholders of The Ethical Funds, SocieTerra offers via AccèsD. Portfolios take an approach to the companies making up their funds that encourages them to constantly improve their social and environmental Since November 2008, an overdraft protection service enables users to performance and their governance. automatically top up their personal chequing account using their VISA card, for any type of overdraft. ENVIRONMENTAL SPINOFFS OF THE ECO-FRIENDLY STATEMENT CHALLENGE Finally, gaining the loyalty of the youth clientele is essential to the long-term continuity of Desjardins Group. To help us accomplish this, In its communications dealing with AccèsD, Desjardins took care to stress

the caisses were asked to adopt a new proactive approach to their the positive environmental spinoffs of virtual statements and automation. desjardins relationship with young people aimed at reducing causes of dissatisfaction, In the end, over 300,000 members signed up for the Desjardins Eco-Friendly such as the requirement for loan endorsements. Statement Challenge in 2008, and more than 114,000 trees were planted under the program. This approach, combined with Desjardins Group’s commitment as an active partner of Earth Day, is yet another way for it to affirm its leadership in sustainable development.

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BUSINESS MARKET Increased visibility among SMEs In order to fully carry out its economic Through the efficiency of its business centres, which role, Desjardins plans to strengthen its remain close to members, and the strong contribution position among businesses, especially of its subsidiaries, Desjardins Group intends to become in the Greater Montréal market. The Desjardins and Co. advertising campaign a leader among SMEs by offering a range of products begun in the fall of 2008, particularly and services fully adapted to the needs of all, from in the English-language media, was very the smallest business to the most complex enterprise. effective in increasing brand awareness for the business centres, bringing attention to the expertise of our account managers and This is how Desjardins supports entrepreneurs and the Desjardins offer to businesses. businesses in their development, making their success a priority.

Because of its desire to support businesses in their development projects, Also noteworthy are our business loans results. In fact, new heights were Desjardins helped present the 2008 Grands Enjeux SECOR/Les Affaires reached with $26.9 billion in loans to businesses and governments, creating conference series. Designed especially for entrepreneurs, these meetings a substantial 11% increase in the overall loan portfolio as compared to 2007, help business owners understand priorities with respect to employee achieved mainly in commercial and industrial credit to SMEs. Caisse centrale engagement in a context of the growing labour shortage. They also Desjardins also saw impressive growth with loans to large businesses offer entrepreneurs new business models, which are better adapted increasing by 37.0%—a remarkable feat in the current economic context to the current trend of global competition. and an illustration of Desjardins Group’s commitment to promote the development of Québec businesses as well as those of the rest of Canada, It was also with the intent of offering something more than just financing and even all of North America. that the new Desjardins and Co. advertising campaign focused on businesses HIGHLIGHTS successes through inspiring testimonials by entrepreneurs. Similarly, The same holds true for business savings, which showed marked growth another eight companies this year were awarded Desjardins Prizes. in 2008, ending the year with over $21.5 billion. What that means is that more and more people believe in the advantages of entrusting not only The creation of the Fonds coopératif d’aide à la relève agricole (Farm their financing but also the management of their equity to Desjardins, succession assistance cooperative fund) is a strong example of the a financial institution with an overall service offering that meets the most Desjardins difference. Together with Coop Fédérée, Desjardins has created sophisticated needs of its members. measures to help with farm ownership transfers within the agricultural sector, thus preserving the agricultural heritage of our outlying regions. PRIORITIZING THE BUSINESS SERVICES OFFERING And in the area of succession, collaboration between Desjardins Venture Capital and the business centres continues to be highly productive, Because the needs of businesses are central to its concerns and because providing entrepreneurs with substantial support when it comes time its service offering is as yet unsurpassed, Desjardins remains the institution to pass the torch. of choice for businesses.

GAINING THE CONFIDENCE OF BUSINESSES The Mid-Market Business Centre (MMBC), created in 2007, continues to grow, confirming that it was an excellent initiative. Its results for 2008 The actions taken by Desjardins have been well received among businesses alone were highly enviable, surpassing targets by 23%. Although its offices that place their trust in us, as evidenced by the results of a satisfaction survey are located in downtown Montréal, a market in which Desjardins would carried out among our members. In fact, 65% of survey respondents said like to increase its presence, the MMBC acts for the benefit of all the caisses, they were very satisfied with the services offered by Desjardins, a one-point regardless of geographical location. This is amply demonstrated by the fact increase over 2007. This is quite impressive considering the challenges that $39 million in loans was paid out this year on behalf of caisses from

desjardins faced by businesses in 2008 as a result of the year’s economic difficulties. outlying regions. The skill and expertise of the 1,200 account managers who support these companies on a daily basis are clearly part of the equation that gives Desjardins remains the uncontested leader among agricultural businesses business owners such a positive opinion of Desjardins. and a preferred partner of businesses in the agri-food sector. The $178-million increase in financing shows beyond any doubt that Desjardins continues to support businesses in this sector, despite the challenges that farms have had to face in recent years.

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Electronic services such as point-of-sale terminals and AccèsD Affaires are Such results would be impossible without close partnerships. First and extremely valued by businesses because they make transactions increasingly foremost, DVC is in constant collaboration with the Desjardins business efficient. Desjardins is more determined than ever to expand this service centres, with which it carried out most of its activities. More recently, offering, and has jumped at the opportunity to team up with some excellent DVC entered into a partnership with BioScience Managers Limited, a firm partners for the greater benefit of our SME members. The recent agreement of international managers specializing in biotechnology, and entrusted its signed between Raymond Chabot Human Resources and Desjardins Payroll most promising investments in the sector, as well as the necessary funds and Human Resources Services is an example of that; companies will now to pursue its own growth, to the firm. be able to find greater opportunities for strategically managing their human capital. As a fund manager, DVC oversees the activities of Capital régional et coopératif Desjardins (CRCD), which had more than 122,000 shareholders BUSINESS MERGERS, ACQUISITIONS AND at the end of 2008. That same year saw nearly $73 million committed to DIVESTITURES UNIT: A NEW WAY TO SUPPORT various projects, bringing the number of companies benefiting from DVC’s strategic support to 313, and the number of jobs maintained or created BUSINESSES by these transactions to more than 34,000. With many business leaders and owners retiring, the number of business sales or transfers will be rising. The 2008 creation of the specialized Business CRCD did not escape the economic upheavals and resulting financial Mergers, Acquisitions and Divestitures Unit will enable Desjardins to position difficulties that negatively affected share value. However, new provisions itself in this market niche and add to the service offering available through adopted by the ministère des Finances du Québec in the fall of 2007 the business centres and the MMBC. granting the subsidiary an unlimited life span, among other things, have made it possible to move toward an overall portfolio management method. Had it not been for that concession, the instability of the North American economy may have had an even greater impact on CRCD’s results.

VENTURE CAPITAL Despite this drop in value, and considering the 50% tax credit that the investment brings, shareholders who invested 7 years ago, i.e. on December 31, 2001, would receive returns of 9.2%. In addition to the

Maintaining job-generating businesses in outlying fund’s unlimited life span, the 50% tax credit return also attracted CRCD H I GH LI T S regions has always been central to the concerns of shareholders; over $175 million was underwritten since December 2007. our subsidiary, Desjardins Venture Capital. More than The incredible support of the entire Desjardins cooperative network a financial partner, Desjardins Venture Capital provides was a definite factor in this success. a network and the necessary expertise to support Meanwhile, in 2008, the Québec government renewed its confidence the growth and expansion of businesses as well as in DVC by transferring the assets of Société Innovatech du sud du Québec their merger, acquisition or initial public offering plans. to Desjardins – Innovatech S.E.C., one of its funds under management. This type of transaction enables DVC to be even more available to entrepreneurs outside the urban centres. Through its activities in four business sectors, Desjardins Venture Capital (DVC) offers entrepreneurs the kind of support that creates substantial economic spinoffs in their respective areas. Venture capital, development capital, buyout capital as well as capital intended for resource regions and cooperatives have had a significant impact on the development of all regions across Québec in 2008.

Helping SMEs pass the torch d esjar ins Through Capital régional et coopératif Desjardins, Desjardins Venture Capital (DVC) carried out various investments aimed at bridging the gap between two generations of entrepreneurs, thereby enabling business founders to retire with their assets secure, and helping the management team pick up the torch. DVC drew up strategies to promote the emergence of worker shareholder cooperatives, a solution that allows employees to become co-owners of their company, together with their management team and Desjardins. Fempro, a Drummondville-based company where its 130 employees and officers did just that, is a striking example of the kind of concrete action taken by DVC to bring the cooperative difference to businesses while furthering economic development in the regions. This type of transaction is a glowing example of the kind of concrete action that DVC can provide in extending the cooperative difference throughout the business environment while contributing to the economic development of the outlying regions.

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On-the-mark strategic orientations and an offer that’s relevant to the Canadian market Desjardins Financial Security is continuing its progress throughout Canada with an offer adapted to the specific needs of a Canadian clientele. For example, a new disability insurance product was added to its range to meet the needs of a new business partner outside Québec. Distribution agreements were signed with twelve new strategic partners. New financial centres were opened in Saskatoon and in the Toronto and Montréal areas. DFS travelled to fifteen different cities across Canada on a tour to present the Helios guaranteed investment fund contract. There was also an advertising campaign in Toronto, Calgary and Vancouver to support the tour.

The Vision family stood out among products offered to individuals, thanks LIFE AND HEALTH to the addition of new health and savings insurance products. In an effort to further develop their expertise, sales reps became specialized in four distinct markets: individuals, specialized offer, emerging markets and current INSURANCE clients (known as the “in-force”). The range of services for individuals was thus adapted even further to the needs of this very important clientele. Going beyond savings and investment services, In 2008, DFS saw growth of 17.1% in its AssurDirect administered Desjardins Group also offers its members and clients premium volume. All coverage for this offer was broadened to support various means to deal with life’s unexpected events each client though all life stages. Access to information on desjardins.com H I GH LI T S and ways to help them plan for a financially secure was also improved through the launch of online microsites on certain retirement. For example, Desjardins offers a select products and the perfecting of the travel insurance purchase simulator. combination of life and health insurance options, RETIREMENT SAVINGS: NOW EVEN MORE SECURITY to protect against the financial impact of accident, illness or death. In terms of individual retirement savings, DFS added a Guaranteed Lifetime Withdrawal Benefit to its Helios Guaranteed Investment Fund product, providing-age-based income, an annual protected value reset and the In the final phase of its 2006-2008 Strategic Plan, Desjardins Financial highest accumulation bonus in Canada. These new tools will help investors Security (DFS), our life and health insurance subsidiary, posted results more easily reach their retirement income objectives. Another new offer worthy of its energetic and efficient efforts to strengthen its presence was the DFS Transition account which, as of January 2009, can be converted throughout Canada. to a TFSA. Investors can now benefit from investments that offer satisfactory returns as well as a certain measure of medium- and long-term stability. Despite the turmoil on capital markets, DFS reported a 9.6% growth in sales for insurance premiums. Growth in insurance premium income FLEXIBLE, EFFECTIVE, EFFICIENT outside Québec is continuing, with an increase of 17% over 2007. In Québec, there was a 6.4% increase in premium income. With return AND COMPETITIVE OFFERS on equity at 5.9%, Desjardins Financial Security continues to offer one DFS has broadened its offer in terms of flexible plans, particularly through of the best rates in the industry anywhere in Canada. the development of its TRACE Lifecycle Environment product. This group retirement savings product has evolved to remain abreast of the realities In group insurance, the volume of administered premiums from groups d esjar ins of the member, starting with the member’s situation upon registration, and businesses was up by 12.4%, while for the Canadian industry then adapting to the holder’s age and risk tolerance. DFS also introduced as a whole, average growth was only 7.3% in 2007. the possibility of integrating a TFSA into a group retirement savings plan. This provision is an attractive and competitive advantage for employers SPECIALIZED, COMPLEMENTARY OFFERS in recruiting and maintaining talented employees.

The sustained increase in volume of administered premiums continued Finally, a brand-new secure Web site was created to provide solid for DFS products offered to Desjardins caisse members. The Versatile Line support to employers in the daily management of their plan. Accessibility of Credit enabled DFS to continue rolling out loan insurance solutions to transactions and reports is one of the biggest resulting benefits. adapted to each of the new financing products offered by the caisses to their individual members. It also set up a program combining assistance services for the insurance products offered to all members. Meanwhile, a new type of overall life and health insurance offer was introduced to the business centre clientele.

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IMPROVING E-BUSINESS

GENERAL INSURANCE New DGIG initiatives were aimed at offering clients continuous improvements to its Web pages. The changes include a brand-new home page, a new Protecting our members’ and clients’ assets in case of Claim Centre section and improved browsing features. Since January 2008, disaster is a fundamental contribution to their financial in addition to automobile insurance quotes, consumers can now obtain security. Our Desjardins General Insurance Group home insurance quotes online. subsidiary is responsible for developing products and TARGETING EFFICIENT MEASURES FOR CLAIMS services adapted to a wide range of diverse situations. AND PROFITABILITY

Despite the major increase in the property insurance loss ratio due to poor In 2008, Desjardins General Insurance Group (DGIG), our general insurance weather conditions, DGIG has once again gained a competitive edge component, suffered a significant drop in profitability. DGIG’s performance in Québec with its automobile and home insurance. Revised rates, was affected as never before, on two fronts simultaneously, with a major fine-tuned underwriting and updated contracts are part of the effective increase in the property insurance loss ratio due to unusually poor weather measures put in place. conditions, and a considerable decrease in investment income due to capital market turmoil. Both these factors affected the entire industry across Canada. CONTINUING GROWTH IN GROUP INSURANCE However, despite unfavourable conditions, DGIG succeeded in coming Under its The Personal banner, active in group insurance across Canada, out on top in a number of areas. Among other positive results, we recorded DGIG signed on nearly a dozen new groups, including HBC staff, the Ontario growth in all markets despite the continued drop in automobile ratemaking, Hospital Association, Magna International and the Union of Solicitor earnings on insurance operations in spite of the high property insurance General Employees. The Personal also renewed some forty partnerships loss ratio, and operating costs among the lowest in the industry even with throughout the country. And several group caisses celebrated the significant investments in strategic projects. 20th anniversary of their insurance plan with The Personal.

While staying the course on operational excellence, DGIG continued work on the projects in its three-year 2006-2008 action plan, numerous activities STAYING ON TOP OF CLIENT EXPECTATIONS HIGHLIGHTS in partnership with the Desjardins caisses, as well as initiatives aimed at DGIG also carried out a number of initiatives to increase client loyalty and driving business growth. Those combined activities helped strengthen business. One initiative involved making the five-year “Replacement Value” the foundations of the organization, further developing its competitive guarantee now available in Québec at a competitive price, meeting the advantage and building a most promising future. needs of new car owners and lessees. Its Desjardins General Insurance (DGI) subsidiary also rewards Ontario drivers who use winter tires with a 5% In addition, DGIG underwent a change of the guard at the end of 2008. rebate on their automobile insurance. Mr. Jude Martineau retired after a remarkable 14-year mandate at the head of this subsidiary. He leaves behind an outstanding legacy for Desjardins Group and his successor, Ms. Sylvie Paquette, a highly experienced manager and a member of the management team since 1994.

Desjardins banner in Ontario: A successful breakthrough! Launched in March 2008 under the Desjardins banner, a vast advertising campaign under the theme “Improved Insurance” was launched to promote our products in Ontario, the largest insurance market in Canada. This was the first stage in a long-term commitment by DGIG to carve out a preferred place on the Ontario market. The campaign

concept of improved insurance succeeded in attracting the attention of our potential clientele and contributed desjardins to a 6% increase in premium volume in Ontario.

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SECURITIES ASSET MANAGEMENT

Our brokerage subsidiary, Desjardins Securities, The year 2008 was extremely demanding for is among the top-rated brokerage companies in Desjardins Asset Management, our investment Québec and is increasingly asserting its presence on experts, as the subsidiary had to deal with the highly the Canadian market. In 2008, Desjardins Securities, unstable subprime mortgage market in the U.S. like all companies in the financial services industry, especially in securities, had a very difficult year with The decline of Desjardins Asset Management’s assets under management the extreme volatility on financial and stock markets. from over $50 billion in 2007 to $38.4 billion in 2008 was a clear sign of the difficult financial environment. Real estate investment portfolios, which make up 85% of the assets handled by Desjardins Asset Management, The crisis began towards the end of the third quarter in 2007 and were the hardest hit by the crisis. Hedge funds also garnered distinctly lower continued throughout 2008, with particularly devastating effects returns than expected. In compliance with our risk management protocol, in the third and fourth quarters of that year. substantial disinvestments were made on several funds. The Alternative and Perspective Plus guaranteed-capital structured products distributed The TSX stock index lost more than 35% of its value in 2008 compared by the caisse network were among the products using hedge with the corresponding period in 2007. This loss had a negative effect fund investments. on income generated by our firm in almost every business sector. For the first time in the last six fiscal years, Desjardins Securities showed In terms of mortgage investment and institutional financing, Desjardins Asset negative income growth over the previous year. Management remained a force for its partners by achieving $521 million in new business, despite the fact that the economic crisis led to restricted On the positive side, thanks to synergies between the caisses and our financing on markets in general. With respect to institutional financing, investment advisors, more than 20,000 new clients joined Desjardins prospecting activities that were carried out in 2008 are expected to pay

HIGHLIGHTS Securities in 2008, thus increasing its market share among the consumer off in 2009. clientele in Québec. Following the 2007 transfer of the Lévis campus buildings, the real estate Income from sectors devoted to institutional and business markets were investment portfolio reached its full capacity in 2008 with the transfer hard hit. Business financing, among other sectors, was marked by a severe of Complexe Desjardins in Montréal to Desjardins Financial Security. slowdown in activities in 2008 for the entire North American market, since capital markets were not open to receiving new issues. In 2008, In 2009, Desjardins Asset Management plans to manage its real estate for the first time in history, no Canadian company listed new shares portfolio even more selectively to optimize performance. The company on the stock market for two consecutive quarters. also intends to reassess the implementation of initiatives under its Strategic Plan. However, the magnitude of the financial crisis requires that it PRESENT ACROSS CANADA frequently review its priorities, first and foremost to protect the interests of its partners and clients, and of Desjardins and its members. Desjardins Securities continued its efforts to affirm its presence among its clients and on the markets. In Québec and elsewhere in Canada, Desjardins Securities benefited from the support of experienced analysts reputed for their disciplined and professional approach.

For a third consecutive year, institutions and businesses benefited from the complementary financing products of Desjardins Securities and Caisse centrale Desjardins, while the two companies each maintained their own overall offerings to these clienteles in 2008. desjardins

Supporting energy efficiency Desjardins Property Management, a subsidiary of Desjardins Asset Management, began developing an energy efficiency program in 2008 for Desjardins Group’s buildings. In accordance with its mission and in collaboration with the FCDQ and regional executive divisions, Desjardins Property Management plans to help caisses that own their building to improve energy efficiency.

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It is interesting to note that a large proportion of the business volume CONTINUED EXPANSION for institutional services also stems from outside the province:

n Desjardins Securities’ Fixed Income Group, which specializes in bond ACROSS CANADA trading for institutional clients, is constantly increasing its out-of-province business volume. In 2005, 20% of its business volume came from outside Nationwide expansion is an important aspect of Québec; in 2008, this figure climbed to 60%. Overall, this business line has consolidated the 8th-place ranking in Canada that it achieved Desjardins Group’s growth activities. In 2008, Desjardins in 2008. components outside Québec in some cases grew more n The subsidiary’s Equity Capital Markets segment specializes in Canadian than those within, bringing us closer to our objective stock market trades; last year, 78.7% of its income was from outside of seeing 25% of our sales coming from outside the province. the province. n The Corporate Financing Division is responsible for carrying out merger and acquisition mandates for and among Canadian companies. More than 50% of this division’s 2008 income came from outside Québec. Further to our efforts to create partnerships with credit unions and other cooperatives outside Québec, 2008 was the first year of the strategic partnership that lead to the creation of a national mutual fund company, Caisse centrale Desjardins Northwest & Ethical Investments L.P., with close to $4 billion in assets In addition to its regular financing activities among medium-sized and under management. Despite the current difficulties facing the industry, large businesses operating across Canada, Caisse centrale Desjardins (CCD) Northwest & Ethical Investments now distributes its mutual funds through also has two out-of-province locations to help round out its service offer the caisse network and credit unions throughout Canada, which translates and its business development activities. In fact, CCD is very well represented into high growth potential for Desjardins. on the Canadian market, with offices in Toronto (open for 20 years now) as well as a recent addition in Western Canada. This geographic diversity One of Desjardins Group’s partnership initiatives in the Canadian enables CCD to continue to play a determining role among Desjardins cooperative sector was to reposition its IT services offer to credit unions Group’s corporate clients who are in expansion mode or have business

across the country. In order to get the most out of its IT platform, Desjardins ties outside Québec, as well as with various credit unions. This solid HIGHLIGHTS continues to offer technological solutions to credit unions, but is now presence on Canadian markets also helps increase visibility for Desjardins proposing that they share the same system as the caisses in Québec and Group while strengthening its brand image among members and clients Ontario, thereby minimizing the number of changes and adaptations across the country. required for business models that may differ between the caisses and credit unions. …AND ABROAD

Desjardins and the Canadian credit unions have continued to work Internationally, Desjardins successfully directed the work of the strategic together, with Desjardins offering other products and services to credit restructuring committee of the International Co-operative Alliance (ICA), unions across all of Canada, such as credit card products, mutual funds, an international organization that represents cooperative companies investment products and other value-added items. operating in all business sectors, as well as their 800 million members. Following an extensive consultation of its members—one of the most DESJARDINS COMPONENTS ACROSS CANADA… successful surveys in the ICA’s history in terms of response rates— the committee’s recommendations were adopted by a strong majority Desjardins Financial Security at a special meeting of the ICA in Rome in June 2008. Furthermore, the European Association of Co-operative Banks (EACB) steering Desjardins Financial Security (DFS) continues to penetrate the Canadian committee voted unanimously in favour of accepting Desjardins Group marketplace thanks, among other things, to an offer that meets the changing as an associate member starting January 1, 2009. The EACB is a major needs of its Canadian clientele and to its extensive distribution network. association of European cooperative banks recognized for its lobbying In group insurance DFS holds fifth place in Canada and first place in Québec, efforts on behalf of the cooperative business model and for institutional with the number of existing clients (the “in-force” market) having gone up and technical cooperation.

by 6.3% over 2007. desjardins

Desjardins Securities Moreover, for the past 38 years, Desjardins Group has provided support for the creation and consolidation of financial institutions in numerous In 2008, Desjardins Securities’ Canada-wide development was assured developing and emerging countries through its Développement by nine branches offering services designed specifically for individuals, international Desjardins (DID) component. For the underprivileged institutions and businesses in Ontario and British Columbia. people of these countries, most of whom live in rural areas, access to basic and diversified financial services helps them improve living As a result of this nationwide presence, 40% of the accounts in its conditions and promotes community development. It is a tangible discount brokerage division, DisnatDirect, are now held by clients living gesture in the fight against poverty. outside Québec. In 2008, six million families in over 20 countries were able to access financial products and services through some 2,000 caisses populaires and credit unions supported by DID. Together, these institutions hold approximately $1.7 billion in savings and have distributed $2 billion in credit. In addition to the support provided by Desjardins, DID projects are also backed by financing from the Canadian International Development Agency (CIDA), the World Bank, the Bill & Melinda Gates Foundation and various regional development banks.

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Meanwhile, Fondation Desjardins, funded by the caisses, the Fédération MAKING THE des caisses Desjardins du Québec (FCDQ) and Desjardins Group subsidiaries, distributes more university scholarships than any other private foundation in Québec. It also awards prizes to cooperative education projects and ADVANTAGES OF to entrepreneurs that showcase the excellence of Québec and Ontario businesses. The foundation awards prizes to non-profit organizations that OUR COOPERATIVE display an outstanding contribution to the community in the following areas: youth assistance, senior citizen assistance, economic development, community development, cultural services and sustainable development. DIFFERENCE MORE In 2008, over $660,000 was distributed in the form of more than CONCRETE 300 scholarships and awards. With its Desjardins Venture Capital subsidiary and its Capital régional et coopératif Desjardins (CRCD) fund under management, Desjardins Group The strength of cooperation is largely based on the is the most accessible institution for venture capital in Québec’s resource vitality of the associative aspect of our activities. Once regions. Thus, nearly $73 million in commitments were made in 2008 to again this year, many significant actions were taken 85 businesses operating in a variety of business sectors. With these recent transactions, Desjardins has supported 313 businesses to date, thereby to implement and publicize our cooperative difference. helping to maintain or create over 34,000 jobs. This unique feature is all due to our sizeable human capital—made up of members, elected officers and Finally, $215 million was set aside for 2008 caisse member dividends, employees—and is what makes Desjardins the largest down from $592 million in 2007. This drop is due to a balanced and responsible approach towards the distribution of surplus earnings, which cooperative financial group in Canada. takes into account both member and community expectations as well as Desjardins Group’s capitalization needs. Well aware of the even greater GIVING BACK TO MEMBERS AND THE COMMUNITY importance of capital in today’s market conditions, and determined to

HIGHLIGHTS maintain our distinct advantage on that stage, we decided to increase the The economic and social well-being of individuals and the communities caisses’ capital base in order to protect their long-term solidity, as well as it serves is intrinsic to Desjardins Group’s mission. that of Desjardins Group as a whole, and thereby assume full responsibility with respect to our future and the generations to come. That being so, Desjardins Group supports cooperative, economic, cultural, educational, charitable, social and athletic projects and organizations every TOOLS TO IMPROVE THE ASSOCIATIVE ASPECT year, not only through sponsorships, donations and scholarships, but also OF OUR ACTIVITIES through individual caisse Community Development Funds. Over the past three years, Desjardins gave back some $216 million to communities in this Two years after the establishment of the caisse boards of supervision, way. This amount was $80 million in 2008. Desjardins was a major partner the degree to which elected officers and general managers have fully of about fifteen events associated with Québec City’s 400th anniversary internalized the role of these boards merits special attention. In the celebrations, providing support that had positive spinoffs both for the spring of 2009, new activities will be added to those carried out in 2008, communities of the greater Québec City area and for people throughout including Rendez-vous meetings for board of supervision (Québec) and the province who wished to participate in this historic event. A number audit committee (Ontario) chairs so that these officers can gather to discuss of nationwide sponsorships also helped Desjardins increase its brand the importance of and necessity for these bodies, as well as their roles awareness across Canada and responsibilities.

The Governance Policy for the Caisse and its Centres was implemented throughout the Desjardins cooperative network in early 2008. It should be noted that this policy is of paramount importance for the caisses, as it provides for proper participation structures and ensures that members desjardins Desjardins of tomorrow: young and their representatives retain control over the major decisions of their people chat with the President cooperative. The caisses had one year—until April 2009—to adopt this policy and adapt it to their needs. As part of Cooperation Week activities, the Chair of the Board, President and CEO In order to continue to better meet the needs of elected officers, of Desjardins Group, Monique F. Leroux, two new training activities were added to the 11 that currently exist: held an online chat session with 15- to “Les fonctions du comité de vérification des caisses populaires de l’Ontario” 30-year-olds. In all, 188 people signed (The functions of the Audit Committee of Ontario caisses populaires) and into the chat room to talk with Ms. Leroux. “La conduite d’une assemblée générale annuelle” (Conducting an Annual A total of 262 interventions were compiled and the President answered General Meeting). As well, 148 training sessions were given throughout 122 questions on the cooperative difference, how young people are the year on the Know-how and Governance program, with 1,557 officers received at Desjardins, as well as major social issues. And no less than from Québec and Ontario participating. More than 79% of participants 11,808 young people between the ages of 15 and 30 participated said they were very satisfied with these training sessions. in the online survey on what young people expect from Desjardins, with a grand total of 21,124 participants (members and non-members alike). The results of these activities will enable Desjardins Group to improve its Strategic Plan to better serve young people.

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Our cooperative values : the root of our actions A network of cooperatives rooted in all regions, close ties with members, the ability to handle all types of needs, the desire to inform and educate the public about cooperation and finance, active support for community development, democratic governance of the cooperative network and Desjardins Group as a whole and, above all, the outstanding commitment of thousands of elected officers: all these aspects offer a concrete demonstration of our cooperative difference.

ENSURING A COMMON VISION OF COOPERATION PROVIDING EVEN MORE MEMBER SATISFACTION

In 2008, the action-based training program on the cooperative difference Of the 2006-2008 Strategic Planning targets on member satisfaction was made available to all caisses in Québec and Ontario. To date, more with regard to the cooperative difference, some were reached while others than 79 caisses have registered for this program, which has offered more were exceeded. For the consumer market, our initial target of +7 percentage than 2,761 members, officers, management staff and employees the points was reached, with the number of members who said they were opportunity to receive training on or increase their awareness of the very satisfied rising from 37% in 2005 to 44% in 2008. cooperative difference and to suggest numerous measures that could form the basis of a cooperative difference action plan. In addition, each year, the questionnaire is also given to a sampling of Desjardins members who mainly do business with a bank, replacing the The November 2008 Rendez-vous meetings for young leaders was word “caisse” with the word “bank.” Results show that the gap over our HIGHLIGHTS a large-scale event that displayed great innovation its use of new competition has not stopped growing in favour of Desjardins since 2005, technologies. The event was part of the 2010-2012 Strategic Planning standing at +12 percentage points in 2008, versus a mere +1 in 2005. process, bringing together 75 young leaders from within and outside Desjardins. The objective was to enable young people to express their Meanwhile, our business targets were significantly surpassed. In 2005, needs, expectations and hopes with respect to Desjardins and to identify we set our strategic planning target at a growth of 5 percentage points. the challenges that Desjardins needs to meet in order to become the Since then, that figure has doubled, with our results now up 10 points financial institution of choice among young people. During the meeting, from our starting point, the number of members who said they are very several ideas were proposed, including the representation of young satisfied having risen from 42% in 2005 to 52% in 2008. people within democratic bodies, a service offering adapted to their needs as well as support with respect to career development. OPENING THE DOORS TO THE DESJARDINS GROUP AGM The Créavenir solidarity product, which provides loans and subsidies to support projects by young entrepreneurs aged 18 to 35, made significant Starting in 2009, the caisses, the FCDQ and the subsidiaries will be able progress in 2008. To date, 17 Créavenir programs have been set up in to invite a guest to attend the Annual General Meeting of Desjardins Group eight regions. The number of participating caisses is now 83, and our total as a way to recognize contributions and provide cooperative education. investment is $1.7 million. The Annual General Meeting is a valuable forum for discussion and PRESERVING THE ESSENCE OF COOPERATION expression, where delegates make decisions, set objectives, develop unity and are motivated by common targets, orientations and projects. Société historique Alphonse-Desjardins promotes the Desjardins Group desjardins cooperative difference through its research, conservation, education That is why the presence of participants from the caisses, the FCDQ and and communication activities. the subsidiaries in such major democratic activities as the Desjardins Group Annual General Meetings represents a powerful tool for education and In 2008, the historical society highlighted the 150th anniversary of the awareness on the breadth and scope of the democratic aspect of Desjardins. birth of Dorimène Desjardins (1858-1932), co-founder of the caisses Access to these events can also be an effective way to help promote the populaires, with the publication of a biography from Éditions Dorimène cooperative difference and turn participants into excellent ambassadors and through its participation in the “Empreintes d’elles” lecture series among their peers. on the history of women, held as part of Québec City’s 400th anniversary activities. At the Chaudière-Appalaches regional Grands Prix du tourisme Gala in April, Maison Alphonse-Desjardins was awarded the Grand Prize in the category of tourist attractions for less than 100,000 visitors.

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November 2008 also saw the organization of the first Web conference MOVING FORWARD for caisse presidents, during which Monique F. Leroux, Chair of the Board, President and CEO of Desjardins Group, presented our third quarter ON THE ROAD financial results. The goal of all these initiatives is the same: to provide Desjardins Group TO EXCELLENCE employees and elected officers with the tools they need to work more efficiently and to communicate better amongst themselves, with a view to making full use of Desjardins Group human capital. At Desjardins, everyone has a role to play. The contributions and talents of each and every employee 2008 AWARDS AND DISTINCTIONS are what allow Desjardins Group to excel in its The purpose of the efforts made by Desjardins Group’s human capital— operations and services and to be recognized by its staff and officers—is to continue to provide the best service offering its employees as a Best Employer in Canada. to members and clients. While the goal is not to garner awards, those we have received show that their true purpose is being attained. Read on for a few of Desjardins Group’s achievements in 2008. RANKING FIRST IN SERVICE QUALITY

Quality of service to members and clients is key for Desjardins Group, Best Corporate Citizen which intends to become the leader in this area. Desjardins carried out In 2008, thanks to its excellent environmental and social responsibility several initiatives in 2008, allowing the organization to move towards practices, Desjardins Group was ranked 20th among the 50 Best Corporate its objective. Citizens of Canada in Corporate Knights magazine, a Toronto publication that specializes in corporate responsibility. Only 10 Québec-based companies We developed and refined a continuous improvement approach as well as made the list. Also, for the second year running, Desjardins Group was an auditing procedure, testing them out in three different caisses. named a finalist in the Large Business category for the Prix de l’entreprise citoyenne (Québec corporate citizenship prize) awarded by Korn/Ferry HIGHLIGHTS We also carried out several projects throughout Desjardins Group, such International and L’Actualité magazine. These awards, the only of their kind as the “Quality has a name: Desjardins!” employee engagement contest, in Québec, honour the efforts made by businesses towards their community the tabling of an annual quality plan, the development of a tool for sharing and the environmental. Desjardins captured the jury’s attention with winning practices relating to quality and, lastly, the acquisition of external its “Changing the world, one step at a time” institutional campaign data enabling Desjardins to compare its client satisfaction ratings developed in collaboration with Équiterre. with others. Call centres at the head of the class IMPROVING OPERATIONAL EFFICIENCy Desjardins AccèsD Services call centres remain the international benchmark Backed by the strength of its human capital, Desjardins Group must ensure among financial institutions, having been awarded COPC (Customer that it continues to perfect its communications tools in order to maintain Operations Performance Center) certification for the fourth year running. optimal operational effectiveness. In 2008 we saw the emergence of This certification assesses more than 200 performance indicators measuring various electronic means to encourage participation by all Desjardins productivity, quality and client satisfaction and has never been awarded to players in the life of the organization. any other financial institution in North America.

In September, the Desjardins Group Intranet project led to the implementation Dual achievement for desjardins.com of an infrastructure allowing relevant news and reference materials to The desjardins.com Web site ranked third among the 25 top Web sites be sent to all Desjardins Group employees via the internal Web sites of in Québec, according to the SECOR-Commerce online index. Improvements each component. in the areas of customization and interaction helped us obtain the points we needed to achieve this ranking. Portail D, the internal Web site of the caisses and business centres desjardins launched in September 2007, continues to grow and now provides Another desjardins.com achievement: the site earned the “Coup de cœur information aimed specifically at employees working in investment du public” (people’s choice) award after receiving 1,000 of the 7,000 votes and financing as well as business services. from the general public in this new section of the 2008 SECOR-Commerce online index.

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Two Desjardins Funds honoured The Desjardins Environment Fund and the Desjardins Québec Balanced Dorimène Desjardins, Fund both won prizes at the 2008 Lipper Fund Awards. Distributed in 21 pioneer of excellence countries worldwide, the Lipper Fund Awards honour mutual funds that In 2008, Desjardins Group celebrated stand out for their solid and consistent returns. A subsidiary of Reuters, the 150th birthday of its co-founder, Lipper is the world leader in mutual fund research and analysis. Dorimène Desjardins, who opened the door to thousands of women The Desjardins Environment Fund won first prize in the Canadian Equity who followed. Her legacy: more than Funds category for its performance over three years, while the Desjardins 30,000 women employed by Desjardins, Québec Balanced Fund was honoured in the Canadian Balanced Funds including 1,385 managers, 159 senior managers, over 100 caisse category for its performance over one year, as at December 31, 2007. managers and Desjardins Group’s first woman Chair of the Board, President and CEO. The Desjardins Environment Fund differs from other Canadian equity funds by its commitment to the environment—a commitment that is expressed in the choice of securities in its portfolio, since all companies represented actively manage their environmental responsibilities. Each company in the portfolio stands out in its respective business sector for Silver Flèche award for the AccèsD au Cirque its proactive stance and responsible management measures with respect du Soleil campaign to its environmental footprint. The Cirque du Soleil/AccèsD promotional campaign was awarded the silver With a portfolio made up exclusively of shares and bonds from Québec- Flèche at the 2008 Flèches awards gala held by Québec’s Association du based businesses, the Desjardins Québec Balanced Fund is especially marketing relationnel (Relationship Marketing Association). With over one designed to promote the province’s economy. million additional transactions carried out during the six weeks of the contest, this successful campaign is confirmation of Desjardins Group’s Accessibility rewarded leadership in online solutions.

Desjardins received two 2008 Best Banking Awards for excellence in ATM Disnat number one among investors H I GH LI T S service and telephone transactions following the Customer Service Index (CSI) survey carried out by the international market research firm Synovate. In 2008, for the second consecutive year, Desjardins Securities’ online The 2008 Best Banking Awards are based on the cumulative total of the brokerage division, Disnat, beat out all other online brokers in Canada in 35,000 CSI survey answers received during the year ended August 2008. the Trader Firm category of the Surviscor analysis. According to Surviscor, a Canadian firm that ranks companies offering online brokerage services, the sophistication and performance of DisnatDirect platforms have become Meanwhile, AccèsD’s Telephone and Internet services passed the 2-million- industry benchmarks. Surviscor also issued high praise for Disnat Classic’s users mark in May 2008. Close to one in three people in Québec uses traditional Web platform, noting in particular the quality of Disnat’s investor these services to carry out transactions. According to the last survey education content, as well as the release of its new public trading site. on Internet use in Québec conducted by NETendances in 2007, AccèsD’s market share was 56% for the province of Québec as a whole. As for desjardins.com, the site continues to stand out in Québec and remains, Rare honour for Québec real estate by far, the most popular financial site, with close to 2.3 million different Complexe Desjardins in Montreal, managed by Desjardins Gestion visitors per month. immobilière, a subsidiary of Desjardins Asset Management, won the title of The Office Building of the Year (TOBY) in the “Renovated Building” Two silver Cassies for Desjardins ads category in the annual Building Owners and Managers Association (BOMA) international competition. The TOBY prize is the highest distinction awarded The effectiveness of our 2008 “More than a Bank” advertising campaign in the North American commercial real estate industry, rewarding property earned Desjardins Group two silver Cassies in the categories of Best managers who have demonstrated excellence in building management, Integrated Campaign and Services—Financial. The Cassies is a Canadian quality of operations, concern for the conservation of resources and advertising awards show that recognizes proven effectiveness based environmental consciousness. The last and only time such an honour

on the business results of the advertisers. It is presented by the Institute d esjar ins was bestowed on a Québec building was almost 20 years ago. of Communication Agencies, the Association des agences de Publicité du Québec and the Association des professionnels de la communication et du marketing.

36099_p01a12et17a30_ENG.indd 29 12/03/09 13:18:30 30 A GIFT THAT WILL STAND THE TEST OF TIME: QUÉBEC CITY’S PROMENADE DESJARDINS

The Desjardins name will be associated with Québec City’s 400th anniversary celebrations for many years to come, thanks to its gift of the Promenade Desjardins, built at a cost of $1 million in 2008 and located on the city’s Parliament Hill. Raised on this pedestrian pathway is a bronze monument of the founders of Desjardins Group, Alphonse and Dorimène Desjardins, to underscore the close ties binding Desjardins and Québec City. Year after year, hundreds of thousands of visitors from Québec, across Canada and all over the world will visit this monument and keep it in their memories.

“Desjardins immortalized these two people in bronze on the noble and lively grounds of Parliament Hill, beside other greats who have made history, and near Parliament itself, where Alphonse Desjardins worked as editor of the debates.”

– Monique F. Leroux

THE BRONZE MONUMENT OF THE FOUNDERS OF DESJARDINS GROUP, ALPHONSE AND DORIMÈNE DESJARDINS, ON the PROMENADE DESJARDINS, A GIFT TO QUÉBEC CITY

36099_p01a12et17a30_ENG.indd 30 13/03/09 21:29:31 MDRP9-003 • Desjardins • Rapport annuel 2008 • Mouvement des caisses desjardins Section : Section 2 - rapport de gestion • Version : Anglaise • épreuve : finale • Approuvée le : 11-03-2009 • format : 9” x 11 3/4” • COULEURs : Noir + pantone 347

31 Management’s TABLE of contents General Review of Desjardins Group 32 Discussion and Overview 32 Analysis of Financial Results 45 Analysis of Business Segments 48 Personal and Commercial 48 Desjardins Group Life and Health Insurance 57 General Insurance 61 Securities Brokerage, Asset Management, Venture Capital and Other 63

Analysis of the Combined Financial Statements 69

Review of Results 69 Total Income 69 Claims, Benefits, Annuities and 1.0 general review of Desjardins Group Changes in Insurance Provisions 73 Client Retention Expense 74 This section presents a profile of Desjardins Group, its vision and strategy, notable achievements, Non-interest Expense 74 industry description and trends, specific items relating to the fourth quarter and fiscal 2008 Accrued Benefit Obligations primarily as a result of financial market instability, the strengthening of investment activity and risk for Retirement Plans and frameworks, the provision for member dividends, financial and operational synergies, its Post-employment Benefits 76 Canada-wide development, the Basel II Accord, the monitoring of priority financial objectives, Credit Quality 76 the financial outlook for 2009, the Desjardins cooperative difference, financial governance, Review of Financial Position 78 and the presentation of financial information. It also includes an analysis of financial results. Balance Sheet Management 78 Capital Management and Credit Ratings 84 2.0 Business Segments Cash Position and Sources of Financing 88 Off-balance Sheet Items 89 This section provides information on Desjardins Group’s business segments. It contains Risk Management 91 a profile of each segment, its strategy, achievements in 2008 and outlook, as well as Additional Information Related a description of the industry and an analysis of the financial results. to Exposure to Certain Risks 97 Manage m ent’s Discussion an d A nalysis Additional information 100 3.0 analysis of the Combined Financial Statements Regulatory Context 100 Factors that may Influence This section provides an analysis of the Combined Financial Statements and financial Future Results 100 position of Desjardins Group. Critical Accounting Policies and Estimates 101 Changes in Accounting Policies 103 4.0 additional Information Business Climate 105 Five-year Statistical Review 106 This section presents the regulatory context, factors that may influence future Summary of Quarterly Information 109 results, critical accounting policies and estimates, changes in accounting policies, the business climate, and various statistics, including annual and quarterly statistics Selected Statistics by Business Segment 111

as well as other information. Glossary of Financial Terms 112 Desjar d ins group

Caution concerning forward-looking statements This Annual Report may contain forward-looking statements concerning Desjardins Group’s activities and strategies. These forward-looking statements are typically identified by the words “believe”, “expect”, “anticipate” and “may”, words and expressions of similar import, and verbs conjugated in the future and conditional tenses. By their very nature, such statements involve assumptions, uncertainties and risks, both general and specific; it is therefore possible that these predictions, projections or other forward-looking statements may not materialize or may prove inaccurate because of a number of factors. Various material factors could influence the accuracy of the forward-looking statements mentioned in this Annual Report, notably, legislative or regulatory developments, changes in the economic environment, including the impact of the currently volatile capital markets, which are causing a liquidity shortage in some markets, particularly the asset-backed commercial paper market, fluctuations in interest rates and foreign currencies, monetary and tax policies, consumer spending, demand for credit, individual savings patterns, the unemployment rate, trade between Québec and the United States, technological changes, the effects of increased competition in a market open to globalization, the ability to design new products and services and bring them to market in a timely fashion, the capacity to gather complete and accurate information from our clients and their counterparties, legal or regulatory procedures, the ability to perform and integrate strategic acquisitions and alliances, the effect of possible international conflicts, including terrorism, or natural disasters, the capacity to recruit and maintain key managers and Management’s ability to foresee and manage the risks stemming from the preceding factors. It is important to note that the above-mentioned list of factors that could potentially influence future results is not exhaustive. Other factors could have an adverse effect on results. Although Desjardins Group believes that the expectations expressed in these forward-looking statements are reasonable, it can give no assurance or guarantee that these expectations will prove to be correct. Desjardins Group cautions readers against placing undue reliance on forward-looking statements when making decisions. Desjardins Group does not undertake to update any forward-looking statements, whether verbal or written, that could be made from time to time by or on behalf of Desjardins Group, except as required under applicable securities legislation. The purpose of the forward-looking statements contained in this report is to help members to understand Desjardins Group’s financial position as at the dates indicated or for the periods ended on such dates, as well as Desjardins Group’s strategic priorities and objectives, and may not be appropriate for other purposes.

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1.1 OVERVIEW

The Management’s Discussion and Analysis (MD&A) section of this Annual Report should be read in conjunction with Desjardins Group’s Combined Financial Statements. This MD&A is dated February 27, 2009 and is based on Desjardins Group’s Combined Financial Statements prepared for the year ended December 31, 2008. Additional information about Desjardins Group and its components is available on the Desjardins Web site (desjardins.com) and on the SEDAR Web site (sedar.com) under the Capital Desjardins inc. profile.

A glossary of financial terms is provided on pages 112 to 114 of this MD&A. Manage m ent’s Discussion an d A nalysis

MISSION OF To contribute to improving the economic and social well-being of people and communities within the compatible DESJARDINS limits of its field of activity: GROUP • By continually developing an integrated cooperative network of secure and profitable financial services, owned and administered by the members, as well as a network of complementary financial organizations with competitive returns, controlled by the members; • By educating people, particularly members, officers and employees, about democracy, economics, solidarity, and individual and collective responsibility. Desjar d ins group

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PROFILE OF DESJARDINS GROUP Asset Management and Venture Capital. It Desjardins Group aims to accomplish has also adopted a category labelled “Other” the following: Desjardins Group is the largest financial that comprises the other components of institution in Québec and the sixth Desjardins Group as well as balance sheet n Leverage its cooperative difference largest in Canada in terms of total assets. and income statement consolidation items and make it more visible It is a cooperative financial group that belongs attributable to all components. n Rank first in service quality to its member-owners. When the caisses’ financial position allows it, Desjardins returns VISION AND STRATEGY n Become the number one manager a significant portion of its surplus earnings to of financial wealth for individuals its members in the form of member dividends, Desjardins Group has adopted a series n Become a leader in services to business, in accordance with the democratic governance of strategies in support of its vision: particularly SMEs system and organizational structure that go n Develop all its markets to their full with being a cooperative. “Desjardins is a cooperative financial group potential, particularly in Greater that is solidly rooted in the community. Montréal and across Canada Desjardins Group provides a vast array Desjardins aims to be the leading financial of financial products and services to its institution for satisfying the needs of its n Generate sufficient and reliable financial 5.8 million members and clients, individuals members and clients, for profitable business performance rooted in profitable business and businesses alike. development through its accessible, efficient development and sustained improvement and comprehensive service offering, and of productivity Desjardins Group is also the largest cooperative for its contribution to the development of financial group in Canada and the largest the Canadian financial cooperative movement.” These strategic orientations have been integrated private employer in Québec. In all, Desjardins into the Desjardins Group Development Plan, Group has nearly 42,000 employees, some Desjardins Group’s strategic orientations are drawn up in the second quarter of 2008, 6,300 elected officers, 513 caisses, 915 service established in its 2006-2008 Strategic Plan, which is defined on the following page. centres and 2,764 automated teller machines. brought up to date in 2009. The purpose of these orientations was to allow it to realize Accordingly, over the next few years, Desjardins Group is composed of a network its vision, ensure longevity, achieve its full Desjardins Group must continue its efforts of caisses and business centres in Québec business potential, and make Desjardins to define its cooperative difference, strengthen and Ontario as well as subsidiaries, several an even more stimulating, distinctive and its positioning in wealth management and of which operate across Canada. Desjardins successful organization. in the business market, reaffirm its presence is active in four business segments: Personal in Greater Montréal, Ontario and elsewhere and Commercial; Life and Health Insurance; in Canada, improve its productivity, its General Insurance; and Securities Brokerage, technology and its business processes, as well as ensure the full engagement of its officers and employees. Manage m ent’s Discussion an d A nalysis

NOTABLE • The caisse network and the main components turned in solid operating results. ACHIEVEMENTS • Achieved excellent loan portfolio quality with a stable ratio of gross impaired loans to total gross loans, in spite of the prevailing financial crisis. • Held a dominant position in Québec with market shares as at December 31, 2008, of 39.3% in residential mortgage credit, 46.9% in farm credit and 43.9% in personal savings. • Renewed the Capital Desjardins borrowing program for a 25-month term, which allows it the option of issuing $2 billion in debt securities. • Issued close to $1.3 billion in debt securities on European markets at the beginning of 2008. • In January 2009, Caisse centrale Desjardins successfully floated an issue of ¤500 million in medium-term notes

on European markets. Desjar d ins group • Maintained excellent capital ratios, higher than the ratios held by Canadian banks, and excellent credit ratings. • Diversified funding sources for Desjardins Group, mainly through the securing of access to the same long-term loan guarantees as those offered to the major federally-chartered banks, and through its presence in the securitization market for mortgage loans guaranteed by the government. • Desjardins Group ranked one of the 50 Best Employers in Canada and one of the top twenty Best Corporate Citizens in Canada. • Sustained improvement in individual and business member satisfaction.

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Five “building blocks”, supported by the The financial industry also includes more than attention to the soundness of Canadian strength of Desjardins Group’s human capital 1,000 savings and loan cooperatives, roughly financial institutions, which can boast enviable and framed by its values, have been identified half of which belong to Desjardins Group. stability because they made very cautious as part of the Desjardins Group Development use of leverage to ensure their expansion. Plan and will contribute to fulfilling its vision Attached to this extensive network of That makes them world leaders, according of the future as a cooperative financial group. financial intermediation institutions are to the World Economic Forum. They display These building blocks are as follows: a few independent trust or loan companies. a high level of compliance with the main In addition to these institutions, there are international standards. n Desjardins Group Strategic Growth investment fund promoters and pension fund and Development managers who handle hundreds of billions The Canadian financial system has proven of dollars in assets. itself over the decades, and even more so in n Collaboration, Participation and Connection with the Network 2008. It does not act on the margins of global Furthermore, over 300 insurance companies economic conditions, but its structure and n The Changing Role of the Fédération des were in operation in Canada in 2008, about regulations have protected it from excesses. caisses Desjardins du Québec (FCDQ) 100 in life and health insurance and the Thus, in recent years, the Canadian banks did n Optimized FCDQ and subsidiary performance remainder in general insurance. Only a not depend on subprime loans for their business few companies were active in both areas. expansion. The governance they showed will n Mobilizing all of Desjardins: Human Capital, allow them to preserve their relationship of Culture and Values The Canadian financial industry therefore trust with their clients, and to prosper in spite of shaky economic conditions in the short term. With its Development Plan, Desjardins is features a large number of players. Even so, taking a new approach to defining its main it presents a high degree of concentration, Investment operations, particularly ABCP orientations for the future. The first stage in since only a handful of them are very large (asset-backed commercial paper) securities, strategic planning under the “Desjardins Group in size, forming the pillars of the industry. were the primary source of the difficulties strategic growth and development” building This is the case for the six major Canadian experienced in Canada in 2008. In spite of block was initiated in September 2008. This banks, Desjardins Group and a few substantial write-downs in the value of their building block was created with the concerted insurance companies. investment portfolios, Canadian financial participation of the caisse network and institutions remained financially sound, compared subsidiaries. Desjardins Group’s major Economic and financial conditions were coloured to their counterparts on the international scene. development objectives and the challenges by uncertainty throughout 2008. Events began However, their relative strength during a time inherent in this project will be discussed at to gather momentum in mid-September, and of great turmoil should not deter them from the 20th Congress of Elected Officers to be no market escaped unscathed. The U.S. real pursuing their efforts to improve their control held in 2009. estate crisis, which began in the summer of 2007, led to a worldwide financial meltdown. and risk management processes. Furthermore, we identified clear orientations The spotlight was on major U.S. financial Canadian financial institutions did not have with respect to financial performance, risk institutions as they declared bankruptcy to deal with the decline in value of the housing management and balance sheet management. or appealed to monetary and government authorities for assistance. Stock market indices market that confronted their U.S. and European

Manage m ent’s Discussion an d A nalysis They are as follows: plummeted, scaring away investors and causing counterparts during the year. This is mainly consumers to lose heart. In spite of rapid, because they had not weakened the Canadian n Maintaining or improving Desjardins Group’s vigorous and concerted action by central real estate market by lending with no regard profitability level in a sustainable manner banks and governments in many places around for risk. Business volumes with individuals n Ensuring profitable new business the world, the U.S. recession was unavoidable. and businesses actually grew in 2008, in spite development The slowdown quickly spread to the G7 of the prevailing climate of uncertainty. All n Achieving greater productivity through countries, as well as to emerging countries of Canada’s financial institutions continued appropriate growth in expenses and developing nations. to post positive financial results; they may have vis-à-vis income been less spectacular than those of previous The central banks did not use up their arsenal years, but that is chiefly because of n Optimizing capital management in 2008, even though they made considerable disappointing stock market performances. n Maintaining Desjardins Group’s credit ratings use of movements in key rates, particularly n Upholding sound risk management practices in the United States. For instance, the Federal Moreover, rating agencies lowered their credit Reserve (Fed) is likely to turn to unconventional rating outlooks from “Stable” to “Negative”, Desjar d ins group n Securing funding in a context of growth quantitative measures to get the economy part of an overall North American trend and development and the financial system back on track. resulting from the crisis currently shaking the n Achieving anticipated synergies and optimal The repurchase of mortgage- or consumer financial sector and from economic forecasts. liquidity management loan-backed securities as well as new credit and lending facilities for financial institutions Like the banking industry, life insurance INDUSTRY DESCRIPTION and certain companies were among some of companies experienced reverses in their AND TRENDS the measures used in 2008. The central banks investments. The stock market disruption therefore played their role as lender of last resort had a negative impact on overall results, while Canada’s financial industry includes and made use of their latitude to reassure all activities involving clients remained relatively 20 Canadian banks, 24 foreign bank participants in the economic process. dynamic. Although the past few years have subsidiaries and 29 foreign bank branches. been characterized by large-scale mergers and Except for seven foreign bank branches, While there was a great deal of publicity acquisitions, they did not capture the media’s which deal exclusively in loans, the rest surrounding the difficulties of certain U.S. attention this year. Risk was probably of greater offer a complete range of financial services. financial institutions and the Fed’s muscular interest than consolidation of operations in action to seal the cracks in a financial system the turbulent financial environment of 2008. in crisis, very little effort was made to draw

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Similarly, market volatility and the woes of U.S. The economic and financial outlook was The global financial crisis in fact reached insurance companies enhanced the advisory therefore fairly bleak at the start of 2009. an unprecedented level during this period, role of Canadian insurance professionals, who However, the decisive action taken by monetary while confidence among the main market were in greater demand among their clients. and government authorities will limit the losses participants crumbled, and access to capital The year 2009 began in an atmosphere of for the economy as a whole. The soundness markets became limited in Canada and Europe. unpredictability. The challenges of an aging of Canadian financial institutions cannot protect The central banks intervened, freeing up population and the selection of the most them from every problem, but they will continue hundreds of billions of dollars for financial appropriate products for retirees will also to meet their obligations and thus play a very institutions in search of liquidity. continue to be areas of interest. important role in the Canadian economy. On pages 97 to 99, this Management’s The general insurance industry was subject SPECIFIC ITEMS RELATING TO THE Discussion and Analysis discloses additional to the same environment as the other financial FOURTH QUARTER AND FISCAL information regarding exposure to certain institutions. The instability of capital markets risks, based on recommendations resulting left its mark on investments. Furthermore, 2008 PRIMARILY AS A RESULT OF from the Financial Stability Forum (FSF). general insurance companies are starting to FINANCIAL MARKET INSTABILITY show signs of losing steam after a number Below is a summary table of the specific The final months of 2008 were characterized of years of favourable results. Personal property, items that had a negative impact on Desjardins by extreme volatility on global capital markets. automobile and commercial property insurance Group’s financial results in 2008. It presents The deterioration of stock markets and the are mostly to blame, notably because of the combined surplus earnings before member considerable instability that resulted had an upward trend in the loss ratio. The industry dividends, not including specific items. impact on the financial performance of the is concerned about growth in weather-related entire financial sector worldwide, including claims due to the threat of climate change. Had it not been for the specific items, combined Desjardins Group. Mergers and acquisitions among SMEs have surplus earnings before member dividends also changed the nature and number of would have amounted to $294 million in fourth products in demand. quarter 2008 and $1,250 million at the end of fiscal 2008.

SPECIFIC ITEMS (in millions of $)

Year ended Fourth quarter December 31 ended December 31 2008 2007 2008 2007 Impact after income taxes on combined surplus earnings (deficit) Combined surplus earnings (deficit) before member dividends $ 78 $ 1,101 $ (476) $ 273 Manage m ent’s Discussion an d A nalysis Direct and indirect impact of ABCP and guaranteed-capital structured products - ABCP 400 198 160 91 - Guaranteed-capital structured products 431 — 431 —

831 198 591 91

Write-offs and negative performance of investments - Negative performance of investments 281 — 147 — - Write-offs 60 — 32 —

341 — 179 —

Non-recurring gains — (101) — (101) Desjar d ins group

Total after-tax impact of specific items on combined surplus earnings (deficit) $ 1,172 $ 97 $ 770 $ (10)

Combined surplus earnings before member dividends and excluding specific items $ 1,250 $ 1,198 $ 294 $ 263

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Direct and indirect impact of ABCP and appealed by a group of small investors. ABCP valuation methodology guaranteed-capital structured products On August 18, 2008, the Court of Appeal Since there is no active market for ABCP for Ontario upheld the decision of the Ontario Commercial paper subject securities, Desjardins Group’s Management Superior Court of Justice. On September 19, to the Montréal Accord estimated the fair value of its holdings and the 2008, the small investor group’s application resulting changes in value by using a valuation Desjardins Group holds investments on the for leave to appeal was denied by the Supreme technique. In light of the Pan-Canadian non-bank asset-backed commercial paper Court of Canada. The Pan-Canadian Committee Committee agreement reached on December (ABCP) market, although it never issued this then announced it intended to initiate the final 24, 2008, Desjardins Group estimated that, type of financial product to its clients. It should steps in implementing its ABCP market as of December 31, 2008, the probability be noted that, to safeguard its members restructuring plan. of realization of the restructuring scenario and clients, Desjardins Group repurchased was 100%. in September 2007 and, to a lesser extent in The ABCP restructuring efforts made since 2008, ABCP assets in the money market mutual by the Pan-Canadian Committee resulted in The fair value of ABCP restructured in funds it managed and in the securities lending the signing of a final restructuring plan on the form of A-1, A-2, B and C notes in MAV 1, operations of Desjardins Trust clients for which December 24, 2008, which was sanctioned in i.e. synthetic and hybrid assets, is based on it had not originally assumed the risk. January 2009. The restructuring plan provides a financial model incorporating uncertainties for, among others, the replacement of ABCP regarding return, credit spreads, the nature As at December 31, 2008 and 2007, the by new long-term floating rate notes having and credit risk of underlying assets, the amounts amortized cost and fair value of ABCP held by a maturity similar to that of the underlying and timing of cash inflows, maturity dates and Desjardins Group amounted to $2,446 million assets. The section “Subsequent event – the liquidity restrictions of the new notes in and $1,436 million, respectively ($2,533 million ABCP restructuring plan” provides more order to provide a fair value for the ABCP and $2,126 million in 2007). details on the restructuring. securities reflecting market conditions as at December 31, 2008. Anticipated cash flows On August 16, 2007, a group of financial The key features of the restructuring plan from the new notes were discounted using institutions and other investors reached an are as follows: the bankers’ acceptance rate plus a premium agreement in principle to restructure ABCP ranging from 809 to 1,238 basis points over following the liquidity crisis that started in n Creation of three new trusts, called periods ranging from five to eight years. August 2007. This agreement, called the “Master Asset Vehicles” (MAV): Montréal Accord, was designed to restore - MAV 1 and MAV 2 are comprised exclusively The fair value of ABCP comprised exclusively a climate of confidence and implement a of synthetic asset transactions, being a of traditional assets was determined using solution to the liquidity crisis and provided for combination of assets pledged as collateral benchmark indices selected based on the a moratorium period with respect to the ABCP and credit default swap contracts, or of underlying assets of each trust. Given that securities issued by 23 trusts. A Pan-Canadian hybrid asset transactions, being a these assets will be restructured into several Committee composed of participants in the combination of synthetic and traditional series of tracking notes that will directly pass Montréal Accord, including Desjardins Group, assets. They also include the ineligible through the cash flows generated by the was created on September 6, 2007 to oversee (subprime) and other assets of these series. underlying assets, Desjardins Group assumes the restructuring process. Manage m ent’s Discussion an d A nalysis - MAV 3 comprised of exclusively ineligible that the restructuring will not have a significant impact on their fair value. As for ABCP On December 23, 2007, the Pan-Canadian (subprime) asset and traditional asset comprised exclusively of ineligible (subprime) Committee announced that an agreement transactions. assets, given the nature of the underlying in principle had been reached regarding n Creation of five classes of notes for MAV 1 assets and their marked deterioration in the a comprehensive restructuring of the ABCP and MAV 2 (A-1, A-2, B, C and IA) and of current economic environment, an impairment issued by 20 trusts covered by the Montréal two classes of notes for MAV 3 (TA and IA). loss equal to 99% of the cost of these securities Accord. On March 17, 2008, the Pan-Canadian The IA and TA notes are divided into multiple was recorded as at December 31, 2008. Committee formed to manage the restructuring series of tracking notes that reflect the cash filed a motion in the Ontario Superior Court flows of the original underlying assets Assumptions used are based as much as of Justice under the Companies’ Creditors n Establishment of funding facilities in support possible on observable market data such as Arrangement Act (Canada) (“CCAA”) to of MAV 1 and MAV 2 to fund collateral calls interest rates, credit spreads and benchmark allow noteholders to vote at a meeting on that may occur with respect to underlying indices for similar assets They also reflect, if the restructuring of 20 of the trusts covered credit default swaps necessary, any specific features of the plan by the Montréal Accord. Under the CCAA, Desjar d ins group and are partially based on assumptions not the plan had to be approved by a majority n Establishment of an initial 18-month supported by observable market prices or rates of noteholders as well as by the holders of moratorium period during which no 2 additional collateral calls may be made for similar assets. Discount rates used take into at least 66 /3 % of the aggregate principal account the maturity, the credit rating and the amount of the affected ABCP. for the vast majority of underlying credit default swaps market and liquidity risk of each note.

On April 25, 2008, about 96% of ABCP n Widening of certain “spread-loss” triggers, As at December 31, 2007, Desjardins Group noteholders voted in favour of the restructuring which will apply again at the expiration of used different assumptions to value ABCP. plan, and on June 5, 2008, the Ontario Superior the moratorium period, thereby reducing The main difference arises from the fact that Court of Justice sanctioned the restructuring plan the likelihood of additional collateral calls Desjardins Group gave a probability of 80% to including a proposed amendment that should the realization of the restructuring scenario and allow certain noteholders, in predetermined Desjardins Group participates in the MAV 1 a probability of 20% to the liquidation scenario, circumstances, to institute lawsuits for fraud and MAV 3 trusts. which was divided into an orderly liquidation against ABCP traders. This judgment was then

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scenario and a disorderly liquidation scenario. The above estimated fair value may not be Desjardins Group’s share in this credit The fair value used was an average of the indicative of the ultimate net realizable value commitment, totalling $1,193 million, ranks estimated values under the liquidation and or future fair value. While Management equal to the other participants in the MFF restructuring scenarios, weighted according believes that its valuation technique is and matures in July 2017 or earlier if all credit to the estimated probability of realization appropriate in the circumstances, changes default swap transactions have been settled. of each scenario. It should be noted that this in significant assumptions, especially those This amount represents the $1,066 million element has an impact only on synthetic and relating to the determination of the return, commitment negotiated as part of the hybrid assets, as only the liquidation scenario the credit risk spreads for the underlying assets preliminary agreement in December 2007, was relevant to determining the fair value of and the quality of assets given as collateral along with an amount of $127 million under traditional and ineligible (subprime) assets, by the trusts, which are integrated into the terms of the December 24, 2008 plan. as previously mentioned. the discount rate, could significantly change Desjardins Group will not receive any fees the value ascribed to the replacement notes for this credit commitment. Any advance made Impact on income in the future. A 1% increase in the estimated under this funding facility will bear interest at discount rate would reduce the estimated fair a rate based on the bankers’ acceptance rate A decline in value totalling $502 million, not value of the replacement notes portfolio or the prime rate. All amounts advanced under including the impact of securities restructured held by Desjardins Group by approximately the margin funding facility will rank prior to during the year, was charged to Desjardins $64 million, which would reduce Tier 1 capital amounts payable under the notes issued by Group’s combined income for the year ended by $44 million or 0.5% as at December 31, MAV 1. Should Desjardins Group fail to honour December 31, 2008 ($273 million for the year 2008. For more details on capital, see Note 28 its commitment to provide funds for its share ended December 31, 2007). Of this amount, “Capital Management” to the Combined of the margin funding facility, a proportionate $326 million is due to a decline in value Financial Statements. share of the MAV 1 notes held by Desjardins considered to be, in accordance with accounting Group will be subordinated to the other notes. standards, other than temporary for available- Certain residual risks and uncertainties remain Caisse centrale Desjardins, as the MFF signatory for-sale securities ($202 million for the year regarding the value of underlying assets, the for Desjardins Group, must maintain a credit ended December 31, 2007). The decline in amount andtiming of cash flows, the development rating equivalent to A (low) with at least two value recognized for 2008 was due primarily of a secondary market and the liquidity of this of the four credit rating agencies (DBRS, S&P, to the anticipated lowering of the credit rating market for the replacement notes, which could Fitch and Moody’s), failing which it must provide from AAA to A for the MAV 1 series A-1 and further change the value of Desjardins Group’s collateral or another form of credit support to A-2 replacement notes, the widening of credit investment in the replacement notes. The prospect MAV 1 or have another entity with a sufficiently spreads during 2008 and the deterioration of major prolonged slowdown in the North high credit rating assume its obligations. of benchmark indices, partially offset by the American economy could also have a negative increased probability of realization of the impact on the fair value of the replacement notes. Under a separate agreement, Desjardins restructuring scenario. Group purchased $400 million protection Subsequent event – for its MFF commitments from one of the A portion of the ABCP held by Desjardins ABCP restructuring plan MAV 1 participants in exchange for an annual Group as at December 31, 2008 was still held commitment fee of 1.2%, which is the same under investment operations associated with The restructuring plan was approved on January rate as the third-party institutions that have

certain guaranteed-capital structured products. 16, 2009, following the agreement reached Manage m ent’s Discussion an d A nalysis contributed to the equivalent MFF for MAV 2. Given the extreme volatility that has prevailed with all the key stakeholders, including the This participation will automatically end upon on the markets since the third quarter of 2008, governments of Canada, Québec, Ontario the maturity of MAV 1’s MFF. the decline in value of ABCP securities in the and Alberta regarding the restructuring of fourth quarter could not be offset by an ABCP and the sanction, by the Ontario Superior In the event that the MAV 1 margin funding equivalent reduction in deposit liabilities and Court of Justice on January 12, 2009, of the facility and the MAV 2 equivalent facility are actuarial liabilities as was the case in previous final restructuring plan. On January 21, 2009, not sufficient to meet the collateral calls on quarters. Consequently, the decline in value the Court-appointed monitor filed the certificate the vehicle in question, a senior funding facility recorded for fiscal 2008 includes a $76 million required to implement the plan and proceed has been put in place to provide access to loss for the portion of the decline in value of to closing. additional liquidities. The funding facility was ABCP that is no longer offset. In the provided by the governments of Canada, Québec, restructuring approved in January 2009, the In addition to the assets already pledged Alberta and Ontario and by one of the MAV 1 replacement securities were withdrawn from as collateral by the trusts for credit default participants. This Master Asset Vehicle can draw activities involving guaranteed-capital structured swaps, the plan stipulates that MAV 1 and on an amount of $1,772 million under this products and are now included in Desjardins MAV 2 must each have a margin funding Desjar d ins group facility and will pay an annual commitment fee Group’s regular securities portfolio. facility (MFF) intended to cover any potential of 1.19% until December 2016. This facility collateral calls from swap counterparties. matures one month after the end of the By excluding the impact of ABCP securities Desjardins Group has chosen to self-finance moratorium on collateral calls, namely in July held as part of investment activities for certain its share of the margin funding facility, which 2010, unless an amount has been drawn and guaranteed-capital structured products, the explains its participation in MAV 1. has not been repaid as at that date, in which total restructured and non-restructured ABCP case all the liquidities available for reimbursement write-down, financing costs and the shortfall in MAV 1 will be used to pay the interest and in terms of the accrued interest totalled principal of the senior funding facility before $536 million ($400 million after income taxes). the MAV 1 margin funding facility and the The corresponding amount for 2007 is notes issued by MAV 1. Advances that can be $289 million ($198 million after income taxes). made under this facility will bear interest at a rate based on the bankers’ acceptance rate or the prime rate.

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A negative amount of $98 million ($93 million interest for the period from September 1, The following details on the specific rights in 2007) for margin funding facilities was 2008 to December 31, 2008, which will of each noteholder were established in included in the calculation of the fair value also eventually be paid. This net interest has accordance with the terms and conditions of ABCP as at December 31, 2008. been taken into account in the estimate of of the plan. Under the plan, noteholders the fair value of ABCP as at December 31. received new notes according to weightings During the first quarter of 2009, an amount of For the year ended December 31, 2007, determined based on the various ABCP-issuing $80 million, net of Desjardins Group’s estimated Desjardins Group recognized, in fair value, trusts. Consequently, after the restructuring, share of the $23 million in restructuring fees the contractual interest income on ABCP Desjardins Group holds new notes of which assumed by the Pan-Canadian Committee, was holdings as of August 20, 2007. the face value has been allocated among paid to Desjardins Group as accrued interest for the following various vehicles: the period from August 20, 2007 to August 31, 2008. Desjardins Group estimated the accrued

(in millions of dollars)

Face value Fair value(1) MAV 1 Class A-1 $ 904 $ 540 Class A-2 816 460 Class B 139 79 Class C 57 34 Class IA – Ineligible (subprime) assets 168 — Class IA – Ineligible assets (other) 27 13

Total MAV 1 2,111 1,126

MAV 3 Class IA – Ineligible (subprime) assets 68 — Class TA – Traditional assets 247 230

Total MAV 3 315 230

Interest received 80 80

Total $ 2,506 $ 1,436

(1) Based on fair values established as at December 31, 2008. Manage m ent’s Discussion an d A nalysis Desjar d ins group

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The following table presents the main features of these new notes:

Coupon Legal maturity date Ranking Rating

MAV 1 A-1(1) Bankers’ acceptance July 15, 2056(3) Ranking senior to MAV 1 A-2 A rate + 30 basis points(2) notes with respect to interest and to MAV 1 B and C notes with respect to principal and interest

MAV 1 A-2(1) Bankers’ acceptance July 15, 2056(3) Interest ranks senior to the A rate + 30 basis points(2) principal of MAV 1 A-1 notes. Subordinated to MAV 1 A-1 notes with respect to principal

MAV 1 B(1) Bankers’ acceptance July 15, 2056(3) Subordinated to MAV 1 A-2 None rate + 30 basis points(2) notes with respect to principal and interest Interest payable at maturity, cumulative

MAV 1 C(1) Bankers’ acceptance July 15, 2056(3) Subordinated to MAV 1 B None rate + 20% notes with respect to principal and interest Interest payable at maturity

MAV 1 IA notes Floating based on Between Certain notes rank senior No rating for the MAV 1 IA notes and all MAV 3 the yield of the September 19, 2012 with respect to interest and all MAV 3 notes, except for notes underlying assets and July 15, 2056 6 series of MAV 3 notes which were assigned ratings ranging from A (low) to AAA

(1) No obligation to pay interest before January 22, 2019. (2) The interest rate is LIBOR + 30 basis points for U.S. dollar notes. (3) The expected payment maturity date is January 22, 2017.

At the time the Combined Financial Statements Leveraged super senior structures (LSS) provide If the additional collateral cannot be provided, Manage m ent’s Discussion an d A nalysis were prepared, no active market existed yet investors with an exposure backed by a super the LSS is unwound for the benefit of the buyer for the various restructured notes. In addition, senior proportion of a pool of reference assets. of the protection against the credit default. Such the trading of MAV 1 notes is subject to The exposure is generally equal to many times an unwind results in a loss for the protection considerable restrictions, since MAV 1 A-1, the invested amount in a given transaction and seller, even if the actual losses of the pool A-2, B and C noteholders may only transfer pledged as collateral to the credit protection of reference assets have not reached the the notes to a third party if such transfer is beneficiary, namely the counterparty to the attachment point for the super senior tranche. made on a prorata basis of each of the classes credit default swap. The widening of certain “spread-loss” triggers, held by the seller and if the buyer assumes which were implemented as part of the an equivalent share of the commitments related A super senior tranche has an attachment point, restructuring plan and will apply again to LSS to the MFF, either directly or through another which is the threshold or level of losses that the at the expiration of the 18-month moratorium entity, as long as the party assuming the share pool of assets must incur before the payment period, makes the triggering of additional of the MFF has a sufficiently high credit rating. obligations are triggered. In general, this level collateral calls more remote. is significantly higher than the level of losses

Desjardins Group’s ultimate capacity to recover inherent to an R-1 (high) or AAA rating. Desjardins Group holds or has access to Desjar d ins group its investments in replacement notes depends Therefore, the level of losses to which the super the necessary funds to meet all its financial, on the credit quality of the underlying assets. senior tranche is exposed is usually lower than operating or regulatory obligations, and it The assets underlying the restructured notes the historical experience for this level of rating. does not expect that the liquidity problems can be summarized as follows: When the level of losses increases or indicators related to ABCP and the replacement notes will show that it could increase (additional collateral have a material adverse impact on its financial Assets underlying MAV 1 call triggers), the buyers of protection against soundness, its credit rating or its capital ratios. Leveraged super senior structures 74.6 % the credit default require collateral in addition Collateralized debt obligations 12.2 to the amounts initially invested. To meet such Commercial mortgage loans 7.6 additional collateral calls, the counterparty who Canadian subprime residential has sold the protection must have mechanisms mortgage loans 3.1 to access liquidities. Other assets 2.5

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Indirect impact of abcp and guaranteed- decision to end the program. All these strategic n The creation of the Desjardins Group Finance capital structured products decisions resulted in a total expense of $68 million and Risk Management Committee, which ($60 million after income taxes). ensures weekly follow-up on portfolios As part of its guaranteed-capital structured and risks products, Desjardins had recourse to hedge Losses of $434 million ($341 million after fund and money market investments, including income taxes) were therefore posted Lastly, in the second quarter of 2008, a mandate ABCP securities for the management of certain in 2008 with respect to these projects. was assigned to the head office of Desjardins savings products, also known as guaranteed- Group Internal Audit following a report capital structured products, namely the Non-recurring gains regarding purchasing policies and their Alternative and Perspectives Plus guaranteed application, as well as with regard to relations investments, and the Strategic Index Plus In 2007, Desjardins Group recorded two between Desjardins Group entities and their and Tactical Index Plus products. These products non-recurring gains: one for $72 million suppliers. This mandate has ended and guarantee capital for the term of the investment ($64 million after income taxes) realized Desjardins Group Management considers and can also enhance the return based on as part of the VISA global restructuring, that the items brought to their attention market developments. and the second for $45 million ($37 million had no material impact on the financial after income taxes) following the creation information disclosed. Management of these market-linked guaranteed of a strategic partnership with the credit products is governed by a risk management union centrals of the other Canadian protocol based on various specific parameters. provinces, aimed at accelerating the Provision for The exceptional situation prevailing on financial growth of Northwest and Ethical funds. member dividends markets for some months has had a major impact on the investment portfolio, which Strengthening the In a unanimous decision made on January 20, is what led to the application of the risk investment activity and risk 2009, from a perspective of sound and prudent management, Desjardins Group’s Board of management protocol and the withdrawal frameworks of hedge funds from investments in the Directors opted for a balanced approach in context of very strong market turbulence. As a result of financial market turbulence in distributing caisse surplus earnings that takes 2008 and its negative impact on Desjardins into consideration the expectations of members The slump on financial markets that caused Group’s financial results, Management and and their communities as well as Desjardins the negative performance of the underlying decision-making bodies within Desjardins Group’s capital requirements. This exceptional assets and hedge funds, as well as the decline Group put in place measures to mitigate risk temporary measure is a responsible approach in value of ABCP, resulted in losses related and better regulate investment activities. to keep the capital base of both Desjardins to Desjardins Group’s commitment to guarantee Group and the caisses at a high level in the the capital of its members and clients. These Mandates were assigned to Desjardins Group current economic and financial environment. losses of $565 million ($431 million after income Internal Audit, in collaboration with external taxes) related to guaranteed-capital structured experts, to review the ABCP file, the securities Consequently, the 2008 financial statements products as at December 31, 2008 are reflected lending activities at Desjardins Trust, as well as include a $186 million provision for member in the Combined Financial Statements. the management of hedge funds by Desjardins dividends, along with a $29 million adjustment

Manage m ent’s Discussion an d A nalysis Asset Management. These mandates were for 2007, bringing the total provision to The direct and indirect impact of ABCP assigned in the second quarter of 2008 and $215 million for the current year, versus and certain guaranteed-capital structured action plans were progressively implemented $592 million at the end of 2007. Nonetheless, products totalled $1,101 million ($831 million over the course of the second half of the year. the sum of $80 million, or $8 million more than after income taxes) in 2008, compared to in 2007, was returned to the community in the $289 million ($198 after income taxes) in 2007 Furthermore, other measures were implemented form of donations, sponsorships and bursaries. A charge of $121 million was recorded under by Management and Desjardins decision-making “Client retention expense” the previous year. bodies. The main measures are as follows: It should be mentioned that in the past five years, Desjardins Group has paid out more than $2 billion in member dividends. Write-offs and negative n Reinforcing Desjardins Group’s integrated performance of investments risk management role, in particular with Desjardins Group holds a high-quality, regard to investment portfolios managed FINANCIAL AND diversified investment portfolio which includes by Desjardins Asset Management OPERATIONAL SYNERGIES several asset classes. Due to the financial crisis, n The revision of Desjardins Trust’s securities Desjar d ins group In 2008, the competitive environment of certain investment portfolios belonging to lending policy the market resulted in the continued pursuit Desjardins Group components saw revenues n The monitoring system for portfolios of improved productivity. In this regard, decrease by $366 million ($281 million after consolidated on Desjardins Group’s productivity continues to be a concern which income taxes) as at December 31, 2008. balance sheet prompts components of Desjardins Group to work together to remain competitive. During 2008, Desjardins Group repositioned n The new risk and control analysis approach certain cross-Canada development initiatives, for new complex financial products Task forces from the FCDQ and Desjardins including its data processing service offering n The implementation of the Steering Committee Group subsidiaries continued and further to Canadian credit unions as well as in charge of supervising the accelerated enhanced the work of creating financial and the development of Desjardins Credit Union. disinvestment of hedge funds managed operational synergies, the first phase of which It also eliminated its cheque imaging project by Desjardins Asset Management and the was launched in 2005. In 2008, the shared following the Canadian Payments Association’s resulting action plan services, with financial benefits estimated

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to be in excess of $62 million over five years, CANADA-WIDE DEVELOPMENT the same system as the one that caisses are paid off with the opening of a shared services using in Québec and Ontario.This keeps to a centre for specialized savings back-office Canada-wide development is an important minimum the modifications and adjustments services of the Investment Funds and Trust part of the growth of Desjardins. In 2008, that would otherwise be required by business Services Executive Division, Desjardins Securities the growth of Desjardins components outside models that could differ between caisses and and Desjardins Financial Security. The results for Québec, in some cases, outpaced that noted credit unions. 2008 show a favourable variance of $6 million. for business in Québec. This brought Desjardins If technological expenses are excluded, this closer to its objective of realizing 25% of sales Desjardins and the Canadian credit unions have variance accounts for 7% of the annual budget. outside Québec. continued their collaboration, with Desjardins For the 2008 fiscal year, the capacity increase providing credit unions across Canada with achieved close to $8 million in recurring As work continued on the partnerships with other products and services such as investment synergies, which will have an impact on the the credit unions and the Canadian cooperative funds and credit card, investment and other 2009 fiscal year. This self-funding business sector, 2008 was the first year of a strategic value-added products. unit consists of more than 772 persons and has partnership leading to the creation of a an operating budget of close to $123 million. national mutual fund firm, Northwest & Ethical Basel II Accord Investments L.P., with assets under management Furthermore, the establishment of a shared of close to $4 billion. Though this industry is The Basel II Accord was designed to align services centre in administration, including operating in a difficult environment, Northwest capital requirements with risk exposure and property occupation, procurement and other & Ethical Investments is now distributing its to favour the continuous development of administrative services such as accounting investment funds through the caisse network the risk assessment capabilities of financial services, was operational in January 2008. and through credit unions throughout Canada, institutions. Desjardins Group has filed a Desjardins Administrative Services (DAS) thereby offering strong growth potential. request with the AMF to progressively adopt includes all of these activities for the FCDQ the Internal Ratings-Based Approach for credit and enables the components of Desjardins Among its other partnership initiatives in risk, the Internal Models Approach for market Group to use its services through targeted the Canadian cooperative sector, Desjardins risk and the Standardized Approach for offers of service. The financial benefits relating repositioned its offer of IT services to Canadian operational risk. to DAS, including those relating to procurement, credit unions. In order to get the most potential totalled $2.9 million in 2008. out of its computer platform, Desjardins is continuing to provide credit unions with technological solutions, but it is proposing

TABLE 1 DESJARDINS GROUP(1)

Selected data for years ended December 31 (in millions of $ and as a %)

2008 2007 2006 Manage m ent’s Discussion an d A nalysis Operating results Total income(2) $ 8,373 $ 9,671 $ 9,419 Provisions for credit losses 243 197 139 Claims, benefits, annuities and changes in insurance provisions 3,144 3,171 3,342 Client retention expense — 121 — Non-interest expense 4,800 4,702 4,534

Surplus earnings after income taxes and before member dividends(2) 78 1,101 988

Provision for member dividends 215 592 483

Key ratios Return on equity(2) 0.8 % 12.3 % 12.1 % Productivity ratio for Desjardins Group(2)(3) 91.8 72.3 74.6 Member dividends/surplus earnings 275.6 53.8 48.9 Desjar d ins group Tier 1 capital ratio – BIS(3) 13.39 14.17 14.18 Total capital ratio – BIS (3) 12.85 13.59 14.33

Financial position as at December 31 Total assets $ 152,298 $ 144,059 $ 129,140 Average assets 149,676 139,957 123,563 Loans 104,462 95,403 88,646 Average equity 9,569 8,913 8,186 Deposits and subordinated debentures 102,184 96,624 89,510

(1) Excluding the caisses and federations in Manitoba and New Brunswick. (2) Data for 2008 were affected by the financial crisis and ABCP. The table on page 42 presents the results of the priority objectives for 2008, excluding the after-tax impact of specific items. (3) The productivity ratio is Desjardins Group’s non-interest expense over total income, net of claims and insurance benefits. (4) Bank for International Settlements.

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MONITORING OF PRIORITY The table on this page presents its financial growth in surplus earnings and the productivity FINANCIAL OBJECTIVES performance in relation to strategic ratio. Furthermore, balance sheet quality and planning objectives. capital position continue to rest on a solid As part of Desjardins Group’s 2006-2008 foundation. Its capital ratios in particular are Strategic Plan, achieving sufficient and It goes without saying that the difficult among the best in the industry. The level of reliable profitability had been identified as market conditions during the second half the ratios specifically reflects the prudent capital a priority focus. In order to properly evaluate of 2008 had a significant impact on Desjardins management strategy that has always been its financial performance and offer an accurate Group’s performance and, consequently, advocated by Desjardins Group, thus providing and transparent picture of it, Desjardins Group the extent to which it reached its financial a solid capital base to ensure sustainability and developed an integrated financial framework objectives. Certain specific items affected support business development. for itself, including objectives related to Desjardins Group’s profitability, which had profitability, growth, productivity, balance a direct impact on return on equity, the ratio sheet quality and capital management. of member dividends to surplus earnings,

Desjardins Group Priority financial objectives Results of priority objectives Results of priority objectives, 2006-2008 in 2008 excluding the after-tax impact of specific items, in 2008

Return/profitability - Return on equity Between 12% and 15% 0.8 % 12.4 %

Balance sheet quality - Gross impaired loans/gross loans Less than 1.0% 0.40 % 0.40 %

Growth - Growth in surplus earnings (after income taxes) Between 5% and 10% (92.9 %) 4.3 %

Productivity - Gap between revenue growth(1) Greater than 1.0% (21.7 %) 1.6 % and expense growth

Capital - Total capital ratio Greater than or equal to 12.85 % — 12.5% and bank medians - Tier 1 capital ratio Greater than or equal to 13.39 % — 13.0% and bank median + 3% Manage m ent’s Discussion an d A nalysis Cooperative difference - Member dividends (before income taxes)/ Limited to 45%(2) 275.6 % — surplus earnings (after income taxes)

(1) Total income, net of claims and insurance benefits. (2) Does not take into account the exceptional and temporary amendment to the distribution of surplus earnings in 2008, approved by the Board of Directors in January 2009.

FINANCIAL OUTLOOK FOR 2009 member and client satisfaction, productivity that 2009 will bring. Desjardins has a very and returns for owner-members, and employee good level of capitalization, still one of the best The financial performance set out in and officer satisfaction and motivation. in the industry. However, the dreaded effects of the 2009 Business Plan carries forward the the financial crisis and the impact of a recession financial objectives determined by Desjardins However, the current unstable and that will affect Canada, Ontario and, to a lesser Group’s 2006-2008 Strategic Plan. Profitability unpredictable economic environment extent, Québec, have prompted Desjardins is reflective of the desired balance between makes it even more difficult to establish Group Management to take a cautious attitude Desjar d ins group cooperative performance and financial future financial results. For this reason, that favours strengthening the capital base, performance. As mentioned previously, Desjardins Group management has decided as several Canadian financial institutions have important work was begun in 2008 to develop not to disclose its financial outlook for 2009. done. and implement Desjardins Group’s strategic planning for 2010 to 2012. In addition to this, In this period of unprecedented volatility Naturally, the financial position will demand Desjardins will hold its 20th Congress of Elected and stock market turbulence, it is essential more attention in terms of managing expenses Officers in 2009, under the theme “Cooperate to focus efforts toward achieving Desjardins and will necessarily influence the decisions to to shape our destiny”, defining the main Group’s strategic objectives and priorities, be made in 2009 and subsequent years. The orientations in Desjardins Group’s development and not lose sight of the long term. authorities at Desjardins Group will redouble for the coming years. their vigilance in managing the institution, Desjardins Group’s 2009 Capitalization Plan especially in risk management and finance. All this work will be done with a constant has been approved by the Board of Directors. concern for maintaining a balance between It sets the target capitalization that will ensure the three aspects of the management model Desjardins Group’s development as well as for overall lasting performance, namely, enabling it to face the financial challenges

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In 2009, emphasis will be placed on the five n The already-significant synergies created Desjardins Group’s CEO and CFO that important major building blocks identified as part of among Desjardins caisses and subsidiaries information about Desjardins Group and the Development Plan described earlier, in are growing from year to year. its components is communicated to them the “Vision and Strategy” section. in a timely fashion so that they can disclose n Thanks to the Act respecting the distribution of financial products and services, Desjardins complete and reliable information to the public However, it must be remembered that the caisses can offer a complete line of financial and to Desjardins Group’s members and clients. 2009 Business Plan will be implemented in services. As at December 31, 2008, Management has an environment of risk and uncertainty assessed the financial disclosure controls and related to capital markets, more specifically n In fall 2008, a young leaders’ summit was procedures. This assessment confirmed their the prevailing global economic conditions held so that young people could express effectiveness both in design and operation. and their repercussions on the North American their needs, expectations and aspirations market, which could have a noticeable impact with regard to Desjardins, as well as identify Given the inherent limitations in any control on Desjardins Group’s financial performance. the challenges Desjardins would have to system, Management of Desjardins Group meet in order to become the preferred acknowledges that disclosure controls and financial institution for young people. HOW WE ARE DIFFERENT procedures cannot prevent or detect all A large-scale consultation was also held misstatements, whether caused by error n First of all, Desjardins Group is structured with young people through the Web site. or fraud. as a cooperative, which means that it The Chair of the Board, President and CEO redistributes a portion of its surplus earnings sat down for an online chat session so that Furthermore, concerned with continuously to its members in the form of member she could find out one-on-one from young improving its financial governance rules dividends, when its financial circumstances people about their concerns and answer and practices, Desjardins Group considers permit. In this manner, the caisses, which are their questions. it important to uphold a structured internal the pillars of Desjardins Group, contribute to n Desjardins maintains a reliable and efficient control environment that allows it to satisfy improving the economic and social conditions technological platform that supports its the expectations of the market and of its of their members and communities. distribution network. Its AccèsD online members and clients, while at the same time n Human capital is Desjardins Group’s most services and its desjardins.com Web site acting in accordance with these structures, valuable resource. With 5.8 million members are among the most visited sites in Québec the context, and its governance process. In and clients and some 6,300 elected officers, and are used as examples by other financial this regard, and on a voluntary basis, Desjardins Desjardins Group, as a democratic institution, institutions elsewhere in the world. Group has initiated a gradual implementation of financial governance rules and practices stands out for offering meaningful n The strong decentralization of its distribution opportunities for involvement. Rounding out network helps Desjardins to stay very close that are comparable to those prescribed by this human capital are the roughly 40,000 to its members and enjoy an unparalleled the Canadian Securities Administrators, which employees of Desjardins Group, who make connection with their communities. Open to will permit it to certify the effectiveness of it the largest private employer in Québec diversity, Desjardins Group also offers services Desjardins Group’s internal control over financial and helped it become one of the 50 Best in a number of languages. reporting as at December 31, 2011. Employers in Canada. Desjardins is also the financial institution that employs the largest As at December 31, 2008, two Desjardins FINANCIAL GOVERNANCE Manage m ent’s Discussion an d A nalysis number of financial planners in Québec. Group components, namely, Caisse centrale Although Desjardins Group is not a reporting Desjardins as reporting issuer and Capital n Desjardins Group as an employer also stands issuer or venture issuer under Regulation Desjardins inc. as venture issuer, complied out from the rest of the financial industry 52-109 of the Autorité des marchés financiers with the new requirements under Regulation by maintaining an employee retention rate (AMF), Management in conjunction with the 52-109. In this regard, Capital Desjardins inc. above 95%. Chief Executive Officer and the Chief Financial decided to no longer avail itself of the new n Desjardins Group, the largest cooperative Officer of Desjardins Group designed, or caused provisions concerning the “Venture Issuer Basic financial group in Canada, has a financially to be designed, financial disclosure controls and Certificate”, which was limited to a prescribed solid structure. procedures, which are supported by the process notice to reader that did not include any for periodic certification and internal sub- n Desjardins provides its members and clients representations relating to the establishment certification of financial disclosures made in with a full line of products and services and maintenance of disclosure controls and annual and interim filings. through an extensive distribution network. procedures and internal control over financial reporting, and has opted to retain the full n Desjardins has been part of Québec’s All information collected as part of the financial certificate used by reporting issuers. economic and financial landscape for over governance process is reviewed on a quarterly Desjar d ins group a century and holds large market shares in or annual basis by the members of the The management of both these issuers the savings and credit sectors; Desjardins Desjardins Group Disclosure Committee and of therefore assessed the effectiveness of has a strong presence throughout Québec the Audit and Inspection Commission, who play disclosure controls and procedures and and offers services across Canada and in a lead role in overseeing and assessing the internal control over financial reporting, the United States. appropriateness of financial disclosure controls which provide reasonable assurance regarding n Desjardins Group has excellent credit ratings and procedures. the reliability of financial reporting and the owing to the quality of its financial assets, preparation of financial statements for external financial structure, and equity. This rigorous financial governance process, purposes in accordance with generally accepted which is comparable to those used in the accounting principles. industry, provides reasonable assurance to

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This assessment was carried out using remembered that financial results for the second Personal and Commercial the recognized control framework of the half of 2007 were affected by the VISA global The segment mainly comprises the caisse Committee of Sponsoring Organizations of restructuring and the partnership with The network in Québec and Ontario, Caisse centrale the Treadway Commission (COSO) and confirms Ethical Funds Company. Apart from these Desjardins, Fonds de sécurité Desjardins, Capital the effectiveness of their disclosure controls events, no other unusual items had a significant Desjardins inc., Desjardins Trust, MM Trust, and procedures and of their internal control impact on results for 2006, 2007 and 2008. MM Trust II, 9186-8034 Québec inc., the over financial reporting. Fédération des caisses populaires de l’Ontario During these years, no significant business and the Fédération des caisses Desjardins du Various other aspects of governance are acquisitions were completed except for the Québec, which includes the following business examined in more detail on pages 173 to 186 acquisition of Groupe financier Performa, a units: Desjardins Card Services, Investment of this Annual Report. mutual fund distribution network, by the life Fund Services, Financial Engineering Services and health insurance subsidiary as well as the and Desjardins Payroll and Human acquisition of the Canadian assets of SIGMA-HR PRESENTATION OF Resources Services. FINANCIAL INFORMATION Solutions Inc., a firm specializing in human resources management software solutions, Life and Health Insurance Desjardins Group’s Combined Financial by Desjardins Payroll and Human Resources Statements are prepared in accordance Services. These transactions were performed This segment comprises the activities with Canadian generally accepted accounting in 2006 but did not have a material impact of Desjardins Financial Security. principles. All amounts shown in the MD&A are on Desjardins Group’s Combined Financial in Canadian dollars, unless otherwise indicated. Statements as at December 31, 2006. General Insurance This segment presents the activities Some figures from prior years have been Return on equity provides Management of Desjardins General Insurance Group. reclassified to conform to the presentation with a measure to assess the overall financial adopted for 2008. performance of Desjardins Group. Securities Brokerage, Asset Management and Venture Capital Financial results for 2008 were affected Transactions with related parties are discussed by the instability of financial markets as in Note 30 to the Combined Financial Statements. This segment comprises the activities well as by ABCP (which also had an impact of Desjardins Securities, Desjardins Asset on results in 2007), and by the direct and Desjardins Group presents its segmented Management and Desjardins Venture Capital. indirect impact of ABCP and guaranteed-capital information according to four main business structured products. Financial performance segments in addition to another category, A detailed segment-by-segment analysis for 2008 was affected as well by other specific labelled “Other.” The latter category includes of activities is presented on pages 48 to 68. items arising from the strategic decisions the consolidation adjustments attributable mentioned earlier. Moreover, it should be to all components.

TABLE 2 CONTRIBUTION TO COMBINED SURPLUS EARNINGS BY BUSINESS SEGMENT Manage m ent’s Discussion an d A nalysis Years ended December 31 (in millions of $ and as a %)

2008 2007 2006 Personal and Commercial $ 16 20.5 % $ 794 72.1 % $ 752 76.1 % Life and Health Insurance(1) 40 51.3 211 19.2 146 14.8 General Insurance 36 46.2 126 11.4 107 10.8 Securities Brokerage, Asset Management and Venture Capital (29) (37.2) 17 1.5 14 1.4 Other 15 19.2 (47) (4.2) (31) (3.1)

Surplus earnings after income taxes and before member dividends $ 78 100.0 % $ 1,101 100.0 % $ 988 100.0 %

Desjar d ins group (1) This contribution differs from the subsidiary’s specific results as it includes consolidation adjustments.

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1.2 ANALYSIS OF FINANCIAL RESULTS

2008 FOURTH QUARTER RESULTS Desjardins Group components shed $186 million 2008 RESULTS in income ($147 million after income taxes), For the fourth quarter of 2008, Desjardins excluding those backing insurance contracts, Desjardins Group declared surplus earnings Group recorded combined deficits before with an equivalent amount offset by a decline in before member dividends of $78 million member dividends of $476 million, versus the insurance provision expense for the life and for 2008, versus $1,101 million in 2007. combined surplus earnings before member health insurance subsidiary. In 2007, Desjardins Overall profitability was, however, significantly dividends of $273 million for the same quarter Group recorded two non-recurring gains: one impacted by the previously described specific in 2007. Return on equity, namely surplus for $72 million ($64 million after income taxes) items that occurred in 2008 and totalled $1,172 earnings before member dividends over average realized as part of the VISA global restructuring, million after income taxes. If it had not been for equity, was (19.3%) for the fourth quarter of and the second for $45 million ($37 million the specific items, combined surplus earnings 2008, compared to 11.8% in the same quarter after income taxes) following the creation before member dividends would have been of last year. This large decrease in financial of a strategic partnership with the credit union $1,250 million at the end of 2008, up 4.3% results clearly reflects the impact of sharply centrals. For additional information on these over 2007. deteriorating capital markets in recent months, specific items, refer to the section titled resulting in stock market gyrations and “Specific items relating to the fourth quarter In the Personal and Commercial segment, unprecedented volatility. and fiscal 2008 primarily as a result of financial the caisse network, the driving force behind market instability” on page 35 of the MD&A. Desjardins Group, recorded robust growth of The difficult conditions on capital markets Income from brokerage, investment fund and 10.9% in surplus earnings, which climbed from significantly impacted subsidiaries’ investment trust services, which was also affected by the $625 million in 2007 to $693 million in 2008. portfolios and other activities directly related deteriorating markets, was down $55 million However, this segment’s overall financial results to capital markets, including securities, venture or 29.1%. were severely affected by the specific items that capital and investment fund activities. Fourth occurred in 2008 and totalled close to $1 billion quarter financial results were therefore affected Overall, Desjardins Group’s total income after income taxes. by specific items described in the previous amounted to $1,729 million, down section, which had a negative impact of $770 $970 million or 35.9% from the fourth Surplus earnings before million after income taxes on combined surplus quarter of 2007. member dividends earnings. Had it not been for the specific items, (in millions of $) combined surplus earnings before member Desjardins continues to enjoy a high-quality dividends would have been $294 million, loan portfolio; the provision for credit losses up 11.8% on a year-over-year basis. therefore stood at $88 million for the fourth 1,350 quarter of 2008, compared to $65 million a 1,200 As for revenues, net interest income totalled year ago. $869 million, up $48 million or 5.8% from 1,050 M ana g ement ’ s D iscussion and A nalysis 1,250* 101 089 the corresponding quarter in 2007, due 900 072 Expenses related to claims, benefits, annuities 1, 1, 1, mainly to the growth in business volume. Net and changes in insurance provisions amounted 988 750 premiums stood at $1,027 million, unchanged to $965 million in the last quarter of 2008, down from a year earlier. $98 million or 9.2% on a year-over-year basis. 600 Most of this decrease was accounted for by an 450 Other income, however, was severely equivalent decline in the life and health insurance 300 affected by the drop in value of restructured subsidiary’s investment income, as previously and non-restructured ABCP, financing costs stated. Lastly, non-interest expense was 150 78 and shortfalls in accrued interest amounting $1,257 million in the fourth quarter of 2008, 0 to $187 million ($160 million after income virtually unchanged from the same quarter taxes) in the fourth quarter of 2008, as

of a year earlier, providing proof of the caisse 2004 2005 2006 2007 2008 compared to $132 million ($91 million after network’s and all Desjardins Group’s components’ income taxes) a year earlier. The negative tight control over operating expenses. * excluding the impact of the financial crisis and ABCP D esjardins group performance of underlying assets and hedge funds, as well as the decline in value of ABCP, A summary of results from the past eight resulted in $565 million ($431 million after quarters is presented on pages 109 and 110 Owing to the financial crisis, the insurance income taxes) in losses related to Desjardins of this MD&A. subsidiaries also turned in a much poorer Group’s commitment to guarantee its members’ financial performance in 2008, as was and clients’ capital in guaranteed-capital the case for the entire insurance industry. structured products. Moreover, due to the The life and health insurance subsidiary was financial crisis, certain investment portfolios of particiularly marked by the write-down in ABCP holdings and by the drop in investment income due to the difficult capital market conditions. It should, however, be noted that the life and health insurance subsidiary continues to record brisk growth of 9.2% in its insurance premium income.

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The 2008 financial statements included a Desjardins Group is one of the best capitalized ($831 million after income taxes) in 2008, provision of $186 million for member dividends, financial institutions in Canada. At the end compared to $289 million ($198 after income along with a $29 million adjustment for 2007, of December 2008, its reserves represented taxes) in 2007, $121 million of which was bringing the total provision to $215 million for 83.7% of total equity, as against 80.5% a recorded as client retention expense. Moreover, the current year, versus $592 million at the end year earlier. This contributed to a Tier 1 capital the financial crisis led to the investment of 2007. As previously stated, this decline was ratio of 13.39%, which surpasses target portfolio of Desjardins Group components a result of an exceptional temporary measure capitalization and stands as one of the best in posting a negative performance of $366 million taken by the Board of Directors allowing a the industry. The total capital ratio was 12.85%, ($281 million after income taxes), including larger contribution to the reserve in order to compared to 13.59% as at December 31, 2007. those backing insurance contracts, with an enhance Desjardins Group’s capital base in view equivalent amount offset by a decline in the of the prevailing economic and financial insurance provision expense for the life and conditions. health insurance subsidiary. In 2007, Desjardins Group recorded two non-recurring gains: one for $72 million ($64 million after income taxes) Provision for member dividends Tier 1 capital ratio (BIS) realized as part of the VISA global restructuring, (in millions of $) (as a %) and the second for $45 million ($37 million after income taxes) following the creation of a strategic partnership with the credit union 750 centrals of the other Canadian provinces, aimed 16 at accelerating the growth of Northwest and Ethical funds. For additional information on 600 2 12 these specific items, refer to the section titled

14.18 14.17 59

14.01 “Specific items relating to the fourth quarter 13.58 450 13.39 and fiscal 2008 primarily as a result of financial 483 8 market instability” on page 35 of the MD&A.

300 408 372 Overall, Desjardins Group’s total income stood 4 150 at $8,373 million at the close of 2008, down 215 $1,298 million or 13.4% from 2007.

0 0 The provision for credit losses expense was $243 million, representing an increase of 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 $46 million or 23.4% over the year-earlier period. Despite the upward trend in this provision, Desjardins Group’s loan portfolio Return on equity was 0.8% compared to Through Caisse centrale Desjardins, continued to be of excellent quality, with 12.3% in 2007. Had it not been for the specific Desjardins Group maintained its presence a ratio of gross impaired loans to gross loan Manage m ent’s Discussion an d A nalysis items, return on equity would have stood at on the securitization market for mortgage portfolio of 0.40%. 12.4%. loans guaranteed by the Government of Canada under the Canada Housing Trust Expenses related to claims, benefits, annuities program. Desjardins, represented by CCD, is and changes in insurance provisions amounted Return on equity now a major player in the Canadian mortgage to $3,144 million for 2008, compared to (as a %) securitization market, with a volume of close to $3,171 million on a year-over-year basis. $1.6 billion in 2008, or approximately $400 The impact of business growth on claims, million per quarter, with five-year terms. benefits and annuities was offset by the 20 In addition, Caisse centrale made debt securities significant decline in insurance provision issues totalling close to $1.3 billion on European expense, which reflects the temporary volatility markets in 2008. of investments backing actuarial liabilities for 16 the life and health insurance subsidiary. As for revenues, net interest income totalled 12 15.8

14.5 $3,418 million for 2008, an increase of Non-interest expense totalled $4,800 million Desjar d ins group $173 million or 5.3% from the year-earlier for 2008, compared to $4,702 million a year 12.3 12.1 8 12.4* period, chiefly because of growth in business earlier, for an increase of $98 million or 2.1% volume. Net premiums were up by $307 million over 2007. It should be noted that asset or 8.0% as a result of increases in insurance write-offs of $68 million were recorded in 4 premiums, particularly life and health insurance 2008 in connection with the strategic decisions

0.8 premiums, which grew by $223 million or previously described. 0 9.6%, coupled with an increase in annuity premiums of $70 million or 28%. Other income Had it not been for the specific items, non- 2004 2005 2006 2007 2008 benefited from an increase of $83 million in interest expense would have been $4,732 income from securitization activities and from million, up $30 million or 0.6% from 2007. This * excluding the impact of the financial crisis and ABCP growth of $29 million or 7.6% in lending fees limited increase is proof of the caisse network’s and credit card service revenues. and all Desjardins components’ effective control over operating expenses and also shows the The direct and indirect impact of ABCP reduction in the incentive compensation and guaranteed-capital structured products expense. brought down other income by $1,101 million

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The productivity ratio is Desjardins Group’s CONTRIBUTION TO The General Insurance segment contributed non-interest expense to total income, net SURPLUS EARNINGS $36 million in 2008 to combined results, of expenses related to claims and insurance versus $126 million a year earlier. Throughout benefits. Despite effective cost control, the BY BUSINESS SEGMENT the year, Desjardins General Insurance Group impact of the financial crisis on investment A brief description of the financial performance (DGIG) was affected by two major factors, income, including the write-off in ABCP of each of the business segments is given which accounted for its lower profitability. securities against investment income in below. Detailed financial analyses are presented First, the sharp reduction in stock market 2008 and the indirect impact of ABCP and in subsequent sections. value triggered a significant decline of about guaranteed-capital structured products, was $79 million in investment income from 2007, reflected in the productivity ratio. Had it not Despite the higher profitability of the caisse resulting primarily from the reduced distribution been for the specific items caused by the network in 2008, the financial performance of investment funds and from disposals of financial crisis, the productivity ratio would of the Personal and Commercial segment as equity investments. Second, the first three have been 70.7%, as against 71.8% in 2007. a whole was down considerably, especially due quarters were marked by weather disturbances, to the decline in value of ABCP holdings and including abundant snowfall in the winter of Desjardins Group’s total assets amounted the indirect impact of ABCP and guaranteed- 2008, heavy rains and violent storms, causing to $152.3 billion as at December 31, 2008, capital structured products. Surplus earnings much more extensive damages in the area of versus $144.1 billion a year earlier, for growth before member dividends for this segment home insurance than in the previous year. of $8.2 billion or 5.7%. Expansion slowed totalled $16 million in 2008, versus $794 million However, in automobile insurance, even sharply in 2008 because of the decline in the in 2007. It should, however, be noted that the though the cost of bodily injury was up sharply amount of securities outstanding, especially Personal and Commercial segment’s operating in insurance operations outside Québec, DGIG securities held for trading and securities performance in 2008 was solid; net interest benefited from a reduction in prior years’ purchased under reverse repurchase income continued to grow; income related provisions for claims. Income from premiums agreements. Despite the deterioration in to securitization activities was up $83 million; written, totalling $1,459.6 million, was up 2%. the business climate, demand for credit the increase in non-interest expense was limited DGIG recorded growth in individual insurance, at Desjardins Group remained consistently to 5.3%, thus evidencing effective cost control, in both group and individual sales, as well as very strong. if asset write-offs of $68 million resulting from in business insurance. strategic decisions are excluded; and its loan portfolio was of excellent quality, with a stable The Securities Brokerage, Asset Management Total Desjardins Group assets ratio of gross impaired loans to the gross and Venture Capital segment recorded a net (in billions of $) loan portfolio. loss of $29 million for 2008, versus net earnings of $17 million for the previous year. The poorer financial performance was chiefly due to 160 The contribution of the Life and Health Insurance segment to combined results deteriorating capital markets and the reduced 150 was $40 million in 2008, compared to value of certain investments in public companies 140 152 $211 million on a year-over-year basis. caused by changes in their stock prices. 130 144 Desjardins Financial Security (DFS) posted net earnings of $34 million. If it had not Finally, Desjardins Group’s combined results 120 Manage m ent’s Discussion an d A nalysis 129 been for the strong impact of the financial for 2008 included consolidation adjustments 110 crisis, net earnings would have totalled attributable to all components. This category 118 $190.6 million, compared to $234.4 million posted net earnings of $15 million in 2008, 100 as opposed to a net loss of $47 million in

106 in 2007. Return on shareholder’s equity was 90 5.9%, compared to 27.5% in 2007. This return 2007. The various consolidation adjustments not reflected in the business segments include, 80 would, however, have been 24.0% had it not been for the effect of the financial crisis. in particular, the recognition of the adjustment 70 The average for the past three fiscal years to Desjardins Group’s employee future benefits was 18.0%. Despite the difficult economic expense, which was down $71 million after 2004 2005 2006 2007 2008 environment, DFS continued to post significant income taxes from 2007, primarily after certain growth in its insurance premium income, actuarial assumptions were updated. up 9.2% to total $2,671.4 million as at Total assets under Desjardins Group’s control December 31, 2008. Insurance sales totalled as trustee or manager stood at $201.6 billion

$180.8 million, while total savings sales Desjar d ins group as at December 31, 2008, down $9.0 billion amounted to $1.2 billion, up $48.6 million or 4.3% from 2007. Assets under management from 2007. totalled $29.3 billion for 2008, as opposed to $38.6 billion a year earlier, down $9.3 billion or 24.1%.

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PERSONAL 2.1 AND COMMERCIAL

PROFILE The Personal and Commercial segment offers STRATEGY a vast array of wholesale and retail financial The Personal and Commercial segment products and services to its members and clients Vision for individual clientele comprises a decentralized network in and is active in the following areas: financing, A cooperative financial group, Desjardins has Québec and Ontario consisting of 513 caisses, savings recruitment, credit cards, investment strengthened its position as the top financial 51 business centres and one credit union, funds, trust services and central fund activities. institution for individuals. Desjardins can meet Desjardins Credit Union. It also encompasses all of its clients’ financial needs thanks to a Caisse centrale Desjardins, which acts as The Personal and Commercial segment also group of skilled employees and a full range Desjardins Group’s financial agent, as well offers financial products and services outside of accessible and customized advisory services. as the Fonds de sécurité Desjardins, Capital Québec and Ontario through the caisse network Desjardins continues to be a leader in traditional Desjardins inc., Desjardins Trust, MM Trust, and the federations of Manitoba and New services and is recognized as a premier financial

Manage m ent’s Discussion an d A nalysis MM Trust II, 9186-8034 Québec inc., the Brunswick, which are auxiliary members institution for asset management. Fédération des caisses populaires de l’Ontario of the Fédération des caisses Desjardins and the Fédération des caisses Desjardins du du Québec, but which are governed by Vision for business clientele Québec, which includes the following business the laws and regulations of the jurisdiction units: Desjardins Card Services, Investment Fund in which they operate. They are not included Desjardins is recognized as a leader among Services, Financial Engineering Services, and in Desjardins Group’s Combined Balance Sheets. businesses, particularly small and medium-sized Desjardins Payroll and Human Resources Services. The main financial results of these auxiliary enterprises. Thanks to its qualified personnel, members, which are also not included in the accessible services and full range of integrated financial results of the Personal and Commercial services, it is easy to do business with Desjardins. segment, are presented on page 172 of this Annual Report. Desjar d ins group

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OUTLOOK This segment is looking to pursue, via Caisse As for card services, the Personal and centrale Desjardins, the sector and geographic Commercial segment plans to implement The Personal and Commercial segment diversification of its loan portfolio. Caisse the Verified by VISA service designed to make plans on speeding up the development of its centrale intends to boost the development online credit card purchases more secure for investment-savings business among individuals of its foreign currency exchange and cash both merchants and cardholders. In addition, and businesses in Québec, Ontario and products. In particular, it plans to review it is looking to forge major partnerships with elsewhere in Canada. It intends to leverage the Desjardins Bank offer and to continue credit unions and merchants across Canada. its cooperative difference and high-quality enhancing the range of services for business products and services to boost its presence members of the caisse network. INDUSTRY among different categories of savings holders. As regards trust services, the Personal and The Canadian banking services industry is This segment also plans to continue developing Commercial segment plans to consolidate highly concentrated and fiercely competitive. its credit activities among its members and and grow assets and volumes in all business This has resulted in market saturation, which is its personal and business clients, particularly lines, as well as stimulate the Canada-wide why one player’s market share gain is another’s by better promoting its cooperative difference, development of Desjardins by implementing loss. Most of our competitors focus their efforts its special relationship with clients and its the business strategies of Northwest & Ethical on dominating lucrative business segments in high-quality products and services in order Investments. order to maximize their bottom line and so to capture a greater share of the credit market. increase shareholder satisfaction.

2008 • The caisse network turned in solid operating results, recording a 10.9% growth in surplus earnings for 2008. ACHIEVEMENTS • Assets rose 8.5% to $124.7 billion as at December 31, 2008, fuelled by consumer and business credit demand that remained steady, despite the deteriorating economic climate in the second half of 2008. • Retained a strong presence in Québec with a 39.0% market share in residential mortgage credit, 46.9% in farm credit and 43.1% in personal savings, as at December 31, 2008. • Picked up market share in commercial and industrial credit in Québec (24.8% as at December 31, 2008, compared to 23.6% a year earlier). • Issued close to $1.3 billion in debt securities on European markets at the beginning of 2008. • Maintained its presence in the securitization market for mortgage loans guaranteed by the federal government under the Canada Mortgage Bonds Program. Desjardins, via Caisse centrale, is now a major player in the Canadian mortgage securitization market, with almost $1.6 billion in 2008, or around $400 million per quarter, with five-year term.

• Business grew 15.0% at Desjardins Card Services (DCS) in 2008 to $49.8 billion at the end of the year. M ana g ement ’ s D iscussion and A nalysis It will be recalled that DCS is the largest credit and debit card issuer in Québec. D es jar dins g ro u p

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TABLE 3 PERSONAL AND COMMERCIAL: SEGMENT RESULTS

Selected data for years ended December 31 (in millions of $ and as a %)

2008 2007 2006 Total income(1) $ 4,061 $ 4,838 $ 4,517 Provisions for credit losses 242 197 139 Client retention expense — 121 — Non-interest expense 3,732 3,481 3,324

Surplus earnings after income taxes and before member dividends(1) 16 794 752

Contribution to combined surplus earnings(1) 20.5 % 72.1 % 76.1 % Provision for member dividends $ 215 $ 592 $ 483 Average assets 117,215 108,311 101,505 Average loans 96,616 89,469 83,626 Average deposits 99,920 92,380 85,725

(1) Data for 2008 were affected by the financial crisis and ABCP.

ANALYSIS OF FINANCIAL RESULTS Personal and Commercial losses after income taxes related to Desjardins Contribution to surplus earnings Group’s commitment to guaranteeing its The Personal and Commercial segment (in millions of $ and as a %) members’ and clients’ capital in guaranteed- recorded $16 million in surplus earnings capital structured products. Furthermore, the before member dividends at the end of 2008, 76.1 72.1 78.3* Personal and Commercial segment’s portfolio down $778 million from the $794 million 1,050 fell $157 million after taxes, largely due to an in surplus earnings recorded for the previous 100 other than temporary decline in value of year. The segment’s contribution to Desjardins 900 $88 million after income taxes for certain Group’s combined results rose to 20.5%, 80 collateralized debt obligations belonging to 750 versus 72.1% in 2007. The caisse network, Caisse centrale Desjardins. Finally, a decrease the driving force behind Desjardins Group, * 600 60 of $70 million or 17.2% in brokerage, saw its surplus earnings grow by 10.9%, rising 979 investment and trust income, likewise caused from $625 million in 2007 to $693 million in 450 by market turbulence, also played a role in 40 2008. Moreover, average business growth was 20.5 the decline in other income. sustained over the past year, resulting in an 300 increase in net interest income of $151 million. 20 In 2008 the caisse network recorded a In fact, financing activities advanced $7.1 billion 150 Manage m ent’s Discussion an d A nalysis 794 752

16 $215 million provision for member dividends, or 8.0%, while savings on the balance sheet 0 0 as compared to $592 million a year earlier. recorded a similar increase of $7.5 billion The background to the reduction in dividends or 8.2%. Outstandings on Desjardins Funds 2006 2007 2008 in 2008 is the financial crisis that has affected decreased by 20.4% or $2.5 billion over financial markets throughout the world. December 31, 2007. Desjardins Group results Surplus earnings before member dividends Nevertheless, more than $2.0 billion has in this area were badly hit by the collapse (in millions of $) been paid out as member dividends in the last of financial markets. Contribution to combined surplus earnings five years. (as a %) The falling profitability that characterized *excluding the impact of the financial crisis and ABCP Total income (net interest income plus other 2008 is largely attributable to the instability of income) from the Personal and Commercial financial markets, which had a negative impact segment amounted to $4,061 million, down on investment portfolios, as did asset-backed were affected by a $120 million decline in value $777 million or 16.1% over 2007. The net commercial paper (ABCP). In fact, the 2008 of ABCP holdings, which was recorded against interest margin was $3,422 million, a slight

Desjar d ins group financial results recognize a decline in value of other income, and $121 million recorded under increase of 4.6% over the $3,271 million ABCP securities, excluding the impact of ABCP client retention expense. Moreover, financing recorded in 2007. Net interest income securities held as part of investment activities costs and a shortfall in accrued interest totalled represents 84.3% of the segment’s total for certain guaranteed-capital structured $48 million after taxes ($12 million in 2007). income, versus 67.6% in 2007. Despite products, of $425 million ($318 million after substantial growth in financing activities income taxes) was allocated to the results Among the other factors contributing to in the past year, net interest income, expressed of the Personal and Commercial segment; the drop in other income, it is worth noting as a percentage of average assets, declined meanwhile investment income fell by the negative returns produced by underlying somewhat because of the interest rate situation. $1,024 million. It should be emphasized assets and hedge funds and the decline in value This decline contributed to a reduction in the that, in 2007, this sector’s surplus earnings of ABCP—which resulted in $380 million in average return on loans, which was not wholly

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offset by the average cost of deposits. In fact, Management of these market-linked In the area of consumer loans (including credit the net interest margin stood at 2.92% versus guaranteed products is governed by a risk cards and other personal loans), the Personal 3.02% in 2007. Tables 13 and 14 on page 71 management protocol based on various specific and Commercial segment benefited from robust show the change in the Personal and parameters. The exceptional situation prevailing consumer spending, especially on durable goods. Commercial segment’s net interest income. on financial markets for some months has had At the end of 2008, outstanding loans had a major impact, amounting to $491 million, grown by $1.5 billion or 9.2% to $17.6 billion. Other income fell $928 million, down to on the investment portfolio, which is what Outstanding business and government loans $639 million or 59.2% from 2007. Income led to the application of the risk management totalled $26.9 billion at the end of 2008, derived from deposit and payment service protocol and the withdrawal of hedge funds up $2.7 billion or 11.0%. charges stood at $497 million, up $13 million from investments in the context of very strong or 2.7%. Income derived from lending fees market turbulence. In the area of savings recruitment, and credit card revenues, consisting mostly the Personal and Commercial segment had of revenues from the various payment solutions Provisions for credit losses stood at $242 million collected $102.0 billion in deposits by year-end, offered by Desjardins Card Services (DCS), in 2008, up $45 million or 22.8% over the an increase of $5.7 billion or 5.9% over 2007. totalled $414 million in 2008, up $30 million previous year. Despite this increase, the quality Of the primary sources of funding, personal or 7.8% over 2007. This can be explained by a of Desjardins’s loan portfolio remains excellent, savings were still at the top, representing higher business volume. In fact, DCS’s business with gross impaired loans accounting for 0.40% 70.5% of deposit liabilities at the end of 2007. volume grew by 15.0% to reach $49.8 billion of the gross loan portfolio, the same level as This type of savings rose by $6.2 billion or as at December 31, 2008. Income drawn from at December 31, 2007. More specifically, as 9.4% to reach $72.0 billion as at December 31, brokerage, investment fund and trust services at December 31, 2008, gross impaired loans 2008. The Personal and Commercial segment’s fell by $70 million or 17.2% over 2007 due outstanding stood at $422 million, an increase Québec market share of individual savings on to the particularly difficult situation prevailing of $31 million or 7.9% over 2007. The allowance the balance sheet rose from 42.9% as at on world financial markets in 2008. However, for credit losses was $826 million, as compared December 31, 2007, to 43.1% as at December other income, at $1,746 million, improved to $762 million a year earlier, broken down 31, 2008. Savings attracted from business $96 million, or 5.8%, from 2007 mainly due as follows: $130 million for specific allowances and government advanced $654 million to the increase in income of $83 million from and $696 million for the general allowance. or 3.1% to $21.5 billion at the end of 2008. securitization activities. At the end of 2008, the coverage ratio, i.e. the Other types of deposits, such as public securities allowance for credit losses in relation to total issues, fell $1.2 billion or 12.1% to close the The decline in total other income is very largely gross impaired loans, was 195.7% as against year at $8.6 billion. attributable to the decrease in investment and 194.9% the year before. trading income, down $1,024 million in 2008. The deterioration of global equity markets was Market instability adversely affected investment Non-interest expense totalled $3,732 million, not favorable to sales of off-balance sheet savings portfolios, as well as the ABCP portfolio. A $251 million or 7.2% more than in 2007. products, such as investment funds and $425 million write-down ($120 million in 2007) Part of this increase is attributable to the rise other types of securities. In fact, outstanding for these securities, excluding the impact of in salary expenses and fringe benefits, owing investment funds and financial assets under ABCP securities held as part of investment mostly to the annual salary indexation. In management by securities brokerage business activities for certain guaranteed-capital addition, 2008 results include $68 million decreased by 16.4% (or $4.2 billion) during structured products, was recorded. Moreover, of asset write-offs due to strategic decisions the year standing at $21.3 billion as at Manage m ent’s Discussion an d A nalysis financing costs and a shortfall in accrued mentioned earlier. December 31, 2008. During 2007, the interest totalling $64 million were charged to increase was 10.4% (or $2.4 billion). the Personal and Commercial segment. Caisse As at December 31, 2008, the total assets centrale Desjardins also recorded an other than of the Personal and Commercial segment stood temporary decline in value of $113 million on at $124.7 billion, an increase of $9.8 billion certain collateralized debt obligations indicating or 8.5% over the previous year. an other than temporary decline in fair value because of market upheaval. As for financing activities, the net loan portfolio grew $8.1 billion or 8.7% to $102.2 billion As part of its guaranteed-capital structured at year-end. products, Desjardins had recourse to hedge fund and money market investments, including The Personal and Commercial segment ABCP securities for the management of certain continued to benefit from favorable credit Desjar d ins group savings products, also known as guaranteed- conditions. Outstanding residential mortgages capital structured products, namely the grew $4.1 billion or 7.4% to $58.6 billion Alternative and Perspectives Plus guaranteed as at December 31, 2008. investments, and the Strategic Index Plus and Tactical Index Plus products. These products guarantee capital for the term of the investment and can also enhance the return based on market developments.

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• Consumer credit, including—among other Outlook things—loans for the purchase of durable The Personal and Commercial segment plans MAIN ACTIVITIES goods (furniture, home and electronic to continue developing its credit activities appliances, and automobiles), advances among its members and clients, both individuals to VISA Desjardins credit card holders, and businesses, with the same vigour as in the n Financing activities personal lines of credit and student loans past. Just as it did for savings recruitment, it will n savings recruitment activities • Financing for activities, equipment, buildings work even harder to promote its cooperative or other assets in most commercial, industrial, difference, its special relationship with its clients n credit card activities farm or institutional sectors and the high quality of its products and services, n investment fund and in order to boost its market share in the various trust service activities Strategy credit categories. n central fund activities The Personal and Commercial segment seeks to offer a full range of highly competitive credit products and services specially tailored to the growing needs of its members and clients in n Financing activities Québec, Ontario and elsewhere in Canada. Profile To this end, the following strategies are used: The main financing activities of the Personal and Commercial segment are carried out • Leverage the cooperative difference to boost primarily by the caisses, including business market share for all products and for all types centres, in the following areas: of clientele • Optimize its service offering and distribution • Residential mortgage credit, in particular loans granted to purchase new or existing homes or for renovation

2008 Achievements – Financing activities

n Desjardins Financing Services established regional issue tables for better coordination of mortgage financing activities. Manage m ent’s Discussion an d A nalysis n Introduced a new approach to mortgage financing, including Expert—a Financing module tool, which will enhance our product offering and advisory service for members, as well as be a match for our competitors.

n Desjardins Financing Services and Desjardins Card Services organized a meeting called Caucus bâtisseur. More than 600 advisors and managers met to take stock of their current clientele, share winning practices and learn more about leverage.

n Launched last fall, the Overdraft Transfer service is for members who want to avoid account overdraft charges, as well as the inconvenience of NSF cheques and denied transactions, by using their VISA Desjardins card.

n Introduced the Automobile and Durable Goods Financing business line. It will ensure Desjardins Group’s long-term survival in the highly competitive consumer credit industry by combining activities yielding cost-effective solutions and opening up new markets, including outside Québec.

n Continued the activities of the Desjardins Mid-Market Business Centre (MMBC), which is fulfilling its promise by continuing its upward trend to the extent that it has exceeded its goals. The MMBC acts for the benefit of all caisses, wherever they may be.

n Presented the Grands Enjeux SECOR–Les Affaires conference series. Designed for business people, the conferences outline the priorities which Desjar d ins group entrepreneurs must set to motivate their employees during a labour shortage. The seminars also acquaint entrepreneurs with new business models to help them succeed in an environment of worldwide competition.

n The Web site desjardins.com continued to excel in 2008. It is by far the most frequently visited financial site, with nearly 2.3 million monthly unique visitors. It was awarded third place in the SECOR/Commerce Internet Index, as well as the Coup de cœur (people’s choice) prize by the public.

n Desjardins Financing Services launched a mortgage agent recruitment campaign which was a great success. Over 80 members joined the ranks of the Desjardins Financing Services sales force.

n Set up a team of business valuation experts to support caisse business development with this growing clientele.

n The Personal and Commercial segment’s share of the credit market in Québec and Ontario was as follows in 2008: - Consumer credit (including advances to credit card holders) rose 0.2% in Québec (22.3%) and held steady in Ontario (0.2%). - Residential mortgage credit rose 0.3% in Québec (39.0%) and remained unchanged in Ontario (0.5%). - Commercial and industrial credit picked up a significant 1.2% in Québec (24.8%) and 0.1% in Ontario (0.5%). - Farm credit moved ahead 0.4% in Québec (46.9%) and stayed put in Ontario (0.5%).

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n Savings recruitment activities Strategy • Strengthen initiatives to encourage savings recruitment among entrepreneurs and Profile To effectively meet the growing needs of their businesses its members and clients, the Personal and The Personal and Commercial segment relies on Commercial segment seeks to help provide two broad groups of products to recruit savings. Outlook a full range of diversified, personalized and The first encompasses savings products offered competitive savings products and services to its The Personal and Commercial segment plans to individuals, businesses and governments and members and clients, individuals and businesses to step up business development in the area appear as liabilities on the balance sheet, i.e. alike, in Québec and across Canada. of investment savings among individuals and all forms of deposit. These products constitute businesses in Québec, Ontario and elsewhere in the largest source of funding to support its To this end, the following strategies are used: Canada by promoting its cooperative difference expansion efforts. The second comprises and the high quality of its products and services the financial assets administered or managed • Boost market shares in targeted sectors with the goal of boosting its presence among on behalf of its members and clients, more through a range of services that changes the various categories of savers. specifically, investment funds and other types with and is adaptable to the needs of of securities such as stocks, bonds and Treasury each segment of investors—all the while bills. These products do not appear on the emphasizing the Desjardins cooperative balance sheet. difference • Optimize distribution and continue improving the synergy among the sales teams in all Desjardins Group’s components

2008 Achievements – Savings recruitment activities

n Launched the “Development of the asset management sales force” project, created to leverage the skills and competencies of all our employees. The caisses all bought into this initiative, designed to, among other things, increase member loyalty, win back clients from the competition, and forge ties with non-members.

n Held the annual tour of savings and investment partners through the “Le tout Desjardins derrière la caisse” event, reaching the 6,500-odd people who make up Desjardins Group’s sales force. Manage m ent’s Discussion an d A nalysis

n Created a new tool for sales managers: the Performance Workshop—A Potential to Exploit. Offered in DVD form, this tool will help them further business development, particularly in the area of personal financial planning.

n Enriched the savings and investment offer for caisses under the Ontario Executive Division by making the entire line of Desjardins Group products and services available to them.

n As a result of a $150 million issue authorized for 2008, Capital régional et coopératif Desjardins raised $126.4 million between March 18 and December 31, 2008. Purchasers of this issue received a 50% tax credit on up to $5,000 of investment.

n Introduced the tax-free savings account (TFSA). Endorsing this government measure, Desjardins Group took all the necessary actions to ensure its members and clients would be able to take advantage of this account on January 1, 2009 and thereby reduce their tax burden.

n For a fourth consecutive year, the AccèsD call centre obtained COPC (Customer Operations Performance Center) certification, the only financial institution to earn this honour in North America.

n After years of work and collaboration, launched the chip card in the Saint-Jérôme region. A broadbased deployment of this new technology Desjar d ins group began in the last quarter of 2008.

n Introduced “strong authentication” to enhance security for member and client users of AccèsD. This method improves transaction security, cuts the risk of fraud and demonstrates the Group’s commitment to protecting the personal information of its members and clients.

n Confirmed Desjardins Group’s leadership in online financial services with AccèsD. Launched in 1996, this service is a fully secure, integrated and effective financial management tool with a market share of about 56% in Québec.

n The Personal and Commercial segment’s share of the personal savings market in Québec and Ontario was as follows in 2008: - On-balance sheet savings (chequing accounts, regular savings, and term deposits) increased slightly by 0.2% in Québec (43.1%) and held steady in Ontario (0.6%); - Despite the difficult context, off-balance sheet savings were up by 0.5% in Québec (9.9%) and remained unchanged in Ontario (0.1%), more specifically: . Securities brokerage advanced 0.6% in Québec (8.5%) and held steady in Ontario (0.1%); . Investment funds grew 0.1% in Québec (12.7%) and held steady in Ontario (0.1%); . Social venture capital funds such as Capital régional et coopératif Desjardins were up 2.7% in Québec (11.1%).

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n Credit card activities Strategy To this end, the following strategies are used: Profile The strategy is to ensure the profitable • Adapt the credit process to the target markets management, development and evolution of Credit card activities are carried out by its credit and debit card offering by leveraging • Support Canada-wide development by Desjardins Card Services (DCS), a business the calibre and skills of its employees through offering payment and financing solutions unit of the Fédération des caisses Desjardins various technologies, namely, by: to large merchants du Québec. With 4.1 million credit card holders and 6.2 million debit card holders, DCS is • Continue to automate business processes • Developing business models the largest issuer of credit and debit cards • Continue to improve online account in Québec, providing its diverse clientele with • Setting objectives, priorities and means management services for the benefit a full range of products and services (card of achieving them of individual and business clients payment services for individuals and businesses, • Ensuring business and skills development client loyalty through the BONUSDOLLARS Outlook • Managing the offering (including those Reward Program, and payment services to of the subsidiaries) • Implement the Verified by VISA service, some 47,700 merchants). • Developing the products and services with developed to make online shopping safer for card holders and online merchants. DCS offers consumers financing solutions a view to maximizing operational and such as Accord D (a separate, second limit distribution efficiency • Forge partnerships with credit unions on the VISA Desjardins credit card), available • Striving to constantly improve service quality and merchants across Canada. from more than 6,500 merchants across • Design and develop a new consumer Canada and also offered by the Desjardins Moreover, as a first-rate partner, DCS strives to loans business model. caisse network when amounts under $50,000 help the caisses achieve their business objectives • Conduct an in-depth review of are involved. In addition, DCS offers financing by applying the highest service quality standards the collection system and optimize for automobile and durable goods purchases. to both its individual and business clienteles, the process. Update Falcon, the credit Business financing is also available through whether or not they are caisse members. card fraud prevention system. such products as Business Freedom Solutions, Accord D Business financing, the Business card, • Position the e-business strategy. and the Purchasing card. • Automate the Corporate and Business lines. Manage m ent’s Discussion an d A nalysis

2008 Achievements – Credit card activities

n Contributed $86 million to the surplus earnings of the Personal and Commercial segment, compared to $143 million in 2007, due to an unusual

Desjar d ins group loss of $5 million after taxes ($64 million gain in 2007) by the Personal and Commercial segment as a result of the restructuring of the VISA business model.

n Business volume grew 15.0% to $49.8 billion.

n Québec market share reached 51.9%.

n Launched the chip card in Saint-Jérôme and deployed it gradually to clients and merchants’ POS terminals.

n Inked an agreement with Leon’s Furniture Limited to become its main provider of payment and financing solutions in the Canadian market.

n Integrated the teams of the Automobile and Durable Goods financing business line.

n Launched the Overdraft Transfer service.

n Ensured fraud prevention management for merchants and continued overall fraud prevention efforts.

n Obtained PCI – DSS (Payment Card Industry – Data Security Standard) certification for point-of-sale terminals.

n Launched cell phone insurance for the JUST FOR STUDENTS card. A first in Canada, this protection covers lost or stolen cell phone and is offered at no charge.

n Signed an agreement with Université Laval for the Corporate and Purchasing card programs.

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n Investment fund and trust To this end, the business unit applies • Continue growing the Immigrant Investor service activities the following strategies: Program in order to provide the business centres with an ongoing revenue stream in Profile • Place investors’ interests at the heart the form of subsidies from this government The Investment Funds and Trust Services of every business decision program for members of participating caisses Executive Division of the Fédération des caisses • Develop and market competitive products Desjardins du Québec comprises the following and services tailored to the needs of Outlook legal entities: Desjardins Trust Inc. and Desjardins Desjardins members • Consolidate strengths in all business lines Investment Management. A manufacturer, and step up growth. wholesaler and distributor of specialized savings • Provide Desjardins members with access products, this division oversees the private to the expertise and know-how of the best • Stimulate Desjardins Group’s Canada- management, securities custody and trust portfolio managers in the world wide development by implementing the services offered by Desjardins Group. • Develop investment solutions in the form business strategies of Northwest & Ethical of predefined portfolios with optimal Investments L.P. Strategy diversification by asset class, management • Maintain a dominant position in Québec style and geographic region The Investment Funds and Trust Services and in Canada as a provider of socially Executive Division endeavours to further • Leverage the strategic alliance between responsible investment products. the development of the caisses by offering Northwest Mutual Funds and Ethical Funds • Actively participate in the asset management them quality, competitive and high performing to penetrate the Canadian market of Desjardins members and clients by offering products and services. • Remain the leading institutional custodian in innovative, top-performing products tailored Québec with an offer that meets the highest to each stage of their financial lives. standards for quality, compliance and rigour Manage m ent’s Discussion an d A nalysis

2008 Achievements – Investment fund and trust service activities

n The year was clouded by bad economic and financial news around the world, culminating in an outright financial crisis that was unfavourable Desjar d ins group to financial products.

n Desjardins Funds had $9.7 billion in assets at the end of 2008, down 20% from the same time last year. Net sales fell 79% to $40 million in 2008. The two periods of comparison reflect the best year (2007) and worst year (2008) in Desjardins Funds’ history.

n Changes were made to the investment objectives of three Desjardins Funds following shareholder approval in November 2008.

n Northwest & Ethical Investments L.P. (50% owned by the FCDQ) ended its first year of operation with assets of $3.7 billion and negative net sales of $145 million.

n Assets under discretionary portfolio management shed 2.9% from the same period last year to $1.7 billion as at December 31, 2008.

n The asset custody services at Desjardins administer $156 billion in assets belonging to Québec’s largest public, parapublic and private institutions and companies. In 2008, Desjardins held on to its leadership position in this niche with one-third of the Québec market share.

n The asset custody team enhanced its control and compliance measures to conform to the highest industry standards.

n The Immigrant Investor Program continued to grow in 2008, capturing an additional 6% of the Canadian market in this investment segment and confirming Desjardins Group’s leadership in this field.

n Another record was set in 2008 when Desjardins Trust opened its 10,000th investment account, a first in this industry.

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n Central fund activities - Derivative financial instruments and other • Consolidate CCD’s position as an important treasury products (foreign exchange, rate player in banking syndicates for large Profile swaps and option) Québec-based corporations. Caisse centrale Desjardins (CCD) is a cooperative - Asset-liability matching • Maintain proactive account management financial institution owned by the Desjardins to preserve CCD’s portfolio quality. caisse network. It acts as Treasurer for Desjardins • Acting as a service provider for businesses and institutions, in support of the caisse Group and as its official representative with Outlook the Bank of Canada and the Canadian banking network: system. Concurrently, as a supplier of funds - Financing and banking services offered to • Pursue segment-based and geographic to the caisse network, CCD taps global capital the private, public and parapublic segments diversification of the loan portfolio. markets to maintain the liquidity levels required - A comprehensive line of international • Step up development of the foreign for the smooth functioning of Desjardins products and services exchange and treasury product offering. Group’s operations. - Banking services to individuals and small • Review Desjardins Bank’s offering to ensure a good fit with the new needs of caisse CCD offers banking and financial services enterprises, and business loans in Florida members in Florida. to Desjardins entities, government institutions, through Desjardins Bank medium-sized enterprises and large corporations, - Providing financing to firms with • Facilitate U.S. banking operations for caisse and also provides international services to caisse operations in Canada and the United network business members by continuing network members. Its operations generate States through Caisse centrale Desjardins to enhance and expand the service offering, spinoffs for the entire Desjardins Group. U.S. Branch including a review of factoring products. • Continue with the mortgage loan CCD conducts its operations in Canada and Thanks to the support of Desjardins Group, securitization program. abroad in cooperation with the other Desjardins the credit ratings assigned to CCD by the • Float additional issues on European Group components, for which it plays a main rating agencies are among the best in and Canadian markets in order to supply complementary role. the financial industry in Canada and the world. the caisse network with liquid assets.

CCD’s operations include: Strategy • Roll out a securitized bond program for an additional source of financing. • Acting as Treasurer for Desjardins Group: • Complete implementation of the Desjardins Group Treasury function. • Deploy a new automated foreign exchange - Financial settlement and clearing of items transaction solution with the caisses. through the caisse network across Canada • Continue to promote the value added and internationally by CCD in its role as partner to the caisses - Obtaining funds on domestic and and business centres by focusing international capital markets to meet on its expertise in specialized sectors, Desjardins Group’s liquidity requirements in supporting expansion into external markets and in international products. - Securitization operations as a source • Carry on development of the Ontario Manage m ent’s Discussion an d A nalysis of funds for Desjardins Group institutional segment in conjunction with - Managing statutory liquidity for the Ontario caisses populaires and Desjardins the caisses Credit Union.

2008 Achievements – Central fund activities

n Securities issued on European markets totalling close to $1.3 billion at the beginning of 2008.

n Maintained presence in the securitization market for mortgage loans guaranteed by the Government of Canada under the Canada Desjar d ins group Housing Trust program. Desjardins, through CCD, is a major player in the Canadian mortgage securitization market, with a volume of close to $1.6 billion in 2008, or approximately $400 million per quarter, with five-year terms.

n Supplying the entire Group, in an unstable economic environment, with the required liquidity for carrying on operations and ensuring its development.

n Growth of 37% in amounts outstanding in the business and institutional segments. Activities with medium-sized enterprises, large corporations and the institutional sector continue to rely on three main strategies: a) the role of bank syndication agent or co-agent; b) segment-based expertise; c) geographical diversification.

n In international services, annual growth of 14% for all services (foreign exchange, access to traders, letters of credit, transfers, etc.).

n Opening of a new office in Calgary to be closer to the Western Canada client base.

n Outstandings at Caisse centrale Desjardins U.S. Branch increased by 69% in 2008. This CCD unit serves firms that do business with Desjardins and who are expanding to the United States.

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LIFE AND HEALTH insurance, savings and retirement products DFS defined five broad orientations 2.2 and services through employees and partners in its 2006-2008 Strategic Plan: INSURANCE committed to ensuring the satisfaction of clients and caisse members. n Promote accelerated and profitable business growth among Desjardins caisse members PROFILE As a member of Desjardins Group, DFS by enhancing the caisses’ offering through strives to accomplish the following: value-added life and health insurance products, Desjardins Financial Security (DFS) ranks fifth in partnership with Desjardins Group. among life and health insurers in Canada, and n Optimize its special relationship with n In other Québec markets, become a leader first in Québec. It offers a combination of life the caisse network in group insurance and outpace industry and health insurance coverage and innovative n Be recognized across the country by its growth in the areas of group retirement savings plans to individuals as well as to groups distributors as a partner of choice with savings, individual insurance and direct and businesses through a variety of distribution high-quality, competitively priced products insurance. Grow the personal savings channels, providing peace of mind to more than and services in the markets it serves market by maximizing the potential of SFL, five million Canadians. its partner and primary distribution network. n Be recognized as a company that meets DFS has two main subsidiaries: Desjardins its clients’ expectations by offering them n In selected markets outside Québec, Financial Security Investments Inc., a mutual excellent value and a cohesive experience double its total market share, primarily fund and insurance brokerage firm, and in all their dealings with the firm through acquisitions. Sigma Assistel Inc., a provider of telephone n Be an organization whose employees n Achieve competitive advantages by assistance services. are committed to client satisfaction, to continuing to improve the operational achieving the company’s growth targets, efficiency of every segment.

STRATEGY and to developing its business agility n Achieve balanced business operations and ability to innovate through sustainable overall performance: Desjardins Financial Security’s mission is to n Implement processes and technologies satisfying caisse members and clients by meet the changing financial security needs to offer clients and partners competitively- having motivated employees, and meeting of individuals, groups and businesses by offering priced services and integrated solutions shareholders’ performance expectations. a broad spectrum of customized life and health



• Net earnings of $34 million; if it hadn’t been for the losses associated with the financial crisis, net operating 2008 Manage m ent’s Discussion an d A nalysis ACHIEVEMENTS earnings would have amounted to $191 million. • In-force insurance grew 7.3%. • Net premiums up 11.4% to $2,868 million: - 17.0% increase in insurance premiums outside Québec; - 6.4% increase in insurance premiums in Québec. • Individual life insurance sales advanced 5.0%. • Sales of savings products rose sharply: - 19.0% increase in group retirement savings sales; - 71.7% increase in individual savings sales. • 17.1% growth in premium volume for products sold directly.

• 7.8% increase in premium volume for credit life insurance. Desjar d ins group • 5.9% return on shareholder equity in 2008 and 18.0% over 3 years (2006–2008). Excluding the impact of the financial crisis, the return was 24.0% in 2008. • Maintained solid capitalization despite the global financial crisis. • Innovations in savings products: - Three features added to the Helios product: guaranteed lifetime withdrawal benefit with predictable age-based income for life, an annual protected value reset and an annual accumulation bonus; - Transition account converted into a tax-free savings account (TFSA); - Launched a tax-free savings account for group retirement savings; - A new secure Web site to help pension plan sponsors manage their plans on a daily basis. • Sigma Assistel, DFS’s telephone assistance subsidiary, obtained ISO 9001:2000 certification. • Complexe Desjardins, owned by Desjardins Financial Security, was named Best Office Building of the Year in the Renovated Building category at the BOMA (Building Owners and Managers Association) International Awards.

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OUTLOOK Desjardins Financial Security’s new three-year In the area of retirement savings, new plan is underpinned by the following strategic retirement solutions will continue to appear, In 2009, Desjardins Financial Security will orientations: particularly since a growing number of baby develop a new, three-year Strategic Plan boomers will be entering the five- to ten-year that will help it firmly hold on to its position n Seek operational balance between clients, transition toward the payout of their retirement in the financial services market and give it employees and shareholders through savings. If the stock markets remain depressed an edge in a fiercely competitive industry. sustainable overall performance during this period, as they were in 2008, these Stepped up organic growth will therefore be future retirees could end up with less income n Meet client needs while continuing the cornerstone of the company’s 2009–2011 than they expected once they retire. to offer competitive services and prices Business Plan. n Step up organic growth and continue With respect to individual life insurance, the The overriding objective is to achieve a better to expand nationally market is highly segmented. The industry, and balance between its activities in the insurance n Improve the risk profile by having both especially advisors, will continue to focus their and savings (personal and group) markets by the geographic sectors and the business efforts on high-end segments, but not to the seizing every business opportunity they offer. lines contribute equally to revenues point of neglecting the others. The introduction This balance will shield DFS from fluctuations of the tax-free savings account (TFSA) confirms n Maintain solid profitability in the economic cycle. DFS will continue to the importance of universal life insurance in actively build on its breakthroughs in markets the high-end market. Growth in the individual across Canada, which will also help it balance INDUSTRY life insurance segment will hinge on two its business geographically. The aging population, immigration and factors: access to new distribution networks new family structures are strong demographic or channels, and offering new living benefits DFS will focus more on the savings market, trends that will all impact supply and demand products such as critical illness and long-term first, in order to achieve the market balance for financial products and services in the next care insurance. These products are expected objective, and second, because baby boomers two decades. to appeal to baby boomers, who as they age, offer tremendous business opportunities in this are becoming increasingly concerned about segment, since they hold 41% of all invested In the group insurance and retirement savings preserving their quality of life in case of loss assets and are looking for safe investments in area, employers will increasingly use their of autonomy. order to ensure their retirement income. benefit plans to attract and retain workers. This trend is emerging because benefits are Lastly, the direct distribution market is growing As regards the insurance segment, DFS plans to perceived as having value. In light of the aging and will require innovation on the part of the outpace industry growth in individual insurance. population and impending retirement of a industry players. At the same time, it will forge ahead in the massive number of boomers, employers group and business insurance segments, where must offer health benefits and have a strategy ANALYSIS OF FINANCIAL RESULTS it has been growing rapidly since the beginning for allowing them to transition from group of the decade, increasing its market share from to individual insurance. The trend in the private Like most of Canada’s financial institutions, 4.3% in 2002 to 5.6% in 2007 and climbing sector to replace defined benefit plans with Desjardins Financial Security was not spared to fourth place in Canada. defined contribution plans will continue by the financial crisis of 2008. As such, net Manage m ent’s Discussion an d A nalysis to affect this segment. The industry will also earnings were $34 million as at December 31, More specifically, in direct and credit insurance be focusing on payout products, client retention 2008, compared to $217 million as at the offered through financial institutions, the goal and retirees’ assets, using group accounts that same date in 2007. The portion of net earnings is also to outpace industry growth, particularly can be accessed by individuals and from attributable to the ultimate shareholders, the in direct insurance. integrated retirement platforms. Desjardins caisses, was $40 million, $171 million less than in 2007. Despite the market turmoil that took its toll on profitability, return on equity These are the main growth thrusts of the In the credit insurance market, a growing shift was 5.9%, for an average of 18.0% over three DFS 2009-2011 Business Plan, which will in credit transactions from financial institutions years. Excluding losses associated with the be updated in 2009 to ensure coherence to points of sale (car dealerships, furniture financial crisis, the return would have been with Desjardins Group’s new Strategic Plan, stores, etc.) poses a challenge both in terms 24.0% for 2008. which will be deployed from 2010 to 2012. of adapting these products and integrating them into these distribution channels. Desjar d ins group

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With respect to overall business growth, income Net Premiums DFS had an excellent year in 2008 in the area from insurance and annuity premiums rose (in millions of $) of savings products, where sales surged almost 11.4% in 2008 to $2,868 million, compared 50.0%, totalling $692 million. The quality of with $2,575 million in 2007. the products, combined with efforts to promote them, explains this strong growth both in 2,400 Net insurance premiums reached $2,553 million, Québec (up 42.4%) and in the rest of the country (up 52.6%). up $223 million from 2007. In Québec, overall 2,000 growth in premiums across all business segments 2,138 was 6.4%. With a 17.0% increase, premiums 1,600 937 In individual savings, sales reached $432 million, rose sharply in the other provinces, particularly 1, an increase of $180 million over the previous year. 692 in group insurance. Individual insurance sales 1,200 1, Annuity sales were up 9.0% across the industry picked up 5.0%, beating expectations for in the first three quarters of 2008, while sales of Québec. AssurFinance for Individuals, a 800 guaranteed investment fund contracts advanced distribution network exclusively for Desjardins 7.0%. DFS saw guaranteed investment fund sales 415 393 caisse members, saw sales grow by 15.2%, 374 372 jump 113.5% over 2007, to $316 million. This 400 315 confirming the relevance of this network, which 245 excellent performance was largely fuelled by was set up in the early 2000s and which has now 0 the Helios product, in addition to optional successfully completed the development phase. guarantees such as the Guaranteed Minimum

2006 2007 2008 Withdrawal Benefit (GMWB) and Guaranteed In the savings sector, sales and new deposits Lifetime Withdrawal Benefit (GLWB). These picked up by 4.4% in 2008, to reach products appeal to consumers looking for a Group insurance $1,155 million. Due to stock market volatility predictable return and seeking to preserve and shrinking returns, consumers moved away Individual insurance their capital. The result of this trend is a from mutual funds, with the result that sales decrease in mutual fund sales. Saving in this category fell 27.2% to $463 million. However, sales of Helios and Millenia segregated funds jumped 113.5% to $316 million. As for group savings, sales totalled $260 million, In 2008, individual insurance sales grew by up 19.1% over 2007, due to large immediate $2 million over 2007, to $44 million, fuelled annuity contracts signed during the year. in large part by sales in Québec. More specifically, sales by financial security advisors assigned Group and business insurance sales reached to the Desjardins caisses rose 15.2% over 2007, $137 million. Total group insurance premiums, to $19 million. including group and business insurance premiums, premiums tied to plans offered by financial In individual insurance, premium volume institutions (including the Desjardins caisses), was $415 million, an increase of $22 million and a premium equivalent for administered over 2007. The volume of premiums and the groups (ASO), reached $2,220 million, compared number of in-force contracts sold by the Manage m ent’s Discussion an d A nalysis with $2,005 million in 2007. These premiums network of financial security advisors assigned have shown average growth over 10.0% in to the Desjardins caisses increased by 20.7% the last five years. Two main factors account for and 10.1% respectively over the previous year. the 10.7% increase in 2008: strong group and In addition, the volume of premiums tied to business insurance sales combined with growth products distributed without a representative in loan insurance. The total volume of insured grew 12.3%, to $63 million. credit, encompassing both loan life insurance and loan disability insurance, continues to rise.

TABLE 4 DESJARDINS FINANCIAL SECURITY

Selected data for years ended December 31

(in millions of $ and as a %) Desjar d ins group

2008 2007 2006 Insurance and annuity premiums $ 2,868 $ 2,575 $ 2,438 Net investment income(1) (101) 514 674 Expenses attributable to policyholders 2,089 2,215 2,361 Operating expenses 490 473 451 Income taxes on earnings 22 71 51 Net earnings(1) 34 217 151 Net earnings attributable to the shareholder(1) 40 211 146 Net earnings disregarding the impact of the financial crisis 191 234 146 Return on equity(1) 5.9 % 27.5 % 20.7 % Assets under management – general funds $ 13,759 $ 15,308 $ 12,804 Assets under management – segregated funds 2,051 2,247 2,112 Assets under administration (mutual funds) 3,856 5,021 5,028

(1) Data for 2008 were affected by the financial crisis and ABCP.

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As for group retirement savings, sales advanced In 2008, expenses attributable to policyholders, disability insurance, increased the benefit 19.3% to reach $260 million. This increase which include insurance and annuity benefits, expense to $2,062 million ($1,953 million is attributable to sales growth outside Québec, policy dividends and refunds, interest on in 2007), while the temporary decline in mainly of immediate annuities. benefits and sums deposited, as well as changes investments considered in the calculation in actuarial liabilities, decreased by $126 million, of the actuarial liabilities reduced expenses to $2,089 million. Business growth, mainly in by $500 million ($69 million in 2007). Group Insurance Premiums by Distribution Network Total DFS assets under management and (in millions of $) Individual Insurance Premiums under administration were $20 billion at by Distribution Network year-end 2008, down 12.9% from the same (in millions of $) time in 2007. This decline essentially stems 2,250 from the decrease in the fair value of investments 2,000 resulting from the global financial crisis and

1,750 1,601 the liquidity crunch. The volatility is accounted 500 for on the balance sheet in the valuation of the 1,500 1,430 assets under administration, which was carried

1,250 1,210 400 out according to current accounting policies.

1,000 281 278

300 273 750 500 200 537

250 507 482 0 100 134 115 101 2006 2007 2008 0

Members of Desjardins Group 2006 2007 2008

Other clienteles Members of Desjardins Group

Other clienteles

TABLE 5 DESJARDINS FINANCIAL SECURITY Manage m ent’s Discussion an d A nalysis Expenses attributable to policyholders for years ended December 31 (in millions of $)

2008 2007 2006 Insurance and annuity benefits $ 2,062 $ 1,953 $ 1,806 Changes in actuarial liabilities (117) 162 455 Policyholder dividends and refunds 133 87 90 Interest on benefits and deposits 11 13 10

$ 2,089 $ 2,215 $ 2,361 Desjar d ins group

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GENERAL Strategy DGIG is extending the implementation 2.3 of its 2006-2008 Strategic Plan into 2009, INSURANCE DGIG wants to be recognized as the leader in close cooperation with Desjardins Group. in the general insurance sector in Canada — In 2008, DGIG launched a strategic reflection a status it plans to achieve through the skills process tied to those already under way in Profile and commitment of its employees, its in-depth Desjardins Group. knowledge of the general insurance field, In an industry comprised of around 100 insurer an approach based on providing the best OUTLOOK groups, Desjardins General Insurance Group price-quality ratio in profitable markets, (DGIG) is the eleventh most important player a corporate culture centered on rigorous The industry’s profitability in 2008 was heavily in the Canadian general insurance market and management practices and a results-oriented affected by the reduced returns on investments the country’s seventh largest personal insurer. focus. Moreover, it plans to fully reap the and by deteriorating loss experience. Through its five subsidiaries, DGIG provides its rewards of its partnership with the Desjardins different client segments with all the coverage caisse network and its relations with various The unfavourable impact of the global financial they need to protect material assets, as well as other groups. crisis affected insurers’ investments in 2008 financial compensation for bodily injuries resulting and caused a recession that will set the tone from automobile accidents in provinces other DGIG’s strategy is focused on the following: for 2009. Furthermore, the rising cost of than Québec. Desjardins General Insurance claims in Ontario and Alberta and the constant targets individuals and small businesses n Continuing to develop its competitive increase in the number of climate-related events in Québec through agents located in the advantages to maintain superior profitability, that affect the industry are all evidence of a Desjardins caisse network as well as a while upholding its operational excellence downward trend in loss experience. specialized call centre. The Personal General n Achieving dynamic and profitable growth Insurance company distributes auto and outside of Québec through an emphasis Earnings in the commercial segment were also property insurance products in Québec, on the individual segment of the “group” down in 2008 due to rate decreases in previous supported by various groups (professional market and the profitable development years and several major claims. associations, employers, unions) acting as of a “mass market” approach to the partners. It carries out the same activities individual segment Industry results should continue their downward with groups outside Québec. These two trend in 2009. Rate increases approved by n Maintaining its profitable growth in entities mainly sell their products through call  the authorities are not sufficient to cover Québec, specifically for the individual centres. Lastly, two other subsidiaries, insurance increased claims costs and investment income segment of the “group” and “mass” companies Certas Direct and Certas Home will remain low. markets, the latter in partnership with and Auto deal directly with consumers, mainly the Desjardins caisse network in Ontario and Alberta. The recession could give rise to more fraud n Making a positive contribution to the attempts, but also encourage clients to limit performance of Québec businesses car travel, which tends to reduce the frequency n Ensuring the development of its insurance of accidents. expertise and a future generation of Manage m ent’s Discussion an d A nalysis committed employees

2008 • Net earnings of $36 million for a return on equity for shareholders of 8.5%, which was strongly penalized ACHIEVEMENTS due to loss experience and low investment income resulting from the financial crisis and global recession. • Growth in all business lines. • Quality of compensation service maintained despite the record number of claims processed. • Successful launch of the Desjardins brand in the overall Ontario auto market through a major media campaign. • Entry into new partnership agreements for the distribution of insurance to groups, representing 200,000

potential clients. Desjar d ins group • Pursuit of work toward a major technological migration in 2010. • Creation of a new corporate image, including a brand promise, positioning and a creative platform for its banner The Personal, which is active in group insurance across Canada. • Complete revision of the training program for new employees and managers on the organization’s corporate culture, mission, vision and values. • New investment policies adapted to the new financial context, risk management and business opportunities.

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DGIG will continue to adapt its profitable represented the remaining 42%. The 10 largest Rules throughout Canada regarding growth strategy to the changes in the insurance insurance groups with regard to premiums underwriting, segmentation and rates in cycle across Canada. The strategic reflection written accounted for 55% of the industry in the home insurance sector are less strictly process undertaken by the Desjardins Group Canada. The degree of consolidation is greater regulated than those for automobile insurance. in 2008 will generate new development in personal insurance, with the five and opportunities. The development of the large ten largest insurers respectively representing Inflationary pressure on claims costs and auto market in Ontario under the Desjardins 46% and 73% of the market. This trend the stability of investment returns brought the brand will continue. The management of towards consolidation may well continue industry’s profitability down to 14.7% in 2008, investments will be closely monitored in the over the coming years. compared to returns of more than 15% over context of risks and business opportunities that the three previous years. The global recession, may arise if the financial markets pick up again. In the Canadian market, 68% of companies unstable financial markets and the industry’s sell their products through brokers while 32% inability to have rates increase at the same With the decreasing industry returns are direct insurers. This latter group, which has pace as rising claims costs should again have and pressures on capital, some insurers may been growing steadily over the last few years, a negative impact on industry results in 2009. become available for sale. DGIG intends to is more active in the personal insurance sector, take advantage of these business opportunities with a 41% market share (59% in Québec). ANALYSIS OF FINANCIAL RESULTS to meet its growth objectives. Ontario is the leader as regards premiums, As at December 31, 2008, Desjardins General INDUSTRY accounting for 46% of the market. Automobile Insurance Group generated net income of insurance is the most important business line, $41 million, down from $140 million in 2007. Canada’s general insurance industry did not representing 45% of all premiums. The portion of its net earnings attributable to its undergo any significant changes in 2008. On shareholder, Desjardins Group, was $36 million the other hand, some important trends, such Automobile insurance is administered by with a return on equity of 8.5%, compared to as increased market share by direct insurers, public authorities in British Columbia, Manitoba $126 million and 26.7% respectively last year. were maintained. In 2008, the total market and Saskatchewan. In Québec, bodily injuries As with the rest of the industry, DGIG had volume of premiums was $37 billion, divided as resulting from automobile accidents fall under higher home insurance loss experience and follows: personal insurance accounted for 58% the government’s purview. Moreover, this same lower investment income. of the total market, while commercial insurance sector is highly regulated in Alberta, Ontario and the Maritimes.

TABLE 6 DESJARDINS GENERAL INSURANCE GROUP

Selected data for years ended December 31 (in millions of $ and as a %)

2008 2007 2006 Gross premiums written $ 1,460 $ 1,429 $ 1,412 Manage m ent’s Discussion an d A nalysis Net premiums earned 1,426 1,379 1,376 Combined ratio 97.8 % 92.5 % 91.9 % Underwriting profit(1) $ 32 $ 103 $ 111 Investment income(1) 24 104 78 Net earnings(1) 41 140 119 Net earnings attributable to the shareholder(1) 36 126 107 Return on equity(1) 8.5 % 26.7 % 25.2 % Total assets $ 2,882 $ 3,147 $ 2,664

(1) Data for 2008 were affected by the financial crisis and ABCP.

The combined ratio, which represents record snowfalls in winter 2008 caused infiltration, wind and hail. The weather in total claims and operating expenses extensive damage to structures and swimming 2007 was very favourable by comparison, divided by net premiums earned, was 97.8%, pools. Secondly, the spring and summer were with very few major events. Desjar d ins group a 5.3-point increase over 2007. This increase rainy and multiple thunderstorms generated is primarily due to the higher home insurance a large number of claims caused by water loss experience across Canada. First of all,

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Automobile insurance results in 2008 did Over the past two years, DGIG has invested DGIG experienced a 1% growth in volume not vary much compared to 2007. Accidents additional amounts to increase its growth due to the addition of new group insurance and thefts decreased in Québec compared to capacity, product offering, underwriting partners and partnership renewals. Premium 2007, despite the hailstorm on June 10, 2008. and rates expertise, as well as technological income from commercial insurance in Québec The lower cost of claims in operations outside development teams. These choices explain was $57 million. Québec for years prior to 2008 offset the its higher operating expenses ratio. Some key higher number of civil liability insurance claims. priorities include additional expenses related Gross premiums written to the media campaign in Ontario, a project (in millions of $) to implement a new technology platform, Combined ratio the development of e-commerce and (as a % of net premiums earned) underwriting rules. 900 The investment market performed very poorly 120 in 2008. DGIG was affected by the 40% drop 750 801 779 in common shares on global stock markets. 767

100 97.8 Earnings from common shares were dramatically 600 92.5 91.9 659 650 reduced as were investments in asset allocations 645 80 and resources. 450

60 Gross premiums written rose 2.2%, or $31 300 million, compared to last year, despite the lower 40 automobile insurance rates in Québec. In the 150 individual market, growth was generated by the 20 partnership with the Desjardins caisses and the 0 major initiative in Ontario under the Desjardins 0 General Insurance (DGI) trademark. The latter 2006 2007 2008 segment increased 6% in 2008.

2006 2007 2008 Individual market

Group market Loss experience

Expenses

SECURITIES BROKERAGE, ASSET MANAGEMENT, Manage m ent’s Discussion an d A nalysis 2.4 VENTURE CAPITAL AND OTHER

Securities brokerage, asset It consists of securities brokerage activities OTHER management and venture performed by Desjardins Securities, asset management activities conducted by The “Other” category mainly includes other capital Desjardins Asset Management and venture Desjardins components and consolidation restatements for all components. This business segment brings together various capital investing carried out by Desjardins components boasting highly specialized fields Venture Capital. of expertise and working in close collaboration with the Desjardins caisse network and Desjardins Group’s various subsidiaries. Desjar d ins group TABLE 6 SUMMARY OF RESULTS – SECURITIES BROKERAGE, ASSET MANAGEMENT AND VENTURE CAPITAL

Selected data for years ended December 31 (in millions of $)

2008 2007 2006 Total income $ 355 $ 404 $ 386 Non-interest expense 387 379 366

Operating earnings (loss) (32) 25 20

Income tax (recovered) on earnings (3) 8 6

Net earnings (loss) $ (29) $ 17 $ 14

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The following strategies will help Desjardins The group of eight firms owned by the major ACTIVITIES Securities carry out this vision: Canadian banks as at November 30, 2008, (full-service and online brokerage) held • Continue to develop Desjardins Securities the following: n Securities activities to its full potential so that Desjardins Group can take its rightful place in the securities • 3.9% of the total number of firms n Asset management activities brokerage industry • 60.4% of total industry income n Venture capital activities • Further develop employees’ skills and • 78.6% of total industry earnings n Other the quality of Desjardins Securities products in order to raise awareness of Desjardins As at November 30, 2008, the income among target clienteles of brokerage firms in Canada had fallen • Strengthen human, technological and by 17.2% compared to the same period in n Securities activities organizational infrastructures in order to 2007. In contrast, Desjardins Securities posted Profile foster growth and maximum profitability a decline of 5.5%. Desjardins Securities is Desjardins Group’s • Make Desjardins Securities a Best Employer securities brokerage firm. It provides individuals, by providing a stimulating and respectful Market review institutional investors, businesses and workplace for all employees The year 2008 can be summed up in one word: governments with the comprehensive line volatility. North American markets plummeted, of products and services associated with a Outlook posting losses of over 30% compared to a year fully-integrated brokerage firm. Individuals • Ensure the profitability of operating activities. earlier because of the financial crisis and are served by the Full Service Brokerage, deteriorating conditions world-wide. More Online Brokerage (Disnat) and Desjardins • Monitor operating expenses strictly. specifically, it should be noted that S&P/TSX Network Service divisions. The needs of • Continue the work begun by Caisse closed the year down 35%, its first decline in six businesses, institutions and governments centrale Desjardins towards increasing years. At the end of 2008, the Dow Jones, S&P are met by the Corporate Finance, the presence of Desjardins in corporate 500 and Nasdaq closed down 33.8%, 38.5% Fixed Income Group and Equity Capital Markets financing transactions (bank financing and 40.5% respectively. divisions. With a presence in all regions of and debt or property securities issuances). Québec, Desjardins Securities also operates • Work with the caisse network to increase In December 2008, the Dow Jones lost eight branches in Ontario, notably in Toronto, the proportion of personal financial assets 0.4% to close at 8,776.4. S&P 500 managed a North York, Peterborough and Sudbury. In in Québec managed by Desjardins. 1.1% (903.3) gain. Nasdaq rose 2.8% (1,577.0) addition, Desjardins Securities has a presence and the TSX lost 2.6% (8,987.7). The following in Vancouver, essentially to serve institutional • Continue implementing measures to segments proved to be the best performers: investors and very active independent investors. promote client loyalty and attract skilled basic materials (15.1%), consumer staples human resources. (8.0%) and industrials (4.1%); in contrast, Strategy • Maintain a compliance culture. the following declined: financials (-9.4%), energy (-8.9%) and technologies (-8.1%). Manage m ent’s Discussion an d A nalysis To help Desjardins Group achieve its objective • Participate in various synergy projects of becoming the largest wealth manager by with Desjardins Group. offering a complete line of quality financial Analysis of the financial results products and advisory services to Canadian Industry For the year ended December 31, 2008, individual and institutional clients. Desjardins The industry had a very bumpy ride in 2008. total income stood at $265 million compared Securities also seeks to support the growth Nevertheless, the Canadian securities industry to $291 million in 2007, a decrease of 8.9%. of businesses and entrepreneurs by rounding still consisted of 203 brokerage firms at This decrease is mainly attributable to a decline out the service offering of Desjardins Group, November 30, 2008, the same number as in income from the Services for Individuals as well as by assuming a leadership role in in 2007. It had hired 41,269 employees by segment and groups in the Equity Capital select activity sectors. that date (42,329 a year earlier), a decline Markets segment. of 2.5%. Desjar d ins group 2008 Achievements – Securities activities

n Services for Individuals: In December, a secured Internet site, dsia.ca, for Full Service Brokerage clients was successfully launched. This segment also prepared itself to offer tax-free savings accounts (TFSAs) starting January 1, 2009.

n Equity Capital Markets: The firm is recognized as an increasingly important player in the preferred shares market; it continued to increase its participation (reaching 12%) in issues by Canadian financial institutions.

n Fixed Income Group: This segment saw its market share grow in 2008. Desjardins Securities consolidated its ranking as eighth in Canada. Traded client volumes grew over those of competitors, who saw their volumes decline in 2008 in comparison with 2007.

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Income As at November 30, 2008, Desjardins Securities’ three investment areas: securities investments, (in millions of $) earnings fell 5.5% compared to 17% for mortgage investments and institutional comparable industry competitors. financing, as well as real estate investments.

300 In accordance with the development strategy Desjardins Asset Management manages adopted in 2001, Desjardins Securities continues $38.4 billion primarily from the equity of the

250 291 to make investments in order to raise its profile insurance subsidiaries and from management 273

265 in current markets and penetrate new ones, mandates assigned to it by other Desjardins 200 249 enabling it to strengthen its position in both Group components. 225 Québec and Canada. 150 Strategy The net loss for 2008 stood at $23.4 million Desjardins Asset Management aims to meet compared to net earnings of $0.6 million in 100 all the investment needs of its Desjardins 2007. Profitability in 2008 was severely affected Group partners, as part of sound risk by volatile and unpredictable financial markets. 50 management. To do so, Desjardins Asset Management collaborates closely with Desjardins 0 Remuneration paid to the Desjardins caisse Group Integrated Risk Management. Accordingly, network came to $13.0 million in 2008, Desjardins Asset Management helped implement

2004 2005 2006 2007 2008 bringing the total paid out since 2000 to the action plan that resulted from the internal $75.5 million. audit mandates discussed on page 40 and regarding ABCP and hedge funds in particular. As at December 31, 2008, total assets under Contribution to the Desjardins network management for Desjardins Securities stood (Referrals) In the context of the global financial crisis and at $16.3 billion, down $2.3 billion over 2007. (in millions of $) in accordance with the 2006-2008 Three-Year Equity totalled $46.9 million. Desjardins Securities Plan, the following strategies will help the complies with all capital-related regulations 16 company carry out its vision: imposed by regulatory organizations. 14 • Play an advisory role in terms of asset n Asset management activities 12 14.1 management with Desjardins Group partners 13.0

12.5 Profile 10 • Maintain solid expertise in asset management Desjardins Asset Management is a group of and adapt this expertise to meet client needs 8 Desjardins Group investment managers. 8.5 • Focus on development of savings and 6 investment products

6.4 Desjardins Asset Management has approximately 4 • Optimize operational and management 260 employees: 200 in its offices in Montréal, capabilities 2 Toronto, Vancouver and Québec City and sis M ana g ement ’ s D iscussi o n and A na ly about 60 at its subsidiary, Desjardins Property 0 Management. Its employees work primarily in 2004 2005 2006 2007 2008

TABLE 8 DESJARDINS SECURITIES

Selected data for years ended December 31 (in millions of $ unless indicated otherwise)

2008 2007 2006 Assets under management $ 16,309 $ 18,601 $ 17,603 Total income 265 291 273 D es jar dins g ro u p

Net earnings (net loss) (23.4) 0.6 (6.1)

Points of service 48 44 43 Total number of employees 1,041 1,303 1,268 In Québec 911 1,164 1,128 Outside Québec 130 139 140

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Outlook practices. Investors need to remain cautious, DVC manages the assets of nine funds, however, since the Canadian market is not each with its own specific mission for active In 2009, in line with Desjardins Group orientations, immune to corrections, in particular in Western participation in the economic development Desjardins Asset Management plans to carry out Canada and Ontario. of all regions in Québec. The funds include the following: the seven Desjardins private funds, as well as Analysis of financial results Capital régional et coopératif Desjardins (CRCD) • Give priority to continuing to closely manage and Desjardins – Innovatech S.E.C. Through its partners’ portfolios in the wake of major At $82 million, fee income was down 7.9% each of these funds and in tandem with market instability through close collaboration from 2007, largely because of the reduction Desjardins business centres, DVC has a with Desjardins Group Integrated Risk in assets under management due to the presence throughout Québec and supports Management poor performance of capital markets and 313 businesses, cooperatives and funds. • Finetune its business model and bring it into disinvestment in the underlying instruments for structured products managed by Desjardins line with Desjardins Group’s orientations As DVC’s main activity is to invest in businesses Asset Management. Operating expenses, at throughout Québec, it has investment managers • Develop savings, investment and payout $67 million, remained at the same level as in in 24 offices, most of which are located in products in compliance with Desjardins 2007. Desjardins Asset Management continued business centres with which they work closely Group Integrated Risk Management implementing its development plan related on a regular basis. DVC is thus in a position to • Optimize real estate portfolio management to improving its operational efficiency and offer entrepreneurs in all regions expert support with a view to attaining the target size for optimizing its management capabilities. tailored to their needs and their growth this asset class potential. Through a blend of its traditional Assets under management were down • Continue with promising investments financing and venture capital expertise, $12.4 billion or 24.5% from December 31, in technology in order to increase its Desjardins is able to support entrepreneurs 2007, essentially because of the global financial operational efficiency seeking advice and financing for their growth, crisis. Securities-related assets decreased succession and acquisition projects. considerably, but there was a slight increase Industry in the real estate and mortgage loan portfolios In order to meet the needs of entrepreneurs If 2008 was dominated by the credit and at Desjardins Asset Management. appropriately and support them effectively in liquidity crunch, 2009 began with the resulting their growing their business, DVC has designed global recession. As a result, the asset and n Venture capital activities a dynamic internal structure based on four investment management industry is facing Profile business lines: venture capital, development major challenges, especially the decline in fee capital, cooperative capital and resource income given the reduction in the value of Desjardins Venture Capital (DVC), a subsidiary regions, as well as major investments and assets under management. While the industry, of Desjardins, is a venture capital manager company buyouts. like Desjardins Asset Management, must show specializing in risk capital. As a manager, it considerable prudence, it must also stay alert has a dual mission: to help individual owners of in order to capitalize on the market’s recovery funds under management realize the expected when it happens. Unlike the U.S. real estate return on their investments and achieve their

Manage m ent’s Discussion an d A nalysis market, which experienced a meltdown, specific objectives, and to provide entrepreneurs the Canadian market held up fairly well, with the capital and strategic support necessary on account of its more conservative credit to expand their businesses.

TABLE 9 DESJARDINS ASSET MANAGEMENT

Selected data for years ended December 31 (in millions of $)

2008 2007 2006 Fee income $ 82 $ 89 $ 87 Operating expenses 67 67 63 Net earnings 11 16 17 Assets under management 38,355 50,773 46,671 Desjar d ins group

2008 Achievements – Asset management activities

n Gave priority to managing the impacts of the financial crisis on its partners’ and clients’ assets in order to protect their interests first and foremost, as well as those of Desjardins and its members.

n Actively participated in Desjardins Group’s efforts to deal with the asset-backed commercial paper (ABCP) securities crisis.

n Continued research into the development of new savings products for members and clients.

n Underwrote $521 million in new commercial mortgage loans nationwide.

n Received the title of The Office Building of the Year (Renovated Building category) for Complexe Desjardins at the BOMA (Building Owners and Managers Association) International awards. Complexe Desjardins is managed by Desjardins Property Management, a subsidiary of Desjardins Asset Management.

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Strategy Outlook The trends for growth cycles and new investments were similar to the previous year. Desjardins Venture Capital is able to provide In an ever-changing climate, the DVC team Growing or expanding businesses were at the entrepreneurs with a comprehensive and unique puts over 35 years of expertise at the service hub of activity, attracting 59% of investments, service offering. Its blend of diversified expertise of entrepreneurs, offering them innovative whereas emerging businesses attracted less and synergies allows it to construct financing financing solutions and a partnership based than 30% of investments. packages and development strategies adapted on increasing and supporting their growth to different socio-economic situations, such as so as to meet their wishes and anticipate The share of investments made in the Greater business transfers or buyouts, thus promoting their changing needs. Montréal region remained at the forefront the retention of jobs and business ownership in 2008, garnering 73% of investments. in the various regions. Industry The Hull-Gatineau region came second with After four years of growth, the Québec venture an 11% share, followed by Québec City with As part of its 2009 Business Plan, the following capital industry sharply declined in 2008, along 6% and Sherbrooke with 5%. This left the strategies will help DVC achieve its vision: with a massive slowdown on North American other regions with only 5% of all investments and international markets. Clear evidence of made in the course of the year. • Develop the management segment in order this decline was the fact that in 2008 $349 to diversify sources of funds and ensure million were invested in Québec, compared Lastly, in 2008 Québec was significantly affected income growth to $642 million a year earlier, representing a by the serious decrease in the proportion of • Promote true partnerships by proposing decrease of 45.6%. It should be noted that U.S. and foreign funds. Since 2003, investment solutions and added-value strategies the decline in activity in Québec is on par with activity had steadily increased to peak in 2007. customized to each individual business line that in Canada as a whole, which similarly fell Last year, the proportion of these funds • Promote the creation of workers’ cooperatives nearly 36%. This was the first twelve-month plummeted by 62% to represent only 22% for the purpose of sharing wealth recession in the Canadian market since 2003, of all investments in Québec. This had a major and the annual results are among the worst impact on the average transaction size, down • Contribute to the economic development since the mid-1990s. from $3.4 million in 2007 to $2.5 million in of Québec by meeting, year over year, 2008. Fortunately, tax-advantaged and private the regulatory target of 60% for eligible The slowdown in the Québec market affected funds in Québec continued to play a key role investments as a whole and 35% for all sectors, both technological and non- in supporting businesses in an extremely investments in cooperatives and resource technological. Unlike the trends of the previous turbulent market. regions, in accordance with the Act constituting year, activity in 2008 boosted the information Capital régional et coopératif Desjardins technology sector, which attracted nearly half • Develop business plans together with of all investments. In 2007, the life science business centres to round out their offer sector had attracted the lion’s share. • Become a leader in business transfers Manage m ent’s Discussion an d A nalysis

2008 Achievements – Venture capital activities

n Partnership with BioScience Managers Limited, an international private equity firm specializing in the life science sector, to ensure and boost DVC’s high-potential investments in this industry.

n Renewed Québec government confidence in DVC by transferring the assets of Innovatech du sud du Québec to Desjardins – Innovatech S.E.C. This type of transaction gives DVC an even higher profile among regional entrepreneurs. Desjar d ins group n Maintained business transfers at the core of DVC activities. In 2008, nearly $34 million were invested in 23 businesses to support them through this important stage of their development.

n Bought out two businesses, including an $11-million deal that allowed ownership of the business to remain in its home region.

n Established, in line with its cooperative difference, strategies promoting the rise of workers’ cooperatives that enable employees to share ownership of their company with the management team and Desjardins.

n Completed a CRCD economic impact study showing DVC’s major contribution to the economic development of the regions.

n Created an organizational strategy to promote the contribution of entrepreneurs in residence in the information technology and telecommunication sectors in order to increase the value of portfolio businesses.

n Developed a follow-up program for service delivery and satisfaction surveys for both business centres and portfolio businesses.

n Set up a CRCD asset management committee ensuring follow-up of the asset allocation platform and financial risks.

n Made new commitments of $73 million in 85 businesses, bringing the number of portfolio businesses to 313 and helping to maintain or create over 34,000 jobs.

n DVC declared a dividend in the amount of $3 million.

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Analysis of the financial results As at December 31, 2008, the assets Since spring 2004, the portfolio held by of DVC’s nine funds under management Desjardins Venture Capital L.P. has been DVC’s investment and reinvestment activities totalled $914 million, compared to in a disinvestment phase. In addition, as of translated into commitments totalling $848 million in 2007. This represents a the beginning of 2006, the six regional funds $73 million in 85 businesses and cooperatives growth of 7.8%, compared to 9.0% in 2007. of Desjardins Capital de développement no in Québec. Commitments relating to CRCD This growth is mainly attributable to CRCD’s longer participate systematically with CRCD and Desjardins – Innovatech S.E.C. represented annual net capital-raising, which stood at in new investments. This explains why more than 93% of investment activity; financial $109 million in 2008 ($100 million in 2007). investments made in 2008 for Desjardins data for these two funds do not appear on CRCD’s assets now represent 89.1% of total Group funds totalled only $4 million. Desjardins Group’s books. Capital invested assets under management. amounted to $366 million, down by n Other $41 million over 2007. This slight decrease DVC’s ratio of operating expenses to average is mainly attributable to disbursements of The results of various consolidation adjustments assets under management stood at 2.4% $77 million and the disposal of investments not reflected in the business segments showed in 2008 (2.6% in 2007). It will be important totalling $41 million, as well as to the under- net earnings of $15 million in 2008, compared for DVC to keep this ratio below 2.5% in performance of investments whose value to a net loss of $47 million in 2007. These the coming years. In fact, the billing rate for was reduced by $79 million. In fact, market consolidation adjustments include the recording CRCD’s management fee income will decline turbulence, particularly in the information of Desjardins Group employee future benefits from 3.0% to 2.5% as of 2009, because its technology, telecommunication and health expenses. It should be noted that employee total assets exceeded $750 million in 2008. sectors, as well as tighter credit conditions future benefits expenses represent Investments in DVC’s systems and development on the markets, resulted in large fluctuations a considerable after-tax decrease of $71 million will be required to meet this challenge. in value for certain investments. compared to 2007, mainly because of updated actuarial assumptions.

TABLE 10 DESJARDINS VENTURE CAPITAL – VENTURE CAPITAL ACTIVITY

Selected data as at December 31 (in millions of $ unless otherwise indicated)

2008 2007 2006 Assets under management Desjardins Group $ 70 $ 92 $ 96 Third parties 844 756 682

Total $ 914 $ 848 $ 778

Number of business partners 313 296 274

Manage m ent’s Discussion an d A nalysis Capital invested $ 366 $ 407 $ 364 Management fee income for the year $ 27 $ 26 $ 23 Ratio of operating expenses to average assets under management for the year 2.4 % 2.6 % 2.6 %

TABLE 11 DESJARDINS GROUP FUNDS UNDER MANAGEMENT(1)

Selected data as at December 31 (in millions of $)

2008 2007 2006 Investments, at book value $ 40 $ 69 $ 70 Equity 70 92 95 New investments during the year 4 8 7 Proceeds of the disposal of investments during the year 5 13 47 Desjar d ins group Net earnings (net loss) (22) (3) 2

(1) Desjardins Group funds under management include Desjardins Venture Capital L.P., as well as the six regional funds of Desjardins Capital de développement.

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3.1 REVIEW OF RESULTS

TOTAL INCOME

HIGHLIGHTS • Total income down $1,298 million or 13.4%. • Net interest income ahead $173 million or 5.3%. • Net insurance premiums advanced $307 million or 8.0%. • Other income down $1,778 million or 68.3%. Manage m ent’s Discussion an d A nalysis

TABLE 12 TOTAL INCOME

Years ended December 31 (in millions of $ and as a %)

2008 2007 2006 Net interest income $ 3,418 40.8 % $ 3,245 33.6 % $ 3,081 32.7 % Net premiums 4,131 49.4 3,824 39.5 3,688 39.2 Other income 824 9.8 2,602 26.9 2,650 28.1 Desjar d ins group $ 8,373 100.0 % $ 9,671 100.0 % $ 9,419 100.0 %

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For 2008, total income, consisting of net interest in 2008, compared to $168 million the previous off the average return on loans. Although income, net premiums and other income, year. In 2007, a charge of $121 million was the average deposit cost fell 20 basis points, stood at $8,373 million, down $1,298 million recorded under client retention expense. it was not enough to offset the decline in return or 13.4% from the previous year, considering Moreover, the financial crisis led to the on assets. the impact of the financial crisis and ABCP investment portfolio of Desjardins Group on investment income. components posting a negative performance of The $151 million or 4.6% gain in net interest $366 million, excluding those backing insurance income is explained in Table 14 by the sharp contracts, with an equivalent amount offset by a increase in average credit volume, which at Total Income decline in the insurance provision expense for $7.1 billion, translates into 8.0% growth. 10,200 the life and health insurance subsidiary. In 2007, Overall, the $9.0 billion or 8.7% growth in Desjardins Group recorded two non-recurring the average volume of interest-bearing assets 9,600 * gains: one for $72 million ($64 million after boosted interest income by $470 million, while

824 income taxes) realized as part of the VISA global the 33 basis point decline in the average return 650

8,000 2,602 505 restructuring, and the second for $45 million on these assets caused interest income to fall 2, 2, 338 ($37 million after income taxes) following the by $331 million. 6,400 2, creation of a strategic partnership with the 4,131

688 credit union centrals of the other Canadian 547 Interest expense stood at $2,643 million, 3,824 3, 263 4,800 3, provinces. For further details on these specific down $12 million or 0.5% from 2007. 3, items, refer to the section titled “Specific items The $7.3 billion or 7.8% growth in our capital 3,200 relating to the fourth quarter and fiscal 2008 supply as a result of deposits, borrowings and primarily as a result of financial market subordinated debentures added $184 million 081 034 3,418 1,600 882 3,245

3, instability” on page 35 of the MD&A. Finally, a

3, in interest charges, while the decrease of 2, decrease of $121 million or 16.4% in income 22 basis points in the average cost of these 0 from brokerage, investment fund and trust fund sources pushed the interest expense services due to the turmoil on the capital down by $196 million. 2004 2005 2006 2007 2008 markets also contributed to the decrease of other income. Demand for credit was quite strong in 2008, Net interest income fuelled by, among other things, a still robust Net interest income housing market and vigorous spending by Net premiums consumers and businesses. Loans outstanding, As explained in Note 29 to the Combined Other income net of the allowance for credit losses, grew Financial Statements, which presents segmented 8.7% or $8.1 billion over year-end 2007, information, net interest income stems exclusively allowed the Personal and Commercial segment * excluding the impact of the financial crisis and ABCP, other from the Personal and Commercial segment. to break the $100-billion mark to stand at income would have amounted to $2,291 million, and total The following analysis and comments therefore income, $9,840 million. $102.2 billion as at December 31, 2008. only cover this segment. Desjardins Group stood out in both consumer loans and loans to business and government.

Manage m ent’s Discussion an d A nalysis Net interest income is the difference between Net interest income rose $173 million or interest income earned on assets (such as 5.3% to $3,418 million, fuelled largely by Accordingly, residential mortgages loans and securities) and the interest expense increased business volume. outstanding were up 7.4% or $4.1 billion related to liabilities (such as deposits, in 2008, totalling $58.6 billion at year-end, a borrowings, and subordinated debentures). Net premium income (insurance premiums remarkable performance. Desjardins Group It is affected by interest rate fluctuations, fund from life and health insurance and general securitized $2.2 billion of this type of loan procurement strategies, and by the composition insurance activities, as well as annuities) during the same period. The strong housing of interest-bearing or non-interest-bearing advanced $307 million or 8.0% over last market in Québec and Ontario enabled financial instruments. year to $4,131 million at the end of 2008. Desjardins to continue growing its business in This growth stems primarily from the life and this segment. Table 13 shows the change in net interest health insurance activities of Desjardins Financial income for the main asset and liability classes Security (DFS). Strong group and business The Personal and Commercial segment also of the Personal and Commercial segment. insurance sales as well as growth in loan stood out in consumer, credit card and other Table 14 details how the interest margin was insurance are in large part responsible for personal loans. Thus, personal loans Desjar d ins group affected by changes in the volume and interest this increase. outstanding amounted to $17.6 billion rates of the assets and liabilities. as at December 31, 2008, an increase of 9.2% Other income stood at $824 million, a decrease or $1.5 billion over the end of 2007. Business The Personal and Commercial segment of $1,778 million or 68.3% from the previous and government loans also turned in an ended 2008 with net interest income of year. This decrease mainly affected investment excellent performance, with loans outstanding $3,422 million, up $151 million or 4.6%. income, which fell $1,749 million due to volatility to business and government up 11.0% or However, expressed as a percentage of average on the capital markets that adversely impacted $2.7 billion, to $26.9 billion at year-end. assets, this financial intermediation net margin the year’s financial results. The drop in other fell 10 basis points. Thus, the change in interest income can be explained by the direct and rates and its effect on the credit and investment indirect impact of ABCP and certain guaranteed- savings products and maturities selected by capital structured products of $1,101 million Desjardins members shaved 33 basis points

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TABLE 13 NET INTEREST INCOME ON AVERAGE ASSETS AND LIABILITIES(1)

Personal and Commercial segment Years ended December 31 (in millions of $ and as a %)

2008 2007 average average Average Average balance interest Rate Balance Interest Rate Assets Interest-bearing assets Securities, cash and deposits with financial institutions $ 15,370 $ 462 3.01 % $ 13,520 $ 443 3.28 % Loans 96,616 5,603 5.80 89,469 5,483 6.13

Total interest-bearing assets 111,986 6,065 5.42 102,989 5,926 5.75 Other assets 5,229 — — 5,322 — —

Total assets $ 117,215 $ 6,065 5.17 % $ 108,311 $ 5,926 5.47 %

Liabilities and equity Interest-bearing liabilities Deposits $ 99,920 $ 2,604 2.61 % $ 92,380 $ 2,593 2.81 % Borrowings and subordinated debentures 838 39 4.66 1,061 62 5.84

Total interest-bearing liabilities 100,758 2,643 2.62 % 93,441 2,655 2.84 Other liabilities 8,342 — — 7,415 — — Equity 8,115 — — 7,455 — —

Total liabilities and equity $ 117,215 $ 2,643 2.25 % $ 108,311 $ 2,655 2.45 %

Net interest income(2) $ 3,422 $ 3,271

As a percentage of average assets 2.92 % 3.02 %

(1) The difference between the average assets in the Personal and Commercial segment according to Table 3 and the above table is due primarily to the loans and deposits concluded with the entities of the other segments, which have been eliminated from the combined results. As well, the average balance in the Personal and Commercial segment is established by excluding securities lending. (2) The difference between the total net interest income in the Personal and Commercial segment presented in Table 13 and the net interest income presented in Table 12 pertains

to intersegment transactions. Manage m ent’s Discussion an d A nalysis

TABLE 14 IMPACT OF CHANGES IN BALANCES AND RATES ON NET INTEREST INCOME

Personal and Commercial segment Years ended December 31 (in millions of $ and as a %)

2008-2007 Increase (decrease) Change in Change in average average average average volume rate Interest volume rate Assets

Securities, cash and deposits Desjar d ins group with financial institutions $ 1,850 (0.27) % $ 19 $ 56 $ (37) Loans 7,147 (0.33) 120 414 (294)

Change in interest income $ 139 $ 470 $ (331)

Liabilities Deposits $ 7,540 (0.20) % $ 11 $ 197 $ (186) Borrowings and subordinated debentures (223) (1.18) (23) (13) (10)

Change in interest expense $ (12) $ 184 $ (196)

Change in net interest income $ 151 $ 286 $ (135)

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Net premiums investments in products other than segregated sales in the individual market advanced funds grew 28.6%, from $245 million in 2007 6% thanks to distribution efforts in Ontario. Net premium income (insurance premiums to $315 million in 2008. These other products Group insurance premiums for Canada as from life and health insurance and general meet the needs of clients seeking a predictable a whole grew from $650 million in 2007 insurance activities, as well as annuities) return and capital guarantee. to $659 million in 2008. advanced $307 million or 8.0% over last year to $4,131 million at the end of 2008. (1) Other income This growth stems primarily from the life Net Premiums and health insurance activities carried out (in millions of $) Other income stood at $824 million in by Desjardins Financial Security (DFS). 2008, down $1,778 million or 68.3% from last year. The ratio of other income to total DFS activities generated net insurance 3,200 income was 9.8% in 2008, versus 26.9% premiums and annuities of $2,868 million, for 2007. 2,800 compared to $2,575 million as at December 31, 2007, an increase of 11.4%. Net insurance 2,400 Other income was hard hit by the decrease 2,868 premiums advanced 9.6% over 2007, to in investment income, which fell $1,749 million 438 2,000 2,575

$2,553 million. In Québec, overall growth 2, due to the volatility in the capital markets, in premiums across all business segments 1,600 which had a negative impact on the investment was 6.4%, while the 17.0% increase posted portfolio and on asset-backed commercial paper by the other provinces stemmed mostly from 1,200 (ABCP) holdings. Other income items account 379 376 1,426 1, group insurance. Total group insurance 800 1, for direct and indirect impact of ABCP and premiums, including group and business certain guaranteed-capital structured products insurance premiums, premiums tied to plans 400 of $1,101 million in 2008, compared to offered by financial institutions (including the 0 $289 million in 2007, $121 million of which Desjardins caisses), and a premium equivalent was recorded as client retention expense. for administered groups (ASO), reached Moreover, the financial crisis led to the 2006 2007 2008 $2,220 million, compared with $2,005 million investment portfolio of Desjardins Group in 2007. Two main factors account for this components posting a negative performance Life and health insurance 10.7% increase in 2008: strong group and of $366 million, excluding the investments business insurance sales combined with growth General insurance backing insurance contracts, with an equivalent in loan insurance. amount offset by a decline in the insurance provision expense for the life and health (1) The difference between total results and total business Premium volume for individual insurance segment results is due to intersegment transactions. insurance subsidiary. In 2007, Desjardins was $415 million, up $22 million over 2007. Group recorded two non-recurring gains: The volume of premiums and the number one for $72 million ($64 million after income In the general insurance area, Desjardins of in-force contracts sold by the network taxes) as part of the VISA global restructuring, General Insurance Group wrote $1,460 million of financial security advisors assigned to and the second for $45 million ($37 million in gross premiums, up 2.2% over 2007.

Manage m ent’s Discussion an d A nalysis Desjardins caisses increased by 20.7% and after income taxes) following the creation of 10.1% respectively, from the previous year. a strategic partnership with the credit union Premiums sold to Desjardins caisse members In addition, the volume of premiums tied to centrals of the other Canadian provinces. totalled $698 million, as against $682 million products distributed without a representative a year earlier, due to a decrease in automobile reached $63 million, an increase of 12.3%. insurance rates in Québec. Outside Québec, On the savings side, premiums representing

TABLE 15 OTHER INCOME

Years ended December 31 (in millions of $ and as a %)

2008 2007 2006 Deposit and payment service charges $ 497 $ 484 $ 447 Desjar d ins group Lending fees and credit card service revenues 410 381 326 Brokerage, investment fund and trust services 617 738 625 Investment and trading income — — 878 Income (losses) from available-for-sale securities(1) (413) 141 — Trading income (losses) (1) (993) 262 — Other investment income 239 179 — Other 467 417 374

$ 824 $ 2,602 $ 2,650

Growth (decrease) in other income (68.3) % (1.8) % 5.8 %

Other income as a percentage of total income 9.8 % 26.9 % 28.1 %

(1) Data for 2008 were affected by the financial crisis and ABCP.

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For further details on these specific items, refer fact, DCS saw business volume jump 15.0%, to Income in the “Other” item advanced to the section titled “Specific items relating to $49.8 billion at year-end and market share reach $50 million or 12.0% over 2007 to $467 the fourth quarter and fiscal 2008 primarily as a 51.9% in Québec. Finally, the number of credit million. This item benefited from the increase result of financial market instability” on page 35 and debit cards stood at 4.1 million and 6.2 in revenues from the mortgage securitization of the MD&A. million, respectively, at the end of 2008. program, which was once again successful in 2008. In fact, Desjardins, through Caisse Income derived from deposit and payment As a result of poor conditions on the financial centrale Desjardins, is a major player in the service charges was positively affected by volume markets throughout the year, income drawn Canadian mortgage securitization market, with growth, moving ahead 2.7% or $13 million. from brokerage, investment fund and trust a volume of close to $1.6 billion in 2008, or Fuelled by growth in VISA business volume, services fell $121 million or 16.4% from 2007. approximately $400 million per quarter, with income from lending fees and credit card service The financial crisis that took hold in the summer five-year terms. Miscellaneous other income revenues, consisting mostly of revenues from of 2007 spurred investor jitters, and extreme stems mostly from management fees collected payment solutions offered by Desjardins Card stock market volatility last September and by Desjardins Group’s subsidiaries. Services (DCS), rose $410 million in 2008, an October only exacerbated the situation. increase of 7.6% or $29 million over 2007. In

CLAIMS, BENEFITS, ANNUITIES AND CHANGES IN INSURANCE PROVISIONS

HIGHLIGHT • Decrease of claims, benefits, annuities and changes in insurance provisions to $3,144 million as at December 31, 2008, as compared to $3,171 million as at December 31, 2007.

In life and health insurance, Desjardins Financial In general insurance, Desjardins General Claims, benefits, annuities and Security recorded expenses of $2,089 million Insurance Group posted expenses of changes in insurance provisions as a result of insurance benefits, annuities, $1,055 million ($956 million in 2007), (in millions of $ and as a %) other payments to insured persons and changes representing loss experience of 74.1% (69.3% in actuarial liabilities. This is $126 million less in 2007). This increase of 4.8 points was mainly than the $2,215 million of expenses recorded attributable to results in home insurance. Fiscal 2.8 -5.1 -0.9 12 in 2007. This 5.7% drop stems largely from 2008 was marked by record accumulations 3,500 a lower fair value reported for investment of snow, which caused a significant claims 8 Manage m ent’s Discussion an d A nalysis income, whose $500 million of temporary experience due to damage to swimming pools 3,400 4 volatility is reflected in an equivalent reduction and structures as well as violent storms. The loss in actuarial liabilities. However, business growth, experience in business insurance is also higher 0 3,300 mainly in disability insurance, pushed up than last year because the average cost for claims -4 the benefit expense to $2,062 million grew significantly. In automobile insurance, the ($1,953 million in 2007). negative impact of a hailstorm in June and 3,200 -8 increased claims experience for personal injuries -12 outside of Québec were mostly negated by 3,100 -16

favourable developments in reserves for 3,342 3,171 3,144 estimated claims at the end of 2007. 3,000 -20 2006 2007 2008

In millions of $ Desjar d ins group

Growth as a %

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CLIENT RETENTION EXPENSE the risk. These purchases were made at a price as a result of financial market instability – corresponding to amortized cost plus accrued Commercial paper subject to the Montréal No charge was recorded against earnings in interest according to the original terms of the Accord” on page 35 of the Management’s 2008 under client retention expense for ABCP, ABCP. The $121 million difference between Discussion and Analysis. as compared to a $121 million charge in 2007. the purchase price and fair market value of This charge reflected the FCDQ’s acquisition the ABCP on the acquisition date was recorded of ABCP in the money market mutual funds as a client retention expense. The impact of it manages and in the securities lending the liquidity crisis on Desjardins is more fully operations of Desjardins Trust clients for which explained in the section “Specific items relating Desjardins Group had not originally assumed to the fourth quarter and fiscal 2008 primarily

NON-INTEREST EXPENSE

HIGHLIGHTS • Non-interest expense rose $98 million or 2.1%, to $4,800 million as at December 31, 2008. • Desjardins Group’s productivity ratio at 91.8 % compared to 72.3 % in 2007, considering the specific items described previously. • Excluding the specific items, the productivity ratio would have stood at 70.7 %, from 71.8 % in 2007.

TABLE 16 NON-INTEREST EXPENSE

Years ended December 31 (in millions of $ and as a %)

2008 2007 2006 Salaries and fringe benefits Salaries $ 1,911 $ 1,904 $ 1,807 Fringe benefits 339 434 464

2,250 2,338 2,271 Manage m ent’s Discussion an d A nalysis

Premises, equipment and furniture, including amortization Technology 62 75 84 Amortization 165 141 144 Other 166 165 145

393 381 373

Outsourcing of processing services 322 308 315

Communications 252 236 237

Other Business and capital tax and deposit insurance premiums 161 159 158

Desjar d ins group Donations and sponsorships 80 72 64 Employee training 33 30 31 Deposit-related expenses 50 49 47 Commissions 265 291 253 Other personnel-related expenses 67 67 66 Other 927 771 719

1,583 1,439 1,338

Total non-interest expense $ 4,800 $ 4,702 $ 4,534

Productivity ratio – Desjardins Group(1) 91.8 % 72.3 % 74.6 % Productivity ratio – Desjardins Group(2) 70.7 71.8 74.6

(1) Established considering non-interest expense over Desjardins Group total income, net of claims expenses and insurance benefits. (2) Excludes specific items resulting primarily from financial market instability described on page 35.

36099_p31a114_ENG.indd 74 16/03/09 16:36:25 3.1 REVIEW OF RESULTS ANALYSIS OF the COMBINED FINANCIAL STATEMENTS 75

Non-interest expense totalled $4,800 million, The ratio of fringe benefits to total In accordance with the Act respecting as against $4,702 million in 2007, up $98 million compensation went from 22.8% in 2007 the disclosure of the compensation received or 2.1%. This small increase confirms the tight to 17.7% in 2008. This increase is attributable by the executive officers of certain legal control exercised over operating expenses in the to the reduced employee future benefit expense persons, Desjardins Group publishes the caisse network and in all Desjardins subsidiaries. that resulted when certain actuarial assumptions compensation earned by its five most highly were updated. In this regard, Note 23 to paid senior executives. The productivity ratio (non-interest expense the Combined Financial Statements, Employee over total income, net of claims and insurance Future Benefit Plans, mentions that the costs Table 17 below provides detailed information on benefits) was 91.8% for 2008, versus 72.3% associated with the defined benefit pension the individual remuneration paid to these a year earlier, due to the significant impact plans fell approximately $103 million to executives for the year ended December 31, 2008. of market volatility on investment and trading $123 million in 2008, while the $39 million income. Had it not been for the specific items expense associated with other plans in 2008 Other expenses resulting from the financial crisis, the productivity was $2 million less than the comparable At the end of 2008, expenses related to ratio would have stood at 70.7%, from 71.8% amount reported a year earlier. premises, equipment and furniture, including in 2007. amortization, stood at $393 million, compared Non-interest expense to $381 million in 2007. This increase is Salaries and fringe benefits (in millions of $ and as a %) explained by a higher amortization expense.

Expenses incurred for salaries and fringe benefits Fees associated with the outsourcing of fell $88 million or 3.8% to $2,250 million as processing services grew $14 million, or 4.5%, at December 31, 2008. This reduction is mainly 12 7.4 3.7 2.1 as compared to last year, to $322 million as at attributable to a lower fringe benefit expense. 5,000 December 31, 2008. This growth was mainly This expense item represents 46.9 % of 10 due to increased fees paid on sub-contracted Desjardins Group’s total non-interest 4,500 IT services. Communication expenses, which expense, compared to 49.7% in 2007. 8 include telephony, advertising, courier and stationery, grew $16 million or 6.8% from For 2008, base compensation stood at 6 4,000 last year, to $252 million for 2008. This increase $1,911 million, up 0.4% from $1,904 million

4,534 4,702 4,800 is mainly attributable to the large advertising in 2007, mainly the result of the annual 4 campaign mounted outside Québec. indexation of salaries, which was offset by the 3,500 decrease in the incentive remuneration expense. 2

3,000 0 2006 2007 2008

In millions of $ Manage m ent’s Discussion an d A nalysis

Growth as a %

TABLE 17 THE FIVE MOST HIGHLY PAID SENIOR EXECUTIVES IN 2008

I incentive plan Long- other Salary annual term benefits Name and main responsibilities $ $ $ $ Monique F. Leroux President and Chief Executive Officer Desjardins Group 714,318(1) — N/A N/A

Bertrand Laferrière Desjar d ins group President and Chief Operating Officer Fédération des caisses Desjardins du Québec 590,920 — (2) N/A Richard Fortier President and Chief Operating Officer Desjardins Financial Security 395,743 — (2) N/A Germain Carrière President and Chief Operating Officer Desjardins Securities 395,026 — (2) N/A Bruno Morin General Manager Caisse centrale Desjardins 385,241 (3) — N/A N/A

(1) Salary of Monique F. Leroux: $492,364 until the end of March, then $788,302 until the end of December 2008. (2) Participant in the integrated management incentive bonus plan, which combines short- and long-term bonuses. The bonus available under the plan is determined at the end of each year based on the extent to which the objectives set at the beginning of the year have been met (annual) and on Desjardins Group’s overall performance (long-term). For a given year, 40% or 50% of the available bonus is payable in cash, and the balance (long-term) is not vested and remains at risk based on the results of Desjardins Group. The bonus portion thus accrued but not earned is generally not paid out until death, retirement, or disability. No short-term bonus was awarded for 2008 given the financial results. As for the long-term bonus, which consists of amounts from previous years, the decision was made to cancel its 2008 instalment, and this amount is not vested and remains at risk based on the rules established under the remuneration plan. (3) Salary of Bruno Morin: $352,491 until the end of July, then $431,090 until the end of December 2008.

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The other expense categories rose $144 million applicable to private companies. Legislation benefits based on years of service and average or 10.0% over 2007, to $1,583 million. In has made these regulations adaptable to enable earnings at time of retirement. Post-retirement this item, commissions fell $26 million or 8.9% the caisses to accumulate a sufficient general benefits include health, dental and life to $265 million. At $926 million, miscellaneous reserve to serve as a capital base for the insurance coverage. Desjardins funds its defined expenses were up $155 million or 20.1% protection of members’ deposits. When the benefit retirement plans in accordance with over 2007, for the most part attributable to general reserve reaches the level specified in provincial regulations. Its defined benefit a combination of factors, including higher the legislation, the caisse is subject to the same retirement plans will continue to be funded in professional fees associated with strategic tax rates as large companies. Furthermore, the accordance with provincial regulations. development projects and the BONUSDOLLARS caisses are subject to a tax on capital, based on The current economic environment has had a program extended to the cardholders registered a formula for cooperative financial organizations. negative impact on the return on assets in our in this loyalty program. Write-offs regarding retirement plans. Desjardins Group has valued strategic decisions also caused an increase in The Desjardins entities that are not financial its accrued benefit obligations and determined this expense category. Meanwhile, donations services cooperatives are subject to the tax the market and actuarial values of its assets and sponsorships totalled $80 million, regulations that apply to corporations. as at September 30, 2008. The accrued benefit up $8 million or 11.1% from 2007. liability was measured as at December 31, 2008. Indirect taxes consist of income taxes and Returns on bonds have increased due to Income and other taxes taxes on capital, property and business taxes, uncertainty and volatility in financial markets taxes on payroll and fringe benefits, the goods around the world, and this had an impact Income taxes on surplus earnings include and services tax (GST) and sales taxes. Indirect on the discount rate used to value its accrued income taxes on the activities of Desjardins taxes are included in non-interest expense. pension benefit obligations. This situation Group’s entities. generated an actuarial gain in an amount of The entities of Desjardins Group paid $776 million with respect to the accrued benefit Desjardins Group is a decentralized cooperative $690 million in direct and indirect taxes for 2008. obligations, which has offset $1,182 million financial group in which each entity that is in losses on retirement plan assets and reduced a financial services cooperative—primarily total liabilities. Gains and losses beyond the the caisses, Caisse centrale Desjardins, the ACCRUED BENEFIT OBLIGATIONS 10% corridor are amortized over average Fédération des caisses Desjardins du Québec, FOR RETIREMENT PLANS AND expected service lives, which tempers the the federation in Ontario and Desjardins Credit POST-EMPLOYMENT BENEFITS volatility of the expenses recorded each year. Union—is considered a private and independent company. This distinguishes Desjardins Group Desjardins Group offers its employees benefit from most other financial institutions, which plans that provide pension benefits and are large public corporations. Each caisse post-retirement benefits to eligible employees. is therefore subject to the tax regulations Its defined benefit retirement plans provide

CREDIT QUALITY Manage m ent’s Discussion an d A nalysis

HIGHLIGHTS • At 0.40% of the portfolio, gross impaired loans remained at a level relatively unchanged from recent years. • The quality of the portfolio engenders confidence in Desjardins Group’s ability to confront a more difficult period.

Impaired loans In line with the outlook announced at the the gross loan portfolio, unchanged from beginning of the year, impaired loans increased 2007. This impaired loan ratio is considered Loans are considered impaired when from $391 million in 2007 to $422 million as at quite acceptable. Management has reason to believe that December 31, 2008. This remains an historically the principal or interest cannot be collected. low level. Less than expected, this increase is Provisions for credit losses Desjar d ins group All loans 90 or more days past due fall into mainly attributable to the continued financial this category, unless the loan is fully secured When a loan becomes impaired, a reduction in health of households and businesses, sound or in the process of collection. Finally, all loans its carrying amount is recorded in the results for loan management, favourable interest rates except those fully guaranteed by a government the period in which the impairment is identified. and sustained strength in the housing market. program are considered impaired when they are contractually more than 180 days in arrears. An In 2008, Desjardins Group recorded $243 million The net impaired loan balance, equal to the allowance is recorded for credit card balances in provisions for credit losses, compared to gross amount less the specific allowance, rose when they are 30 days in arrears and balances $197 million a year earlier, representing 0.24% $24 million, from $268 million at the end of are written off in their entirety when no of average gross loans versus 0.21% in 2007. 2007 to $292 million at the end of December payment has been received after 180 days. This higher amount stems in part from an 2008. As Table 18 on page 77 shows, net amount of $169 million posted to the impaired loans now account for 0.28% of general allowance.

36099_p31a114_ENG.indd 76 16/03/09 16:36:25 3.1 REVIEW OF RESULTS ANALYSIS OF the COMBINED FINANCIAL STATEMENTS 77

Outlook for 2009 Layoffs and higher rates of personal bankruptcy Allowance for credit losses will result in higher consumer credit losses, but The high volatility of the Canadian dollar Based on Management’s best estimate the financial health of most households should and resource prices throughout 2008 and of potential credit losses and assessment remain satisfactory, and these increases will the negative economic outlook around the world of economic conditions, the allowance for be limited. should temper sales and profits at most Canadian credit losses on the balance sheet is sufficient companies and lead to an appreciable rise in to cover the loan portfolio risks. This allowance As for residential mortgage finance activities, impaired loans and provisions for business loans. is decreased by actual write-offs, net of the health of the current portfolio should limit recoveries, and increased by the provisions any impact of increases to impaired loans on the for credit losses, which are recorded in general quality of the portfolio. the Combined Statements of Income. The allowance for credit losses, which comprises Gross impaired loans Provisions for credit losses specific allowances and a general allowance, (in millions of $ and as a %) (in millions of $ and as a %) is deducted from the appropriate asset on the Combined Balance Sheets.

0.13 0.12 0.16 0.21 0.24 Specific allowances 1.20 0.25 800 240 When a loan is identified as impaired, the loan’s 0.53 0.39 0.39 0.41 0.40 1.00 carrying value is adjusted to reflect its estimated 0.20 realizable value and to determine whether a 600 180 0.80 specific allowance should be established. 0.15 0.60 400 120 0.10 0.40 200 60 0.20 94 96 139 197 243 0.05 401 327 350 391 422

0 0.00 0 0.00 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008

In millions of $ In millions of $

As a % of gross loans As a % of average gross loans

TABLE 18 IMPAIRED LOANS BY CATEGORY OF BORROWER Manage m ent’s Discussion an d A nalysis

As at December 31 (in millions of $ and as a percentage)

2008 2007 2006 Specific Gross Gross allowances net Net Net loans impaired for credit impaired impaired impaired loans losses loans loans loans Residential mortgages $ 61,081 $ 107 0.18 % $ 11 $ 96 $ 72 $ 59 Consumer, credit card and other personal loans 18,121 84 0.46 32 52 53 42 Business and government 26,086 231 0.89 87 144 143 130 Desjar d ins group Total $ 105,288 $ 422 — $ 130 $ 292 $ 268 $ 231

As a percentage of gross loans — — 0.40 % — 0.28 % 0.28 % 0.26 %

TABLE 19 SPECIFIC COVERAGE RATIO(1)

As at December 31 (as a %)

2008 2007 2006 Residential mortgage 10.3 % 11.1 % 15.7 % Consumer, credit card and other personal loans 38.1 39.1 43.2 Business and government 37.7 35.9 36.9

30.8 % 31.5 % 34.0 %

(1) The specific coverage ratio is equal to the balance of the specific allowances divided by the total balance of gross impaired loans.

36099_p31a114_ENG.indd 77 16/03/09 16:36:27 78 ANALYSIS OF the COMBINED FINANCIAL STATEMENTS 3.2 REVIEW OF FINANCIAL POSITION

At the end of 2008, specific allowances This model provides a risk estimate for each The general allowance is sufficient to reflect totalled $130 million ($123 million in 2007), loan category, taking into account changes Management’s best estimate of provisions representing 30.8% of gross impaired loans, in the portfolio over time and the impact of for credit losses on loans not yet identified compared to 31.5% a year earlier. the business cycle on credit risk. as impaired on an individual level.

General allowance As at December 31, 2008, the general allowance stood at $696 million, an increase To determine the required level of the general of $57 million over the $639 million recorded allowance, Desjardins Group uses an internal at the end of 2007. model to estimate the potential losses in the loan portfolio, excluding impaired loans.

3.2 REVIEW OF FINANCIAL POSITION

The FCDQ’s Board of Directors, with the support from Desjardins Group components. This strategic function is a source of reference of the Desjardins Group Strategic Management Coordinated by the Financial Executive and coordination for Desjardins in financial Structure Committee, oversees Desjardins Division, this committee’s role is to help matters and matters involving disclosure, Group’s single management. As such, it is Desjardins Group’s single management accounting standards, economic studies, responsible for directing, planning and execute responsibilities entailing significant financial planning and capital management. overseeing all of Desjardins Group’s financial financial impact. Trend charts showing It also assumes the operational responsibility activities. The Board of Directors receives changes in financial indicators, the progress of Desjardins Group’s pension fund. support from the Audit and Inspection of financial results, the organization’s cash Commission with respect to some specific position and capital management are Financial entities are operating in a context responsibilities related to financial governance. periodically prepared for the Asset/Liability characterized by: (i) a more stringent legal Additional information on financial governance Committee and the Desjardins Strategic and regulatory framework; (ii) growing market is available under the “Financial governance” Management Structure Committee. complexity and economic globalization; (iii) heading in the “General review of Desjardins more specialized professions; and (iv) an Group” section. Moreover, the Internal Audit The Financial Executive Division of Desjardins environment that is changing rapidly and team and the Desjardins Bureau for Financial Group’s main mission is to provide a financial extensively. In this increasingly demanding Monitoring and Enforcement, through their framework for Desjardins Group, help context, coordinating all of the Desjardins oversight roles, support the financial management and the Audit and Inspection stakeholders is crucial to sound balance sheet governance framework. Commission implement financial governance and capital management. Besides the Asset/ Manage m ent’s Discussion an d A nalysis throughout Desjardins and report to the Liability Committee, this Desjardins-wide Desjardins Group also set up an Asset/Liability Board of Directors, the Audit and Inspection coordination is overseen by other, more Committee, which consists of the heads of Commission and Management as part of operational financial committees. the Desjardins strategic functions and of experts its management and oversight responsibilities.

BALANCE SHEET MANAGEMENT

HIGHLIGHTS • The rate of expansion of Desjardins Group slowed in 2008. The serious financial crisis and the rapidly deteriorating economy clearly played a role in this slowdown. It nevertheless continued to perform well in residential financing and business credit. Desjar d ins group • This rather uncertain climate complicated the recruitment of off-balance sheet savings, but it also drove accelerating growth in outstanding deposits made by Desjardins Group’s members and clients, both individuals and businesses.

Total assets therefore continued to expand but at a slower of credit conditions, Desjardins Group posted rate than in 2007, mostly due to the deepening solid performance in its traditional financial As at December 31, 2008, Desjardins global financial crisis. Indeed, the collapse of intermediation activities, particularly in Group’s total assets stood at $152.3 billion, equity markets has had a considerable impact residential financing, business credit up $8.2 billion or 5.7% in the last year, as on the value of most securities portfolios. and recruitment of savings. compared with growth of $14.9 billion or Yet despite the more difficult economic 11.6% in 2007. Desjardins Group’s assets environment and a severe deterioration

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In 2008, Québec and Ontario experienced Asset growth relatively vibrant due in part to still strong a serious economic slowdown that in both (as a %) consumer spending and sustained non- cases provoked recession conditions that will residential investment. However, this enthusiasm carry into 2009. It will be a softer landing began to wane toward the end of the second for the Québec economy, far less severe than 14 half of the year. Desjardins Group, which can the recessions in the early 1980s and 1990s, count on strong expertise in the financing of but the fallout will be more serious in Ontario. 12 economic activity, again performed well, Ontario’s economy was harder hit in part particularly in residential mortgage credit and 10 because of the large role played by the auto 11.6 commercial and industrial credit. 10.9 industry, while the industrial structure of 10.5

8 9.4 Québec will suffer a bit less because it is less Desjardins Group also made its mark in 2008 dependent on this sector. Despite a weaker 6 in savings recruitment from individuals loonie at the start of the year, exports from and businesses. The accelerating growth both provinces continued to fall due to growing 4 5.7 in outstanding balances was offset in part problems in the United States. In addition, by weaker trust and wealth management 2 domestic demand, which resisted well through activities, which faltered due to the collapse

the first three quarters, began to lose steam. 0 of equity markets; this was also the case at y s i In 2008, real GDP in Québec should therefore other financial institutions.

grow only 0.9%, with Ontario showing no 2004 2005 2006 2007 2008 real growth. Despite the less favourable environment, Desjardins Group managed to grow its market Despite a rather morose and uncertain working population. The unemployment rate shares in 2008 in many of the sectors where economic climate, job creation in 2008 for Québec was 7.2%, unchanged from 2007 it is active. These excellent results bear witness remained positive in both provinces. The and one of the lowest rates recorded in the last to the superior quality of Desjardins Group’s number of new workers, however, fell from 30 years, while the rate for Ontario rose slightly, products and the confidence shown by its 2007. For example, approximately 30,000 to 6.5% (6.4% in 2007). members and clients. and 93,500 positions were created in Québec and Ontario, respectively, compared to gains This weakening economic environment did of 86,300 and 101,100, respectively, in 2007. not lead to a collapse of credit demand from The unemployment rate, however, stood virtually individuals and businesses in Québec and unchanged due to modest growth in the active Ontario. In fact, credit demand remained

TABLE 20 CONDENSED BALANCE SHEET

As at December 31 (in millions of $ and as a %)

2008 2007 2006 M ana g ement ’ s Di sc u ss i on and A nal Assets Cash and deposits with financial institutions $ 1,489 1.0 % $ 1,499 1.0 % $ 1,334 1.0 % Securities 29,222 19.2 31,560 21.9 27,043 20.9 Securities borrowed or purchased under reverse repurchase agreements 6,130 4.0 7,593 5.3 4,147 3.2 Loans 104,462 68.6 95,403 66.2 88,646 68.7 Other assets 10,995 7.2 8,004 5.6 7,970 6.2

$ 152,298 100.0 % $ 144,059 100.0 % $ 129,140 100.0 %

Liabilities and equity Deposits $ 101,436 66.6 % $ 95,766 66.5 % $ 88,143 68.3 % Other liabilities 39,465 25.9 37,169 25.8 30,498 23.6

Subordinated debentures 748 0.5 858 0.6 1,367 1.1 De s j a r dins gr o up Non-controlling interests 776 0.5 984 0.7 579 0.4 Equity 9,873 6.5 9,282 6.4 8,553 6.6

$ 152,298 100.0 % $ 144,059 100.0 % $ 129,140 100.0 %

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Savings recruitment activities 3. 2. A $5.7-billion jump in deposits Composition of the deposit portfolio As at December 31, 2008

As at December 31, 2008, Desjardins Group’s outstanding deposits totalled $101.4 billion, 1. 70,9 % Individuals a jump of $5.7 billion or 5.9% as compared 2. 21,2 % Business and government 1. 3. 7,9 % Deposit-taking and other institutions to the $7.6 billion or 8.6% increase recorded in 2007. Growth slowed last year, despite its success recruiting deposits from individuals and businesses as well as governments. These deposits, which made up 92.1% of Desjardins Group’s deposit liabilities, increased $6.4 billion Deposits from business and government very popular source of financing at all financial or 7.3% in the last year to $93.4 billion at the grew $728 million or 3.5% in 2008, reaching institutions, above all because of its more end of 2008. This compares with a $8.2 billion $21.5 billion as at December 31, 2008. stable nature, the heterogeneous profile of or 10.4% increase in 2007. Deposits constitute This compares with a $4.5 billion or 27.7% savers (age, gender, income, occupation and the primary source of financing supporting the increase recorded in 2007. They totalled place of residence) as well as the generally low expansion of Desjardins Group. 21.2% of deposit liabilities at the end of 2008, acquisition cost of personal savings. The major compared with 21.7% on the same date a year stakeholders maintain a highly competitive earlier. market in personal savings recruitment. Québec market share Personal savings activities Other sources of funds used to support Desjardins Group’s results in this area are (as a %) development mostly involved issuing securities therefore highly commendable. As at December on financial markets. As at December 31, 2008, 31, 2008, accumulated personal savings stood outstanding securities stood at $8.0 billion, at $72.0 billion, up $5.6 billion or 8.5% as down $697 million or 8.0% from the previous compared to a $3.7 billion or 5.9% increase year. This compares with a $548 million or reported for 2007. 50 5.9% reduction posted for 2007. Outstanding securities represented only 7.9% of deposit Of the three broad categories of deposits 40 liabilities at the end of 2008. Additional offered by Desjardins Group, savings payable information on the state of cash position, on a fixed date is undeniably the largest, 30 sources of financing and Desjardins Group’s representing 69.7% of the total personal liquidity risk management policies can be found savings portfolio as at December 31, 2008. on pages 88 and 94. This category represented $50.1 billion in 20

Manage m ent’s Discussion an d A nalysis outstanding personal deposits, up $3.4 billion or 7.2% from 2007, as compared to an increase 10 Personal savings is a large part of $3.0 billion or 6.8% reported one year of the Desjardins savings portfolio earlier. The other types of savings—payable on 0 demand and payable upon notice—made up 30.3% of the outstanding deposits accumulated

2004 2005 2006 2007 2008 Personal savings by Desjardins Group as at December 31, 2008. Among all the sources of financing available to On-balance sheet savings It should be mentioned that Desjardins Group Desjardins Group, clearly there has always been is the market leader in personal savings deposits Securities a preference for personal savings. At 70.9% of in Québec. As at December 31, 2008, it held Investment funds deposit liabilities as at December 31, 2008, they 43.9% of the market, a proportion similar to are by far the largest single source of financing, that observed in 2007. and this share grew from a year earlier. This is a Desjar d ins group

TABLE 21 DEPOSITS

As at December 31 (in millions of $ and as a %)

2008 2007 Payable Payable Payable upon on a fixed on demand notice date Total Total Individuals $ 18,327 $ 3,483 $ 50,148 $ 71,958 70.9 % $ 66,319 69.3 % Business and government 10,594 276 10,642 21,512 21.2 20,784 21.7 Deposit-taking and other institutions 23 — 7,943 7,966 7.9 8,663 9.0

$ 28,944 $ 3,759 $ 68,733 $ 101,436 100.0 % $ 95,766 $ 100.0 %

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December 31, 2008, outstanding assets in this This represents very strong growth given Large stock market decline in 2008 area (administered and managed for others) fell that Desjardins was pursuing its securitization $6.4 billion or 17.0% from program last year. This program trimmed the same date in 2007, to $31.4 billion. This $2.2 billion of residential mortgage loans from compares with $3.0 billion or 8.7% growth the portfolio, effectively reducing growth in The Canadian stock market has been hit hard in recorded at the end of 2007. the loan portfolio by 2.3%. It should be recalled 2008, particularly since September, when the that this securitization complements Desjardins financial crisis worsened considerably. A Group’s other methods of raising funds. dramatic turn of events followed, resulting Financing activities in a serious deterioration of global economic It is evident from Table 22 that by the end conditions. Investor confidence was seriously of 2008, loans to individuals (which comprises undermined when a recession was declared in Despite a deteriorating economy, Desjardins residential mortgage credit, consumer loans, the United States and several other developed Group continued to perform well credit card loans and other personal loans) countries, when signs of a stronger slowdown accounted for a sizable 75.2% of Desjardins were noted in the emerging countries and Group’s loan portfolio, evidence of its know- when it became apparent that the Canadian In Québec, Desjardins Group is without how in this market. As at December 31, 2008, economy would also go into an albeit milder a doubt the leading institution financing these loans totalled $79.2 billion, up $6.1 billion recession. For example, the S&P/TSX index of economic activity. It has also built a strong or 8.3% from a year earlier and compared to a the Toronto Stock Exchange posted an annual base in certain regions of Ontario and even $5.3 billion or 7.8% increase reported for 2007. decline of 35.0% when markets closed on elsewhere in Canada. Over the decades, However, it is worth noting that this pace would December 31, 2008, compared to increases Desjardins has marketed flexible and highly have been even greater but for Desjardins of 7.2% in 2007 and 14.5% in 2006. This was diversified credit products in order to effectively Group’s securitization program, which tempered one of the worst performances for the index meet the changing and growing needs of its the reported volume of residential mortgage since the crisis of 1929. members and clients. In 2008, through its extensive involvement in the socio-economic loans. In such a difficult environment, it should not development of communities, Desjardins Loans to businesses, which includes farm loans be surprising that the popularity of off-balance profited from a robust housing sector and and commercial and industrial credit as well as sheet savings products, such as investment dynamic business investments. loans to various levels of government, accounts funds and other securities, was hard hit. In for the rest of Desjardins Group’s total portfolio. Canada, for example, the value of these As at December 31, 2008, Desjardins As at December 31, 2008, these loans totalled products outstanding at all financial institutions Group’s portfolio of outstanding loans, net $26.1 billion, up $3.0 billion or 13.1% over fell 19.0%, while the comparable figures for of the allowance for credit losses, totalled the year. This compares with an increase of Québec and Ontario were 21.2% and 20.3%, $104.5 billion, an increase of $9.1 billion or $1.5 billion or 7.1% reported for 2007. respectively. Desjardins Group was also affected 9.5% for the year, as compared to an increase by this trend, but to a lesser extent. As at of $6.8 billion or 7.6% recorded for 2007.

TABLE 22 LOANS BY CATEGORY OF BORROWER Manage m ent’s Discussion an d A nalysis As at December 31 (in millions of $ and as a %)

2008 2007 Residential mortgages $ 61,081 58.0 % $ 56,662 58.9 % Consumer, credit card and other personal loans 18,121 17.2 16,440 17.1 Business 24,707 23.5 21,804 22.7 Loans to government 1,379 1.3 1,259 1.3

105,288 100.0 % 96,165 100.0 % Allowance for credit losses (826) — (762) —

$ 104,462 — $ 95,403 — Desjar d ins group Loans secured by governments and other public and parapublic institutions included above $ 27,211 — $ 24,727 —

Loans secured by governments and other public and parapublic institutions as a percentage of total gross loans 25.8 % — 25.7 % —

Loans to individuals as a percentage of total gross loans 75.2 % — 76.0 % —

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The management of risk, and especially The resale sector declined in 2008 in almost credit risk, is a constant concern for Desjardins Once again, Desjardins Group excels all Canadian provinces with the exception Group, as it is for all large financial institutions. in residential financing in Québec of Newfoundland and Labrador, where it grew Financing activities are guided 5.0%. Québec, however, figured among by the most rigorous management practices, the regions where the resale market declined which are described in detail in the “Risk Residential mortgages the least, with 79,402 transactions recorded Management“ section on pages 91 to 97. by the Interagency system (SIA-MLS). This Residential construction in Québec showed represented only 4.9% less than 2007. some weakness in 2008. The change was The next two pages present a brief analysis In Ontario, 181,001 homes changed hands felt in most segments except condominiums of Desjardins Group’s results by major category in 2008, as compared to 213,379 the previous and income properties of four units or less, of borrower. year. This was a fall of 15.2% and compares where there was growth. Overall, housing with a 9.5% increase in 2007. starts fell 1.3% in 2008, to 47,901 units, as compared to 48,553 in 2007 (where Québec market share Despite weaker demand in the housing market they were up 1.4% for the year). In Ontario, Financing activities in 2008, Desjardins Group recorded sustained however, residential construction expanded (as a %) growth in this sector. Its residential mortgage in 2008, with 75,076 new housing starts portfolio grew $4.4 billion or 7.8% in 2008 to and 10.2% growth, as compared to a 7.2% $61.1 billion as at December 31, as compared decline in 2007 to 68,123 units. 50 to $4.2 billion or 8.0% growth posted for 2007. In addition and as mentioned above, 45 Residential mortgages in Québec the securitization program removed $2.2 billion (as a %) in residential mortgage loans from the portfolio, 40 so the actual pace of growth in 2008 was even greater. 35 14 41 Desjardins Group’s performance in 2008 was 12 30 40 reflected in even greater activities in Québec, where it already had an enviable position. 10 25 39 For example, Desjardins Group’s market 8 share in Québec grew 0.2% to 39.3% as at 20 38 December 31, 2008, while in Ontario it held

Growth 6 its own at 1.1%. These results are worth Market share 2004 2005 2006 2007 2008 37 mentioning, because the very nature of this 4 type of lending makes it a particularly attractive market to financial institutions, which fight Farm loans 2 36 a daily battle to make the smallest of gains. Residential mortgages 0 35 Manage m ent’s Discussion an d A nalysis Consumer, credit card and other personal loans 2004 2005 2006 2007 2008 Commercial and industrial

Growth in volume – Desjardins Group

Growth in volume – market

Market share Desjar d ins group

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Desjardins Group’s growth in the consumer, needs of small and medium-sized businesses Desjardins Group’s Versatile Line of Credit credit card and other personal loans market (SMEs), while continuing to expand activities a resounding success remained strong through 2008. As at December with larger businesses. 31, 2008, the amount outstanding for these types of loans was $18.1 billion, up $1.7 billion In 2008, Desjardins Group’s business loan Consumer, credit card or 10.2%. This compares with growth of portfolio, including commercial and industrial and other personal loans $1.1 billion or 6.9% recorded for 2007. credit as well as farm loans, jumped $2.9 billion The growing popularity of the Versatile Line or 13.3% on an annual basis to $24.7 billion In 2008, income tax cuts implemented of Credit played a part in these excellent results. as at December 31, 2008. This compares to a by the two levels of government and a lower Due to the faster pace of activities, market $1.6 billion or 7.7% increase posted for 2007. GST allowed Québec and Ontario households shares in Québec and Ontario grew slightly This is a substantial improvement, representing to maintain spending on durable goods. through the year, to 22.6% and 0.5%, a significant increase in lending in the Québec Purchases of automobiles, furniture, electronics respectively, at the end of 2008. commercial and industrial credit sector and and appliances grew 2.8% in Québec and 0.7% a consolidation of activities in Ontario. For in Ontario, slowing slightly from 2007 when example, market share in Québec grew 1.2% they grew 3.4% and 1.8%, respectively. The to 25.0% at the end of 2008, while in Ontario active housing sector and the strong labour Desjardins Group’s continued progress it grew 0.1%, to approximately 1.0%. market also provided some support. Despite in lending to business a less vigorous job creation rate in Québec, the Furthermore, Desjardins Group remains the unemployment rate remained relatively stable. Loans to businesses key financial institution granting farm loans in Québec, as can be seen in its 46.9% market Consumer loans in Québec The financial markets, already tight by the share at the end of 2008. The outstanding (as a %) beginning of 2008, considerably deteriorated balance of its farm loan portfolio was in September. One of the impacts of this more $5.2 billion as at December 31, 2008, up difficult environment was a marked tightening $178 million or 3.6%. This compares with 14 30 of credit conditions, which has dampened a $164 million or 3.4% increase recorded business investment activity. Since the recession in 2007. Despite a slowdown in Desjardins 12 28 in the United States has made the economic Group’s financing of the beef and pork outlook in Canada that much darker, business industries, the portfolio as a whole continued 10 26 expenditures will necessarily be curtailed. to grow, in part due to strong growth in loans In Québec, for example, the outlook is for 8 24 to the dairy, grain, poultry and horticulture 3.6% real growth in business investment for industries. the year, down from 7.6% in 2007. Much the Growth 6 22 Market share same is expected in Ontario, where real growth Loans to government 4 20 of 2.6% is expected for 2008, as compared to 5.9% in 2007. Desjardins Group is also very active financing 2 18 various levels of government, especially

Desjardins Group has an extensive distribution Québec municipalities. As at December 31, Manage m ent’s Discussion an d A nalysis 0 16 network for financial service delivery, particularly 2008, loans outstanding to different tiers of to business. The network includes caisses and government totalled $1.4 billion, for an increase 2004 2005 2006 2007 2008 business centres located throughout Québec of $120 million or 9.5% from a year earlier. This compares with a slight decrease of $31 million Growth in volume – and in some regions of Ontario, as well as Desjardins Group Caisse centrale Desjardins. Desjardins Group is or 2.4% recorded in 2007. It should be noted that a substantial share of the loans issued Growth in volume – market therefore ideally situated to respond to the financing needs of the majority of business in this market consists of lines of credit with Market share people, regardless of the size of their operations balances that may change substantially from or their industry. Over the years Desjardins has one month to the next. become a key financial institution serving the Desjar d ins group

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CAPITAL MANAGEMENT AND CREDIT RATINGS

HIGHLIGHTS • At 13.39%, the ratio of Tier 1 capital remains one of the highest in the Canadian banking industry. • A $785 million increase in reserves and a 5.9% increase in risk-weighted assets. • Repayment of debentures in March 2008 in an amount of $110 million.

Objective Tier 2 capital decreased by $78 million as a Minimum ratios result of the $110 million repayment of The goal of Desjardins Group’s capital The minimum capital ratio recommended debentures in March 2008. The components of management is to ensure maintenance of for compliance with regulatory requirements capital are presented in Table 24 on page 86. sufficient quality capital to supply the leeway of the Bank for International Settlements and necessary for its development, maintain a to be ranked as a well-capitalized institution Due to $3.7 billion or 5.9% growth in risk premium credit rating and uphold the is 8%. In addition, Tier 1 capital must represent assets combined with capital at a level similar confidence of its depositors and the financial at least half of the total ratio. to 2007, the Tier 1 capital ratio, which markets. represents the best barometer of Desjardins These recommendations were adopted by the Group’s financial strength, was 13.39%, versus Policies Autorité des marchés financiers (AMF). The 14.17% in 2007. If not for the specific items in Office of the Superintendent of Financial Capital management is the responsibility of 2008, the Tier 1 capital ratio would have been Institutions Canada, however, has capped its the FCDQ’s Board of Directors. To help them approximately 1.5% higher. targets at 7% for the Tier 1 capital ratio and with this task, they have mandated the Asset/ 10% for the total capital ratio. Liability Committee to ensure that Desjardins The increase in risk assets is primarily explained Group has a sufficient and reliable capital base. by the increase of $1.5 billion in risk assets Despite a lower level of profitability, the Tier 1 The Financial Executive Division of Desjardins related to mortgage loans, $3.3 billion in risk capital and total capital ratios are 13.39% and Group is responsible for preparing, on assets related to other loans and $361 million 12.85%, respectively. They therefore exceed an annual basis and with the help of Desjardins in risk assets related to off-balance sheet assets. these regulatory requirements, and Desjardins Group's components, a capitalization plan that Also of note is a $1.3-billion reduction in risk Group’s minimum capitalization targets as well. sets and updates capital objectives and targets assets related to securities. This growth in risk Moreover, Desjardins Group’s capital ratios for all components. assets, combined with the repayment of $110 remain higher than average among the major million of debentures, led to a decrease in the banking institutions in Canada. This high level

Manage m ent’s Discussion an d A nalysis The current situation and that forecast for total capital ratio, from 13.59% to 12.85%. of Tier 1 capital further demonstrates the the duration of the Strategic Plan shows that Desjardins Group continues to exercise control financial strength of Desjardins Group, even in a Desjardins Group has an excellent capital base over the growth of risk assets and uses the more challenging economic environment. overall and, therefore, ample latitude to pursue appropriate mitigation measures to reduce development objectives. these risks. A detailed breakdown of assets In addition to the minimums required for Tier 1 adjusted according to risk is presented in capital ratio and total capital ratio, the AMF Analysis of results Table 25 on page 87. requires Desjardins Group to maintain an asset/ At the end of 2008, total capital reached capital ratio that is less than 20. This data allows $8.6 billion, an amount comparable to a year the overall sufficiency of capital to be measured earlier. Tier 1 capital was relatively unchanged against the entity’s total capital, including from 2007 due to specific items that had a negative impact on surplus earnings. However, Desjar d ins group

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certain off-balance sheet items. With a ratio Evolution of capital-related The reports of the rating agencies primarily of 14.0 as at December 31, 2008, Desjardins banking standards deal with Desjardins Group, on a combined easily meets the requirement set by the AMF. basis, since the credit ratings of Caisse centrale A few years ago, the Basel Committee on Desjardins and Capital Desjardins are based Banking Supervision began a thorough Due to the fall in overall profitability of on the strength of the balance sheets of re-evaluation of capital adequacy requirements. operations in 2008, Desjardins Group reduced its the caisses. The re-evaluation was aimed at matching capital provision for member dividends to $215 million. requirements to specific foreseeable risks, based This is less than the amount reported in 2007. Throughout the last year, the rating agencies on the particular experience of the financial maintained the credit ratings of Desjardins institution. The final text of the New Basel Compliance with requirements Group and once again recognized its very Capital Accord was approved in June 2004. strong capitalization, the stability of its With regard to regulatory capital, capital operating surplus earnings, its dominance in composition and adequacy for all of Desjardins These changes allow for more precise the local market and the quality of its assets. Group are evaluated according to the guideline measurement of the risk and sensitivity of on- issued by the AMF on standards governing the and off-balance sheet activities, so as to better However, on March 3, 2009, the rating agency adequacy of base capital. The AMF requires that align regulatory equity requirements with the Moody’s informed the Management of Desjardins a minimum amount of capital be maintained on institution’s economic capital. Group that it was lowering its outlook on Caisse a combined basis by all components and, in centrale Desjardins from “Stable” to “Negative”, particular, the caisses, the FCDQ, Caisse centrale For example, regulatory capital will now include while maintaining its rating of Aa1. Moody’s Desjardins, Fonds de sécurité Desjardins, Capital an amount associated with the operational risk. recognizes Desjardins Group’s solid balance sheet, Desjardins and Desjardins Credit Union. This In addition, like the current provisions, the new excellent capital base and major Québec market capital takes into consideration investments rules will allow regulatory bodies to require that shares. The announcement is part of an overall made in other components within Desjardins financial institutions hold capital in excess of the North American trend resulting from the crisis Group. Additional details on the guideline prescribed minimums. currently shaking the financial sector. issued by the AMF, and on the regulatory framework on the capitalization of each Scheduled for implementation in the first The high credit ratings reflect the financial Desjardins entity, are presented in Note 28 quarter of 2009, these new rules will lead to solidity of Desjardins Group and its network of to the financial statements. greater transparency with respect to information caisses and ensure its credibility and recognition on risk management. In light of this, in 2008, among institutional investors. The borrowing All Desjardins Group entities that are subject Desjardins Group continued efforts to account programs set up by CCD provide access to a to minimum capitalization requirements were for the many changes contained in the new diverse range of funding sources, including in compliance with these requirements as at requirements and to comply with best practices clients, markets, maturities, currencies and December 31, 2008, as they were in 2007. in risk management. regions. Rating agencies Desjardins Group’s reporting issuers, Caisse centrale Desjardins and Capital Desjardins, enjoy premium credit ratings from rating agencies. In Manage m ent’s Discussion an d A nalysis fact, their ratings are among the best of the major banking institutions in Canada.

TABLE 23 CREDIT RATINGS

Desjardins Group’s financial strength is reflected in the premium quality credit ratings of Caisse centrale Desjardins

DBRS Standard moody’s & Poor’s Short-term debt R-1(high) A-1+ P-1 Medium-term and long-term senior debt AA AA- Aa1 Desjar d ins group

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TABLE 24 CAPITAL AND CAPITAL RATIOS(1)

As at December 31 (in millions of $ and as a %)

2008 2007 Tier 1 capital Eligible capital stock $ 917 $ 868 Reserves 8,230 7,445 Undistributed surplus earnings (96) 772 Non-controlling interests 40 31 Goodwill (113) (146)

8,978 8,970

Tier 2 capital Subordinated debentures 750 860 Eligible general provision(2) 581 549 Other eligible securities 69 69

1,400 1,478

Investments(3) (1,766) (1,842)

Total capital $ 8,612 $ 8,606

Risk-weighted assets On-balance sheet assets 64,437 61,081 Off-balance sheet financial instruments 2,596 2,235

$ 67,033 $ 63,316

Capital ratios Tier 1 capital ratio 13.39 % 14.17 % Total capital ratio 12.85 13.59

(1) This specific Group data includes the FCDQ , as well as the federation and the network of caisses in Ontario. It differs from the data submitted to the AMF, which has Québec jurisdiction. The Tier 1 capital ratios and total capital filed with the AMF were 13.46% and 12.83%, respectively, in 2008 vs. 14.25% and 13.59%, respectively, in 2007. (2) In accordance with the guideline issued by the AMF, the general allowance qualifies as eligible Tier 2 capital for an amount of up to 87.5 basis points of risk-weighted assets. Manage m ent’s Discussion an d A nalysis (3) This amount corresponds to investments in the subsidiaries (mainly Desjardins Financial Security, Desjardins General Insurance Group, Desjardins Securities and Desjardins Trust) accounted for using the equity method and to any other investments held that must be deducted in accordance with the AMF’s guideline. Desjar d ins group

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TABLE 25 RISK-WEIGHTED ASSETS(1)

As at December 31 (in millions of $ and as a %)

2008 2007 On-balance sheet amount on-balance main risk- Risk- Risk- sheet weighting weighted weighted amount rates balance balance Cash and deposits with financial institutions $ 1,568 0-100 % $ 66 $ 77 Securities issued or guaranteed by Canada, the provinces and the municipalities 6,186 0-20 7 15 Other securities 8,347 0-100 3,383 4,652 Loans issued or guaranteed by Canada, the provinces and the municipalities 9,729 0-20 930 828 Mortgage loans insured by the government 14,116 0 — — Other mortgage loans 41,969 0-100 25,925 24,389 Other loans 35,198 0-100 31,126 27,867 Other assets 8,009 0-100 3,000 3,253

$ 125,122 $ 64,437 $ 61,081

2008 2007 Off-balance sheet instruments Credit Credit main risk- Risk- Risk- Contractual conversion risk weighting weighted weighted amount factor equivalent rates balance balance Credit instruments Guarantees and standby letters of credit $ 568 100 % $ 568 20–100 % $ 561 $ 419 Credit substitutes 137 137 72 75 Securities lending 69 69 7 6 Credit commitments Original term of one year or less 33,948 0 — 0 — — Original term of over one year 3,079 0–50 1,878 0–100 1,431 1,457

2,071 1,957

Derivative financial instruments(3) Manage m ent’s Discussion an d A nalysis Interest rate contracts 90,555 (2) 3,339 0–50 678 90 Foreign exchange contracts 18,563 (2) 1,772 20–50 393 230 Other contracts 15,718 (2) 1,364 0–50 210 336

1,281 656 Impact of master netting agreements (756) (378)

525 278

Total off-balance sheet financial instruments 2,596 2,235

Total risk-weighted assets $ 67,033 $ 63,316

(1) This specific Group data includes the FCDQ and the network of caisses in Ontario. It differs from the data submitted to the AMF, which has Québec jurisdiction. The total amounts of risk-weighted

assets filed with the AMF were $65.3 billion in 2008 and $61.8 billion in 2007. Desjar d ins group (2) Interest rate, foreign exchange and other contracts are converted into their “credit risk equivalents” by adding the total replacement cost (obtained by market evaluation) of all outstanding contracts that have a positive value and an amount of future risk exposure based on the total contract amount, distributed according to the remaining term, as shown in the above table. (3) Since January 1, 2007, all derivative financial instruments are recorded on the Combined Balance Sheets.

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CASH POSITION constitutes an advantageous strategy that Residential mortgage loans granted by AND SOURCES OF FINANCING allows Desjardins to maintain its objectives the caisse network comprised 65.0% of all despite an environment characterized by loans in 2008, 28.5% of which were insured In 2008, Desjardins Group’s treasury considerable instability around the world. by the CMHC. The primary objective of this operations continued to be integrated with program has been to ensure lower-cost funding those of Caisse centrale Desjardins (CCD), In deposits by individuals, the Desjardins for the network. The unprecedented crisis in given the ultimate objective of adding more caisses again maintained a brisk pace. the ABCP market contributed to a global value to all treasury activities. However, because of faster growth in the financial climate characterized by instability. deposits made by businesses and governments, Recourse to the CMHC securitization program The network’s demand for funds grew at personal savings varied slightly, from 69.3% and the lengthening of the average maturity an annual rate of 7.7% during the year as in 2007 to 70.9% in 2008. for institutional funding has helped CCD ride compared to 7.6% in 2007. Annual deposit out extremely volatile market conditions. growth was 5.9%, as compared to a 8.6% In accordance with the policy to lengthen increase in 2007. There was therefore less maturities in institutional financing, CCD In 2008, cash and securities as a percentage recourse to capital markets in 2008 than in became more active in the securitization of total assets was 20.2%, down from 2007 the previous year. market for mortgage loans insured by the (22.9%). These securities were mainly those federal government as part of the Canada issued by governments or private corporations Several years ago, CCD decided to adopt Housing Trust program. Once again in 2008, with high credit ratings. Such securities can be an institutional strategy that would be more CCD was very active in the securitization of used in the event of sudden, higher-than- diversified and less dependent on short-term mortgage loans insured by the Canada Mortgage expected demand for funding from the network. methods of raising funds, in anticipation of and Housing Corporation (CMHC). CCD the day that it might face liquidity problems. securitized loans in a total amount of close to In October 2008, Desjardins Group secured This strategy included securitization through $2.2 billion in transferred assets. The program’s admission to the federal government’s its program of mortgage loans insured by two objectives are to obtain a source of insurance program for large lenders. The the federal government and the issuance long-term financing at the lowest price available program is designed to help large Canadian of medium-term debt securities on European in the market and, by securitizing mortgages, lending institutions survive the current financial markets. Rigorous application of this program to maximize the return on regulatory capital. crisis. Even though, generally speaking, the has allowed Desjardins Group to securely raise industry has not yet taken advantage of the funds and has once again demonstrated the The global financial crisis underscored the program, Desjardins Group requested admission relevance and effectiveness of its policy of importance of our securitization program. in order to secure the same rights as other lengthening the average maturity in its Our expertise in this area also allows us to Canadian financial institutions. Its admission institutional funding. participate in the Government of Canada’s is clear evidence that Desjardins operates at reverse mortgage purchase auctions as required. the same level as other Canadian financial In fact, it should be pointed out that CCD, In addition, government authorities have institutions. Desjardins Group is also eligible as part of its ongoing funding strategy, has announced that the program will be expanded for other assistance programs run by the Bank completed two issues of debt securities on in 2009, to $50 billion. of Canada. European markets for a value of close to Manage m ent’s Discussion an d A nalysis $1.3 billion in order to meet liquidity needs Residential mortgage loans In January 2009, Capital Desjardins announced in the Desjardins network. Lengthening the as a percentage of total loans the redemption of all outstanding 3.887% average maturity in institutional funding granted by caisses Senior Series D bonds, maturing in 2014 having (as a %) a par value of $450 million. These Senior Series D bonds will be redeemed on March 17, 2009. Deposits by individuals as a percentage of total deposits (as a %) 80 Cash and securities as a percentage of total assets 65.0 65.0 64.3 63.7 (as a %) 62.5 60 80 1.7 1.2 1.1 0.9 9.3 7 7 7 7

6 28 40 Desjar d ins group 60 24 28.1 28.0 28.5 27.6 27.5 20 22.9

20 22.3 22.0 40 21.8

16 20.2 1.6 1.9 1.4 1.5 0.4 2 2 2 2 2 0 12 20

2004 2005 2006 2007 2008 8

0 4 CMHC-insured mortgages as a % of residential mortgages

2004 2005 2006 2007 2008 0 Residential mortgages as a % of all loans

Deposits by individuals payable on demand 2004 2005 2006 2007 2008 and upon notice

Total deposits by individuals

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OFF-BALANCE SHEET ITEMS

HIGHLIGHTS • Assets under administration were down 4.3% to stand at $201.6 billion as at December 31, 2008. • Credit instruments totalling $38.5 billion were made available to members and clients in 2008. • Virtually all counterparties to derivative financial instruments assigned high credit ratings. • Securitization of financial assets in order to diversify sources of financing.

In the normal course of its operations, marked by high volatility, had a negative impact Note 24 to the Combined Financial Statements Desjardins Group makes various off-balance on financial products presented at their fair of Desjardins Group explains the accounting sheet commitments. value. Desjardins Group’s outstanding investment policy used to account for derivative financial funds therefore fell by $3.4 billion or 21.6% instruments, which are all recognized at fair This includes assets under administration and to total $12.1 billion as at December 31, 2008. value. In addition, Notes 24 and 26 provide management on behalf of its members and detailed information on derivative financial clients, credit instruments, derivative financial Assets under administration and management, instruments and commitments, respectively. instruments, and contractual commitments. it should be recalled, are composed chiefly of financial assets in the form of investment funds, Credit instruments Assets under administration securities held in custody, and accrued pension In order to meet its members’ and clients’ and assets under management fund assets. As a result, they do not belong financing needs, Desjardins Group makes to Desjardins Group, but to its members and Total assets administered and managed credit instruments available to them. Credit clients. For this reason, they are not recorded by Desjardins Group stood at $201.6 billion instruments include guarantees and standby on its balance sheet. as at December 31, 2008, down $9.0 billion letters of credit, securities lending and credit or 4.3% from a year earlier, compared to a commitments representing authorized amounts Credit instruments and derivative decrease of $13.6 billion or 6.1% in 2007. that have not been used by members and clients. financial instruments Moreover, in terms of wealth management, Desjardins Group recorded a decrease of The risks related to these off-balance sheet These instruments expose Desjardins Group $9.3 billion or 24.1% in financial assets under items are managed using the same strict rules to credit and liquidity risks. The management management, which totalled $29.3 billion as as those applied to on-balance sheet items. of these risks is described on pages 91 to 97 at December 31, 2008, versus an increase of In Management’s opinion, these off-balance of the MD&A. Table 27 on page 90 presents the $2.5 billion or 7.0% in 2007. sheet items result in no unusual risk.

contractual amounts of the credit instruments Manage m ent’s Discussion an d A nalysis by term to maturity. Since many of these credit Like other major Canadian trustees and wealth The calculation of the risk-weighted balance instruments expire or terminate without being managers, Desjardins Group felt the impact related to these off-balance sheet items, funded, the contractual amounts do not of the sharp decline in Canadian stock market presented in Table 25 on page 87, is consistent represent actual future cash requirements. activity (with a 35.0% drop in the S&P/TSX with the guideline on capital adequacy index). These particularly difficult conditions, requirements issued by the AMF.

TABLE 26 ASSETS UNDER ADMINISTRATION AND ASSETS UNDER MANAGEMENT

As at December 31 (in millions of $ and as a %)

2008 2007

Percentage Percentage Desjar d ins group change change Assets under administration Individual and institutional trust and custodial services $ 189,504 (2.9) % $ 195,189 (7.4) % Investment funds(1) 12,143 (21.6) 15,494 15.4

$ 201,647 (4.3) % $ 210,683 (6.1) %

Assets under management Institutions and individuals $ 17,149 (25.7) % $ 23,075 2.0 % Investment funds(1) 12,143 (21.6) 15,494 15.4

$ 29,292 (24.1) % $ 38,569 7.0 %

(1) In 2008, included $9.7 billion in Desjardins Funds, $1.7 billion in Northwest Funds, and $0.7 billion in segregated funds at Desjardins Financial Security.

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TABLE 27 CREDIT INSTRUMENTS BY TERM TO MATURITY

As at December 31 (in millions of $)

2008 2007 Less than From 1 to over 3 more than 1 year 3 years to 5 years 5 years Total Total Guarantees and standby letters of credit $ 514 $ 44 $ 7 $ 1 $ 566 $ 435 Securities lending 1,271 63 — — 1,334 1,788 Credit commitments 33,852 1,750 1,250 1,253 38,105 37,694

Total credit instruments $ 35,637 $ 1,857 $ 1,257 $ 1,254 $ 40,005 $ 39,917

Derivative financial instruments obligations toward Desjardins Group at a time As a general rule, the market risk associated when the fair value of the instrument is positive with derivative financial instruments with Desjardins Group uses derivative financial for Desjardins. The credit risk associated with short-term maturities is less than that associated instruments for asset and liability management derivative financial instruments normally with derivative financial instruments with longer and trading purposes. Derivative financial corresponds to a small fraction of the notional maturities. As at December 31, 2008, based instruments are contracts whose value is amount. The replacement cost and the credit on the notional amounts, 33.9% of derivative notably based on an underlying asset, interest risk equivalent are two measurements used financial instruments had maturities of less rates or exchange rates. The derivative financial to measure this risk. The replacement cost than one year. instruments used include a broad range of refers to the current replacement cost of financial contracts, particularly interest rate all contracts that have a positive fair value. The risk-weighted balance for all Desjardins swaps, foreign exchange swaps, credit swaps, The credit risk equivalent is equal to the sum Group’s derivative financial instruments as at futures and options. These instruments are of this replacement cost and the future credit December 31, 2008 amounted to $535 million important risk management tools, mainly to exposure, which is an estimate of the possible once all master netting agreements were mitigate the risks associated with fluctuations increase in the replacement cost over the accounted for ($292 million in 2007). in interest and exchange rates and other remaining term of the contracts, calculated market risks. Most contracts are traded according to a formula established by the Securitization by mutual agreement. Bank for International Settlements. As part of its liquidity and capital management Desjardins Group recognizes all its stand-alone strategy, Desjardins Group conducts mortgage Desjardins Group limits the credit risk derivative financial instruments on the Combined securitization transactions in the normal course associated with derivative financial instruments Balance Sheets in accordance with the financial of operations. These transactions involve the by doing business with highly creditworthy instrument accounting standards of the use of off-balance sheet arrangements and counterparties. One of the tables in Note 24 special purpose entities (SPEs) The SPE used

Manage m ent’s Discussion an d A nalysis Canadian Institute of Chartered Accountants to the Combined Financial Statements of (CICA). Under these standards, derivative by Desjardins Group is the Canada Housing Desjardins Group presents derivative financial financial instruments are recognized on the Trust, which was developed by the Canada instruments according to credit risk rating Combined Balance Sheets at fair value, Mortgage and Housing Corporation (CMHC) and the type of counterparty. According to the including derivatives designated as hedging under the Canada Mortgage Bonds Program. replacement cost, the table shows that virtually items. According to Section 3865 “Hedges” all counterparties have a credit rating ranging published by the CICA, derivative financial In this type of transaction, Desjardins Group from AAA to A. Desjardins also limits credit instruments may be designated in a fair transfers mortgages to the SPE in return for risk with certain counterparties by entering value or cash flow hedging relationship. This money, and the SPE finances these purchases into master netting agreements which allow, section covers the eligibility criteria for hedge by issuing bonds to investors. The terms of in the event that a counterparty becomes accounting, as well as the recognition of the Canada Mortgage Bonds Program require insolvent, for the net settlement of all positions fair value and cash flow hedging relationships. that swap agreements be made between with this counterparty. Credit support annexes Note 24 to the Combined Financial Statements the Canada Housing Trust and Desjardins Group (CSA) are also used. By virtue of these CSAs, presented on page 154 provides details on in order to receive the total cash flows related Desjardins has the right to demand that the

Desjar d ins group the accounting policies relating to derivative to the mortgage loans underlying securitized counterparty pay or guarantee the current financial instruments and the effect of these mortgages on a monthly basis and for market value of the positions once this value standards on income for the year. Desjardins Group to pay quarterly interest to the exceeds a certain threshold. Canada Housing Trust on the Canada Mortgage These derivative financial instruments result Bonds series, as well as the principal at maturity. The market risk associated with derivative primarily in a credit and market risk exposure Securitization operations are accounted for as financial instruments refers to the risk of for Desjardins Group. The management sales of assets only when Desjardins Group is variation in the market value of these instruments of these risks is described on pages 91 to 97 deemed to have surrendered control of the resulting from fluctuations in the parameters of the Management’s Discussion and Analysis. assets and when it receives a consideration affecting this value, notably interest and other than the beneficial interests in these exchange rates. One of the tables in Note 24 The credit risk associated with derivative assets. At the time of sale of the assets, to the Combined Financial Statements of financial instruments refers to the risk that a Desjardins Group retains certain interests Desjardins Group presents the maturities counterparty will fail to honour its contractual regarding excess interest margins, which of the total notional amounts of the derivative constitute retained interests, and assumes financial instruments. responsibility for managing the transferred

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mortgages. No loss is expected on the Contractual commitments plan, ranks equal with other MFF participants mortgage loans because they are guaranteed and expires in July 2017 or earlier if all credit Desjardins Group has contractual commitments by the CMHC. Desjardins Group periodically default swap transactions have been settled. For to make future payments on borrowings, reviews the value of these interests and records further details, see “Subsequent events – ABCP subordinated debentures and leases. Borrowings in income any other than temporary declines restructuring plan” in the Overview section. and subordinated debentures are presented in in value, if applicable. In 2008, the securitized Desjardins Group’s Combined Balance Sheets, mortgage loans outstanding totalled $4,074 Financial assets received as collateral but leases are not. Notes, 12, 14 and 26 to million, compared to $2,596 million in 2007. the Combined Financial Statements contain Desjardins Group receives financial assets as As at December 31, 2008, $170 million was information on these contractual commitments. collateral after trading securities borrowed or recorded in the Combined Balance Sheets purchased under reverse repurchase agreements. as retained interests versus $82 million as Desjardins Group has undertaken to provide Such trading is carried out under normal at December 31, 2007, and $30 million was a Margin Funding Facility (MFF) with respect conditions for these types of transactions. recorded as servicing liabilities, as opposed to to ABCP holdings. Desjardins Group’s share in Note 26 in Desjardins Group’s Combined $20 million as at December 31, 2007. Note 6 this credit commitment, totalling $1,193 million Financial Statements provides more information to the Combined Financial Statements provides under the December 24, 2008 restructuring about financial assets received as collateral. detailed information regarding these entities.

RISK MANAGEMENT

HIGHLIGHTS • Extensive ongoing Desjardins-wide work to harmonize and consolidate integrated risk management practices. • Desjardins-wide implementation or review of frameworks in core risk areas. • Management of the financial crisis and participation in the restructuring of asset-backed commercial paper (ABCP). • Strengthening Desjardins Group Integrated Risk Management through the creation of the Desjardins Group Finance and Risk Management Committee.

Desjardins Group is exposed to different types functions and in-house experts, to support committees support the boards and of risk in the normal course of operations, the Desjardins Group Strategic Management management teams of each component Structure Committee, whose role is to ensure in their efforts to fulfill their main risk

including credit risk, liquidity risk, market risk, Manage m ent’s Discussion an d A nalysis operational risk, insurance risk and reputation that Desjardins Group has an appropriate, management responsibilities. risk. Its role in risk management is to strive effective, ongoing and integrated risk to optimize the risk-return trade-off, within set management process. A training program for board members and limits, by applying integrated risk management FCDQ and subsidiary management committee and control strategies, policies and procedures A risk report containing key indicators members, was followed in 2007 and 2008 to all its activities. for each type of risk is prepared periodically by the introduction of an integrated risk for the Integrated Risk Management Committee, management training program for Desjardins The FCDQ’s Board of Directors is responsible the Desjardins Group Strategic Management caisse general managers and officers. for guiding, planning, coordinating and Structure Committee and the Risk Management Information bulletins on various risk overseeing all Desjardins Group activities. Commission. Constantly being updated, the management topics are also presented on a The Board also has specific risk management report includes the latest risk management regular basis to the Risk Management responsibilities with respect to the Desjardins developments. Information about capital, Commission and the Integrated Risk Group and, in this regard, is supported by particularly capital adequacy in relation to Management Committee.

the Risk Management Commission, the Audit Desjardins Group’s risk profile, completes Desjar d ins group and Inspection Commission and the Board the report. Three independent functional units complete of Ethics and Professional Conduct. Additional Desjardins Group’s risk management framework. information on these bodies may be found Under Desjardins Group’s risk management on pages 173 to 186 of the section on approach, the organization’s entities and units corporate governance. are accountable for the results and quality of the risk management practices. The boards The Board of Directors set up an Integrated of directors of all Desjardins Group components Risk Management Committee, comprised also play a pivotal role in monitoring the risks of the heads of Desjardins Group’s strategic and results of these units and entities. Several

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The Integrated Risk Management Executive fourth quarter of 2008. This committee is made Credit risk management Division of Desjardins Group is a strategic up of key players in Desjardins Group finance Desjardins Group upholds its goal of effectively function charged primarily with setting up and risk, and its members meet on a weekly basis. serving all its members and clients. To this end, a risk management framework for Desjardins it has developed robust distribution channels Group, optimizing the risk-return trade-off, BASEL II CAPITAL ACCORD specialized by product and client. The units ensuring risk integration and adequate risk and components that make up these channels management by all entities, and reporting Basel II is an international capital adequacy are considered centres of expertise and are to the Board of Directors, to the Audit and tool designed to align regulatory capital accountable for their performance in their Inspection Commission, to the Risk requirements more closely with risk exposure respective markets, including credit risk. In Management Commission and to senior and to further the continuous development this regard, they have latitude regarding the management as part of its management of the risk assessment capabilities of financial framework they use and the approval given and oversight responsibilities. This executive institutions. and are also equipped with the corresponding division also ensures coordination between management and monitoring tools and the FCDQ, its Key Markets and Desjardins The Basel II framework essentially rests structures. Group subsidiaries. This Desjardins-wide on three pillars: the first pillar sets out the coordination is overseen by three management requirements for risk-weighted regulatory In addition, Desjardins Group has set up committees (credit risk, market risk and capital; the second pillar deals with the centralized structures and procedures to ensure operational risk). supervisory review process; and the third pillar that this risk management framework permits stipulates financial disclosure requirements. effective management that is also sound and Desjardins Group Internal Audit is an independent, prudent. Accordingly, the Risk Management objective Desjardins-wide function in charge of The AMF issued its guideline on capital Commission ensures that risk management informing, advising and supporting the boards adequacy requirements, amended to reflect activities are adequately structured and of directors, senior management and managers, the provisions of Basel II, which came into monitored throughout Desjardins Group by, and providing them with reasonable assurance force on January 1, 2009. among other things, examining the main credit as to the degree of control over the operations policies and follow-up reports, including those of each entity and all of Desjardins Group, so Again this year, numerous efforts were made produced by the independent supervisory units. they can effectively carry out their responsibilities throughout Desjardins Group to support the The Integrated Risk Management Committee in accordance with regulatory requirements and implementation of sound risk management supports the members of the Risk Management corporate governance rules while simultaneously practices. Desjardins Group continues to Commission in carrying out their responsibilities contributing to the organization’s objectives. As build on the progress made a few years ago by analyzing the key elements involved in risk the functional head of the Audit and Inspection in obtaining tools and systems conforming management, as well as the main reports on Commission, Internal Audit directly supports to recognized standards in the core risk areas. specific situations and portfolio status. the latter in its work. Desjardins Group Internal Audit’s role includes providing independent With the adoption of these approaches, it Credit risk framework assessments of risk management, control and will be possible to better identify and measure corporate governance procedures and making risk, and to more closely link regulatory capital Desjardins Group created a Credit Risk Executive recommendations on how to improve their requirements to incurred risk. Desjardins intends Department, whose mandate is to develop Manage m ent’s Discussion an d A nalysis effectiveness as well as ensuring that managers to constantly improve its risk assessment a Desjardins-wide framework for managing conduct their activities in an effective, efficient, capacity, thus reaffirming its formal commitment and monitoring credit risk. The Executive sound and prudent manner. to meeting the risk management targets and Department is responsible for a single general expectations put forth by the AMF. policy that sets out the main elements of credit The Desjardins Bureau for Financial Monitoring risk management at Desjardins Group. Credit and Enforcement (the Bureau) has oversight Desjardins Group continued to implement its risk management units, which have been set over the caisse network in Québec, as required Integrated Risk Management and Basel Accord up within the main components, assume specific under the Act respecting financial services program in 2008. Significant strides were made responsibilities related to credit granting and cooperatives. The purpose of such oversight, during the year to harmonize and consolidate management, and providing a framework for conducted by applying best practices, is global risk management and integrate it into their operations and those of the components to evaluate the caisse network’s policies, all of Desjardins Group’s activities. for which they are responsible. These units procedures and controls, as well as the manner establish their own credit risk policies in light in which they are applied in order to ensure Credit risk of their market niches, products and clients sound and prudent risk management. In in accordance with Desjardins Group policies. Desjar d ins group Credit risk is the risk of losses resulting from addition, the Bureau examines activities carried a borrower’s or counterparty’s failure to honour out by the FCDQ on behalf of the caisses, These structures and policies make it possible to its contractual obligations, whether or not this including liquidity management. The boards of define the responsibilities of the parties involved, obligation appears on the balance sheet. directors of the caisses and of the FCDQ, as well the level of risk that Desjardins Group is willing as the Audit and Inspection Commission, strictly to assume, the concentration limits, and set out Desjardins Group is exposed to credit risk first monitor the reports received from the Bureau. risk management and control guidelines. through its direct loans (as at December 31, 2008, loans represented 68.6% of balance With regard to the current situation on the Finally, a steering and information committee, sheet assets) but also through its credit world financial markets and to strengthen comprised of senior executives from the main commitments, letters of credit and various Desjardins Group's integrated risk management components specializing in credit risk, ensures activities such as foreign exchange lines and role, a Desjardins Group Finance and Risk cohesion between the parties involved. transactions involving derivative financial Management Committee was formed in the instruments and securities.

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Credit granting File monitoring and management the Canada Mortgage and Housing Corporation of higher risks (CMHC) or La Financière agricole du Québec This responsibility is assumed by the risk are used in addition to customary collateral. management units of the main components Portfolios are monitored by the business units where they exist in order to meet the using procedures that set out the degree of The large number of borrowers, for the characteristics of each product or client. thoroughness and frequency of review based most part individuals, but also small and This is done using specialized teams and on the quality and extent of the risk exposure. medium-sized businesses from most sectors specific procedures. Both portfolios and basic data on certain of the economy, plays a role in the sound economic sectors under watch are monitored diversification of the financing portfolio. To assess the risk of credit activities with individuals for warning signs. Various reports are and smaller businesses, credit scoring systems distributed to all levels of the organization, Where required, Desjardins Group uses based on proven statistics are generally used. including senior management, the Integrated mechanisms to share risk with other financial These systems were developed using a history Risk Management Committee and the Risk institutions.The chart below presents the of borrower behaviour with a profile or Management Commission. distribution of loans by borrower category. characteristics similar to those of the applicant Over half of the portfolio consists of residential to determine the transaction risk.The performance The management of higher-risk loans mortgages, for which, statistically, the loss of these systems is analyzed on an ongoing basis involves follow-up adapted to their particular experience is low. (Desjardins Group is not and adjustments are made regularly with a view circumstances and is supported by specialized directly exposed to high-risk subprime to determining transaction and borrower risks turnaround teams, who are available to help mortgages.) Additional information on changes as accurately as possible. manage more difficult files. Other specialized in the loan portfolio, including the distribution teams help settle files for which the chances of of loans to businesses and governments, by The granting of credit to businesses is based improvement are slim in order to minimize losses. industry sector, can be found on pages 78 to on an analysis of the various parameters of 83 of the balance sheet management section. each file, where each borrower is assigned Counterparty and issuer risk a risk rating. These ratings are assigned Of the securities held in all securities portfolios In its derivative financial instrument and individually following a detailed examination by Desjardins, 50% are issued or guaranteed by securities lending transactions, Desjardins of the financial, market and management public or parapublic entities. The portfolios are Group uses various techniques to reduce characteristics of the business. mainly with Canadian issuers and counterparties its counterparty credit risk. of extremely high quality. For the main commercial portfolios, the scoring system has 19 ratings, broken down into 12 levels, each representing a default 5. probability level. The characteristics of each 4. borrower are analyzed using models based on internal and external historical data, Loan distribution by borrower category As at December 31, 2008 taking into account the specific features of the borrower’s economic sector and

the performance of comparable businesses. 1. 58,0 % Residential mortgages Manage m ent’s Discussion an d A nalysis These analyses are performed using systems 3. 2. 5,5 % Credit cards that can make quantitative comparisons, and 3. 11,7 % Consumer and other personal loans 4. 23,5 % Business are supplemented by the professional judgment 5. 1,3 % Government of the personnel involved with the file. Real 2. estate and agricultural portfolio files are 1. analyzed using different scoring methods adapted to their specific characteristics.

The depth of the analysis and the approval The Integrated Risk Management Executive Most derivative financial instrument level required depend on the product, as well Division of Desjardins Group sets the maximum transactions are governed by International as the complexity and scope of the transaction exposure for each counterparty and issuer based Swaps and Derivatives Association (ISDA) risk. Larger loans are approved by credit on quantitative and qualitative criteria. The master agreements, which define the terms committees that include senior executives. amounts are then allocated to components and conditions for the transactions. The Executive Committee or the Board of Desjar d ins group based on their investment needs. These agreements are legal contracts binding Directors is involved in the approval of loans the counterparties. Most of Desjardins Group’s that exceed policy-defined limits. Mitigating credit risk agreements provide for netting to determine the net exposure in the event of default. In its lending operations, Desjardins Group An annex may also be added to the Master obtains collateral if deemed necessary for a Agreement in order to obtain financial collateral member’s or client’s loan facility following an from counterparties. assessment of their creditworthiness. Collateral normally takes the form of assets such as cash, government securities, shares, receivables, inventory or capital assets. For some portfolios, programs offered by organizations such as

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Securities lending transactions are regulated includes, inter alia, setting up an internal crisis Desjardins Group is exposed to market risk by participation agreements from the committee vested with special decision-making primarily through positions taken in the Investment Industry Regulatory Organization powers to deal with crisis situations. This plan course of its traditional financing and savings of Canada. Desjardins Group also uses netting also lists the sources of liquidity available in recruitment activities. It is also exposed to agreements with its counterparties to mitigate exceptional situations. market risk through its trading activities. credit risk and requires a percentage of Desjardins Group and the components have collateralization (a pledge) on the transaction The plan makes it possible to quickly and adopted policies that set out the principles, equivalent to industry best practices. effectively intervene to minimize disruptions limits, and procedures to use in managing caused by sudden changes in member and market risk. Desjardins Group accepts from its counterparties client behaviour and potential disruptions in financial collateral that complies with the eligibility markets or economic conditions. Interest rate risk management criteria set out in its policies. These eligibility Desjardins Group is exposed to interest rate criteria promote a quick realization, if necessary, A specific framework sets out the minimum risk, which represents the potential impact of of collateral in the event of default. The types level of liquid securities that the caisse network, interest rate fluctuations on net interest of collateral received by Desjardins Group are the FCDQ and Caisse centrale Desjardins must income and the economic value of equity. mainly cash and government securities. maintain. This liquidity level is centrally managed by the Desjardins Group Treasury and is Dynamic and prudent management is applied Desjardins Group also enters into long hedges monitored on a daily basis. Eligible securities to achieve the objective of optimizing net through credit derivatives. With these derivative must meet high security and negotiability interest income while minimizing the negative financial instruments (credit default swaps standards. The liquid securities portfolio impact of interest rate movements. The and total return swaps), Desjardins Group can comprises mostly securities issued by established policies describe the principles, transfer credit risk to a counterparty or hedge governments, public bodies and private limits and procedures that apply to interest itself against different types of risks. companies with high credit ratings, i.e. rate risk management. Simulations are used AA- or better. to measure the impact of different variables on Liquidity risk changes in net income and the economic value The Desjardins Group Treasury ensures stable Liquidity risk refers to Desjardins Group’s of equity. Assumptions used in the simulations and diversified sources of funding by type, capacity to raise the necessary funds are based on an analysis of historical data source and maturity. Desjardins Group can (by increasing liabilities or converting assets) and on the impact of different interest rate also issue securities and borrow on national to meet a financial obligation, whether or conditions on changes in the data. These and international markets to round out and not it appears on the combined balance sheet, assumptions concern changes in the structure diversify its funding. on the date it is due or otherwise. of the Consolidated Balance Sheets, member behaviour and pricing by Desjardins Group’s A securitization program for mortgages Managing liquidity risk asset and liability management committee (the insured by the Canada Mortgage and Asset/Liability Committee), which is responsible Desjardins Group manages liquidity risk in Housing Corporation (CMHC) is also in place. for analyzing and adopting the global matching order to ensure that it has access, on a timely strategy while respecting the parameters defined basis and in a profitable manner, to the funds The strategies implemented in recent years Manage m ent’s Discussion an d A nalysis in the interest rate risk management policies. needed to meet its financial obligations as they to diversify and extend sources of funding have become due, in both routine and crisis situations. proven to be effective in weathering the current The following table presents the potential Managing this risk involves maintaining a capital market crisis. Desjardins Group is also impact on the non-trading portfolio of a sudden minimum level of liquid securities, stable eligible for the Bank of Canada’s various and sustained 100- and 200-basis-point increase and diversified sources of funding, and an intervention programs. or decrease in interest rates on the economic action plan to implement in extraordinary value of equity. circumstances. Liquidity risk management is Market risk a key component in an overall risk management Market risk refers to the risk of changes in The extent of the interest rate risk depends strategy, because it is essential to preserving the fair value of financial instruments resulting on the gap between cash flows from assets, market and depositor confidence. Thus, from fluctuations in the parameters affecting liabilities and off-balance sheet financial Desjardins Group and its components have this value; in particular, interest rates, exchange instruments. The position presented reflects established policies describing the principles, rates, and their volatility. the position as of that date only and may limits and procedures that apply to liquidity risk management. Desjardins Group has also Desjar d ins group developed a liquidity contingency plan that

TABLE 28 Interest rate sensitivity (before income taxes)

As at December 31, 2008 (unaudited, in millions of $)

Impact on the economic value of equity of a 100-basis-point increase in interest rates $ (21) Impact on the economic value of equity of a 100-basis-point decrease in interest rates 23

Impact on the economic value of equity of a 200-basis-point increase in interest rates (42) Impact on the economic value of equity of a 200-basis-point decrease in interest rates 45

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change depending on member behaviour, The following table presents the aggregate VaR Desjardins Group carries out back testing the interest rate environment and the strategies of the trading activities of Desjardins Group by daily, applying a hypothetical P&L to its trading adopted by the Asset/Liability Committee. risk category as well as the diversification effect, portfolios. The hypothetical P&L is calculated which represents the difference between by determining the difference in value resulting Management of market risk related aggregate VaR and the sum of VaR for the from changes in market conditions between to trading activities – Value-at-risk different risk categories. Equity, interest rate two consecutive days. The portfolio mix and foreign exchange risks are the three risk between these two days remains static. The market risk of trading portfolios is managed categories to which Desjardins Group is daily within the framework of a specific policy exposed. The definition of a trading portfolio The following chart presents changes in VaR for that purpose. meets the various criteria defined in the Basel II for trading activities as well as income related Capital Accord. to these activities. Since September, the extent The main tool used to measure the market of P&L increased substantially, thus mirroring risk of trading portfolios is the “Value-at-Risk” As at December 31, 2008, the aggregate VaR volatility movements on capital markets. Losses (VaR), which represents an estimate of the was $3.1 million, the interest rate VaR being exceeded VaR 14 times in 2008; nine of these potential loss for a certain period of time the largest component. This aggregate VaR times occurred in the second half of the year. at a given confidence level. was higher than its annual average of These losses are related to the extreme $2.6 million. The risk mitigation related turbulence in the global economy in 2008 in A Monte Carlo VaR is calculated daily, using a to diversification amounted to $1.0 million the wake of the most serious global financial 99% confidence level, on the trading portfolios as at December 31, 2008. crisis since the Great Depression in the 1930s. for a holding horizon of one day. It is therefore reasonable to expect a loss exceeding the VaR Back testing figure once every 100 days. The calculation of VaR is based on historical data for a one-year Back testing is conducted to validate the VaR interval. model used by comparing the VaR with profits or losses (hereinafter referred to as “P&L”) of Desjardins Group portfolios.

VaR compared to income from trading activities (in millions of $)

6

4

2 Manage m ent’s Discussion an d A nalysis 0

-2

-4

-6 8 8 8 8 8 8 8 5/08 8/08 4/08 7/08 6/08 3/08 . . . . 20/08 22/0 28/08 14/08 18/0 25/08 22/08 21/0 11/08 13/0 28/0 17/08 31/08 . . . . r. r. r. r. b. b. b. b. July 9/08 July Jan. Oct. Dec. May 9/08 May Nov June 9/08 June Aug. Sept July 23/08 July Jan. Jan. Ap Ap Fe Fe Oct. Dec. May 26/0 May Ma Ma Nov June 23/0 June Aug. Sept

Trading income

Total Monte Carlo VaR 99% Desjar d ins group

TABLE 29 VaR by risk category (Trading portfolio)

As at December 31, 2008 (unaudited, in millions of $)

For the year ended December 31, 2008 as at December 31, 2008 average High Low Equity $ 0.7 $ 1.1 $ 2.5 $ 0.6 Foreign exchange 0.2 0.7 4.7 — Interest rate 3.2 2.3 4.4 0.9 Diversification effect(1) (1.0) (1.5) N/A(2) N/A(2)

Aggregate VaR $ 3.1 $ 2.6 $ 5.1 $ 1.4

(1) Risk reduction related to diversification, namely the difference between the sum of the VaR for the various market risks and the aggregate VaR. (2) Not applicable. The highs and lows of the various market risk categories can refer to different dates.

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Stress testing risk, it is responsible for monitoring the V. Insurance and external coverage: Activities implementation and ongoing use of operational through which some of the exposure From time to time, certain events that risk management principles and practices. to operational risk is transferred by are considered highly unlikely may happen purchasing insurance and have a significant impact on Desjardins Risk measurement Group’s portfolios. These events at the tail-end VI. Internal audit: Internal auditors express of distribution are the result of extreme situations. Major efforts have been made in the past few opinions on the internal controls and years to realize this management framework, procedures for which the business The approach used to measure the risk the implementation of which will continue over segments are responsible; for the Québec related to events which are highly unlikely, the next few years in order to achieve Desjardins caisses, they are provided by the Desjardins but plausible, is applied through a stress testing Group’s vision of operational risk management. Bureau for Financial Monitoring and program (sensitivity tests, historical scenarios Enforcement. Independent opinions are and hypothetical scenarios) at regular intervals. Through this implementation, Desjardins also sometimes provided on the governance Stress testing results are analyzed together Group seeks to acquire an overview of the risk process associated with operational with the VaR calculations in order to detect profile and exposure to operational risk in order risk management. Desjardins Group’s vulnerability to such to improve, if necessary, control management events. The stress testing program is reviewed and the control environment. Presentation of information periodically to ensure that it is kept current. Quarterly reports on Desjardins Group’s Risk and control self-assessment operational risk provide officers and directors Operational risk A program has been implemented to ensure with an update on insurable operational losses. Operational risk is defined as the risk of that key activities undergo an operational Risk and trend indicators are now also included inadequacy or failure attributable to processes, risk assessment. A unit’s own assessment in this periodic reporting. people, internal systems or external events and of risks and controls helps identify and measure resulting in losses, failure to achieve objectives significant operational risks as well as the existing Regulatory compliance or a negative impact on reputation. mitigation measures and how effective they A regulatory compliance function was are in managing such risks. created at Desjardins Group in 2003. Operational risk is inherent to all business activity, In 2004, the FCDQ’s Board of Directors whether performed in-house or outsourced. Collecting loss data adopted a regulatory compliance framework Losses can mainly arise from fraud, damage policy specifically for Desjardins Group. to tangible assets, illegal acts, lawsuits, systems Desjardins Group has a database that is used Desjardins Group is currently working failure, or problems in transaction processing to collect information on the nature, frequency on a framework program for regulatory or process management. and seriousness of its operational losses. The information collated includes the amount of compliance management. The overriding objective is to keep operational the losses, the amounts recovered, relevant Insurance risk risk at an acceptable level while ensuring dates and the risk factors and causes. organizational efficiency and quality service Insurance risk includes risks tied to the to clients of Desjardins Group. Risk control design and pricing of insurance products Manage m ent’s Discussion an d A nalysis Desjardins Group has put into place a number as well as risks associated with underwriting Governance of operational risk management and risk and claims settlements. A Desjardins Group framework policy on transfer initiatives and programs: The risk associated with designing and operational risk management was adopted pricing products is the risk that the initial at the end of 2008. This framework policy I. Fraud management: Prevention, research pricing is or will become insufficient. The provides an official operational risk management and intervention activities for internal risk associated with underwriting and claims framework, establishing the practices and and external fraud settlements pertains to risks arising from risk guidelines leading to its implementation, as II. Business continuity: Planning, preparation selection, claims settlement, and contractual well as the related roles and responsibilities. and coordination of measures to contend clause management. This management framework, which Desjardins with any business interruption or crisis Group is currently implementing, is based on that may affect the ability to deliver Managing insurance risk Desjardins-wide decentralized management quality service to members and clients where all managers assume management Product design and pricing risk arises from III. Information security: Activities to organize,

Desjar d ins group of operational risks. potential errors in projections concerning the manage and protect informational assets many factors used to set premiums, including A centralized operational risk management IV. Regulatory compliance: Efforts to set future returns on investments, underwriting team has been set up within the Integrated up a coordinated process to ensure experience in terms of claims experience, Risk Management Executive Division of that operations comply with the mortality and morbidity, and administrative Desjardins Group. In addition to developing relevant regulations expenses. Strict pricing standards and policies policies and plans for managing operational are adopted, and the insurance subsidiaries

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perform spot checks to compare the projections adequacy testing. Various pessimistic scenarios and its risk management framework. Officers with actual results. Some product pricing may were tested during the year to measure their and employees are required to perform their be adjusted depending on the results obtained. effect on the capitalization ratio. The capital duties in accordance with these practices proved adequate in each case. and Desjardins Group’s permanent values. The risk associated with underwriting and claims settlements is managed by establishing Reputation risk The Integrated Risk Management appropriate risk selection criteria and policies Executive Division is responsible for Reputation risk arises from a deterioration of and by limiting potential losses through disclosing reputation risk. It provides the reputation with stakeholders such as members, reinsurance treaties. Such treaties do not, Risk Management Commission and the clients, employees, the media, rating agencies however, release the insurance subsidiaries Integrated Risk Management Committee with and regulators. from their obligations toward clients in a report containing information on reputation the event that reinsurers experience financial risk and the key indicators for such risk. In For a leading financial organization such difficulties. Consequently, the subsidiaries addition, there is a review of the activities as Desjardins Group, reputation is extremely are also exposed to a credit risk related to the of Legal Affairs, the Secretariat General, important and as such, cannot be managed reinsurers. To minimize this risk, the subsidiaries and Communications and Public Affairs. separately from the other risks. Consequently, sign reinsurance treaties with stable, financially managing reputation risk in all its spheres of solid, and duly accredited companies. activity is a constant concern for Desjardins Group.

The insurance subsidiaries comply with the Desjardins Group uses various means to ensure standards for sound management practices sound reputation risk management, including established by the regulatory bodies that a Code of Ethics and Professional Conduct, govern them and are subject to capital governance practices, awareness sessions,

ADDITIONAL INFORMATION RELATED TO EXPOSURE TO CERTAIN RISKS

HIGHLIGHTS • Desjardins Group’s exposure to consolidated and unconsolidated special purpose entities is 8.4% of the total assets of the special purpose entities. • Desjardins Group does not own loans on the U.S. subprime market. Manage m ent’s Discussion an d A nalysis To give external users a better idea of Desjardins Exposure to subprime residential Residential mortgage-backed Group’s exposure to risks related to current and Alt-A mortgage loans securities market events, Desjardins Group decided to As part of its operations, Desjardins Group The fair value and principal amount of use the best practices promoted by the Financial is exposed to credit risks related to subprime residential mortgage-backed securities totalled Stability Forum (“FSF”) as a guideline. It should residential mortgage loans (defined as loans $36 million and $34 million, respectively. be mentioned that in April 2008, a report was to borrowers with a high credit risk profile) These securities are presented on the Combined issued by the FSF in response to a request from and Alt-A mortgage loans (defined as loans Balance Sheets as securities held for trading. G7 ministers and central bank governors. to borrowers with non-standard income documentation). However, Desjardins Group’s Leveraged finance loans These best practices include enhanced exposure to subprime residential mortgage disclosures of risks related to financial Exposure to leveraged finance loans (defined loans was less than $2 million, and its exposure instruments which markets consider to as loans to large corporations and finance to Alt-A mortgage loans was $83 million. be higher risk. It should be noted that some companies whose credit rating is between

Subprime residential and Alt-A mortgage Desjar d ins group of these disclosures are already made in the BB+ and D and whose level of debt is very loans are recorded on the balance sheet as MD&A in the following sections: high compared to other companies in the loans measured at amortized cost. None of same industry) was $76 million. This exposure these loans is exposed to the risks related to n Risk management takes the form of disbursed and undisbursed the U.S. subprime market. As at December 31, commitments. Leveraged finance is generally 2008, total subprime residential mortgage n Off-balance sheet items used to achieve a specific objective, such as loans and Alt-A mortgage loans represented making an acquisition, or effecting a takeover approximately 0.1% of Desjardins Group’s or share buy-back. Leveraged finance loans n Fair value of financial instruments (see Note total assets. 25 to the Combined Financial Statements) are recorded on the balance sheet as loans and receivables and totalled approximately Desjardins Group used these recommendations 0.1% of Desjardins Group’s total assets. as a guideline in making the following disclosures as at December 31, 2008:

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Collateralized debt obligations Commercial mortgage-backed Financial asset-backed securities securities The positive fair value of collateralized debt The fair value and notional amount of financial obligations was $144 million (notional amount: The fair value and principal amount of asset-backed securities were $288 million and $294 million). None of the securities held commercial mortgage-backed securities totalled $303 million respectively. These securities are is directly backed by subprime residential $342 million and $355 million, respectively. presented on the Combined Balance Sheets mortgage loans. An other than temporary These securities are presented on the Combined as available-for-sale securities and as securities decline in value of $113 million was recognized Balance Sheets as securities held for trading. held for trading. in Desjardins Group’s combined income with respect to these securities. They are presented The following table provides additional details on the Combined Balance Sheets as available- concerning exposure to asset-backed securities: for-sale securities.

Table 30 Fair value of asset-backed securities by credit rating

As at December 31, 2008 (unaudited, in millions of $)

Commercial Collateralized mortgage- Financial debt backed asset-backed obligations securities securities Notional amount $ 294 $ 355 $ 303

Fair value of securities, by credit rating AAA $ 129 $ 333 $ 182 AA — 8 23 A — 1 28 BBB — — 16 Lower than BBB- 15 — — Not rated — — 39

Total $ 144 $ 342 $ 288

Table 31 Fair value of swaps by maturity

As at December 31, 2008

Manage m ent’s Discussion an d A nalysis (unaudited, in millions of $) First-to- default credit Credit total default default return swaps swaps (1) swapst(2) Notional amount of swaps Notional amount of swaps with a positive fair value $ — $ — $ 29 Notional amount of swaps with a negative fair value 37 159 1,750

Total notional amount $ 37 $ 159 $ 1,779

Fair value of swaps with a positive fair value, by maturity Less than 1 year $ — $ — $ —

Desjar d ins group From 1 to 3 years — — 1 Over 3 to 5 years — — — Over 5 years — — —

Total fair value of swaps with a positive fair value $ — $ — $ 1

Fair value of swaps with a negative fair value, by maturity Less than 1 year $ — $ — $ (57) From 1 to 3 years (12) (30) (1) Over 3 to 5 years — (81) (1) Over 5 years — (7) —

Total fair value of swaps with a negative fair value $ (12) $ (118) $ (59)

Total fair value $ (12) $ (118) $ (58)

(1) Only on collateralized debt obligations. (2) Excluding total return swaps entered into in connection with securitization activities.

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Credit default swap portfolio Assets under administration and Special purpose entities assets under management In the normal course of business, Desjardins First-to-default credit default swaps and credit Desjardins Group is one of the leading wealth Group enters into various financial transactions default swaps (collateralized debt obligations) managers and trustees in Canada. Assets under with special purpose entities or SPE. The entities were entered into with counterparties. Desjardins administration and assets under management are usually created for a unique and distinct Group’s commitments and the nature of are essentially comprised of financial assets purpose—they often have a limited life—and the underlying assets are presented under in the form of investment funds, mainly from are used to legally isolate the financial assets “Derivative financial instruments” in Note 26, individuals, and securities in custody and assets they hold from the transferring organization, “Commitments, Guarantees and Contingencies” accumulated by pension funds; they therefore which could be one of its clients or the to the Combined Financial Statements of do not belong to Desjardins Group but to its organization itself. SPEs are not operating Desjardins Group. As at December 31, 2008, members and clients. These assets are described entities and generally have no employees. the negative fair value of these first-to-default in detail under “Off-balance sheet items” In accordance with generally accepted credit default swaps and credit default swaps and in Table 26 “Assets under administration accounting principles, special purpose entities amounted to $130 million (notional amount: and assets under management” in the can be recognized or not recognized $196 million). Credit default swaps are Annual Report. on the balance sheet. Please refer to Note 1 presented on the Combined Balance Sheet “Significant Accounting Policies” to the as derivative financial instruments. Securitization Combined Financial Statements of Desjardins Group to learn more about the variable Desjardins Group participates in the Mortgage- Total return swap portfolio interest entities that have been consolidated Backed Securities Program under the National The positive and negative fair values of total (on-balance sheet). Housing Act. These transactions involve the return swaps, excluding those entered into use of off-balance sheet arrangements with in connection with securitization activities, Details concerning significant exposure special purpose entities (SPE). The SPE used were $1 million and $59 million respectively to other SPEs are provided in the table below. by Desjardins Group is the Canada Housing (notional amount: $1,779 million). Total return Trust, which was set up by the Canada Mortgage swaps are presented on the Combined Balance and Housing Corporation under the Canada Sheet as derivative financial instruments. Mortgage Bonds Program. These arrangements are described in detail under “Off-balance sheet items” and in Note 6 to the Combined Financial Statements in the Annual Report.

TABLE 32 SIGNIFICANT EXPOSURE TO OTHER SPECIAL PURPOSE ENTITIES

As at December 31, 2008 (unaudited, in millions of $)

Desjardins Total

Group’s assets of Manage m ent’s Discussion an d A nalysis exposure SPEs(1) Unconsolidated SPEs Trusts for Canadian non-bank asset-backed commercial paper (ABCP) subject to the Montréal Accord restructuring plan(2) $ 2,446 $ 31,838 Other trusts for bank and non-bank ABCP 12 5,009 Private investment funds related to guaranteed-capital products and other activities(3) 144 377

Consolidated SPEs Private hedge funds related to guaranteed-capital products and other activities(3) $ 537 $ 956 Desjardins Credit Union Inc.(4) 175 1,497

(1) The total assets of the SPEs disclosed correspond to the most recent data available to Desjardins Group. For investment funds and hedge funds related to guaranteed-capital structured products, Desjar d ins group the amount presented corresponds to the entity’s net assets. (2) Please see the “Specific items relating to the fourth quarter and fiscal 2008 primarily as a result of financial market instability” section of this MD&A. The indicated amount is presented before the write-down. (3) For presentation purposes, cross-investments between investment funds and hedge funds have not been eliminated. (4) See Note 1 “Significant Accounting Policies” to the Combined Financial Statements.

36099_p31a114_ENG.indd 99 16/03/09 16:36:37 100 ADDITIONAL INFORMATION 4.1 REGULATORY context and 4.2 FACTORS THAT MAY INFLUENCE FUTURE RESULTS ADDITIONAL 4 INFORMATION

4.1 REGULATORY context

Desjardins Group’s operations are governed in particular by the Act respecting financial services cooperatives. The Autorité des marchés financiers (AMF) is the main government agency that has oversight over and monitors deposit- taking institutions (other than banks) that carry on business in Québec, including the caisses and the FCDQ. This constitutes a significant difference from the Canadian banks, which are governed by a federal charter. Desjardins complies with banking regulations, even if it is under no legal obligation to do so because of its status as a cooperative. Desjardins also voluntarily complies with the regulatory requirements of the Basel Committee on Banking Supervision of the Bank for International Settlements (BIS). It furthermore applies rigorous corporate governance and financial governance practices, which are discussed on page 43 and pages 173 to 186 of this Annual Report.

Other regulations may also apply to some activities of Desjardins Group entities, as for instance, in the area of insurance Manage m ent’s Discussion an d A nalysis or securities brokerage.

4.2 FACTORS THAT MAY INFLUENCE FUTURE RESULTS

Many factors, several of which are beyond our control, could arise and have a material impact on our financial results and could consequently cause Desjardins Group’s actual results to differ from those expected. Given the uncertain nature of these factors, the predictions in the forward-looking statements may not occur. This is explained in the “Caution concerning forward-looking statements” on page 31. Desjar d ins group Certain factors are economic in nature or subject to regulation. These include interest rates, the inflation rate, foreign exchange rates, stock indices, monetary and tax policies, consumer spending, the demand for credit, personal savings patterns, the unemployment rate, trade between Québec and the United States and amendments to laws and regulations.

Risk factors also come into play, including credit risk, liquidity risk, market risk, operational risk, insurance risk and reputation risk. These factors, for which Desjardins Group has implemented risk management strategies, are discussed in the “Risk Management” section on pages 91 to 97.

In addition, the critical accounting policies and estimates used by Desjardins Group dictate how it is to present its financial position and results of operations, and may require that Management make assumptions on matters that intrinsically involve uncertainties. Any change in such estimates and assumptions could significantly affect Desjardins Group’s financial position and results of operations.

The above list of factors likely to influence future results is not exhaustive.

36099_p31a114_ENG.indd 100 16/03/09 16:36:37 ADDITIONAL INFORMATION 4.1 REGULATORY context and 4.2 FACTORS THAT MAY INFLUENCE FUTURE RESULTS 4.3 CRITICAL ACCOUNTING POLICIES AND ESTIMATES ADDITIONAL INFORMATION 101

4.3 CRITICAL ACCOUNTING POLICIES AND ESTIMATES

A description of the accounting policies used FINANCIAL INSTRUMENTS – and interest rate and stock index options. These by Desjardins Group is essential to understanding RECOGNITION AND derivative financial instruments are recognized and interpreting the results presented in the on the Combined Balance Sheets at fair value. Combined Financial Statements as at December MEASUREMENT 31, 2008. The significant accounting policies are Desjardins Group initially recognizes all financial Derivative financial instruments are used described in Note 1 (pages 124 to 126) or, when assets and financial liabilities at fair value on for trading purposes or for asset-liability possible, in the notes to the Combined Financial the Combined Balance Sheets. Subsequently, management purposes. They are used to Statements to enable the reader to understand financial assets and financial liabilities held transfer, modify or reduce actual or expected these policies. Some of these policies are of for trading as well as available-for-sale financial risks related to market risk. Financial derivative particular importance in presenting Desjardins assets continue to be recorded on the Combined instruments held for trading are used to meet Group’s financial position and operating results Balance Sheets at fair value. Changes in the fair the demand of members and clients as since they require Management to make value of financial assets and financial liabilities well as to allow Desjardins Group to generate assumptions and estimates that may involve held for trading are recognized in combined income from its own trading activities. These uncertainties. The following paragraphs income under “Other income – Trading income” derivative financial instruments are recognized summarize the accounting policies. for the year, while changes in the fair value at fair value on the Combined Balance Sheets, of available-for-sale financial assets are recorded and realized and unrealized gains and losses ALLOWANCE FOR CREDIT LOSSES in combined other comprehensive income until are recorded under “Other income – Trading they are derecognized. Equity securities income”. Derivative financial instruments held The allowance for credit losses reflects classified as available for sale but not quoted for asset-liability management purposes are Management’s best estimate of potential credit on an active market are recorded at cost. used to manage the risks related to the interest losses related to a portfolio of both on- and rates and foreign currency exposure of assets off-balance sheet items and its assessment of The fair value of a financial instrument is and liabilities on the Combined Balance Sheets, economic conditions. The allowance for credit generally the amount of consideration for firm commitments and forecasted transactions. losses is made up of specific allowances and a which the instrument would be exchanged general allowance. For the loan portfolio, credit in an arm’s length transaction between Derivative financial instruments, including risk is assessed regularly, and specific allowances knowledgeable, willing parties who are under embedded derivatives which are required are determined, on a loan by loan basis, for no compulsion to act. to be accounted for separately, are recorded all loans considered impaired. In addition, on the Combined Balance Sheets at fair a general allowance is recognized to reflect The fair values of financial instruments are value. Derivative financial instruments may Management’s best estimate of probable losses determined on the basis of quoted market be designated as part of a fair value hedge or related to the portion of the loan portfolio not prices when an active market exists. Otherwise, a cash flow hedge. When derivatives are used yet classified as impaired. The general allowance to manage assets and liabilities, it must be

Desjardins Group determines fair value by Manage m ent’s Discussion an d A nalysis is first determined by using a statistical model using either the market price of similar financial determined whether or not hedge accounting based on changes in losses by loan category. instruments or by discounting the cash flows, is appropriate for each derivative. In a fair value Moreover, an additional amount is considered at market interest rates, which are applied to hedging transaction, the hedging derivative is in order to reflect the impact of economic and the forecasted amounts until the maturity date. recognized at fair value, and the carrying value other factors. Differences between assumptions made and of the hedged item is adjusted by the gain or the actual results may result in different fair the loss attributable to the hedged risk. When Certain factors may influence Management’s values and financial results. These estimates these changes in fair value do not completely assumptions and estimates concerning will affect available-for-sale securities, securities offset each other, the resulting amount is the allowance for credit losses, including the held for trading, trading income and other recorded under “Other income – Trading inherent risk of the loan portfolios, the amount comprehensive income items. income”. In a cash flow hedging transaction, and date of forecasted payments, forecasted the gains and losses arising from changes in loss rates, and economic conditions. Any DERIVATIVE FINANCIAL the fair value of the effective portion of the material change in these factors could result derivative financial instrument are recognized in a change to the currently recognized amount INSTRUMENTS AND in other comprehensive income until the Desjar d ins group for the allowance for credit losses. HEDGING ACTIVITIES hedged item is recognized in combined income, at which time such change is recorded under Derivative financial instruments are financial A detailed analysis of the methods that interest income. The ineffective portion of contracts that derive their value from assets, Desjardins Group uses to manage credit risk hedging activities is recognized immediately interest rates, foreign exchange and other is provided on pages 92 to 94 of the MD&A. in combined income under “Other income – financial indices. The vast majority of derivative Trading income”. For derivative financial financial instruments are negotiated by mutual instruments that are not part of a hedging agreement between Desjardins Group and the relationship, changes in fair value are recorded counterparty and include forward exchange under “Other income – Trading income”. contracts, interest rate and currency swaps, total return swaps, forward rate agreements,

36099_p31a114_ENG.indd 101 16/03/09 16:36:37 102 ADDITIONAL INFORMATION 4.3 critical accounting policies and estimates

The fair value of all derivative financial The gain or loss on the transfer depends on test consists of a comparison, by reporting unit, instruments is determined using pricing models the prior carrying value of the loans sold as of the fair value of goodwill and its carrying that incorporate the current market prices well as the fair value of the assets received and value. Fair value is determined by using the and the contractual prices of the underlying liabilities assumed. This fair value is determined discounted value of cash flows or net realizable instruments, the time value of money, yield using the discounted value of expected cash values, whichever is appropriate. These methods curves, and volatility factors. The methods, flows and taking into account best estimates, require Management to make assumptions models and assumptions used to set prices which are based on certain key assumptions that may affect financial results. and to measure the value of derivative made by Management, including the forward instruments are subjective. Differences between yield curve for mortgage loans, discount rates INCOME TAXES ON SURPLUS the assumptions made and actual results could proportional to the risks involved and the EARNINGS lead to different fair values and financial results. prepayment rate. No credit losses are expected because the mortgage loans transferred are The process of calculating income taxes on OTHER THAN TEMPORARY guaranteed. Any changes to these assumptions surplus earnings is based on the anticipated DECLINE IN VALUE and estimates could however have an impact tax treatment of transactions recorded in the on recorded gains; an analysis of the sensitivity Available-for-sale securities are reviewed Combined Statements of Income, the Combined of the fair value of retained interests with regularly to determine if there has been an Statements of Changes in Equity and the respect to unfavourable changes of 10% other than temporary decline in value. Any Combined Statements of Comprehensive Income. and 20% in key assumptions is presented in impairment losses are recognized in “Other To determine the current and future portion of Note 6 to the Combined Financial Statements. income – Income from available-for-sale income taxes on surplus earnings, assumptions In addition, the value of retained interests securities” in the Combined Statements must be made concerning the dates on which that must be revalued periodically, the fair of Income. In evaluating the decline in value, future income tax assets and liabilities reverse. value determination methods and the Desjardins Group takes into account many facts If Desjardins Group’s interpretation differs from assumptions used could all have an impact specific to each investment and of all the factors that of the tax authorities or if the reversal on recorded amounts. that could indicate that there has been a decline dates do not match the forecasted dates, the in value that is other than temporary. Factors provisions for income taxes on surplus earnings Note 6 to the Combined Financial Statements considered include, but are not limited to, may increase or decrease in subsequent years. as well as the section on off-balance sheet items a significant or prolonged decline in the fair in this MD&A provide more detailed information value, significant financial difficulties of the PROVISION FOR MEMBER on these transactions. issuer, a breach of contract, the increasing DIVIDENDS probability of the issuer’s bankruptcy or restructuring and the disappearance of an EMPLOYEE FUTURE BENEFIT In 2008, the process for determining the active market for the financial asset concerned. PLANS provision for member dividends was reviewed further to changes made to the standard on ACTUARIAL AND RELATED Desjardins Group offers its employees defined distribution of caisse surplus earnings and benefit statutory pension plans as well as the standard on future member dividends. LIABILITIES supplemental plans, which provide pension Management estimated the amount of benefits in excess of statutory limits. Benefits the provision using scenarios and assumptions Manage m ent’s Discussion an d A nalysis The calculation of actuarial and other are calculated based on the number of years liabilities related to insurance policies for that take information obtained from a number of membership in the plans and take into the life and health insurance segment requires of caisses into account. In 2007 and 2006, consideration the average salary for the that assumptions be made with respect to when the provision for annual member dividends employee’s five most highly-paid years. Since a number of factors will come into play such as recorded in the Combined Statements of the plan procedures are such that the future death, disability, investment income, inflation, Income was determined based on the year’s changes in salary levels will have an impact policy cancellations, expenses, income taxes, surplus earnings distribution plans of each on the amount of future benefits, the cost premiums, fees and dividends to policyholders of the caisses, which the boards of directors of benefits is determined through actuarial and the amounts they represent. To predict of each caisse recommend for approval at calculations using the projected benefit method underwriting experience, Desjardins Financial their respective general meetings. The surplus prorated on years of service and Management’s Security uses best estimate assumptions. earnings distribution plan sets out several best estimate assumptions concerning the parameters, notably the amount of the member expected return on plan investments, salary dividend payment, which takes into consideration Some of these assumptions refer to events increases, and the retirements ages of since 2006 a new program under which members that are likely to occur in the distant future employees. Calculation of the expected return are able to elect to receive their dividends, at Desjar d ins group and they will eventually be changed. on plan assets is based on the value of pension a higher amount, in the form of shares. The fund assets measured at market-related values. difference between the amounts of member SECURITIZATION The method used to calculate the market- dividends actually paid, in cash or in shares, Desjardins Group participates in the National related value for all asset classes consists following the general meetings held by the Housing Act Mortgage-Backed Securities Program. of amortizing the difference between the caisses, and the amount of the provision, Under this program, Desjardins Group converts long-term return objective of the plans’ is charged to combined income during mortgage loans into mortgage-backed securities investment policies and the pension fund the current year. (NHA-MBSs) and transfers them to the Canada return over a five-year period. Housing Trust. The allocation basis of member dividends GOODWILL AND INTANGIBLE depends on the interest recorded These securitization transactions are recorded ASSETS on loans and deposits, the average Desjardins as sales; the loans are therefore removed from Funds outstanding in which the member has the Combined Balance Sheets since Desjardins Intangible assets with an indefinite useful invested through the caisse, and the various Group has surrendered control over the life as well as goodwill items disclosed in service charges collected from the member transferred assets and has received consideration the Combined Balance Sheets of Desjardins depending on the services used. The caisses other than beneficial interests in these assets. Group are not amortized, but are tested for can pay out member dividends when the legal impairment at least once a year. The impairment and regulatory requirements have been met.

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PROVISION FOR CONTINGENCIES will confirm that a liability is created on out in CICA Accounting Guideline 15 the balance sheet date, and the amount of “Consolidation of Variable Interest Entities” Desjardins Group is party to various business the contingent loss. New information may result (AcG-15) indicates that a variable interest litigation matters and lawsuits arising in the in a different contingency provision. In addition, entity (VIE) of which Desjardins Group is normal course of business. Many of these the costs incurred upon settlement of the the primary beneficiary must be consolidated. lawsuits are in connection with measures lawsuit may differ from the provision recorded. A final decision in the matter would require taken by entities to collect impaired loans For more information, refer to Note 26 to that contracts be analyzed, that an assessment and to exercise their rights in respect of assets the Combined Financial Statements. be made to determine if the entities meet the given as collateral for a loan. conditions set out in AcG-15, and that the CONSOLIDATION OF VARIABLE variable interests be identified. Provisions for possible litigation are recorded INTEREST ENTITIES when Desjardins Group will likely suffer a loss that can be reasonably estimated. Desjardins Desjardins Group’s management must use Group’s Management and internal and external its judgment to determine if the guidance experts assess the probability that a future event concerning the consolidation principles set

4.4 CHANGES IN ACCOUNTING POLICIES

NEW ACCOUNTING STANDARDS Reclassification of financial assets International financial reporting standards ADOPTED IN 2008 On October 24, 2008, the Accounting Standards Board issued amendments to In February 2008, the Canadian Accounting Capital management Section 3855, “Financial Instruments – Standards Board confirmed that publicly On January 1, 2008, Desjardins Group adopted Recognition and Measurement”, and Section accountable enterprises will be required the new standard of the Canadian Institute of 3862, “Financial Instruments – Disclosures”. to apply International Financial Reporting Chartered Accountants (CICA) entitled “Capital The amendments permit reclassification of Standards (“IFRS”) in 2011. Therefore, Disclosures” (Section 1535). some financial assets in specified circumstances. Desjardins Group and its publicly accountable They apply retrospectively to reclassifications entities will adopt IFRS on January 1, 2011. The purpose of this standard is to require the made on or after July 1, 2008, but only for disclosure of information that enables users of periods for which annual or interim financial Desjardins Group initiated its IFRS conversion the Combined Financial Statements to evaluate statements have not previously been issued. program in the summer of 2007 by setting up the entity’s objectives, policies and processes Any reclassification made on or after a project structure to coordinate the conversion for managing capital. Since this new standard November 1, 2008 takes effect from the date for all Desjardins Group entities as well as for

specifically covers disclosures to be provided of reclassification. Desjardins Group did all the staff assigned to this program in order Manage m ent’s Discussion an d A nalysis about capital management, it had no impact not reclassify any financial assets as at to meet the deadline of January 1, 2011 as on Desjardins Group’s results or financial position. December 31, 2008. the IFRS changeover date.

Financial instruments FUTURE ACCOUNTING CHANGES The governance structure for the IFRS conversion program is composed of the Audit and Inspection On January 1, 2008, Desjardins Group adopted Goodwill and intangible assets Commission, the Steering Committee, the the new CICA standards entitled “Financial Program Management Committee and the Instruments – Disclosures” (Section 3862) In January 2008, the CICA issued a new User Committee. The role of the Audit and and “Financial Instruments – Presentation” standard entitled “Goodwill and Intangible Inspection Commission is to approve the (Section 3863). Assets” (Section 3064), which reinforces an approach based on principles and criteria accounting treatments selected and to oversee the progress of the work. The purpose of the Sections 3862 and 3863 together replace to recognize costs as assets and clarifies Steering Committee is to ratify the accounting Section 3861 “Financial Instruments – the application of the matching principle in order to eliminate the practice of recognizing treatments recommended by the User

Disclosure and Presentation”. Section 3863 Desjar d ins group Committee. The Program Management carries forward unchanged the presentation as assets items that do not meet the definition Committee’s role is to monitor the progress standards contained in Section 3861. The of an asset nor the criteria for asset recognition. of the IFRS conversion program, while purpose of Section 3862 is to inform users in Desjardins Group will apply this standard ensuring that required resources are available order to enhance their understanding and retroactively on or after January 1, 2009. and that program decisions and orientations evaluation of the significance of financial It is in the process of assessing the impact are in line with the identified priorities. The instruments for the entity’s financial position of this standard on the Combined role of the User Committee is to ensure the and performance, as well as to help them better Financial Statements. quality of the accounting choices and their evaluate the nature and extent of risks arising seamless implementation at all Desjardins from financial instruments and ways to manage Group components. those risks. Since these new standards specifically cover the disclosures to be provided, they did not affect Desjardins Group’s results or financial position.

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The objectives of the working teams include Stage 1 – Initiative The Feasibility phase is under way, including analyzing the impacts of this conversion, Identification – Feasibility analysis of the accounting impacts of conversion harmonizing IFRS implementation within to IFRS and the repercussions on business This stage consists of thoroughly assessing Desjardins Group components and suggesting operations. A timetable has been prepared the areas in which IFRS implementation an accounting treatment to the User Committee. to deal with the impacts on information will have the most repercussions for Desjardins systems, processes, change management Group. A detailed plan prioritizing the elements The Board of Directors and the Audit and setting up a training program among to be considered will be prepared on the and Inspection Commission also monitor the personnel. Desjardins Group has started to basis of the work done at this stage for developments in the IFRS conversion program raise awareness among the various stakeholders. the selected solution. and, in particular, the key elements below: A detailed communication plan is being prepared for this purpose. Stage 2 – Project n Changes in accounting policies Design – Realization – Deployment According to the timetable established by n Impacts on information technology Desjardins Group, the Feasibility and Design and data systems The purpose of this stage is to set up the conversion plans for all the standards phases should be completed in fiscal 2009 n Impacts on internal control over identified at the Identification stage. This and the Realization and Deployment phases, financial reporting stage will include establishing the training which have started in 2009, should be n Impacts on disclosure controls and communication strategies affecting all completed in fiscal 2010. Some projects and procedures stakeholders, customized to their specific may be completed in 2009. needs, including the impacts on management n Impacts on expertise in financial reporting and information technology processes. This Credit risk and the fair value of n Impacts on business operations stage also includes making the required changes financial assets and financial liabilities to information systems and business processes, On January 20, 2009, the Emerging Issues The IFRS conversion program follows Desjardins and formally finalizing the authorizations Committee issued EIC-173, “Credit Risk and Group’s project management methodology, required to approve accounting policy changes. which is based on market best practices. the Fair Value of Financial Assets and Financial Liabilities”. This new EIC abstract states that The program consists of three stages which Stage 3 – Operation an entity’s own credit risk and the credit risk of include the following six phases: Post-implementation the counterparty should be taken into account The objective at this stage is to set up a in determining the fair value of financial assets procedure to maintain operations and update and financial liabilities, including derivative knowledge within Desjardins Group. financial instruments. Desjardins Group will apply this accounting treatment retrospectively, To date, Desjardins Group has completed without restatement of prior periods, to all the Identification phase, establishing the IFRS financial assets and financial liabilities measured standards likely to have a significant impact at fair value in its interim financial statements on Desjardins Group’s financial disclosure (i.e., as at March 31, 2009. Desjardins Group is in

Manage m ent’s Discussion an d A nalysis measurement, recognition, presentation and the process of assessing the impact of this change disclosure), business operations, information on the valuation models used to determine the technology and data systems. Moreover, in fair value of its financial instruments. order to ensure consistent IFRS interpretation within Desjardins Group, training workshops were held with the various parties concerned. Desjar d ins group

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BUSINESS of regions in the country. Weak commodity once consumers have regained some 4.5 prices, due to the global recession, also slowed confidence. In Canada, the actions of monetary CLIMATE down the Canadian economy. The loonie was and government authorities should promote a not spared; from around parity in early 2008, recovery by the end of 2009. In the meantime, it plunged to a low of US$0.77 in November. a recession cannot be avoided because The worsening global financial crisis wreaked There was also an incredible nosedive in oil economic conditions continue to grow bleaker. havoc in 2008. The subprime mortgage prices last year from a high of $147 a barrel Québec, which managed to hold out against meltdown triggered a loss of investor in July to almost $30 a barrel at the end the deterioration of the North American confidence in asset-backed commercial paper of December. economy in 2008, would be hard pressed (ABCP). The resulting bankruptcy of several to prevent its economy from contracting. financial institutions, particularly in Europe and Outlook for 2009 However, the magnitude of public infrastructure the United States, also created an unprecedented spending and hydroelectric projects mean that global liquidity crunch. Central banks took Since the U.S. recession should last at least until Québec should have an easier time than Ontario. strong measures to prevent the collapse of the summer of 2009, economic indicators will the financial system, attempting to stabilize the continue to deteriorate until then. After that economy. Key interest rates were slashed while point, newly elected U.S. President Barack billions of dollars were injected by governments Obama’s ambitious stimulus plan will help to to restore calm. get the economy back on track. Low interest rates and oil prices will also bolster the recovery The financial crisis became most acute last October following the bankruptcy of Lehman Brothers and the numerous problems of other Canadian dollar Prime rate financial giants. Investor confidence crumbled (C$/US$) (as a %) and the institutional money market practically ground to a halt. Consequently, financing costs on the international markets climbed, and there was a sharp correction in stock indices. 1.00 8

The stock market meltdown had global 0.92 7 repercussions, and the S&P 500 index experienced its worst drop since the 1930s 0.84 6 in 2008. The year closed with a slight surge of renewed optimism, which pushed up stock indices at the end of December. After plummeting 0.76 5 below 7650 points in November, the S&P/TSX index closed the year at almost 9000 points. 0.68 4 Despite this recovery, the Canadian stock market lost more than 30% of its value in 2008. 0.60 3 Manage m ent’s Discussion an d A nalysis

Tighter credit conditions worldwide, and 02 03 04 05 06 07 08 02 03 04 05 06 07 08 in particular in the United States, prompted central banks to ease monetary policy. The Unemployment rate GDP growth Federal Reserve lowered its key interest rates by (as a %) (as a %) 400 basis points, through a number of vigorous cuts, including three 75-basis-point cuts. The 7 overnight funds rate therefore fell to practically zero (0 to 0.25%). The Bank of Canada also 12 6 lowered its bank rate successively by a total of 275 basis points in 2008. The 50-point cut 10 5 in January 2009 reduced target overnight rates to an unheard of 1.0%. 8 4 Desjar d ins group The size and scope of the financial crisis 6 3 adversely affected the global economy, which fell into a recession. The United States 4 2 was especially hard hit. Lay-offs number in the millions, the real estate market continues 2 1 to slump and consumer spending has fallen for the first time since 1991. 0 0

While the United States officially entered 02 03 04 05 06 07 08 02 03 04 05 06 07 08 a recession at the beginning of 2008, the Canadian economy held out a little Canada Canada while longer. Canada finally succumbed last fall when deteriorating economic conditions Québec Québec came to a head. Household confidence reached a near-historic low, unemployment climbed Ontario Ontario to 6.6% at the end of 2008, and the real estate market correction spread to a number

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4.6 FIVE-YEAR STATISTICAL REVIEW

COMBINED BALANCE SHEETS

As at December 31 (in millions of $)

2008 2007(1) 2006(1) 2005(1) 2004(1) Assets Cash and deposits with financial institutions $1,489 $1,499 $1,334 $1,278 $1,303

Securities Investment securities — — 23,099 22,036 20,062 Available-for-sale securities 11,338 10,315 — — — Securities held for trading 17,765 21,127 3,906 3,045 1,889 Equity method securities 119 118 38 — —

29,222 31,560 27,043 25,081 21,951 Securities borrowed or purchased under reverse repurchase agreements 6,130 7,593 4,147 2,389 1,501

Loans Residential mortgages 61,081 56,662 52,461 48,505 43,307 Consumer, credit card and other personal loans 18,121 16,440 15,377 14,411 13,373 Business and government 26,086 23,063 21,532 20,278 19,328

105,288 96,165 89,370 83,194 76,008 Allowance for credit losses (826) (762) (724) (722) (753)

104,462 95,403 88,646 82,472 75,255

Other assets 10,995 8,004 7,970 6,873 6,483

Total assets $152,298 $144,059 $129,140 $118,093 $106,493

Manage m ent’s Discussion an d A nalysis Liabilities and equity Liabilities Deposits Individuals $71,958 $66,319 $62,650 $59,291 $55,063 Business and government 21,512 20,784 16,282 16,428 15,200 Deposit-taking and other institutions 7,966 8,663 9,211 7,568 6,573

101,436 95,766 88,143 83,287 76,836

Actuarial and related liabilities 12,874 12,831 11,135 10,500 9,821 Borrowings 338 69 163 345 127 Subordinated debentures 748 858 1,367 1,355 1,589 Other liabilities 27,029 25,253 19,779 14,701 10,960 Desjar d ins group 40,989 39,011 32,444 26,901 22,497

Equity Capital stock 955 894 856 845 851 Share capital 67 67 66 64 79 Undistributed surplus earnings (deficit) (96) 795 634 729 553 Accumulated other comprehensive income 685 50 — — — Reserves 8,262 7,476 6,997 6,267 5,677

9,873 9,282 8,553 7,905 7,160

Total liabilities and equity $152,298 $144,059 $129,140 $118,093 $106,493

(1) Data restated to reflect the presentation adopted in 2008.

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PRIMARY FINANCIAL MEASURES

As at December 31

(in millions of $ and as a %)

2008 2007(1) 2006(1) 2005(1) 2004(1) Tier 1 capital ratio – BIS 13.39 % 14.17 % 14.18 % 14.01 % 13.58 % Total capital ratio 12.85 13.59 14.33 14.05 13.70 Return on equity 0.8 12.3 12.1 14.5 15.8 Productivity ratio(2) 91.8 72.3 74.6 72.4 71.0 Impaired loans coverage ratio 195.7 194.9 206.9 220.8 187.8 Gross impaired loans as a percentage of gross loans 0.40 0.41 0.39 0.39 0.53 Average assets $149,676 $139,957 $123,563 $112,692 $102,191 Average loans 99,705 91,832 85,419 78,803 72,054 Average deposits 99,288 92,042 85,485 79,889 74,319

(1) Data restated to reflect the presentation adopted in 2008. (2) The productivity ratio is Desjardins Group’s non-interest expense to total income, net of expenses related to claims and insurance benefits. Manage m ent’s Discussion an d A nalysis Desjar d ins group

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COMBINED STATEMENTS OF INCOME

Years ended December 31 (in millions of $)

2008 2007(1) 2006(1) 2005(1) 2004(1) Interest income Loans $ 5,573 $ 5,438 $ 4,971 $ 4,522 $ 4,249 Securities 474 447 386 332 330

6,047 5,885 5,357 4,854 4,579

Interest expense Deposits 2,590 2,578 2,206 1,739 1,613 Subordinated debentures and borrowings 39 62 70 81 84

2,629 2,640 2,276 1,820 1,697

Net interest income 3,418 3,245 3,081 3,034 2,882

Net premiums 4,131 3,824 3,688 3,547 3,263

Other income Deposit and payment service charges 497 484 447 417 402 Lending fees and credit card service revenues 410 381 326 263 229 Brokerage, investment fund and trust services 617 738 625 525 437 Investment and trading income — — 878 965 941 Income (loss) from available-for-sale securities (413) 141 — — — Trading income (loss) (993) 262 — — — Other investment income 239 179 — — — Other 467 417 374 335 329

824 2,602 2,650 2,505 2,338

Total income 8,373 9,671 9,419 9,086 8,483

Provisions for credit losses 243 197 139 96 94

Manage m ent’s Discussion an d A nalysis Claims, benefits, annuities and changes in insurance provisions 3,144 3,171 3,342 3,252 2,970

Client retention expense — 121 — — —

Non-interest expense Salaries and fringe benefits 2,250 2,338 2,271 2,104 1,984 Premises, equipment and furniture, including amortization 393 381 373 369 338 Outsourcing of processing services 322 308 315 315 295 Communications 252 236 237 228 212 Other 1,583 1,439 1,338 1,206 1,083

4,800 4,702 4,534 4,222 3,912

Desjar d ins group Operating surplus earnings from continuing operations 186 1,480 1,404 1,516 1,507 Income taxes on surplus earnings 109 358 398 403 418

Surplus earnings from continuing operations before non-controlling interests and member dividends 77 1,122 1,006 1,113 1,089 Non-controlling interests (1) 21 18 24 18

Surplus earnings from continuing operations before member dividends 78 1,101 988 1,089 1,071 Discontinued operations — — — — 1

Surplus earnings before member dividends 78 1,101 988 1,089 1,072 Provision for member dividends 215 592 483 408 372 Tax recovery on the provision for member dividends (62) (174) (148) (120) (106)

Surplus earnings (deficit) for the year after member dividends $ (75) $ 683 $ 653 $ 801 $ 806

(1) Data restated to reflect the presentation adopted in 2008.

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4.7 summary of QUARTERLY INFORMATION

COMBINED STATEMENTS OF INCOME (unaudited, by quarter and in millions of $)

2008 2007 q4 q3(1) q2(1) q1(1) Q4(1) Q3(1) Q2(1) Q1(1) Net interest income $ 869 $ 893 $ 847 $ 809 $ 821 $ 827 $ 815 $ 782 Net premiums 1,027 1,111 997 996 1,021 945 949 909 Other income (losses) (167) 6 608 377 857 612 455 678

Total income 1,729 2,010 2,452 2,182 2,699 2,384 2,219 2,369

Provisions for credit losses 88 65 46 44 65 47 41 44 Claims, benefits, annuities and changes in insurance provisions 965 579 777 823 1,063 775 543 790 Client retention expense — — — — — 121 — — Non-interest expense 1,257 1,145 1,176 1,222 1,254 1,100 1,186 1,162

Operating surplus earnings (deficit) (581) 221 453 93 317 341 449 373

Income tax (recovered) on surplus earnings (deficit) (96) 73 107 25 47 84 124 103 Non-controlling interests (9) (1) 8 1 (3) 9 10 5

Surplus earnings (deficit) before member dividends (476) 149 338 67 273 248 315 265 Provision for member dividends, net of income taxes recovered (63) 7 123 86 124 92 125 77

Surplus earnings (deficit) for the period after Manage m ent’s Discussion an d A nalysis member dividends $ (413) $ 142 $ 215 $ (19) $ 149 $ 156 $ 190 $ 188

(1) Data restated to reflect the presentation adopted as at December 31, 2008. Desjar d ins group

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COMBINED BALANCE SHEETS (unaudited, at the end of the quarter and in millions of $)

2008 2007 q4 q3(1) q2(1) q1(1) Q4(1) Q3(1) Q2(1) Q1(1) Assets Cash and deposits with financial institutions $ 1,489 $ 1,144 $ 1,230 $ 1,280 $ 1,499 $ 1,160 $ 1,226 $ 1,182 Securities – Available-for-sale securities 11,338 11,100 11,579 11,064 10,315 10,359 9,276 10,461 Securities – Securities held for trading 17,765 19,297 21,615 21,579 21,127 21,740 22,250 18,892 Securities – Equity method securities 119 120 118 119 118 — — 37 Securities borrowed or purchased under reverse repurchase agreements 6,130 7,127 8,766 8,400 7,593 9,041 8,547 7,183 Residential mortgages 61,081 60,104 58,989 56,945 56,662 55,825 54,900 53,044 Consumer, credit card and other personal loans 18,121 17,740 17,163 16,717 16,440 16,043 15,696 15,362 Loans to business and government 26,086 25,173 23,968 24,207 23,063 22,715 21,975 21,782 Allowance for credit losses (826) (795) (777) (773) (762) (751) (742) (738) Other assets 10,995 9,311 9,289 10,222 8,004 10,779 9,872 9,469

Total assets $ 152,298 $ 150,321 $ 151,940 $ 149,760 $ 144,059 $ 146,911 $ 143,000 $ 136,674

Liabilities and equity Deposits by individuals $ 71,958 $ 69,344 $ 69,233 $ 66,908 $ 66,319 $ 65,167 $ 65,251 $ 63,696 Deposits by business and government 21,512 22,551 22,637 20,256 20,784 19,604 16,883 15,266 Deposits by deposit-taking and other institutions 7,966 8,859 9,199 10,252 8,663 9,404 10,184 10,846 Actuarial and related liabilities 12,874 12,678 12,854 12,833 12,831 12,473 12,380 12,535 Subordinated debentures and borrowings 1,086 837 850 816 927 925 926 1,429 Other liabilities 27,029 26,329 27,604 29,290 25,253 30,261 28,518 24,106 Equity 9,873 9,723 9,563 9,405 9,282 9,077 8,858 8,796

Total liabilities and equity $ 152,298 $ 150,321 $ 151,940 $ 149,760 $ 144,059 $ 146,911 $ 143,000 $ 136,674 Manage m ent’s Discussion an d A nalysis (1) Data restated to reflect the presentation adopted as at December 31, 2008.

PRIMARY FINANCIAL MEASURES (unaudited, by quarter or at the end of the quarter, as a % and in millions of $)

2008 2007 q4 q3(1) q2(1) q1(1) Q4(1) Q3(1) Q2(1) Q1(1) Return on equity (19.3) % 6.2 % 14.3 % 2.9 % 11.8 % 11.0 % 14.3 % 12.4 % Productivity ratio(2) 164.5 80.0 70.2 89.9 76.7 68.3 70.8 73.6 Impaired loans coverage ratio 195.7 194.6 199.2 198.2 194.9 188.9 198.9 193.0 Gross impaired loans as a percentage of gross loans 0.40 0.40 0.39 0.40 0.41 0.42 0.40 0.42 Average assets $ 151,310 $ 151,131 $ 150,850 $ 146,910 $ 145,485 $ 144,956 $ 139,837 $ 132,907

Desjar d ins group Average loans 103,342 100,783 98,220 96,250 94,618 92,831 90,640 89,048 Average deposits 101,095 100,912 99,243 96,591 94,971 93,247 91,063 88,976

(1) Data restated to reflect the presentation adopted as at December 31, 2008. (2) The productivity ratio is Desjardins Group’s non-interest expense to total income, net of expenses related to claims and insurance benefits.

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4.8 Selected STATISTICS BY BUSINESS SEGMENT

pERSONAL AND COMMERCIAL

As at December 31 (unaudited, in millions of $)

2008 2007(1) 2006(1) 2005(1) 2004(1) Caisses and federations Assets $ 110,433 $ 100,565 $ 94,759 $ 87,725 $ 83,074 Securities 10,137 9,770 8,686 8,029 9,039 Loans 93,378 86,581 80,906 75,725 69,662 Deposits 88,200 81,670 76,307 71,302 67,712 Equity 9,944 9,142 8,282 7,553 6,951 Surplus earnings before member dividends 978 1,195 672 775 713 Provision for member dividends 215 592 483 408 372

Caisse centrale Desjardins Assets $ 25,335 $ 20,431 $ 17,597 $ 15,757 $ 14,770 Securities 4,572 3,722 3,805 3,349 2,843 Loans 14,781 13,688 10,924 10,286 10,187 Deposits 16,310 16,038 13,431 11,949 11,242 Net income (loss) (37) 63 54 49 44

Fonds de sécurité Desjardins Assets $ 727 $ 1,331 $ 742 $ 797 $ 534 Net fund value 593 593 574 550 523 Net surplus earnings (deficit) (8) 20 25 27 38

Capital Desjardins Assets $ 760 $ 761 $ 1,265 $ 1,266 $ 1,515 Senior bonds 749 748 1,250 1,250 1,490

Investment funds and trust services(2) Income from brokerage, investment

fund and trust fund services $ 230 $ 275 $ 219 $ 130 $ 137 Manage m ent’s Discussion an d A nalysis Investment funds outstanding 11,410 14,769 12,716 10,247 8,006 Assets under administration 186,688 191,048 208,234 203,398 195,840

(1) Data restated to reflect the presentation adopted as at December 31, 2008. (2) Includes Desjardins Financial Services Firm, Desjardins Trust, Northwest Asset Management and Desjardins Investment Management.

LIFE AND HEALTH INSURANCE

As at December 31 (unaudited, in millions of $ and as a %)

2008 2007(1) 2006(1) 2005(1) 2004(1) Desjardins Financial Security

Insurance and annuity premiums $ 2,868 $ 2,575 $ 2,438 $ 2,300 $ 2,090 Desjar d ins group In-force life insurance (insured capital) 183,491 171,009 151,192 137,118 131,896 In-force annuity contracts (funds held) 3,976 4,200 3,895 3,786 3,670 Return on equity 5.9 % 27.5 % 20.7 % 24.9 % 19.6 % Assets under management and under administration $ 19,666 $ 22,576 $ 19,944 $ 20,384 $ 17,598

(1) Data restated to reflect the presentation adopted as at December 31, 2008.

36099_p31a114_ENG.indd 111 16/03/09 16:36:41 112 Additional information 4.9 GLOSSARY OF FINANCIAL TERMS

GENERAL INSURANCE

As at December 31 (unaudited, in millions of $ and as a %)

2008 2007(1) 2006(1) 2005(1) 2004(1) Desjardins General Insurance Group Gross premiums written $ 1,460 $ 1,429 $ 1,412 $ 1,405 $ 1,370 Growth in number of in-force policies 0.3 % 0.4 % 1.2 % 2.7 % 4.2 % Combined ratio 97.8 92.5 91.9 92.0 89.4 Return on equity 8.5 26.7 25.2 24.7 29.7

(1) Data restated to reflect the presentation adopted as at December 31, 2008.

SECURITIES BROKERAGE, ASSET MANAGEMENT AND VENTURE capital

As at December 31 (unaudited, in millions of $ and as a %, unless otherwise stated)

2008 2007(1) 2006(1) 2005(1) 2004(1) Desjardins Securities Total revenues $ 265 $ 291 $ 273 $ 249 $ 225 Number of clients (in thousands) 198 198 205 239 240 Return on equity (40.2) % 0.9 % (10.9) % (23.5) % (0.2) % Assets under administration $ 16,309 $ 18,601 $ 17,603 $ 15,583 $ 13,596

Desjardins Asset Management Fee income $ 82 $ 89 $ 87 $ 68 $ 61 Assets under management 38,355 50,773 46,671 35,754 26,329

Desjardins Venture Capital Management fee income $ 27 $ 26 $ 23 $ 23 $ 20 Assets under management 914 848 778 750 662 Investments, on the books (Desjardins Group funds)(2) 40 69 70 108 163 Net earnings (loss) (Desjardins Group funds)(2) (22) (3) 2 — 2

(1) Data restated to reflect the presentation adopted as at December 31, 2008. (2) Group funds include Desjardins Venture Capital, L.P., as well as the six Desjardins Capital regional development funds. Manage m ent’s Discussion an d A nalysis

4.9 GLOSSARY OF FINANCIAL TERMS

Acceptance Annuity premium and sell transactions, while the services provided for assets under management include selecting Short-term debt security that can be traded in Amount invested by the policyowner in order investments and offering investment advice. the money market, which a financial institution to receive annuity payments, immediately These assets may also be administered by guarantees for a borrower in exchange for or after an accumulation period. the financial institution. a stamping fee. Appointed actuary Autorité des marchés financiers

Desjar d ins group Allowance for credit losses Actuary appointed by an insurance company’s Organization whose mission is to administer Amount deemed sufficient by Management board of directors, in accordance with the all the laws governing the supervision of to cover the anticipated credit losses related to federal and provincial laws governing insurance. the financial industry, notably in the areas the loan portfolio and other on- and off-balance of insurance, deposit-taking institutions sheet financial assets. The allowance for Assets under administration and and financial product and service distribution, credit losses is increased by specific and general assets under management as well as securities. On February 1, 2004, it allowances and decreased by write-offs, net Assets administered or managed by a financial replaced the following supervisory institutions: of recoveries. institution that are beneficially owned by the Commission des valeurs mobilières du members and clients and are therefore not Québec, the Bureau des services financiers, Alt-A mortgage loan reported on the financial institution’s balance the Régie de l’assurance-dépôts du Québec, Loan to a borrower with non-standard sheet. The services provided for assets under and the Fonds d’indemnisation des services income documentation. administration are administrative in nature, financiers. The AMF also replaced the Inspector such as custodial services, collection of General of Financial Institutions for the investment income and settlement of buy supervision of the financial industry.

36099_p31a114_ENG.indd 112 16/03/09 16:36:42 4.9 GLOSSARY OF FINANCIAL TERMS Additional information 113

Basis point Defined benefit pension plan Impaired loan Unit of measure equal to one one-hundredth Pension plan that guarantees each participant A loan, except a credit card balance, is of a percent. a defined level of retirement income, often considered impaired when, in Management’s based on a formula set by the plan in terms opinion, there is reasonable doubt that Beneficiary of the participant’s salary and number of years the principal or the interest will be collected of service. on scheduled dates, or when the interest or Person, other than the policyowner, designated principal payment is contractually 90 days or to receive benefits under an insurance or Derivative financial instrument more past due, unless the loan is fully secured. annuity contract. All loans are considered impaired when they Financial contract whose value fluctuates based are more than 180 days in arrears. Benefit on an underlying asset without having to hold or deliver such underlying asset. Derivative Amount paid by the insurer under a life, salary Insurance premium financial instruments are used to transfer, or accident-health insurance policy. The benefit modify or reduce current or expected risks, Payment that the policyowner is required is paid to the policyowner, the insured person or including risks related to interest and exchange to make to maintain the insurance contract the beneficiary, as the case may be. In a pension rates and other financial indices. in force. This payment represents the cost of plan, this term refers to the vested rights of a the insurance policy and can sometimes include member under the plan. Effective interest rate a savings component. The premium is directly proportional to the amount of risk underwritten Bond Rate determined by discounting total future by the insurer. cash flows, including fees paid or received, Certificate evidencing a debt under which the premiums and discounts and transaction costs. issuer promises to pay the holder a specified Insured person amount of interest for a specified period of Financial asset-backed security Person whose life or health is insured under time, and to repay the borrowing at maturity. an insurance policy. See also Participant. Generally, assets are pledged as security for the Security created through the securitization borrowing, except in the case of government or of a pool of financial assets. Investment securities corporate bonds, aside from debentures. This term is often used to describe any debt security. Forward exchange contract Securities held with the intention of holding them to maturity or until the market offers Commitment to buy or sell a fixed amount Collateralized debt obligation more attractive investment opportunities. of foreign currency on a specified future date Security resulting from a securitization and at a specified exchange rate. Leveraged finance loan transaction, issued in representation of loans secured by a real property mortgage; Gross premiums written Loan to large corporations and finance the cash flows representing principal and companies whose credit rating is between In general insurance, premiums stipulated in interest payments on the underlying mortgage BB+ and D and whose level of debt is very insurance contracts entered into during the year. loans are tranched for purposes of passing high compared to other companies in them through to the securityholders. the same industry. Guarantee and standby letter of credit Manage m ent’s Discussion an d A nalysis Combined ratio Essentially, irrevocable commitment by a Loss experience financial institution to make payments in In general insurance, total claims and operating In general insurance, total claims expressed the event that a member or client cannot expenses expressed as a percentage of net as a percentage of net premiums earned. Net meet its financial obligations to third parties. premiums earned. premiums earned represent premiums earned based on time, net of reinsurance premiums. Hedging Commercial mortgage-backed security Transaction carried out to reduce or offset Matching Security created through the securitization Desjardins Group’s exposure to one or several of commercial mortgage loans. Process of adjusting asset, liability and financial risks. The transaction involves taking off-balance sheet item maturities in order to a position exposed to effects that are equivalent, Company subject to significant minimize risks related to interest rates, currency, but of opposite direction, to theeffects of influence and other financial indices. Matching is used in market fluctuations on an existing

asset-liability management. Desjar d ins group Company whose strategic operating, investing or forecasted position. and financing policies are subject to the Member dividend significant influence of Desjardins Group, Hedging relationship but that is not controlled by Desjardins Group. Allocation of surplus earnings to members A relationship established by Management The percentage of share capital of this type of on the basis of their volume of business with between a hedged item and a hedging company owned by Desjardins Group is usually their caisse. item that satisfies all the conditions stated between 20% and 50%. in the relevant accounting standard issued Morbidity rate by the Canadian Institute of Chartered Credit instrument Accountants. A hedging item (generally Probability that a person of a given age will Credit facility offered to members and clients in a derivative instrument) is used to offset an suffer from an illness or a disability. The health the form of loans and other financing vehicles identified risk associated with interest rates, insurance premium that a person belonging reported on the balance sheet, or in the form of foreign currencies and other financial indices to a particular age group pays is based on off-balance sheet products such as guarantees, to which a hedged item (generally an on- this group’s morbidity rate. letters of credit and securities lending. balance sheet asset or liability) exposes Desjardins Group.

36099_p31a114_ENG.indd 113 16/03/09 16:36:42 114 Additional information 4.9 GLOSSAIRE DE TERMES FINANCIERS

Mortality rate Permanent share Segregated fund Rate of death in a particular group of persons. Equity security offered to caisse members. Type of fund offered by insurance companies The life insurance premium that a person through variable capital contracts that provides belonging to a particular age group pays is Policy purchasers with a number of guarantees, such based on this group’s mortality rate. as principal repayment upon death. Segregated Written document evidencing the existence funds feature various investment objectives and of an insurance or annuity contract and that Moving average market value method securities categories. sets out the terms and conditions. In life and health insurance, method used Subordinated debenture to account for changes in the market value Policyowner of portfolio investments on the balance sheet Unsecured bond subordinated in right of Individual or corporation that takes out an and in the statement of income over a period payment in the event of liquidation to the insurance or annuity contract. Also referred of years. claims of depositors and certain other creditors. to as policyholder in individual insurance. In group savings and insurance, the policyowner Mutual fund Subprime residential mortgage loan is the organization that takes out a pension Fund comprised of amounts pooled together by plan or an insurance plan. Loan to a borrower with a high credit investors for purposes of a collective investment. risk profile. A third party manages the fund and must, on Provision for credit losses request, redeem the units at their net asset Subsidiary Amount charged to income and added to the value (or at their redemption value). allowance for credit losses. Specific allowances Company in which Desjardins Group holds are established to reduce the carrying value of a majority interest. Net interest income some assets (especially impaired loans) to an Difference between what a financial institution estimated realizable value. The general allowance Swap receives on assets such as loans and securities is established for expected losses on total Derivative financial instrument under which and what it pays out on liabilities such as unimpaired loans, particularly in industries two parties agree to exchange interest rates deposits and subordinated debentures. where loan losses may not yet be estimated or currencies for a specified period according on an individual basis. to predetermined rules. Net premiums earned Reinsurance treaty In general insurance, premiums earned based Underwriting experience on time, net of reinsurance premiums. Agreement whereby one insurer assumes all In life and health insurance, the difference or part of a risk undertaken by another insurer. between the actual results and the actuarial Notional amount Despite the treaty, the original insurer remains assumptions used to determine the premium fully liable to policyholders for the insurance Reference amount used to calculate payments or the actuarial liabilities, as applicable. obligations. for instruments like forward rate agreements and interest rate swaps. It is called “notional” Underwriting profit

Manage m ent’s Discussion an d A nalysis Reporting unit because it does not change hands. In general insurance, profit earned from Component of a unit engaged in separate insurance activities before investment income. Off-balance sheet financial and relatively significant activities. A reporting instruments unit usually corresponds to a business segment Valuation at fair value or a subsidiary. A wide range of products offered to members Valuation whose objective is to determine and clients related to credit instruments, Risk-weighted off-balance sheet assets the approximate value at which financial which offer members and clients and financial instruments instruments could be traded in a current liquidity protection. transaction between willing parties. An integral part of calculating risk-based Option capital ratios. The face value of low-risk assets Variable interest entity (vie) is discounted using risk-weighting factors in Contractual agreement that grants the right order to reflect a comparable risk among all Entity whose equity at risk is not sufficient (and not the obligation) to sell (put option) types of assets. The inherent risk of off-balance to finance its activities without additional or to buy (call option) a specified amount of subordinated financial support or whose

Desjar d ins group sheet financial instruments is also taken into a financial instrument at a predetermined price consideration, first by adjusting the notional holders of equity investment at risk lack the (the exercise or strike price) on or before amount to balance sheet (or credit) equivalents, characteristics of a controlling financial interest. a specified date. and then by applying the appropriate risk- weighting factors. Participant Person who participates in a group insurance Securities held for trading plan through its employer, an association or Securities held on a short term basis a group. for arbitrage purposes. Pension plan Securitization Contract under which the participant receives Process by which financial assets, such as retirement benefits under certain terms starting mortgage loans, are converted into asset- at a given age. A pension plan is funded through backed securities; these securities are then contributions made by either the employer transferred to a trust. alone, or by the employer and the participant.

36099_p31a114_ENG.indd 114 16/03/09 16:36:42 MDRP9-003 • Desjardins • Rapport annuel 2008 • Mouvement des caisses desjardins Section : Section 2 - États financiers • Version : Anglaise • épreuve : finale • Approuvée le : 11-03-2009 • format : 9“ x 11 3/4“ • COULEURs : Noir + pantone 347

115 Combined Financial TABLE of contents Annual Report by the Audit Statements of and Inspection Commission 116 Management’s Responsibility for Financial Reporting 117

Desjardins Group Auditors’ Report 117

Combined Balance Sheets 118

Combined Statements of Income 120

Combined Statements of Changes in Equity 121

Combined Statements of Comprehensive Income 122

Combined Statements of Cash Flows 123

Notes to the Combined Financial Statements 124

Note 1 – Significant Accounting Policies 124 Note 2 – Future Accounting Changes 127 Note 3 – Carrying Value of Financial Instruments 127 Note 4 – Securities 129 Note 5 – Loans and Allowance for Credit Losses 137 Note 6 – Securitization of Mortgage Loans 140 Note 7 – Land, Buildings and Equipment 141 s Combined Finan c ial Statement Note 8 – Other Assets 141 Note 9 – Financial Assets Transferred but not Derecognized 142 Note 10 – Deposits 142 Note 11 – Actuarial and Related Liabilities 142 Note 12 – Borrowings 145 Note 13 – Other Liabilities 146 Note 14 – Subordinated Debentures 146 Note 15 – Non-Controlling Interests 146 Note 16 – Capital Stock 147 Note 17 – Share Capital 147 Note 18 – Accumulated Other Comprehensive Income 148 Note 19 – Reserves 148 Note 20 – Financial Instruments Held for Trading 148 desjardins group Note 21 – Income Taxes on Surplus Earnings 149 Note 22 – Provision for Member Dividends 150 Note 23 – Employee Future Benefit Plans 150 Note 24 – Derivative Financial Instruments and Hedging Activities 154 Note 25 – Fair Value of Financial Instruments 159 Note 26 – Commitments, Guarantees and Contingencies 160 Note 27 – Financial Instrument Risk Management 162 Note 28 – Capital Management 168 Note 29 – Segmented Information 169 Note 30 – Related Party Transactions 171

36099_p115a172_ENG.indd 115 12/03/09 11:04:15 116 Annual report by the Audit and Inspection Commission

Annual report by the Audit and Inspection Commission

The role of the Audit and Inspection Commission is to support the Board The Commission ensures and preserves the independence of Desjardins of Directors of the Fédération des caisses Desjardins du Québec (FCDQ) Group’s Internal Audit service. It analyzes the internal audit team’s annual audit in its various oversight responsibilities for Desjardins Group. Its mandate strategy as well as its responsibilities, performance, objectivity and staffing. consists primarily of analyzing the financial statements, their presentation The Commission reviews the internal audit team’s summary reports and, if and the quality of the accounting principles adopted, risk management necessary, takes follow-up action. When doing so, the Commission meets as it relates to financial reporting, internal control systems, internal with the head of Internal Audit of Desjardins Group to discuss any important and external audit processes, the procedures applied to such audits, matters submitted to Management. With respect to relations with the and the management of regulatory compliance. Autorité des marchés financiers, the Commission reviews and follows up on the inspection report issued by this organization, as well as the financial The Commission reviews Desjardins Group’s quarterly and annual financial reports that are submitted each quarter to the Autorité des marchés financiers. statements, related press releases, the annual Management’s Discussion and Analysis, and the Annual Information Form. The Commission meets privately with external auditors, Management, the head of Internal Audit of Desjardins Group, the Inspector and Auditor The Commission ensures that Management has designed and implemented General of Desjardins Group and representatives from the Autorité des an effective internal control system with respect to financial reporting, asset marchés financiers. Every quarter, it reports to the Board of Directors protection, fraud detection and regulatory compliance. It also ensures that and, if necessary, makes recommendations. Lastly, to comply with sound Management has implemented systems to manage the main risks that may corporate governance practices, the Commission annually reviews influence the financial results of the caisse network and Desjardins Group. the degree of efficiency and effectiveness with which it has performed the tasks set out in its charter. Also examined are files that document the caisse network’s growth, including the financial position of the caisses, particular situations The Commission is made up of five independent directors. With detected in the caisses, any follow-ups made, credit losses and how certain the exception of one member who serves as an instructor at training accounting policies and practices, such as the management method for sessions intended for Desjardins personnel and elected officers, Desjardins the general allowance, are applied. With respect to the Desjardins Bureau Group does not remunerate any other member, either directly or indirectly, for Financial Monitoring and Enforcement, the Commission ensures that for services other than those rendered as a member of the FCDQ’s Board the action plan on caisse audits and inspections is carried out and also of Directors or other Desjardins Group entities and their committees. reviews comment letters, inspection reports with adjustments and the

s Combined Finan c ial Statement follow-ups that are performed. All the members of the Commission have the knowledge required to read and interpret the financial statements of a financial institution, based on The external auditor is under the authority of the Commission. To satisfy the criteria established by the Commission’s charter. its responsibilities regarding the external auditor, the Commission ensures and preserves the external auditor’s independence by authorizing all The Commission met on 13 occasions and held 3 training sessions, non-audit-related services, by recommending auditor appointments including a seminar with the members of Desjardins Group’s audit and renewals, by setting and recommending auditor compensation and committees and commissions, in fiscal 2008. As at December 31, 2008, by conducting annual auditor evaluations. In addition, the Commission the members of the Commission were Ms. Andrée Lafortune, FCA, supervises the work of the external auditors and examines their audit Mr. Pierre Leblanc, FCA, Mr. Thomas Blais, Mr. Serge Tourangeau proposal, their audit mandate, their annual audit strategy, their auditors’ and Mr. Benoît Turcotte. reports, their auditors’ management letter and Management’s comments. Desjardins Group has a policy that governs the awarding of contracts Andrée Lafortune, FCA for related services. Specifically, this policy addresses the following: Chair a) the services that can or cannot be performed by the external auditor, b) the governance procedures that must be followed before mandates may be awarded, and c) the responsibilities of the key players involved. Accordingly, the Commission receives a quarterly report on the contracts awarded to external auditors by each of the Desjardins Group entities. desjardins group

36099_p115a172_ENG.indd 116 16/03/09 17:17:00 MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING and auditors’ report 117

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING

The Combined Financial Statements of Desjardins Group and all information The Autorité des marchés financiers conducts an inspection of certain contained in this Annual Report are the responsibility of the Management components of Desjardins Group under its authority on a continuing basis. of the Fédération des caisses Desjardins du Québec, whose duty is to ensure reporting integrity and fairness. The Board of Directors of the Fédération des caisses Desjardins du Québec approves the financial information contained in the Annual Report of The Combined Financial Statements were prepared in accordance with Desjardins Group by relying on the recommendation of the Audit and Canadian generally accepted accounting principles and in accordance Inspection Commission. To this effect, the Audit and Inspection Commission with the accounting requirements of the Autorité des marchés financiers is mandated by the Board to review the Combined Financial Statements as applicable. The Combined Financial Statements necessarily contain of Desjardins Group as well as the Management’s Discussion and Analysis. amounts established by Management based on estimates which it deems In addition, the Audit and Inspection Commission, comprised of directors fair and reasonable. These estimates include, among other things, valuations who are neither officers nor employees of Desjardins Group, exercises an of the actuarial and related liabilities performed by the actuaries of the oversight role to ensure that Management has developed and implemented insurance segments. All financial information in the Annual Report is adequate control procedures and systems to ensure quality financial consistent with the audited Combined Financial Statements. reporting with all the required disclosures within the required timeframes.

As the Management of the Fédération des caisses Desjardins du Québec The Combined Financial Statements were examined by the auditors is responsible for the reliability of Desjardins Group’s Combined Financial appointed by the Board of Directors, PricewaterhouseCoopers LLP and Statements and related information and the accounting systems from the Audit Department of the Desjardins Bureau for Financial Monitoring which they are derived, it maintains controls over transactions and related and Enforcement, whose report follows. The auditors may meet with the accounting practices. The controls in place notably include an organizational members of the Audit and Inspection Commission at any time to discuss structure that ensures effective segregation of duties, a code of ethics and their audit and any questions related thereto, notably the integrity of the professional conduct, standards in personnel hiring and training, policies financial information provided and the quality of internal control systems. and a procedures manual, as well as the application of control methods that are regularly updated, thereby exercising adequate supervision of Monique F. Leroux, FCA, FCMA operations. The internal control system is backed by a professional internal President and Chief Executive Officer audit team and the Desjardins Bureau for Financial Monitoring and Enforcement Desjardins Group with full and unrestricted access to the Audit and Inspection Commission. Management also implemented a financial governance structure based Raymond Laurin, CA on best market practices to ensure the effectiveness of the disclosure controls Senior Vice-President and Chief Financial Officer s Combined Finan c ial Statement and procedures over the financial information presented in the annual Desjardins Group and interim filings of Desjardins Group. Lévis, February 27, 2009 Auditors’ Report

TO THE MEMBERS OF THE FÉDÉRATION The combined financial statements for the year ended December 31, 2006, DES CAISSES DESJARDINS DU QUÉBEC before their restatement to reflect the change in accounting policy concerning the consolidation of variable interest entities by investment companies We have audited the combined balance sheets of Desjardins Group as at described in Note 1 to the combined financial statements for the previous December 31, 2008 and 2007 and the combined statements of income, year, were audited jointly by Samson Bélair/Deloitte & Touche s.e.n.c.r.l. changes in equity, comprehensive income and cash flows for the years and the Desjardins Bureau for Financial Monitoring and Enforcement, who then ended. These combined financial statements are the responsibility expressed an opinion without reservation on those combined financial of the Management of the Fédération des caisses Desjardins du Québec. statements in their report dated February 18, 2007. We have audited the Our responsibility is to express an opinion on these financial statements restatement made to the combined financial statements for the year ended based on our audits. December 31, 2006 and, in our opinion, this restatement is, in all material

respects, appropriate and was adequately performed. d es j ar ins gro u p Our audits were conducted in accordance with Canadian generally accepted auditing standards. These standards require that we plan and perform an PricewaterhouseCoopers LLP1 audit to obtain reasonable assurance that the financial statements are free 1Chartered accountant auditor permit No. 14043 of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Montréal, February 27, 2009 It also includes assessing the accounting principles used and significant estimates made by Management, as well as evaluating the overall financial Audit Department2 statement presentation. 2Chartered accountant auditor permit No. 11595

In our opinion, these combined financial statements present fairly, Anjou, February 27, 2009 in all material respects, the financial position of Desjardins Group as at December 31, 2008 and 2007 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.

36099_p115a172_ENG.indd 117 17/03/09 14:14:43 118 COMBINED BALANCE SHEETS

COMBINED BALANCE SHEETS

As at December 31 (in millions of $)

2008 2007 ASSETS

Cash and deposits with financial institutions $ 1,489 $ 1,499

Securities (Note 4) Available-for-sale securities 11,338 10,315 Securities held for trading 17,765 21,127 Equity method securities 119 118

29,222 31,560

Securities borrowed or purchased under reverse repurchase agreements 6,130 7,593

Loans (Notes 5 and 6) Residential mortgages 61,081 56,662 Consumer, credit card and other personal loans 18,121 16,440 Business and government 26,086 23,063

105,288 96,165

Allowance for credit losses (Note 5) (826) (762)

104,462 95,403

Other assets Land, buildings and equipment (Note 7) 1,025 969 Interest receivable 520 528 s Combined Finan c ial Statement Derivative financial instruments(Note 24) 4,588 1,195 Clients’ liability under acceptances 428 893 Other (Note 8) 4,434 4,419

10,995 8,004

Total assets $ 152,298 $ 144,059 desjardins group

36099_p115a172_ENG.indd 118 12/03/09 11:04:15 COMBINED BALANCE SHEETS 119

2008 2007 LIABILITIES AND EQUITY

Liabilities

Deposits (Note 10) Individuals $ 71,958 $ 66,319 Business and government 21,512 20,784 Deposit-taking and other institutions 7,966 8,663

101,436 95,766

Other liabilities Actuarial and related liabilities (Note 11) 12,874 12,831 Borrowings (Note 12) 338 69 Interest payable 916 907 Derivative financial instruments(Note 24) 2,773 1,321 Acceptances 428 893 Commitments related to securities lent or sold under repurchase agreements 11,905 9,455 Commitments related to securities sold short 4,112 6,875 Other (Note 13) 6,119 4,818

39,465 37,169

Subordinated debentures (Note 14) 748 858

Non-controlling interests (Note 15) 776 984

Equity Capital stock (Note 16) 955 894 Share capital (Note 17) 67 67 Undistributed surplus earnings (deficit) (96) 795 Accumulated other comprehensive income (Note 18) 685 50

Reserves (Note 19) 8,262 7,476 s Combined Finan c ial Statement

9,873 9,282

Total liabilities and equity $ 152,298 $ 144,059

The accompanying notes are an integral part of the Combined Financial Statements.

On behalf of the Board of Directors of the Fédération des caisses Desjardins du Québec.

Monique F. Leroux Pierre Tardif Chair of the Board Vice-Chair of the Board desjardins group

36099_p115a172_ENG.indd 119 12/03/09 11:04:16 120 COMBINED STATEMENTS OF INCOME

COMBINED STATEMENTS OF INCOME

Years ended December 31 (in millions of $)

2008 2007 2006 Interest income Loans $ 5,573 $ 5,438 $ 4,971 Securities 474 447 386

6,047 5,885 5,357

Interest expense Deposits 2,590 2,578 2,206 Subordinated debentures and borrowings 39 62 70

2,629 2,640 2,276

Net interest income 3,418 3,245 3,081

Net premiums 4,131 3,824 3,688

Other income Deposit and payment service charges 497 484 447 Lending fees and credit card service revenues 410 381 326 Brokerage, investment fund and trust services 617 738 625 Investment and trading income — — 878 Income (loss) on available-for-sale securities (413) 141 — Trading income (loss) (Note 20) (993) 262 — Other investment income 239 179 — Other 467 417 374 s Combined Finan c ial Statement 824 2,602 2,650

Total income 8,373 9,671 9,419

Provisions for credit losses 243 197 139

Claims, benefits, annuities and changes in insurance provisions 3,144 3,171 3,342

Client retention expense — 121 —

Non-interest expense Salaries and fringe benefits 2,250 2,338 2,271 Premises, equipment and furniture, including amortization 393 381 373 Outsourcing of processing services 322 308 315 Communications 252 236 237 Other 1,583 1,439 1,338

4,800 4,702 4,534 desjardins group Operating surplus earnings 186 1,480 1,404

Income taxes on surplus earnings (Note 21) 109 358 398

Operating surplus earnings before non-controlling interests and member dividends 77 1,122 1,006

Non-controlling interests (Note 15) (1) 21 18

Surplus earnings before member dividends 78 1,101 988

Provision for member dividends (Note 22) 215 592 483 Tax recovery on provision for member dividends (Note 21) (62) (174) (148)

Surplus earnings (deficit) for the year after member dividends $ (75) $ 683 $ 653

The accompanying notes are an integral part of the Combined Financial Statements.

36099_p115a172_ENG.indd 120 12/03/09 11:04:16 COMBINED STATEMENTS OF changes in equity 121

COMBINED STATEMENTS OF CHANGES IN EQUITY

Years ended December 31 (in millions of $)

2008 2007 2006 Capital stock Balance at beginning of year $ 894 $ 856 $ 845 Net change during the year 61 38 11

Balance at end of year $ 955 $ 894 $ 856

Share capital Balance at beginning of year $ 67 $ 66 $ 64 Issuance of preferred shares (Note 17) 2 2 2 Redemption of preferred shares (Note 17) (2) (1) —

Balance at end of year $ 67 $ 67 $ 66

Undistributed surplus earnings (deficit)(1) Balance at beginning of year $ 795 $ 634 $ 729 Impact of the adoption of new accounting standards and other restatements — (16) — Surplus earnings (deficit) for the year after member dividends (75) 683 653 Remuneration on permanent shares, net of income tax recovery (26) (24) (15) Dividends on preferred shares (4) (3) (3) Transfer to the stabilization reserve (3) — (1) Transfer to the reserve for future member dividends (141) (68) (136) Transfer to the general reserve (642) (411) (593)

Balance at end of year $ (96) $ 795 $ 634

Accumulated other comprehensive income(1) s Combined Finan c ial Statement Balance at beginning of year $ 50 $ — $ — Impact of the adoption of new accounting standards (Note 1) — 113 — Other comprehensive income for the year 635 (63) —

Balance at end of year (Note 18) $ 685 $ 50 $ —

Reserves Stabilization reserve Balance at beginning of year $ 275 $ 275 $ 274 Transfer from undistributed surplus earnings 3 — 1

Balance at end of year $ 278 $ 275 $ 275

Reserve for future member dividends Balance at beginning of year $ 209 $ 141 $ 5 Transfer from undistributed surplus earnings 141 68 136

Balance at end of year $ 350 $ 209 $ 141 desjardins group General reserve Balance at beginning of year $ 6,992 $ 6,581 $ 5,988 Transfer from undistributed surplus earnings 642 411 593

Balance at end of year $ 7,634 $ 6,992 $ 6,581

Total reserves $ 8,262 $ 7,476 $ 6,997

Total equity $ 9,873 $ 9,282 $ 8,553

The accompanying notes are an integral part of the Combined Financial Statements.

(1) The sum of undistributed surplus earnings and accumulated other comprehensive income is $589 million ($845 million in 2007 and $634 million in 2006).

36099_p115a172_ENG.indd 121 12/03/09 11:04:16 122 COMBINED STATEMENTS OF COMPREHENSIVE INCOME

COMBINED STATEMENTS OF COMPREHENSIVE INCOME

Years ended December 31 (in millions of $)

2008 2007 Surplus earnings (deficit) for the year after member dividends $ (75) $ 683

Other comprehensive income, net of income taxes Net change in net unrealized losses on available-for-sale securities(1) (182) (42) Reclassification to the Combined Statements of Income of losses (gains) on available-for-sale securities(2) 56 (35)

(126) (77)

Net change in gains on derivative financial instruments designated as cash flow hedges(3) 767 14 Reclassification to the Combined Statements of Income of gains on derivative financial instruments designated as cash flow hedges(4) (8) —

759 14

Net unrealized exchange gain on the translation of the financial statements of self-sustaining foreign operations, net of hedging transactions 2 —

Total other comprehensive income 635 (63)

Comprehensive income $ 560 $ 620

The accompanying notes are an integral part of the Combined Financial Statements.

(1) Net of income tax benefit of $42 million (benefit of $16 million in 2007). (2) Net of income tax benefit of $11 million (expense of $11 million in 2007). (3) Net of income tax expense of $244 million (expense of $5 million in 2007). s Combined Finan c ial Statement (4) Net of income tax expense of $3 million (nil in 2007).

For fiscal year 2006, there was no other comprehensive income and, therefore, surplus earnings for the year after member dividends were equal to comprehensive income. Consequently, this statement is not presented on a comparative basis for 2006. desjardins group

36099_p115a172_ENG.indd 122 16/03/09 17:17:01 COMBINED STATEMENTS OF CASH FLOWS 123

COMBINED STATEMENTS OF CASH FLOWS

Years ended December 31 (in millions of $)

2008 2007 2006 Cash flows from (used in) operating activities Surplus earnings (deficit) for the year after member dividends $ (75) $ 683 $ 653 Adjustments for: Amortization of buildings and equipment 165 141 143 Amortization of intangible assets with finite useful lives 35 36 25 Amortization of realized deferred and unrealized net gains on investment securities — — (32) Write-down of venture capital investments 28 5 13 Net change in actuarial and related liabilities 43 278 635 Future income taxes (269) (62) (25) Provisions for credit losses 243 197 139 Write-off of deferred charges and goodwill 56 — — Non-controlling interests (1) 21 18 Net gain on disposal of investment securities(1) — — (62) Net losses realized on available-for-sale securities 446 87 — Change in operating assets and liabilities Interest receivable 8 (42) (51) Interest payable 9 60 184 Securities held for trading(1) 3,355 (16,416) (861) Net change in equity method securities (1) (80) — Net change in fair value of derivative financial instruments (930) 251 (373) Other 1,113 70 320

4,225 (14,771) 726

Cash flows from (used in) financing activities Net change in deposits 5,670 7,623 4,856 Issuance of debt securities and subordinated debentures 276 — — Repayment of debt securities and subordinated debentures (117) (596) (182) Net change in capital stock 23 21 11 Issuance of preferred shares 2 — 2 s Combined Finan c ial Statement Redemption of preferred shares (2) (1) — Net change in non-controlling interests (207) 374 328 Remuneration on permanent shares, net of income tax recovery (26) (24) (15) Dividends on preferred shares (2) (1) (3) Commitments related to securities lent or sold under repurchase agreements 2,450 2,500 1,835 Net change in commitments related to securities sold short (2,763) 2,774 1,791

5,304 12,670 8,623

Cash flows from (used in) investing activities Net change in loans (11,407) (8,524) (7,561) Proceeds from securitization of mortgage loans 2,105 1,570 1,248 Net change in investment securities(1) — 12,405 (1,020) Purchase of available-for-sale securities (25,147) (24,559) — Proceeds from disposals of available-for-sale securities 11,677 17,865 — Proceeds from maturities of available-for-sale securities 11,991 7,093 — Securities borrowed or purchased under reverse repurchase agreements 1,463 (3,446) (1,758) Net acquisitions of land, buildings and equipment (221) (138) (202)

(9,539) 2,266 (9,293) des j a r dins gr o up Net increase (decrease) in cash and cash equivalents (10) 165 56 Cash and cash equivalents at beginning of year 1,499 1,334 1,278

Cash and cash equivalents at end of year $ 1,489 $ 1,499 $ 1,334

Composition of cash and cash equivalents Cash $ 885 $ 849 $ 984 Deposits with financial institutions and the Bank of Canada 398 214 557 Cheques and other items in transit (net amount) 206 436 (207)

$ 1,489 $ 1,499 $ 1,334

Supplemental cash flow information Interest paid during the year $ 2,620 $ 2,580 $ 2,092 Income taxes on surplus earnings paid during the year 221 208 223

The accompanying notes are an integral part of the Combined Financial Statements.

(1) Since January 1, 2007, investment securities have been classified under two separate headings, namely available-for-sale securities and securities held for trading in accordance with the new financial instrument accounting standards. Changes presented in the Combined Statements of Cash Flows take this reclassification into account.

36099_p115a172_ENG.indd 123 15/03/09 14:10:54 124 Notes to the Combined Financial Statements

NOTES TO THE COMBINED FINANCIAL STATEMENTS (Dollar amounts presented in the tables of the Notes to the Combined Financial Statements are in millions of dollars, unless otherwise stated)

Desjardins Group is made up of the Fédération des caisses Desjardins de sécurité Desjardins. Desjardins Group, a cooperative financial group, du Québec (FCDQ), its member caisses and its subsidiaries, the Fédération is a leading player in the economic and social development of the des caisses populaires de l’Ontario and its member caisses, and the Fonds communities it serves.

note 1 SIGNIFICANT ACCOUNTING POLICIES Pursuant to the Act respecting financial services cooperatives (the Act), Since January 1, 2007, Desjardins Group has recognized its financial the Combined Financial Statements of Desjardins Group have been prepared instruments in accordance with the CICA standards entitled “Financial by Management in accordance with Canadian generally accepted accounting Instruments – Recognition and Measurement“ (Section 3855), “Hedges“ principles (GAAP) and the accounting requirements of the Autorité des (Section 3865) and “Comprehensive Income“ (Section 1530). marchés financiers in Québec (AMF), which do not differ from GAAP. The preparation of financial statements in accordance with GAAP requires The impact of transitional adjustments on accumulated other comprehensive Management to make certain estimates and assumptions that have an income as at January 1, 2007, net of income taxes, resulted from a impact on assets and liabilities and the disclosures of contingent assets $117 million increase following revaluation of available-for-sale securities and liabilities in the financial statements, as well as income and expenses and a $4 million decrease due to the effective portion of cash flow for the reporting periods. The main items on which Management had hedging relationships. to make complex judgment include the allowance for credit losses, the securitization of mortgage loans, the valuation of financial instruments The impact of the transitional adjustments on opening combined undistributed at fair value, the other than temporary decline in value of available-for-sale surplus earnings as at January 1, 2007, net of income taxes, resulted from assets, actuarial and related liabilities, the provisions for contingencies, a decrease of $21 million due to the change in fair value of financial the provision for member dividends, the net expense related to employee instruments held for trading and other restatements, losses of $1 million future benefit plans, income taxes on surplus earnings and the consolidation due to the ineffective portion of fair value hedges and gains of $6 million of variable interest entities. Actual results may differ from these estimates. related to the ineffective portion of cash flow hedges. s Combined Finan c ial Statement

COMBINED FINANCIAL STATEMENTS Financial instruments – recognition and measurement

These financial statements include the accounts of Desjardins Group’s Financial assets must be classified as one of the following: “held for components as well as those of certain variable interest entities (VIEs) trading“, “available for sale“, “held to maturity“, or “loans and receivables“, of which it is the primary beneficiary. The principles used to prepare based on their characteristics and the purpose of their acquisition. combined financial statements are similar to those used to prepare Financial liabilities must be classified as “held for trading“ or “other“. consolidated financial statements. The Combined Financial Statements Financial assets and financial liabilities are initially recognized at fair value. include the assets, liabilities, equity, comprehensive income and operating Subsequently, financial assets and financial liabilities held for trading as results of Desjardins Group’s components, after elimination of intercompany well as available-for-sale financial assets continue to be recorded on the transactions and balances. Combined Balance Sheets at fair value. Changes in the fair value of financial assets and financial liabilities held for trading are recognized CAPITAL MANAGEMENT in combined income under “Other income – Trading income“ for the year, while changes in the fair value of available-for-sale financial assets On January 1, 2008, Desjardins Group adopted the new standard of are recorded in combined other comprehensive income until they are the Canadian Institute of Chartered Accountants (CICA) entitled “Capital derecognized. Available-for-sale equity securities that are not quoted on Disclosures“ (Section 1535). The purpose of this Section is to require the an active market are recorded at cost. Available-for-sale securities continue disclosure of information that enables users of the Combined Financial to be monitored on a regular basis to determine whether they have sustained Statements to evaluate the entity’s objectives, policies and processes for a decline in value that is other than temporary. Any impairment losses are

desjardins group managing capital. This new standard, which specifically covers the disclosures recognized in “Other income – Income from available-for-sale securities“ to be provided on capital management, had no impact on Desjardins in the Combined Statements of Income. Group’s results or financial position. Financial assets held to maturity, loans and receivables and financial liabilities FINANCIAL INSTRUMENTS other than held for trading are recognized at amortized cost using the effective interest method. Interest income and expenses on these financial On January 1, 2008, Desjardins Group adopted the new CICA standards assets and liabilities arising from the Personal and Commercial segment are entitled “Financial Instruments – Disclosures“ (Section 3862), and “Financial recorded in net interest income, whereas those that are arising from other Instruments – Presentation“ (Section 3863). These Sections supersede segments are recognized in “Other income – Other investment income“. Section 3861, “Financial Instruments – Disclosure and Presentation“. Desjardins Group does not use the “Held to maturity“ category. Section 3863 carries forward unchanged the presentation standards contained in Section 3861. The purpose of Section 3862 is to inform users Under Section 3855, any financial asset or liability whose fair value can be in order to enhance their understanding and evaluation of the significance reliably measured may be classified, on initial recognition or on adoption of financial instruments for the entity’s financial position and performance, of this standard, as being held for trading. This designation is then irrevocable. as well as to help them better evaluate the nature and extent of risks Electing to classify financial instruments as held for trading under the fair arising from financial instruments and how the entity manages those risks. value option is subject to the requirements set by the AMF. Since these new standards specifically cover the disclosures to be provided, they had no impact on Desjardins Group’s results or financial position.

36099_p115a172_ENG.indd 124 12/03/09 11:04:17 Notes to the Combined Financial Statements 125

The valuation techniques used to determine the fair value of financial CONSOLIDATION OF VARIABLE INTEREST ENTITIES instruments have remained substantially the same despite the adoption of these new accounting standards. Thus fair value is based on the market Desjardins Group consolidates variable interest entities (VIEs) of which it is price when an active market exists. Otherwise, it is estimated using valuation the primary beneficiary in accordance with the CICA Accounting Guideline models and techniques such as discounted cash flow analysis or option AcG-15 (AcG-15), “Consolidation of Variable Interest Entities“. pricing models, based as much as possible on observable market factors and other factors that are likely to affect the instrument’s fair value. Desjardins Group has consolidated, since January 1, 2006, VIEs that are investment companies of which the primary beneficiary is a component Transaction costs for financial instruments are capitalized and then amortized of Desjardins Group. over the term of the instrument using the effective interest method, except if such instruments are classified as “Held for trading“, in which case these Investors in consolidated VIEs have recourse only against the assets of the costs are expensed as incurred. relevant VIEs and not against all of the assets of Desjardins Group, except when it acts as a counterparty in derivative transactions with VIEs. Regular-way purchases and sales of financial assets are recognized on a trade-date basis. ACCEPTANCES AND CLIENTS’ LIABILITY UNDER ACCEPTANCES Reclassification of financial assets The potential liability of Desjardins Group under acceptances is recorded On October 24, 2008, the Accounting Standards Board issued amendments as a liability in the Combined Balance Sheets. Recourse against the client, to Sections 3855, “Financial Instruments – Recognition and Measurement“, in the event of a call on any of these commitments, is recorded as an and 3862, “Financial Instruments – Disclosures“. The amendments permit equivalent offsetting asset. These financial instruments are recognized at reclassification of certain financial assets in specified circumstances. They amortized cost on the Combined Balance Sheets. Fees earned are recorded are retroactively effective for reclassifications made on or after July 1, 2008, over the expected term using the effective interest method and are but only for periods for which annual or interim financial statements have reported in combined income under “Other income – Other“. not been issued previously. Any reclassification made on or after November 1, 2008 takes effect from the date of reclassification. Desjardins Group did not reclassify any financial assets as of December 31, 2008. SECURITIES BORROWED OR PURCHASED UNDER REVERSE REPURCHASE AGREEMENTS Derivative financial instruments and hedging activities AND SECURITIES LENT OR SOLD UNDER REPURCHASE AGREEMENTS Derivative financial instruments, including embedded derivatives which are required to be accounted for separately, are recorded on the Combined Desjardins Group enters into short-term purchases and sales of securities Balance Sheets at fair value. with concurrent agreements to sell and buy them back at a specified price and on a specified date. These agreements are accounted for as collateralized

Embedded derivative financial instruments are separated from their host lending or borrowing transactions and are recorded on the Combined s Combined Finan c ial Statement contract and accounted for as derivatives if: (a) the economic characteristics Balance Sheets at the selling or purchase price stated in the agreement. and risks of the embedded derivatives are not closely related to the economic In accordance with the accrual basis of accounting, the interest related characteristics and risks of the host contract; (b) the embedded derivative to reverse repurchase agreements and repurchase agreements is recorded has the same terms as a separate instrument; (c) the hybrid instrument or in combined income for the year. contract is not measured at fair value with changes in fair value recognized in combined income. Embedded derivatives which are to be recognized The obligation to return cash collateral received and the right to receive separately are measured at fair value, and the changes in fair value are back cash collateral paid on borrowing and lending of securities are recorded, recognized in combined income. Desjardins Group selected January 1, 2003 respectively, under “Other liabilities – Commitments related to securities as the transition date for embedded derivatives; consequently, only financial lent or sold under repurchase agreements“ and under “Securities borrowed instruments or contracts entered into or modified after such transition date or purchased under reverse repurchase agreements“. Securities borrowed were reviewed in order to identify embedded derivatives. or purchased under reverse repurchase agreements are classified under “Loans and receivables“, and commitments related to securities lent or sold Derivative financial instruments can be designated as part of a fair value under repurchase agreements are classified under “Other liabilities“ unless hedge or a cash flow hedge. Designation of hedging relationships as cash such commitments are required to be classified as held for trading because flow hedges or fair value hedges did not change with the adoption of the of Management’s intents with regard to them. Interest received or paid new accounting standards. Note 24 to the Combined Financial Statements, on cash collateral is recorded in combined income for the year. “Derivative Financial Instruments and Hedging Activities“, describes financial instruments eligible for hedge accounting, the risk management policy COMMITMENTS RELATED TO SECURITIES relative to derivative financial instruments and the accounting policies with SOLD SHORT desjardins group respect to hedging. Securities sold short as part of trading activities, which represent Desjardins Comprehensive income Group’s obligation to deliver securities that it did not possess at the time of sale, are recorded as liabilities at their fair value. Realized and unrealized Other comprehensive income includes, in particular, unrealized gains and gains or losses on these securities are recorded in combined income under losses on available-for-sale financial assets, the effective portion of the “Other income – Trading income“. Securities sold short are classified as change in the fair value of cash flow hedging items and the net unrealized held for trading. exchange loss on the translation of the financial statements of self-sustaining foreign operations. The Combined Financial Statements include Combined Statements of Comprehensive Income and accumulated other comprehensive income is presented as an equity item on the Combined Balance Sheets.

36099_p115a172_ENG.indd 125 16/03/09 17:17:02 126 Notes to the Combined Financial Statements

note 1 SIGNIFICANT ACCOUNTING POLICIES (continued) OFFSETTING OF FINANCIAL ASSETS AND LIABILITIES and gains and losses on derivatives designated as cash flow hedges, which are reported in other comprehensive income. All assets and liabilities of Financial assets and liabilities are presented on a net basis when there is a self-sustaining foreign operations denominated in foreign currencies are legally enforceable right to set off the recognized amounts and Desjardins translated at rates prevailing on the Combined Balance Sheet date, while Group intends to settle on a net basis or to realize the asset and settle the income and expenses of these foreign operations are translated at the liability simultaneously. average rate for the period. Exchange gains and losses resulting from the translation of the financial statements of these operations, including IMPAIRMENT OF LONG-LIVED ASSETS the related effects of hedging and taxes, are recorded in combined other comprehensive income. An appropriate portion of these accumulated Land, buildings and equipment and intangible assets are tested for impairment gains or losses is reclassified to “Non-interest income“ in the Combined whenever events or changes in circumstances indicate that their carrying Statements of Income upon reduction of the net investment. value may not be recoverable. An impairment loss is recognized when their carrying value exceeds the undiscounted cash flows resulting from their use ASSETS UNDER MANAGEMENT and eventual disposition. The impairment loss recognized in the Combined AND SEGREGATED FUNDS Statements of Income is the excess of the carrying value over the fair value of the long-lived asset. Assets under management and segregated funds of the life and health insurance subsidiary are held for the direct beneficial interest of clients FOREIGN CURRENCY TRANSLATION and policyholders. These assets under management are therefore excluded from the Combined Balance Sheets. The income derived from Monetary assets and liabilities denominated in foreign currencies are the management services are recorded in combined income under translated into Canadian dollars at the rate prevailing on the Combined “Other income – Other“. Balance Sheet date, and non-monetary assets and liabilities are translated at historical rates. Income and expenses are translated at the average SPECIFIC ACCOUNTING POLICIES exchange rate in effect during the year. The resulting gains and losses, realized or unrealized, are included in “Other income – Other“, except The accounting policies related to a note to the Combined Financial Statements for unrealized gains and losses on available-for-sale financial instruments are presented with such note so that they may be better understood.

The significant accounting policies are presented in the following notes:

Note number Note title Accounting policies s Combined Finan c ial Statement 4 Securities Securities 5 Loans and Allowance for Credit Losses Loans, allowance for credit losses 6 Securitization of Mortgage Loans Securitization of mortgage loans 7 Land, Buildings and Equipment Land, buildings and equipment 8 Other Assets Real estate investments, goodwill and other intangible assets 11 Actuarial and Related Liabilities Net premiums and reinsurance 21 Income Taxes on Surplus Earnings Income taxes on surplus earnings 22 Provision for Member Dividends Provision for member dividends 23 Employee Future Benefit Plans Employee future benefit plans 24 Derivative Financial Instruments and Hedging Activities Derivative financial instruments Fair value and cash flow hedges

COMPARATIVE FIGURES

Certain comparative figures have been reclassified to conform to the current year’s presentation of the Combined Financial Statements. desjardins group

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note 2 FUTURE ACCOUNTING CHANGES GOODWILL AND INTANGIBLE ASSETS CREDIT RISK AND THE FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES In January 2008, the CICA issued a new standard entitled “Goodwill and Intangible Assets“ (Section 3064). This standard reinforces an approach On January 20, 2009, the Emerging Issues Committee issued EIC-173, based on principles and criteria to recognize costs as assets and clarifies “Credit risk and the fair value of financial assets and financial liabilities“. the application of the matching principle in order to eliminate the practice This new EIC states that an entity’s own credit risk and the credit risk of of recognizing as assets items that meet neither the definition of an asset the counterparty should be taken into account in determining the fair nor the criteria for asset recognition. Desjardins Group will apply this standard value of financial assets and financial liabilities, including derivative financial retroactively effective January 1, 2009. Desjardins Group is currently instruments. Desjardins Group will apply this accounting treatment assessing the impact of this standard on the Combined Financial Statements. retroactively, without restatement of prior periods, to all financial assets and financial liabilities measured at fair value in its interim financial statements INTERNATIONAL FINANCIAL as at March 31, 2009. Desjardins Group is currently assessing the impact REPORTING STANDARDS of this change on the valuation models used to determine the fair value of its financial instruments. On February 13, 2008, the Canadian Accounting Standards Board issued a news release confirming that publicly accountable enterprises will be required to apply International Financial Reporting Standards (IFRS) in 2011. Desjardins Group will therefore adopt IFRS as of January 1, 2011. It started its IFRS conversion project in the summer of 2007.

note 3 CARRYING VALUE OF FINANCIAL INSTRUMENTS The following tables present the carrying value of all financial assets and liabilities according to their classification in the categories defined in the financial instrument standards.

2008

Loans and s Combined Finan c ial Statement receivables, Designated as and financial held for trading liabilities other Held under the fair Available- than held for trading value option for-sale for trading Total Financial assets Cash and deposits with financial institutions $ 1,489 $ — $ — $ — $ 1,489 Securities Available-for-sale securities — — 11,338 — 11,338 Securities held for trading 10,001 7,764 — — 17,765 Securities borrowed or purchased under reverse repurchase agreements — — — 6,130 6,130 Loans — — — 104,462 104,462 Other financial assets Interest receivable — — — 520 520 Derivative financial instruments(1) 4,588 — — — 4,588 Clients’ liability under acceptances — — — 428 428 Other — — 15 2,184 2,199 desjardins group Total financial assets $ 16,078 $ 7,764 $ 11,353 $ 113,724 $ 148,919

Financial liabilities Deposits $ — $ — $ — $ 101,436 $ 101,436 Other financial liabilities Borrowings — — — 338 338 Interest payable — — — 916 916 Derivative financial instruments(1) 2,773 — — — 2,773 Acceptances — — — 428 428 Commitments related to securities lent or sold under repurchase agreements — — — 11,905 11,905 Commitments related to securities sold short 4,112 — — — 4,112 Other — — — 5,454 5,454 Subordinated debentures — — — 748 748

Total financial liabilities $ 6,885 $ — $ — $ 121,225 $ 128,110

(1) Includes derivative financial instruments related to fair value and cash flow hedging activities amounting to $2,436 million in assets and $174 million in liabilities.

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note 3 CARRYING VALUE OF FINANCIAL INSTRUMENTS (continued) 2007 Loans and receivables, Designated as and financial held for trading liabilities other Held under the fair Available- than held for trading value option for-sale for trading Total Financial assets Cash and deposits with financial institutions $ 1,499 $ — $ — $ — $ 1,499 Securities Available-for-sale securities — — 10,315 — 10,315 Securities held for trading 12,371 8,756 — — 21,127 Securities borrowed or purchased under reverse repurchase agreements — — — 7,593 7,593 Loans — — — 95,403 95,403 Other financial assets Interest receivable — — — 528 528 Derivative financial instruments(1) 1,195 — — — 1,195 Clients’ liability under acceptances — — — 893 893 Other — — 21 2,524 2,545

Total financial assets $ 15,065 $ 8,756 $ 10,336 $ 106,941 $ 141,098

Financial liabilities Deposits $ — $ — $ — $ 95,766 $ 95,766 Other financial liabilities Borrowings — — — 69 69 Interest payable — — — 907 907 Derivative financial instruments(1) 1,321 — — — 1,321

s Combined Finan c ial Statement Acceptances — — — 893 893 Commitments related to securities lent or sold under repurchase agreements — — — 9,455 9,455 Commitments related to securities sold short 6,875 — — — 6,875 Other — — — 4,011 4,011 Subordinated debentures — — — 858 858

Total financial liabilities $ 8,196 $ — $ — $ 111,959 $ 120,155

(1) Includes derivative financial instruments related to fair value and cash flow hedging activities amounting to $114 million in assets and $72 million in liabilities. desjardins group

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note 4 SECURITIES Securities include available-for-sale securities, securities held for trading Securities held by investment companies and equity method securities. These securities have been classified in financial instrument categories using the methods described in Note 1, The accounting for securities held by Desjardins Group’s investment “Significant Accounting Policies“, and detailed below. companies is not covered by the new CICA requirements on financial instruments. It is rather dealt with by the standards specific to investment Available-for-sale securities companies. These securities are recognized at fair value under securities held for trading on the Combined Balance Sheets, and changes in their Available-for-sale securities are non-derivative financial assets that were fair value are recorded under “Other income – Trading income“. initially designated as available for sale or that were not classified as held for trading, held to maturity or loans and receivables. Available-for-sale Up to December 31, 2006, these securities recognized at fair value were securities can be sold further to or in view of fluctuations in interest rates, classified as investment securities and realized and unrealized gains and exchange rates, prices of equity instruments or changes in financing losses on such investments were recorded under “Other income – Investment sources or terms, or to meet the liquidity needs of Desjardins Group. They and trading income“. are measured at fair value, and unrealized gains and losses, net of taxes, are recognized in combined other comprehensive income until the securities Equity method securities are derecognized. Premiums and discounts on the purchase of available- for-sale securities are amortized over the life of the security using the Investments over which Desjardins Group exercises significant influence effective interest methods and recognized in combined income. Available- are accounted for using the equity method. Desjardins Group’s share in for-sale equity securities that are not quoted on an active market are the net income of these companies is recorded under “Interest income – recorded at cost. Securities“ in the Combined Statements of Income.

Available-for-sale securities continue to be monitored on a regular basis Investment securities to determine whether they have sustained a decline in value that is other than temporary. Any impairment losses are recognized in “Other income – Before the new sections on financial instruments came into effect on Income from available-for-sale securities“ in the Combined Statements of January 1, 2007, securities other than held for trading were classified Income. In evaluating the decline in value, Desjardins Group takes into in this category in accordance with the following policy. account many facts specific to each investment and of all the factors that could indicate that there has been a decline in value that is other than Investment securities were held until maturity or until the market favoured temporary. Factors considered include, but are not limited to, a significant other types of investments. or prolonged decline in the fair value, significant financial difficulties of s Combined Finan c ial Statement the issuer, a breach of contract, the increasing probability that the issuer Debt securities were carried at unamortized cost. Premiums and discounts will enter bankruptcy or a restructuring and the disappearance of an were amortized using the effective yield method over the terms of the active market for that financial asset. securities. Amortization of these premiums and discounts and interest income were recorded in “Interest income – Securities“. The gains and Realized gains and losses on disposal of available-for-sale securities, which losses realized on the disposal of these securities, which were calculated are calculated based on average cost, are recorded under “Other income at the average cost, and any write-downs needed to reflect other than – Income from available-for-sale securities“. Interest income is recorded temporary declines in value were recognized immediately in “Other income in net interest income for the Personal and Commercial segment and in – Investment and trading income“, except for gains and losses realized on income from available-for-sale securities for the other segments. the disposal of securities held by the Life and Health Insurance segment, which were deferred and amortized over the remaining life of the disposed Securities held for trading security, up to a maximum of 20 years.

Securities held for trading, which are acquired for resale in the short term Other equity securities were carried at cost and preferred shares were or designated under the fair value option, are recognized at fair value. Interest carried at cost, net of premiums and discounts, except securities held by on these securities, other than derivatives, arising from the Personal and the Life and Health Insurance segment, which were accounted for using Commercial segment, is recorded in net interest income using the effective the moving average market value method. Income from equity accounting interest method. Unrealized gains and losses on instruments held for trading, received for securities recorded at cost were recognized in “Interest income as well as realized gains and losses, including interest from segments other – Securities“. Gains and losses realized on the disposal of equity securities, than the Personal and Commercial segment, are presented as trading income as well as any write-downs needed to reflect other than temporary declines

in “Other income – Trading income“. This item also includes all income in value, were recognized immediately in “Other income – Investment and desjardins group from derivative instruments held for trading. trading income“. However, realized and unrealized gains and losses on equity securities of the Life and Health Insurance segment were deferred Prior to January 1, 2007, interest income from the Personal and Commercial and included in combined income using the declining balance method at segment’s securities held for trading were recorded in “Interest income – a rate of 15% per annum. Securities“. Interest income from other segments, as well as realized and unrealized gains and losses were recorded immediately in “Other income – Investment and trading income“.

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note 4 SECURITIES (continued) Maturity 2008 2007 Under 1 to Over 3 to Over 5 to Over No specific 1 year 3 years 5 years 10 years 10 years maturity Total Total Available-for-sale securities Securities issued or guaranteed by Canada $ 76 $ 717 $ 1,564 $ 10 $ 11 $ — $ 2,378 $ 891 Provinces and municipal corporations in Canada 901 1,534 275 459 375 — 3,544 4,267 School or public corporations in Canada 4 — — — — — 4 24 Foreign public administrations 4 — — — 7 — 11 16 Other securities in Canada Financial institutions 1,043 1,474 841 36 17 — 3,411 2,548 Other issuers(1) 322 192 68 38 31 779 1,430 1,861 Shares 45 54 52 10 — 160 321 544 Securities from foreign issuers Financial institutions 4 — — — — — 4 3 Other issuers — — — — — — — 3 Shares — — — 1 — 234 235 158

Total available- for-sale securities $ 2,399 $ 3,971 $ 2,800 $ 554 $ 441 $ 1,173 $ 11,338 $ 10,315

Securities required to be classified as held for trading Securities issued or guaranteed by s Combined Finan c ial Statement Canada 521 1,731 2,382 863 576 — 6,073 5,488 Provinces and municipal corporations in Canada 474 354 129 244 532 — 1,733 1,789 School or public corporations in Canada 81 3 9 — — — 93 50 Foreign public administrations — — 123 2 — — 125 30 Other securities in Canada Financial institutions 87 112 16 1 — 12 228 1,242 Other issuers(2) 93 70 12 17 4 462 658 1,207 Shares — — — — — 58 58 212 Securities from foreign issuers Financial institutions 20 10 — — — — 30 18 Other issuers — — — — — 904 904 2,169 Shares 40 — — — — 59 99 166

Total securities required to be classified as held for trading 1,316 2,280 2,671 1,127 1,112 1,495 10,001 12,371

Subtotal of available-for-sale desjardins group securities and securities required to be classified as held for trading $ 3,715 $ 6,251 $ 5,471 $ 1,681 $ 1,553 $ 2,668 $ 21,339 $ 22,686

36099_p115a172_ENG.indd 130 12/03/09 11:04:18 Notes to the Combined Financial Statements 131

Maturity 2008 2007 Under 1 to Over 3 to Over 5 to Over No specific 1 year 3 years 5 years 10 years 10 years maturity Total Total Subtotal of available-for-sale securities and securities required to be classified as held for trading (brought forward) $ 3,715 $ 6,251 $ 5,471 $ 1,681 $ 1,553 $ 2,668 $ 21,339 $ 22,686

Securities designated as held for trading under the fair value option Securities issued or guaranteed by Canada 7 1 — 1 48 — 57 151 Provinces and municipal corporations in Canada 428 580 512 730 2,672 — 4,922 5,125 School or public corporations in Canada 2 1 1 2 122 — 128 220 Foreign public administrations — — — — 33 — 33 30 Other securities in Canada Financial institutions 292 114 124 33 26 — 589 827 Other issuers(3) 34 167 361 563 218 249 1,592 1,816 Shares 41 7 1 18 — 132 199 291 Securities from foreign issuers Financial institutions — — — 39 48 — 87 110 Other issuers 1 7 23 7 19 — 57 53 Shares — — — — — 100 100 133

Total securities designated as held for trading under the fair value option 805 877 1,022 1,393 3,186 481 7,764 8,756 s Combined Finan c ial Statement

Equity method securities — — — — — 119 119 118

$ 4,520 $ 7,128 $ 6,493 $ 3,074 $ 4,739 $ 3,268 $ 29,222 $ 31,560

(1) Includes ABCP securities with a fair value of $751 million ($1,112 million in 2007). (2) Includes ABCP securities with a fair value of $437 million ($643 million in 2007). (3) Includes ABCP securities with a fair value of $248 million ($371 million in 2007).

Total securities include securities denominated in foreign currencies The securities of the venture capital segment, classified as held for trading, in the amount of C$1,664 million ($2,400 million in 2007), of which include unrealized declines in value of $41 million (decline in value of C$1,439 million ($2,154 million in 2007) is denominated in U.S. dollars. $32 million in 2007). Realized declines in value were $19 million. desjardi n s group

36099_p115a172_ENG.indd 131 15/03/09 14:23:02 132 Notes to the Combined Financial Statements

note 4 SECURITIES (continued) UNREALIZED GAINS AND LOSSES ON AVAILABLE-FOR-SALE SECURITIES

2008 Amortized Unrealized Unrealized Carrying cost(1) gross gains gross losses value(1) Securities issued or guaranteed by Canada $ 2,286 $ 98 $ 6 $ 2,378 Provinces and municipal corporations in Canada 3,496 87 39 3,544 School or public corporations in Canada 4 — — 4 Foreign public administrations 12 — 1 11 Other securities in Canada Financial institutions 3,425 33 47 3,411 Other issuers(2) 1,478 6 54 1,430 Shares 407 1 87 321 Securities from foreign issuers Financial institutions 4 — — 4 Other issuers — — — — Shares 298 — 63 235

$ 11,410 $ 225 $ 297 $ 11,338

2007 Amortized Unrealized Unrealized Carrying cost (1) gross gains gross losses value (1) Securities issued or guaranteed by Canada $ 885 $ 7 $ 1 $ 891 Provinces and municipal corporations in Canada 4,202 65 1 4,266

s Combined Finan c ial Statement School or public corporations in Canada 24 — — 24 Foreign public administrations 16 — — 16 Other securities in Canada Financial institutions 2,560 — 11 2,549 Other issuers(2) 2,074 — 214 1,860 Shares 529 42 27 544 Securities from foreign issuers Financial institutions 3 — — 3 Other issuers 3 — — 3 Shares 164 — 5 159

$ 10,460 $ 114 $ 259 $ 10,315

(1) Desjardins Group holds available-for-sale securities accounted for at cost since they are not quoted on an active market. Available-for-sale securities recorded at cost on the Combined Balance Sheets total $40 million ($79 million in 2007), and that cost is presented in the “Carrying value“ column in the above table. The fair value of some of these securities can be estimated and represents an immaterial loss. (2) Includes securities that have sustained a decline in value that is other than temporary with an amortized cost of $1,401 million ($1,314 million in 2007), including a write-down of $619 million ($202 million in 2007).

As at December 31, 2008, the gross unrealized losses on available-for-sale the ability and intent to hold these securities for a period of time sufficient securities amounted to $297 million ($259 million in 2007) and resulted to allow for recovery in fair value. Desjardins Group has determined that from wider credit spreads due to recent disruptions on capital markets, the gross unrealized losses, other than those related to ABCP securities desjardins group fluctuations in market interest rates as well as a deterioration in the and collateralized debt obligations, are temporary in nature. creditworthiness of certain issuers. Declines in value of financial asset-backed securities are monitored regularly by Management. Desjardins Group has

36099_p115a172_ENG.indd 132 12/03/09 11:04:19 Notes to the Combined Financial Statements 133

SECURITIES – ASSET-BACKED COMMERCIAL PAPER and, to a lesser extent in 2008, ABCP assets in the money market mutual funds it managed and in the securities lending operations of Desjardins Desjardins Group holds investments on the non-bank asset-backed Trust clients for which it had not originally assumed the risk. commercial paper (ABCP) market, although it never issued this type of financial product to its clients. It should be noted that, to safeguard its As at December 31, 2008 and 2007, ABCP securities held were broken members and clients, Desjardins Group repurchased in September 2007 down as follows:

2008 Cumulative Amortized cost write-down Fair value ABCP Synthetic and hybrid assets $ 1,962 $ 772 $ 1,190 Traditional assets 255 11 244 Ineligible (subprime) assets 229 227 2

Total $ 2,446 $ 1,010 $ 1,436

2008 Cumulative write-down Deposit liabilities and actuarial Amortized cost Income liabilities Fair value Available-for-sale securities $ 1,257 $ 506 $ — $ 751 Securities held for trading 1,189 243 261 685

Total $ 2,446 $ 749 $ 261 $ 1,436

2007

Cumulative s Combined Finan c ial Statement Amortized cost write-down Fair value ABCP Synthetic and hybrid assets $ 1,985 $ 228 $ 1,757 Traditional assets 265 19 246 Ineligible (subprime) assets 187 131 56

Subtotal 2,437 378 2,059

Other ABCP 96 29 67

Total $ 2,533 $ 407 $ 2,126

2007 Cumulative write-down Deposit liabilities

and actuarial desjardi n s group Amortized cost Income liabilities Fair value Available-for-sale securities $ 1,314 $ 202 $ — $ 1,112 Securities held for trading 1,219 71 134 1,014

Total $ 2,533 $ 273 $ 134 $ 2,126

On August 16, 2007, a group of financial institutions and other investors The Pan-Canadian Committee’s efforts to restructure ABCP since that time reached an agreement in principle for the restructuring of ABCP following led to the conclusion of a final restructuring plan on December 24, 2008, the liquidity crisis that began in August 2007. The aim of this agreement, which was sanctioned in January 2009. The restructuring plan aims to replace called the Montréal Accord, was to restore a climate of confidence and ABCP issued with new longer-term floating rate notes havinga maturity implement a solution to the liquidity crisis; it provided for a moratorium similar to that of underlying assets. The section entitled “Subsequent event – period with respect to the ABCP securities issued by 23 trusts. A Pan-Canadian ABCP restructuring plan“ provides more details on the restructuring. Committee, composed of participants in the Montréal Accord, including Desjardins Group, was formed on September 6, 2007 to oversee the restructuring process.

36099_p115a172_ENG.indd 133 15/03/09 14:23:29 134 Notes to the Combined Financial Statements

note 4 SECURITIES (continued) SECURITIES – ASSET-BACKED several series of tracking notes that will directly pass through the cash COMMERCIAL PAPER (continued) flows generated by the underlying assets, Desjardins Group assumes that the restructuring will not have a significant impact on their fair value. The key features of the restructuring plan are as follows: As for ABCP comprised exclusively of ineligible (subprime) assets, given the nature of the underlying assets and their marked deterioration in n Creation of three new trusts, called “Master Asset Vehicles“ (MAV): the current economic environment, an impairment loss equal to 99% of the cost of these securities was recorded as at December 31, 2008. - MAV 1 and MAV 2 are comprised exclusively of synthetic asset transactions, being a combination of assets pledged as collateral and Assumptions used are based as much as possible on observable market credit default swap contracts, or of hybrid asset transactions, being a data such as interest rates, credit spreads and benchmark indices for similar combination of synthetic assets and traditional assets. They also include assets. They also reflect, if necessary, any specific features of the plan and the ineligible (subprime) assets and other assets of these series; are partially based on assumptions not supported by observable market - MAV 3 is comprised of exclusively ineligible (subprime) asset and prices or rates for similar assets. Discount rates used take into account the traditional asset transactions; maturity, the credit rating and the market and liquidity risks of each note. n Creation of five classes of notes for MAV 1 and MAV 2 (A-1, A-2, B, C and IA) and of two classes of notes for MAV 3 (TA and IA). The IA and As at December 31, 2007, Desjardins Group used different assumptions TA notes are divided into multiple series of tracking notes that reflect to value ABCP securities. The main difference arises from the fact that the cash flows of the original underlying assets; Desjardins Group gave a probability of 80% to the realization of the restructuring scenario and a probability of 20% to the liquidation scenario, n Establishment of funding facilities in support of MAV 1 and MAV 2 which was divided into an orderly liquidation scenario and a disorderly to fund collateral calls that may occur with respect to underlying credit liquidation scenario. The fair value used was an average of the estimated default swaps; values under the liquidation and restructuring scenarios, weighted according n Establishment of an initial 18-month moratorium period during which to the estimated probability of realization of each scenario. It should be no additional collateral calls may be made for the vast majority of noted that this element only had an impact on synthetic and hybrid assets, underlying credit default swaps; as only the liquidation scenario was relevant to determining the fair value of traditional and ineligible (subprime) assets, as previously mentioned. n Widening of certain “spread-loss“ triggers, which will apply again at the expiration of the moratorium period, thereby reducing the Impact on income likelihood of additional collateral calls. A decline in value totalling $502 million, not including the impact of the s Combined Finan c ial Statement Desjardins Group participates in the MAV 1 and MAV 3 trusts. securities restructured during the year, was charged to Desjardins Group’s combined income for the year ended December 31, 2008 ($273 million for ABCP valuation methodology the year ended December 31, 2007). Of this amount, $326 million is due to a decline in value considered to be, in accordance with accounting Since there is no active market for ABCP securities, Desjardins Group’s standards, other than temporary for available-for-sale securities Management estimated the fair value of its holdings and the resulting ($202 million for the year ended December 31, 2007). The decline in value changes in value by using a valuation technique. In light of the Pan-Canadian recognized for 2008 was due primarily to the anticipated lowering of the Committee agreement reached on December 24, 2008, Desjardins Group credit rating from AAA to A for the MAV 1 series A-1 and A-2 replacement estimated that, as of December 31, 2008, the probability of realization notes, the widening of credit spreads during 2008 and the deterioration of of the restructuring was 100%. benchmark indices, partially offset by the increased probability of realization of the restructuring scenario. The fair value of ABCP restructured in the form of A-1, A-2, B and C notes in MAV 1 i.e. synthetic and hybrid assets, is based on a financial model A portion of the ABCP held by Desjardins Group as at December 31, 2008 incorporating uncertainties regarding return, credit spreads, the nature was still held under investment operations associated with certain and credit risk of underlying assets, the amounts and timing of cash inflows, guaranteed-capital structured products. Given the extreme volatility that the maturity dates and the liquidity restrictions of the new notes in order has prevailed on markets since the third quarter of 2008, the decline to provide a fair value for the ABCP securities reflecting market conditions in value of ABCP for the fourth quarter could not be offset by an equivalent as at December 31, 2008. Anticipated cash flows from the new notes were reduction in deposit liabilities and actuarial liabilities as was the case in discounted using the bankers’ acceptance rate plus a premium ranging previous quarters. Consequently, the decline in value recorded for fiscal from 809 to 1,238 basis points over periods ranging from five to eight years. desjardi n s group 2008 includes a $76 million loss for the portion of the decline in value of ABCP that was no longer offset. In the restructuring approved in The fair value of ABCP comprised exclusively of traditional assets was January 2009, the replacement securities were withdrawn from the determined using benchmark indices selected based on the underlying activities involving guaranteed-capital structured products and are now assets of each trust. Given that these assets will be restructured into included in Desjardins Group’s regular securities portfolio.

36099_p115a172_ENG.indd 134 15/03/09 14:25:41 Notes to the Combined Financial Statements 135

The above estimated fair value may not be indicative of the ultimate net In the event that the MAV 1 margin funding facility and the equivalent realizable value or the future fair value. While Management believes that MAV 2 facility are not sufficient to meet thecollateral calls on the vehicle its valuation technique is appropriate in the circumstances, changes in in question, a senior funding facility has been put in place to provide significant assumptions, especially those relating to the determination of access to additional liquidities. This funding facility has been provided by the return, the credit spreads and the credit risk of the underlying assets, the governments of Canada, Québec, Alberta and Ontario and by one of and the quality of assets given as collateral by the trusts, which are integrated the MAV 1 participants. MAV 1 can draw on an amount of $1,772 million into the discount rate, could significantly affect the value ascribed to the under this facility and will pay an annual commitment fee of 1.19% until replacement notes in the future. A 1% increase in the estimated discount December 2016. This facility matures one month after the end of the rates would reduce the estimated fair value of the replacement note portfolio moratorium on collateral calls, namely July 2010, unless an amount has now held by Desjardins Group by approximately $64 million, which would been drawn and has not been paid as at that date, in which case all the reduce Tier 1 capital by $44 million or 0.5% as at December 31, 2008. liquidities available for reimbursement in MAV 1 will be used to pay For more details on capital, see Note 28, “Capital Management“. the interest and the principal of the senior funding facility before the MAV 1 margin funding facility and the notes issued by MAV 1. Advances that can Some uncertainties remain regarding the value of underlying assets, the be made under this funding facility will bear interest at a rate based on amount and timing of cash flows, the development of a secondary market bankers’ acceptance rate or prime rate. for the replacement notes and the liquidity of this market, which could further change the value of Desjardins Group’s investment in replacement A negative amount of $98 million ($93 million in 2007) for margin funding notes. The prospect of a major prolonged slowdown in the North facilities was included in the calculation of the fair value of ABCP as at American economy could also have a negative impact on the fair value December 31, 2008. of the replacement notes. During the first quarter of 2009, an amount of $80 million, net of Desjardins SUBSEQUENT EVENT – ABCP RESTRUCTURING PLAN Group’s estimated share of the $23 million in restructuring fees assumed by the Pan-Canadian Committee, was paid to Desjardins Group as accrued The restructuring plan was approved on January 16, 2009, following the interest for the period from August 20, 2007 to August 31, 2008. Desjardins agreement reached with all the key stakeholders, including the governments Group estimated the accrued interest for the period from September 1, of Canada, Québec, Ontario and Alberta regarding the restructuring of 2008 to December 31, 2008, which will also eventually be paid. This net ABCP and the sanction, by the Ontario Superior Court of Justice on interest has been taken into account in the estimate of the fair value of January 12, 2009, of the final restructuring plan. On January 21, 2009, ABCP as at December 31. For the year ended December 31, 2007, the Court-appointed monitor filed the certificate required to implement Desjardins Group recognized in fair value the contractual interest income the plan and proceed to closing. on ABCP holdings from August 20, 2007.

In addition to the assets already pledged as collateral by the trusts for The following details on the specific rights of each noteholder were credit default swaps, the plan stipulates that MAV 1 and MAV 2 must established in accordance with the terms and conditions of the plan. each have a margin funding facility (MFF) intended to cover any potential

Under the plan, noteholders received new notes according to weightings s Combined Finan c ial Statement collateral calls from swap counterparties. Desjardins Group has chosen determined based on the various ABCP-issuing trusts. After the restructuring, to self-finance its share of the margin funding facility, which explains Desjardins Group holds new notes of which the face value has been its participation in MAV 1. allocated among the various following vehicles:

Desjardins Group’s share in this credit commitment, totalling $1,193 million, Face value Fair value(1) ranks equal to the other participants in the MFF and matures in July 2017 or earlier if all credit default swap transactions have been settled. This MAV 1 amount represents the $1,066 million commitment negotiated as part of Class A-1 $ 904 $ 540 the preliminary agreement in December 2007, along with an amount of Class A-2 816 460 $127 million under the terms of the December 24, 2008 plan. Desjardins Class B 139 79 Group will not receive any fees for this credit commitment. Advances made Class C 57 34 under this funding facility will bear interest at a rate based on the bankers’ Class 1A ineligible (subprime) assets 168 — acceptance rate or prime rate. Any advance under the margin funding Class 1A ineligible (other) assets 27 13 facility will rank senior to amounts payable under the notes issued by MAV 1. Should Desjardins Group fail to honour its commitment to provide Total MAV 1 2,111 1,126 funds for its share of the margin funding facility, a proportionate share of the MAV 1 notes held by Desjardins will be subordinated to the other MAV 3 notes. Caisse centrale Desjardins, as the MFF signatory for Desjardins Ineligible (subprime) assets 68 — Group, must maintain a credit rating equivalent to A (low) with at least Traditional assets 247 230

two of the four credit rating agencies (DBRS, S&P, Fitch and Moody’s), desjardi n s group failing which it must provide collateral or another form of credit support to Total MAV 3 315 230 MAV 1 or have another entity with a sufficiently high credit rating assume its obligations. Interest received 80 80

Under a separate agreement, Desjardins Group purchased a $400 million Total $ 2,506 $ 1,436 protection for its MFF commitments from one of the participants in MAV 1 in exchange for an annual commitment fee of 1.2%, which is the same rate (1) Based on the fair value determined as at December 31, 2008. as the third-party institutions that have contributed to the equivalent MFF of MAV 2. This participation will automatically end upon the maturity of MAV 1’s MFF.

36099_p115a172_ENG.indd 135 16/03/09 20:19:19 136 Notes to the Combined Financial Statements

note 4 SECURITIES (continued) The following table presents the main features of these new notes:

Coupon Legal maturity date Ranking Rating

MAV 1 A-1(1) Bankers’ acceptance July 15, 2056(3) Ranking senior to MAV 1 A-2 A rate + 30 basis points(2) notes with respect to interest and to MAV 1 B and C notes with respect to principal and interest

MAV 1 A-2(1) Bankers’ acceptance July 15, 2056(3) Interest ranks senior to the A rate + 30 basis points(2) principal of MAV 1 A-1 notes. Subordinated to MAV 1 A-1 notes with respect to principal

MAV 1 B(1) Bankers’ acceptance July 15, 2056(3) Subordinated to MAV 1 A-2 None rate + 30 basis points(2) notes with respect to principal and interest Interest payable at maturity, cumulative

MAV 1 C(1) Bankers’ acceptance July 15, 2056(3) Subordinated to MAV 1 B notes None rate + 20% with respect to principal and interest Interest payable at maturity

MAV 1 IA notes Floating based on Between Certain notes rank senior with No rating for the MAV 1 IA notes and all MAV 3 the yield of the September 19, 2012 respect to interest and all MAV 3 notes, except for notes underlying assets. and July 15, 2056 6 series of MAV 3 notes which were assigned ratings ranging s Combined Finan c ial Statement from A (low) to AAA.

(1) No obligation to pay interest before January 22, 2019. (2) The interest rate is LIBOR + 30 basis points for U.S. dollar notes. (3) The expected payment maturity date is January 22, 2017.

At the time these financial statements were prepared, no active market A super senior tranche has an attachment point, which is the threshold existed yet for the various restructured notes. In addition, the trading of or level of losses that the pool of reference assets must incur before the MAV 1 notes is subject to considerable restrictions, since MAV 1 A-1, A-2, payment obligations are triggered. In general, this level is significantly B and C noteholders may only transfer the notes to a third party if such higher than the level of losses inherent to an R-1 (high) or AAA rating. transfer is made on a prorata basis of each of the classes held by the seller Therefore, the level of losses to which the super senior tranche is exposed and if the buyer assumes an equivalent share of the commitments related is usually lower than the historical experience for this level of rating. to the MFF, either directly or through another entity, as long as the party When the level of losses increases or indicators show that it could increase assuming the share of the MFF has a sufficiently high credit rating. (additional collateral call triggers), the buyers of protection against the credit default require collateral in addition to the amounts initially invested. Desjardins Group’s ultimate capacity to recover its investments in replacement To meet such additional collateral calls, the counterparty who has sold notes depends on the credit quality of the underlying assets. The assets the protection must have mechanisms to access liquidities. underlying the restructured notes can be summarized as follows: If the additional collateral cannot be provided, the LSS is unwound for desjardi n s group Assets underlying MAV 1 the benefit of the buyer of the protection against the credit default. Such an unwind results in a loss for the protection seller, even if the actual losses Leveraged super senior structures 74.6 % of the pool of reference assets have not reached the attachment point for Collateralized debt obligations 12.2 the super senior tranche. The widening of certain “spread-loss“ triggers, Commercial mortgage loans 7.6 which were implemented as part of the restructuring plan and will apply Canadian subprime residential mortgage loans 3.1 again on LSS at the expiration of the 18-month moratorium period, makes Other assets 2.5 the possibility of triggering additional collateral calls more remote.

Desjardins Group holds or has access to the necessary funds to meet all Leveraged super senior structures (LSS) provide investors with an exposure its financial, operating and regulatory obligations, and it does not expect backed by a super senior proportion of a pool of reference assets. This that the liquidity problems related to ABCP and the replacement notes exposure is generally equal to many times the invested amount in a given will have a material adverse impact on its financial soundness, its credit transaction and pledged as collateral to the credit protection beneficiary, rating or its capital ratios. namely the counterparty to the credit default swap.

36099_p115a172_ENG.indd 136 15/03/09 14:29:02 Notes to the Combined Financial Statements 137

In addition, Desjardins Group held other Canadian bank and non-bank Following the filing of a final prospectus dated March 19, 2008, VISA Inc. ABCP that were restructured during the year and for which it assumed the made an initial public offering (IPO), which led to the mandatory redemption risk, totalling $159 million ($20 million in 2007) before write-down, and it of slightly over 55% of the shares held by Desjardins Group. It should be received in exchange liquidities and securities having a fair value of noted that as part of the finalization of the prospectus of VISA Inc., the $87 million ($20 million in 2007). The valuation technique used for these total number of shares allocated to Desjardins Group was subject to a final securities as at December 31, 2008 was similar to that used for synthetic adjustment, as provided for in the global restructuring. Given the combined securities subject to the Montréal Accord. impact of the net proceeds from the IPO, the adjustment to the number of shares held by Desjardins Group and the fluctuation of the value of the SECURITIES – COLLATERALIZED DEBT OBLIGATIONS U.S. dollar in relation to the Canadian dollar, Desjardins Group recognized in 2008 a $5.3 million loss before income taxes ($4.6 million after income As at December 31, 2008, the review of some of these securities, having taxes) on its shares of VISA Inc. which had been redeemed under the IPO. a face value of $294 million, showed objective evidence of impairment leading to an other than temporary decline in fair value. The cumulative The balance of the shares of VISA Inc. held by Desjardins Group are subject decline of $113 million in the fair value of these securities, which had been to sales restrictions, which will expire in 2011. Given the nature of these recorded in comprehensive income, was recorded in net income even if restrictions and the accounting standards currently in effect, temporary the assets in question were not derecognized. The fair value of these securities fluctuations in value do not result in adjustments to the carrying value is based on a model that takes into account changes in the credit spreads of the investment. of the underlying securities and their correlations. The various economic factors and events of the second half of 2008 contributed to the widening SECURITIES – PARTNERSHIP WITH RESPECT of spreads and the occurrence of defaults in the underlying portfolios. TO NORTHWEST FUNDS AND ETHICAL FUNDS SECURITIES – INTEREST IN VISA In December 2007, Desjardins Group and Canada’s provincial credit union centrals combined their strengths, resources and distribution networks Following the global restructuring of VISA, Desjardins Group received, on to boost the growth of Northwest Mutual Funds Inc., owned by Desjardins October 3, 2007, shares of VISA Inc., a new global entity, in exchange for Group and The Ethical Funds Company. This strategic partnership between its membership interest in the VISA Canada Association. Shares received two Canadian cooperative systems led to the creation of a national mutual were measured at fair value based on an independent valuation of VISA Inc. fund company, Northwest & Ethical Investments L.P., equally owned by since they are not yet traded on an active market. Consequently, a gain in Desjardins Group and the credit union centrals. Desjardins Group exercises the order of $72 million was recorded in “Other income – Income from significant influence on this partnership. The creation of this partnership available-for-sale securities“. Shares received were classified as available- generated a gain of $45 million, included in “Other income – Other“ in 2007. for-sale securities.

note 5 s Combined Finan c ial Statement LOANS AND ALLOWANCE FOR CREDIT LOSSES LOANS The fees collected and the direct costs related to the origination, restructuring, and renegotiation of loans are treated as being integral to the yield of the Loans, including advances to policyholders, are recorded at amortized cost, loan and are deferred and amortized as interest income over their estimated using the effective interest method, net of the allowance for credit losses. terms. Commitment and standby fees are also included in “Interest income – Loans“ over the expected term if it is likely that a loan will result; if not, A loan is considered impaired and the related interest is no longer recorded these fees are recorded as other income over the commitment or standby when: (a) there is reason to believe that a portion of the principal or the period. Loan syndication fees are recorded in other income when the interest cannot be collected; or (b) the interest or principal repayment is syndication agreement is signed unless the yield on the loan retained contractually 90 days or more past due, unless the loan is fully secured by Desjardins Group is less than the yield of other comparable lending or in the process of collection; or (c) the loan is more than 180 days in institutions that participate in the financing. In such instances, an arrears. As soon as a loan is considered impaired, the interest previously appropriate portion of the fees is deferred and amortized to interest accrued but not collected is capitalized to the loan, and no interest is income over the term of the loan. recorded thereafter. Payments received subsequently are credited against the principal. A loan ceases to be considered impaired, and interest is once again accounted for under the accrual method when principal and interest payments are up to date and the collectibility of the loan is no longer in doubt. desjardi n s group Collateral is obtained if deemed necessary for a member’s or client’s loan facility following an assessment of their creditworthiness. Collateral normally takes the form of an asset such as cash, government securities, shares, receivables, inventory or capital assets.

36099_p115a172_ENG.indd 137 15/03/09 14:30:46 138 Notes to the Combined Financial Statements

note 5 LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued) ALLOWANCE FOR CREDIT LOSSES of 180 days. In addition, a general allowance is recognized to reflect Management’s best estimate of probable losses related to the portion of The allowance for credit losses reflects Management’s best estimate of the loan portfolio not yet classified as impaired. The general allowance is potential credit losses related to a portfolio of both on- and off-balance determined by using a statistical model based on changes in losses by loan sheet items as well as its assessment of economic conditions. Any material category. Moreover, an additional amount is taken into account in order change could result in a change to the currently recognized amount for to reflect the impact of economic and other factors. The general allowance the allowance for credit losses. does not represent future losses nor replace specific allowances.

The allowance for credit losses comprises specific allowances and a general Loans are written off when all attempts at restructuring or collection have allowance. With respect to the loan portfolio, credit risk is assessed regularly, been made and the likelihood of future recovery is remote. When a portion and specific allowances are determined, on a loan by loan basis, for all loans of an impaired loan is written-off and the balance is restructured, interest considered impaired. Impaired loans are valued by discounting expected is recorded again using the accrual method when there is no reasonable future cash flows at the rate of interest inherent in the loan. The allowance doubt as to the collection of principal and interest and payments have is equal to the difference between this value and the balance of the loan. not been in arrears for 90 days. Any change in the allowance for credit losses due either to the passage of time or a revision of expected payments is recorded in combined income Past due loans are loans on which the counterparty has failed to make under “Provisions for credit losses“. Credit card balances are written off a payment when contractually due. completely when no payment has been received at the end of a period

LOANS AND IMPAIRED LOANS

2008 2007 Gross loans Gross neither loans past due but Gross Net Gross Net due nor not impaired Specific General impaired Gross impaired Specific General impaired impaired impaired loans allowances allowance loans loans loans allowances allowance loans Residential mortgages $ 60,786 $ 188 $ 107 $ 11 $ — $ 96 $ 56,662 $ 81 $ 9 $ — $ 72 s Combined Finan c ial Statement Consumer, credit card and other personal loans 16,259 1,778 84 32 — 52 16,440 87 34 — 53 Business and government 25,444 411 231 87 — 144 23,063 223 80 — 143 General allowance — — — — 696 (696) — — — 639 (639)

$ 102,489 $ 2,377 $ 422 $ 130 $ 696 $ (404) $ 96,165 $ 391 $ 123 $ 639 $ (371)

The carrying value of loans that would be past due or impaired, but whose terms have been renegotiated during the year amounted to $140 million as at December 31, 2008. desjardins group

36099_p115a172_ENG.indd 138 12/03/09 11:04:20 Notes to the Combined Financial Statements 139

LOANS PAST DUE BUT NOT IMPAIRED 2008 1 to 29 30 to 59 60 to 89 90 days days days days and more Total Residential mortgages $ 150 $ 21 $ 10 $ 7 $ 188 Consumer, credit card and other personal loans 1,369 219 91 99 1,778 Business and government 244 55 41 71 411

$ 1,763 $ 295 $ 142 $ 177 $ 2,377

ALLOWANCE FOR CREDIT LOSSES 2008 Balance at Provision Write-offs Balance beginning for credit and at end of year losses recoveries of year Residential mortgages $ 9 $ 7 $ (5) $ 11 Consumer, credit card and other personal loans 34 34 (36) 32 Business and government 80 33 (26) 87 General allowance 639 169 (112) 696

$ 762 $ 243 $ (179) $ 826

2007 Balance at Provision Write-offs Balance beginning for credit and at end of year losses recoveries of year

Residential mortgages $ 11 $ 3 $ (5) $ 9 s Combined Finan c ial Statement Consumer, credit card and other personal loans 32 36 (34) 34 Business and government 76 49 (45) 80 General allowance 605 109 (75) 639

$ 724 $ 197 $ (159) $ 762 desjardins group

36099_p115a172_ENG.indd 139 12/03/09 11:04:20 140 Notes to the Combined Financial Statements

note 6 SECURITIZATION OF MORTGAGE LOANS As part of its liquidity and capital management strategy, Desjardins Group An amount of $202 million ($96 million in 2007) representing mortgage- participates in the National Housing Act Mortgage-Backed Securities backed securities created and retained was recorded in securities held for Program. Under this program, Desjardins Group converts mortgage loans trading as at December 31, 2008. into mortgage-backed securities (NHA-MBSs) and transfers them to the Canada Housing Trust. These securitization transactions are recorded as In 2008, cash flows from retained interests were $49 million ($23 million sales; the loans are therefore removed from the Combined Balance Sheets in 2007) and the impact of the amortization of servicing liabilities on the since Desjardins Group has surrendered control over the transferred assets Combined Statements of Income was $10 million ($6 million in 2007). and has received consideration other than beneficial interests in these assets. Total mortgage loans securitized outstanding amounts to $4,074 million ($2,596 million in 2007). In securitization transactions, Desjardins Group retains the right to an excess interest spread, which is initially recorded at fair value on the Combined The key assumptions used in determining the initial fair value of Balance Sheets under “Other assets – Other“ and considered a retained the retained interests as at the date of sale are as follows: interest. The excess spread is amortized over the term of the mortgage loans transferred and is recorded in combined income under “Other 2008 2007 income – Other“. Discount rate 3.49 % 4.70 % Prepayment rate for fixed rate Since transfers are made on a fully serviced basis, a servicing liability and floating rate mortgage loans, is initially recorded at fair value and presented under “Other liabilities respectively 11 and 21 % – Other“ on the Combined Balance Sheets. The servicing liability is amortized 15 and 25 % Weighted average life of loans 34 months to combined income over the term of the transferred mortgage loans, 33 months and amortization is presented under “Other income – Other“.

No credit losses are expected because the mortgage loans transferred At the time of transfer, Desjardins Group recognizes the gain or loss on are guaranteed. the transfer in combined income under “Other income – Other“, net of transaction expenses. The gain or loss on the transfer depends on the prior carrying value of the loans sold as well as the fair value of the assets The sensitivity of the current fair value of retained interests to 10% received and liabilities assumed. This fair value is determined using and 20% adverse changes in the key assumptions is as follows: the present value of expected cash flows and taking into account best 2008 2007

s Combined Finan c ial Statement estimates, which are based on certain key assumptions made by Management, including the forward yield curve for mortgage loans, discount rates Prepayment rate 15 and 25 % 11 and 21 % proportional to the risks involved and the prepayment rate. Impact of a 10% adverse change $ (5) $ (2) Impact of a 20% adverse change (10) (5) The following table summarizes the impact of mortgage loan securitization Discount rate 3.49 % 4.70 % activities on the sales for 2008 and 2007. Impact of a 10% adverse change n.s.(1) $ (1) Impact of a 20% adverse change (1) (1) 2008 2007 (1) Not significant Mortgage loans securitized $ 2,228 $ 1,684

Net cash proceeds received 2,105 1,570 The results of this analysis should be used with caution because changes Retained interests 128 62 in fair value based on a variation in assumptions generally cannot be Assumed servicing liabilities 20 15 extrapolated since the relationship involved may not be linear. It should Gain on sale, net of transaction expenses 90 43 be borne in mind that each change in one factor may contribute to changes in another, magnifying or counteracting the sensitivities.

As at December 31, 2008, Desjardins Group had recorded retained interests of $170 million ($82 million in 2007) and assumed servicing liabilities of $30 million ($20 million in 2007) on its Combined Balance Sheets. desjardins group

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note 7 LAND, BUILDINGS AND EQUIPMENT Land is recorded at cost. Buildings, equipment, furniture and leasehold or declining balance method. Gains and losses on disposals are recorded in improvements are recorded at cost less accumulated amortization and combined income under “Other income – Other“ in the year in which they are amortized over their estimated useful lives using the straight-line are realized.

Amortization rates and terms: Buildings 2.5% to 20% Computer equipment 20% to 50% Furniture, fixtures and other 10% to 33% Leasehold improvements Term of the lease plus first renewal option

2008 2007 Accumulated Net carrying Net carrying Cost amortization value value Land $ 96 $ — $ 96 $ 91 Buildings (Note 29) 896 465 431 431 Computer equipment 496 347 149 146 Furniture, fixtures and other 611 427 184 146 Leasehold improvements 315 150 165 155

$ 2,414 $ 1,389 $ 1,025 $ 969

Amortization for the year amounted to $165 million ($141 million in 2007 and $143 million in 2006). As at December 31, 2007, cost and accumulated amortization were $2,299 million and $1,330 million, respectively.

note 8 s Combined Finan c ial Statement OTHER ASSETS REAL ESTATE INVESTMENTS Desjardins Group’s intangible assets with finite lives mainly include software and are presented at cost less accumulated amortization. They are amortized Real estate investments held by the life and health insurance subsidiary, using the straight-line method over their estimated useful lives, which do which include buildings occupied in whole or in part by this subsidiary, not exceed five years. are recorded at cost, to which is added each quarter 3% of the difference between the carrying value and the estimated market value based on 2008 2007 appraisals performed by an external appraiser on a three-year cycle. Real estate also includes foreclosed buildings held for sale, which are recorded Real estate investments (Note 29) $ 896 $ 830 at their estimated fair value, less costs to sell. Any difference between Goodwill 122 153 the carrying value of the loan prior to foreclosure and the amount at which Premiums receivable 702 708 the foreclosed assets are measured initially is recognized as a gain or a Future income tax assets (Note 21) 671 389 loss in combined income. Any decline in value of the entire real estate Accrued benefit asset (Note 23) 9 — portfolio that is other than temporary is charged to combined income Accounts receivable 293 497 under “Other income – Other“. Realized gains and losses on real estate Amounts receivable from clients, are deferred and amortized to combined income at a rate of 3% per brokers and financial institutions 612 657 quarter using the declining balance method. Other 1,129 1,185 desjardins group GOODWILL AND OTHER INTANGIBLE ASSETS Total $ 4,434 $ 4,419

Business acquisitions are recorded using the purchase method. Therefore, goodwill is the excess of the cost of the purchase of a business over the The fair value of real estate investments was $1,302 million ($1,070 million fair value of net assets acquired. Goodwill as well as intangible assets with in 2007). Income of $109 million ($67 million in 2007) from real estate indefinite useful lives are not amortized but are tested for impairment at investments is presented net of the operating expenses. least once a year. For goodwill, the impairment test consists of a comparison, by reporting unit, of the fair value of the assets and their carrying value. Goodwill is comprised of the following: $111 million ($111 million in 2007) Any excess of the carrying value over fair value is charged to combined from the Desjardins Financial Corporation subsidiary, mainly for its general income during the period in which the impairment is determined under insurance subsidiary; $8 million from Desjardins Securities Inc. ($8 million “Non-interest expense – Other“. Following the annual impairment test, in 2007); $3 million from the FCDQ ($3 million in 2007); and nil from a reduction in value of $31 million was recognized in combined income Desjardins Credit Union Inc. in 2008 ($31 million in 2007). for 2008 with respect to the goodwill of Desjardins Credit Union Inc. For 2007 and 2006, no reduction in value was recognized.

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note 9 FINANCIAL ASSETS TRANSFERRED BUT NOT DERECOGNIZED Desjardins Group carries out transactions by which it transfers financial The carrying value of these transferred financial assets is presented assets to a third party. These financial assets remain on the Combined in the following table: Balance Sheets, however, because the transaction fails to meet derecognition criteria. 2008 2007 Securities sold under repurchase agreements $ 10,668 $ 8,007 Securities lent 417 368

note 10 DEPOSITS Deposits payable on demand are interest-bearing or non-interest-bearing withdrawal. Term deposits are interest-bearing deposits, usually deposits deposits, usually accounts with chequing privileges, for which Desjardins payable on a fixed date, guaranteed investment certificates or other similar Group does not have the right to require notice prior to withdrawal. Deposits instruments, with a term that generally varies from one day to 10 years payable upon notice are interest-bearing deposits, usually savings accounts, and mature on a predetermined date. Deposits are recognized at cost for which Desjardins Group has the legal right to require notice prior to on the Combined Balance Sheets.

Payable on demand Payable upon notice Payable on a fixed date Total 2008 2007 2008 2007 2008 2007 2008 2007 Individuals $ 18,327 $ 16,264 $ 3,483 $ 3,270 $ 50,148 $ 46,785 $ 71,958 $ 66,319 Business and government 10,594 10,002 276 242 10,642 10,540 21,512 20,784 Deposit-taking and other institutions 23 35 — — 7,943 8,628 7,966 8,663

$ 28,944 $ 26,301 $ 3,759 $ 3,512 $ 68,733 $ 65,953 $ 101,436 $ 95,766 s Combined Finan c ial Statement note 11 ACTUARIAL AND RELATED LIABILITIES Actuarial and related liabilities are as follows: contingency. Investment returns are based on projected investment income using the current asset portfolios and projected reinvestment strategies. 2008 2007 Each non-economic assumption is adjusted by a margin for adverse deviation. With respect to investment returns, the provision for adverse Actuarial liabilities $ 10,114 $ 10,208 deviation is established by scenario testing. Scenario testing is generally Claims and adjustment expenses 1,371 1,263 performed on a deterministic basis that includes testing prescribed by Unearned premiums 713 705 Canadian standards of practice. The provision for minimum guarantees Policyholder deposits 420 396 on segregated fund products is established using stochastic modeling. Provisions for participating policyholders’ dividends The period used for the projection of cash flows is the policy lifetime for and experience refunds 256 259 most insurance contracts. For certain types of contracts, a shorter projection period may be used. This period is however limited to the term of the liability $ 12,874 $ 12,831 over which the life and health insurance subsidiary is exposed to material risk without the ability to adjust policy premiums or charges.

desjardins group ACTUARIAL LIABILITIES Net premiums Actuarial liabilities represent the amounts which, together with estimated Insurance and annuity premiums are generally recognized as income when future premiums and net investment income, will provide for all the life they become due. When premiums are recognized, actuarial liabilities are and health insurance subsidiary’s commitments regarding estimated future computed to ensure the matching of income and expenses. benefits, policyholder dividends, taxes (other than taxes on surplus earnings) and related expenses. Each year, the life and health insurance subsidiary’s appointed actuary is required to determine the actuarial liabilities the subsidiary Reinsurance will need to meet its future commitments. Actuarial liabilities are determined Premium income, benefits paid to policyholders, actuarial liabilities, and using the Canadian Asset Liability Method, in accordance with Canadian changes in actuarial liabilities related to contracts under reinsurance accepted actuarial practices. treaties are recorded net of amounts ceded to reinsurers.

Under the Canadian Asset Liability Method, the determination of actuarial liabilities is based on an explicit projection of cash flows using current best estimate assumptions for each cash flow component and each significant

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Composition of actuarial liabilities

As at December 31, actuarial liabilities and assets backing actuarial liabilities included the following amounts:

2008 Individual Group insurance insurance Savings Total Gross actuarial liabilities $ 4,336 $ 2,237 $ 3,989 $ 10,562 Amounts transferred under reinsurance treaties (267) (168) (13) (448)

Net actuarial liabilities $ 4,069 $ 2,069 $ 3,976 $ 10,114

Composition of assets backing actuarial liabilities Bonds $ 2,728 $ 1,113 $ 2,154 $ 5,995 Mortgage loans 528 696 1,588 2,812 Real estate 346 — — 346 Shares 191 30 — 221 Deposit-taking and other institutions 276 230 234 740

$ 4,069 $ 2,069 $ 3,976 $ 10,114

2007 Individual Group insurance insurance Savings Total Gross actuarial liabilities $ 4,252 $ 2,195 $ 4,215 $ 10,662 Amounts transferred under reinsurance treaties (262) (177) (15) (454)

Net actuarial liabilities $ 3,990 $ 2,018 $ 4,200 $ 10,208

Composition of assets backing actuarial liabilities Bonds $ 2,759 $ 1,291 $ 2,184 $ 6,234 s Combined Finan c ial Statement Mortgage loans 439 498 1,410 2,347 Real estate 225 — — 225 Shares 219 38 375 632 Deposit-taking and other institutions 348 191 231 770

$ 3,990 $ 2,018 $ 4,200 $ 10,208

The fair value of assets backing actuarial liabilities is $10,318 million ($10,337 million in 2007).

Actuarial assumptions and Mortality and morbidity sensitivity of assumptions to Each year, the life and health insurance subsidiary carries out a study change in actuarial liabilities of mortality claims experience with respect to its life insurance policies. It uses the results of this study to adjust the mortality assumption used The nature of the main assumptions used in the computation of actuarial in the valuation. If the subsidiary’s underwriting experience cannot serve as liabilities and the method used to establish these assumptions are described the only source of reference due to low volume, the mortality assumption in the following paragraphs. The basic assumptions used in computing is also based on industry studies and tables. An increase of 1% in the best desjardins group actuarial liabilities are those that prove the best estimates of liability for estimate assumption would lead to an increase in actuarial liabilities of various contingencies. The appointed actuary must, for each of these approximately $13 million. assumptions, establish a margin for adverse deviation in order to mitigate the random event, allow for the risk of deteriorating underwriting experience In terms of annuities, the life and health insurance subsidiary also proceeds and ensure that provisions are adequate to meet future commitments. with a study of its experience, which provides an adequate level of These margins for adverse deviation increase actuarial liabilities and reduce credibility upon which assumptions would be based. Contrary to insurance, the gross income that would otherwise be recognized at inception of the an improvement in mortality claims is predicted in the coming years. policies. With the passage of time and as estimation risk declines, these A decrease of 1% in the best estimate assumption would lead to an margins are released to combined income. If estimates of future conditions increase in actuarial liabilities of approximately $8 million. change throughout the life of a policy, the present value of those changes is recognized in combined income immediately. With respect to the morbidity assumption, which relates to the occurrence of accidental deaths, mutilation, illness, and disability as well as the duration of these disabilities, the life and health insurance subsidiary uses industry- developed morbidity tables and has adapted them according to current underwriting experience studies for itself and for the industry. For products on which morbidity has a significant effect, an increase of 1% in the best estimate assumption would lead to an increase in actuarial liabilities of approximately $12 million.

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note 11 ACTUARIAL AND RELATED LIABILITIES (continued) Policy cancellation rates Changes in actuarial liabilities

Policyholders can cancel their policy before the expiration of their contractual Changes in actuarial liabilities during the year were due to business coverage period by discontinuing premium payment. For some insurance activities and to changes in actuarial estimates, as follows: products with surrender value, an increase in policy cancellation rates will be unfavourable to the life and health insurance subsidiary if the actuarial 2008 2007 liabilities are less than the surrender values of the policies. For other products with little or no surrender value, such as Term-to-100 life insurance, a decrease Balance at beginning of year $ 10,208 $ 8,635 in policy cancellation rates will have an effect of increasing the number of Impact of the adoption of new future death benefits, and the benefits will be less significant than anticipated accounting standards — 1,418 for the subsidiary. Estimates of future policy cancellation rates are based Normal change due to updates on previous experience for each block of business and take into account to actuarial assumptions(1) 2 13 industry trends and studies. A negative change of 10% in the best estimate Normal change due to the passage of time (120) 149 assumption for policy cancellations would lead to an increase in actuarial Other changes 24 (7) liabilities of approximately $73 million. Balance at end of year $ 10,114 $ 10,208 Actuarial liabilities related to Term-to-100 insurance policies and to Universal Life policies with level mortality costs established by the subsidiary are (1) In 2008, the main changes to the actuarial assumptions involved expenses, mortality rates sensitive to changes in the cancellation rates. and forfeitures, whereas in 2007 they involved expenses, mortality rates and interest rates.

Investment income CLAIMS AND ADJUSTMENT EXPENSES The life and health insurance subsidiary manages its investments by taking The amounts related to reported claims are uncertain since all of the into account the characteristics of the commitments of each of its business information is not available at the reporting date, and, consequently, segments by way of clearly defined mechanisms in its matching policy. the claims cost could increase or decrease thereafter. Moreover, since certain claims are not reported upon occurrence, the value of incurred One of the tests addresses the difference between the duration of liabilities but unreported claims is estimated at the end of the year. In order to and the duration of the related assets. Comparing durations allows measuring adequately establish the provision, the general insurance subsidiary uses the sensitivity of the market value of assets and liabilities to changes in interest assumptions based on characteristics of the business segments, settlement rates. The life and health insurance subsidiary takes care of monitoring the history, and other relevant factors. According to Management, the estimating methods used produce reasonable results given currently known data. s Combined Finan c ial Statement matching situation for all business segments because the matching policies stipulate the targets in this respect. Reinsurance Non-interest expense To reduce the risk related to extensive claims, the general insurance Amounts are included in actuarial liabilities to provide for the costs of subsidiary enters into reinsurance treaties with many reinsurers to limit administering policies in force, including the cost of premium collection, its exposure to a maximum amount per claim or catastrophe. These claim processing and adjudication, periodic actuarial valuations, preparation reinsurance treaties do not release the subsidiary from its obligations and mailing of policy statements, related indirect expenses, and an towards its policyholders. appropriate share of overhead. The process of forecasting expenses requires estimates to be made of such factors as inflation, rates for salary The inability of reinsurers to honour their obligations could result in losses for increases, productivity changes, new business volumes, and premium tax this subsidiary. It examines the creditworthiness of the companies to which rates. Estimates of future policy administration costs are based on current it cedes a portion of the risks. It has no knowledge of any information that per unit costs of the life and health insurance subsidiary, adjusted for could lead it to believe that a reinsurer with which it currently does business the expected rate of inflation. An increase of 5% in the best estimate is insolvent; consequently, no allowance for doubtful accounts has been assumption for unit costs would lead to an increase in actuarial liabilities made. In addition, the subsidiary does business with multiple reinsurers. of approximately $29 million. The general insurance subsidiary presents the reinsurers’ share of unearned Participating policyholders’ dividends premiums and claims and adjustment expenses as assets on the balance sheet to indicate the extent of credit risk related to reinsurance and its total

desjardins group Actuarial liabilities include estimated amounts of future participating obligations to policyholders. Insurance results are presented net of policyholders’ dividends. The life and health insurance subsidiary sets reinsurance activities. these provisions based on factors such as anticipated future income stream of this business segment and the expectations of participating This subsidiary has a policy of underwriting and reinsuring insurance policies, policyholders. Changes in the best estimate assumptions for participating which, for the most part, limits its exposure to $5 million per policy. insurance would result in corresponding changes in policyholders’ dividends and an immaterial net change in actuarial liabilities related In addition, the general insurance subsidiary has a catastrophe reinsurance to participating policies. program under which its maximum retention is $28 million.

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The provision for claims and adjustment expenses for the general insurance subsidiary, by risk category, is as follows:

2008 2007 Gross Ceded Gross Ceded amount amount amount amount Home $ 241 $ 16 $ 204 $ 13 Automobile 1,096 28 1,034 24 Other 34 — 25 —

$ 1,371 $ 44 $ 1,263 $ 37

Changes in the provision for claims and adjustment expenses are due to the following items:

2008 2007 Balance at beginning of year Gross provision for claims and adjustment expenses $ 1,263 $ 1,185 Less: Share of reinsurers (37) (32) Salvage and subrogation (65) (72)

Net provision for claims and adjustment expenses 1,161 1,081 Plus claims incurred: Impact of the adoption of new accounting standards — 4 Current year 1,141 1,012 Previous years (85) (56) Less claims paid: Current year (665) (564) Previous years (292) (316)

Balance at end of year

Net provision for claims and adjustment expenses 1,260 1,161 s Combined Finan c ial Statement Plus: Share of reinsurers 44 37 Salvage and subrogation 67 65

Gross provision for claims and adjustment expenses $ 1,371 $ 1,263

note 12 BORROWINGS Borrowings are recognized at amortized cost on the Combined Balance Sheets.

2008 2007 Mortgage debt bearing interest at rates ranging from 5.14% to 11% (weighted average rate of 6.37% as at December 31, 2008 and 5.01% as at December 31, 2007), maturing on various dates through 2017 $ 61 $ 68 Borrowings (US$166.8 million and C$1.1 million) bearing interest at the floating rate of one-month LIBOR plus 0.898% and at the floating rate of one-month CDOR plus 0.949%, maturing in January 2009 204 — desjardins group Borrowings (US$37.2 million and C$0.1 million) bearing interest at the floating rate of one-month LIBOR plus 0.888% and at the floating rate of one-month CDOR plus 0.9384%, maturing in January 2009 46 — Obligation under a capital lease, bearing interest at a rate of 4.31%, maturing in May 2010 26 — Other borrowings 1 1

$ 338 $ 69

The annual principal repayments on borrowings for the next five years are as follows: $265 million in 2009, $15 million in 2010 and $3 million in 2011, 2012 and 2013.

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note 13 OTHER LIABILITIES 2008 2007 Cooperative shares and preferred shares $ 32 $ 37 Deferred net gains realized on disposal of investments 46 51 Future income tax liabilities (Note 21) 273 56 Accrued benefit liability(Note 23) 691 703 Accounts payable 1,916 2,216 Amounts payable to clients, brokers and financial institutions 898 1,116 Other 2,263 639

$ 6,119 $ 4,818

note 14 SUBORDINATED DEBENTURES

Debentures are bonds subordinated in right of payment to claims of consent and approval of the various regulatory authorities. Debentures depositors and certain other creditors, and are included in regulatory capital. are recognized at amortized cost on the Combined Balance Sheets. Redemption and cancellation of subordinated debentures are subject to the

2008 2007 Debenture, par value of ¤76 million, redeemed in 2008. $ — $ 110 Senior Series C bonds (par value of $300 million), maturing in June 2017, bearing interest at an annual rate of 6.322% for the first ten years, and for the following five years, at an annual rate equal to the 90-day bankers’ acceptance rate plus 1%, redeemable at the option of Desjardins Group 299 299 Senior Series D bonds (par value of $450 million), maturing in March 2014, bearing interest at an annual rate of 3.887% for the first five years, and for the following five years, at an annual rate equal to the (1)

s Combined Finan c ial Statement 90-day bankers’ acceptance rate plus 1%, redeemable at the option of Desjardins Group 449 449

$ 748 $ 858

(1) Desjardins Group will call the Senior Series D bonds on March 17, 2009.

note 15 NON-CONTROLLING INTERESTS Non-controlling interests include:

2008 2007 Participating policies of the life and health insurance subsidiary $ 189 $ 208 Common shares of subsidiaries 62 61 Mutual funds combined in accordance with AcG-15 525 715

$ 776 $ 984

desjardins group Earnings attributable to non-controlling interests are comprised of the following:

2008 2007 2006 Earnings attributable to participating policyholders of the life and health insurance subsidiary $ (6) $ 6 $ 5 Earnings attributable to common shareholders of subsidiaries and holders of capital shares 5 15 13

$ (1) $ 21 $ 18

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note 16 CAPITAL STOCK AUTHORIZED The Act authorizes the issuance of an unlimited number of permanent and surplus shares with a par value of $10 and $1, respectively. These shares do The capital stock is comprised of the following qualifying shares, capital not carry any voting rights and cannot be redeemed except under certain shares, permanent shares and surplus shares. conditions stipulated by the Act. Their rate of interest is determined annually by the general meeting of each caisse. The caisses may issue an unlimited number of qualifying shares with a par value of $5, redeemable at the option of the issuer. Members have only Issued and paid capital stock is as follows: one vote each, no matter how many qualifying shares they own. 2008 2007 A subsidiary of Desjardins Group may issue an unlimited number of capital Qualifying shares $ 38 $ 33 shares. These shares can be issued only to auxiliary members of the subsidiary Capital shares 40 31 and have a par value of $1,000 each. The board of directors has the Permanent shares 828 813 discretionary power to determine the remuneration payable and the terms Surplus shares 49 17 of payment on these shares. These shares may be transferred among the members, upon the board’s authorization, and their repayment, possible only in the event of the subsidiary’s liquidation, insolvency or wind-up, is $ 955 $ 894 subordinated to deposits and other debts. The shares are redeemable, in part or in whole, upon the authorization of the AMF. They are convertible, with the board’s authorization, into shares of other categories issued for this purpose.

note 17 SHARE CAPITAL AUTHORIZED

An unlimited number of Class A preferred shares, offered only to members An unlimited number of Class C preferred shares, non-voting, redeemable of the Fédération des caisses populaires de l’Ontario and the caisses populaires at the option of the issuer, the Fédération des caisses populaires de l’Ontario,

of Ontario, non-voting, redeemable at the option of the issuer at the paid-up at the paid-up amount plus declared and unpaid dividends, non-participating s Combined Finan c ial Statement amount plus declared and unpaid dividends, non-participating and non-cumulative. These shares may be issued in one or more series. and non-cumulative.

An unlimited number of Class B preferred shares, non-voting, redeemable at the option of the issuer, the Fédération des caisses populaires de l’Ontario and the caisses populaires of Ontario, at the paid-up amount plus declared and unpaid dividends, non-participating and non-cumulative. These shares may be issued in one or more series.

Number Number of shares 2008 of shares 2007 Issued and paid Class A preferred shares 378,000 $ 4 619,000 $ 6 Class B preferred shares – Series 2000 50,000 1 50,000 1 Class B preferred shares – Series 2002 338,000 3 325,000 3 Class B preferred shares – Series 2003 647,000 6 650,000 7 Class C preferred shares – Series 1996 2,052,000 21 1,968,000 20 Class C preferred shares – Series 2002 3,205,000 32 3,077,000 30 desjardins group 6,670,000 $ 67 6,689,000 $ 67

Dividends were paid in the form of preferred shares as follows: $1 million 4.00% – Series 2003, i.e. the minimum rate. In case the issuer cannot for Class C – Series 1996 ($1 million in 2007) and $1 million for Class C – pay the dividend in full, a partial dividend may be declared. The dividend Series 2002 ($1 million in 2007). In addition, in 2008, 241,000 Class A may be declared every time the issuer’s surplus earnings allow it and when shares were redeemed for a consideration of $2 million. all regulatory requirements in terms of funding and cash have been met. The issuer may redeem, upon the holder’s request and the board of directors’ SPECIFIC CHARACTERISTICS OF CLASSES B AND C approval, up to a maximum of 10% of the issued and outstanding shares PREFERRED SHARES ISSUED AND PAID of the prior year. These shares have been redeemable at the option of the issuer since September 30, 2005 for Series 2000; since July 1, 2007 Class B preferred shares – Series 2000, 2002 and 2003 for Series 2002; and since March 1, 2008 for Series 2003. Redemption of shares can be made only if the issuer does not or will not violate The dividend rate will be equal to the higher of the average interest rate Section 84 of the Credit Union and Caisses Populaires Act of Ontario (1994), for the year on non-redeemable term deposits of five years plus 0.50% regarding capital adequacy. or 6.00% – Series 2000, 1.00% or 5.25% – Series 2002 and 1.00% or

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note 17 SHARE CAPITAL (continued) Class C preferred shares – Series 1996 and 2002 requirements in terms of funding and cash have been met. The issuer may redeem, upon the holder’s request and the board of directors’ approval, up The dividend rate will be equal to the higher of the following rates: to a maximum of 10% of the issued and outstanding shares of the prior the average interest rate for the year on non-redeemable term deposits year. These shares have been redeemable since May 1, 2003 for Series 2000 of five years plus 0.50% or 5.75% – Series 1996, and 5.25% – Series 2002, and since May 1, 2008 for Series 2002. Redemption of shares can be made i.e. the minimum rate. In case the issuer cannot pay the dividend in full, only if the issuer does not or will not violate Section 84 of the Credit Union a partial dividend may be declared. The dividend may be declared every and Caisses Populaires Act of Ontario (1994), regarding capital adequacy. time the issuer’s surplus earnings allow it and when all regulatory

note 18 ACCUMULATED OTHER COMPREHENSIVE INCOME The following table presents the main components of accumulated other comprehensive income (net of income taxes).

2008 2007 Unrealized gains (losses) on available-for-sale securities $ (87) $ 39 Gains on derivative financial instruments designated as cash flow hedges 770 11 Net unrealized exchange gain on the translation of the financial statements of self-sustaining foreign operations 2 —

Accumulated other comprehensive income $ 685 $ 50

note 19 RESERVES Reserves included in equity are comprised of the following elements: The general reserve of $7,634 million ($6,992 million in 2007) is essentially s Combined Finan c ial Statement comprised of amounts appropriated by the caisses, the FCDQ, Fonds de The stabilization reserve of $278 million ($275 million in 2007) is comprised sécurité Desjardins and Caisse centrale Desjardins. It is also comprised of of amounts appropriated by the caisses and the FCDQ from their annual a portion of the components’ surplus earnings since their inception. This surplus earnings. Amounts appropriated to the stabilization reserve are reserve can only be used to eliminate a deficit and cannot be divided essentially used for the payment of interest on permanent shares when amongst members nor used to pay a member dividend. the surplus earnings of a caisse are not sufficient.

The reserve for future member dividends of $350 million ($209 million in 2007) is comprised of amounts appropriated by the caisses from their annual surplus earnings. This reserve allows them to manage over time the impact of changes in annual surplus earnings on the payment of member dividends.

note 20 FINANCIAL INSTRUMENTS HELD FOR TRADING The following table provides information on financial instruments held for trading. desjardins group Financial instruments required to be classified as held for trading 2008 2007 Income Net interest income $ 45 $ 52 Trading income (loss) (901) 64

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Financial instruments designated as held for trading under the fair hedge funds that are managed using a sustained investment strategy value option aimed at taking advantage of short-term market volatility; (iii) securities backing actuarial liabilities in life and health insurance for life insurance Financial instruments designated as held for trading under the fair value and other contracts, as well as provisions for general insurance claims option are composed of: (i) certain investments in derivative instruments for which the option is used to significantly reduce a recording disparity not designated in hedging relationships, thereby significantly reducing that would otherwise occur, because assets or liabilities would be accounting disparities; (ii) securities whose underlying security is composed of recorded differently.

2008 2007 Income Net interest income $ 18 $ 11 Trading income (loss) (92) 198

note 21 INCOME TAXES ON SURPLUS EARNINGS Income taxes on surplus earnings are accounted for using the tax liability apply when the assets are realized and the liabilities are settled. A valuation method. Under this method, the income tax expense on surplus earnings allowance is created, if necessary, to reduce the value of future income tax comprises current and future income taxes. Future income taxes reflect assets to the estimated amount that is more likely than not to be realized. the expected future tax effects of temporary differences between the value Future income tax assets and liabilities are presented under “Other assets of assets and liabilities for accounting and tax purposes. Future income – Other“ and “Other liabilities – Other“. tax assets or liabilities are measured based on the tax rates expected to

Income taxes on surplus earnings, presented in the Combined Financial Statements, are as follows:

2008 2007 2006 Combined Statements of Income Income taxes on surplus earnings $ 109 $ 358 $ 398 Tax recovery on provision for member dividends (62) (174) (148) s Combined Finan c ial Statement Total income tax expense after member dividends 47 184 250

Combined Statements of Changes in Equity Impact of the adoption of new accounting standards — 14 — Other comprehensive income 210 (22) — Tax recovery following payment of remuneration on permanent shares (10) (10) (7)

$ 247 $ 166 $ 243

The income tax expense for the year is comprised of the following:

2008 2007 2006 Current income taxes $ 312 $ 236 $ 268 Future income taxes (65) (70) (25)

$ 247 $ 166 $ 243

desjardins group Income taxes on surplus earnings after member dividends presented in the Combined Statements of Income differs from the income tax expense calculated using the Canadian statutory rate for the following reasons:

2008 2007 2006 Income taxes at the statutory rate $ (8) $ 279 $ 294 Eligible small business deduction (38) (29) (49) Non-taxable investment income and other items (22) (80) (36) Valuation allowance 17 7 — Difference between statutory rates and future rates 70 (7) — Non-deductible expenses and other 28 14 41

$ 47 $ 184 $ 250

36099_p115a172_ENG.indd 149 12/03/09 11:04:22 150 Notes to the Combined Financial Statements

note 21 INCOME TAXES ON SURPLUS EARNINGS (continued) Temporary differences and carryforwards giving rise to future income tax assets and liabilities are detailed as follows:

2008 2007 Future income tax assets Buildings and equipment $ 35 $ 33 Actuarial and related liabilities 543 553 Allowance for credit losses 154 144 Accrued benefit liability 194 202 Tax losses(1) 220 87 Securities and other financial instruments — 22 Valuation allowance (23) (7)

$ 1,123 $ 1,034

Future income tax liabilities Securities and other financial instruments (609) (497) Accrued benefit asset (3) — Interests in a limited partnership (9) (10) Other (104) (194)

$ (725) $ (701)

Net future income tax assets $ 398 $ 333

Future income tax assets 671 389 Future income tax liabilities (273) (56)

$ 398 $ 333 s Combined Finan c ial Statement

(1) As at December 31, 2008, certain components of Desjardins Group had accumulated non-capital losses amounting to $815 million ($275 million in 2007). These losses can be used to reduce the taxable income of these components in future years and expire at the latest in 2028.

note 22 PROVISION FOR MEMBER DIVIDENDS Desjardins Group recorded a provision for dividends to caisse members for takes into consideration a new program under which members are able an amount of $215 million ($592 million in 2007 and $483 million in 2006) to elect to receive their dividends, at a higher amount, in the form of shares. before recovery of related taxes. In 2008, the process for determining the The difference between the amounts of member dividends actually paid, provision for member dividends was reviewed further to changes made in cash or in shares, following the general meetings held by the caisses, to the standard on distribution of caisse surplus earnings and the standard and the amount of the provision, is charged to combined income during on future member dividends. Management estimated the amount of the the current year. The allocation basis of member dividends depends on provision using scenarios and assumptions that take information obtained the interest recorded on loans and deposits, the average Desjardins Funds from a number of caisses into account. In 2007 and 2006, the provision for outstanding in which the member has invested through the caisse, and annual member dividends was determined according to the surplus earnings the various service charges collected from the member depending on distribution plan for each caisse for the year, and which each caisse board the services used. The caisses can pay out member dividends when of directors intends to recommend for approval at the general meeting of the legal and regulatory requirements have been met. desjardins group their caisse. The surplus earnings distribution plan sets out several parameters, notably the amount of the member dividend payment, which, since 2006,

note 23 EMPLOYEE FUTURE BENEFIT PLANS Main plans the projected benefit method prorated on services and Management’s best estimate assumptions concerning the expected return of plan investments, Desjardins Group offers its employees defined benefit statutory pension salary increases and the retirement ages of employees. plans as well as supplemental plans, which provide pension benefits in excess of statutory limits. Benefits are calculated on the basis of the number Calculation of the expected return on plan assets is based on a market- of years of membership in the plans and take into consideration the average related value of the pension fund assets. The method used to calculate best five years of salary of the employee. Since the terms of the plans are the market-related value for all the asset categories consists of amortizing such that future changes in salary levels will have an impact on the amount the difference between the long-term return objective of the plans’ investment of future benefits, the cost of the benefits is actuarially determined using policies and the return on pension fund assets over a five-year period.

36099_p115a172_ENG.indd 150 12/03/09 11:04:23 Notes to the Combined Financial Statements 151

Defined benefit costs primarily correspond to the aggregate of: (a) current amortized over the average remaining service period of the employees. service cost, computed using an actuarial method; (b) interest cost on The cumulative excess of pension fund contributions over the amounts accrued benefit obligation; (c) actual return on plan assets; (d) actuarial recorded as defined benefit costs is reported under “Other assets – Other“. gains and losses; (e) plan amendments; (f) curtailment and settlement If such amount is negative, it is accounted for under “Other liabilities – Other“. gains; and (g) adjustments to recognize the long-term nature of employee future benefit costs. Actuarial gains (losses) result from the difference Desjardins Group also offers life, medical and dental insurance coverage between the long-term actual return on plan assets and the expected to retiring employees and their dependents through a defined benefit plan. return, the changes made to the actuarial assumptions used to determine The retiree assumes a portion of the total premium based on years of service. the accrued benefit obligation and the experience gains or losses on this The cost of these benefits is accrued over the service life of employees obligation. The excess of any net actuarial gains or any net actuarial losses according to accounting policies similar to those used for pension plans, over 10% of the greater of the accrued benefit obligation balance and and the increase in costs will have an impact on future benefits. The accrued the market-related value of plan assets at the beginning of the year is cost of post-retirement benefits is reported in “Other liabilities – Other“.

The following table contains information on these plans:

2008 2007 Pension Other Pension Other As at December 31 plans plans(1) plans plans(1)

Change in accrued benefit obligation Accrued benefit obligation at beginning of year $ 5,600 $ 536 $ 5,709 $ 548 Current service cost 274 19 319 20 Interest cost 333 32 312 30 Benefits paid (191) (15) (172) (14) Transfers from other plans 5 — 1 — Transfers to other plans (2) — (2) — Actuarial gains (701) (75) (566) (48) Plan amendments — (46) — —

Accrued benefit obligation at measurement date $ 5,318 $ 451 $ 5,601 $ 536

Change in fair value of plan assets Fair value of plan assets at beginning of year $ 5,652 $ — $ 4,926 $ — Actual return on plan assets (793) — 636 — s Combined Finan c ial Statement Employers’ contributions 177 — 170 — Participants’ contributions 95 — 97 — Benefits paid (191) — (172) — Transfers from other plans 5 — 1 — Transfers to other plans (2) — (1) — Other changes (6) — (5) —

Fair value of plan assets at measurement date $ 4,937 $ — $ 5,652 $ —

Funding status Funding at end of year $ (381) $ (451) $ 51 $ (536) Unamortized net losses (gains) 347 (240) (132) (126) Employers’ contributions after measurement date 43 — 40 —

Accrued benefit asset (liability) at end of year $ 9 $ (691) $ (41) $ (662)

Weighted average assumptions Discount rate for the obligation 6.50 % 6.50 % 5.75 % 5.75 % Discount rate for the expense 5.75 5.75 5.25 5.25 desjardins group Expected rate of return on plan assets 7.25 — 7.25 — Rate of increase in future compensation 3.50 3.50 3.50 3.50

(1) Medical, dental and life insurance plans.

36099_p115a172_ENG.indd 151 12/03/09 11:04:23 152 Notes to the Combined Financial Statements

note 23 EMPLOYEE FUTURE BENEFIT PLANS (continued) For measurement purposes, the assumed average annual rate of increase The fair value of plan assets is detailed as follows as at December 31: in health care cost per participant was set at 9.1% for 2009. According to the assumption used, this rate should gradually decline to 4.8% in 2013 2008 2007 and remain approximately at this level thereafter. Main asset categories Shares 44.0 % 51.3 % As at December 31, 2008, the plans held investments totalling $59 million Bonds 24.8 21.6 ($160 million in 2007) in Desjardins Group’s entities. Real estate 15.4 12.1 Other 15.8 15.0 With respect to Desjardins Group’s main Pension Plan, the assets and accrued benefit obligation were measured as at September 30, 2008. The most recent actuarial valuation for funding purposes was carried out on December 31, 2006. The next actuarial valuation for funding purposes will be required no later than December 31, 2009.

Defined benefit costs recognized in the year

As at December 31

2008 2007 2006 Pension Other Pension Other Pension Other plans plans(1) plans plans(1) plans plans(1) Current service cost, net of participants’ contributions $ 179 $ 14 $ 222 $ 14 $ 197 $ 18 Interest cost 333 31 312 30 291 31 Actual return on assets 793 — (636) — (396) — Actuarial gains (696) (75) (566) (48) (35) (72) Plan amendments — (46) — — — —

Elements of employee future benefit costs before

s Combined Finan c ial Statement adjustments to recognize the long term nature of these costs 609 (76) (668) (4) 57 (23) Adjustments to recognize the long term nature of employee future benefit costs: Difference between expected return and actual return on plan assets (1,182) — 292 — 94 — Difference between actuarial loss (gain) recognized for the year and the actual actuarial loss (gain) on accrued benefit obligation for the year 695 72 598 48 96 73 Difference between amortization of past service costs for the year and actual plan amendments for the year 1 43 4 (3) 3 (4)

Defined benefit costs recognized $ 123 $ 39 $ 226 $ 41 $ 250 $ 46

(1) Medical, dental and life insurance plans.

desjardi n s group Total cash payments

Total cash payments on future employee benefits for 2008, which comprise contributions from Desjardins Group to funded pension plans and amounts paid directly to employees, to their beneficiaries or their estate with respect to other non-funded plans totalled $188 million ($179 million in 2006).

36099_p115a172_ENG.indd 152 16/03/09 20:21:26 Notes to the Combined Financial Statements 153

There are significant uncertainties surrounding the assumptions used, because like employee future benefits, they are long-term. The following table shows the impact of a one percentage point change in key assumptions:

SENSITIVITY OF KEY ASSUMPTIONS IN 2008

Change in defined Change in benefit obligation costs Pension plans Discount rate 1% increase $ (778) $ (74) 1% decrease 1,018 89 Rate of increase in future compensation 1% increase 260 40 1% decrease (221) (34) Long-term rate of return on plan assets 1% increase — (54) 1% decrease — 54 Other plans Discount rate 1% increase (59) (8) 1% decrease 75 10 Rate of increase in future compensation 1% increase 5 1 1% decrease (4) (1)

The effect of a one percentage point increase or decrease in the assumed For active executive employees, gains and losses on the obligation are health care cost trend rates would have been an increase in defined benefit amortized over the remaining service life of the participant. For retired costs for the year of $9 million or a decrease in them of $6 million and executives, they are entirely recognized in the year after measurement. an increase in the benefit obligation or $45 million or a decrease in it of $37 million, respectively.

Disbursements related to the supplemental pension plan are equal to s Combined Finan c ial Statement the benefits paid. Other pension plans The costs for the year recognized for defined benefits were $5 million Desjardins Group offers to certain active and retired executive employees in 2008 ($11 million in 2007). a defined benefit supplemental pension plan. The supplemental pension plan for members of Management provides pension benefits in excess The accrued benefit liability of the supplemental plan is recorded under of statutory limits and is not funded. Benefits are calculated on the basis “Other liabilities – Accounts payable“. of the number of years of membership in the plan and take into consideration the average best five years of salary of the employee. Since the terms of The main actuarial assumptions used by Desjardins Group are: the plan are such that future changes in salary levels will have an impact on the amount of future benefits, the cost of the benefits is actuarially 2008 2007 determined using the projected benefit method prorated on services and Management’s best estimate assumptions concerning salary increases Discount rate for the obligation 6.50 % 5.75 % and the retirement ages of employees. Discount rate for the expense 5.75 5.25 The following table presents the obligations and costs related to the Rate of increase in future compensation 3.50 3.50 supplemental plan. The date of the actuarial valuation is December 31, 2008.

2008 2007 In addition, the employees of certain components are offered two defined

benefit pension plans. To estimate the cost of obligations of these plans, desjardi n s group Accrued benefit obligation these components use the projected benefit method prorated on services Balance at beginning of year $ 79 $ 80 based on Management’s best estimate assumptions concerning the expected Current service cost 1 2 return on plan investments, salary increases, retirement age, expected Interest cost 4 4 health care costs and an interest rate established based on market rates. Actuarial gains(1) (4) (3) Pension fund assets are measured at market value. Benefits paid (4) (4) Based on the most recent valuations: Balance at end of year $ 76 $ 79 2008 2007 Unamortized net gains (1) (6) Accrued benefit obligation $ 32 $ 34 Accrued benefit liability $ 75 $ 73 Plan assets at fair value 23 26 Costs for the year 4 4 (1) The gains on the obligation stem from the addition of experience gains and losses realized during the year and gains and losses on changes in assumptions since the last measurement.

36099_p115a172_ENG.indd 153 15/03/09 14:31:17 154 Notes to the Combined Financial Statements

note 24 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES Derivative financial instruments are financial contracts whose value depends the purchaser in exchange for this right. Desjardins Group enters into on assets, interest rates, foreign exchange rates, and other financial indices. these contracts primarily to meet its clients’ needs and to manage its The vast majority of derivative financial instruments are negotiated by mutual own asset-liability exposures. agreement between Desjardins Group and the counterparty and include forward exchange contracts, interest rate and currency swaps, total return Credit default swaps are transactions in which one of the parties agrees swaps, forward rate agreements, and interest rate and stock index options. to pay interest to the other party who, in turn, undertakes to make a The other transactions are performed as part of regulated trades and payment should a predetermined credit incident occur. mainly consist of futures. The other derivative instruments used are related to financial index The fair value of all derivative financial instruments is determined using transactions and include mainly total return swaps. Total return swaps pricing models that incorporate the current market prices and the contractual are transactions in which one party agrees to pay to or to receive from prices of the underlying instruments, the time value of money, yield curves, the other party the rate of return on an underlying asset or index. and volatility factors. On the Combined Balance Sheets, derivative financial instruments that have a positive fair value appear as assets, and those with The derivative financial instruments are used for trading purposes or for a negative fair value appear as liabilities, respectively, under “Other assets asset-liability management purposes. They are used to transfer, modify – Derivative financial instruments“ and “Other liabilities – Derivative or reduce actual or expected risks related to market risk. The derivative financial instruments“. financial instruments for trading purposes are used to meet the needs of members and clients and to allow Desjardins Group to generate income Interest rate derivatives include swaps, forward rate agreements, futures on its own trading activities. These derivative financial instruments are and options. Interest rate swaps are transactions in which two parties recognized at fair value on the Combined Balance Sheets, and realized exchange interest flows on a specified notional amount for a predetermined and unrealized gains and losses are recorded under “Other income – period based on agreed-upon fixed and floating rates. Principal amounts Trading income“. are not exchanged. Forward rate agreements are forward transactions on interest rates, based on a notional amount, which call for cash settlement Derivative financial instruments held for asset-liability management purposes at a future date for the difference between the contractual interest rate are used to manage the risks related to interest rates and the foreign and the market rate. Futures represent a future commitment to purchase currency exposure of assets and liabilities recorded on the Combined or deliver financial instruments on a future specified date at a specified Balance Sheets, firm commitments and forecasted transactions. price. Futures are traded in predetermined amounts on organized exchanges and are subject to daily cash margining. Hedging activities s Combined Finan c ial Statement Foreign exchange contracts include forward contracts, spot transactions When derivative financial instruments are used to manage assets and and currency swaps. Forward exchange contracts are commitments to liabilities, Desjardins Group must determine, for each derivative, whether exchange, at a future date, two currencies based on a rate agreed upon or not hedge accounting is appropriate. To qualify for hedge accounting, by both parties at the inception of the contract. Spot transactions are the hedge relationship must be designated and documented at its inception. similar to forward exchange contracts except that delivery must be made Such documentation must address the specific strategy for managing risk, within two business days following the contract date. Currency swaps the asset, liability or cash flows that are being hedged as well as the measure are transactions in which two parties exchange fixed interest payments of effectiveness of this hedge. The derivative financial instrument must on notional amounts in different currencies. In a cross-currency interest prove highly effective to offset changes in the fair value or the cash flows rate swap, the parties exchange fixed and floating interest payments on attributable to the risk being hedged. notional amounts in different currencies. Desjardins Group uses currency swaps and cross-currency interest rate swaps to manage its foreign- Desjardins Group may also use derivative financial instruments as an currency denominated asset and liability exposures. economic hedge for certain transactions in situations where the hedging relationship is not eligible for hedge accounting or where it elects not Options are contractual agreements under which the seller grants the to apply hedge accounting. In such circumstances, the derivative financial purchaser the right but not the obligation to buy (call option) or sell instruments are classified as held for trading, and realized or unrealized (put option) a specified amount of a financial instrument at a predetermined gains and losses are recorded under “Other income – Trading income“. price, on or before a specified date. The seller receives a premium from desjardins group

36099_p115a172_ENG.indd 154 12/03/09 11:04:24 Notes to the Combined Financial Statements 155

Fair value hedges In a cash flow hedging transaction, the gains and losses arising from changes in the fair value of the effective portion of the derivative financial instrument Fair value hedge transactions involve mostly the use of interest rate swaps are recognized in other comprehensive income until the hedged item is to hedge the changes in fair value of a fixed-rate financial instrument caused recognized in combined income, at which time such change is recorded by a change in interest rates on the market. The change in fair value of under interest income. The ineffective portion of hedging activities is hedging derivative financial instruments offsets the change in fair value recognized immediately in combined income under “Other income – of hedged items attributable to the hedged risk. Desjardins Group uses fair Trading income“. For the year ended December 31, 2008, a loss of value hedge strategies for its securities, loan and deposit portfolios. $2 million ($7 million in 2007) related to the ineffectiveness of cash flow hedging activities was recorded under “Other income – Trading income“ In a fair value hedging transaction, the hedging derivative is recognized at in the Combined Statement of Income. In the next twelve months, a net fair value, and the carrying value of the hedged item is adjusted by the gain income of $20 million from the Combined Statement of Comprehensive or the loss attributable to the hedged risk. When these changes in fair Income as at December 31, 2008 should be reclassified to the Combined value do not completely offset each other, the resulting amount is recorded Statement of Income. The remaining balance of accumulated other under “Other income – Trading income“. For the year ended December 31, comprehensive income related to cash flow hedges will be reclassified 2008, a loss of $1 million ($1 million in 2007) related to the ineffectiveness to the Combined Statements of Income over the next eight years. of fair value hedging activities was recorded under “Other income – Trading income“ in the Combined Statement of Income. When a cash flow hedging relationship no longer qualifies for hedge accounting, Desjardins Group discontinues hedge accounting prospectively. The designation of a derivative financial instrument as a hedge is discontinued Amounts recorded in accumulated other comprehensive income are in the following cases: the hedged item or the hedging item is sold or matures, reclassified to combined income in the year when the underlying hedged the hedge is no longer effective, or Desjardins Group terminates the transaction affects net surplus earnings. designation of the hedge. When the hedging relationship is discontinued, hedge accounting is discontinued prospectively. The hedged item is no When it is probable that a hedged anticipated transaction will not occur, longer adjusted to reflect the fair value impact of the designated risk. the gains or losses on the hedging item previously recorded in accumulated Adjustments previously recorded in the hedged item are amortized to other comprehensive income are immediately recognized in combined income. combined income using the effective interest method over the remaining life of the hedged item, unless the hedged item ceased to exist, in which The table “Derivative Financial Instruments – Credit Risk“ gives an overview case the adjustments for the impact of the designated risk are immediately of the derivative financial instruments portfolio of Desjardins Group and recognized in combined income. the related credit risk: Cash flow hedges Cash flow hedge transactions involve mostly the use of interest rate swaps to hedge the changes in future cash flows from a floating-rate financial

instrument. The hedging derivative financial instruments reduce the variability s Combined Finan c ial Statement of the future cash flows from the hedged item. Desjardins Group uses cash flow hedge strategies for its loan, deposit and securities portfolios.

Notional amount Amount to which a rate or price is applied in order to calculate the exchange of cash flows.

Replacement cost The cost of replacing, at current market rates, all contracts having a positive market value, without taking into consideration the impact of netting agreements or any collateral which may be obtained.

Future credit exposure The potential for future changes in replacement cost over the remaining life of the contracts based on a formula prescribed by the Bank for International Settlements (BIS).

Credit risk equivalent The total of the replacement cost and future credit exposure, excluding items prescribed by the BIS, namely the replacement cost of forward exchange contracts with an original maturity of less than 14 days and exchange- traded derivatives subject to daily cash margining.

Risk-weighted balance The risk related to the creditworthiness of the counterparty calculated at the rates prescribed by the BIS. desjardi n s group

36099_p115a172_ENG.indd 155 16/03/09 20:22:14 156 Notes to the Combined Financial Statements

note 24 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (continued) DERIVATIVE FINANCIAL INSTRUMENTS – Credit risk

2008 2007 Future Credit Risk- Credit Risk- Notional Replacement credit risk weighted Replacement risk weighted amount cost exposure equivalent balance cost equivalent balance Interest rate contracts Swaps $ 77,187 $ 2,990 $ 327 $ 3,317 $ 673 $ 241 $ 501 $ 90 Forward rate agreements 10,849 11 12 23 5 1 5 1 Futures 5,924 2 — — — 2 — — Options purchased 312 3 1 4 1 1 2 — Options written 312 — — — — — — —

94,584 3,006 340 3,344 679 245 508 91

Foreign exchange contracts Forward contracts 10,037 355 114 467 107 191 489 133 Swaps 7,405 958 307 1,266 273 240 494 104 Options purchased 653 42 12 53 16 4 6 1 Options written 760 — — — — — — —

18,855 1,355 433 1,786 396 435 989 238

Other contracts Swaps 9,715 59 935 994 126 41 871 179 Futures — — — — — — — — s Combined Finan c ial Statement Options purchased 3,472 168 283 451 100 474 672 173 Options written 3,476 — — — — — — —

16,663 227 1,218 1,445 226 515 1,543 352

Total derivative financial instruments $ 130,102 4,588 $ 1,991 $ 6,575 1,301 1,195 $ 3,040 681

Impact of master netting agreements(1) 3,813 766 1,073 389

Total derivative financial instruments after master netting agreements $ 775 $ 535 $ 122 $ 292

(1) Impact of offsetting credit exposure when Desjardins Group holds master netting agreements without the intent of settling on a net basis or simultaneously. desjardi n s group

36099_p115a172_ENG.indd 156 14/03/09 19:36:53 Notes to the Combined Financial Statements 157

The following table presents the term to maturity of the notional amounts of derivative financial instruments.

Maturity 2008 2007 Classified Designated Under 1 to Over Over Total as held for as hedging 1 year 3 years 3 to 5 years 5 years contracts trading items Total Interest rate contracts Swaps $ 15,859 $ 31,850 $ 25,444 $ 4,034 $ 77,187 $ 52,360 $ 24,827 $ 56,518 Forward rate agreements 8,479 2,370 — — 10,849 10,849 — 5,526 Futures 5,302 591 31 — 5,924 5,924 — 2,702 Options purchased 106 156 50 — 312 312 — 331 Options written 106 156 50 — 312 312 — 356

29,852 35,123 25,575 4,034 94,584 69,757 24,827 65,433

Foreign exchange contracts Forward contracts 9,642 395 — — 10,037 9,916 121 10,467 Swaps 1,615 4,776 942 72 7,405 1,180 6,225 5,986 Options purchased 553 100 — — 653 653 — 141 Options written 631 129 — — 760 760 — 190

12,441 5,400 942 72 18,855 12,509 6,346 16,784

Other contracts(1) Swaps 785 2,829 3,707 2,394 9,715 9,715 — 7,914 Futures — — — — — — — 46 Options purchased 496 1,393 1,475 108 3,472 3,472 — 2,421 Options written 496 1,420 1,452 108 3,476 3,476 — 2,420

1,777 5,642 6,634 2,610 16,663 16,663 — 12,801

Total derivative s Combined Finan c ial Statement financial instruments $ 44,070 $ 46,165 $ 33,151 $ 6,716 $ 130,102 $ 98,929 $ 31,173 $ 95,018

(1) Includes contracts related to indexed term savings products.

The following table presents derivative financial instruments by credit risk rating and type of counterparty.

As at December 31

2008 2007 Risk- Risk- Replacement weighted Replacement weighted cost balance cost balance Credit risk rating(1) AAA, AA+, AA, AA- $ 2,288 $ 638 $ 793 $ 443 A+, A, A- 1,707 487 258 96 BBB, B, BB-, BBB- 9 7 — — Not rated 584 169 144 142 desjardins group Total 4,588 1,301 1,195 681 Impact of master netting agreements(2) 3,813 766 1,073 389

Total after master netting agreements $ 775 $ 535 $ 122 $ 292

Type of counterparty Financial institutions $ 4,331 $ 1,233 $ 1,019 $ 539 Other 257 68 176 142

Total 4,588 1,301 1,195 681 Impact of master netting agreements(2) 3,813 766 1,073 389

Total after master netting agreements $ 775 $ 535 $ 122 $ 292

(1) Credit risk ratings are established by recognized credit agencies. Non-rated counterparties are mainly members or clients of Desjardins Group. (2) Impact of offsetting credit exposure when Desjardins Group holds master netting agreements without the intent of settling on a net basis or simultaneously.

36099_p115a172_ENG.indd 157 16/03/09 17:17:11 158 Notes to the Combined Financial Statements

note 24 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (continued) The following table presents the fair value of derivative financial instruments.

2008 2007 Positive Negative Net Positive Negative Net value value amount value value amount Classified as held for trading Interest rate contracts Swaps $ 1,481 $ 1,477 $ 4 $ 144 $ 159 $ (15) Forward rate agreements 11 10 1 1 1 — Futures 2 32 (30) 2 1 1 Options purchased 3 — 3 1 — 1 Options written — 3 (3) — 1 (1) Foreign exchange contracts Forward contracts 353 393 (40) 186 201 (15) Swaps 33 100 (67) 228 336 (108) Options purchased 42 — 42 4 — 4 Options written — 38 (38) — 6 (6) Other contracts Swaps 59 378 (319) 41 70 (29) Futures — — — — — — Options purchased 168 — 168 474 — 474 Options written — 168 (168) — 474 (474)

2,152 2,599 (447) 1,081 1,249 (168)

Designated as hedging items

s Combined Finan c ial Statement Interest rate contracts Swaps 1,509 139 1,370 97 66 31 Foreign exchange contracts Forward contracts 2 — 2 5 — 5 Swaps 925 35 890 12 6 6

2,436 174 2,262 114 72 42

Designated as fair value hedges 1,302 52 1,250 43 25 18 Designated as cash flow hedges 1,134 122 1,012 71 47 24

2,436 174 2,262 114 72 42

Total gross fair values before master netting agreements 4,588 2,773 1,815 1,195 1,321 (126) Impact of master netting agreements(1) 3,813 3,813 — 1,073 1,073 —

Total derivative financial instruments after master

desjardins group netting agreements $ 775 $ (1,040) $ 1,815 $ 122 $ 248 $ (126)

(1) Impact of offsetting credit exposure when Desjardins Group holds master netting agreements without the intent of settling on a net basis or simultaneously.

36099_p115a172_ENG.indd 158 12/03/09 11:04:24 Notes to the Combined Financial Statements 159

note 25 FAIR VALUE OF FINANCIAL INSTRUMENTS FINANCIAL INSTRUMENTS Securities

Although fair value is used to determine the approximate value at which The fair value of securities and the valuation methods used are disclosed the financial instruments could be traded in a current transaction between in Note 4, “Securities“. willing parties, a number of these financial instruments have no trading market. As a result, their fair value is based on estimates using present Loans value and other valuation methods which are strongly influenced by Changes in interest rates and in the creditworthiness of borrowers are the the assumptions used concerning the amount and timing of estimated main causes of changes in the fair value of loans held by Desjardins Group, future cash flows and discount rates, which reflect varying degrees of risk. which result in a favourable or unfavourable difference compared to their Furthermore, the fair values presented do not reflect the value of assets carrying value. The fair value of loans is estimated by discounting expected and liabilities that are not considered financial instruments, such as land, cash flows using market interest rates currently charged for similar new buildings and equipment and intangible assets with indefinite and finite loans as at December 31. For impaired loans, the fair value is assumed to useful lives. Also, the value of other non-financial assets and liabilities be equal to their carrying value in accordance with the valuation techniques has been excluded. Given the role that judgment plays in applying many described in Note 5, “Loans and Allowance for Credit Losses“. of the accepted estimation and valuation techniques for calculating fair value, fair values are not necessarily comparable among financial institutions. Deposits Estimated fair value reflects market conditions on a given date and for this reason cannot be representative of future fair values. They also cannot be The fair value of deposits with no stated maturity is assumed to be equal considered as being realizable in the event of immediate settlement of to their carrying value. The fair value of fixed rate deposits is determined these instruments. by discounting the expected cash flows using market interest rates currently being offered for deposits with relatively the same term. The following methods and assumptions were used to estimate the fair value of the financial instruments: Subordinated debentures and borrowings The fair value of subordinated debentures and borrowings is based on the Financial instruments measured at fair value (excluding derivative market rates for similar issues or borrowings or on the rates currently offered financial instruments) to Desjardins Group for debt securities with the same remaining terms. The fair value of certain financial instruments presented in the “Financial Instruments“ table that are maturing in the short term were assumed to Derivative financial instruments be approximately equal to their carrying value. These financial instruments

The fair value of derivative financial instruments is determined using pricing s Combined Finan c ial Statement include the following items: “Cash and deposits with financial institutions“, models that incorporate the current market prices and the contractual prices “Securities borrowed or purchased under reverse repurchase agreements“, of the underlying instruments, the time value of money and yield curves. “Other financial assets“, “Commitments related to securities lent or sold The fair value of derivative financial instruments is presented without taking under repurchase agreements“, “Commitments related to securities sold into account the impact of legally binding master netting agreements. short“ and “Other financial liabilities“. Note 24, “Derivative Financial Instruments and Hedging Activities“ presents the fair value of derivative financial instruments.

financial instruments (excluding derivative financial instruments) 2008 2007 Favourable Favourable Fair Carrying (unfavourable) Fair Carrying (unfavourable) value value difference value value difference Assets Cash and deposits with financial institutions $ 1,489 $ 1,489 $ — $ 1,499 $ 1,499 $ — Securities 29,105 29,103 2 31,442 31,442 — Securities borrowed or

purchased under reverse desjardins group repurchase agreements 6,130 6,130 — 7,593 7,593 — Loans 105,072 104,462 610 94,093 95,403 (1,310) Other financial assets 3,125 3,147 (22) 3,966 3,966 — Liabilities Deposits 102,723 101,436 (1,287) 97,453 95,766 (1,687) Borrowings 336 338 2 69 69 — Commitments related to securities lent or sold under repurchase agreements 11,905 11,905 — 9,455 9,455 — Commitments related to securities sold short 4,112 4,112 — 6,875 6,875 — Subordinated debentures 759 748 (11) 869 858 (11) Other financial liabilities 6,798 6,798 — 5,811 5,811 —

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note 26 COMMITMENTS, GUARANTEES AND CONTINGENCIES COMMITMENTS Commitments under leases and service contracts The minimum future commitments as at December 31, 2008 under leases Commitments related to financial instruments with contractual for premises and material as well as service contracts are detailed as follows: amounts representing a credit risk The primary purpose of these instruments is to ensure that members and Information clients have funds available when necessary for variable terms to maturity Premises and technology and and under specific conditions. Desjardins Group’s policy with respect to equipment telecommunications collateral for these credit instruments is generally the same as for loans. 2009 $ 101 $ 325 2010 80 317 The total amount of credit instruments does not necessarily represent 2011 71 161 future cash requirements since many of these instruments will expire 2012 65 87 or terminate without being funded. The following table presents the 2013 52 87 contractual amounts. 2014 and thereafter 182 86

2008 2007 $ 551 $ 1,063 Guarantees and standby letters of credit $ 566 $ 435 Securities lending(1) 1,334 1,788 Building lease expenses, net of rental income, included in non-interest Credit commitments expense for the year ended December 31, 2008 were $79 million Original term of one year or less 33,853 29,930 ($75 million in 2007 and $62 million in 2006). Original term of over one year 4,252 7,764 Additional information on commitments is provided under “Asset-backed $ 40,005 $ 39,917 commercial paper“ in Note 4, “Securities“.

(1) Secured by marketable securities generally issued by the federal or provincial governments, GUARANTEES representing 102% of the contractual amount. A guarantee is a contract or an indemnification agreement that contingently Guarantees and standby letters of credit requires Desjardins Group entities to make payments to the guaranteed party pursuant to i) changes in an interest rate, an exchange rate, a s Combined Finan c ial Statement Guarantees and standby letters of credit represent irrevocable commitments security price or commodity price, a price or rate index or the occurrence by Desjardins Group to make payments in the event that a member or client or non-occurrence of a specified event; ii) the failure by a third party to cannot meet its financial obligations to third parties. They pose the same perform under an obligating agreement; or iii) the failure by a third party credit risks as loans. to repay its debt when it becomes due. Since January 1, 2007, Desjardins Group has recorded a liability with respect to the fair value of the obligation Securities lending resulting from the issuance of the guarantee. No subsequent valuation is In the normal course of operations, Desjardins Group lends its own securities required unless the guarantee meets the definition of a derivative financial or those of members and clients. When lending securities of clients or instrument. In such cases, the guarantee must be remeasured at fair value members, Desjardins Group acts as an agent for the owner of a security at each Combined Balance Sheet date and presented under “Other liabilities – who agrees to lend it to a borrower for a fee under the terms of a Derivative financial instruments“. The carrying value of guarantees does pre-arranged contract. not reflect the maximum potential amount of future payments under guarantees. Therefore, Desjardins Group continues to consider these In securities lending transactions, the loans must at all times be secured guarantees as off-balance sheet credit instruments. by the borrower (secured by marketable securities generally issued by the federal and provincial governments). There is a risk of loss if the borrower Maximum potential amount of future payments defaults on its commitments and the value of the collateral is not adequate The guarantees that Desjardins Group granted to third parties and the to cover the amount of the loan. The credit risk related to these transactions maximum potential amount of future payments under these guarantees is considered to be minimal since Desjardins Group deals only with reputable are as follows: stock brokerage firms and financial institutions. Furthermore, the borrower desjardins group pledges securities of a value at least equivalent to the amount of the loan 2008 2007 adjusted on a daily basis. The securities lending transactions for which securities were received as collateral are included in the table above whereas Guarantees and standby the securities lending transactions of $11.9 billion ($9.5 billion in 2007) letters of credit $ 566 $ 435 for which cash was received as collateral are excluded from the table above Derivative financial instruments 752 621 because they are recorded in the Combined Balance Sheets as commitments Guarantee for securities lending related to securities lent or sold under repurchase agreements. with indemnification 2,548 4,131

Credit commitments Credit commitments represent unused portions of authorizations to extend credit in the form of loans, guarantees, or letters of credit.

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Guarantees and standby letters of credit losses. The guarantee for securities lending with indemnification represents the contractual amount of members’ and clients’ securities for which Guarantees and standby letters of credit represent irrevocable commitments Desjardins Group is the custodian. As at December 31, 2008, commitments by Desjardins Group to make payments in the event that a member or client related to securities lent or sold under repurchase agreements of $11.9 billion cannot meet its financial obligations to third parties. Desjardins Group’s ($9.5 billion in 2007) included securities lending with indemnification for policy with respect to collateral received for these instruments is generally which a cash amount of $1.6 billion ($2.6 billion in 2007) was received as the same as for loans. The term of these products does not exceed five years. a guarantee. An additional amount of $0.9 billion ($1.5 billion in 2007) received as securities was included in the “Maximum potential amount The general allowance for credit losses covers all credit risk, including of future payments“ table. guarantees and standby letters of credit. Other indemnification agreements Derivative financial instruments In the normal course of its operations, Desjardins Group enters into Desjardins Group has entered into credit default swaps with bank agreements containing indemnification provisions. The indemnifications counterparties. It has made an irrevocable commitment to the counterparties are normally related to the sale of assets, purchase agreements, service to assume the credit risk for the bonds that constitute the underlying assets agreements, lease agreements, clearing agreements, and transfers of for the swaps. The guarantee given by Desjardins Group is to provide partial assets or shares. Under these agreements, Desjardins Group may be liable or total payment for one security or a group of securities following an for indemnifying a counterparty if certain events occur, such as amendments unfavourable event leading to a payment default. to statutes and regulations (including tax rules) as well as to disclosed financial positions, the existence of undisclosed liabilities, and losses The maximum amount of the guarantee is equal to the notional amount resulting from third-party activities or as a result of third-party litigation. of the swap. The amounts to be disbursed will depend on the nature of The indemnification provisions vary from one contract to the next. In the default and the recovery rates of the securities in collection. several cases, no predetermined amount or limit is stated in the contract, and future events that would trigger a payment would be difficult to The underlying assets for the swaps are corporate bonds or tranches within foresee. Therefore, the maximum amount that Desjardins Group could be high-quality securitization structures. All underlying securities are rated by required to pay counterparties cannot be estimated. Historically, payments rating agencies and their rating was at least A- as at December 31, 2008. made under these agreements have been immaterial. The swaps mature on various dates through June 2014. Financial assets pledged as collateral Guarantee for securities lending with indemnification Financial assets pledged as collateral by Desjardins Group in the normal As part of its custodial activities, Desjardins Group entered into securities course of business are presented in the following table: lending agreements with members and clients under which Desjardins Group obtains guarantees in order to protect itself against any potential s Combined Finan c ial Statement 2008 2007 Financial assets pledged as collateral to the following counterparties: Bank of Canada $ 2,472 $ 125 Clearing systems, payment systems and depositories 228 180 Financial assets pledged as collateral for the following transactions: Transactions on derivative financial instruments 670 1,386 Securities borrowing 167 259 Commitments related to securities lent or sold under repurchase agreements 9,124 6,912

$ 12,661 $ 8,862

Financial assets held as collateral CONTINGENCIES

As at December 31, 2008, the fair value of the financial assets held as Desjardins Group is party to various business litigation matters and lawsuits collateral that Desjardins Group is permitted to sell or repledge in the arising in the course of normal business activities. Many of these lawsuits absence of default totalled $6,478 million ($9,305 million in 2007). are in connection with measures taken by entities to collect impaired loans The fair value of financial assets accepted as collateral which have been and to exercise their rights in respect of assets given as collateral for a loan. sold or repledged amounted to $958 million ($2,953 million in 2007).

In Management’s opinion, the total amount of contingent liability resulting desjardi n s group from these lawsuits would not have a material impact on the financial These financial assets held as collateral were obtained as a result of position of Desjardins Group. transactions involving securities borrowed or purchased under reverse repurchase agreements. Such transactions were carried out under normal conditions for these types of transactions.

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note 27 FINANCIAL INSTRUMENT RISK MANAGEMENT Desjardins Group is exposed to different types of risks in the normal course Credit risk framework of operations, including credit risk, liquidity risk and market risk. Desjardins Desjardins Group has set up a Credit Risk Executive Department, whose Group’s objective in risk management is to optimize the risk-return trade-off, mandate is to develop a Desjardins-wide framework for managing and within set limits, by applying integrated risk management and control monitoring credit risk. The Credit Risk Executive Department is responsible strategies, policies and procedures throughout the organization’s activities. for a single general policy that sets out the main elements of credit risk management at Desjardins Group. Credit risk management units, which Under Desjardins Group’s risk management approach, the organization’s have been set up within the main components, assume specific entities and units are accountable for the combined results and the quality responsibilities related to credit granting, management and providing of risk management practices.The boards of directors of all Desjardins Group a framework for their operations and those of the components for which components also play a pivotal role in monitoring the risks and results of they are responsible. These units establish their own credit risk policies those units and entities. Several committees support the boards of directors in light of their market niches, products and clients, in accordance with and management teams of each component in their efforts to fulfill their Desjardins Group policies. risk management responsibilities. These structures and policies make it possible to define the responsibilities Credit risk of the parties involved, the degree of risk that Desjardins Group is willing to assume, the concentration limits, and risk management and control guidelines. Credit risk is the risk of losses resulting from a borrower’s or a counterparty’s failure to honour its contractual obligations, whether or not these obligations appear on the Combined Balance Sheets. Finally, a steering and information committee, comprised of senior executives from the main components specializing in credit risk, ensures cohesion between the parties involved. Credit risk management

Desjardins Group upholds its goal of effectively serving all its members and Credit granting clients. To this end, it has developed robust distribution channels specialized by product and client. The units and components that make up these channels This responsibility is assumed by the risk management units of the main are considered centres of expertise and are accountable for their performance components where they exist in order to meet the characteristics of each in their respective markets, including credit risk. In this regard, they have product or client. This is done using specialized teams and specific procedures. latitude regarding the framework they use and the approval given and are also equipped with the corresponding management and monitoring tools To assess the risk of credit activities with individuals and smaller businesses, and structures. credit scoring systems based on proven statistics are generally used.

s Combined Finan c ial Statement These systems were developed using a history of borrower behaviour with In addition, Desjardins Group has set up centralized structures and a profile or characteristics similar to those of the applicant to determine procedures to ensure that this risk management framework permits the transaction risk. The performance of these systems is analyzed on effective management that is also sound and prudent. Accordingly, an ongoing basis and adjustments are made regularly with a view to the Risk Management Commission ensures that risk management activities assessing transaction and borrower risks as accurately as possible. are adequately structured and monitored throughout Desjardins Group by, among other things, examining the main credit policies and follow-up The granting of credit to businesses is based on an analysis of the various reports, such as those produced by the independent supervisory units. parameters of each file, where each borrower is assigned a risk rating. The Integrated Risk Management Committee supports the members of These ratings are assigned individually following a detailed examination the Risk Management Commission in carrying out their responsibilities of the financial, market and management characteristics of the business. by analyzing the key elements involved in risk management, as well as main reports on specific situations and portfolio status. desjardi n s group

36099_p115a172_ENG.indd 162 16/03/09 20:24:03 Notes to the Combined Financial Statements 163

For the main commercial portfolios, the scoring system has 19 ratings, The large number of borrowers, for the most part individuals, but also broken down into 12 levels, each representing a default probability level. small and medium-sized businesses from most sectors of the economy, The characteristics of each borrower are analyzed using models based on plays a role in the sound diversification of the financing portfolio. When internal and external historical data taking into account the specific features required, Desjardins Group uses mechanisms to share risk with other of the borrower’s economic sector and the performance of comparable financial institutions. businesses. These analyses are performed using systems that can make quantitative comparisons and are supplemented by the professional In its derivative financial instrument and securities lending transactions, judgment of the personnel involved with the file. Real estate and agricultural Desjardins Group uses various techniques to reduce its counterparty credit risk. portfolio files are analyzed using different scoring methods adapted to their specific characteristics. First, most derivative financial instrument transactions are governed by International Swaps and Derivatives Association (ISDA) master agreements. The depth of the analysis and the approval level required depend on These agreements are legal contracts binding the counterparties and define the product, as well as the complexity and scope of the transaction risk. the terms and conditions for the transactions. In order to reduce its Larger loans are approved by credit committees that include senior executives. counterparty risk, Desjardins Group includes netting agreements in its The Executive Committee or the Board of Directors is involved in the approval ISDA agreements that determine the net amount of exposure in the event of loans that exceed policy-defined limits. of default. In addition, an annex called a CSA (Credit Support Annex) can be added to the master agreement so that Desjardins can request the pledge File monitoring and management of higher risks of financial collateral from its counterparties to secure transaction settlement, if necessary. Portfolios are monitored by the business units using procedures that set out the degree of thoroughness and frequency of review based on the In securities lending transactions, Desjardins Group reduces counterparty quality and extent of the risk related to the commitments. Both portfolios risk through IDA (Investment Dealers Association of Canada) participation and basic data on certain economic sectors under watch are monitored for agreements in order to standardize the documents required in these warning signs. Various reports are distributed to all levels of the organization, transactions and clearly set out each party’s respective rights and obligations. including senior management, the Integrated Risk Management Desjardins Group also uses netting agreements with its counterparties to Committee and the Risk Management Commission. mitigate risk and requires a percentage of collateralization (a pledge) on these transactions equivalent to industry best practices. The management of higher-risk loans involves a follow-up adapted to their particular circumstances and is supported by specialized turnaround teams, Desjardins Group accepts from its counterparties financial collateral that who are available to help manage more difficult files. Other specialized complies with the eligibility criteria set out in its policies. These eligibility teams help settle files for which the chances of improvement are slim in criteria promote a quick realization, if necessary, of collateral in the event order to minimize losses. of default. The types of collateral received by Desjardins Group are mainly cash and government securities. Credit risk mitigation s Combined Finan c ial Statement In its lending operations, Desjardins Group obtains collateral if deemed Finally, as another way to mitigate its risks, Desjardins Group enters into necessary for a member’s or client’s loan facility following an assessment long hedges through credit derivatives. With these instruments (credit of their creditworthiness. Collateral is normally comprised of assets such default swaps and total return swaps), Desjardins Group can transfer as cash, government securities, shares, receivables, inventory or capital credit risk to a counterparty or hedge itself against different types of risks assets. For some portfolios, programs offered by organizations such as (matching risk, margin risk, etc.). the Canada Mortgage and Housing Corporation and La Financière agricole du Québec are used in addition to customary collateral. desjardi n s group

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note 27 FINANCIAL INSTRUMENT RISK MANAGEMENT (continued) MAXIMUM CREDIT RISK EXPOSURE 2008 Maximum exposure Recognized on the Combined Balance Sheet Deposits with financial institutions $ 282 Securities Available-for-sale debt securities 10,782 Debt securities designated as held for trading under the fair value option 7,445 Debt securities held for trading 9,834 Securities borrowed or purchased under reverse repurchase agreements 6,130 Loans Residential mortgages 61,070 Consumer, credit card and other personal loans 18,089 Business and government 25,999 Interest receivable 520 Derivative financial instruments 4,588 Clients’ liability under acceptances 428 Other assets 2,199

Total recognized on the Combined Balance Sheet $ 147,366

Off-balance sheet Guarantees and standby letters of credit 566 Credit commitments(1) 38,105

Total off-balance sheet $ 38,671

(1) Includes the funding facility related to the restructuring plan of the Montréal Accord. Additional information is provided in Note 4, “Securities“. s Combined Finan c ial Statement

Additional information on credit risk is provided in Notes 24, “Derivative The plan makes it possible to quickly and effectively minimize disruptions Financial Instruments and Hedging Activities“, and 26, “Commitments, caused by sudden changes in member and client behaviour and potential Guarantees and Contingencies“. disruptions in markets or economic conditions.

Liquidity risk A specific framework sets out the minimum level of liquid securities that the caisse network, the FCDQ and Caisse centrale Desjardins must maintain. Liquidity risk refers to Desjardins Group’s capacity to raise the necessary This liquidity level is centrally managed by the Desjardins Group Treasury funds (by increasing liabilities or converting assets) to meet a financial and is monitored on a daily basis. Eligible securities must meet high security obligation, whether or not it appears on the Combined Balance Sheets, and negotiability standards. The liquid securities portfolio comprises mostly on the date it is due or otherwise. securities issued by governments, public bodies and private companies with high credit ratings, i.e. AA- or better. Desjardins Group manages liquidity risk in order to ensure that it has access, on a timely basis and in a profitable manner, to the funds needed to meet The Desjardins Group Treasury ensures stable and diversified sources of its financial obligations as they become due in both routine and crisis funding by type, source and maturity. Desjardins Group can also issue situations. Managing this risk involves maintaining a minimum level of securities and borrow on national and international markets to round liquid securities, stable and diversified sources of funding, and an action out and diversify its funding. plan to implement in extraordinary circumstances. Liquidity risk management is a key component in an overall risk management strategy, because it is A securitization program for mortgages insured by the Canada Mortgage desjardins group essential to preserving market and depositor confidence. The components and Housing Corporation (CMHC) is also in place. and Desjardins Group have established policies describing the principles, limits and procedures that apply to liquidity risk management. Desjardins The strategies implemented in recent years to diversify and extend sources Group has also developed a liquidity contingency plan that includes setting of funding have proven to be effective in weathering the current capital up an internal crisis committee vested with special decision-making powers market crisis. Desjardins Group is also eligible for the Bank of Canada’s to deal with crisis situations. This plan also lists the sources of liquidity various intervention programs. available in exceptional situations.

36099_p115a172_ENG.indd 164 12/03/09 11:04:26 Notes to the Combined Financial Statements 165

The following table presents financial liabilities and deposit commitments by remaining contractual maturity. Amounts presented include principal and interest, if any.

2008 Payable Under From Over on demand 1 year 1 to 5 years 5 years Total Deposits $ 32,648 $ 35,788 $ 37,370 $ 1,491 $ 107,297 Borrowings — 270 61 26 357 Interest payable — 8 — — 8 Acceptances — 428 — — 428 Commitments related to securities lent or sold under repurchase agreements 151 11,127 — — 11,278 Commitments related to securities sold short 3,622 495 — — 4,117 Subordinated debentures — 449 — 299 748 Other financial liabilities 1,863 3,889 131 59 5,942 Loan commitments — 33,853 4,193 59 38,105 Derivative financial instruments with gross settlement(1) — 10,792 5,439 72 16,303 Derivative financial instruments with net settlement — 2,267 2,826 72 5,165

(1) Contractual cash outflows for derivative financial instruments with gross settlement are accompanied by related cash inflows that are not included in the above table.

Market risk limits and procedures that apply to interest rate risk management. Simulations are used to measure the impact of different variables on changes in net Market risk refers to the risk of changes in the fair value of financial income and the economic value of equity. Assumptions used in the simulations instruments resulting from fluctuations in the parameters affecting this are based on an analysis of historical data and on the impact of different value; in particular, interest rates, exchange rates, and their volatility. interest rate conditions on changes to the data. These assumptions concern changes in the structure of the Combined Balance Sheets, member behaviour Desjardins Group is exposed to market risk primarily through positions and pricing by Desjardins Group’s asset and liability management committee taken in the course of its traditional financing and savings recruitment (the Asset/Liability Committee), which is responsible for analyzing and activities. It is also exposed to market risk through its trading activities. adopting the global matching strategy while respecting the parameters Desjardins Group and its components have adopted policies that set out defined in interest rate risk management policies. the principles, limits and procedures to use in managing market risk. s Combined Finan c ial Statement The following table presents the potential impact on the non-trading portfolio Interest rate risk management of a sudden and sustained 100- and 200-basis-point increase or decrease in interest rates on the economic value of equity. Amounts presented do Desjardins Group is exposed to interest rate risk, which represents the not include the impact of interest rates of the financial assets of the insurance potential impact of interest rate fluctuations on net interest income and subsidiaries that back the actuarial and related liabilities as the effect of the economic value of equity. changes in interest rates is entirely offset by changes in actuarial and related liabilities. Dynamic and prudent management is applied to achieve the objective of optimizing net interest income while minimizing the negative impact of interest rate movements. The established policies describe the principles,

Interest rate sensitivity (before income taxes) As at December 31, 2008 (in millions of $)

Impact on the economic value of equity of a 100-basis-point increase in interest rates (21) Impact on the economic value of equity of a 100-basis-point decrease in interest rates 23

Impact on the economic value of equity of a 200-basis-point increase in interest rates (42)

Impact on the economic value of equity of a 200-basis-point decrease in interest rates 45 desjardins group

The extent of the interest rate risk depends on the gap between cash flows change depending on member behaviour, the interest rate environment related to assets, liabilities and off-balance sheet financial instruments. and the strategies adopted by the Asset/Liability Committee. The position presented reflects the position as at that date only, and may

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note 27 FINANCIAL INSTRUMENT RISK MANAGEMENT (continued) INTEREST RATE SENSITIVITY AND MATURITY MATCHING TABLE 2008 Non- interest-rate Floating Under From 3 to Over 6 to Over Over sensitive and rate 3 months 6 months 12 months 1 to 5 years 5 years provisions Total Assets Cash and deposits with financial institutions $ — $ — $ — $ — $ — $ — $ 1,489 $ 1,489 Securities 2,121 5,148 710 1,256 10,189 7,749 2,049 29,222 Effective interest rate 2.63 % 2.40 % 2.20 % 3.35 % 4.80 % Securities borrowed or purchased under reverse repurchase agreements — 1,542 — — — — 4,588 6,130 Effective interest rate 1.40 % — — — — Loans 32,122 17,098 7,224 10,270 34,939 3,108 (299) 104,462 Effective interest rate 6.44 % 5.86 % 5.92 % 5.87 % 5.51 % Other assets — — — — — — 10,995 10,995

$ 34,243 $ 23,788 $ 7,934 $ 11,526 $ 45,128 $ 10,857 $ 18,822 $ 152,298

Liabilities and equity Deposits $ 9,049 $ 15,733 $ 5,703 $ 16,525 $ 30,652 $ 1,320 $ 22,454 $ 101,436 Effective interest rate 2.89 % 3.29 % 2.78 % 3.16 % 3.84 % Subordinated debentures and borrowings 250 450 — — 58 328 — 1,086 Effective interest rate 3.89 % — — 6.03 % 6.20 % Commitments related to securities lent

s Combined Finan c ial Statement or sold under repurchase agreements — 5,647 — — — — 6,258 11,905 Effective interest rate 1.79 % — — — — Commitments related to securities sold short 31 500 10 60 2,080 1,407 24 4,112 Effective interest rate 3.49 % 1.06 % 0.87 % 1.59 % 3.48 % Actuarial and related liabilities — — — — — — 12,874 12,874 Other liabilities — — — — — — 11,012 11,012 Equity — — — — — — 9,873 9,873

$ 9,330 $ 22,330 $ 5,713 $ 16,585 $ 32,790 $ 3,055 $ 62,495 $ 152,298

Sensitivity gap – Combined Balance Sheet items 24,913 1,458 2,221 (5,059) 12,338 7,802 (43,673) — Sensitivity gap – Derivative financial instruments, based on notional amounts — (4,429) (513) (4,420) 9,279 83 — —

Total interest rate sensitivity gap $ 24,913 $ (2,971) $ 1,708 $ (9,479) $ 21,617 $ 7,885 $ (43,673) $ — desjardins group

2007 Non- interest-rate Floating Under From 3 to Over 6 to Over Over sensitive and rate 3 months 6 months 12 months 1 to 5 years 5 years provisions Total Total assets $ 18,267 $ 25,769 $ 9,245 $ 13,046 $ 47,936 $ 9,973 $ 19,823 $ 144,059 Total liabilities and equity 9,694 15,989 5,347 17,493 33,635 3,464 58,437 144,059

Sensitivity gap – Combined Balance Sheet items 8,573 9,780 3,898 (4,447) 14,301 6,509 (38,614) — Sensitivity gap – Derivative financial instruments, based on notional amounts — (8,003) (1,491) 623 8,712 159 — —

Total interest rate sensitivity gap $ 8,573 $ 1,777 $ 2,407 $ (3,824) $ 23,013 $ 6,668 $ (38,614) $ —

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Market risk (continued) Foreign exchange risk management

The determination of the interest rate sensitivity gap, which is based on Foreign exchange risk arises when the actual or expected value of assets the earlier of the repricing or maturity date of assets, liabilities and derivative denominated in a foreign currency is higher or lower than that of liabilities financial instruments used to manage interest rate risk, relies on various denominated in the same currency. Certain components have adopted assumptions. The gap may change significantly in subsequent years based specific policies to manage foreign exchange risk. However, Desjardins on the preferences of members and clients and the application of the Group’s exposure to this risk is limited because the majority of its transactions Desjardins Group policy on asset and liability management. are conducted in Canadian dollars.

The main assumptions used are the following: Management of market risk related to trading activities – Value-at-Risk Non rate-sensitive instruments For purposes of market risk management, the definition of trading portfolio meets the various criteria set out in the Basel Accord. Within Desjardins Some Combined Balance Sheet items, such as equity investments, Group, management of this risk is performed daily and is governed by a non-performing loans, non-interest-bearing deposits, non-maturity deposits specific policy. with an interest rate not referenced to a specific rate, such as the prime rate, and equity are not sources of interest rate risk. These items, as well as ABCP holdings, are presented in the non interest-rate-sensitive column in The main tool used to measure the market risk of trading portfolios is the table. “Value-at-Risk“ (VaR), which represents an estimate of the potential loss for a certain period of time at a given confidence level. In addition, actuarial and related liabilities are presented in this column. In the normal course of operations, the life and health insurance subsidiary A Monte Carlo VaR is calculated daily, using a 99% confidence level, has developed a policy of matching assets and liabilities that clearly defines on the trading portfolios for a holding horizon of one day. It is therefore acceptable gaps in order to prevent mismatched cash flows. One of the reasonable to expect a loss exceeding the VaR figure once every 100 days. tests addresses the difference between the duration of liabilities and the The calculation of VaR is based on historical data for a one-year interval. duration of the related assets. Comparing durations makes it possible to measure the sensitivity of the market value of assets and liabilities The following table presents the aggregate VaR of the trading activities to changes in interest rates. The life and health insurance subsidiary of Desjardins Group by risk category as well as the diversification effect, takes care of monitoring the matching situation for all business segments, which represents the difference between aggregate VaR and the sum because the matching policies stipulate the targets in this respect. As at of VaR for the different risk categories. Equity, interest rate and foreign December 31, 2008, the difference in the durations of assets and liabilities exchange risks are the three risk categories to which Desjardins Group is was 0.1 year (0.1 year as at December 31, 2007). Since the valuation exposed. The definition of trading portfolio meets the various criteria set method already recognizes the impact of possible changes in interest rates, out in the Basel Accord. a sudden increase or decrease in these interest rates would not have a

material impact on the life and health insurance subsidiary. s Combined Finan c ial Statement

VaR by risk category (Trading portfolio)

As at December 31, 2008 (in millions of $)

For the three-month period ended December 31, 2008 As at December 31, 2008 Average High Low Equity 0.7 1.3 2.5 0.7 Foreign exchange 0.2 0.1 0.7 — Interest rate 3.2 2.9 4.4 2.1 Diversification effect(1) (1.0) (1.5) n/a(2) n/a(2)

Aggregate VaR 3.1 2.8 4.1 2.2

(1) Risk reduction related to diversification, namely the difference between the sum of the VaR for the various market risks and the aggregate VaR. (2) Not applicable. The highs and lows of the various market risk categories can refer to different dates. desjardins group As at December 31, 2008, the aggregate VaR was $3.1 million, the interest Stress testing rate VaR being the largest component. This aggregate VaR was higher From time to time, certain events that are considered highly unlikely than its quarterly average of $2.8 million. The risk mitigation related may happen and may have a significant impact on Desjardins Group’s to diversification amounted to $1.0 million as at December 31, 2008. trading portfolios. These events at the tail-end of distribution are the result of extreme situations. Back testing Back testing is conducted to validate the VaR model used by comparing The approach used to measure the risk related to events which are highly daily the VaR with profits or losses (hereinafter referred to as “P&L“) of unlikely, but plausible, is applied through a stress testing program (sensitivity Desjardins Group portfolios. tests, historical scenarios and hypothetical scenarios) at regular intervals. Stress testing results are analyzed together with the VaR calculations in Desjardins Group carries out back testing daily, applying a hypothetical P&L order to detect Desjardins Group’s vulnerability to such events. The stress to its trading portfolios. The hypothetical P&L is calculated by determining testing program is reviewed periodically to ensure that it is kept current. the difference in value resulting from changes in market conditions between two consecutive days. The portfolio mix between these two days remains static.

36099_p115a172_ENG.indd 167 16/03/09 17:17:13 168 Notes to the Combined Financial Statements

note 27 FINANCIAL INSTRUMENT RISK MANAGEMENT (continued) Insurance and reinsurance risk In order to reduce the risk related to reinsurance, the life and health insurance subsidiary deals with many different registered reinsurers who meet stringent In the normal course of operations, the life and health insurance subsidiary credit standards and who are subject to the same regulatory authorities as is exposed to insurance risk. This risk represents the risk that the initial pricing the subsidiary. These reinsurance treaties do not release the life and health is or will become insufficient: it arises from the selection of risks, from claims insurance subsidiary from its obligations to policyholders. settlement and from contractual clause management. To manage this risk, the life and health insurance subsidiary has adopted several policies on The detailed impact of reinsurance on premiums and benefits and annuities the development and pricing of products as well as on the management is as follows: of underwriting and commitments. It also adopted a reinsurance policy. These policies clearly define its insurance risk management framework. 2008 2007 Strict testing is performed on an annual basis by the life and health insurance subsidiary to ensure that these policies are respected. Premiums ceded under reinsurance treaties $ 119 $ 116 The life and health insurance subsidiary enters into reinsurance treaties for, Benefits settled by reinsurers 63 77 among other types of policies, policies with coverage in excess of certain maximum amounts that vary in relation to business activities. The subsidiary It should be noted that the life and health insurance and general insurance also took out catastrophe insurance. This protection includes, among other subsidiaries have decided, in accordance with Section 3862 of the CICA things, coverage related to terrorism. Handbook, “Financial Instruments – Disclosures“, to apply the disclosure requirements of Section 3861, “Financial Instruments – Disclosures and Presentation“, to insurance contracts instead of those of Section 3862.

note 28 CAPITAL MANAGEMENT The goal of capital management at Desjardins Group is to ensure that a Tier 1 capital includes more permanent capital items than Tier 2 capital. sufficient level of high-quality capital is maintained for the following reasons: It consists of eligible capital stock, reserves, undistributed surplus earnings to preserve flexibility for its development, to maintain a favourable credit and non-controlling interests. Goodwill is deducted from that amount. rating and to maintain the confidence of depositors and financial markets.

s Combined Finan c ial Statement Tier 2 capital consists of subordinated debentures, eligible preferred Capital management is the responsibility of Desjardins Group’s Board and qualifying shares and the eligible portion of the general allowance of Directors. To support them with this task, they have mandated the for credit losses up to a maximum of 0.87% of risk-weighted assets. Asset/Liability Committee, comprised of members of senior management, to ensure that Desjardins Group has a sufficient and reliable capital base. As prescribed in the current AMF guideline, Desjardins Group’s total capital Consequently, the Financial Executive Division of Desjardins Group is is reduced by certain investments made in subsidiary companies. Investments responsible for preparing, with the help of Desjardins Group’s components, in insurance, securities, trust services, mutual fund and venture capital a capitalization plan that sets and updates capital objectives and targets subsidiaries are deducted in full from capital and are therefore not combined for all of the components. for purposes of computing risk assets.

With respect to regulatory capital, the capital adequacy and composition Risk assets of Desjardins Group are calculated according to the risk- of Desjardins Group as a whole are evaluated against the guideline on weighting associated with each on- and off-balance sheet item, taking capital adequacy requirements issued by the AMF. The AMF requires that into account the impact of master netting agreements, in compliance a minimum capital be maintained on a combined basis by all the components, with the AMF’s regulations. notably the caisses, the FCDQ, Caisse centrale Desjardins, Fonds de sécurité Desjardins, Capital Desjardins inc. and Desjardins Credit Union. The minimum total capital ratio recommended to institutions to conform This capital takes into consideration investments made in other Desjardins to the regulatory requirements of the BIS and be considered as adequately Group components. capitalized is 8%. In addition, Tier 1 capital must represent at least half of the total ratio. The AMF has adopted these recommendations. Desjardins This guideline, which borrows extensively from international capital standards Group has set its minimum capitalization targets at 13% and 12.5%, desjardins group adopted by the Bank for International Settlements (BIS) in 1988, was respectively. For information purposes, the Office of the Superintendent adapted to suit the cooperative nature of deposit-taking institutions and of Financial Institutions Canada has set the following objectives: 7% financial services institutions governed by the Act. for Tier 1 capital ratio and 10% for total capital ratio.

The regulatory capital of Desjardins Group, which constitutes capital, differs In addition to minimum Tier 1 and total capital ratios, the AMF requires from the equity disclosed on the balance sheet. It comprises two classes: that Desjardins Group maintains an asset/capital ratio of less than 20. This ratio determines the overall capital adequacy with respect to total assets of the entity, including certain off-balance sheet items.

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The following table presents the composition of Desjardins Group’s regulatory capital for years ended December 31(1).

2008 2007 Tier 1 capital Eligible capital stock $ 917 $ 868 Reserves 8,230 7,445 Undistributed surplus earnings (96) 772 Non controlling interests 40 31 Other(2) (113) (146)

8,978 8,970

Tier 2 capital Subordinated debentures 750 860 Eligible general allowance 581 549 Other eligible securities 69 69

1,400 1,478

Investments(3) (1,766) (1,842)

Total capital $ 8,612 $ 8,606

(1) These data for Desjardins Group include those of the Ontario federation and caisse network. (2) Includes adjustments, goodwill and intangible assets, if any. (3) This amount corresponds to investment in subsidiaries (mainly Desjardins Financial Security, Desjardins General Insurance Group, Desjardins Securities and Desjardins Trust) accounted for using the equity method and to any other investment held that must be deducted in accordance with the AMF’s guideline.

Desjardins Group’s total capital amounted to $8.6 billion at the end of 2008, through the Minimum Capital Test (MCT), while subsidiaries outside which is comparable to that of 2007. Tier 1 capital remained comparable Québec must comply with the MCT requirements issued by the Office to 2007 due to the specific items that had a negative impact on Desjardins of the Superintendent of Financial Institutions Canada. Group’s surplus earnings. However, Tier 2 capital decreased by $78 million

as a result of the reimbursement, in March 2008, of debentures amounting The capital adequacy of the Fédération des caisses populaires de l’Ontario, s Combined Finan c ial Statement to $110 million. affiliated caisses and Desjardins Credit Union is governed by a regulation and guidelines issued by the Financial Services Commission of Ontario. The capital adequacy of Québec’s caisses and Caisse centrale Desjardins is Overall, these guidelines are similar to those issued by the AMF, even though governed by standards established by the FCDQ. The standards draw on they present certain differences. Desjardins Trust, which is of federal those established by the AMF and deal with base capital adequacy, items jurisdiction, is governed by the Office of the Superintendent of Financial comprising capital base and proportions between those items. Institutions under a regulatory system which is, for all practical purposes, identical to the guidelines issued by the AMF. Finally, Desjardins Securities The life and health insurance subsidiary is also governed by the AMF under is regulated by the Investment Industry Regulatory Organization of Canada its provincial charter. It must also respect the standards set by the regulatory (IIROC). This subsidiary must have at all times a risk-adjusted capital of authorities of the other provinces and territories in which it carries on more than 0, as calculated in accordance with the by-laws of the IIROC. business. In Québec, insurance companies must comply with the capital adequacy requirements of the AMF in order to support their solvency. Desjardins Group, as well as all its components subject to regulatory requirements with respect to minimum capital, are in compliance The general insurance subsidiary is subject to the following regulatory with those requirements as of December 31, 2008, as they were in requirements. To support their solvency, general insurance subsidiaries the prior year. in Québec must comply with the AMF’s capital adequacy requirements

note 29 desjardins group SEGMENTED INFORMATION Desjardins Group is a cooperative financial group. Under the authority The activities of the Personal and Commercial segment and those of the of the Board of Directors of the FCDQ, the President of Desjardins Group subsidiaries complement each other. Intersegment transactions are carried manages the components operating in the Personal and Commercial out in the normal course of operations and are valued at the exchange segment, as well as the subsidiaries. amount, which corresponds to the amount of consideration established and agreed to by the partners. The results of the main segments reflect The Personal and Commercial segment is comprised of all activities internal financial reporting systems and are consistent with the rules used related to financial intermediation, investment funds and trust services. in preparing the Combined Financial Statements of Desjardins Group. The network of subsidiaries is comprised of activities related to the Life and Health Insurance segment, the General Insurance segment and the Securities Brokerage, Asset Management and Venture Capital segment. The last segment, labelled Other, includes different consolidation adjustments attributable to all of Desjardins Group’s components.

36099_p115a172_ENG.indd 169 12/03/09 11:04:27 170 Notes to the Combined Financial Statements

note 29 SEGMENTED INFORMATION (continued) 2008 Securities Brokerage, Asset Life Management Personal and and Health General and Venture Commercial Insurance Insurance Capital Other Combined (1) Net interest income $ 3,422 $ — $ — $ — $ — $ 3,418 Net premiums — 2,868 1,426 — — 4,131 Income from available-for-sale securities (421) 16 (20) — 20 (413) Trading income (loss) (658) (379) 44 50 (42) (993) Other investment income (loss) (28) 304 (7) (33) 30 239 Other income 1,746 112 (2) 338 22 1,991

Total income 4,061 2,921 1,441 355 30 8,373

Provisions for credit losses (242) (1) — — — (243) Claims, benefits, annuities and changes in insurance provisions — (2,089) (1,055) — — (3,144) Client retention expense — — — — — — Non-interest expense (3,732) (774) (338) (387) (4) (4,800)

Operating surplus earnings (deficit) 87 57 48 (32) 26 186 Income taxes on surplus earnings (72) (22) (7) 3 (11) (109) Non-controlling interests 1 5 (5) — — 1

Surplus earnings (deficit) before member dividends 16 40 36 (29) 15 78 Provision for member dividends, net of income tax recovery (153) — — — — (153)

Surplus earnings (deficit) s Combined Finan c ial Statement for the year after member dividends $ (137) $ 40 $ 36 $ (29) $ 15 $ (75)

Segment assets $ 124,710 $ 13,281 $ 2,808 $ 11,242 $ 257 $ 152,298

(1) The differences between “Combined“ results and the sum of results of the business segments, shown above, are due to intersegment transactions.

2007 Securities Brokerage, Asset Life Management Personal and and Health General and Venture Commercial Insurance Insurance Capital Other Combined (1) Net interest income $ 3,271 $ — $ — $ — $ — $ 3,245 Net premiums — 2,575 1,379 — — 3,824 Income (loss) from available-for-sale securities 11 57 58 12 — 141 Trading income (loss) (49) 274 46 46 — 262 Other investment income (loss) (45) 226 (10) (15) 24 179 Other income 1,650 120 — 361 21 2,020

Total income 4,838 3,252 1,473 404 45 9,671 desjardins group Provisions for credit losses (197) — — — — (197) Claims, benefits, annuities and changes in insurance provisions — (2,215) (956) — — (3,171) Client retention expense (121) — — — — (121) Non-interest expense (3,481) (748) (321) (379) (114) (4,702)

Operating surplus earnings (deficit) 1,039 289 196 25 (69) 1,480 Income taxes on surplus earnings (245) (71) (56) (8) 22 (358) Non-controlling interests — (7) (14) — — (21)

Surplus earnings (deficit) before member dividends 794 211 126 17 (47) 1,101 Provision for member dividends, net of income tax recovery (418) — — — — (418)

Surplus earnings (deficit) for the year after member dividends $ 376 $ 211 $ 126 $ 17 $ (47) $ 683

Segment assets $ 114,930 $ 14,592 $ 3,129 $ 11,139 $ 269 $ 144,059

(1) The differences between “Combined“ results and the sum of results of the business segments, shown above, are due to intersegment transactions.

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2006 Securities Brokerage, Asset Life Management Personal and and Health General and Venture Commercial Insurance Insurance Capital Other Combined (1) Net interest income $ 3,091 $ — $ — $ — $ — $ 3,081 Net premiums — 2,438 1,376 — — 3,688 Investment and trading income 3 703 68 48 52 878 Other income 1,423 115 — 338 94 1,772

Total income 4,517 3,256 1,444 386 146 9,419

Provisions for credit losses (139) — — — — (139) Claims, benefits, annuities and changes in insurance provisions — (2,361) (981) — — (3,342) Non-interest expense (3,324) (692) (284) (366) (198) (4,534)

Operating surplus earnings (deficit) 1,054 203 179 20 (52) 1,404 Income taxes on surplus earnings (302) (51) (60) (6) 21 (398) Non-controlling interests — (6) (12) — — (18)

Surplus earnings (deficit) before member dividends 752 146 107 14 (31) 988 Provision for member dividends, net of income tax recovery (335) — — — — (335)

Surplus earnings (deficit) for the year after member dividends $ 417 $ 146 $ 107 $ 14 $ (31) $ 653

Segment assets $ 106,144 $ 12,440 $ 2,439 $ 7,420 $ 697 $ 129,140

(1) The differences between “Combined“ results and the sum of results of the business segments, shown above, are due to intersegment transactions. s Combined Finan c ial Statement

As part of the restructuring of the holding and management of some the transaction date. In addition, properties with a net carrying value of Desjardins Group properties carried out during 2007, properties of the $21 million were transferred from the Personal and Commercial segment FCDQ and its subsidiaries were combined into a single component of to the Life and Health Insurance segment. Finally, properties with a net Desjardins Group, namely Desjardins Financial Security. Accordingly, a carrying value of $29 million were transferred from the General Insurance property was transferred from the Other segment to the Life and Health segment to the Life and Health Insurance segment. These properties Insurance segment, where it is now recorded as a real estate investment. remain in the “Land, buildings and equipment“ category. The net carrying value of the property transferred was $295 million on

note 30 RELATED PARTY TRANSACTIONS Desjardins Group carries out transactions with related parties. These Transactions with these entities generated income of $49 million in 2008 transactions are accounted for at the exchange amount. ($24 million in 2007 and $24 million in 2006) and expenses of $6 million ($3 million in 2007 and $4 million in 2006), whereas the Combined Balance Sheets include assets of $45 million ($1 million in 2007) as well as liabilities of $59 million ($81 million in 2007). desjardins group

36099_p115a172_ENG.indd 171 12/03/09 11:04:27 172 PRINCIPAL FINANCIAL RESULTS OF THE CAISSES AND FEDERATIONS OF MANITOBA AND NEW BRUNSWICK

The Manitoba and New Brunswick federations, comprising 36 caisses, are auxiliary members of the Fédération des caisses Desjardins du Québec. They are governed by their own legislation, regulations and by-laws.

Combined Balance Sheets (unaudited)(1)

As at December 31 (in millions of $)

2008 2007(2) Assets Cash and securities $ 735 $ 712 Loans 2,582 2, 435 Land, buildings and equipment 43 44 Other assets 36 34

Total assets $ 3,396 $ 3,225

Liabilities and equity Deposits $ 3,066 $ 2,890 Other liabilities 76 87 Equity Capital stock 36 39 s Combined Finan c ial Statement Undistributed surplus earnings 14 26 Reserves 204 183

Total liabilities and equity $ 3,396 $ 3,225

COMBINED STATEMENTS OF INCOME (UNAUDITED)(1)

Years ended December 31, 2008 (in millions of $)

2008 2007 Interest income $ 195 $ 185 Interest expense 86 79

Net interest income 109 106 Other income 32 41

Total income 141 147 desjardins group Provisions for credit losses 7 — Non-interest expense 113 113

Operating surplus earnings 21 34 Income taxes on surplus earnings 5 4

Surplus earnings before member dividends 16 30

Provision for member dividends 1 8 Tax recovery on provision for member dividends — (2)

Surplus earnings for the year after member dividends $ 15 $ 24

(1) The Combined Balance Sheets and Combined Statements of Income include data from the caisses and federations in Manitoba and New Brunswick, after eliminating the transactions and balances of the caisses and federations among themselves. Because the financial years of the caisses do not coincide, the undistributed surplus earnings do not correspond to the surplus earnings presented in income. (2) Data restated to reflect the presentation adopted as at December 2008.

36099_p115a172_ENG.indd 172 16/03/09 20:26:41 MDRP9-003 • Desjardins • Rapport annuel 2008 • Mouvement des caisses desjardins • Info :NP Section : Section 2 - Gouvernance • Version : anglaise • épreuve no : 5 • envoyé le : 11-03-2009 • format : 9” x 11 3/4” • COULEURs : Noir + pantone 347

173 GOVERNANCE THAT HONOURS COOPERATIVE VALUES

Driven by its permanent values(1) as well as the founding cooperative principles n The Assembly of Representatives, the role of which was expanded in 2006, and values upon which it is based, Desjardins has a modern style of governance met four times in 2008. In addition to electing the President and CEO, that sets it apart from other financial institutions. It is unique not only in the the Assembly was asked to review the highlights of the annual tour of nature of its goals, which are to meet the needs of its members, clients and the councils of representatives carried out by the former President and communities, but also in its democratic processes and continuous efforts to CEO of Desjardins Group, to study various strategic issues and to manage evaluate the impact of its decisions on stakeholders.(2) By gradually integrating several orientation projects. This year in particular, the Assembly was called sustainable development principles into its operations, Desjardins also on to participate in the strategic reflections regarding the Desjardins demonstrates commitment on a social level. Group Development Plan and the 2010-2012 Strategic Plan, as mentioned above, as well as the theme for the Congress of Elected Officers, which For nearly ten years, the Fédération des caisses Desjardins du Québec (FCDQ) will take place in November 2009.

has gradually improved its governance program. To ensure consistent strategic n The economic crisis was discussed at every Board of Directors meeting. management, its directors are the same as those for Caisse centrale Desjardins, Monthly presentations were given on market developments and Desjardins Venture Capital, Desjardins Trust and Capital Desjardins. In addition, negotiations for the signing of the Montréal Accord (restructuring each of Desjardins Group’s components, subsidiaries, and now the caisses, of asset-backed commercial paper [ABCP]) and its impact on Desjardins has its own governance policies and programs, aligned with those of the Group. The Board progressively made decisions with respect to tightening FCDQ and adapted as necessary. With a view to continuous improvement, frameworks and preventive risk management—including market, liquidity the Board of Directors ensures that all structures, policies and frameworks and credit risk—in the best interests of Desjardins, its members and take into account the guidelines set by regulatory bodies as well as the clients. Desjardins Group’s capital management also received special best practices in proper governance. attention. The Risk Management Commission played a key role in monitoring the work surrounding the management of the impact of the crisis on Desjardins. HIGHLIGHTS n In keeping with the responsibility-sharing introduced in 2004 in relation to Desjardins Group strategic functions, the following policies were adopted: the Framework Policy on Strategic and Financial Transactions, In 2008, Desjardins Group made numerous improvements and took on the Management Information Governance Policy, as well as a policy corporate Governance corporate several initiatives that helped it maintain a style of governance adapted pertaining to Desjardins Group’s liquidity contingency plan. to its specific cooperative nature. Here are the highlights: n Policies regarding Desjardins Group governance were adopted, such as the Desjardins Group Policy Framework for Managing Operational Risk n The year was marked by the election of a new Desjardins Group President, supervised by a 256-person electoral college composed of and the Desjardins Group Business Continuity Policy. members from the 17 Québec and Ontario councils of representatives. n The formal request for Basel II certification relating to the standard Now, for the first time in the organization’s history, a woman is at the approach for Desjardins Group operational risk was submitted to head of the largest financial institution in Québec and sixth largest the Autorité des marchés financiers (AMF). Once again, the Risk in Canada. Management Commission closely followed the work leading up to Desjardins Group’s request for certification and stated that it was n Following the election, the Board of Directors adopted the 2008-2012 Desjardins Group Development Plan: a structured approach to the general satisfied with the work completed. guidelines of the upcoming mandate which were adopted by the Board n The Board of Directors was informed about the project to convert of Directors before the election, and to the commitments made by the Desjardins to International Financial Reporting Standards and was new President during the electoral process. The plan contains five major assured that all deadlines would be met. “building blocks“ intended to help develop and expand the 2010-2012 n The Governance Policy for the Caisse and its Centres (business centres Strategic Plan. Under the plan, the Board of Directors has approved and administrative centres) was adopted and implemented throughout work on reviewing the organization’s structure, optimizing the financial the network. The Board of Directors also authorized the rollout of an desjardins group management of balance sheets, and revising Desjardins Group’s business overall performance management model for the caisses, inspired by processes and information technology. a caisse network consultation exercise.

(1) Desjardins Group’s permanent values are money at the service of human development, democratic action, personal commitment, integrity and discipline, and solidarity with the community. (2) Stakeholders are the people or entities whose activities may have an impact on Desjardins Group and/or who may be affected positively or negatively by the organization’s decisions. Among them are members and clients, employees, suppliers, local communities, governments, the media, etc.

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n The Board of Directors adopted an integrated strategy on diversity so as to reflect, in both its membership and its democratic and organizational APPLICATION OF CORPORATE structure, the diversity of the communities it serves (gender; age; GOVERNANCE GUIDELINES English-speaking, Aboriginal and cultural communities). Desjardins Group’s openness to and recognition of diversity are a clear expression of the human values that drive the organization and are conveyed MANDATE OF THE BOARD OF DIRECTORS through its mission. 1) Management of the FCDQ n The annual meetings are a key aspect of Desjardins Group’s decision- The Board of Directors assumes explicit managerial responsibility of making and democratic process. Participants now receive the applicable the FCDQ by administering its business in a sound and prudent manner. rules of procedure for Desjardins Group meetings every year, as was It ensures that the procedures and structures required for it to fully assume already the case for the rules governing the election of FCDQ officers. its role are in place. Periodically, it reviews its operations from the standpoint In the same vein, the Caisse Guide on Prior Notices of Motion and of continuous improvement and ensures that the assets of Desjardins Group, the Guide sur le processus électoral de la Fédération des caisses Desjardins its approximately 5.8 million members and its client are safeguarded. du Québec et de la Caisse centrale Desjardins à l’intention des dirigeants et dirigeantes de caisses (FCDQ and Caisse centrale Desjardins electoral The Board fulfils a dual role since its responsibilities apply both to the process guide for caisse oficers) were updated. FCDQ as a business and to Desjardins Group as a cooperative financial n The Board of Directors held a symposium to discuss its operating methods group. The FCDQ is the organization that guides, plans, coordinates, and determine the best ways to fulfill its roles and responsibilities. monitors and ensures control of all Desjardins Group operations.

The Board exercises all the powers of the FCDQ, except for those which THE FCDQ’S GOVERNANCE POLICY it may delegate from time to time to its commissions and committees. The Board assumes the following responsibilities in particular: The governance policy adopted by the FCDQ describes what it must do a. Culture of integrity to respect the corporate governance guidelines laid out by the Canadian Securities Administrators, while adapting these guidelines to the The Board of Directors is responsible for ensuring compliance with the cooperative nature of Desjardins. permanent and cooperative values of Desjardins, namely: money at the service of human development, democratic action, personal commitment, The first fundamental adaptation relates to the very purpose behind the discipline and integrity, and solidarity with the community. Consequently, FCDQ’s Board of Directors’ measures with respect to corporate governance. the Board is also responsible for enforcing the Desjardins Group Code of Ultimately, the purpose of Desjardins Group’s governance practices is to Ethics and Professional Conduct among management staff, employees enable it to carry out its mission, which is to contribute to improving the and elected officers. In 2008, as part of the educational aspect of Desjardins economic and social well-being of people and communities. It is guided Group’s mission, the Board gave the Board of Ethics and Professional Conduct

corporate Governance corporate by long-term objectives and is focused on creating economic value for its the mandate to prepare recommendations, in collaboration with the owner-users, the caisse members, who therefore benefit from the following: Cooperative Orientations Commission, to update and clarify the description of Desjardins Group’s values. The resulting tools for raising awareness will n A competitive, comprehensive, integrated and accessible service offering promote recognition of these values among employees and elected officers. This mandate will continue in 2009 and 2010, as in 2008 an issues paper n Member dividends and contributions to the community was prepared and validation sessions were held with focus groups, whose n Active contribution to local and regional development with an eye conclusions were presented to both the Cooperative Orientations Commission on sustainable development and the Board of Ethics and Professional Conduct with a view to tabling recommendations to the FCDQ’s decision-making bodies. This focus on value also allows Desjardins to help strengthen the cooperative financial sector in Canada, most notably through strategic partnerships. The Board of Ethics and Professional Conduct of the FCDQ is authorized by the FCDQ’s General Meeting. It is responsible for updating the Code To reach these objectives, Desjardins seeks to achieve reliable and sufficient and issuing notices as needed. A support structure for the Board’s activities profitability, which allows it to ensure its longevity and respect its enables it to carry out awareness-raising and training activities and provide cooperative difference. an advisory service, thereby giving concrete form to Desjardins Group’s efforts to ensure compliance with the Code, which in turn provides for the possibility of imposing penalties for violations. Desjardins also has

desjardins group a confidential mechanism for reporting violations of the Code and the regulatory framework. In 2008, the processes in place made it possible to respond quickly to a situation invovling two members of Management at one of Desjardins Group’s components.

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The Desjardins Group Code of Ethics and Professional Conduct is available to the Board of Directors makes sure the succession is properly planned by the public via its Web site, desjardins.com, and the FCDQ’s Intranet Portal. determining the main parameters for the mandate of the President of All individuals working at Desjardins are asked to demonstrate ethical Desjardins Group, who serves a four-year term. The electoral process values and behaviour based on honesty, transparency, social responsibility is covered in an FCDQ by-law and overseen by an Election Committee and altruism. composed of elected officers and independent members of the Board of Directors, who are responsible for establishing the rules of conduct as b. Strategic and financial planning process well as the electoral process. In 2008, the Election Committee oversaw the election of the new President. The Committee established the rules The Board of Directors has a continuous strategic and financial planning that apply to the electoral process and the guide for candidates and process for Desjardins Group that includes the development of a capitalization members of the electoral college, and then supervised the overall electoral plan and a financial plan. The Board is supported by the Desjardins Group process. It reported back to the FCDQ Board of Directors on its activities Strategic Management Structure Committee, which helps the Board ensure and formulated various recommendations for the next election process, that strategic and financial orientations and plans are incorporated throughout with a view to continuous improvement. the caisses and the subsidiaries, and that business development strategies are consistent throughout, all while being mindful of the risk involved. e. Integrity of the internal control and management The plan is communicated to all Desjardins components so that there is reporting systems a shared understanding. The Board of Directors, seconded by its Audit and Inspection Commission, From the strategic and financial plan stems the cooperative network’s business ensures the implementation of effective control systems (accounting, plan (known as PARC(3)), as well as a project plan. The responsibility for administrative and management) to safeguard the integrity of its operations implementing Desjardins Group’s Strategic Plan rests with Desjardins Group’s and obtain the required accountability from managers. The respective roles Strategic Management Structure Committee, while responsibility for PARC and responsibilities of the Audit and Inspection Commision and the Risk and the project plan falls to the FCDQ Management Committee. The Board’s Management Commission with regard to these issues were clarified in role in this respect is one of follow-up, supervision and control. It also ensures 2008. The Board is supported in this responsibility by Desjardins Group’s that information is obtained to correct discrepancies when necessary. Internal Auditor, whose annual plan is approved by the Audit and Inspection Commission. Work is ongoing to improve documentation of The respective boards of directors of Caisse centrale Desjardins, Desjardins the controls used during the financial reporting process. These efforts Venture Capital and Desjardins Trust each adopt a three-year strategic and are monitored by the Chief Financial Officer of Desjardins Group who, financial plan that is updated annually. together with Desjardins Group’s Chief Executive Officer, is responsible for certifying the consolidated and combined financial statements of c. Identification and management of main risks Desjardins Group. The Board is responsible for identifying the main risks relative to the FCDQ and Desjardins Group and ensures that the required systems are in place The Board also ensures that Desjardins Group’s Strategic Management for the integrated management of these risks. The FCDQ is supported by Structure Committee and the FCDQ’s Management Committee provide the Integrated Risk Management Executive Division, whose activities cover the Board and its commissions and committees with information that is Governance corporate all of Desjardins Group. The FCDQ Board of Directors is backed by a Risk reliable, timely and adapted to the particular needs of Board members Management Commission and ensures that the Commission works so that they may take advantage of business opportunities and measure consistently with the Audit and Inspection Commission, which remains the risks involved. As files are submitted, Board members are invited to responsible for risks relating to the process for disclosure of financial assess the quality of each decision-bearing file. A training session is available information. The same applies to Caisse centrale Desjardins, Desjardins to staff who present such files to the FCDQ’s decision-making bodies. Venture Capital and Desjardins Trust. The Desjardins Group Strategic Management Structure Committee also relies on the Board of Directors in To effectively monitor primary performance indicators, management uses carrying out this responsibility and annually receives a report on the overall a scorecard; this benefits the Board, as it allows Board members to quickly risk situation for Desjardins as a whole. The Risk Management Commission obtain decision-bearing data. holds closed-door sessions without the presence of Management. In general, Board members receive a quarterly management information d. Succession planning report that combines the main financial and non-financial indicators that The Board of Directors oversees the development of the succession planning will enable them to assess Desjardins Group’s situation and the status of program and is supported in this task by the Human Resources Commission the FCDQ’s projects. The Board ensures that appropriate policies and procedures and Desjardins Group’s Human Resources Executive Division. The Commission are in place to facilitate the production and presentation of this information. oversees the program and reports to the Board of Directors, making

recommendations, if need be. To effectively carry out its duties, the Board meets regularly according to desjardins group a predetermined schedule. Board members receive the agenda in advance, One of the hallmarks of the Desjardins cooperative difference is that the along with any relevant documentation, to ensure productive discussions successor to the Chair of the Board and Chief Executive Officer is chosen and to facilitate the decision-making process. by a 256-person electoral college that includes representatives from Québec and Ontario(4) caisses and the President and Chief Executive Officer of They also use technologies that give them access to meeting-related Desjardins Group. Although it does not have to appoint the incumbent, documentation and to the management frameworks for Desjardins activities.

(3) PARC is a one-year business plan that consolidates the business plans of the 513 caisses and the FCDQ and integrates the subsidiaries’ contribution into the service offering for caisse member-owners. The process leading to the establishment of the plan is reviewed periodically to meet caisse expectations. (4) Members of the councils of representatives.

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f. Strategic communications-related orientations For guidance in these matters, the Board refers to the provisions of the Code of Ethics and Professional Conduct, which governs the actions of its The Board of Directors adopts strategic communications orientations directors, and to the declarations of interests filed annually by the directors. aligned with its strategic and financial planning by setting the actions to The declarations of interests show that the directors focus their full attention be taken and the results to be measured. The FCDQ also drafts internal on their role and responsibilities at Desjardins, as none of them sits on a and external communication policies in order to improve its relations with board of directors of any other major company. They generally hold one or the caisses and their members, its employees, the subsidiaries and their two directorial positions with not-for-profit organizations. clients, socio-economic and community organizations, opinion makers, the public, the media, rating and scoring agencies and governments. A list of directors along with their status (related or unrelated) can be The FCDQ has a Desjardins-wide strategic communication plan, incorporating found on page 13 of this Annual Report. in particular the disclosure of financial information and of major changes that can affect Desjardins Group’s financial position. 4) Nominations process Given the cooperative structure of Desjardins Group and the principle of The FCDQ uses various channels to communicate effectively with its various delegation which prevails within Desjardins, the FCDQ’s Board of Directors stakeholders. These channels include the Communications and Public is composed of persons elected by the delegates of the FCDQ’s member Affairs Division, the Ombudsman, the Ethics and Professional Conduct caisses who, at regional or group caisse meetings, directly elect 17 of the support team of the Secretariat General, the complaint handling process 22 Board members. These individuals chair the councils of representatives.(5) in the caisses (Your satisfaction is my priority) and within Desjardins Group, Thus, it is the caisse delegates who must choose, from among those the annual general meetings, the release of Desjardins Group’s quarterly interested, the candidates most capable of taking on two roles, namely, financial results, Desjardins publications (including InfoD bulletins, the that of a director of the FCDQ and Desjardins Group as a whole and that Annual Report, the Social Responsibility and Cooperative Report, Espace D of regional representative. Before nominations are accepted, candidates (My Money), Entreprises and Partenaires magazines, as well as information are reminded of the responsibilities and requirements related to the position bulletins distributed to employees), a toll-free telephone number, an Intranet of chair of a council of representatives. Because they are, at the same time, site, a Web site (which includes a “Member Relations“ section), FCDQ officers of a caisse, members of their councils of representatives and, finally, Member Services (1-866-835-8444, ext. 8422), and the mechanism for members of the Board of Directors of the FCDQ, the Board benefits from reporting actions that violate the Code of Ethics and Professional Conduct having directors with thorough knowledge of Desjardins Group activities, and the regulatory frameworks. who are nonetheless independent of Management. This in-depth knowledge of the organization’s activities is a significant advantage resulting from In addition, the FCDQ communicates with international rating and scoring Desjardins Group’s cooperative structure. agencies and coordinates the relations of Desjardins Group with the various levels of government. The chairs of the councils of representatives are also responsible for ensuring that the orientations, as defined by the Board, are understood by the caisses; 2) Composition of the Board of Directors for ensuring that the mechanisms for discussions, suggestions and consultations are effective; and for communicating to the Board the concerns of the caisses corporate Governance corporate The FCDQ’s Board of Directors consists of 22 members, the majority of whom are unrelated parties. The criteria for membership are listed in they represent. The energy and commitment of caisse officers inspires the Paragraph 3. members of the Board to make decisions for the common good of the members and other stakeholders of Desjardins Group. The vice-presidents of the Abitibi-Témiscamingue—Nord et Ouest du Québec and the Bas-Saint-Laurent—Gaspésie—Îles-de-la-Madeleine regional The four remaining positions filled by caisse general managers are determined councils of representatives also serve on the Board of Directors as at an election held at an Assembly of Representatives of the FCDQ, and managing directors. the final position is reserved for the Chair of the Board and Chief Executive Officer of Desjardins Group. Consequently, the Corporate Governance 3) Applying the definition of unrelated party Commission does not play a role in the selection of the Board of Directors of the FCDQ, but is, however, in charge of the selection process of the The Board of Directors includes five related officers, namely the Chair of directors of Desjardins Group subsidiaries. the Board and Chief Executive Officer of Desjardins Group and four caisse general managers. The first is a related party because he or she is a member The process of electing the directors of the FCDQ therefore ensures the of FCDQ Management and the other four are related parties because independence of the members of the Board vis-à-vis the Chair of the Board they are employees of companies, namely caisses, belonging to Desjardins. and Chief Executive Officer of Desjardins Group since this individual has In addition, the directors have no business or personal relationships with no influence on their selection. members of the Management Committee of the FCDQ, nor interests which,

desjardins group in the opinion of the Board, could significantly interfere with their ability to act in the best interests of the FCDQ or Desjardins Group, nor interests of any other nature which, again in the opinion of the Board, could reasonably be perceived as harmful.

(5) The councils of representatives are democratic bodies within the FCDQ whose decision-making responsibilities are, in each of the regions and for the group caisses, to ensure that associative activities remain dynamic through group action between the region’s caisses and the FCDQ; its influence on decisions that affect major orientations and projects by actively participating in consultations; its contribution to the identification of regional issues and business development opportunities; its follow-up on member satisfaction and Desjardins Group’s image in the region; as well as through institutional presence in the region. It directs associative affairs through the leadership role assumed by each member of the council of representatives. It also ensures that concerns expressed by the caisses in the region are considered by the FCDQ.

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Moreover, the rules governing the composition of the Board foster a certain 7) Size of the Board stability and continuity with respect to the corporate governance of Desjardins The composition of the Board of Directors is designed to provide adequate Group, given that its members have three-year renewable terms and that, representation of the caisses in the 17 regions in the province of Québec plus each year, one third of the Board members are replaced. This affords the part of Ontario, as well as the group caisses. Moreover, the presence of four directors the time needed to deepen their understanding of issues and to caisse general managers ensures that the orientations adopted by the Board actively participate in Board activities. and their implementation are adapted to the realities of the caisses.

The composition of the Board is balanced by the presence of representatives Efficient meeting organization and good discipline among the directors from all regions of Québec, from the group caisses and from Ontario caisses themselves compensate for the fairly large size of the Board. Furthermore, populaires, as well as by their particular skills and experience (chartered the Chair of the Board and Chief Executive Officer holds periodic, informal accountants, lawyers, notaries, managers, professional mediators, professors meetings with the directors that serve to increase the efficiency of formal of management, entrepreneurs, caisse general managers, etc.). meetings. The results of the performance evaluation of the Board of Directors reveal, from year to year, the very high relevance of these meetings. After All the processes, terms, conditions and requirements relating to the each Board of Directors, committee or commission meeting, a closed-door responsibilities of an FCDQ Board member and the chair of a council of session is held without the members of FCDQ Management, except for the representatives have been listed in a guide available to caisse officers, which Chair of the Board and Chief Executive Officer as long as he or she does is intended to support individuals interested in applying for positions on the not have to withdraw for independence reasons. This procedure has been Board and also to assist those called upon to elect FCDQ officers. in place for over three years. 5) Assessing the effectiveness of structures 8) Remuneration policy for directors The Board of Directors and its commissions and committees evaluate their The Board annually reviews its policy on the remuneration of its directors, performance annually by using quantifiable objectives set by the Board at members of the Board of Ethics and Professional Conduct and members of the beginning of the year. Areas for improvement and points to be monitored the councils of representatives. The Board receives recommendations from are identified during this evaluation and written into an action plan the Corporate Governance Commission, a body that follows market trends recommended to the Board by the Corporate Governance Commission in this domain very closely. Although it was reviewed in early 2008 and certain (which also oversees the plan). The Board also receives a mid-year progress amounts increased, if all functions undertaken for the FCDQ, Caisse centrale report. The evaluation program for all FCDQ structures also calls for a personal Desjardins, Desjardins Venture Capital and Desjardins Trust boards are taken self-assessment followed by a meeting between each director and the Chair into account, the remuneration schedule of this policy remains slightly below of the Board. In 2008, the statutory evaluation meetings were suspended industry trends. However, they do appropriately reflect Desjardins Group’s and replaced by a group engagement activity. Furthermore, the President culture and the responsibilities, requirements and risks inherent to those held individual meetings with the Board members as she took up her new functions. It is also important to note that the President and Chief Executive role. The Chair of the Board is responsible for the evaluation process, and Officer’s compensation is the subject of a recommendation made by a specific the Corporate Governance Commission provides oversight.

Board committee, all of whose members are unrelated directors. Governance corporate

The Cooperative Orientations Commission is also involved in evaluating the Note that in 2007, the Board of Directors adopted the status quo, as a result performance of the Board of Directors, and tables an annual report on how of the specific situation regarding the control of costs at that time. Board well the Board has achieved its primary annual objective, which is to ensure members have made the same decision in 2009 and will keep to the same that its major decisions reflect all aspects of the cooperative difference. amounts as 2008. 6) Orientation and training program for new directors The FCDQ offers its directors orientation sessions and ongoing training, and develops sessions tailored to their specific needs.

All new directors attend an integration session that involves meeting with members of Management and receiving a reference manual containing the information they need to carry out their duties. Every director receives a document reminding him or her of the expectations and duties that come with the position. Orientation sessions are also held to ensure the effective and efficient integration of new members of Board commissions and committees. desjardins group

As needed and upon request, meetings with specialists from the FCDQ, Caisse centrale Desjardins, Desjardins Venture Capital and Desjardins Trust are also organized to give directors a more complete picture of the organization and of its main strategic projects.

The training program for Board members falls under the activities of the Desjardins Cooperative Institute, a training institute created for the managers and elected officers of Desjardins Group. The Institute’s mission is threefold: Desjardins Awareness, Desjardins Governance and Management, and Desjardins Innovation.

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REMUNERATION SCHEDULE OF BOARD MEMBERS OF THE FCDQ, CAISSE CENTRALE DESJARDINS, DESJARDINS VENTURE CAPITAL AND DESJARDINS TRUST, AS WELL AS MEMBERS OF THE BOARD OF ETHICS AND PROFESSIONAL CONDUCT OF THE FCDQ AND OF CAISSE CENTRALE DESJARDINS

Desjardins Venture Caisse centrale Desjardins FCDQ Capital Desjardins Trust Subsidiaries Chair of the Board of Directors(6) $20,000 paid to $20,000 paid to $20,000 paid $20,000, of None, as it is the FCDQ because the FCDQ because to the FCDQ which $10,000 assumed by the it is assumed it is assumed by because it is is earmarked President and by the President the President assumed by for the director CEO of and CEO of and CEO of the President and $10,000 Desjardins Group Desjardins Group Desjardins Group and CEO of for the Chair Desjardins Group of the Board

Annual retainer for the chair of a commission(7) $6,500 $6,500 $6,500 $6,500 $6,500

Annual retainer for a member of the Board of Directors(8,9) $7,500 $7,500 $7,500 $7,500 $10,000

Annual retainer for a member of a Board of Directors’ commission or committee(10) $2,000 $2,000 $2,000 $2,000 $2,000

Attendance allowance for Board meetings(11) $1,000 $1,000 $1,000 $1,000 $1,000 (maximum per day) (maximum per day) (maximum per day) (maximum per day) (maximum per day)

Attendance allowance for committee or commission meetings(11) $500 $500 $500 $500 $500 (per half-day) (per half-day) (per half-day) (per half-day) (per half-day)

Conference calls $200 $200 $200 $200 $200

corporate Governance corporate Attendance allowance for members of the Board of Ethics and Professional Conduct or the Ethics Committee $1,500 $500 $1,500 $1,500 $500 for the Chair (per half-day) for the Chair for the Chair (per half-day) $750 for members $750 $750 for members for members

Compensation for the chair of a council of representatives $10,000 N/A N/A N/A N/A

Attendance allowance for members of the councils of representatives $300 per meeting N/A N/A N/A N/A

Chair of a discussion forum $1,000 N/A N/A N/A N/A for preparation time $1,000 for the day

desjardins group N/A: Not applicable

(6) The Chair of the Board of a subsidiary is generally held by a member of the Board of Directors of the FCDQ. (7) For committees that hold fewer than four meetings, the attendance allowance is doubled and replaces the annual retainer. (8) A member of the Board of the FCDQ receives $30,000 as an annual retainer to serve as a director of the FCDQ, Caisse centrale Desjardins, Desjardins Venture Capital and Desjardins Trust. This amount is equally allocated among these four components. The two managing directors receive $23,250, to which an amount of $7,500 is added for their roles as vice-presidents of their respective councils of representatives. (9) For the four general managers who are members of the Boards of Directors, the policy stipulates that the Board of Directors for their caisse is responsible for deciding if they keep all of their remuneration. (10) The annual retainer is paid, regardless of the number of commissions or committees these members sit on at the FCDQ, Caisse centrale Desjardins (CCD), Capital Desjardins inc. (CDI), Desjardins Venture Capital (DVC) or Desjardins Trust. Therefore, only one retainer is paid for roles assumed for the FCDQ, CCD, CDI, DVC and Desjardins Trust. For members of commissions or committees who are not members of the Board of Directors, the retainer is $5,000. (11) Regardless of the number of Board, commission and committee meetings held on the same day, the maximum daily retainer is $1,000 because every effort is made to concentrate meetings in a single day to keep costs down as much as possible.

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REMUNERATION OF MEMBERS OF THE BOARD OF DIRECTORS

Disclosure of the remuneration paid to each Board member for the duties they assume for the Fédération des caisses Desjardins du Québec (FCDQ), Desjardins Venture Capital (DVC), Caisse centrale Desjardins (CCD), or Desjardins Trust, or for their role as the Chair of the Board of a subsidiary.

Received from the FCDQ, DVC, CCD and Desjardins Trust Other Fees(12) Name Attendance Annual Attendance Annual Total Allowance retainer Allowance retainer 2008 ARSENAULT, Dominique $ 31,400 $ 32,750 $ 64,150

BARIL, Jacques $ 46,150 $ 65,917 $ 112,067

BLAIS, Thomas $ 54,250 $ 66,167 $ 9,400(13) $ 15,000(13) $ 144,817

BOUDREAULT, Laurier $ 36,250 $ 32,000 $ 68,250

CHAMBERLAND, Serges $ 43,850 $ 73,500 $ 117,350

CHARBONNEAU, Louise $ 35,550 $ 32,000 $ 67,550

DUGUAY, Denis $ 34,650 $ 35,250 $ 69,900

DUMAS, Alain $ 37,900 $ 32,000 $ 69,900

GAGNÉ, André (Chair of the Board, DAM)(14) $ 33,750 $ 47,000 $ 9,000 $ 28,500 $ 118,250

GRANT, Norman $ 39,500 $ 54,000 $ 93,500

GRENON, Pierre(15) $ 11,450 $ 13,500 $ 24,950

LACHAPELLE, André (Chair of the Board, CRCD)(14) $ 34,650 $ 47,000 $ 11,400 $ 28,000 $ 121,050

LAFONTAINE, Daniel $ 32,050 $ 32,000 $ 64,050 corporate Governance corporate

LAFORTUNE, Andrée $ 56,300 $ 84,500 $ 140,800

LAUZON, Marcel (Chair of the Board, DID)(14) $ 36,950 $ 47,000 $ 6,900 $ 28,000 $ 118,850

LEBLANC, Pierre $ 57,700 $ 61,917 $ 119,617

MERCIER, Daniel $ 32,150 $ 53,500 $ 85,650

PARÉ, Denis $ 46,450 $ 61,083 $ 107,533

ROY, Michel $ 36,650 $ 48,625 $ 85,275

SAMSON, Clément (Chair of the Board, DGIG)(14) $ 43,650 $ 47,000 $ 22,630(17) $ 30,500 $ 143,780

ST-PIERRE BABIN, Sylvie (Chair of the Board, DFS)(14) $ 28,400 $ 51,438 $ 17,415(17) $ 28,500 $ 125,753

TARDIF, Pierre (Chair of the Board, Desj. Sec.)(14) $ 99,000(16) $ 61,500(16) $ 7,800 $ 35,000 $ 203,300 desjardins group

TOURANGEAU, Serge $ 57,250 $ 58,500 $ 115,750

TURCOTTE, Benoit $ 53,500 $ 42,938 $ 6,038(17) $ 102,476

TOTAL $ 1,019,400 $ 1,181,084 $ 90,583 $ 193,500 $ 2,484,568(18)

(12) Amounts received for chairing the board of a subsidiary. (13) Amount received as director of Desjardins Credit Union (DCU). (14) Desjardins Asset Management (DAM), Capital régional et coopératif Desjardins (CRCD), Développement international Desjardins (DID), Desjardins General Insurance Group (DGIG), Desjardins Financial Security (DFS), Desjardins Securities (Desj. Sec.). (15) Term of office ended in March 2008. (16) Includes special remuneration of $63,150 (including an attendance allowance of $56,650 and a retainer of $6,500) paid for to the Chair of the Reporting Follow-up Committee that intervened at CCD for the time it took to fulfil the mandate entrusted to it by the Board of Directors and lasting from March to December 2008. (17) Includes an amount received as a trainer at Desjardins Cooperative Institute. (18) 63% of this amount is related to duties assumed at the FCDQ alone.

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REMUNERATION OF MEMBERS OF THE FCDQ BOARD (12) The Board’s independence from the OF ETHICS AND PROFESSIONAL CONDUCT Management Committee

Name Attendance Allowance The Board has created different structures and procedures to ensure its independence from the Management of the FCDQ. These include Béchard, Éric(i) $ 8,300 the following: Bourgeois, Isabelle $ 16,250 Cardinal, Marcel $ 15,500 1) Having only one member of FCDQ Management who is also an officer Douvry, Josyane $ 17,200 Lee-Gosselin, Hélène $ 30,950 elected by representatives of members (Chair of the Board and Chief Pichette, Ronald $ 16,550 Executive Officer of Desjardins Group). Perreault, Lise B.(ii) $ 6,850 Sarrazin, Claire $ 14,450 2) The position of Vice-Chair of the Board of Directors, created by the St-Aubin, Jacques $ 16,800 General Meeting, the holder of which presides over the Board’s meetings when the issues being discussed require the withdrawal of the Chair of (i) Term ended at the end of May 2008. the Board and Chief Executive Officer. The Internal By-laws specify that (ii) Began her term at the beginning of November 2008. the Vice-Chair of the Board replaces the Chair of the Board when the latter cannot act. In accordance with the Act respecting financial services cooperatives, the total budget for the payment of attendance allowances to members 3) Periodic informal meetings are held among the directors. The Chair of of the Board of Directors, the councils of representatives and the Board the Board and Chief Executive Officer updates the President and Chief of Ethics and Professional Conduct is authorized by the FCDQ’s General Operating Officer, who is not present at these meetings. Both unrelated Meeting. Note that it is the total remuneration budget (annual retainers directors and related directors, however, are present at these meetings, plus attendance allowances) that is approved at the General Meeting. given that the discussions pertain to matters that do not bear any risk The General Meeting receives a report on changes to the remuneration of conflicts of interest for the related directors. budget from one year to the next. The overall budget allowance increased from $1,654,000 in 2005, to $2,011,000 in 2006, to $2,011,900 in 2007, 4) Closed-door sessions, without the participation of Management (except and to $2,476,000 in 2008. for the Chair of the Board and Chief Executive Officer), are held at the 9) Composition of commissions and committees end of each meeting of the Board of Directors and of the Executive Committee. The same is true for Board commissions. The Board creates a number of committees and commissions and defines their mandates in order to support and streamline its orientation, planning, 5) The Chair of the Audit and Inspection Commission is an supervisory and control activities, as well as to lighten some of its workload. unrelated director. These commissions and committees are comprised entirely or almost entirely of unrelated parties. The composition and mandate of these 6) Assigning responsibility to the Corporate Governance Commission corporate Governance corporate commissions and committees are reviewed annually. (of which only one member is a related party) for:

10) Responsibility for corporate governance a) Managing relations between the Board and the Management The Board gives the Corporate Governance Commission the responsibility Committee of the FCDQ; and of applying and updating the governance program in light of new industry b) Ensuring that the Board fulfills its duties. In addition, the responsibility trends. The Commission reports on its observations and makes recommendations of developing or supervising agendas for the Board of Directors and to the Board of Directors. This commission holds closed-door sessions its committees is assigned to the Chair of the Board and Chief without the presence of Management. Executive Officer of Desjardins Group.

11) Defining the authority of the Management Committee 7) The creation of the Committee on the Aggregate Remuneration of the The responsibilities of the Chair of the Board and Chief Executive Officer President and Chief Executive Officer of Desjardins Group on which only of Desjardins Group are set out in the FCDQ’s Internal By-Laws. In addition, unrelated directors serve. the Board has set out in writing a clear distribution of responsibilities between the Board of Directors and the Management Committee, and 8) Ensuring that the members of the Human Resources Commission and continually fine-tunes this distribution in order to improve governance the Committee on the Aggregate Remuneration of the President and efficiency and effectiveness. Chief Executive Officer of Desjardins Group are seconded, when needed, by an external consultant with respect to matters dealing with the desjardins group The annual objectives of the Chair of the Board and Chief Executive Officer aggregate remuneration of officers. of Desjardins Group are recommended to the Board of Directors by the Committee on the Aggregate Remuneration of the President and Chief The FCDQ also has a Board of Ethics and Professional Conduct, the Executive Officer of Desjardins Group. The objectives of the President members of which are elected by the General Meeting. Its members and Chief Operating Officer of the FCDQ are established by the President are all independent from Management and the Board of Directors. and Chief Executive Officer as part of his or her incentive plan.

The Board of Directors has guidelines for setting objectives to ensure sound management of incentive plans and an equitable application for all Desjardins components. The degree to which these objectives are achieved is measured through an annual review process. The Committee on the Aggregate Remuneration of the President and Chief Executive Officer of Desjardins Group supervises the performance evaluation of the Chair of the Board and Chief Executive Officer of Desjardins Group, with each director participating anonymously in this review process using a grid prepared in advance by this committee and without the presence of Management.

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POSITION AGAINST SEPARATING 13) Audit and Inspection Commission The Audit and Inspection Commission (AIC), established under the Act THE FUNCTIONS OF CHAIR OF respecting financial services cooperatives, acts as an audit committee for THE BOARD AND president FCDQ activities related to the inspection of caisses. It is composed entirely of unrelated officers; two of the members, including the Committee Chair, and CHIEF EXECUTIVE OFFICER have accounting expertise.

The FCDQ’s General Meeting of members (1,500 elected officers) decided The roles and responsibilities of the AIC have been defined in such a way so not to separate the functions of Chair of the Board and of President and as to give its members a very clear understanding of their oversight duties. Chief Executive Officer of Desjardins Group. This decision has been The AIC has all the power and information it needs to fulfill its mandate. integrated into the FCDQ’s Internal By-laws. Its role is to review all financial information and supervise the implementation of an effective control process and the required rendering of accounts. It has Listed hereunder are the main reasons behind this decision: direct communication channels with the persons responsible for internal audit at Desjardins Group, with the Desjardins Bureau for Financial Monitoring n Unlike other companies, where the Chief Executive Officer is appointed and Enforcement(19) and with the external auditors in order to discuss and by the Board of Directors, Desjardins elects this officer through an electoral review certain issues, when necessary. The AIC holds closed-door sessions college of 256 FCDQ member representatives. The CEO’s primary responsibility without the presence of Management. is to protect the interests of the approximately 5.8 million members of Desjardins. The CEO’s interests are therefore aligned with those of the The AIC ensures the independence of Desjardins Group Internal Audit members, who are also the owners of the business. and adopts its annual action plan.

n The Chair of the Board and Chief Executive Officer of Desjardins has no influence over the choice of members serving on the Board of Directors, 14) Hiring outside advisors as they are elected by caisse representatives through democratic bodies A director may hire the services of an outside advisor at the FCDQ’s in charge of their election. expense. However, to ensure that such services are relevant, a request n The Board of Directors created the Committee on the Aggregate must be submitted to the Corporate Governance Commission. Remuneration of the President and Chief Executive Officer of Desjardins Group, which is made up entirely of independent directors, to eliminate any conflict of interest with respect to remuneration.

n Owing to the complex nature of all aspects of Desjardins Group activity management, the Chair of the Board must possess in-depth knowledge about the activities, business and current affairs of both the FCDQ and Desjardins Group in order to effectively act as a leader, whether among elected officers, the management teams of various Desjardins components Governance corporate or caisse members.

n The position of President and Chief Operating Officer of the FCDQ exists to release the Chair of the Board and Chief Executive Officer from operational considerations. The same applies to Desjardins Group subsidiaries, who also benefit from having a Chief Executive Officer (the Chair of the Board and CEO of Desjardins Group) and a Chief Operating Officer. desjardins group

(19) The Desjardins Bureau for Financial Monitoring and Enforcement provides independent opinions on caisse management and the caisses’ financial statements. Consequently, through inspections and audits, it monitors the risks associated with network activities and determines whether these risks are managed based on sound and prudent management practices in compliance with legislation, standards and the rules of conduct in force; moreover, it audits the caisses’ financial statements and co-audits the financial statements of Desjardins Group based on recognized audit standards and expresses an opinion on these statements.

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MANDATES AND COMPOSITION Members Andrée Lafortune*, FCA, Chair OF THE COMMISSIONS, Thomas Blais* the COMMITTEES AND Pierre Leblanc*, FCA Serge Tourangeau* THE BOARD OF ETHICS AND Benoît Turcotte**/* PROFESSIONAL CONDUCT OF THE FCDQ RISK MANAGEMENT COMMISSION (RMC) (composed of six directors)

As at December 31, 2008 This commission assists the Board of Directors in the identification and N.B.: * unrelated person tracking of major risks to the FCDQ and Desjardins Group. In 2008, ** managing director it held seven meetings.

EXECUTIVE COMMITTEE (EC) Members (composed of seven directors) Serges Chamberland*, Chair Jacques Baril*(i) This committee has the same functions and powers as the Board of Norman Grant* Directors, with the exception of those which the Board may reserve André Lachapelle* for itself or assign to another committee or commission. The EC held Marcel Lauzon*(i) 10 meetings and 12 conference calls in 2008. Michel Roy*(i)

Members Andrée Lafortune sits as an observer. Monique F. Leroux(i), Chair of the Board (i) Began their terms at the end of March 2008. Pierre Tardif*, Vice-Chair of the Board Pierre Grenon and Pierre Tardif were members until March 2008. Clément Samson*, Secretary of the Board (i) Louise Charbonneau HUMAN RESOURCES COMMISSION (HRC) André Gagné* (composed of five directors) Daniel Mercier*(i) (i) Denis Paré* This commission periodically reviews the positioning of Desjardins Group’s overall remuneration system in order to enable Desjardins to remain (i) Began their terms at the end of March 2008. Alban D’Amours, André Lachapelle, Daniel Lafontaine and Marcel Lauzon were members competitive. It ensures that the remuneration practices in effect within corporate Governance corporate until March 2008. Desjardins comply with Desjardins Group’s policies and guiding principles. The mandate of this commission excludes the examination of issues COOPERATIVE ORIENTATIONS COMMISSION (COC) concerning the conditions of employment of the Chair of the Board and Chief Executive Officer. The HRC held eight meetings in 2008. (composed of five directors)

This commission ensures compliance with the cooperative values and Members the permanent values of Desjardins Group as well as certain aspects of Monique F. Leroux(i), Chair of the Board its cooperative difference. If required, it submits recommendations to the Pierre Tardif*, Vice-Chair of the Board Board. The COC held seven meetings and two conference calls in 2008. Clément Samson*(i), Secretary of the Board Marcel Lauzon* Members Denis Paré* Serge Tourangeau*, Chair Dominique Arsenault**/* (i) Began their terms at the end of March 2008. Alban D’Amours and André Lachapelle were members until March 2008. Laurier Boudreault Denis Duguay*(i) Michel Roy* COMMITTEE ON THE AGGREGATE REMUNERATION OF THE PRESIDENT AND CHIEF EXECUTIVE OFFICER desjardins group (i) Began his term at the end of March 2008. OF DESJARDINS GROUP (CAR) Louise Charbonneau was a member until March 2008. (composed of four directors)

AUDIT AND INSPECTION COMMISSION (AIC) This committee, all of whose members are unrelated parties, is mandated (composed of five directors) to make recommendations to the Board regarding the remuneration and working conditions, as well as the annual objectives, of the President and This commission oversees Desjardins Group Internal Audit and the Desjardins Chief Executive Officer. The committee held five meetings in 2008. Bureau for Financial Monitoring and Enforcement, supports the Board in its monitoring and control responsibilities for the FCDQ and Desjardins Group, Members and examines in detail all elements related to the disclosure of financial information. In 2008, the AIC held 27 one-day meetings, three conference Pierre Tardif*, Vice-Chair of the Board (i) calls and three training sessions. Clément Samson* , Secretary of the Board Marcel Lauzon* Denis Paré*

(i) Began his term at the end of March 2008. André Lachapelle was a member until March 2008.

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CORPORATE GOVERNANCE COMMISSION (CGC) Members from the Board of Directors, (composed of five directors) representing the employer Denis Paré*, Chair This commission supports the Board of Directors in applying and updating Jacques Baril* the corporate governance program. It also oversees the process for Thomas Blais* recommending candidates for seats on the boards of directors of Desjardins Serges Chamberland* Group subsidiaries. In addition, it is responsible for supervising the performance Norman Grant* review program for members of the Board of Directors and its commissions Pierre Leblanc*(i) and committees, as well as for implementing the Sustainable Development

Policy and the Voting Rights Policy. The Corporate Governance Commission (i) Began his term at the end of March 2008. held six meetings and two conference calls in 2008. Pierre Grenon was a member until March 2008.

Members Representing the members Monique F. Leroux(i), Chair Vincent Coulombe Serges Chamberland*(i) Mario Lévesque André Gagné* Clément Roberge Daniel Mercier* Sylvain Rouleau Sylvie St-Pierre Babin* External representative (i) Began their terms at the end of March 2008. Alban D’Amours and Pierre Leblanc were members until March 2008. Reynald-N. Harpin*

INVESTMENT COMMISSION Representing retirees and members entitled to a deferred pension (composed of four directors and one external member) Normand Deschênes This commission is mandated to support the Board of Directors in establishing and monitoring the investment policies of Desjardins Funds and in overseeing Observer representing active members the selection of securities advisors and sub-advisors. It also examines the performance of the fund and discretionary management and ensures that Johanne Rock investment fund transactions are compliant. The Investment Commission held five meetings in 2008. Observer representing inactive members Yvon Lesiège Members

Daniel Mercier*, Chair INVESTMENT COMMITTEE Governance corporate Jacques Baril* Normand Grégoire* Under the responsibility of the Retirement Committee, which establishes Pierre Leblanc* investment policy, the Investment Committee’s mandate is to ensure the Denis Paré* execution of the policy as well as to coordinate the activities of the fund managers to whom management mandates are entrusted. The Investment Committee held six meetings and three conference calls in 2008. DESJARDINS GROUP RETIREMENT COMMITTEE (DGRC) Members (composed of representatives of employers, members and retirees, plus one external member) Jacques Baril*, Chair Denis Paré* By virtue of the powers vested in it by the Supplemental Pension Plans Act and Serges Chamberland* by the Desjardins Group Pension Plan Regulation, the Retirement Committee Reynald Harpin* is in charge of properly administering the Pension Plan, managing the pension Pierre Leblanc*(i) fund and paying members and their survivors the promised benefits. The Clément Roberge members representing employees, employers and retirees share the role of pension fund trustees. The Retirement Committee met five times in 2008. (i) Began his term at the end of March 2008. desjardins group The Fédération des caisses Desjardins du Québec represents all Desjardins employers with respect to the Desjardins Group Pension Plan. The FCDQ’s Board of Directors has decision-making power in certain areas, including the Plan Regulation, the nature and terms of benefit payments to members and retirees, contribution rates and the use of any surplus. Through its Board of Directors, the FCDQ stands surety for the obligations (employee pensions) resulting from the participation of all Desjardins Group employers in the Plan.

Employer representatives are appointed by the FCDQ’s Board of Directors. Representatives of members and retirees are elected democratically by the group they represent.

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AUDIT, PROFESSIONAL PRACTICES BOARD OF ETHICS AND PROFESSIONAL CONDUCT AND COMPLIANCE COMMITTEE OF THE FCDQ (composed of eight elected officers) This committee is responsible for overseeing the financial reporting process, rules governing professional conduct and ethics, the Complaint Under the Act respecting financial services cooperatives, the FCDQ has Handling Policy, regulatory compliance management and governance. a Board of Ethics and Professional Conduct that is independent of the It held five meetings and one training session in 2008. Board of Directors, the eight members of which are elected officers of Desjardins. The Board of Ethics and Professional Conduct is supported by Members a team that reports to the Secretariat General of the FCDQ. In 2008, the Norman Grant*, Chair Board held 13 regular meetings and seven conference calls. The members Normand Deschênes, Secretary were invited to participate in a seminar in the same year. Thomas Blais*(i) One of the main responsibilities of the Board of Ethics and Professional (i) Began his term at the end of March 2008. Conduct is to ensure the independence and objectivity of the FCDQ’s Pierre Grenon was a member until March 2008. inspection and audit services (Desjardins Bureau for Financial Monitoring and Enforcement – see footnote on page 181) with respect to the caisses DESJARDINS GROUP STRATEGIC and to make recommendations to the Chair of the Board and Chief MANAGEMENT STRUCTURE COMMITTEE Executive Officer of Desjardins Group for the appointment of the person responsible for managing these services. (composed of 13 members of Management)

This committee supports the Chair of the Board and Chief Executive Officer In addition to the responsibilities mentioned above, the role of the Board of Desjardins Group and the Board of Directors in their responsibility of of Ethics and Professional Conduct includes adopting the rules of conduct providing Desjardins Group with a single management structure. To achieve applicable to the officers of Desjardins Group and the subsidiaries and to this, it helps the Board incorporate the strategic orientations of the cooperative the employees of the FCDQ and the caisses, presenting them for approval to network and the subsidiaries, and implement business development strategies. the Board of Directors and ensuring that they are complied with by the caisses It held 16 meetings and 16 conference calls in 2008, mainly in the context and the FCDQ; supporting the caisses and the FCDQ in applying the rules of the financial crisis that has prevailed since 2007, where it acted as a of conduct; issuing notices, opinions, observations and recommendations crisis committee. At the beginning of 2009, the Desjardins Group Strategic with respect to ethical and professional conduct issues (especially in cases Management Committee assigned this oversight role to the Finance and of misconduct); notifying the Board of violations to the rules of ethics and Risk Management Committee, which meets on a weekly basis and reports professional conduct and, if the FCDQ violates the provisions of the back to the Strategic Management Structure Committee. Act respecting financial services cooperatives or the regulations governing restricted party transactions and conflicts of interest, ensuring that complaints Members originating from the caisses or other members of the FCDQ (Caisse centrale

corporate Governance corporate Desjardins, holding companies, subsidiaries) are handled. This board holds Monique F. Leroux, Chief Executive Officer of Desjardins Group closed-door sessions without the presence of Management. and Chair of the Committee Bertrand Laferrière, President and Chief Operating Officer Members of the Fédération des caisses Desjardins du Québec and Vice-Chair of the Committee Hélène Lee-Gosselin*, Chair Germain Carrière, President and Chief Operating Officer, Claire Sarrazin*, Secretary Desjardins Securities Isabelle Bourgeois* Jacques Dignard, Senior Vice-President, Human Resources, Marcel Cardinal* Desjardins Group Josyane Douvry* Richard Fortier, President and Chief Operating Officer, Lise B. Perreault*(i) Desjardins Financial Security Ronald Pichette* Louis-Daniel Gauvin, Senior Vice-President, Jacques St-Aubin* Integrated Risk Management of Desjardins Group Gérard Guilbault, President and Chief Operating Officer, (i) Began her term at the beginning of November 2008. Éric Béchard was a member until May 2008. Desjardins Asset Management Marc Laplante, Senior Vice-President, Fédération Finance and Credit and Desjardins Group Development desjardins group Raymond Laurin, Senior Vice-President and Chief Financial Officer, Desjardins Group Bruno Morin, General Manager of Caisse centrale Desjardins Sylvie Paquette, President and Chief Operating Officer, Desjardins General Insurance Group Louis L. Roquet, President and Chief Operating Officer, Desjardins Venture Capital Pauline D’Amboise, Secretary General of Desjardins Group, acts as secretary and functional head of this committee

Observers Jacques Descoteaux, Senior Vice-President, Treasury of Desjardins Group Hubert Thibault, Managing Vice-President, Institutional Affairs of Desjardins Group

This committee created Desjardins-wide coordination sub-committees in the following areas: Asset/Liability, Integrated Risk Management, Information Technology, Real Estate and Image (Branding).

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RECORD OF ATTENDANCE OF THE BOARD MEMBERS OF THE FCDQ

Name(20) IC APPCC BD EC CBDAB COC AIC RMC HRC CAR CGC IC DGRC DGRC DGRC CORE Arsenault, Dominique** 26/27 8/9 10/10

Baril, Jacques 27/27 5/5 4/5 5/5 9/9 13/13

Blais, Thomas 27/27 1/1 27/30 4/5 4/4 7/8

Boudreault, Laurier 26/27 9/9 7/9

Chamberland, Serges 27/27 7/7 6/6 5/5 9/9 10/10

Charbonneau, Louise 25/27 19/22 2/2 9/13

D’Amours, Alban 5/5 3/3 1/1 2/2 N/A

Duguay, Denis 22/22 7/7 11/11

Dumas, Alain 27/27 9/10

Gagné, André 25/27 25/25 8/8 8/8

Grant, Norman 25/27 5/7 5/5 4/5 10/10

Grenon, Pierre 5/5 2/2 1/1 1/1 11/11

Lachapelle, André 25/27 3/3 7/7 1/2 4/4 10/10

Lafontaine, Daniel 26/27 3/3 8/11

Lafortune, Andrée 24/27 30/30 7/7 11/11

Lauzon, Marcel 26/27 3/3 4/5 8/8 5/5 10/11 Governance corporate

Leblanc, Pierre 26/27 30/30 2/2 5/5 4/4 5/5 10/10

Leroux, Monique F. 22/22 22/22 1/1 7/7 6/6 N/A

Mercier, Daniel 21/27 12/22 7/8 5/5 11/11

Paré, Denis 22/27 21/22 8/8 4/5 5/5 4/5 9/9 11/12

Roy, Michel 27/27 8/9 3/5 9/9

Samson, Clément 24/27 22/25 6/6 1/1 9/9

St-Pierre Babin, Sylvie 27/27 1/1 8/8 9/9

Tardif, Pierre 27/27 25/25 1/1 2/2 7/8 5/5 9/9 desjardins group Tourangeau, Serge 27/27 9/9 30/30 11/11

Turcotte, Benoît** 26/27 30/30 12/12

(20) Board of Directors (BD), Executive Committee (EC), Canadian Business Development Advisory Board (CBDAB), Cooperative Orientations Commission (COC), Audit and Inspection Commission (AIC), Risk Management Commission (RMC), Human Resources Commission (HRC), Committee on the Aggregate Remuneration of the President and Chief Executive Officer of Desjardins Group (CAR), Corporate Governance Commission (CGC), Investment Commission (IC), Desjardins Group Retirement Committee (DGRC), Investment Committee of the Desjardins Group Retirement Committee (IC DGRC), Audit, Professional Practices and Compliance Committee of the Desjardins Group Retirement Committee (APPCC DGRC), Council of Representatives (CORE).

Note For the Board of Directors, 27 attendance allowance payments were made. The Board actually held nine two-day meetings. It also held five one-day meetings. The policy allows for a payment of $1,000 per day. The other four meetings were conference calls.

For the EC, 12 of the 22 meetings were conference calls. The policy therefore allows for attendance allowance payments of $200.

For the AIC, there were 30 attendance allowance payments. The AIC actually held one three-day meeting, five two-day meetings, 14 one-day meetings and three conference calls, including three training sessions. The AIC oversees the activities of the FCDQ, Desjardins Venture Capital, Caisse centrale Desjardins, Capital Desjardins and Desjardins Trust. It also gives advisory opinions to the boards of the various investment funds and to the Board of the Financial Services Firm.

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RECORD OF ATTENDANCE OF MEMBERS OF THE BOARD OF ETHICS AND PROFESSIONAL CONDUCT OF THE FCDQ

Name Number of Meetings Béchard, Éric(i) 8/8 Bourgeois, Isabelle 20/20 Cardinal, Marcel 18/20 Douvry, Josyane 20/20 Lee-Gosselin, Hélène 19/20 Pichette, Ronald 19/20 Perreault, Lise B.(ii) 4/4 Sarrazin, Claire 19/20 St-Aubin, Jacques 18/20

(i) Éric Béchard was a member until May 2008. (ii) Began her term at the beginning of November 2008.

The absences of the directors were due to professional duties or to the illness of relatives. In addition, when they are absent, the presidents of councils of representatives are replaced their by vice-presidents in the capacity of managing directors, thus assuring the region’s continuous presence.

MEMBERS OF THE COUNCILS OF REPRESENTATIVES

Considering that 255 people are involved, the Board of Directors has decided to publish the attendance rate for the meetings of the 17 councils of representatives.

2008 Attendance Number of Rate (as a %) Meetings Bas-Saint-Laurent–Gaspésie– Îles-de-la-Madeleine 92 10

corporate Governance corporate Kamouraska–Chaudière-Appalaches 84 9 Québec-Est 89 8 Québec-Ouest–Rive-Sud 86 9 Saguenay–Lac-Saint-Jean– Charlevoix Côte-Nord 93 10 Centre-du-Québec 89 11 Mauricie 89 10 Estrie 87 12 Richelieu-Yamaska 93 11 Lanaudière 87 10 Rive-Sud de Montréal 88 9 Laval-Laurentides 87 11 Ouest de Montréal 90 11 Est de Montréal 84 13 Abitibi-Témiscamingue–Nord du Québec 87 12 et Ouest du Québec 96 9 Group Caisses 87 11

desjardins group Ontario 90 8

Assembly of Representatives

2008 Number of representatives Attendance in attendance rate (as a %)

March 15, 2008 249 97 March 28, 2008 242 94 June 7, 2008 210 82 September 20, 2008 208 81

36099_p173a186_ENG.indd 186 12/03/09 14:44:59 MDRP9-003 • Desjardins • Rapport annuel 2008 • Mouvement des caisses desjardins Section : Empreinte sociale • Version : Anglaise • épreuve : finale • Approuvée le : 11-03-2009 • format : 9” x 11 3/4” • COULEURs : Noir + pantone 347

187 THE SOCIAL AND COOPERATIVE IMPACT OF DESJARDINS GROUP

This summary describes the highlights of the social performance of Desjardins Group as a cooperative financial group with the mission to contribute to improving the economic and social well‑being of people and communities. In doing business with Desjardins, our members and clients not only meet their personal finance needs, but also participate, “one step at a time”, in the development of a more economically viable, equitable and responsible society. SOCIAL AND COOPERATIVE IMPACT IMPACT SOCIAL AND COOPERATIVE DESJARDINS GROUP

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Social responsibility and Largest private employer in Québec and Best Employer in Canada for sustainable development 2009, according to Report on Business magazine, Desjardins places its employees at the centre of its priorities. Over the years, in addition to The notion of social responsibility is integral to Desjardins Group’s responding to a number of surveys to measure their level of engagement, mission. Our elected officers and employees ensure that the mission employees have also participated in focus groups and action-oriented is carried out on a day-to-day basis by: committees and are kept informed on current issues involving Desjardins. In a recent employee survey, 90% of respondents(1) said that they support n Maintaining its dynamic and unique cooperative governance Desjardins Group in its sustainable development initiatives.

n Upholding a healthy work environment that contributes Desjardins Group also participates in discourse on social responsibility to the development and well-being of individuals with other stakeholders, such as business partners, non-profit organizations, n Supporting communities through various commitments that add universities, the various levels of government, the media and any other to their prosperiety and improve their quality of life individual or corporation that may be affected by Desjardins Group’s n Implementing commercial and management practices that are respectful operations or that could affect our future. of the environment, human rights and those who are less well-off. Best Corporate Citizen In 2005, Desjardins adopted a Sustainable Development Policy. Based on social responsibility, this policy is completely in line with Desjardins In 2008, Desjardins Group was ranked 20th among the 50 Best Group’s mission for all of its activities. Desjardins Group adheres to and Corporate Citizens of Canada in Corporate Knights magazine and implements the principles of the United Nations’ UNEP Statement by was named a finalist for the Prix de l’entreprise citoyenne (Québec Financial Institutions on the Environment and Sustainable Development corporate citizenship prize) awarded by Korn/Ferry International and (UNEP-FI), and measures its performance progressively. It has also established L’Actualité magazine. preferred partnerships with various organizations dedicated to public awareness and action, such as Équiterre, Earth Day and La Tablée des chefs. Scope

Our cooperative nature This 2008 report presents the performance of all Desjardins Group and our stakeholders components, but does not cover our affiliated federations in New Brunswick and Manitoba. The indicators chosen are based on Global Because it is a cooperative, Desjardins maintains open dialogue Reporting Initiative (GRI) guidelines and address our stakeholders’ with members and their elected representatives, particularly through main concerns. A complete index of the selected GRI indicators caisse and FCDQ general meetings and consultations, thereby allowing corresponding to a level C application of the guidelines is included members to influence both caisse and Desjardins Group governance. at the end of this section. A more complete report on our social As such, in 2009, members will be asked for their opinions on various activities will be available on desjardins.com in the fall. proposals aimed at consolidating Desjardins Group’s positioning in terms of social responsibility and sustainable development. SOCIAL AND COOPERATIVE IMPACT IMPACT SOCIAL AND COOPERATIVE DESJARDINS GROUP

For any questions or comments regarding this summary, please contact: Communications and Institutional Advertising Department, Desjardins Group Fédération des caisses Desjardins du Québec Telephone: 418-835-8444 Toll-free: 1-866-835-8444

(1) Out of the 20,000 employees solicited, 15,590 answered the survey conducted by the firm Hewitt Associates in the spring of 2008.

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GOVERNANCE

Participation in the democratic aspect of caisse activities 2008 2007 2006 Number of members attending caisse annual general meetings 88,274 89,881 87,810 Percentage of member attendance at caisse annual general meetings 1.56 % 1.69 % 1.65 % Number of caisse delegates at regional and group caisse general meetings 1,026 1,100 1,147 Number of delegates at FCDQ general meetings 2,136 2,201 2,489 Percentage of representatives who participated in Assemblies of Representatives(2) 89.2 % 89.3 % 81.4 %

Representation of women in caisse governance 2008 2007 2006 Women officers 34.4 % 33.8 % 33.2 % Women who chair a board of directors 13.5 14 15 Women who chair a board of supervision(3) 34.2 33.1 35

Elected officer representation by age group 2008 2007 2006 Officers between the ages of 18 and 34 10.8 % 10.1 % 10 % Officers between the ages of 35 and 49 21.3 22.8 24.2 Officers between the ages of 50 and 64 44.4 45.2 45.4 Officers aged 65 and up 25.5 21.9 20.4

Corruption 2008 2007 2006 Strategic fields of activity subject to the new risk and control self-assessment practices for operational risk, including internal fraud 89 % 31 % 0 %

INVESTMENT

Desjardins Venture Capital (in millions of $) 2008 2007 2006 SOCIAL AND COOPERATIVE IMPACT IMPACT SOCIAL AND COOPERATIVE Value of venture capital assets invested in the outlying regions $ 526 $ 522 $ 494 Value of assets invested in cooperatives or other businesses located in resource regions 122 117 122 By sector Biotechnology 85 88 78 Renewable energy 11 11 6 DESJARDINS GROUP

(2) The Assembly of Representatives is held three times per year, bringing together the members of the 17 councils of representatives in Québec and Ontario, as well as the President and Chief Executive Officer of Desjardins Group (256 participants). (3) Only caisses in Québec have boards of supervision.

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COMMUNITY INVOLVEMENT

School Caisse 2008 2007 2006 Caisses offering the School Caisse program(4) 79 % 76 % 74 % Schools participating in the School Caisse program 1,200 1,100 1,100 Total value of youth dividends paid to members of the School Caisse program (youth aged 5 to 14) $ 337,779 $ 285,789 $ 265,430

Community Development Fund (CDF) (in millions of $ and as a %) 2008(5) 2007 2006 Caisses that have a CDF — % 87.7 % 86 % CDF balance at year-end $ — $ 75.2 $ 66 Amounts paid into the CDF during the year — 35.3 31.9 Amounts paid to support initiatives — 26.2 20.9

SCHOLARSHIPS AND awards granted by Fondation Desjardins(6) 2008 2007 2006 University scholarships $ 431,700 $ 416,375 $ 404,000 Scholarships to support training (other than university) 71,680 64,600 68,150 Scholarships for cooperative spirit 35,700 79,500 72,500 Recognition awards for volunteering 33,500 33,500 25,000 Awards to support entrepreneurship 70,000 90,000 85,000 Total number of scholarships and awards granted 315 350 354 Total value of scholarships and awards granted $ 642,580 $ 683,975 $ 654,650

Scholarships granted by the caisses 2008 2007 2006 Total number of scholarships granted by the caisses 2,342 2,652 1,923 Total value of scholarships granted by the caisses $ 1,403,977 $ 1,131,400 $ 925,079

Sponsorships and donations by sector(7) (in millions of $) 2008 2007 2006

SOCIAL AND COOPERATIVE IMPACT IMPACT SOCIAL AND COOPERATIVE Arts and culture $ 10.4 $ 8.5 $ 5.6 Regional economic development 17.9 15.2 18.9 Education 10.7 12.2 7.4 Mutual assistance and solidarity 9.1 6.5 7.3 Health and wellness 21.9 19.6 16.1 Sports and recreation 8.7 8.5 8.1 Environment 1.4 1.2 0.5 Total $ 80.1 $ 71.7 $ 63.9 DESJARDINS GROUP

(4) Data based on a voluntary census carried out among the caisses. (5) The amount as at December 31, 2008 will not be known until June 2009, after the annual general meetings of the caisses and will be published in the full report in fall 2009. (6) Data does not include scholarship and bursary programs provided by the caisses, the FCDQ or the subsidiaries. (7) Includes scholarships and awards granted by Fondation Desjardins.

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SPONSORSHIPS AND DONATIONS

AMOUNTS PAID OUT BY MAJOR PERCENTAGE OF SURPLUS FINANCIAL INSTITUTIONS(8) EARNINGS (PROFIT) PAID OUT BY MAJOR (in millions of $) FINANCIAL INSTITUTIONS

90 110

100 )

80 (9 90 70 80.1 80 102.7 60 70 50 60 59.5 40 50 40 30 30 20 20

10 10 6.4 2.9 0 0 r s s s Major Majo banks bank Canadian Canadian Desjardins Desjardin related to related Desjardins specific items specific Without losse Without – –

Annual financial support for the cooperative movement(10) 2008 2007 2006 Conseil québécois de la coopération et de la mutualité $783,360 $ 696,640 $ 672,160 Conseil de la coopération de l’Ontario 21,817 20,300 18,500 Conseil canadien de la coopération 15,000 35,000 45,000 International Co-operative Banking Association 7,215 6,300 6,300 International Co-operative and Mutual Insurance Federation (ICMIF) 62,184 54,549 54,200 Americas Association of Cooperative/Mutual Insurance Societies (ICMIF American regional chapter) 43,521 31,381 30,537

International Confederation of Popular Banks 43,885 38,556 38,556 IMPACT SOCIAL AND COOPERATIVE International Co-operative Alliance 69,273 64,008 58,752 Total $ 1,046,255 $ 946,734 $ 924,005 DESJARDINS GROUP

(8) According to data available as at March 1, 2009. (9) The overall profitability of Desjardins Group was significantly affected by certain specific items for fiscal 2008, namely the asset-backed commercial paper (ABCP) crisis and the financial crisis, and totalled $1,172 million after income taxes. If these items are excluded, surplus earnings before member dividends would have reached $1,250 million. Exceptionally, in 2008, surplus earnings on after-tax income totalled $78 million, while the amount paid out in donations reached $80.1 million. (10) Includes financial contributions by the Fédération des caisses Desjardins du Québec, the Fédération des caisses populaires de l’Ontario, Desjardins Financial Security and Desjardins General Insurance Group.

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PRODUCTS AND SERVICES

Accessibility of Desjardins Group 2008 2007 2006 Number of caisses 513 536 549 Number of business centres 52 52 56 Number of service centres 883 919 922 Number of ATMs 2,764 2,769 2,782

POINTS OF SERVICE IN AREAS MEMBER SATISFACTION(12) SATISFACTION WITH THE FCDQ WITH LOW POPULATION DENSITY(11) (as a % of “very satisfied” members) (as a % of “very satisfied” members) (%)

70 60 40 60 65 35 64 50 61 61 60 36

50 49 54 30 47 40 44 25 40 42 30 38 20 30 33 20 15 20 10 10 10

5 3.5 0 0 0 r s s 2006 2007 2008 2006 2007 2008 Majo bank Canadian Desjardin Individuals Caisses

Businesses Business centres

Cooperative difference satisfaction survey 2008 2007 2006 SOCIAL AND COOPERATIVE IMPACT IMPACT SOCIAL AND COOPERATIVE “Very satisfied” individual members 44 % 40 % 37 % “Fairly satisfied” and “very satisfied” individual members 84 82 81 “Very satisfied” business members 52 50 43 “Fairly satisfied” and “very satisfied” business members 89 88 87 Cooperation as an advantage compared to the banks – “very satisfied” 32 28 27

MICROCREDIT AND SOLIDARITY PRODUCTS 2008 2007 2006 Desjardins Mutual Aid Funds (DMAF) Participating caisses 59.4 % 55 % 44 % Number of loans granted through a DMAF 672 629 554 Amounts lent through a DMAF $ 409,712 $ 366,324 $ 309,664 Microcredit DESJARDINS GROUP Participating caisses 5 % 4.7 % 4.5 % Financing granted $ 208,055 $ 172,854 $ 101,523 Créavenir Participating caisses 16 % 5 % 1 % Loan amounts $ 160,156 $ 46,000 $ 41,500 Subsidy amounts $ 55,350 $ 21,900 $ 17,500

(11) Municipalities of less than 2,000 persons that are not part of an urban area, as defined by Statistics Canada. The average population density in these municipalities is 0.5 person per km2. Data for Québec only. (12) The 2006 satisfaction index used the previous accessibility measurements.

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SOCIALLY RESPONSIBLE INVESTMENT 2008 2007 2006 Desjardins Environment Fund Monetary value (in millions) $ 91.77 $ 123.9 $ 110,29 Number of unitholders 19,336 18,169 18,881 Desjardins Ethical Canadian Balanced Fund(13) Monetary value (in millions) $ 15.98 $ 18.5 $ 14.82 Number of unitholders 3,265 3,360 3,066

Results of the Eco-Friendly Statement Challenge 2008 2007 2006 Annual paper savings (in number of sheets) 1,426,824 1,202,940 4,600,000 Number of enrollments/trees planted 27,245 22,224 92,295

Quantity of greenhouse gas compensated by planting trees (in tonnes of CO2 equivalent) 91 74 308 Percentage of accounts with virtual statements 31.5 % 26.4 % 20.9 %

Contribution to the development of financial cooperatives in emerging countires 2008 2007 2006 Number of members or clients of institutions partnering with Développement international Desjardins 5,914,051 4,085,196 3,144,071 Volume of savings for these institutions (millions of C$) 1,679 1,274 794 Volume of credit granted (millions of C$) 1,924 1,316 735 Percentage of women who are members or clients 35.7 % 41.1 % 40.5 %

IMPACTS OF OPERATIONS

ECONOMIC SPINOFFS(14) (in millions of $) 2008 2007 2006 Economic contribution of Desjardins Group’s operations — — $ 4,843 Jobs generated by Desjardins Group’s operations — — 67,551

climate impact related to the financing IMPACT SOCIAL AND COOPERATIVE of businesses that generate fossil fuels (15) (in CO2 emissions) (in tonnes)

250,000

200,000

150,000 198,339

100,000 DESJARDINS GROUP

50,000 123,773 97,473 101,438 87,461 14,926 0 479 l IBC RBC ncity C Va TD Bank TD Desjardins Scotiabank BMO Financia BMO

(13) The Desjardins Ethical Canadian Balanced Fund is now known as the SocieTerra Secure Market Portfolio, following changes to its investment objective submitted for approval at a special meeting for shareholders on November 7, 2008. SocieTerra is a socially responsible mutual fund investment concept comprised of four portfolios based on the investor profile. (14) According to a study by Desjardins Economic Studies based on the operating expenses in Québec of Desjardins Group in 2006 and published in 2008. (15) According to a study conducted by Rainforest Action Network, www.climatefriendlybanking.org. Fossil fuels include oil, natural gas and coal.

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ENVIRONMENT

Residual waste management The publication of this data was temporarily suspended to allow sufficient time to go into greater detail on our impact analysis and to establish a data collection system that meets our strict criteria

Paper consumption(16) 2008 2007 2006 Total usage – internal usage and external correspondence (tonnes) 4,292 4,182 4,302 Percentage of recycled paper 70 % 57 % 26 %

(17) Greenhouse gas emissions (GHG) in tons of CO2 equivalent 2008 2007 2006 Direct emissions – car fleet, fuel 16,198 16,888 16,744 Indirect emissions – electricity, steam 4,183 4,371 4,280 Indirect emissions – leased vehicles, private vehicles, airplane, Desjardins shuttle, rented offices (fuel), paper(18) 22,037 25,121 26,303 Total GHG emissions 42,418 46,380 47,327 Emission intensity (tonnes/employee) 1.02 1.16 1.19

2.

TOTAL GHG EMISSIONS BY TYPE OF ACTIVITY

1. 52% Real estate and administrative 2. 48% Business travel

1. SOCIAL AND COOPERATIVE IMPACT IMPACT SOCIAL AND COOPERATIVE

3. 4. EMISSIONS BY TYPE OF ACTIVITY – Real Estate and Administration 2. 1. 45% Fuel 2. 36% Paper 3. 18% Electricity 4. 1% Steam 1. DESJARDINS GROUP 4. 5. 3. EMISSIONS BY TYPE OF ACTIVITY – Business Travel 2.

1. 49% Car fleet 2. 35% Private vehicles 3. 10% Plane 4. 5% Leased vehicles 5. 1% Shuttle service 1.

(16) According to data provided by main Desjardins suppliers and voluntary census carried out among the caisses. (17) Electricity and fuel conversion factors were updated according to the most recent Environment Canada report (National Inventory Report: Greenhouse Gas Sources and Sinks in Canada, 1990-2006), resulting in a revision of previously published data. Data from the caisses are based on an annual voluntary census. (18) Calculations based on the Environmental Defense Fund Paper Calculator.

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HUMAN RESOURCE MANAGEMENT

Employee distribution 2008 2007 2006 By component FCDQ 7,211(19) 6,264 6,424 Caisses 25,145 24,528 24,187 Subsidiaries 9,565 9,553 9,374 By province Québec 39,119 37,621 37,305 Lévis-Québec City 9,081 8,587 8,452 Greater Montréal 13,804 12,702 12,727 Other regions 16,234 16,332 16,126 Ontario 2,650 2,585 2,545 Other provinces 96 81 85 Outside Canada 56 58 50 By status(20) Regular 36,419 34,926 31,981 Temporary 4,636 4,662 4,552 By job category(20) Senior management 772 834 846 Management employee 2,553 2,465 2,334 Non-management employee 37,730 36,289 35,801 Total 41,921 40,345 39,985

Representation of young employees, aged 30 and under 2008 2007 2006 Total workforce 18.5 % 18.8 % 18.3 % Senior management 0 0.1 0 Management employees 2.4 2.8 2.7 Non-management employees 20.0 20.3 19.7

Representation of women 2008 2007 2006 Senior management 19.2 % 19.1 % 19.3 % Management employees 56.9 56.2 55.1

Non-management employees 74.0 79.3 79.3 IMPACT SOCIAL AND COOPERATIVE

Voluntary departures of regular employees(21) 2008 2007 2006 Regular employees who voluntarily left Desjardins 4.8 % 4.8 % 4.0 %

Inter-component mobility(22) 2008 2006 2006 Employees filling positions and having come from another Desjardins component 5.7 % 5.8 % 6.2 % Senior management 13.7 10.3 11.1 Management employees 8.0 12.2 7.3 Non-management employees 5.4 5.3 6.1 DESJARDINS GROUP Occupational Health and Safety

Promotion of health 2008 2007 2006 Percentage of payroll invested in illness prevention and health promotion programs 0.6 % 0.6 % 0.6 % Number of Desjardins participants in the 5/30 Health Challenge 18,821 9,008 10,366 Number of employees who took advantage of the flu shot campaign 11,457 11,038 11,92

(19) The difference between 2007 and 2008 can be explained largely by the transfer of employees from subsidiaries to the FCDQ for the Shared Services Centre for Back-Office Services – Specialized Savings Products. (20) Does not include data for 14 group caisses and six Ontario caisses. (21) Does not include retirements. (22) Does not include mobility within the caisses, but does include mobility from a caisse to a subsidiary or from a caisse to the FCDQ.

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Global Reporting Initiative (GRI) Performance Indicators and Indicator Protocol(23)

GRI Ref. # Desjardins response GRI Ref. # Desjardins response

Strategy and analysis 4.8 p. 174, 184

1.1 p. 8-11 4.9 p. 174-175, 181-184

1.2 p. 8-11 4.10 p. 177

Organization profile 4.11 p. 181

2.1 p. 2 4.12 p. 16, 25, 188, 191

2.2 p. 5 4.13 p. 191

2.3 p. 4 4.14 p. 188

2.4 C2 4.15 p. 188

2.5 p. 3 4.16 p. 18, 20, 188

2.6 C2 4.17 p. 18, 20, 188

2.7 p. 2 Economic indicators

2.8 p. 2 EC1 p. 6-7, 77, 190-191, 193

2.9 None Environmental indicators

2.10 p. 28-29 EN2 p. 194

Report parameter EN16 p. 194

3.1 p. 188 EN17 p. 194

3.2 2007 EN26 p. 193

3.3 Annual Labour practices and decent work SOCIAL AND COOPERATIVE IMPACT IMPACT SOCIAL AND COOPERATIVE 3.4 p. 188 LA1 p. 195

3.5 p. 188 LA2 p. 195

3.6 p. 188 LA8 p. 195

3.7 p. 188 LA13 p. 189

3.8 None Society

3.10 None SO2 p. 189

3.11 None Product responsibility

DESJARDINS GROUP 3.12 p. 196 PR5 p. 192

Governance Financial sector supplement

4.1 p. 174, 177, 180-184 FS7 p. 193

4.2 p. 180-181 FS8 p. 193

4.3 p. 176 FS13 p. 192

4.4 p. 176 FS14 p. 192

4.5 p. 177, 182 FS15 p. 190

4.6 p. 174, 184

4.7 p. 177, 182

(23) Information on the GRI, as well as a description of each indicator listed above, can be found online at www.globalreporting.org.

36099_p187a196_ENG.indd 196 12/03/09 14:40:44 Cooperate A STRONG PRESENCE to shape IN THE COMMUNITIES

The economic and social well-being of individuals and the communities THE IMAGE MILL BY ROBERT LEPAGE our destiny it serves is intrinsic to Desjardins Group’s mission. That is why, each year, AND EX-MACHINA IN QUÉBEC CITY Desjardins supports cooperative, economic, cultural, educational, charitable, social and athletic projects and organizations, not only through For over a hundred years, cooperation has been the heart and soul sponsorships, donations and scholarships, but also through individual HEAD OFFICE caisse Community Development Funds. The proximity of the caisses and of Desjardins, the largest cooperative financial group in Canada, subsidiaries to their members and clients helps Desjardins Group maintain and serving members has been its driving force. Resolutely looking Fédération des caisses Desjardins du Québec an active presence in outlying regions as well as in major urban centres, towards the future, Desjardins is changing. It changes through 100, rue des Commandeurs Lévis (Québec) G6V 7N5 both in Québec and elsewhere in Canada, among people of all ages, across active cooperation, maintenance of its values and drawing on Canada all sectors of activity and from many different cultural communities. every talent, to further its development. Telephone: 418-835-8444 1-866-835-8444 In 2008, Desjardins Group commitments amounted to $80 million, for total MADAMA BUTTERFLY AT THE OPÉRA DE MONTRÉAL Fax: 418-833-5873 returns to the community of close to $216 million over the past three years. Each day, its cooperative nature is demonstrated through the caisse model and is expressed through democratic governance, accessibility One very important partnership in 2008 involved celebrations held in honour and openness to all people, regardless of their financial means, and VERSION FRANÇAISE of the 400th anniversary of the founding of Québec City. The festivities brought by sharing its surplus earnings with its members and the community, together people from all across Québec and attracted visitors from other Canadian provinces and the world over. As a Major Partner, Desjardins Group provided as financial circumstances allow. On peut obtenir la version française de ce substantial financial support that made it possible to present some fifteen Rapport annuel sur demande. large-scale events. As always, the fundamental strength of Desjardins is found in the richness This annual report was produced by the of its human capital: more than 5.8 million members, 6,299 elected Institutional Affairs Administrative Division of Elsewhere in the province and across Canada, Desjardins Group supported a wide Desjardins Group (Communications and Public variety of initiatives in sectors as diverse as arts and culture, sports and leisure, FESTIVAL EN CHANSON DE PETITE-VALLÉE officers and 42,000 employees. Its cooperative business model has SONG FEST IN GASPÉSIE Affairs Division) and the Financial Executive economic development, education, and health and community services. enabled Desjardins to generate financial wealth that provides leverage Division of Desjardins Group (Control, Planning for furthering its development and influence. It is this same vital strength and Financial Performance Management In the field of arts and culture, this support included funding provided to the that allows the organization to make further headway towards meeting Division; Disclosure and Accounting Opéra de Montréal, the Théâtre du Nouveau Monde, the Festival en chanson Standardization Executive Department). the challenges of tomorrow. de Petite-Vallée song fest, the Musée national des beaux-arts du Québec, as well as Canadian tours of the Cirque du Soleil.

As the real driving force behind Desjardins Group, the caisses, bolstered Desjardins also backed several sports and leisure activities, signing partnerships by their subsidiaries, are active participants in the organization’s growth with the Fédération de soccer du Québec and Canadian Interuniversity Sport and advancement. To strengthen the entrepreneurial capacity of the for annual events throughout the province and the country, as well as with CANADIAN TOUR OF cooperative network, elected officers and general managers must directly Tennis Canada’s Rogers Cup. Various festivals also received funding from Desjardins, CIRQUE DU SOLEIL’S CORTEO contribute to the development of Desjardins Group as a whole. Thus, such as the Festival Western Saint-Tite, the Traversée internationale du lac for the 2010-2012 Strategic Plan, caisse general managers represent Memphrémagog, the Québec City Summer Festival, Montréal’s Francofolies event and Québec City’s Carnaval. more than 50% of all participants on the task forces created to propose ways to deal with Desjardins Group’s greatest issues and challenges. Numerous organizations that oversee the economic development of their sector or community also received assistance from Desjardins Group, as did certain This is where cooperation is at its best. This is where the ever growing educational organizations such as the Literacy Foundation and the Commerce Games. Desjardins also entered into a partnership with La Presse to support the collective strength of Desjardins Group drives itself to reach greater distribution of free newspapers to some 15,000 students in multicultural high heights and to make Desjardins the most admired financial institution schools in five French- and English-language school boards in Montréal. in Canada; as well as the most respected in terms of its mission, its TENNIS CANADA’S ROGERS CUP IN TORONTO cooperative values and the close ties that exist between its caisses Finally, health and community services will always remain a main concern for and their communities. Desjardins Group, which includes donations to Centraide/United Way among its many commitments in that area, as well as volunteer action by its employees. Its overall contribution to this charity amounted to nearly $3 million in Québec and some $3.9 million across Canada.

This report was printed on paper containing 100% post-consumer fibers certified FSC (Forest Stewardship Council), processed chlorine free and manufactured using biogas energy. Paper Graphic design: lg2boutique made with FSC certified fiber and bearing the FSC logo is your guarantee that it has come from Production: lg2fabrique responsibly managed forests that maintain the highest environmental and social standards according to the Forest Stewardship Council. Photos: Éventus Printing: J.B. Deschamps FESTIVAL WESTERN SAINT-TITE Committed to sustainable development, Desjardins Group favours the use of paper that is manufactured in Canada in accordance with recognized environmental standards. PRINTED IN CANADA

36099_Couv_ENG.indd 2 16/03/09 16:41:42 MDRP9-003 • Desjardins • Rapport annuel 2008 • Mouvement des caisses desjardins Section : Couverture • Version : Anglaise • épreuve : Finale • envoyé le : 11-03-2009 • format fermé : 9” x 11 3/4” • format ouvert : 18 7/16” x 11 3/4” • COULEURs : CMYK + pantone 347

2008 ANNUAL REPORT Cooperate to shape our destiny REPORT 2008 ANNUAL

“Cooperation benefits us all— that’s what makes it so appealing.”

– Alphonse Desjardins

desjardins.com

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