DIFFERENCE PERFORMANCE PRESENCE 2007 ANNUAL REPORT

Transcription

1 DIFFERENCE PERFORMANCE PRESENCE 2007 ANNUAL REPORT

2 DESJARDINS: THE LARGEST FINANCIAL COOPERATIVE GROUP IN CANADA Solidly rooted in Quebec and occupying a growing market share in the rest of Canada, Desjardins is the largest integrated financial cooperative group in the country. It is also the top financial institution in Quebec as well as its foremost private employer. Desjardins offers the entire range of financial products and services along with many easy access options for members and clients both individuals and businesses. Assets of $144.1 billion. Across Canada, over 6 million members, of which 5.8 million are in Quebec and Ontario, including nearly 400,000 businesses. 6,584 highly committed elected officers and over 42,000 dedicated employees nation wide. 1,427 service outlets in Quebec and Ontario: 536 caisses/ branches and 891 service centres. 114 service outlets in Manitoba and New Brunswick: 41 affiliated caisses and 73 service centres. 49 business centres in Quebec and 3 in Ontario. 28 Desjardins Credit Union outlets in Ontario. Approximately 20 companies offering a wide range of financial services, with many of them active in several Canadian provinces. 3 Desjardins Bank branches in Florida and a branch of Caisse centrale Desjardins in the United States. A state-of-the-art virtual network on automated teller machines and the Internet. IS DESJARDINS GROUP'S TREASURER Over $20 billion in assets. $110 billion in derivatives financial instruments. Funding programs of $15 billion in Canada and other parts of the globe. Borrowings on the Canadian money market (no upper limit). Authorized credits nearly $11 billion for businesses and public sector institutions. Business offices in Quebec and Ontario. One U.S. retail Banking subsidiary. One U.S. Branch for corporate loans. A network of banking correspondents on every continent. First-class credit ratings. We use the M and B symbols to designate millions and billions, respectively. Thus, $8M should be read eight million dollars and $17B should be read seventeen billion dollars.

3 TABLE OF CONTENTS 1 MISSION OF CAISSE CENTRALE DESJARDINS Founded in 1979, Caisse centrale Desjardins is a cooperative financial institution, owned by the caisse network. It acts as treasurer for Desjardins Group and is the Group s official representative to the Bank of Canada and to the Canadian banking system. At the same time, in its capacity as a supplier of funds, Caisse centrale calls upon global financial markets in order to maintain the levels of liquidity that are required for the smooth operation of the Group s activities. Fully integrated with all the components of Desjardins Group, Caisse centrale provides banking and financial services to the Desjardins units, to government institutions and to medium-sized and large businesses. It also provides international services to the network s members. Its operations generate spinoffs for the entire Desjardins Group. Caisse centrale also operates a U.S. platform, including its branch, Caisse centrale Desjardins U.S. Branch, and its subsidiary, Desjardins Bank, which has three points of service in Florida. These units serve the members of the caisse network and of the Desjardins Business Centres, assisting with their activities in the United States. TABLE OF CONTENTS Organization Chart 2 Areas of Activity 3 Financial Highlights 4 Management s Message 7 Review of Operations Treasurer of Desjardins Group 10 Serving Businesses and Institutions 12 Presence in Markets outside Quebec 14 The Cooperative Difference 16 Three-Year History 19 Financial Review 21 Management s Discussion and Analysis Consolidated Financial Statements 56 Constitution, Regulation and Control 93 Corporate Governance 95 General Information 105 Financial Glossary 108 TABLE OF CONTENTS

4 2 ORGANIZATION CHART AN INTEGRATED COOPERATIVE FINANCIAL GROUP ORGANIZATION CHART OF DESJARDINS GROUP 5,744,098 MEMBERS in Québec and Ontario 52,214 DCU MEMBERS and 13,408 CLIENTS in Ontario 239,116 MEMBERS in New Brunswick and Manitoba ORGANIZATION CHART Desjardins Financial Services Firm Desjardins Trust Fonds de sécurité Desjardins Capital Desjardins 536 CAISSES POPULAIRES AND CAISSES D ÉCONOMIE in Québec and Ontario Caisse centrale Desjardins Caisse centrale Desjardins U.S. Branch Desjardins Bank FÉDÉRATION DES CAISSES DESJARDINS DU QUÉBEC Ontario Federation Développement international Desjardins Desjardins Credit Union Fondation Desjardins Société historique Alphonse- Desjardins 39 CAISSES in New Brunswick and Manitoba New Brunswick and Manitoba Federations Desjardins Securities Disnat Desjardins Capital de risque Desjardins General Insurance Group Desjardins Financial Security Desjardins Asset Management Gestion Valeurs mobilières Desjardins Desjardins Securities / Bodiam Desjardins Securities international OTHER INFORMATION As at December 31 Market Perspectives Desjardins Securities Financial Services LPand Desjardins regional development funds Capital régional et coopératif Desjardins (1) (1) Venture capital, public fund managed by Desjardins Venture Capital. As at December 31, 2007 Note: Chart does not reflect the legal ownership structure. The Personal Insurance Company* La Personnelle, assurances générales* Certas Direct, Insurance Company* Desjardins General Insurance Services* Desjardins General Insurance* Certas Home and Auto Insurance Company* Desjardins Financial Security Investments Sigma Assistel Desjardins Global Asset Management Fiera Capital* Manitoba and Manitoba and Group (1) Nouveau-Brunswick (2) Group (1) Nouveau-Brunswick (2) Number of employees (3) 40,345 1,425 39,985 1,549 Number of members 5,796,312 (4) 239,116 5,820, ,838 Number of elected officers 6, , Number of member caisses Number of service centres Number of automated teller machines 2, , DGAM Holding Company Desjardins Property Management Ownership link Auxiliary members * Shared ownership (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 Quebec. (4) Total members in every caisse in Quebec and Ontario, in addition to DCU members.

5 AREAS OF ACTIVITY 3 AREAS OF ACTIVITY Caisse centrale s areas of activity include: ACTING AS DESJARDINS GROUP S TREASURER: Financial settlement and clearing of items transiting through the caisse network across Canada and internationally Supply of funds from Canadian and international capital markets in order to meet Desjardins Group s liquidity requirements Securitization operations as a source of funds for Desjardins Group Management of the required liquidity fund for caisses Derivatives financial instruments and other treasury products Management of matching activities Treasury management for Desjardins Credit Union ACTING AS A SERVICE PROVIDER TO BUSINESSES AND INSTITUTIONS: FINANCING Caisse centrale is a major player meeting the financing needs of large businesses and institutions, including: Operating loans Bridge loans Term loans Letters of credit and guarantee To support the network of Desjardins Business Centres in developing its market of medium-sized businesses and institutions (education, health care, municipalities), Caisse centrale provides the Desjardins network with a one-stop window of financing resources and international services. In order to support large and medium-sized businesses with U.S. operations, Caisse centrale also provides financing in the United States through: Desjardins Bank, its subsidiary, and Caisse centrale Desjardins U.S. Branch, its branch The services and manufacturing sectors in which many of Caisse centrale s resources specialize include: Agrifood Forest products Communications Energy resources BANKING SERVICES Caisse centrale offers the financial and treasury services below to the private sector (mid-size businesses and large corporations) and to the public and parapublic sectors: Account collection and direct payment (POS terminals) Reconciliation/consignment Cheque issue and deposit Balance aggregation Direct deposits/withdrawals Electronic cash command services Derivatives financial instruments INTERNATIONAL SERVICES The Desjardins International Service Centre, managed by Caisse centrale, offers the following services to import and export businesses: Foreign exchange contracts and direct access to FX traders Import/export letters of credit Factoring Inter-currency transfers U.S. lock boxes Foreign currency accounts Money orders and drafts Desjardins Global Treasury Management In addition to financing, Desjardins Bank offers a broad spectrum of products and services, including: Online financial services Business accounts U.S. merchant number for Canadian and American businesses AREAS OF ACTIVITY

6 4 FINANCIAL HIGHLIGHTS FINANCIAL HIGHLIGHTS ACHIEVEMENTS OF 2007 A WINNING STRATEGIC VISION In the wake of the liquidity crunch and asset-backed commercial paper crunch, Caisse centrale demonstrated its leadership and played its role as Desjardins Group s treasurer to the fullest by supplying the network of caisses and affiliates with funds despite the upheaval that sent shock waves through financial markets worldwide. CONTINUOUS GROWTH IN THE LARGE ENTERPRISE MARKET Over $2 billion in new business was authorized for the large enterprise market, with over 35% done as an agent or coagent in bank syndicates, 29% coming from our specialized industries and more than 48% of the total amount associated with geographic diversification. OTHER HIGHLIGHTS: Creation of a single hub for the Desjardins network to better promote products and services Major contributor to the development of control tools for large companies for assessing risks incurred and calculating the capital required Annual growth of 17% for all international services (foreign exchange, trader access, letters of credit, transfers, etc.). Growth of the U.S. platform through Desjardins Bank, Caisse centrale Desjardins U.S. Branch and a new agreement with Business Partners LLC, a group of 180 credit unions in the United States A total contribution of $112.3 million to the network, up 17% from All activity segments participated in this growth. A SOLUTION THAT COMPLEMENTS THE USUAL FINANCING METHODS Thanks to the participation of caisses in Quebec and Ontario and Desjardins Credit Union in the securitization program, Caisse centrale has taken part in the four Canada Mortgage and Housing Corporation mortgage bond issues since the fall of 2005; as at December 31, 2007, its participation totalled almost $3 billion ASSETS (in billions of $) CONTRIBUTION TO NETWORK (in millions of $)

7 FINANCIAL HIGHLIGHTS 5 FINANCIAL POSITION As at December 31 (in millions of dollars and as a percentage) Total assets $ 20,431 $ 17,597 $ 15,757 Average assets 16,991 15,421 13,969 Securities 3,722 3,805 3,349 Loans Caisse network 2,559 2,718 3,129 Other 11,129 8,206 7,157 Total loans 13,688 10,924 10,286 Deposits and subordinated debenture 16,148 13,548 12,054 Members equity Off-balance sheet financial instruments 122, , ,993 Total capital ratio 13.2% 13.9 % 13.9% FINANCIAL HIGHLIGHTS RESULTS OF OPERATIONS For the years ended December 31 (in millions of dollars) Gross income $ 208 $ 189 $ 162 Provision for credit losses Net income Total contribution to network CREDIT RATINGS Short term Medium and long term Standard and Poor s A-1 + AA - Moody s P-1 Aa1 Dominion Bond Rating Service R-1H AA Credit ratings are intended to provide investors with an independent assessment of the credit quality of an issue of securities. The AA and Aa rating category is the second highest rating assigned by DBRS, S&P and Moody s to long-term debt securities. Moreover, the high and low designations on ratings by DBRS, the plus or minus sign in the case of S&P, and the numerical modifiers 1, 2 and 3 used by Moody s indicate relative quality within their respective rating categories. Each rating agency has several rating categories for long-term debt securities. Prospective purchasers of debt securities should consult the rating agency in question concerning how the ratings stated above are to be interpreted as well as their repercussions. The above ratings must not be construed as a recommendation to buy, sell or hold debt securities, and they may be subject to revision or withdrawal at any time by the rating agencies.

8 6 MANAGEMENT S MESSAGE MANAGEMENT S MESSAGE

9 MANAGEMENT S MESSAGE 7 ALBAN D AMOURS Chairman of the Board and Chief Executive Officer of Caisse centrale Desjardins and President and Chief Executive Officer of Desjardins Group JEAN-GUY LANGELIER President and Chief Operating Officer of Caisse centrale Desjardins and Chief of the Treasury of Desjardins Group MANAGEMENT S MESSAGE As Desjardins Group s treasurer, Caisse centrale Desjardins (CCD) once again posted solid performance this year, with all business units recording stronger results for the 2007 fiscal year. This excellent performance is indubitably owing to the core business development areas on which CCD has focused in recent years. Moreover, the strategies it promoted enabled Desjardins Group to come through the liquidity crunch and assetbacked commercial paper (ABCP) crisis, worldwide financial crises that confronted all financial institutions in the second half of MANAGEMENT S MESSAGE Despite the events that occurred in the second half of the year, we are proud to present the results for These results have made it possible for us to make, once again, a record contribution of $112.3 million to the network, up 17% from last year. These achievements are especially remarkable in view of the record set with the previous period s results. DESJARDINS GROUP S TREASURER In a tough context stemming from the liquidity crunch and ABCP crisis, CCD showed leadership and fully assumed its role as Desjardins Group s treasurer. In this capacity, it saw to the financing of ABCPs held by Group subsidiaries, along with its own limited holdings of ABCP securities, i.e. 0.2% of assets. CCD did an exemplary job of supplying the caisse network and subsidiaries with funds, despite the decreased accessibility of global financial markets as a result of the liquidity crunch. Our capability in this area clearly demonstrated the merits of the strategies we have implemented over the last five years. SECURITIZATION: THE CORNERSTONE Once again this year, Desjardins securitization activities were a key component in our financing strategy. As a solution, the securitization program complements the usual methods for supplying funding. Thanks to the participation of caisses in Quebec and Ontario as well as of the Desjardins Credit Union, we took part in the four Canada Mortgage and Housing Corporation mortgage bond program issues, for a total of approximately $1.6 billion. As at December 31, our participation at this program totalled almost $3 billion.

10 8 MANAGEMENT S MESSAGE MANAGEMENT S MESSAGE GROWTH BY ALL SECTORS In terms of corporate financing, we continued to expand our presence in banking syndicates, thus increasing the number of financings in which we act as an agent or co-agent. In keeping with our strategies for geographic diversification and support for the expansion of Quebec companies, 48% of our growth was achieved in markets outside Quebec. We also successfully pursued our targeted market approach, which emphasizes our expertise in four industries: agrifood, communications, forest products and energy resources. Nearly 30% of our new business was with companies operating in these four sectors. In the institutional sector, in conjunction with our network partners, we continued to serve institutions from the health and education sectors and municipalities. Business development in this sector has also seen sustained growth. New business advanced significantly compared to the previous fiscal year, and loans outstanding increased by 4.8% in Moreover, one highlight that will help us give our partners more support in achieving their goals is, without a doubt, the creation of a single hub for the caisses and Desjardins Business Centres. This is a new internal structure that includes development teams from the SME, international and institutional financing sectors to benefit our network partners. CCD has, through its U.S. platform, also continued to play an important role for its clients and business that are members of Desjardins who do business in both Canada and the United States, including SMEs calling upon their caisse or business centre for support in expanding into the U.S. A PROMISING VISION The year 2008 will bring us many opportunities to demonstrate the creativity, flexibility and adaptability that have helped CCD to stand out over the years. We are operating in an increasingly competitive environment, in a financial services industry whose stability is regularly being called into question. Nonetheless, we are convinced that the strengths the CCD has developed over the years will allow us to support our clients growth, better than ever. Given the diversity of our financing sources and range of our line of financial products, we can support our clients everywhere around the world. CCD continues to stand out as a world-class player that is, more than ever, present and accessible in the local and national markets. In a survey done last fall to determine the level of satisfaction with CCD, caisses and business centres, the network gave us an overall satisfaction rating of 97%, an even better score than earned on a similar survey done in By the same token, our clients demonstrated a very high level of satisfaction, in 97.3% of cases.

11 MANAGEMENT S MESSAGE 9 MORE BUSINESS OPPORTUNITIES The uncertainty stemming from economic instability, combined with the rising Canadian dollar, may potentially generate more business opportunities for many businesses. We are thus resolved to support clients who want to take advantage of these opportunities. Furthermore, we expect the banking landscape to change, given that some financial institutions may be forced to leave its ranks. This combination of factors is synonymous with opportunity for Desjardins to increase its clientele. In 2008, and beyond, Desjardins Group will continue to play a major role as the foremost cooperative institution in Quebec and Canada, while developing its presence across North America. Through its business relations with the financial markets, CCD will keep on supporting Desjardins Group s worldwide presence. We will continue to prudently yet steadfastly develop our activities and revenues so as to ensure we never compromise the quality of the assets it is our privilege to manage. Day after day, none of CCD s achievements would have been possible without the dedication and cohesiveness of its staff, for which we are grateful. We also owe a debt of gratitude to our board of directors, whose informed advice was invaluable throughout the year. Our members and clients are our priority, and we constantly strive to find better ways of meeting their needs for financial products and services. MANAGEMENT S MESSAGE Alban D Amours Chairman of the Board and Chief Executive Officer of Caisse centrale Desjardins and President and Chief Executive Officer of Desjardins Group Jean-Guy Langelier President and Chief Operating Officer of Caisse centrale Desjardins and Chief of the Treasury of Desjardins Group

12 10 REVIEW OF OPERATIONS REVIEW OF OPERATIONS TREASURER OF DESJARDINS GROUP Desjardins Group s treasury played a key role in managing the global financial crisis confronting financial institutions in the second half of The strategy that Caisse centrale Desjardins, the Desjardins Group s treasurer, has advocated over the last several years allowed Desjardins to make it through what is now being called the liquidity crisis unscathed DESJARDINS SECURITIZATION PROGRAM (in millions of $) THE IMPACT OF THE CRISIS ON CENTRAL FUND ACTIVITIES The liquidity crunch and the resulting ABCP crisis are major events whose impact on financial markets around the world is still being felt. Although CCD is an active player in these markets, it only had $40 million in ABCP on its balance sheet as at December 31, At the same time, as the Desjardins Group s treasurer, it also handled financing of ABCP held by Group subsidiaries. Furthermore, it should be noted that at the end of the fiscal year, ABCP under CCD management totalled $100 million. 0 T3-06 T4-06 Issues T1-07 T2-07 T3-07 T4-07 Cumulative outstandings A WINNING STRATEGIC VISION The fact that CCD only has a limited amount of ABCP is primarily due to the strategy it has adopted over the last few years. Several years ago, in fact, Desjardins Group s decisionmaking bodies had approved a proposal to reduce the Group s dependence on short-term financing. CCD thus developed a strategy to lengthen the maturity periods for its supply of financing, and diversify its sources. Among other decisions, it opted to expand its institutional borrowing in Europe, a market that has greater depth than Canada s, where borrowing costs are generally lower than in North America. During the fiscal year, among other things, it proceeded with a 500 million issue in this market, and also extended the term of the VISA group s receivables.

13 REVIEW OF OPERATIONS 11 The Desjardins Group s mortgage securitization program, in collaboration with the Canada Mortgage and Housing Corporation, is a key component of this strategy. In addition to extending the term of financing, this program also has the advantage of being less expensive than other sources. In fact, the sale price for these mortgage assets is not conditional on the credit rating of the financial institution participating in the transaction, but rather on the federal government s credit rating. During the fiscal year, CCD participated in the four mortgage bond issues with a total value of $1.6 billion. OUTLOOK In the next fiscal year, CCD will proceed with additional issues on the markets and move ahead with mortgage bond securitization activities in conjunction with the Canada Mortgage and Housing Corporation. It is also working towards broadening access to this program to credit unions in other provinces in Canada. Furthermore, the liquidity crunch and ABCP crisis demonstrated how important it is to have stable and diversified sources of financing. As a result, CCD intends to maintain this approach in the future. Moreover, CCD is staying abreast of innovative opportunities and means to help its clients deal with the rising Canadian dollar, which has a negative impact on manufacturing exporters. Here, due to the parity of the Canadian dollar with the US dollar, some private clients neglected to immunize themselves from currency fluctuations, the direct consequence of a negative impact on CCD s intermediation activities. RISK MANAGEMENT Developed by the Bank for International Settlements in consultation with the central banks of western nations, the Basel Accords are intended to make the global financial system more stable. The Accords define three pillars around which financial institutions must structure their risk management, that is, the amount of capital to be maintained, the role of regulatory agencies, and market discipline. In conjunction with Desjardins Group s Integrated Risk Management and Basel Accord program, CCD plays a key role in developing control tools. It includes rigorous risk assessment processes in developing its strategies, as well as in day-to-day management of its operations. During the fiscal year, CCD continued work on numerous projects that are aimed at implementing new risk management tools. These tools will, among other things, expand current measures for assessing and appraising credit, market and operational risks. Also, a fuller reading of the risks will help with the processes involved in making management decisions and developing winning strategies. Lastly, note that the efforts made in the context of the Integrated Risk Management and Basel Accord program will call upon all Desjardins Group components to work together more closely, and help increase the uniformity of risk management practices and systems. Moreover, the active effort to obtain certification from Quebec s Autorité des marchés financiers will continue in 2008, with a view to adopting the new internal ratings approaches as of REVIEW OF OPERATIONS The Group s Treasury is a key actor in managing the global financial crisis. The treasurer s role can be summarized in these two functions: Ensuring that the network has an adequate supply of funds; Prudently managing the risk related to interest rate fluctuations.

14 12 REVIEW OF OPERATIONS SERVING BUSINESSES AND INSTITUTIONS In 2007, Caisse centrale posted solid growth in its activities with medium and large enterprises, as well as with institutions. New business authorized with large corporations alone totalled more than two billion dollars. REVIEW OF OPERATIONS COMMITMENTS AND OUTSTANDINGS (in billions of $) This business growth is the result of Caisse centrale s threepronged strategy, which aims in particular to expand its role as agent or coagent in bank syndicates, thereby continuing to develop recognition of Desjardins. It is also concentrating its activities in four industrial sectors in which it has established a critical mass, i.e. agrifood, communications, forest products and energy resources. At the same time, Caisse centrale is devoting great efforts to developing its activities outside Quebec Commitments Outstandings ROLE IN BANK SYNDICATES The business strategies that Caisse centrale advocates are based, among other things, on the importance of its role in bank syndicates. In this area, in the past five years, Caisse centrale has managed to stand out among the financial institutions that participate in such syndicates. In its role as agent or coagent, it is called upon to organize, underwrite and syndicate financings. It thus plays a key role towards the client, which enables it to advise the client appropriately while strengthening its ties with them. This status also gives Desjardins greater recognition and increased visibility towards its clientele as a whole. It should be mentioned that during the fiscal year, Caisse centrale acted as agent or coagent in thirty-odd major projects. A SINGLE SERVICE WINDOW In 2007, Caisse centrale continued to integrate itself even more closely in the network of caisses and Desjardins Business Centres. For example, to better respond to their specific needs, it consolidated the resources dedicated to SMEs in the area of institutional financing, in the fields of health care, education, municipalities, and the sale of international products under our new division Partnership with the network Financing and International Services. This single service window has contributed to the development of an integrated service offer for its network partners, to better support their business development.

15 REVIEW OF OPERATIONS 13 This integrated way of offering its products and services also helped promote business with SMEs, both outside Quebec and in the United States. BANKING SERVICES This group designs and delivers customized banking products and services to large corporations and medium-sized enterprises, as well as to various levels of government, government agencies and paragovernmental institutions. Throughout the year, the banking services team continued to expand Desjardins market share in this segment and won numerous calls for tenders from businesses, government agencies, organizations in Quebec s health and social services sector and municipalities, many of these in partnership with the caisses or Desjardins Business Centres. OUTLOOK In the coming year, a fifth industry, transportation, will be added to the four sectors in which Caisse centrale is already very active, i.e. agrifood, communications, forest products and energy resources. Business development in this market is part of its plan for geographic expansion and support for the expansion of Quebec enterprises. In addition, building on its presence in Toronto dating back twenty-odd years, Caisse centrale will intensify its presence across Canada with the opening of a business office in Calgary, Alberta, in Caisse centrale intends to continue its energetic growth in the large and medium-sized enterprise and institutional market, in support to Desjardins Business Centres. In fact, in light of the liquidity crisis that is affecting the markets, it is possible that certain players in the financial services industry may slacken their growth, which would provide additional business opportunities for Caisse centrale. However, prudence will be the watchword for its credit activities, given the tightening of financial markets. REVIEW OF OPERATIONS In the coming year, Caisse centrale will continue the work already begun, reorganizing its business units to provide a single service window for the Desjardins network. It intends to further publicize its products and services, as well as its support capacity, within the network, and continue to serve it well. It will expand its offer, for example, by giving the caisses and the Desjardins Business Centres access to the distribution of derivative instruments. It will also pursue business development activities in close collaboration with Desjardins Securities, for both existing and potential new clients. Caisse centrale s growth strategy is based on three winning strategies: Expand its role as agent and coagent in bank syndicates. Focus on developing its activities in five key industrial sectors. Reinforce the expansion of its activities outside Quebec, and support the geographic expansion of enterprises.

16 14 REVIEW OF OPERATIONS REVIEW OF OPERATIONS PRESENCE IN MARKETS OUTSIDE QUEBEC In 2007, Caisse centrale continued implementing its business development strategy, both across Canada and south of the border. The geographical diversification of its loan portfolio, the role of syndicate agent that it continues to play for Canadian credit unions, and the support it gives to Quebec enterprises that are expanding into other provinces or into the U.S. are the three components of its growth strategy TRANSFERS (in thousands of $) The geographic diversification strategy that Caisse centrale embarked upon a few years ago also relies on its industrial expertise. This is evidenced by the fact that 30% of new credits were issued to enterprises outside of Quebec in its four specialized industries. CAISSE CENTRALE S U.S. PLATFORM In accordance with its strategic directions, Caisse centrale is continuing to serve the members and clients of Desjardins Group as they start up their businesses south of the border. Its U.S. platform, consisting of a retail subsidiary, Desjardins Bank, and its branch, Caisse centrale Desjardins U.S. Branch, enable it to effectively meet the needs of its various clients. The U.S. branch posted strong growth in It continues to play a major role in supporting Quebec-based enterprises that have subsidiaries in the United States. During the fiscal year, the outstanding loans that it has granted grew by 30% compared with the previous year. Today, Caisse centrale can provide the same services to its Canadian and American clients, whether the financial transactions are carried out in Canada or the United States. It can act as syndicate agent or coagent in bilateral business financing projects. Bilateral loans are loans on which clients can draw from either side of the border, depending on their needs.

17 REVIEW OF OPERATIONS 15 In 2007, Caisse centrale signed a deal with Business Partners LLC, a group of 180 U.S. credit unions. Therefore, under this program, Desjardins can now purchase or sell participation in commercial loans through this vehicle in the United States. This new business relationship is in line with Desjardins intention to forge ties with other North-American cooperatives and improve the quality of its support services in the United States. This team of experts helped design an innovative service through which SME clients enjoy direct access to foreign exchange dealers in the trading room. To date, over 1,100 enterprises have chosen to take advantage of this service, on some of the market's most flexible terms. OUTLOOK DESJARDINS BANK CELEBRATES 15 YEARS IN THE FLORIDA SUN Present in Florida since 1992, it now has three service locations in that state. It provides its products and services to Desjardins members who frequently travel or stay in the U.S., and also helps some SMEs with their business activities in the United States. As far as bank deposits and transactions are concerned, the majority of its individual clients have their roots in Quebec or Canada. Given the rising value of the Canadian dollar, this clientele expanded during the year. SERVICES AROUND THE WORLD Caisse centrale is responsible for developing international products and services to meet the needs of individual and business members of the Desjardins caisses, and for building a network of efficient and reliable correspondents around the world. Caisse centrale s experts in international services manage relations with a network of banks around the world to provide individual and business Desjardins clients with a full range of international transaction services, including foreign exchange, repatriation of revenues, funds transfers, bills of exchange and letters of credit, etc. In 2008, Caisse centrale will continue its efforts to expand its presence throughout the Canadian market by offering its clients the products and services that they need. As part of this undertaking, it will open a business office in Calgary, Alberta, during the year, to support its development activities with credit unions and businesses wishing to expand their activities outside Quebec. It already has an office in Toronto, which has been in operation for twenty-odd years. Caisse centrale s efforts outside Quebec will be focused, among other things, on increasing its market share in the Ontario institutional sector. In the United States, Caisse centrale Desjardins U.S. Branch and Desjardins Bank will continue to serve the caisses, Desjardins Business Centres and their clients by offering an ever wider range of banking products and services. Training programs will be made available to account managers and to caisse personnel to further familiarize them with the entire range of specialized products and services. Caisse centrale will also intensify its communication and marketing activities relating to those services. REVIEW OF OPERATIONS Caisse centrale s U.S. platform represents an important asset in business development in that country. Opening a business office in Calgary will help in its effort to promote development across Canada.

18 16 REVIEW OF OPERATIONS REVIEW OF OPERATIONS THE COOPERATIVE DIFFERENCE Caisse centrale is a cooperative owned by its members, the Desjardins caisses and the auxiliary federations and, as such, it fully embraces the Desjardins Group cooperative difference. On a daily basis, it applies its underlying values through its courses of action and its business practices. Again this year, Caisse centrale stands out on account of the actions it has taken to support cooperative development APPROVED CREDITS FOR THE COOPERATIVE SECTOR (in millions of $) 992 DISTRIBUTION OF SURPLUS EARNINGS, A RECORD CONTRIBUTION IN 2007 As a cooperative, Caisse centrale remits all of its net, nonconsolidated revenues to its members. In 2007, it once again had an unprecedented performance which enabled it to remit $112.3 million to its members, including other payments, which represents an increase of 17% compared to In 2006, Caisse centrale remitted $96.1 million to the network, a 13% increase over UNFAILING SUPPORT FOR COOPERATIVE DEVELOPMENT Caisse centrale shares the specialized expertise that it has gained over the years with other cooperatives, both nationally and internationally. At the national level, it participates in the development of credit unions through its funding activities. In 2007, its contribution in support of Canadian credit unions and several agrifood and forest product cooperatives translated into specific funding totalling nearly $1 billion. Meanwhile, Caisse centrale continues to assist the Federation with the development of Desjardins Credit Union in Ontario, and its integration into Desjardins Group. On the international stage, Caisse centrale continues to promote Desjardins Group to the financial community on global markets and to strengthen its business relations with the financial cooperative movement. It also has a growing presence in the United States through its subsidiary, Desjardins Bank, and its branch, Caisse centrale Desjardins U.S. Branch. With the support of Desjardins Group, it is pursuing its efforts to tighten the links with U.S. cooperatives and, in December 2007, it signed an agreement with a group of credit unions in the United States.

19 REVIEW OF OPERATIONS 17 Caisse centrale also responds to requests presented by Développement international Desjardins (DID) by hosting and providing information to representatives from various foreign financial institutions who wish to learn how to advance their own cooperative projects. This year, DID solicited Caisse centrale s collaboration in sharing its expertise with delegations hailing from Sri Lanka, Haiti, Algeria and Russia. PARTICIPATIVE MANAGEMENT Caisse centrale embraces the principles of participative management and emphasizes teamwork as a means of achieving its objectives. Accordingly, since 1995, in addition to sectoral meetings, the President and CEO periodically meets all employees, including those outside Quebec, to provide information. Furthermore, with the goal of continuous improvement, Caisse centrale called upon the services of a consulting firm to carry out an internal satisfaction survey, in Following the survey, Caisse centrale adopted an action plan to rally its employees and promote dialogue with them. ENVIRONMENTAL ACTIONS Caisse centrale shares the environmental concerns of Desjardins Group and takes concrete actions under its sustainable development program to limit the use of resources and manage them wisely. During the year, it continued the practices introduced in 2006, including double-sided photocopying of documents for internal use, thus reducing paper consumption; the stocking of fairly traded coffee in vending machines; and the replacement of paper towels with dish towels in the employees kitchens. In 2007, it distributed a coffee mug and a glass to all employees to replace styrofoam cups, and set out bins for collecting recyclable waste. REVIEW OF OPERATIONS Moreover, during the year, Caisse centrale implemented a new program of monthly meetings with the President, during which he holds informal discussions with small groups of employees. These sessions promote dialogue and give the President an opportunity to answer questions in a friendly atmosphere. The President has promised to meet with all employees during the coming year to receive their comments and suggestions, thereby contributing to the quality improvement process. In addition, with the goal of supporting the quality initiative of Desjardins Group s strategic plan, Caisse centrale has agreed to take part in a network-wide activity that reflects its support for this endeavour. The employees of Caisse centrale responded favourably to the President s invitation to reaffirm their commitment by participating in the My Commitment to Quality contest. The goal of this initiative is to identify avenues of improvement while increasing the satisfaction of members and clients.

20 18 REVIEW OF OPERATIONS REVIEW OF OPERATIONS COMMUNITY COMMITMENT Caisse centrale actively supports the social, cultural and economic development of the community. It contributes funding to a large number of organizations and philanthropic causes, mostly in the areas of youth development, education and the reduction of school dropout rates, the advancement of women, and health care. In 2007, over $150,000 was donated to organizations that promote youth development, including the Foundation Desjardins. Caisse centrale also supports various causes in which its employees are involved. Here are just a few of the organizations that received funding in 2007: the Fondation des Auberges du cœur, the Juvenile Diabetes Research Foundation Canada, the Quebec Breast Cancer Foundation, the Alzheimer Society Rive-Sud, the Montfort Hospital Foundation in Ottawa, the Fondation du Petit Séminaire de Québec, the Fondation du Séminaire de Sherbrooke and the Fondation du Centre hospitalier Baie-des- Chaleurs. Over the course of the year, Caisse centrale processed nearly 400 requests for funding, from all parts of the province, and its financial support totalled nearly $620,000. Caisse centrale also sponsors the activities of organizations with an economic vocation, in particular, chambers of commerce and business associations. Caisse centrale s annual golf tournament is a major charitable activity in which many of its clients and business partners participate. The 2007 tournament raised some $85,000, and the funds collected over the past 12 years amount to $668,000. The proceeds are allocated to approximately 10 organizations that support children, including the Fondation Marie-Vincent, Kids Help Phone, the Breakfast Club, the Children s Wish Foundation and the Foundation of Stars. Caisse centrale fully embraces the cooperative difference, and its commitment towards the community takes the form of charitable activities, as well as sponsorships and donations to organizations with a social, cultural, scientific or educational vocation.

21 REVIEW OF OPERATIONS 19 THREE-YEAR HISTORY In 2007, Caisse centrale s consolidated assets continued to grow, reaching $20.4 billion as at December 31, up $4.7 billion from 2005, particularly as a result of the increase in private sector loans and to entities within the Desjardins Group consolidation perimeter. Loans to Desjardins Group members and affiliates totalled $8.9 billion as at December 31, 2007, compared with $6.6 billion as at December 31, 2005, an increase of $2.3 billion. The growth is mainly due to the Caisse centrale s action in its role as Desjardins Group s treasurer. Outstanding private sector loans grew by some $809 million over three years to $2.9 billion as at December 31, This increase was attributable, in particular, to its breakthroughs as banking syndicate agent and coagent as well as the headway made in new markets. In partnership with the caisse network and Desjardins Business Centres, Caisse centrale improved its service offering for the public and parapublic sectors: the amount of loans granted increased between 2005 and 2007, going from $1.5 billion to $1.7 billion. Year 2007 was marked by a liquidity crunch in the international financial markets that started in the third quarter. The crunch reduced Caisse centrale s borrowing horizon, as it was difficult to obtain long-term financing during the initial months of the crunch. As at December 31, 2007, 75% of deposit liabilities were made up of deposits with maturities of less than one year compared with 63% in Over the last few years, Caisse centrale has developed national and international sources of funding by varying markets, instruments, maturities as well as the currencies of its deposits. These strategies have been sound ones for Caisse centrale during this period of market upheaval. The approved amounts under the European medium-term deposit note program were increased from US$5 billion to 7 billion between 2005 and Funding obtained from the Canadian market amounted to $10.1 billion as at December 31, 2007, representing 62% of all deposits, versus $7.6 billion and 63% in Furthermore, as a source of funding, Caisse centrale used the Canada Mortgage and Housing Corporation s mortgage debt securitization program, which continued to grow to reach $1.6 billion in securitized debt in Nearly $3 billion of debt have been securitized since 2005 in all. In 2007, Caisse centrale issued share capital in the amount of $100 million. Combined with the $221 million injected in 2006, share capital increased $321 million between 2005 and In 2004, in order to better support businesses operating on both sides of the border, Caisse centrale opened a Floridabased commercial lending subsidiary, Desjardins Commercial Lending U.S.A. Corp. In 2006, it broadened its service offering for these clients by obtaining the status of a U.S. branch: Caisse centrale Desjardins U.S. Branch can carry out major financing transactions. The branch s activities are seeing rapid growth. Caisse centrale has improved its online international banking service offering for business members of Desjardins caisses. Over 1,100 business members had used trader access services as at December 31, 2007, versus 500 in 2005, a total increase of 134% over the last two years. Foreign exchange income from the transactions concluded by the network of Desjardins caisses and business members grew by nearly 48% from 2005 to In 2007, Caisse centrale contribution to the network reached a new peak of $112.3 million. In 2006 and 2005, the contributions were $96.1million and $85.2 million, respectively. REVIEW OF OPERATIONS

22 20 REVIEW OF OPERATIONS REVIEW OF OPERATIONS

23 SUMMARY FINANCIAL REVIEW MANAGEMENT S DISCUSSION AND ANALYSIS 22 Caution regarding forward-looking statements 22 Risk factors that may affect future results 23 Financial disclosure controls and procedures 24 Analysis of consolidated financial statements and critical accounting policies 27 Caisse centrale s strategy 28 Economic review 29 Analysis of consolidated results Net income and contribution to network Net interest income Other income Segment analysis Provision for credit losses Non-interest expense Other payments to the Desjardins network Income taxes and other taxes Remuneration of capital stock 35 Analysis of quarterly trends 35 Analysis of fourth quarter results 36 Comments on assets 39 Analysis of cash flows 39 Off-balance sheet arrangements 40 Risk management review 42 Credit risk 42 Credit risk management 44 Managing liquidity and sources of funding 47 Market risk management 50 Operational risk management 51 Capital management CONSOLIDATED FINANCIAL STATEMENTS 56 Audit Commission s Annual Report 57 Management s Report 58 Auditors Report 59 Consolidated financial statements 64 Notes to the consolidated financial statements FINANCIAL REVIEW 93 CONSTITUTION, REGULATION AND CONTROL 95 CORPORATE GOVERNANCE 105 GENERAL INFORMATION 108 FINANCIAL GLOSSARY

24 22 MANAGEMENT S DISCUSSION AND ANALYSIS MANAGEMENT S DISCUSSION AND ANALYSIS This Management s Discussion and Analysis ( MD&A ) compares the financial condition and results of operations of Caisse centrale Desjardins ( Caisse centrale ) as at and for the years ended December 31, 2007 and 2006, prepared in accordance with Canadian generally accepted accounting principles. This MD&A is dated February 29, 2008, and unless otherwise indicated, all stated figures are in Canadian dollars. It also discusses forecasts and risk management. To assist the reader, we have added a glossary of financial terms at the end of the Annual Report. Additional information on Caisse centrale is also available on the SEDAR website at and on Desjardins Group s website at MANAGEMENT S DISCUSSION AND ANALYSIS CAUTION REGARDING FORWARD-LOOKING STATEMENTS This report may contain forward-looking statements regarding the activities, objectives and strategies of Caisse centrale. By their very nature, these forward-looking statements are based on assumptions and necessarily involve both general and specific risks and uncertainties. Risks exist that the express or implied projections in these statements will not materialize or that they will be inaccurate. A number of factors could cause future results, conditions, measurements or events to differ materially from the objectives, expectations, estimates or intentions expressed in such statements. These variances may be the result of factors, many of which are beyond the control of Caisse centrale, such as changes affecting legislation and regulations, competition, technological advancements, international capital market activities, interest rates and Canadian, North American and global economic conditions. These factors and other variables should be carefully analyzed, and readers should not place undue reliance on the forward-looking statements of Caisse centrale. RISK FACTORS THAT MAY AFFECT FUTURE RESULTS As indicated in the caution regarding forwardlooking statements, the risks and uncertainties inevitably associated with any such statements are both general and specific, and may cause the actual results of Caisse centrale to differ from those in forward-looking statements. Some of these factors are presented below. INDUSTRY RISK FACTORS International market context Since the beginning of the third quarter of 2007, international markets have been disrupted by turbulence, especially in the credit market, stemming primarily from the crisis in structured products linked to the U.S. subprime mortgage market. Although the context is different in Canada, market uncertainty has led to tighter credit conditions, making funding more less available and more costly. Although liquidity concerns should abate as world markets stabilize, Caisse centrale cannot accurately predict the length or the scope of the global liquidity crisis. General economic and business conditions in regions where Caisse centrale conducts business General economic and business conditions in the regions in which Caisse centrale operates may significantly affect its revenues. These conditions include short and long-term interest rates, inflation, money markets and capital markets fluctuations, foreign exchange rates, the strength of the economy, terrorist threats and the volume of business conducted by Caisse centrale in a given region. Monetary policy The monetary policies of the Bank of Canada and the Federal Reserve Board in the United States, as well as other interventions in capital markets, have an impact on the revenues of Caisse centrale. The general level of interest rates may affect the profitability of Caisse centrale. A fluctuation in the level of interest rates affects the spread between interest paid on deposits and interest earned on loans, leading to a variation in Caisse centrale s net interest income. Caisse centrale has no control over changes in monetary policies or capital market conditions and it therefore cannot forecast or anticipate them systematically. Competition The degree of competition in markets in which Caisse centrale operates affects its performance. Customer retention depends on many factors such as product and service pricing, customer service delivery and changes to the products and services offered. Changes in standards, laws and regulations Changes made to standards, laws and regulations, including changes affecting their interpretation or implementation, could have an impact on Caisse centrale by restricting its product or service offering or by enhancing the ability of competitors to compete with its products or services.

25 MANAGEMENT S DISCUSSION AND ANALYSIS 23 Completeness and accuracy of information concerning customers and counterparties Caisse centrale relies on the completeness and accuracy of the information concerning its customers and counterparties. When deciding to authorize credit or other transactions with customers or counterparties, Caisse centrale may use information provided by them, including financial statements and other financial information. It may also rely on representations made by customers and counterparties regarding the completeness and accuracy of such information, and on auditors reports regarding the financial statements. The financial condition and revenues of Caisse centrale could be adversely affected if it relied on financial statements that do not comply with generally accepted accounting principles, are misleading or do not present fairly, in all material respects, the financial condition and the results of the operations of customers and counterparties. RISK FACTORS SPECIFIC TO CAISSE CENTRALE New products and services to retain or increase market share The ability of Caisse centrale to retain or increase its market share depends partly on its skill in adapting its products and services to changing standards in the financial services industry. Financial services companies are subject to increasing pressure regarding the pricing of their products and services. This factor may reduce net interest income or revenues from commission-based products and services. Moreover, the adoption of new technology, including Internet services, can result in major expenses for Caisse centrale, as it is required to modify or adapt its products and services. Ability to recruit and retain key officers Caisse centrale s future performance depends partly on its ability to recruit and retain key officers. In addition, intense rivalry to attract the best people pervades the financial services industry. Caisse centrale cannot however be sure that it will be able to continue to recruit and retain key officers, even though this is one of the objectives of its resources management policies and practices. Business infrastructure Third parties provide some of the essential components of Caisse centrale s business infrastructure, such as Internet connections and network access. Interruptions in network access services or other communication services, as well as in the data provided by such third parties could adversely affect the ability of Caisse centrale to offer products and services to customers and to otherwise conduct its business. Foreign exchange rate Exchange rate fluctuations in the Canadian dollar, the U.S. dollar and other foreign currencies may affect Caisse centrale s financial condition and its future earnings. Fluctuations in the Canadian dollar may also adversely impact the earnings of Caisse centrale s business clients in Canada. OTHER FACTORS Other risk factors such as operational, credit, market and liquidity risks, to name a few, are presented in the Risk Management section. Caisse centrale cautions the reader that factors other than the foregoing could affect future results. When investors and other stakeholders rely on forward-looking statements to make decisions with respect to Caisse centrale, they should carefully consider these factors as well as other uncertainties, potential events, and industry factors or factors specific to Caisse centrale, which could adversely impact its future results. Caisse centrale will not update any forward-looking statements, whether written or oral, that may be made from time to time by it or on its behalf. FINANCIAL DISCLOSURE CONTROLS AND PROCEDURES Caisse centrale must comply with certain requirements of the Canadian Securities Administrators rules enacted in 2002 regarding continuous disclosure obligations, the oversight of external auditors and certification of financial reporting. In order to meet the prescribed requirements and based on industry best practices, the Chief Executive Officer and the Chief Financial Officer of Caisse centrale designed, or caused to be designed, financial disclosure controls and procedures, which are supported in particular by the process for periodic certification of financial disclosures made in annual and interim filings. All information collected as part of the financial governance process is reviewed on a quarterly or annual basis by the members of the Disclosure Committee and of the Audit Commission of Caisse centrale. The Commission plays a lead role in the oversight and assessment of the appropriateness of financial disclosure controls and procedures. As at December 31, 2007, in compliance with Multilateral Instrument , Certification of Disclosure in Issuers Annual and Interim Filings, and in accordance with the control framework recognized by the Committee of Sponsoring Organizations ( COSO ) of the Treadway Commission, Caisse centrale s management evaluated the effectiveness of the financial disclosure controls and procedures of Caisse centrale. Given the inherent limitations in any control system, management of Caisse centrale Desjardins acknowledges that disclosure controls and procedures cannot prevent or detect all misstatements, whether caused by error or fraud. However, on the basis of the assessments made, the Chief Executive Officer and the Chief Financial Officer of Caisse centrale have certified that the financial disclosure controls and procedures provide assurance that information required to be disclosed in reports filed or submitted under Canadian securities laws is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, thus providing investors with complete and reliable information. As in the case of the assessment of the design and effectiveness of financial disclosure controls and procedures, the design of internal control over financial reporting was assessed on the basis of the COSO control framework and according to the directives of Multilateral Instrument Based on this assessment, the Chief Executive Officer and the Chief Financial Officer have certified that they designed, or caused to be designed under their supervision, internal control over financial reporting, which provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian generally accepted accounting principles. Lastly, Caisse centrale confirms that internal control over financial reporting has not been subject to any change that materially affected, or was reasonably likely to materially affect, its internal control over financial reporting. MANAGEMENT S DISCUSSION AND ANALYSIS

26 24 MANAGEMENT S DISCUSSION AND ANALYSIS CRITICAL ACCOUNTING POLICIES MANAGEMENT S DISCUSSION AND ANALYSIS ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS AND CRITICAL ACCOUNTING POLICIES This section contains the analysis of the financial results of Caisse centrale, which focuses on the Consolidated Statements of Income and the Consolidated Balance Sheets in the consolidated financial statements. Note 2 to the consolidated financial statements presents a summary of the significant accounting policies used in preparing the consolidated financial statements of Caisse centrale. Some of the accounting policies are considered critical because they are key to understanding the financial condition and results of operations of Caisse centrale; they require management to make difficult, subjective and complex estimates and assumptions since they concern essentially uncertain issues. Any change in these estimates and assumptions could have a material impact on the consolidated financial statements of Caisse centrale. Critical accounting policies concern the allowance for credit losses, the fair value of financial instruments, securitization and income taxes. ALLOWANCE FOR CREDIT LOSSES The allowance for credit losses is an estimate of probable credit losses related to financial instruments, whether or not presented on the Consolidated Balance Sheets of Caisse centrale, including loans, off-balance sheet commitments, acceptances and derivative financial instruments. This allowance includes a general provision for credit losses and specific provisions. A number of factors affect the estimates for the allowance for credit losses, including risk assessment, default probability, loss in the event of default, valuation of security, economic conditions and borrowers specific situations. Any change in the estimates can lead to modifications of the allowance for credit losses. Note 4 to the consolidated financial statements provides more details on the allowance for credit losses. FAIR VALUE OF FINANCIAL INSTRUMENTS All financial assets and liabilities, including derivative financial instruments, are initially recognized at fair value in the Consolidated Balance Sheets, except for certain related party transactions. In subsequent periods, they are measured at fair value, except for items classified as loans and receivables, and financial liabilities other than for trading. A more complete description of financial instrument recognition is found in note 2 to the consolidated financial statements. Fair value represents the estimated amounts at which these instruments could actually be exchanged in a current transaction between willing parties. Published price quotations in an active market are the best evidence of fair value and, if they are available, Caisse centrale uses them to measure financial instruments. The fair value of a financial asset traded on an active market generally reflects the bid price, and the fair value of a financial liability traded on an active market, the asking price. If there is no active market for a financial instrument, fair value is estimated by using the prices of similar securities or various valuation techniques such as the discounted cash flow method and option pricing models. If the fair value is determined on the basis of valuation models, Caisse centrale must use assumptions concerning the amount and timing of future estimated cash flows and the discount rates used. These assumptions are based primarily on observable external market factors such as yield curves, volatility factors and credit risk. The methods to determine fair value and the assumptions used in the valuation models can affect fair value and the resulting gains and losses. Other information on the methods used to determine fair value by Caisse centrale is provided in notes 2 and 17 to the consolidated financial statements. Available-for-sale financial assets are periodically measured to determine if there is any objective evidence that they have been impaired. The use of judgment and estimates is required to determine if there is an other-than-temporary decline in value. Management reviews the value of available-for-sale assets on a regular basis to determine if the fair value of some of them has been impaired. This review includes an analysis of the specific facts of each investment and an assessment of expected future returns. As part of this exercise, management assesses a series of factors that could indicate a loss in value that is other than temporary. Such factors include the financial conditions and near-term prospects of the issuer, the ability and intent of Caisse centrale to hold the investment for a period of time sufficient to allow for recovery, and the length of time that the security has been in an unrealized loss position. Any change in the judgments made to identify securities for which there has been a loss in value that is other than a temporary decline and to estimate their realizable value could impact on the amount of losses recorded in the consolidated financial statements. SECURITIZATION Caisse centrale participates in the National Housing Act ( NHA ) Mortgage-Backed Securities Program. Under this program, Caisse centrale converts mortgage loans acquired from Desjardins Group into NHA mortgage-backed securities ( NHA-MBSs ). These securities are then sold to investors through Canada Housing Trust. These transactions are recorded as sales because Caisse centrale surrenders control over the assets sold and receives consideration other than beneficial interests in these assets. As a result, the mortgage loans transferred are derecognized. Determining the initial gain depends on the measurement of certain retained interests. Since market prices are not all available, this measurement is based on estimates and assumptions using the present value of estimated future cash flows. The key assumptions used to estimate this value are the prepayment rate and the discount rate. Since all the mortgage loans are guaranteed, our assumptions do not include any provision for credit losses. Any change in these estimates and assumptions could affect the amount of gains recorded. An analysis of the sensitivity of the fair value of retained interests to immediate 10% and 20% adverse changes in key assumptions is presented in note 5 to the consolidated financial statements. Furthermore, since the value of retained interests has to be remeasured periodically, the methods of establishing fair value and the assumptions used could have an impact on the amounts recorded. Further information on these transactions can be found in note 5 to the consolidated financial statements as well as in the section of this MD&A on off-balance sheet arrangements.

27 CRITICAL ACCOUNTING POLICIES AND ACCOUNTING CHANGES MANAGEMENT S DISCUSSION AND ANALYSIS 25 INCOME TAXES The income tax provision is established on the basis of the expected tax treatment of transactions recorded in the Consolidated Statements of Income or the Consolidated Statements of Members Equity. In order to determine the current and future portions of the income tax provision, analysis and assumptions are established concerning the tax laws and the dates on which future tax assets and liabilities will reverse. If the interpretation concerning tax laws differs from the one established by tax authorities or if the reversal dates of future tax assets and liabilities differ from the ones estimated, the income tax provision could increase or decrease over subsequent periods. ACCOUNTING CHANGES Financial instruments On January 1, 2007, Caisse centrale adopted the new accounting standards of the Canadian Institute of Chartered Accountants ( CICA ) entitled Financial Instruments Recognition and Measurement (Section 3855), Hedges (Section 3865), Comprehensive Income (Section 1530) and Financial Instruments Disclosure and Presentation (Section 3861). The main requirements of these standards are set out below. a) Financial Instruments Recognition and Measurement Financial assets should be classified as one of the following: held for trading, available for sale, held to maturity or loans and receivables. Financial liabilities should be classified as held for trading or other. Financial assets and financial liabilities are initially recognized at fair value. Subsequently, financial assets and financial liabilities held for trading as well as available-for-sale financial assets continue to be recorded on the Consolidated Balance Sheets at fair value. Changes in the fair value of financial assets and financial liabilities held for trading are recognized in consolidated income for the period, while changes in the fair value of available-for-sale financial assets are recorded in consolidated other comprehensive income until they are derecognized. Financial assets held to maturity, loans and receivables, and financial liabilities other than held for trading are recognized at amortized cost using the effective interest method. Financial assets classified as available for sale are reviewed regularly on each balance sheet date to determine if there has been a decline in value that is other than temporary. Any such decline is recognized in consolidated income. Under Section 3855, any financial asset or liability whose fair value can be reliably measured may be classified, on initial recognition or on adoption of this standard, as being held for trading, except for certain related party transactions. This designation is then irrevocable. Electing to classify financial instruments as held for trading under the fair value option is subject to the requirements set by the Autorité des marchés financiers (AMF). The valuation techniques used to determine the fair value of financial instruments have remained substantially the same despite the adoption of these new accounting standards. Thus fair value is based on the market price when an active market exists. Otherwise, it is estimated using valuation models and techniques such as discounted cash flow analysis or option pricing models, based on observable market factors. Transaction costs for financial instruments are capitalized and then amortized over the term of the instrument using the effective interest method unless such instruments are classified as held for trading, in which case these costs are expensed as incurred. Regular-way purchases and sales of financial assets are recognized on a trade-date basis. b) Derivative Financial Instruments and Hedges Derivative financial instruments, including embedded derivatives which are required to be accounted for separately, are recognized on the Consolidated Balance Sheets at fair value. Derivative financial instruments can be designated as fair value hedges or as cash flow hedges. Changes in the fair value of derivative financial instruments are recorded in net income, except for derivative financial instruments designated as effective cash flow hedges, for which changes in fair value are recognized in consolidated other comprehensive income. c) Comprehensive Income Consolidated other comprehensive income includes, in particular, unrealized gains and losses on available-for-sale financial assets, unrealized foreign exchange gains and losses arising from the translation of the financial statements of a self-sustaining foreign operation, net of hedging transactions and the change in the effective portion of cash flow hedge transactions. These components are recorded net of income tax. The consolidated financial statements include a Statement of Comprehensive Income and accumulated other comprehensive income is presented as a new item of members equity on the Consolidated Balance Sheets. d) Impact of the Adoption of the New Financial Instrument Requirements The adoption of these new accounting standards has not resulted in any significant change in the risk management policies and hedging activities of Caisse centrale. Moreover, as provided in the transitional provisions, the financial statements for prior periods were not restated following the adoption of these new standards. Adjustments resulting from the classification of available-for-sale securities were recognized in opening consolidated accumulated other comprehensive income as at January 1, Transitional adjustments from other financial assets and financial liabilities, other than the hedging instruments designated as being part of a cash flow hedging relationship, were recognized in opening retained earnings as at January 1, Transitional adjustments were recognized in opening retained earnings for hedging relationships existing prior to the effective date of the new standards and not qualifying under the provisions of Section For qualified hedging relationships, transitional adjustments were recorded as follows: for fair value hedges, any deferred gain or loss on the hedging instrument was reclassified to opening retained earnings, and the carrying value of the hedged item was adjusted by the cumulative change in fair value attributable to the designated hedged risk. This adjustment was also included in opening retained earnings. For cash flow hedges, the effective portion of any gain or loss on the hedging instrument was reclassified to consolidated accumulated other comprehensive income while the cumulative ineffective portion was recognized in opening retained earnings. The impact of transitional adjustments on consolidated accumulated other comprehensive income as at January 1, 2007 was $3.4 million, net of income taxes of $1.0 million, and resulted from the revaluation of available-forsale securities of $2.9 million and the effective portion of cash flow hedging relationships amounting to $0.5 million. The impact of the transitional adjustments on retained earnings was $0.5 million, net of income taxes of $0.1 million. MANAGEMENT S DISCUSSION AND ANALYSIS

28 26 MANAGEMENT S DISCUSSION AND ANALYSIS CRITICAL ACCOUNTING POLICIES AND ACCOUNTING CHANGES FUTURE CHANGES IN ACCOUNTING POLICIES In December 2006, the CICA issued new accounting standards entitled Capital Disclosures (Section 1535), Financial Instruments Disclosures (Section 3862) and Financial Instruments Presentation (Section 3863), which will apply to Caisse centrale effective January 1, The purpose of Section 1535 is to require the disclosure of information that enables users of financial statements to evaluate the entity s objectives, policies and processes for managing capital. It should be noted that Section 3861, Financial Instruments Disclosure and Presentation, will be replaced by Sections 3862 and Section 3863 carries forward unchanged the presentation standards contained in Section The purpose of Section 3862 is to inform users and enhance their understanding and evaluation of the significance of financial instruments for the entity s financial position and performance, as well as to help them better evaluate the nature and extent of risks arising from financial instruments and how the entity manages those risks. Since the new standard specifically covers the disclosures to be provided, it will not affect Caisse centrale s results or financial position. MANAGEMENT S DISCUSSION AND ANALYSIS

29 CAISSE CENTRALE S STRATEGY MANAGEMENT S DISCUSSION AND ANALYSIS 27 CAISSE CENTRALE S STRATEGY Desjardins Group Treasury Caisse centrale, Desjardins Group s Treasurer, provides disciplined and sophisticated overall management of financial operations. In assuming the Desjardins Group Treasury function, Caisse centrale is responsible for the integrated management of all Desjardins Group Treasury activities, in particular, funding, liquidity management, caisse network matching, deposit fund management, financing of credit card activities and treasury product offerings to Desjardins business and institutional clients. As of the third quarter, 2007 was marked by a liquidity crisis in global capital markets. Strategies used to lengthen borrowing maturities in recent years proved to be highly beneficial; in addition, as a result of the diversification of funding sources, Caisse centrale has been able to borrow at competitive rates during this crisis. Thus, during the second half of the year, funds outstanding of under 100 days increased by $3.7 billion since it was hard to borrow for more than 24 hours on capital markets. In fact, a single issue of 500 million or C$774 million was floated on European markets at the beginning of the year, compared to a total of 2.1 billion in At the end of 2007, 38% of deposits came from international markets. Caisse centrale therefore continues its active management of all its Canadian, U.S. and European borrowing programs. Given the more advantageous conditions on European markets, it intends to make larger fund issues to remedy the shortage of short-term funds. In the first few weeks of 2008, it floated two issues on European markets for an aggregate sum of C$1.3 billion. Caisse centrale s securitization program, set up in the fall of 2005 as an alternate source of regular funding, has been very successful. During the year, Caisse centrale participated in four issues under Canada Mortgage and Housing Corporation ( CMHC ) CMHC s Canada Mortgage Bonds Program for a total of $1.6 billion, bringing the cumulative total to nearly $3.0 billion since the inception of the program. In addition, this program continues to develop with the larger pool of receivables and the participation of Desjardins caisses from Ontario and of Desjardins Credit Union. Incidentally, as a result of the expertise acquired in this area, a number of credit unions showed an interest in participating in our program during a Canadawide investment roadshow. Desjardins Group s Treasurer intends to continue making progress in offering treasury products to caisse network members and Desjardins Business Centre members, as well as to enterprises and institutions. A number of information sessions have been held for these clients. Foreign exchange volumes increased over 19% through the caisses and their SME members, who have access to foreign exchange traders. Corporate Service Offering For a number of years, Caisse centrale has been offering a broad spectrum of products and services to medium-size entreprises and large corporations, as well as to governments and their public and parapublic institutions. In addition to its funding solutions, it offers banking services, international services and treasury products that complement those of other Desjardins Group components. Fiscal 2007 stands out because of two very specific circumstances. Over the first half of the year, the financing market improved following a record number of merger-acquisitions. Then as of the third quarter, new loan activity decreased significantly because of higher borrowing costs resulting from the liquidity crisis. Thus, new business approved in the corporate market segment peaked at $2.0 billion, up 9% over Outstanding business loans consequently continued their upward trend. These results are still based on our business development strategies adopted in recent years. Moreover, in representing Desjardins Group in several banking syndicates for large corporations, Caisse centrale aims to enhance its position by acting as syndication agent or co-syndication agent. Its business development is also based on its industrial expertise and on continued close business relationships with clients in order to offer them customized solutions to meet their needs. In addition, in order to extend its reach, Caisse centrale continues to diversify its loan portfolio geographically. Caisse centrale also continues to accompany enterprises expanding south of the border through its Caisse centrale Desjardins U.S. Branch, whose approved loans virtually doubled in To sum up, close to $1 billion in new business was approved in this new market in In the mid-size corporate market, Caisse centrale is focusing on continuing to improve its service offering to Desjardins Business Centres in the Desjardins caisse network. In 2007, a unique hub dedicated to forming a partnership with the caisses and Desjardins Business Centres was created in order to better meet the needs expressed by the Network. The new business in this segment recorded annual growth of about 60% during the year. In the public and parapublic segments, results continued to improve as approved loans passed the $6 billion mark at the end of Such success also applies to the banking service offensive resulting in the heightened loyalty at large organizations in both Quebec and the rest of Canada. Incidentally, the largest payment contract in Canada set up with the Ontario Financial Authority deserves mentioning. As for Desjardins Bank, its third branch, opened in Lauderhill in 2006, posted significant business. International Operations Caisse centrale, through its International Service Centre, looks after management of international trade and payments. The team is gradually expanding its service offering in order to meet the needs of Desjardins clients around the world and to support Desjardins Group s corporate sector. As in recent years, several types of products and services continued to grow between 15% and 30% in These results are certainly attributable to business development efforts and continual improvement in its service offering. MANAGEMENT S DISCUSSION AND ANALYSIS

30 28 MANAGEMENT S DISCUSSION AND ANALYSIS ECONOMIC REVIEW MANAGEMENT S DISCUSSION AND ANALYSIS ECONOMIC REVIEW This section briefly summarizes the economic conditions in 2007 and includes our forecasts for The Canadian economy grew at a relatively steady pace over the first nine months of Consumer spending growth was brisk as a result of the significant increase in employment, a jobless rate near historical levels and wage growth higher than inflation. The development of new production capacity in the natural resources sector also contributed to soaring business investment. The surge in domestic demand therefore made up for difficulties in foreign trade, which was grappling with the adverse effects of a stronger loonie and fiercer international competition. In the spring of 2007, Canadian monetary authorities began to show concern for the widening positive gap between output and full potential, which is conducive to accelerating inflation. The rapid growth in housing and food prices was also a major cause for concern. Under such conditions, the Bank of Canada raised its key interest rate by 25 basis points in July Main Economic Indicators Economic conditions changed however as autumn drew near. Signs of a correction in the U.S. real estate market became increasingly clear, and problems with subprime mortgages in the United States had repercussions worldwide. A meltdown ensued that still exists today, leading to a reassessment of financial product risk. Problems with funds availability on international capital markets prompted the U.S. Federal Reserve to lower its Fed Funds target rate at its September meeting. Wider short-term interest rate spreads between Canada and the United States in tandem with higher commodity prices, notably oil prices, propelled the Canadian dollar to unprecedented heights in the fall. The assetbacked commercial paper (ABCP) crisis coupled with the intensification of certain down-side risks such as the more pronounced U.S. economic slowdown, potentially tighter credit conditions and the loonie s sharp rise caused Canadian monetary authorities to first postpone monetary tightening, and then to lower the target rate for overnight funds by 25 basis points in December. This adjustment to Canadian trend-setting rates curbed the loonie s ascent so that it stabilized at about par with the greenback in December. Recent trends in economic indicators suggest that the gloomier economic outlook observed since last autumn will continue in the first half of Even if a recessionary scenario in the United States does not seem plausible to us at the present time, U.S. economic growth will nonetheless substantially lose steam in the months ahead. Reduced household wealth caused by declining real estate prices and the recent stock exchange plunge will curb consumers ability to spend. The slower pace of economic growth in the United States will inevitably exacerbate Canada s foreign trade problems. There is therefore every indication that Canadian real GDP growth will be more modest than initially anticipated. The U.S. Federal Reserve Board and the Bank of Canada should therefore continue to ease monetary policy in the first few months of This additional short-term interest rate drop could lead to a steeper yield curve slope later in the year. Even if the situation has improved somewhat since the end of 2007, the widening gap between federal debt securities and the financing rates at financial institutions remains worrisome. The ABCP write-down process should however continue in However, the situation will probably dissipate gradually, in turn reducing tensions on capital markets. Forecast Preliminary United States Gross domestic product 2.0 % 2.2 % 2.9 % 3.1 % 3.6 % Inflation Unemployment Canada Gross domestic product 2.4 % 2.6 % 2.8 % 3.1 % 3.1 % Inflation Unemployment Overnight rate Government of Canada bonds 10 years Canadian dollar (in $US) $ 0.99 $ 0.93 $ 0.88 $ 0.83 $ 0.77

31 ANALYSIS OF CONSOLIDATED RESULTS MANAGEMENT S DISCUSSION AND ANALYSIS 29 ANALYSIS OF CONSOLIDATED RESULTS NET INCOME AND CONTRIBUTION TO NETWORK Caisse centrale s contribution to the caisse network exceeded the $100 million mark for the first time, totalling $112.3 million, up 17% from This exceptional and steady increase is attributable to the development strategies adopted in recent years in all business segments. This amount also represents a return of more than 12% on capital stock, comparable to The gross income of Caisse centrale stood at $207.9 million, up $19.1 million or 10% from 2006, despite the $10.1 million write-down for asset-backed commercial paper (ABCP) issued by non-bank conduits, as explained in the Comments on assets section. This increase stems mainly from net interest income, with other income down from the previous year as a result of the write-down recognized for ABCP. Despite this drop in value, Caisse centrale s net income was up 16%, totalling $63.0 million compared to $54.5 million in The following sections provide a detailed analysis of income and expenses. NET INTEREST INCOME Net interest income is the difference between the interest income earned on assets such as loans and securities, and the interest expense paid on liabilities such as deposits and debenture. Net interest income is affected by interest rate fluctuations, funding strategies and the composition of interest-earning and non-interest-earning financial instruments. Table I presents the changes in net interest income by major asset and liability class. The last three columns in the table show the relative contribution of rate and volume changes to assets and liabilities. The impact is broken down into its volume and rate components. In 2007, net interest income was up by $19.9 million or 17% from 2006, closing the year at $138.6 million. Thus, as shown in Table I, the net interest margin grew from 0.77% of consolidated average assets in 2006 to 0.82% by the end of fiscal The net interest margin from the Desjardins Group Treasury segment recorded a jump of $13.6 million as a result of liquid asset management and asset/liability management. In addition, growth of 11% in the average volume of the loan portfolio mostly accounts for the higher net margin of the Financing segment. Average interest rates for all financing segments also rose. In addition, the average volume of private sector loans expanded at 6% as a result of market development efforts. The fierce competition in the private and institutional sectors compressed margins in these sectors. Lastly, it should be noted that the number of companies being financed through Desjardins Acceptances is still growing. With income from such Desjardins Acceptations recognized in Other income, net interest margin was reduced. Overall, the net interest margin rose five basis points in OUTLOOK Caisse centrale expects net interest income to grow in fiscal MANAGEMENT S DISCUSSION AND ANALYSIS

32 30 MANAGEMENT S DISCUSSION AND ANALYSIS ANALYSIS OF CONSOLIDATED RESULTS Table I NET INTEREST INCOME ON AVERAGE ASSETS AND LIABILITIES For the years ended December 31 (in thousands of dollars) / 2006 MANAGEMENT S DISCUSSION AND ANALYSIS Average Interest Average Average Interest Average Volume Rate Income volume rate volume rate gap gap gap ASSETS Cash and securities $ 3,434,922 $190, % $ 2,964,564 $145, % $23,071 $21,935 $ 45,006 Loans Securities purchased under reverse repurchase agreements 529,390 22, ,275 14, ,102 2,332 7,434 Day to day 132,437 5, ,073 5, (443) 304 (139) Fédération treasury activities 2,625, , ,591, , ,514 (8,373) (6,859) financing activities 2,744, , ,498, , ,190 25,514 35,704 Other entities included in the scope of consolidation of Desjardins Group 1,573, , ,112,887 60, ,095 15,035 40,130 Public and parapublic institutions 1,412,583 69, ,254,354 59, ,467 2,536 10,003 Private sector 1 2,422, , ,289, , ,723 4,853 13,576 11,441, , ,284, , ,227 42,622 99,849 Total interest-earning assets 14,876, , ,249, , ,346 64, ,855 Other assets 2,114,577 2,171,719 TOTAL ASSETS $16,990,671 $799, % $15,421,204 $654, % $66,606 $78,249 $144,855 LIABILITIES AND MEMBERS EQUITY Deposits Payable on demand $ 911,104 $ 50, % $ 635,977 $ 27, % $12,101 $ 9,941 $ 22,042 Payable on a fixed date 12,249, , ,621, , ,920 25, ,701 Subordinated debenture 111,829 6, ,961 5, Total interest-bearing liabilities 13,272, , ,366, , ,846 35, ,922 Other liabilities 2,777,621 3,266,070 Members equity 940, ,949 TOTAL LIABILITIES AND MEMBERS EQUITY $16,990,671 $660, % $15,421,204 $535, % $54,528 $70,394 $124,922 NET INTEREST INCOME $16,990,671 $138, % $15,421,204 $118, % $ 12,078 $ 7,855 $ 19,933 1 Average impaired loans, net of specific provisions, are included in this item.

33 ANALYSIS OF CONSOLIDATED RESULTS MANAGEMENT S DISCUSSION AND ANALYSIS 31 Table II OTHER INCOME For the years ended December 31 (in thousands of dollars) $ Change Service charges on chequing and deposit accounts $ 15,560 $ 14,649 $ 911 Foreign exchange income 34,274 28,878 5,396 Trading activities 7,303 4,384 2,919 Net losses on available-for-sale securities (9,833) (9,833) Investment activities 2 3,229 (3,229) Commissions on Desjardins Acceptances 10,135 9, Credit fees 3,112 3,685 (573) Management fees 6,675 3,593 3,082 Other 2,043 1, TOTAL $ 69,269 $ 70,083 $ (814) 1 Reclassified to conform to current year s presentation. 2 In 2007, investment activities are included in net losses on available-for-sale securities. OTHER INCOME Other income includes all income that is not interest income. In 2007, other income, which accounted for 33% of Caisse centrale s gross income, amounted to $69.3 million, versus $70.1 million a year earlier, down $0.8 million or 1%. Had it not been for the $10.1 million write-down for ABCP (included in the net losses on availablefor-sale securities), other income would have posted growth of $9.3 million or 13%. Securitization results, included in trading activities, generated $7 million more than in the previous year because of the higher volume. Foreign exchange activities, one of the core business development areas favoured by Caisse centrale in recent years, posted growth of $5.4 million or 19% over the previous year as a result of the success of our direct access service to foreign exchange traders, our preferred access service and the sales team s efforts with commercial clients. As at December 31, 2007, more than 670 business members had signed up for the direct access service, one of the most flexible in the industry, and 501, for the preferred access service. Table II shows a significant increase of $3.1 million or 86% in income from management fees in This exceptional growth reflects the excellent performance of portfolio managers as well as the higher volume of portfolios under management. OUTLOOK Caisse centrale expects the other income to remain stable over the next fiscal year. SEGMENT ANALYSIS All segments contributed to the growth in total income in 2007, as shown in Table III. Financing Net interest income in the Financing segment was up $5.4 million in 2007 over the previous year, totalling $63.0 million. Acting as Desjardins Group s Treasurer, Caisse centrale promptly met the additional liquidity needs of Desjardins Group entities over the year, as evidenced by the $1.5 billion increase in outstanding loans to entities within the scope of consolidation of Desjardins Group. The higher loan volume had a positive impact on net interest income for the year. It should also be noted that development efforts in recent years accounted for the 6% growth in the average volume of the private sector loan portfolio. In fact, as a result of the strategies implemented, it was possible to take advantage of highly favourable conditions at the beginning of the year for financing corporate mergers and acquisitions, and to make other breakthroughs in Canadian and cross-border banking syndicates through the commercial lending branch in the United States. Margins, however, were subject to strong pressure because of the fierce competition in this segment. Overall, the net interest margin of the Financing segment, expressed as a percentage of average assets, stood at 0.79%, down from 0.81% the previous year. If net interest income and other income are taken into account, its total income in the Financing segment grew by $5.6 million or 7%. MANAGEMENT S DISCUSSION AND ANALYSIS

34 32 MANAGEMENT S DISCUSSION AND ANALYSIS ANALYSIS OF CONSOLIDATED RESULTS Table III COMPONENTS OF NET INTEREST INCOME AND OTHER INCOME BY BUSINESS SEGMENT For the years ended December 31 (in thousands of dollars) $ Change MANAGEMENT S DISCUSSION AND ANALYSIS FINANCING Net interest income $ 62,988 $ 57,568 $ 5,420 Other income 22,347 22, Desjardins Group Treasury The Desjardins Group Treasury segment generated total income of about $105.6 million, up $12.0 million or 13% from a year earlier. This exceptional growth was evident in net interest income, which was up $13.6 million. Other income dropped slightly to $38 million, down $1.6 million or 4% from the previous year. As previously mentioned, liquid asset management and asset and liability management accounted for the robust growth in net interest income for this segment. The growth in net margin is partially a result of capital injections at the end of fiscal 2006 and in the third quarter of As shown in Table I, the growth in the average volume of securities generated additional income due to the increase in liquid assets. In addition, because of the investment strategies adopted, it was possible to take advantage of certain market opportunities, in particular reinvesting at interest rates that were higher than financing costs. The decline in other income was attributable to the $10.1 million write-down for ABCP, which was however offset by sharp growth in securitization results and foreign exchange income, as explained earlier. Other The other segment posted a 10% increase in 2007, mainly because of international activities. In fact, this segment experienced significant income growth as a result of higher bank draft and money order volumes, the surge in funds transfer activities and our business development efforts associated with ExportD factoring proceeds. Lastly, it should be pointed out that the new treasury management products launched in recent years by the International Service Centre also contributed to the increase in income. 85,335 79,748 5,587 DESJARDINS GROUP TREASURY Net interest income 67,560 53,965 13,595 Other income 37,995 39,600 (1,605) 105,555 93,565 11,990 OTHER Net interest income 8,065 7, Other income 8,927 8, ,992 15,450 1,542 Total Net interest income 138, ,680 19,933 Total Other income 69,269 70,083 (814) TOTAL $ 207,882 $ 188,763 $ 19,119 PROVISION FOR CREDIT LOSSES The provision for credit losses is an amount allocated during the year to the allowance for credit losses to cover credit losses. In 2007, the provision for credit losses charged to income amounted to $15.8 million, down 6% from $16.8 million in As at December 2007, the allowance for credit losses increased by 18%. This increase is partially a result of the 12% growth of the private loans portfolio. A more detailed analysis of the specific provisions for credit losses is provided in the Allowance for Credit Losses section. OUTLOOK Even though Caisse centrale expects the overall provision for credit losses in 2008 to be comparable to the one in 2007, there may be a certain amount of volatility from one quarter to another.

35 ANALYSIS OF CONSOLIDATED RESULTS MANAGEMENT S DISCUSSION AND ANALYSIS 33 Table IV NON-INTEREST EXPENSE For the years ended December 31 (in thousands of dollars) $ Change Salaries and benefits $ 30,635 $ 35,146 $ (4,511) Premises, equipment and furniture, including depreciation Rent and taxes 3,790 2,717 1,073 Depreciation of premises and equipment and amortization of intangible assets 7,521 2,975 4,546 Other 5,251 2,816 2,435 NON-INTEREST EXPENSE Non-interest expense includes expenses related to personnel administration, premises, equipment and furniture and other operating expenses. Table IV above shows the breakdown of non-interest expense by category. Non-interest expense totalled $76.2 million in 2007, compared to $73.3 million in 2006, for an increase of 4%. This increase in expenses results from a higher volume of activity attributable to increased new business development. Growth in non-interest expense was contained in 2007 as a result of productivity gains from new management applications introduced at the end of 2006, despite the one-time expenses incurred during the year. It may be recalled that in 2006, Caisse centrale completed implementation of the management applications and systems re-engineering project. This new technology solution will support banking and loan management activities, treasury operations support services, payment and accounting functions and management information. Salaries and benefits, which were down $4.5 million from 2006 to total $30.6 million in 2007, accounted for almost half of all noninterest expense. As mentioned earlier, this change is partially the result of productivity gains in In addition, following the integration of the Desjardins Group Treasury function in 2006, Caisse centrale was reimbursed for the first time in 2007 by the Fédération des caisses Desjardins du Québec ( Fédération ) in order to offset the cost of salaries for additional staff required by this activity. Lastly, in 2006, there was an additional charge related to introduction of the new performance-based compensation program. Moreover, as at December 31, 2007, the number of employees (on a full-time equivalent basis) working for Caisse centrale and its U.S. subsidiary did not change in 2007, despite the higher volume of activity. The cost of relocating the head office to the Windsor Building, initiated in 2006, accounted for the higher rental expenses. The $4.5 million increase in the depreciation of premises and equipment and the amortization of intangible assets is attributable to the implementation of management systems and applications at 16,562 8,508 8,054 Outsourcing of processing services 9,273 9,612 (339) Fees 8,572 9,105 (533) Other Communications and external relations 6,211 6,254 (43) Other 4,983 4, ,194 10, TOTAL $ 76,236 $ 73,259 $ 2,977 1 Reclassified to conform to current year s presentation. the end of It should be noted that the former computer applications had already been completely amortized for a few years. Finally, other expenses related to premises, equipment and furniture were up in 2007 as a result of the licensing fees for the management system and fit-up costs for the new premises. Fees were down slightly by $0.5 million in 2007 compared to the previous year. In 2006, professional fees and related one-time expenses had been incurred for setting up the management system. In addition, the efficiency ratio improved by 2.1% to 36.7%, as a result of the higher growth in gross income than in non-interest expense. OUTLOOK Caisse centrale intends to continue to rigorously manage the non-interest expense, with a view to enhancing the financial performance. In 2008, non-interest expense should remain comparable to MANAGEMENT S DISCUSSION AND ANALYSIS

36 34 MANAGEMENT S DISCUSSION AND ANALYSIS ANALYSIS OF CONSOLIDATED RESULTS OTHER PAYMENTS TO THE DESJARDINS NETWORK INCOME TAXES AND OTHER TAXES REMUNERATION OF CAPITAL STOCK MANAGEMENT S DISCUSSION AND ANALYSIS In cooperation with the Desjardins network, Caisse centrale offers a broad spectrum of banking and financing services and treasury products to Canadian private and public entities. Of the total fees collected, $32.2 million was redistributed to the Desjardins network, including member dividends paid on interest margins on participating loans and foreign exchange transactions, for a 15% increase from December 31, This increase is chiefly attributable to the member dividends paid on foreign exchange transactions, which rose by $3.7 million from 2006 as a result of the higher volume of activity. OUTLOOK Caisse centrale expects that its other payments will continue to grow over the next year. The higher income taxes charged to the Consolidated Statements of Income resulted primarily from the higher net income. Caisse centrale s net income before income taxes was up from $70.8 million in 2006 to $83.7 million. It should be noted that Caisse centrale can recover a substantial portion of the income taxes when it declares remuneration of capital stock. Accordingly, a $18.3 million income tax recovery was recorded in the Consolidated Statements of Members Equity as a result of the remuneration of capital stock in OUTLOOK In 2008, the tax rates of the two Canadian government levels will be changed, resulting in a slight decrease in Caisse centrale s tax rate. Under the Act respecting the Mouvement Desjardins (the Constituent Legislation ), the Board of Directors of Caisse centrale may declare interest on capital shares; it then determines the terms of payment thereof. In 2005, the Board of Directors of Caisse centrale applied the principle of declaring, as remuneration of capital stock, an amount corresponding to its non-consolidated net income, including recovery of related income taxes. However, given the capital requirements for the forthcoming years, the Board of Directors also accepted the principle of suspending the quarterly payment of the remuneration on capital stock, notably for the purpose of retaining amounts that could be quickly made available to Caisse centrale when needed. For the year ended December 31, 2007, interest of $80.1 million was declared on subscribed and paid-up capital shares. An amount of $88.4 million was recorded on the Consolidated Balance Sheets as remuneration of capital stock payable. Overall, amounts paid to the Desjardins network, including other payments to members, amounted to $112.3 million, up $16.2 million or 17% from $96.1 million in OUTLOOK Caisse centrale does not expect any change in the remuneration of capital stock policy in COMPREHENSIVE INCOME Caisse centrale s comprehensive income totalled $45.4 million. The main component of other comprehensive income is the change in the unrealized gains and losses on available-for-sale securities.

37 ANALYSIS OF QUARTERLY RESULTS MANAGEMENT S DISCUSSION AND ANALYSIS 35 ANALYSIS OF QUARTERLY TRENDS In the past two years, Caisse centrale s quarterly results have been significantly influenced by macroeconomic and regulatory changes in Canada and in the rest of the world. Macroeconomic changes may include the interest rate situation, monetary policies and economic growth. In 2007, as in 2006, the quarterly change in results can be explained primarily by fluctuating income from the Desjardins Group Treasury segment, and in particular income from trading activities, which are, by their very nature, more volatile. ANALYSIS OF FOURTH QUARTER RESULTS NET INTEREST INCOME Net interest income for the three-month period ended December 31, 2007 totalled $38.7 million, up $10.9 million from the fourth quarter of As previously explained, net interest income for the Desjardins Group Treasury segment was up. The composition of revenues in this segment may, however, vary significantly from one quarter to the next. The return generated by liquid asset management accounted for the exceptional performance in the fourth quarter of Capital totalling $100 million was injected toward the end of 2006, thus increasing income in An additional injection was made at the end of the third quarter of 2007, which also accounted for the higher net interest income from the Desjardins Group Treasury segment in the last quarter. OTHER INCOME Other income stood at $17.4 million at the end of the fourth quarter of 2007, up slightly by $405,000 from the same quarter in The $7.1 million write-down for ABCP in the fourth quarter was offset by the growth in foreign exchange activities and securitization results. PROVISION FOR CREDIT LOSSES Caisse centrale recorded a provision for credit losses of $5.3 million, versus $5.4 million in For the fourth quarter of 2007, the provision was $0.1 million less than in the last quarter of The loan portfolio quality remained unchanged despite an overall increase in loans. NON-INTEREST EXPENSE Non-interest expense amounted to $20.2 million in the fourth quarter, down $3.9 million from the same quarter in It should be remembered that in 2006, one-time expenses had been incurred for installation of the management system. Moreover, salaries had been higher in the fourth quarter of 2006 as a result of the introduction of a new performance-based compensation program. Lastly, additional professional fees had been incurred in the last quarter of 2006 relating to the securities authorities requirements (Multilateral Instrument ), the application of new financial instrument accounting standards and the audit of the conversion to the new management software. OTHER PAYMENTS TO THE DESJARDINS NETWORK Amounts redistributed to the Desjardins network totalled $9.0 million in the fourth quarter, up $2 million from 2006 because of growth in loans and foreign exchange income. MANAGEMENT S DISCUSSION AND ANALYSIS

38 36 MANAGEMENT S DISCUSSION AND ANALYSIS COMMENTS ON ASSETS Table V ASSET MIX As at December 31 (in millions of dollars) Cash and securities $ 4, % $ 3, % $ 3, % $ 2, % $ 3, % Loans 13, , , , , Other 2, , , , , TOTAL $ 20, % $ 17, % $ 15, % $ 14, % $ 13, % Average assets $ 16,991 $ 15,421 $ 13,969 $ 12,885 $ 10,692 MANAGEMENT S DISCUSSION AND ANALYSIS COMMENTS ON ASSETS Following the adoption of the new financial instrument accounting standards, some financial instruments are now measured at fair value on the balance sheet, whereas they had been previously presented at cost or amortized cost. Further details of these changes are found in note 2 to the consolidated financial statements. Total assets on the Consolidated Balance Sheet of Caisse centrale amounted to $20.4 billion as at December 31, 2007, up more than $2.8 billion from the end of Average assets increased by $1.6 billion or 10% over 2006 to $17.0 billion in Cash and securities totalled $4.2 billion at the end of 2007, compared to $4.0 billion as at December 31, The higher liquidity is intended essentially to meet regulatory requirements, according to which a certain liquidity level must be maintained by Caisse centrale. The liquidity ratio, consisting of cash and securities to total assets, was therefore 20% at year-end, down from 23% at the close of the year in 2006, a level which however exceeds regulatory requirements. It is also noteworthy that 60% of securities consisted of securities issued or guaranteed by the federal and provincial governments, municipal, school or public corporations, as well as by Canadian banks. Note 3 to the consolidated financial statements presents a detailed analysis of the securities portfolio. As at December 31, 2007, Caisse centrale held investments of $39.6 million on the ABCP market, although it never issued this type of financial product to its customers. These securities are presented on the Consolidated Balance Sheets under Available-for-sale securities. Since August 2007, this market has been shaken by disruptions on international capital markets, especially by a deterioration in the global credit market. Although the context in Canada is different from the one in the United States, this situation has nonetheless led to a loss of confidence in certain financial products, especially ABCP, and has triggered a liquidity crisis in the ABCP market. As a result, since August 13, Caisse centrale has been unable to collect, at maturity, amounts due with respect to its ABCP holdings. In order to mitigate the impact of the lack of liquidity in the ABCP market and to restore a climate of confidence, an initial agreement was entered into in August 2007 by several investors and financial institutions, including Desjardins Group, which aimed at favouring the resumption of normal activities on the ABCP market (the Montreal Accord). This agreement led to the formation of a pan-canadian committee (the Crawford Committee ), which includes investors who were signatories of the Montreal Accord and other key players bringing a national perspective, relevant experience and associations with the private sector, institutional investors, government agencies and Crown corporations. The committee aims to propose a fair and equitable restructuring to all investors, through which ABCP securities would be converted into floating rate long-term notes and the value and transparency of underlying assets would be improved. At the outset of the crisis, these ABCP securities had received an investment grade rating of R1-High from the Dominion Bond Rating Service (DBRS) and complied with the criteria of Caisse centrale s investment policies. On December 23, 2007, the committee announced that an agreement in principle had been reached regarding a comprehensive restructuring of the ABCP issued by 20 out of the 22 trusts covered by the agreement. This agreement was approved by the investors committee, by certain of the dealer bank asset providers as well as by the sponsors of each of the trusts. The investors committee also mentioned that it anticipates that the restructuring, whose implementation is subject to certain conditions (including consents and approvals, notably a favourable vote by ABCP holders on an individual trust basis), will be completed in March The agreement in principle aims, among other things, to replace ABCP issued with new securities having a maturity similar to that of the underlying assets, to pool certain series of ABCP which are supported in whole or in part by synthetic assets, to mitigate the margin call obligations of the existing trusts and implement credit facilities to address such margin calls if they occur, and to support the liquidity needs of those ABCP holders requiring it. The proposed restructuring includes the following steps: Implement a comprehensive and a contemporaneous restructuring with distinct solutions for: a) ABCP which is supported by synthetic assets, or a combination of synthetic and traditional securitized assets (synthetic assets); b) ABCP which is supported solely by assets (traditional assets); c) ABCP which is supported by assets related to U.S. subprime mortgage loans (subprime assets); Restructure substantially all triggers to become more transparent and spread over time; Obtain credit ratings for restructured notes, which are expected by the investors committee and its financial advisors to be of high quality for synthetic assets.

39 COMMENTS ON ASSETS MANAGEMENT S DISCUSSION AND ANALYSIS 37 With respect to synthetic assets, the agreement in principle provides for the creation of two limited partnerships which will issue floating rate notes in exchange for existing ABCP. The conditions include the establishment of a credit facility for each limited partnership to fund future margin calls on the underlying assets. Each investor can join either limited partnership. By joining the first limited partnership, the investor undertakes to participate in such limited partnership s credit facility in proportion to its investments, whereas the investor who decides to join the second limited partnership will not have to participate in the credit facility as it will be provided by a third party. Desjardins Group has indicated that it intends to join the first limited partnership and thus to participate in the credit facility. Since there is no active market for ABCP securities subject to the agreement in principle, Caisse centrale s management estimated the fair value of its holdings and the resulting write-downs by using a valuation technique based on two scenarios: a liquidation scenario and a restructuring scenario. Under the liquidation scenario, in the event of the failure of the agreement in principle, the fair value of ABCP is determined based on the estimated fair value of underlying assets as at December 31. Under the restructuring scenario, the fair value of ABCP is determined based on a financial model incorporating uncertainties regarding return, credit spreads, type and credit risk of underlying assets, the amount and timing of cash receipts and maturity dates of the new notes in order to provide a fair value for the ABCP securities reflecting market conditions as at December 31. Assumptions used are based as much as possible on observable market data such as interest rates and credit quality. They also reflect the specific features of the agreement in principle of December 23, 2007 and are partially based on assumptions not supported by observable market prices or rates. Caisse centrale gives a high probability to the restructuring, namely the successful implementation of the agreement in principle, and a low probability to the liquidation scenario. For synthetic assets, the fair value is a weighted average of the estimated values under the liquidation and restructuring scenarios based on the estimated probability of realization of each scenario. For traditional assets and subprime assets, fair value was determined using the liquidation scenario, as Caisse centrale assumes that the restructuring should not have a significant impact on their fair value. Based on the foregoing, a decline in value of $10.1 million was charged to consolidated income for the year ended December 31, This decline in value is considered to be, in accordance with accounting standards, other than temporary for available-for-sale securities. The estimated fair value may not be indicative of the ultimate net realizable value or the future fair value. While management believes that its valuation technique is appropriate in the circumstances, changes in significant assumptions, especially those relating to the determination of the probability of realization of the scenarios, return, credit spreads and credit risk of the underlying assets, the quality of assets given as collateral by the trusts, and more detailed information about the exact composition of the underlying assets could significantly affect the value ascribed to ABCP securities in the next quarters. The most critical assumption used in the fair value valuation model is the probability of success of the agreement in principle. As mentioned earlier, Caisse centrale believes strongly in its success considering the benefits provided by the agreement in principle to all stakeholders. Finally, some trust series took significant writedown during February Discussions are still under way between members of the pan-canadian committee as to the implementation of the agreement in principle. At the end of 2007, the loan portfolio stood at $13.7 billion, up $2.8 billion or 25% over the previous year. Reflecting increased business development activities, the private sector loan portfolio grew by 12%. The first half of 2007 was conducive to corporate mergers and acquisitions, allowing Caisse centrale to make headway in its role as bank co-syndication agent for Quebec enterprises in the corporate segment. The involvement of Caisse centrale included Canada-wide financings or cross-border financings in the United States made through the U.S. branch. The loans to the Fédération for financing activities were up by $996 million or 34% as a result of the higher business volume of certain Desjardins Group business entities. Similar growth is expected for fiscal In pursing its role as Desjardin Group s Treasurer, Caisse centrale s loans to entities included in the scope of consolidation of Desjardins Group grew by $1.5 billion in 2007 to total $2.4 billion. caisses are members of Caisse centrale. Consequently, transactions with the Fédération for the benefit of its member caisses are carried out under more favourable conditions for the member caisses than those granted to unrelated third parties. These transactions are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. Transactions entered into for the Fédération s own financing needs and with other entities included in the scope of consolidation of Desjardins Group are carried out under similar conditions to those negotiated with unrelated third parties. These transactions are in the normal course of business of Caisse centrale and are measured at the exchange amount, which approximates fair market value and is the amount of consideration established and agreed to by the related parties. As at December 31, 2007, the loans granted to members or other entities included in the scope of consolidation of Desjardins Group totalled $8.9 billion. For more details about member or other entities included in the scope of consolidation of Desjardins Group, with which Caisse centrale entered into financing transactions, refer to the Desjardins Group organization chart. Mortgage loan securitization activities continued to expand during the year. The volume of mortgage-backed securities therefore totalled $1.7 billion, bringing the cumulative total since this activity was introduced in 2005 to $3 billion. The extensive use of this source of funding explains why the volume of loans granted to the Fédération for treasury purposes decreased to $2.6 billion despite the increase in the Fédération s funding requirements. In addition to these results, Publi-privilège securities and Desjardins Acceptances were issued. These instruments give public entities access to low-cost money market financing. Note that the Publi-privilège program does not appear on the balance sheet of Caisse centrale. This program is guaranteed by Caisse centrale, whose commitment is presented under "Guarantees and standby letters of credit" in note 20 to the consolidated financial statements. Other assets amounted to $2.6 billion in 2007, down slightly by 5% from the previous year, mainly as a result of customers liability under acceptances, whose notional amounts decreased by 28% in OUTLOOK Caisse centrale expects to grow its balance sheet in MANAGEMENT S DISCUSSION AND ANALYSIS As mentioned in note 21 to the consolidated financial statements, Caisse centrale conducts transactions with its members and other entities included in the scope of consolidation of Desjardins Group. Pursuant to its Constituent Legislation, the Fédération and its member

40 38 MANAGEMENT S DISCUSSION AND ANALYSIS COMMENTS ON ASSETS Table VI LOAN PORTFOLIO Net of allowance for credit losses As at December 31 (in millions of dollars) MANAGEMENT S DISCUSSION AND ANALYSIS Composition Securities purchased under reverse repurchase agreements $ 159 $ 17 $ $ 96 $ 15 Day, call and short-term loans to investment dealers and brokers Public and parapublic institutions 1,672 1,526 1,477 1,455 1,523 Members Fédération treasury activities 2,559 2,718 3,129 2,706 1,350 financing activities 3,923 2,927 2,443 2,737 2,370 Other Other entities included in the scope of consolidation of Desjardins Group 2, ,032 Loans purchased from Desjardins Group Private sector 2,880 2,569 2,071 1,803 1,570 Allowance for credit losses (104) (88) (72) (61) (90) TOTAL $ 13,688 $ 10,924 $ 10,286 $ 10,187 $ 8,122 Geographic distribution (based on head office address) Quebec $ 12,010 $ 9,330 $ 8,817 $ 8,939 $ 7,068 Other Canadian provinces 1,424 1,304 1,261 1, International TOTAL $ 13,688 $ 10,924 $ 10,286 $ 10,187 $ 8,122 Average loans $ 11,441 $ 10,285 $ 9,528 $ 8,397 $ 5,949

41 ANALYSIS OF CASH FLOWS AND OFF-BALANCE SHEET ARRANGEMENTS MANAGEMENT S DISCUSSION AND ANALYSIS 39 ANALYSIS OF CASH FLOWS As at December 31, 2007, cash and cash equivalents totalled $290.3 million, up $183.9 million from the previous year-end. Cash flows used in operating activities amounted to $475.0 million, chiefly due to the increase in securities held for trading. In 2006, operating activities required $394.2 million as a result of the increase in the amounts receivable on derivative financial instruments and the change in securities held for trading. In fiscal 2007, financing activities generated cash flows of $2.7 billion due essentially to the net increase in deposits. In 2006, cash flows generated by such activities amounted to $1.3 billion, also attributable to higher deposits. Lastly, investing activities required $2.0 billion in liquidities primarily as a result of the increase in loans. For the same reasons, the funds required for investing activities amounted to $943.9 million in OFF-BALANCE SHEET ARRANGEMENTS As part of its capital and liquidity management strategy, Caisse centrale engages in mortgage loan securitization transactions in the normal course of its business. These transactions involve the use of off-balance sheet arrangements and special purpose vehicles. The special purpose vehicle used by Caisse centrale is Canada Housing Trust, set up by CMHC under the Canada Mortgage Bonds Program. In this type of transaction, Caisse centrale transfers mortgage-backed securities to the special purpose vehicle against money. The special purpose vehicle finances these purchases by issuing bonds to the investors. Under the terms of the Canada Mortgage Bonds Program, swap contracts must be entered into between Canada Housing Trust and Caisse centrale so that Caisse centrale receives all cash flows related to securitized mortgage loans underlying the mortgagebacked securities on a monthly basis, and pays interest to Canada Housing Trust on the series of Canada Mortgage Bonds on a quarterly basis and the principal at maturity. Securitization transactions are recorded as sales of assets only if Caisse centrale is deemed to have surrendered control over the assets and has received consideration other than beneficial interests in these assets. At the time of the sale of the assets, Caisse centrale retains certain rights to excess interest spreads, which constitute retained interests and assumes servicing of the transferred mortgage loans. No loss is expected on the mortgage loans because they are guaranteed. Where applicable, any change in the value of these rights is recognized by Caisse centrale in income. As at December 31, 2007, total outstanding securitized mortgage loans amounted to $2.6 billion. Note 5 to the consolidated financial statements provides more detailed information on these transactions. MANAGEMENT S DISCUSSION AND ANALYSIS

42 40 MANAGEMENT S DISCUSSION AND ANALYSIS RISK MANAGEMENT MANAGEMENT S DISCUSSION AND ANALYSIS RISK MANAGEMENT REVIEW OVERVIEW In the course of its operations, Caisse centrale is exposed to a number of risks such as credit, market, liquidity and operational risk. The risk management objective of Caisse centrale is to optimize the risk/return trade-off by applying integrated management and control strategies, policies and processes to all functions of the organization. Risk management is based on a framework and strict screening, assessment and control methods. In this regard, setting up a risk management framework can be assisted by the following: a corporate governance structure that clearly defines the roles and responsibilities of various intervention levels; a risk management culture based on the accountability of all COMMITTEES AND COMMISSIONS OF THE BOARD OF DIRECTORS OF CAISSE CENTRALE 1 Board of Directors Ensures that Caisse centrale has an adequate strategic management process that includes risk assessment. Corporate Governance Commission Supervises the program to evaluate Board effectiveness. Recommends the orientation and professional development program for Board members. Examines the roles of the Board of Directors and its committees. Human Resources Commission Ensures that the compensation plan is compatible with the realization of objectives and the prudent management of activities and risks. Risk Management Commission Assesses actions taken and organization set up to manage risks to which Caisse centrale may be exposed. Recommends oversight, approval limits, and rules and techniques for risk management. Is informed of changes made to risk management methods and limits. Examines reports from Management on material risks and on compliance with risk management limits, and ensures the implementation and monitoring of the required measures for improvement. Examines key risk management findings from independent supervisory functions. managers and participants; policies and practices that clearly set out the management, assessment, risk tolerance and reporting rules; and the practice of independent oversight. A number of committees participate in risk management in support of the Board of Directors and management. The roles and responsibilities of the various committees and commissions are presented in the tables on the following page. Basel II aims to associate capital requirements with the risks incurred and to promote the ongoing development of risk assessment capabilities in financial institutions. Desjardins Group filed an application with the Autorité des marchés financiers to adopt an Advanced Internal Ratings Based Approach, effective in 2009, for a significant portion of its credit portfolio, and an Internal Models Approach for market risk. The Standardized Approach will be prescribed for operational risk as of The filing of this application by Desjardins Credit and Investment Commission Group constitutes a formal undertaking to comply with the expectations of the Autorité des marchés financiers. Given this context, Caisse centrale continued, in conjunction with Desjardins Group, to implement its Integrated Risk Management and Basel Accord program ( IRMBA ). Such integrated management promotes risk identification and measurement as well as optimal allocation of capital, and will become integrated with strategic planning and performance evaluation. Extensive work on credit, market and operational risk was done in 2007 and will be continued throughout 2008 in order to finetune our global vision of risk and its integration into the overall management of the Group s activities. The activities of the U.S. branch are subject to specific oversight performed by a team of Senior Management members. During the year, the Board of Directors adopted the policies required by the applicable regulations. Determines the credits to be granted by Caisse centrale as well as investments and loans and other financial commitments, and accordingly exercises the necessary authority under the general policies adopted by the Board of Directors. Audit Commission Ensures that Caisse centrale has an ongoing, adequate and effective risk management process and that its major risk management practices are complied with. Ensures, in keeping with the Risk Management Commission, that risks that could affect financial reporting are properly managed and controlled. Obtains the opinion of Desjardins Group s internal auditor and external auditors on the financial reporting risks of Caisse centrale. Ensures that the risk management activities of Caisse centrale are reviewed periodically. Reviews the processes on which certification by the Chief Executive Officer and the Chief Financial Officer of Caisse centrale is based under Multilateral Instrument (Certification of Disclosure in Issuers Annual and Interim Filings). The Audit Commission ensures that these processes constitute a reasonable strategy and are executed diligently. Assists the Board of Directors in its management and monitoring responsibilities regarding the regulatory compliance of Caisse centrale. Board of Ethics and Professional Conduct Ensures compliance with rules of professional conduct regarding, among other matters, conflicts of interest and self-dealing. 1 Please refer to the Corporate Governance section of this Annual Report for a more detailed description of the roles and responsibilities of the committees and commissions of the Board of Directors of Caisse centrale.

43 RISK MANAGEMENT MANAGEMENT S DISCUSSION AND ANALYSIS 41 MANAGEMENT COMMITTEES OF CAISSE CENTRALE Management Committee Determines the mandate and composition of the management committees of Caisse centrale. Specifies the strategic orientations, performance objectives and risk limits for Caisse centrale. Approves delegation powers and limits for the management committees of Caisse centrale. Monitors hedging strategies in order to maintain risk exposure within the limits approved by the Board of Directors. Risk Management Committee Evaluates and revises risk management and treasury policies. Ensures that risks are managed in accordance with established policies. Reviews risk assessment program results. Ensures the implementation of and compliance with control procedures. Examines the impacts of framework and management method developments regarding the activities of Caisse centrale. Reviews governance and compliance activities. Internal Credit Committee Defines parameters for granting credit and monitors their application. Authorizes loans within its limits or refers them to higher levels. Reviews impaired loans and loans on the watch list. Reviews loan delinquency and credit losses. Disclosure Committee Supervises the appropriate cutoff and reliability of financial disclosures in annual and interim filings. Ensures that the financial disclosures do not omit any material facts or do not contain any misrepresentations or misleading information regarding such facts. Verifies that the financial disclosures in annual and interim filings present fairly the financial condition of Caisse centrale and the results of its operations and its cash flows. MANAGEMENT S DISCUSSION AND ANALYSIS

44 42 MANAGEMENT S DISCUSSION AND ANALYSIS RISK MANAGEMENT MANAGEMENT S DISCUSSION AND ANALYSIS CREDIT RISK Credit risk is the risk of credit losses that can occur if a borrower or a counterparty fails to honour its contractual obligations, whether or not presented in the balance sheet. CREDIT RISK MANAGEMENT Credit risk exists in direct lending transactions but also in credit commitments, letters of credit, derivative financial instrument operations, securities and the financial settlement of banking operations. Caisse centrale has set up a credit risk management framework integrating policies, practices, and the allocation of responsibilities to ensure the development, analysis, assessment, approval, handling, oversight, compliance and diversification of credit risk. The policies and practices developed by Caisse centrale over the years determine the activities, sectors and specific areas within which it expects to manage and control credit risks. Credit risk management policies, which are reviewed annually, set out both the management rules and applicable risk tolerance for borrowers, issuers and counterparties involved in Treasury operations. Credit risk arising from financial settlement of certain banking transactions is also controlled by a set of rules. Policies establish the principles and limits within which financing transactions involving a credit risk must be conducted, as well as their requisite authorizations. Policies enhance control and diversification of the commitments portfolio while favouring orderly business development. They define borrowers eligibility criteria and establish the credit risk assessment procedures and types of financing available. They also establish the monetary, sector-related, geographic, risk and term limits in order to ensure the appropriate and prudent level of diversification of credit risk. Credit concentration limits for various industries, products and geographic regions are set by the Internal Credit Committee and approved by the Board of Directors. The Risk Management Commission of the Board of Directors periodically reviews compliance with approved limits. Borrower limits are based on a customer s risk rating and the maximum commitment determined by Desjardins Group s credit management framework. For each industry sector, except for the financial intermediation sector which is split into two categories, credit commitment limits for each sector or category cannot exceed 15% of the aggregate of the credit commitments in this sector without the prior authorization of the Credit and Investment Commission. At year-end, had it not been for ongoing syndication commitments, all industry sectors would have complied with this limit. In fact, the commitments of one of the Financial Intermediation categories accounted for 16.3% of the private sector portfolio commitments, which were approved by the members of the Credit and Investment Commission. Managing credit risk implies a rigorous process of intervention covering all the stages required to handle operations subject to credit risk. Credit risk management first involves an evaluation of the quality of counterparties, the initial stage prior to establishing a business relationship. This credit risk assessment covers a complete series of factors in order to evaluate both the quantitative and qualitative aspects of counterparties. Experienced credit officers evaluate the credit quality of counterparties according to a credit rating scale developed by Caisse centrale. These officers, who have direct knowledge of clients and their industry sectors, are responsible for credit screening and monitoring credit risks, which are reviewed by an independent department. Considerable effort has been made to maintain the quality of the loan portfolio. Follow-up procedures are designed to detect deteriorating credit risk and then manage the risk or act on it immediately. Loans can then be classified as impaired loans, and covered by a specific provision at the appropriate time. The adequacy of the specific provision is reassessed on a quarterly basis. The loan portfolio of Caisse centrale is very diversified. Business segment loans from all sectors of the economy account for slightly more than 20% of outstanding loans (Table VII). Caisse centrale monitors the industry sectors in which it is involved on an ongoing basis. When credit risk involves international operations, the policies in effect set out eligibility criteria for countries and correspondents, as well as monetary limits and conditions for conducting such operations. Throughout the credit management process, Caisse centrale involves the appropriate decision-makers and the independent sectors of those in charge of business development in order to ensure oversight and judicious control of credit risks, in addition to ensuring the compliance of transactions performed with our counterparties. The risks and instances of non-compliance identified for counterparties are reviewed on a regular basis by Caisse centrale. The Internal Credit Committee assesses the relevance of provisions for credit losses and informs the Risk Management Commission and Audit Commission of the Board of Directors regarding management of the risks associated with write-offs and the maintenance of provisions for credit risk losses.

45 RISK MANAGEMENT MANAGEMENT S DISCUSSION AND ANALYSIS 43 Table VII PRIVATE SECTOR Outstandings as at December 31 (in millions of dollars) Primary industries $ 125 4% $ 69 3% Manufacturing industries Food and tobacco Textiles, rubber and plastics Wood and furniture Pulp and paper Metal products Other Construction Transportation and warehousing Communications Public services Retail and wholesale trade Financial intermediaries Real estate Public administration, education and health services Lodging, restaurants and entertainment Other services and associations Other TOTAL $ 2, % $ 2, % IMPAIRED LOANS A loan is considered to be impaired and the interest thereon ceases to be recorded when (a) there is reason to believe that a portion of the principal or interest cannot be collected or (b) the interest or principal is contractually 90 days in arrears, except where the loan is fully guaranteed or is in collection. Further details on the accounting policies used are provided in note 2 to the consolidated financial statements. The quality of the loan portfolio continues to be excellent. Gross impaired loans amounted to $11.6 million at year-end, compared to $18.0 million in 2006, and their coverage by specific provisions reached 65% as at December 31, It is worth noting that these loans represent only 0.08% of net aggregate loans in a $13.7 billion portfolio. Table VIII BREAKDOWN OF SPECIFIC PROVISIONS As at December 31 (in thousands of dollars) Caisse centrale management intends to continue to closely monitor its loan portfolio as part of a cautious approach toward credit risk management in order to maintain asset quality. ALLOWANCE FOR CREDIT LOSSES As demonstrated in the previous sections, Caisse centrale will continue to rigorously manage its loan portfolio. The quality of the loan portfolio was maintained in 2007, as evidenced by the low proportion of impaired loans. The provisions specifically related to particular elements of the loan portfolio were slightly increased in comparison to Consequently, these provisions amounted to $7.6 million, compared to $6.8 million at the same date in Table VIII provides the breakdown of specific provisions by industry. The general provision for credit losses was increased to $96.2 million as at December 31, 2007, from $81.1 million a year earlier. It is determined by the credit rating, maturity dates, default probabilities, volatility, the type of collateral, and the expected collection. It also takes into account the economic cycle as well as the diversification of the counterparties and the economic and geographic sectors of activity of the credit portfolio. This assessment is examined and reviewed where conditions indicate that initial assumptions will not apply to actual results. Further details on our accounting policies are provided in note 2 to the consolidated financial statements. Consequently, at the close of 2007, the specific and general provisions amounted overall to $103.8 million. This amount represented 3.6% of the private sector loan portfolio and 0.8% of the total portfolio Manufacturing industries $ 7,367 $ 6,800 $ 3,500 $ 7,610 $ 11,800 Transportation and warehousing Communications 34,500 Other TOTAL $ 7,553 $ 6,800 $ 3,750 $ 7,879 $ 46,555 MANAGEMENT S DISCUSSION AND ANALYSIS

46 44 MANAGEMENT S DISCUSSION AND ANALYSIS RISK MANAGEMENT MANAGEMENT S DISCUSSION AND ANALYSIS MANAGING LIQUIDITY AND SOURCES OF FUNDING The Senior Vice-President, Treasury of Desjardins Group is responsible for managing liquidity and sources of funding. As Desjardins Group s Treasurer, Caisse centrale must meet its members and customers needs at all times. Its first priority is to implement appropriate strategies to identify, measure and control risks. A policy on liquidity adequacy and administration as well as a funding management policy provide a framework for these activities. The Board of Directors is responsible for authorizing these policies and the Senior Vice-President, Treasury of Desjardins Group is responsible for applying them. In addition, a recovery plan is updated on a regular basis to enable the institution to deal with contingencies that could disrupt current treasury operations. Table IX CASH AND SECURITIES As at December 31 (in millions of dollars) LIQUIDITIES In the last few months of 2007, capital markets were shaken by an unprecedented liquidity crisis. Despite these events, Caisse centrale s liquidity position is still sound and appropriate. In 2007, Caisse centrale continued the integration of its treasury operations with those of Desjardins Group, with the ultimate objective of adding value to all operations. Desjardins Group Treasury was very active in the area of mortgage loan securitization. At the end of a year of intense activity, it recorded close to $3 billion in mortgage-backed securities under the Canada Mortgage Bonds Program. The primary objective of this program is to ensure funding for the network at a lower cost. As for securities, a very high proportion of the securities portfolio is comprised of investmentgrade securities and would enable Caisse centrale to respond promptly to any sudden increase in customer requirements. Based on the DBRS classification, these securities received a rating of at least R-1M. At December 31, 2007, securities totalled $3.7 billion compared to $3.8 billion at the end of the previous year Cash and deposits with financial institutions $ 448 $ 168 $ 151 $ 124 $ 112 Securities Canada Provinces and public bodies ,293 1,405 Other issuers 2,805 2,671 1,961 1,128 1,533 TOTAL $ 4,170 $ 3,973 $ 3,500 $ 2,967 $ 3,731 Average liquidity $ 3,435 $ 2,965 $ 2,723 $ 2,886 $ 3,272

47 RISK MANAGEMENT MANAGEMENT S DISCUSSION AND ANALYSIS 45 FUNDING SOURCES Funding activities in fiscal 2007 were set against a global financial backdrop of widespread instability. In Canada, there has been a significant ABCP crisis. Given its strategic role of supplier of funds, Desjardins Group Treasury provided access to liquidity despite reduced market availability because over the years, it had succeeded in building national and international-scale funding sources. CHART I DEPOSITS AND DEBENTURE BY CURRENCY AS AT DECEMBER 31, % Canadian dollars % U.S. dollars % Euros Table X DEPOSITS BY MATURITY As at December 31 (in millions of dollars) 1. Charts I and II and Table X present the breakdown of deposits and debenture as at December 31, 2007 by currency, by program and by maturity. In addition to resorting to the Canadian money market primarily through the issue of bearer term notes and Desjardins Acceptances, Desjardins Group Treasury taps capital markets through its borrowing programs. On the Canadian market: a medium-term deposit note program of up to $5 billion. On the international market: a short-term European deposit note program of US$600 million; a short-term American deposit note program of US$1 billion; a European multi-currency medium-term deposit note program of 7 billion. In 2007, in addition to floating an issue of medium-term deposit notes in Europe and increasing its use of the securitization program, Desjardins Group Treasury had outstanding short-term notes and Desjardins Acceptances of close to $3.5 billion on the Canadian market. Payable on a fixed date Payable on Within Over 3 to Over 1 to Over Total Total demand 3 months 12 months 5 years 5 years Governments $ 169 $ 2,041 $ $ $ $ 2,210 $ 1,061 Financial institutions and businesses 681 3, ,798 3,172 Capital markets 622 1,191 3, ,437 5,849 Members Fédération ,302 2,032 Other Other entities included in the scope of consolidation of Desjardins Group 423 1, ,192 1,180 TOTAL $ 1,578 $ 8,337 $ 2,064 $ 4,052 $ 7 $ 16,038 $ 13,431 1 Reclassified to conform to current year s presentation. CHART II DEPOSITS AND DEBENTURE BY COUNTERPARTY TYPE As at December 31, % Demand deposits 13 % Governments 24 % Short-term deposits Canada 4 % Short-term deposits US & Euro 0 % 31 % Medium-term deposits Canada Medium-term deposits Europe & debenture 18 % Entities included in the scope of consolidation of Desjardins Group MANAGEMENT S DISCUSSION AND ANALYSIS

48 46 MANAGEMENT S DISCUSSION AND ANALYSIS RISK MANAGEMENT As at December 31, 2007, outstanding deposits (Table X) stood at $16.0 billion, up $2.6 billion from $13.4 billion in the previous year. Deposits payable on demand totalled $1.6 billion and deposits payable on a fixed date increased by $3.2 billion during the year to total $14.5 billion at year-end. The average term of deposit liabilities was 304 days. Given the continuing strong demand for funding by the caisse network and the borrowing programs maturing in 2008, Desjardins Group Treasury plans to pursue its mediumterm funding strategy by negotiating new borrowings on European capital markets and increasing its use of the mortgage-backed securitization program. Despite the current disruption of international markets, Caisse centrale carried out two medium-term issues totalling $1.3 billion on European markets in the first two weeks of Table XI DEPOSITS AND SUBORDINATED DEBENTURE As at December 31 (in millions of dollars) MANAGEMENT S DISCUSSION AND ANALYSIS Governments $ 2,210 $ 1,061 $ 1,677 $ 1,043 $ 401 Financial institutions and businesses 4,798 3,172 3,687 3,585 2,940 Capital markets 5,437 5,849 4,483 4,360 4,131 Members Fédération 1,302 2,032 1,062 1,071 1,033 Other Other entities included in the scope of consolidation of Desjardins Group 2,192 1, ,408 16,038 13,431 11,949 11,242 10,122 Subordinated debenture TOTAL $ 16,148 $ 13,548 $ 12,054 $ 11,366 $ 10,246 Average volume $ 13,272 $ 11,366 $ 10,453 $ 9,795 $ 7,977 1 Reclassified to conform to current year s presentation. Geographic Distribution Canada $ 10, % $ 7, % $ 7, % $ 7, % $ 6, % International 6, , , , , TOTAL $ 16, % $ 13, % $ 12, % $ 11, % $ 10, %

49 RISK MANAGEMENT MANAGEMENT S DISCUSSION AND ANALYSIS 47 MARKET RISK MANAGEMENT Market risk is the risk that results from changes in the market value of financial instruments due to a fluctuation in the parameters affecting this value; notably interest and foreign exchange rates and their volatility. The risk of losses related to interest rate and foreign exchange rate volatility is the main component of market risk to which Caisse centrale is exposed. The estimation of potential losses is a key element in managing risk. The integrated risk management group, which is independent from the sectors initiating transactions, is responsible for examining market risk exposure on a daily basis. It ensures that risks remain within the set limits and that only authorized activities are undertaken, and develops and implements risk assessment models. It submits daily reports to senior management on profits and losses, value-at-risk ( VAR ) and compliance with limits with respect to maximum losses resulting from a one-basis point change in interest rates on unmatched positions. The independent risk management unit is responsible for periodically examining models and valuations. VAR is a generally accepted risk measurement concept that uses statistical models and information on historical market prices to calculate, within a given confidence level, the maximum loss in market value that Caisse centrale would sustain in its asset/liability management portfolios from adverse movements in market rates and prices in a single day. Caisse centrale s VAR is based on a 99% confidence level and represents an estimate of the maximum loss that Caisse centrale could sustain in its portfolios. Management recognizes that VAR is not an absolute measurement of market risk and that its use is limited, since it is based solely on historical information. Management therefore uses various measures and information to help it assess and control the market risks to which its products and portfolios will be exposed. For illustrative purposes, Chart III presents the daily changes recorded in 2007 in the overall VAR of Caisse centrale s trading portfolio according to the Bank for International Settlements ( BIS ). Based on a 99% confidence level, the average VAR amounted to $457,760 in During the year, the maximum VaR recorded was $1,237,269 and the minimum, $164,316. CHART III 2007 VALUE-AT-RISK $ millions January 2007 June 2007 December INTEREST RATE RISK MANAGEMENT Interest rate risk is the sensitivity of Caisse centrale s financial condition to interest rate movements. The magnitude and direction of the effect depend on the assets and liabilities which are subject to repricing in a given period. Caisse centrale can lower or eliminate this risk by changing the mix of assets and liabilities or using derivative financial instruments. Exposure to interest rate risk is examined on a regular basis by the Management Committee. This committee establishes Caisse centrale s position in view of anticipated interest rate changes and recommends hedging any undesired or unexpected interest rate risk. Note 18 to the consolidated financial statements shows Caisse centrale s position with regard to interest rate sensitivity as at December 31, 2007, in accordance with the guidance of Section 3861 of the CICA Handbook, Financial Instruments Disclosure and Presentation. Balance sheet and off-balance sheet assets and liabilities are presented in the table based on the earlier of the maturity date or the contractual repricing date. This is the position at that particular date, but could have subsequently changed, taking into account forecasted interest rates and clients preferences for products and terms. Caisse centrale is very prudent with regard to interest rate sensitivity. Various means are used to monitor and manage interest rate risk. In addition, Caisse centrale has established policies describing risk management principles and procedures, and periodic reports are filed with the Risk Management Commission. MANAGEMENT S DISCUSSION AND ANALYSIS

50 48 MANAGEMENT S DISCUSSION AND ANALYSIS RISK MANAGEMENT Table XII OFF-BALANCE SHEET CREDIT INSTRUMENTS Notional Amount Maturities As at December 31 (in millions of dollars) Less than 1 to 3 Over 3 to Over 5 Total Total 1 year years 5 years years Guarantees and standby letters of credit $ 180 $ 68 $ 63 $ $ 311 $ 608 Commitments to extend credit 9, , ,465 8,985 Commitments to purchase assets 13 TOTAL $ 9,533 $ 823 $ 1,351 $ 69 $ 11,776 $ 9,606 MANAGEMENT S DISCUSSION AND ANALYSIS FOREIGN EXCHANGE RISK MANAGEMENT Caisse centrale has assets and liabilities denominated in a number of foreign currencies. Foreign exchange risk arises when the actual or forecasted assets denominated in a foreign currency are either greater or less than the liabilities in that currency. Caisse centrale has established specific foreign exchange risk management policies. OFF-BALANCE SHEET CREDIT INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS In the normal course of its business, Caisse centrale offers its clients various products to meet their liquidity requirements and protect them against a number of risks such as fluctuations in interest and exchange rates. Caisse centrale uses some of these products itself to manage its own risks associated with fluctuating interest and exchange rates. These products can be divided into two broad categories: off-balance sheet credit instruments and derivative financial instruments. All off-balance sheet credit instruments and derivative financial instruments are subject to Caisse centrale s usual credit standards, financial controls, risk ceilings and monitoring procedures. Caisse centrale constantly improves its risk management systems and valuation models for these products. In management s opinion, these transactions do not represent an unusual risk and no material losses are anticipated as a result of these transactions. Notes 2 and 20 to the consolidated financial statements provide further details on these instruments and their accounting. OFF-BALANCE SHEET CREDIT INSTRUMENTS Products in this category, which consist of guarantees, standby letters of credit, commitments to extend credit and commitments to purchase assets, are designed to provide clients with funds for anticipated needs. Since conditional commitments to extend credit are subject to clients compliance with particular credit standards, the risk associated with such commitments is reduced considerably. An irrevocable commitment requires a duly signed offer, including confirmation of acceptance by the customer. In such cases, Caisse centrale must pay out the amount specified in the commitment even if the customer is unable to meet its financial or contractual obligations. Caisse centrale takes these commitments into consideration in its forward-looking management of liquidity needs to be met. Table XII presents off-balance sheet credit instruments by maturity over the next few years. CONTRACTUAL COMMITMENTS AND GUARANTEES In the normal course of its business, Caisse centrale, like other major Canadian financial institutions, pledges part of its liquid assets in order to participate in the clearing and payments systems. It also enters into long-term leases or service contracts entailing minimum future payments. Table XIII presents the contractual commitments by maturity over the next few years. Further details are also provided in note 20 to the consolidated financial statements. Table XIII CONTRACTUAL COMMITMENT MATURITIES As at December 31 (in thousands of dollars) 2013 and thereafter Total $ 1,690 $ 1,668 $ 1,635 $ 1,455 $ 1,252 $ 8,423 $ 16,123

51 RISK MANAGEMENT MANAGEMENT S DISCUSSION AND ANALYSIS 49 Table XIV OFF-BALANCE SHEET CREDIT INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS Notional Amounts As at December 31 (in millions of dollars) Members and Members and other entities other entities included in included in the scope of the scope of consolidation consolidation of Desjardins of Desjardins Group Other Total Group Other Total Credit instruments Guarantees and standby letters of credit $ $ 311 $ 311 $ 57 $ 551 $ 608 Commitments to extend credit Over one year 80 2,577 2,657 1,373 1,373 One year or less and conditional 4,403 4,405 8,808 2,682 4,930 7,612 Commitments to purchase assets DERIVATIVE FINANCIAL INSTRUMENTS Derivative financial instruments are financial contracts which derive their value from the underlying price, interest or exchange rate or index. They include many financial contracts such as futures, interest rate, currency and credit swaps, forward rate agreements, forward exchange contracts and options. Derivative financial instruments are a key risk management tool, for both Caisse centrale and its clients. A description of derivative financial instruments and their use by Caisse centrale is provided in note 16 to the consolidated financial statements. Derivative financial instruments are subject to market and credit risk. As outlined in the Risk Management section, Caisse centrale assesses the risk associated with derivative financial instruments in the same way as the risks associated with other financial instruments. However, unlike the other financial instruments, where credit exposure is generally represented by the nominal or face value, the credit exposure associated with derivative financial instruments is generally a small fraction of 4,483 7,293 11,776 2,739 6,867 9,606 Derivative financial instruments Interest rate contracts 26,362 61,918 88,280 28,592 72, ,631 Foreign exchange contracts ,794 16,298 1,181 11,196 12,377 Other contracts 3,289 2,670 5,959 2,713 2,380 5,093 30,155 80, ,537 32,486 85, ,101 TOTAL $ 34,638 $ 87,675 $ 122,313 $ 35,225 $ 92,482 $ 127,707 the notional amount of the instrument and is represented by the positive market value of the derivative. The various derivative financial instruments allow for the transfer, modification or mitigation of foreign exchange and interest rate risks stemming from changes in these rates. The vast majority of currency and interest rate swaps, forward exchange contracts and options are transacted with banks, members or other entities included in the scope of consolidation of Desjardins Group. As illustrated in Table XIV, outstanding derivative financial instruments and credit instruments decreased by 4% or $5.4 billion as at year-end. Chart IV shows the distribution of derivative notional amounts by counterparty type. Measured by notional amounts, 66% of counterparties were banks. Members and other entities included in the scope of consolidation of Desjardins Group accounted for 27%. It should be remembered that Caisse centrale acts as an intermediary to meet the Desjardins network s needs in terms of derivative financial instruments. Additional information on the transactions carried out with Desjardins Group is found in note 21 to the consolidated financial statements. Transactions with private sector entities accounted for only 3% of the portfolio. CHART IV DERIVATIVE NOTIONAL AMOUNTS By counterparty % Banks % Members and other entities included in the scope of consolidation of Desjardins Group 3. 3 % Private sector 4. 4 % Government 1. MANAGEMENT S DISCUSSION AND ANALYSIS

52 50 MANAGEMENT S DISCUSSION AND ANALYSIS RISK MANAGEMENT MANAGEMENT S DISCUSSION AND ANALYSIS Chart V shows the maturity profile of the derivative financial instruments portfolio. As a general rule, the market risk associated with short-term financial instruments is lower than with long-term ones. As measured by notional amounts, 71% of these derivative financial instruments have remaining terms of less than three years and more than half of these will mature within one year. It is also noteworthy that close to 60% of the forward exchange contracts have a remaining term of less than three months. CHART V DERIVATIVE NOTIONAL AMOUNTS By maturity % Within 1 year % 1 to 3 years % 3 to 5 years 4. 4 % Over 5 years 1. OPERATIONAL RISK MANAGEMENT Operational risk is defined as the risk of inadequacy or failure attributable to processes, people, internal systems or external events and resulting in losses, failure to achieve objectives or a negative impact on reputation. Operational risk is the potential risk that Caisse centrale may incur losses arising from fraud, damage to tangible assets, acts in violation of legislation, lawsuits, system failures, problems in transaction processing or process management as well as disruptions due to external factors. Operational risk is inherent to all of Caisse centrale s business activities, whether internal or outsourced, and can never be completely eliminated. However, Caisse centrale endeavours to minimize operational risk through its internal control systems which provide for segregation of duties, a disciplined approach to decisionmaking and delegation of authority, the development of appropriate policies, methods and infrastructures, and duly confirmed recording of transaction-related information. Internal controls also involve risk monitoring, financial reporting and insurance coverage measures. In addition, Caisse centrale has back-up capabilities and a business resumption plan to ensure ongoing service delivery under adverse conditions. Effective management of operational risk depends as well on the commitment, competence and ability of Caisse centrale s personnel. The internal controls and systems in place are examined from time to time by Desjardins Group internal auditors. Striving to implement sound and prudent operational risk management tools and methods, Caisse centrale has pursued its work within Desjardins Group s joint project, including the implementation of the operational risk and controls self-assessment program and the organization of an operational loss database. REGULATORY COMPLIANCE A regulatory compliance function was created in conformity with Desjardins Group s orientations. A general policy on regulatory compliance was adopted in In addition, Caisse centrale continued its work to complete the Desjardins Group master program for regulatory compliance management. Work continued on the regulatory requirements compliance program for financial reporting. The Disclosure Committee can therefore validate and monitor the evaluation program of controls over the financial reporting process.

53 CAPITAL MANAGEMENT MANAGEMENT S DISCUSSION AND ANALYSIS 51 CAPITAL MANAGEMENT Capital is an important factor for assessing the security and soundness of Caisse centrale in relation to all the risks associated with its activities. In recent years, regulators and rating agencies have paid a great deal of attention to financial institutions capital levels. REGULATORY CAPITAL The capital adequacy of Caisse centrale is regulated by the standards of the Fédération, which were approved by the Autorité des marchés financiers. These standards are based on the regulatory requirements of the Basel Committee on Banking Supervision of BIS, which oversees the capital adequacy of financial institutions operating on international markets. In this way, Caisse centrale can determine where it stands in relation to other financial institutions also involved on international markets. Total regulatory capital, which constitutes capital, differs from the capital disclosed on the balance sheet. It comprises two classes: Tier I capital and supplementary or Tier II capital. Tier I capital includes more permanent capital items than Tier II capital. It consists of members equity (which includes capital stock, retained earnings and the general reserve). Tier II or supplementary capital essentially consists of subordinated debentures and the eligible general provision for credit losses. It should be noted that debentures must be amortized on a straight-line basis over the five years preceding their maturity. Consequently, as at December 31, 2007, capital, as defined by the standards of the Fédération, totalled $1.2 billion compared to $1.1 billion at the end of fiscal In March 2008, Caisse centrale will exercise its prepayment privilege of the subordinated debenture. Consequently, measures wil be taken to maintain sound capitalization. RISK-WEIGHTED ASSETS, OFF-BALANCE SHEET CREDIT INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS The standards of the Fédération require that risk-weighted balances be calculated for assets, off-balance sheet credit instruments and derivative financial instruments, and that aggregate values be weighted using a common definition of capital. Off-balance sheet credit instruments and derivative financial instruments are converted to credit risk equivalents, as shown in Table XV. For credit instruments such as guarantees, standby letters of credit and commitments to extend credit, the credit risk equivalent is determined by multiplying the principal or nominal amount by appropriate credit conversion factors, which can range from 0% to 100% depending on the nature of the instrument and the original term to maturity. The credit risk equivalent for foreign exchange, interest rate and currency contracts takes into account the replacement cost of contracts with a positive value and the potential credit exposure on the contracts, calculated based on their residual term to maturity. The credit risk equivalent for off-balance sheet credit instruments and derivative financial instruments, together with on-balance sheet assets, are then multiplied by appropriate risk weights to determine risk-weighted balances. The risk weights depend on the relative credit risk of the counterparty and vary from 0% for claims on or guaranteed by the Canadian or provincial governments to 100% for claims on or guaranteed by the private sector. As shown in Table XV, Caisse centrale s risk-weighted assets, off-balance sheet credit instruments and derivative financial instruments totalled $9.1 billion as at December 31, 2007 compared to $7.9 billion as at December 31, CAPITAL RATIO Section 46 of the Act respecting the Mouvement Desjardins states that Caisse centrale must maintain an adequate capital base consistent with sound and prudent management, in accordance with the standards of the Fédération (and approved by the Autorité des marchés financiers). According to these standards, Caisse centrale must at all times maintain capital in accordance with the following ratios: a) its total capital must be greater than or equal to 5% of its total assets; b) its total capital must be greater than or equal to 8% of its risk-weighted assets, of which at least one half is Tier I capital. Furthermore, the member federations formally undertook to maintain, in proportion to their respective holdings, Caisse centrale s total capital at a minimum level of (i) 5.5% of its total assets, or if higher, at (ii) 8.5% of its risk-weighted assets, as determined in accordance with the established standards. In 2007, Caisse centrale issued $100 million in capital to ensure sound capitalization. Consequently, 100,000 Class A capital shares were issued. The capital stock issued and outstanding of Caisse centrale was, therefore, composed of 987,203 Class A capital shares and 600 qualifying shares outstanding as at December 31, As at December 31, 2007, the capital/asset ratio was 6.11% compared to 6.35% in Tier I capital and total capital ratios determined in accordance with BIS rules stood at 11.1% and 13.2%, respectively, compared to 11.5% and 13.9%, respectively, a year earlier. It should be noted, however, that both the Tier I capital ratio and total capital ratios of Caisse centrale determined in accordance with BIS rules exceed the 7% and 10% benchmark determined by the Office of the Superintendent of Financial Institutions Canada to be characteristic of a financial institution with a sound capitalization. OUTLOOK MANAGEMENT S DISCUSSION AND ANALYSIS Caisse centrale expects to remain soundly capitalized throughout 2008.

54 52 MANAGEMENT S DISCUSSION AND ANALYSIS CAPITAL MANAGEMENT Table XV RISK-WEIGHTED ASSETS, OFF-BALANCE CREDIT INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS As at December 31 Balance Risk- Risk-weighted ASSETS sheet weighted balance (in thousands of dollars) amount rate Cash and deposits with financial institutions $ 447, % $ 45,603 $ 13,668 Securities 3,722, % 1,782,147 1,691,261 Loan 13,687, % 5,050,860 4,379,244 Other assets 2,573, % 760, ,062 $ 20,431,386 $ 7,638,990 $ 6,691,235 MANAGEMENT S DISCUSSION AND ANALYSIS OFF-BALANCE CREDIT INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS Credit Credit Risk- Risk-weighted Notional conversion risk weighted balance (in thousands of dollars) amount factor equivalent rate Off-balance credit instruments Guarantees and standby letters of credit $ 311, % $ 311, % $ 232,065 $ 409,479 Commitments to extend credit (Original term to maturity) Over one year 2,657, % 1,328, % 1,050, ,182 One year or less and conditional 8,807,680 0% 0% Derivatives Interest rate contracts 88,279,989 (1) 658, % 120, ,148 Foreign exchange contracts 16,297,661 (1) 949, % 230, ,459 Other contracts 5,958,857 (1) 759, % 191, ,061 $ 122,312,891 $ 4,007,259 $ 1,825,016 $ 1,583,329 Less impact of master netting agreements (335,217) (340,029) $ 1,489,799 $ 1,243,300 TOTAL RISK-WEIGHTED ASSETS, OFF-BALANCE CREDIT INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS $ 9,128,789 $ 7,934,535 (1) Derivative financial instruments are converted to their "credit risk equivalent" by adding the total replacement cost (at market value) of all outstanding contracts with a positive value and an amount for potential credit exposure based on the total contract amounts broken down by remaining term to maturity, as follows: Foreign Interest rate Other Remaining term to maturity exchange contracts contracts contracts Within 1 year 1,0 % 0 % 6% Over 1 year to 5 years 5,0 % 0,5 % 8% Over 5 years 7,5 % 1,5 % 10 %

55 FIVE-YEAR CONSOLIDATED BALANCE SHEETS MANAGEMENT S DISCUSSION AND ANALYSIS 53 FIVE-YEAR CONSOLIDATED BALANCE SHEETS As at December 31 (in thousands of dollars) Assets Cash and deposits with financial institutions $ 447,678 $ 167,871 $ 150,859 $ 124,307 $ 112,509 Securities 3,722,350 3,805,021 3,348,898 2,843,203 3,618,539 Loans Securities purchased under reverse repurchase agreements 158,647 16,963 95,625 14,919 Day, call and short-term loans to investment dealers and brokers 61, , , , ,000 Public and parapublic sectors 1,672,344 1,526,534 1,476,809 1,454,697 1,522,989 Members Fédération 6,481,829 5,644,679 5,572,070 5,443,248 3,719,748 Other 1,974 70,000 73,049 43,863 Other entities included in the scope of consolidation of Desjardins Group 2,411, , , ,788 1,032,009 Loans purchased from Desjardins Group 123,728 78,242 4, ,319 Private sector 2,880,457 2,568,685 2,071,230 1,803,444 1,570,584 Allowance for credit losses (103,794) (87,895) (72,123) (61,074) (90,390) 13,687,915 10,924,170 10,286,122 10,186,723 8,122,178 Derivative financial instruments 1,181,074 1,177, ,756 1,270,343 1,070,619 Customers liability under acceptances 892,600 1,247, , , ,300 Other 499, , , , ,189 Total assets $ 20,431,386 $ 17,597,217 $ 15,757,453 $ 14,770,346 $ 13,518,334 Liabilities and members equity Deposits Payable on demand $ 1,578,661 $ 2,121,655 $ 896,726 $ 1,055,131 $ 787,512 Payable on a fixed date 14,458,964 11,308,966 11,052,217 10,187,223 9,334,350 16,037,625 13,430,621 11,948,943 11,242,354 10,121,862 Derivative financial instruments 1,370,079 1,125,021 1,287,922 1,290,935 1,211,171 Acceptances 892,600 1,247, , , ,300 Obligations related to securities sold short 155,902 16,954 78,643 95,625 14,919 Other 866, , ,815 1,181, ,120 Subordinated debenture 109, , , , ,911 Members equity Capital stock 987, , , , ,206 Retained earnings 4,612 2,954 1,044 General reserve 20,845 20,845 20,845 20,845 20,845 Accumulated other comprehensive income (14,182) 998, , , , ,051 Total liabilities and members equity $ 20,431,386 $ 17,597,217 $ 15,757,453 $ 14,770,346 $ 13,518,334 1 Reclassified to conform to current year s presentation. MANAGEMENT S DISCUSSION AND ANALYSIS

56 54 MANAGEMENT S DISCUSSION AND ANALYSIS FIVE-YEAR CONSOLIDATED STATEMENTS OF INCOME FIVE-YEAR CONSOLIDATED STATEMENTS OF INCOME For the years ended December 31 (in thousands of dollars) MANAGEMENT S DISCUSSION AND ANALYSIS Interest income Loans $ 608,894 $ 509,045 $ 359,216 $ 264,359 $ 208,749 Securities 190, , , , , , , , , ,943 Interest expense 660, , , , ,289 Net interest income 138, , , ,951 94,654 Other income 69,269 70,083 59,261 47,743 36,394 Gross income 207, , , , ,048 Provision for credit losses 15,799 16,797 15,150 15,194 16, , , , , ,623 Non-interest expense Salaries and benefits 30,635 35,146 28,151 26,391 22,354 Premises, equipment and furniture, including depreciation 16,562 8,508 7,388 6,913 5,971 Outsourcing of processing services 9,273 9,612 8,391 5,937 4,762 Professional fees 8,572 9,105 5,510 5,544 3,753 Other 11,194 10,888 10,413 9,909 10,666 76,236 73,259 59,853 54,694 47,506 Net income before other payments to the Desjardins network and income taxes 115,847 98,707 86,622 82,806 67,117 Other payments to the Desjardins network 32,184 27,944 24,392 23,907 17,998 Net income before income taxes 83,663 70,763 62,230 58,899 49,119 Income taxes 20,677 16,289 13,712 14,797 9,313 Net income $ 62,986 $ 54,474 $ 48,518 $ 44,102 $ 39,806 1 Reclassified to conform to current year s presentation.

57 QUARTERLY FINANCIAL INFORMATION MANAGEMENT S DISCUSSION AND ANALYSIS 55 QUARTERLY FINANCIAL INFORMATION (in thousands of dollars) (Quarter-end) Q4 Q3 1 Q2 1 Q1 1 Q4 1 Q3 1 Q2 1 Q1 1 BALANCE SHEET ASSETS Cash and deposits with financial institutions $ 447,678 $ 294,960 $ 229,076 $ 388,348 $ 167,871 $ 286,792 $ 296,875 $ 180,475 Securities 3,722,350 3,297,818 3,406,464 4,508,465 3,805,021 3,402,873 3,291,592 2,758,077 Loans 13,687,915 13,080,261 10,965,993 10,261,361 10,924,170 9,392,410 9,542,112 10,726,704 Derivative financial instruments 1,181,074 1,284,082 1,307,339 1,113,499 1,177, ,810 1,087, ,615 Customers liability under acceptances 892,600 1,465,900 1,892,800 1,732,200 1,247,000 2,155,600 1,273, ,200 Other 499, , , , , , , ,431 $ 20,431,386 $ 20,108,621 $ 18,539,527 $ 18,729,299 $ 17,597,217 $ 16,416,429 $ 15,861,634 $ 15,225,502 LIABILITIES AND MEMBERS EQUITY Deposits $ 16,037,625 $ 14,466,331 $ 12,718,354 $ 13,546,598 $ 13,430,621 $ 11,040,323 $ 11,574,032 $ 11,677,931 Derivative financial instruments 1,370,079 1,589,534 1,584,119 1,074,064 1,125,021 1,211,713 1,394,007 1,209,475 Acceptances 892,600 1,465,900 1,892,800 1,732,200 1,247,000 2,155,600 1,273, ,200 Obligations related to securities sold short 155, , , ,641 16,954 94,999 33,155 15,323 Commitment under repurchase agreements 97,522 90, , , ,311 Other 866, , ,198 1,138, , , , ,694 Subordinated debenture 109, , , , , , , ,831 Members equity 998,481 1,012, , , , , , ,737 $ 20,431,386 $ 20,108,621 $ 18,539,527 $ 18,729,299 $ 17,597,217 $ 16,416,429 $ 15,861,634 $ 15,225,502 (Quarter) STATEMENTS OF INCOME Net interest income $ 38,718 $ 34,766 $ 34,569 $ 30,560 $ 27,807 $ 32,029 $ 30,215 $ 28,629 Other income 17,444 18,315 16,647 16,863 17,039 21,087 17,668 14,289 Provision for credit losses (5,265) (3,221) (3,761) (3,552) (5,440) (3,818) (3,760) (3,779) Non-interest expense (20,209) (19,026) (18,216) (18,785) (24,084) (17,197) (17,160) (14,818) Net income before other payments to the Desjardins network and income taxes 30,688 30,834 29,239 25,086 15,322 32,101 26,963 24,321 Other payments to the Desjardins network (8,955) (7,913) (8,211) (7,105) (6,963) (7,064) (7,020) (6,897) Net income before income taxes 21,733 22,921 21,028 17,981 8,359 25,037 19,943 17,424 Income taxes (5,056) (5,441) (5,814) (4,366) (1,620) (5,930) (4,531) (4,208) Net income $ 16,677 $ 17,480 $ 15,214 $ 13,615 $ 6,739 $ 19,107 $ 15,412 $ 13,216 1 Reclassified to conform to current year s presentation. MANAGEMENT S DISCUSSION AND ANALYSIS

58 CONSOLIDATED FINANCIAL STATEMENTS AUDIT COMMISSION S ANNUAL REPORT The role of the Audit Commission (the Commission ) is to support the Board of Directors in its oversight function. Its mandate consists primarily of analyzing the financial statements, their presentation and the quality of the accounting principles used, management of financial reporting risks, internal control systems, internal and external audit processes, the procedures applied during such audits and regulatory compliance management. To this end, the Commission examines the annual and quarterly financial statements, related press releases, the annual Management s Discussion and Analysis, the Annual Information Form and the prospectus. Furthermore, it reviews various reports, including reports on regulatory ratios, capitalization and the quarterly valuation of the derivatives portfolio. The Commission ensures that management has developed and implemented an effective internal control system for financial reporting, asset safeguarding, fraud detection and regulatory compliance CONSOLIDATED FINANCIAL STATEMENTS It further ensures that management has set up management systems for the main risks that could affect the financial results of the entity. The external auditor reports directly to the Audit Commission. In order to discharge its responsibilities in this area, the Commission ensures and maintains the independence of the external auditor by authorizing all non audit-related services, by recommending its appointment or continuance, by fixing and recommending its remuneration and by conducting an annual review of its performance. In addition, it supervises the work of the external auditors, examines their proposal, their mandate, their annual audit plan, their reports, their letter to management and management s comments on this letter. Desjardins Group adopted a policy on the rules for awarding contracts for related services regarding (a) services that can or cannot be rendered by the external auditor, (b) the governance procedure to be followed before awarding mandates, and (c) the responsibilities of the main persons involved. Consequently, it receives a quarterly report on the contracts awarded to external auditors by Caisse centrale and Desjardins Group. With regard to relations with the Autorité des marchés financiers, the Commission reviews and follows up on the supervisory report issued by the agency, and it also reviews the quarterly financial reports submitted to it. The Commission ensures that the independence of the internal audit function of Desjardins Group is safeguarded. It examines the annual internal audit plan for Caisse centrale, as well as the responsibilities, performance, objectivity and staffing of this team. It reviews the summary reports on the internal audits performed and, where necessary, ensures their follow-up. For such purpose, it meets with the Internal Auditor of Desjardins Group to discuss any important matters submitted to management. The Commission meets privately with the external auditors, management, the Chief Internal Auditor of Desjardins Group and representatives from the Autorité des marchés financiers. Every quarter, it submits a report to the Board of Directors and makes recommendations, if necessary. Finally, in compliance with sound corporate governance practices, the Commission annually assesses the effectiveness and efficiency with which it has performed the tasks set out in its charter. The Commission is composed of five independent directors. With the exception of a member who acts as an instructor at training workshops for Desjardins staff and officers, none of the directors receives remuneration from Desjardins Group, directly or indirectly, other than for the services they provide as members of the Board of Directors of Desjardins Group and its committees. All the members of the Commission are sufficiently financially literate to read and interpret the financial statements of a financial institution, according to the criteria set out in the Commission s charter. The Commission met seven times and held two training sessions during fiscal As at December 31, the members of the Commission were Andrée Lafortune, FCA, Pierre Leblanc, FCA, Thomas Blais, Serge Tourangeau and Benoît Turcotte. Andrée Lafortune, FCA Chair of the Audit Commission Montréal, Québec February 19, 2008

59 2007 CONSOLIDATED FINANCIAL STATEMENTS 57 MANAGEMENT S REPORT Management is responsible for preparing the consolidated financial statements and related information appearing in this Annual Report and for ensuring their reliability and accuracy. These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles. When required to make estimates, management did so to the best of its knowledge. The accounting system of Caisse centrale Desjardins ( Caisse centrale ) and related internal controls and procedures are designed to ensure the reliability of financial information and, to a reasonable degree, safeguard assets against loss or unauthorized use. These procedures include standards in hiring and training employees, an organizational structure with clearly defined lines of responsibility, written and updated policies and procedures, planning and follow-up of projects, budget controls by cost centre and divisional performance accountability. The internal control systems are supplemented by regular independent reviews of Caisse centrale s major business segments. In addition, in the course of his duties, the Internal Auditor of Desjardins Group may confer at any time with the Board of Directors Audit Commission. Composed entirely of directors who are neither officers nor employees of Caisse centrale, this Commission ensures that management has fulfilled its responsibilities with respect to financial reporting and the application of internal controls. During the year ended December 31, 2007, the Audit Commission met seven times. In addition, the Board of Ethics and Professional Conduct, elected by the general meeting, ensures compliance with rules of professional conduct regarding, among other matters, conflicts of interest and related or restricted party transactions. This Board met six times in The Autorité des marchés financiers examines the affairs of Caisse centrale annually to ensure that the provisions of its constituent legislation, particularly with respect to the protection of depositors, are duly observed and that Caisse centrale is in sound financial condition. The external auditors appointed at the general meeting of members, PricewaterhouseCoopers LLP, have the responsibility of auditing the consolidated financial statements in accordance with Canadian generally accepted auditing standards and of expressing their opinion thereon. Their report follows. They may, at any time, confer with the Audit Commission on all matters concerning the nature and execution of their mandate, particularly with respect to the accuracy of financial information provided by Caisse centrale and the reliability of its internal control systems. Alban D Amours Chairman of the Board and Chief Executive Officer Montréal, Québec February 29, 2008 Jean-Guy Langelier President and Chief Operating Officer 2007 CONSOLIDATED FINANCIAL STATEMENTS

60 CONSOLIDATED FINANCIAL STATEMENTS AUDITORS REPORT To the Members of Caisse centrale Desjardins: We have audited the consolidated balance sheets of Caisse centrale Desjardins as at December 31, 2007 and 2006 and the consolidated statements of income, members equity, comprehensive income and cash flows for the years then ended. These financial statements are the responsibility of Caisse centrale Desjardins s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation CONSOLIDATED FINANCIAL STATEMENTS In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of Caisse centrale Desjardins as at December 31, 2007 and 2006 and the results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles. PricewaterhouseCoopers LLP Chartered Accountants Montréal, Québec February 29, 2008

61 2007 CONSOLIDATED FINANCIAL STATEMENTS 59 CONSOLIDATED BALANCE SHEETS As at December 31 (in thousands of dollars) ASSETS Cash and deposits with financial institutions $ 447,678 $ 167,871 Securities (notes 3 and 20) Available-for-sale 1,737,840 Held for trading 1,984, ,020 Investment account 2,963,001 3,722,350 3,805,021 Loans (note 4) 13,687,915 10,924,170 Other Derivative financial instruments (note 16) 1,181,074 1,177,172 Customers liability under acceptances 892,600 1,247,000 Other assets (note 6) 499, ,983 2,573,443 2,700,155 $ 20,431,386 $ 17,597,217 LIABILITIES AND MEMBERS EQUITY Deposits (note 7) Payable on demand $ 1,578,661 $ 2,121,655 Payable on a fixed date 14,458,964 11,308,966 16,037,625 13,430,621 Other Derivative financial instruments (note 16) 1,370,079 1,125,021 Acceptances 892,600 1,247,000 Obligations related to securities sold short 155,902 16,954 Other liabilities (note 8) 866, ,513 3,285,325 3,138,488 Subordinated debenture (note 9) 109, ,103 Members equity 998, ,005 $ 20,431,386 $ 17,597, CONSOLIDATED FINANCIAL STATEMENTS The accompanying notes are an integral part of the consolidated financial statements. On behalf of the Board, Alban D Amours Chairman of the Board and Chief Executive Officer Pierre Tardif Vice-Chair of the Board

62 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF INCOME For the years ended December 31 (in thousands of dollars) 2007 CONSOLIDATED FINANCIAL STATEMENTS Interest income Loans $ 608,894 $ 509,045 Securities 190, , , ,455 Interest expense Deposits 654, ,795 Subordinated debenture 6,158 5, , ,775 Net interest income 138, ,680 Other income Service charges on chequing and deposit accounts 15,560 14,649 Foreign exchange income 34,274 28,878 Trading activities (note 14) 7,303 4,384 Net losses on available-for-sale securities (9,833) Investment activities 3,229 Fees on Desjardins Acceptances 10,135 9,751 Credit fees 3,112 3,685 Management fees 6,675 3,593 Other 2,043 1,914 69,269 70,083 Gross income 207, ,763 Provision for credit losses (note 4) 15,799 16, , ,966 Non-interest expense Salaries and benefits 30,635 35,146 Premises, equipment and furniture, including depreciation 16,562 8,508 Outsourcing of processing services 9,273 9,612 Fees 8,572 9,105 Other 11,194 10,888 76,236 73,259 Net income before other payments to the Desjardins network and income taxes 115,847 98,707 Other payments to the Desjardins network 32,184 27,944 Net income before income taxes 83,663 70,763 Income taxes (note 13) 20,677 16,289 Net income $ 62,986 $ 54,474 The accompanying notes are an integral part of the consolidated financial statements.

63 2007 CONSOLIDATED FINANCIAL STATEMENTS 61 CONSOLIDATED STATEMENTS OF MEMBERS EQUITY For the years ended December 31 (in thousands of dollars) Capital stock (note 10) Balance at beginning of year $ 887,206 $ 666,206 Issuance of Class A capital shares (100,000 shares issued for cash in 2007 and 221,000 shares in 2006) 100, ,000 Balance at end of year $ 987,206 $ 887,206 Retained earnings Balance at beginning of year $ 2,954 $ 1,044 Impact of adoption of new financial instrument accounting standards (note 2) 485 Net income 62,986 54,474 Remuneration of capital stock (80,116) (68,168) Recovery of income taxes related to the remuneration of capital stock (note 13) 18,303 15,604 Balance at end of year $ 4,612 $ 2,954 General reserve Balance at beginning and end of year $ 20,845 $ 20,845 Accumulated other comprehensive income, net of income taxes Balance at beginning of year Impact of adoption of new financial instrument accounting standards (note 2) 3,420 Other comprehensive income for the year (17,602) Balance at end of year (note 11) (14,182) Total members equity $ 998,481 $ 911,005 The accompanying notes are an integral part of the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS

64 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended December 31 (in thousands of dollars) CONSOLIDATED FINANCIAL STATEMENTS Net income $ 62,986 Other comprehensive income, net of income taxes (note 13) Change in net unrealized gains and losses on available-for-sale securities (20,174) Reclassification to net income in respect of gains and losses on available-for-sale securities 192 Net change in gains and losses on derivative financial instruments designated as cash flow hedges 5,930 Reclassification to net income in respect of gains and losses on derivative financial instruments designated as cash flow hedges (1,431) Net unrealized foreign exchange loss resulting from the translation of the financial statements of a foreign operation, net of hedging transactions (2,119) Other comprehensive income for the year (17,602) Comprehensive income for the year $ 45,384 The accompanying notes are an integral part of the consolidated financial statements. The Consolidated Statement of Comprehensive Income is not presented on a comparative basis because there was no other comprehensive income in the fiscal years prior to 2007 and, therefore, net income was equal to comprehensive income.

65 2007 CONSOLIDATED FINANCIAL STATEMENTS 63 CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31 (in thousands of dollars) Cash flows from operating activities Net income $ 62,986 $ 54,474 Adjustments to determine cash flows from operating activities: Depreciation of premises and equipment and amortization of intangible assets 7,515 2,975 Provision for credit losses 15,799 16,797 Loss (gain) on available-for-sale securities 1 9,833 (14,904) (Increase) decrease in future income taxes (3,789) 2,309 Net increase in securities held for trading (787,878) (180,523) Net increase (decrease) in obligations related to securities sold short 138,948 (61,689) (Increase) decrease in accrued interest receivable (50,997) 13,797 Increase (decrease) in accrued interest payable 14,849 (9,501) Decrease (increase) in income taxes recoverable 4,167 (5,583) Increase in unrealized gains and amounts receivable on derivative financial instruments (12,276) (298,547) Increase (decrease) in unrealized losses and amounts payable on derivative financial instruments 245,058 (162,901) Other items, net (119,215) 249,145 (475,000) (394,151) Cash flows from financing activities Net increase in deposits 2,607,005 1,481,678 Issuance of capital shares 100, ,000 Net decrease in commitments under repurchase agreements (244,658) Remuneration of capital stock paid (56,247) (121,000) 2,650,758 1,337,020 Cash flows from investing activities Change in available-for-sale securities 1 : Purchases (9,515,565) (6,877,185) Proceeds from maturities 5,847,141 5,093,815 Proceeds from sales 4,512,513 1,544,408 Net increase in loans (2,592,373) (564,531) Proceeds from securitization of mortgage loans 1,569,659 1,248,064 Purchase of mortgage loans from Desjardins Group (1,662,656) (1,358,492) Net increase in securities purchased under reverse repurchase agreements (141,685) (16,963) Net additions to premises and equipment and intangible assets (8,885) (13,064) (1,991,851) (943,948) Net increase (decrease) in cash and cash equivalents 183,907 (1,079) Cash and cash equivalents at beginning of year 106, ,461 Cash and cash equivalents at end of year $ 290,289 $ 106,382 Represented by: Cash and deposits with financial institutions $ 447,678 $ 167,871 Cheques and other items in transit (157,389) (61,489) $ 290,289 $ 106,382 Additional information Interest paid during the year $ 645,848 $ 545,277 Income taxes (received) paid during the year (1,793) 6,268 The accompanying notes are an integral part of the consolidated financial statements. 1 Prior to January 1, 2007, available-for-sale securities were classified as investment account securities CONSOLIDATED FINANCIAL STATEMENTS

66 CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2007 and 2006 (All tabular figures are in thousands of dollars, unless otherwise indicated.) 2007 CONSOLIDATED FINANCIAL STATEMENTS Note 1 INCORPORATION AND MANDATE Caisse centrale Desjardins du Québec ( Caisse centrale ), created on June 22, 1979, is a financial services cooperative governed by the Act respecting the Mouvement Desjardins, S.Q. 2000, c. 77 (the Constituent Legislation ) and by the Act respecting financial services cooperatives (Québec). Pursuant to its Constituent Legislation, Caisse centrale may also identify itself under the name of Caisse centrale Desjardins. Caisse centrale is a cooperative institution which offers financial services to Desjardins Group, governments, public and parapublic sector institutions, medium-sized businesses and large corporations. It serves the needs of the Fédération des caisses Desjardins du Québec (the Fédération ), the Desjardins caisses (the member caisses ), and other Desjardins Group entities ( Desjardins Group ). Caisse centrale s mandate is to provide institutional funding for the Desjardins network and to act as financial agent, notably by supplying interbank exchange services, including clearing house settlements. Caisse centrale s activities on the Canadian and international markets complement those of other Desjardins Group entities. Note 2 SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements of Caisse centrale are prepared in accordance with section 163 of the Act respecting financial services cooperatives which requires that, unless otherwise specified by the Autorité des marchés financiers, consolidated financial statements be prepared in accordance with Canadian generally accepted accounting principles ( GAAP ). There is no significant difference between Canadian GAAP and the accounting rules prescribed by the Autorité des marchés financiers. The preparation of consolidated financial statements in conformity with these principles requires management to make estimates and assumptions. Some estimates, including those for the allowance for credit losses, the fair value of financial instruments and the accounting for the securitization, litigation, pension plans and income taxes, require that management make complex, subjective judgments which could affect the amounts reported in the consolidated financial statements and the notes thereto. Consequently, actual results may differ from those estimates. Significant accounting policies used in the preparation of these consolidated financial statements are summarized below. CONSOLIDATION The consolidated financial statements include the assets and liabilities and results of operations of Caisse centrale and those of its wholly-owned American subsidiary, Desjardins Bank, N.A., after elimination of intercompany transactions and balances. CHANGES IN ACCOUNTING POLICIES Financial instruments On January 1, 2007, Caisse centrale adopted the new accounting standards of the Canadian Institute of Chartered Accountants ( CICA ) entitled Financial Instruments Recognition and Measurement (Section 3855), Hedges (Section 3865), Comprehensive Income (Section 1530) and Financial Instruments Disclosure and Presentation (Section 3861). The main requirements of these standards are set out below. a) Financial Instruments Recognition and Measurement Financial assets should be classified as one of the following: held for trading, available for sale, held to maturity or loans and receivables. Financial liabilities should be classified as held for trading or other. Financial assets and financial liabilities are initially recognized at fair value. Subsequently, financial assets and financial liabilities held for trading as well as available-for-sale financial assets continue to be recorded on the Consolidated Balance Sheets at fair value. Changes in the fair value of financial assets and financial liabilities held for trading are recognized in consolidated income for the year, while changes in the fair value of available-for-sale financial assets are recorded in consolidated other comprehensive income until they are derecognized. Financial assets held to maturity, loans and receivables, and financial liabilities other than held for trading are recognized at amortized cost using the effective interest method. Financial assets classified as available for sale are reviewed regularly on each balance sheet date to determine if there has been a decline in value that is other than temporary. Any impairment losses are recognized in consolidated income. Under Section 3855, any financial asset or financial liability whose fair value can be reliably measured may be classified, on initial recognition or on adoption of this standard, as being held for trading, except for certain related party transactions. This designation is then irrevocable. Electing to classify financial instruments as held for trading under the fair value option is subject to the requirements set by the Autorité des marches financiers. The valuation techniques used to determine the fair value of financial instruments have remained substantially the same despite the adoption of these new accounting standards. Thus fair value is based on the market price when an active market exists. Otherwise, it is estimated using valuation models and techniques such as discounted cash flow analysis or option pricing models, based on observable market factors. Transaction costs for financial instruments are capitalized and then amortized over the term of the instrument using the effective interest method unless such instruments are classified as held for trading, in which case these costs are expensed as incurred. Regular-way purchases and sales of financial assets are recognized on a trade-date basis.

67 2007 CONSOLIDATED FINANCIAL STATEMENTS 65 b) Derivative Financial Instruments and Hedges Derivative financial instruments, including embedded derivatives which are required to be accounted for separately, are recorded on the Consolidated Balance Sheets at fair value. Derivative financial instruments may be designated as being part of a fair value or cash flow hedging relationship. Changes in the fair value of derivative financial instruments are recorded in net income, except for derivative financial instruments designated as effective cash flow hedges, for which changes in fair value are recognized in consolidated other comprehensive income. The impact of the transitional adjustments on retained earnings was $0.5 million, net of income taxes of $0.1 million. Accounting changes On January 1, 2007, Caisse centrale adopted Section 1506 of the CICA Handbook, Accounting Changes, which prescribes the criteria for changing accounting policies, together with the accounting treatment and disclosure of changes in accounting policies, changes in accounting estimates and corrections of errors. This standard did not affect Caisse centrale s results or financial position. c) Comprehensive Income Consolidated other comprehensive income includes, in particular, unrealized gains and losses on available-for-sale financial assets, unrealized foreign exchange gains and losses resulting from the translation of the financial statements of a foreign operation, net of hedging transactions, and the change in the effective portion of cash flow hedge transactions. These components are recorded net of income tax. The consolidated financial statements include a Statement of Comprehensive Income and accumulated other comprehensive income is presented as a new item of members equity on the Consolidated Balance Sheets. d) Impact of the Adoption of the New Financial Instrument Requirements The adoption of these new accounting standards has not resulted in any significant change in the risk management policies and hedging activities of Caisse centrale. Moreover, as provided in the transitional provisions, the 2006 financial statements were not restated following the adoption of these new standards. Adjustments resulting from the classification of available-for-sale securities were recognized in opening consolidated accumulated other comprehensive income as at January 1, Transitional adjustments from other financial assets and financial liabilities, other than the hedging instruments designated as being part of a cash flow hedging relationship, were recognized in opening retained earnings as at January 1, Transitional adjustments were recognized in opening retained earnings for hedging relationships existing prior to the effective date of the new standards and not qualifying under the provisions of Section For qualified hedging relationships, transitional adjustments were recorded as follows: for fair value hedges, any deferred gain or loss on the hedging instrument was reclassified to opening retained earnings; the carrying value of the hedged item was adjusted by the cumulative change in fair value attributable to the designated hedged risk. This adjustment was also included in opening retained earnings. For cash flow hedges, the effective portion of any gain or loss on the hedging instrument was reclassified to consolidated accumulated other comprehensive income while the cumulative ineffective portion was recognized in opening retained earnings. The impact of transitional adjustments on accumulated other comprehensive income as at January 1, 2007 was $3.4 million, net of income taxes of $1.0 million, and resulted from the revaluation of available-for-sale securities of $2.9 million and the effective portion of cash flow hedging relationships amounting to $0.5 million. SECURITIES Securities include available-for-sale securities and securities held for trading. Available-for-sale securities Available-for-sale securities are purchased with the primary intent of holding them until maturity or until market conditions are more favourable for other types of investments. Available-for-sale securities are recognized at fair value, and unrealized gains and losses on these securities, including exchange rate fluctuations, are recognized under Change in net unrealized gains and losses on available-for-sale securities in the Consolidated Statement of Comprehensive Income. Available-for-sale securities are reviewed regularly on each balance sheet date to determine if there has been a decline in value that is other than temporary. In determining whether a decline is temporary, several factors are considered, including the financial condition and near-term prospects of the issuer, the ability and intent of Caisse centrale to hold the investment for a period of time sufficient to allow for recovery, and the length of time that the security has been in an unrealized loss position. Realized gains and losses on these securities upon derecognition, determined using average cost, as well as other-than-temporary impairment losses on these securities are recognized in consolidated income under Net gains (losses) on available-for-sale securities in Other income. Premiums and discounts are amortized using the effective interest method. Dividend and interest income, including amortization of premiums and discounts, is recorded in consolidated income under Interest income. Securities held for trading Securities held for trading comprise securities required to be classified as held for trading and securities designated as held for trading, and are recognized at fair value. Dividend and interest income on these securities is recorded in consolidated income under Interest income. Realized and unrealized gains and losses on such securities are presented under Trading activities in Other income. Transaction costs are expensed as incurred. a) Securities Required To Be Classified as Held for Trading These securities required to be classified as held for trading are purchased and incurred with the intent of generating profits in the near term CONSOLIDATED FINANCIAL STATEMENTS

68 CONSOLIDATED FINANCIAL STATEMENTS 2007 CONSOLIDATED FINANCIAL STATEMENTS b) Securities Designated as Held for Trading Some securities are designated as held for trading under the fair value option. Such designation is allowed provided that the fair value of the financial instruments concerned can be reliably determined and that the designation is made to eliminate or significantly reduce valuation or recognition inconsistencies that would otherwise arise from measuring financial assets or financial liabilities, or recognizing gains or losses on them, on different bases. Regular-way purchases and sales of securities are recognized on a tradedate basis. Prior to January 1, 2007, securities were classified as either investment account or trading account securities. Securities held for investment purposes were stated at amortized cost on the Consolidated Balance Sheets as investment account securities. Premiums and discounts were amortized over the term of the securities on a straight-line basis. Realized gains and losses on investment account securities, calculated using average cost, as well as any write-downs to reflect a decline in value that was other than temporary were recorded under Investment activities in Other income. LOANS Loans are stated at cost, net of the allowance for credit losses, discounts and unamortized loan fees. Where deemed appropriate, Caisse centrale obtains security in the form of cash, securities, immovable property, accounts receivable, guarantees, inventories or other assets. Acting as an intermediary for Desjardins Group entities, Caisse centrale buys and resells mortgage, farm and other loans. These loans are recorded as Loans purchased from Desjardins Group. Interest income is recorded on an accrual basis, except when the loan is considered to be impaired. Impaired loans A loan is considered impaired when: (a) there is reason to believe that a portion of the principal or interest cannot be collected, or (b) the interest or principal is contractually 90 days in arrears, except when there is reasonable assurance of collecting the principal or interest. The interest, previously accrued but not received on such a loan, is reversed from interest income on loans in the current year. No portion of cash received on a loan subsequent to its classification as impaired is recorded as income before any prior write-off has been recovered or any specific provision has been reversed and it is deemed that the loan principal is fully collectible. An impaired loan is recorded at its estimated realizable value, measured by discounting the expected future cash flows at the interest rate inherent in the loan. When the amount or timing of future cash flows cannot be estimated with reasonable reliability, the loan is recorded at either the fair value of the underlying security or the market price for the loan. Any change in the estimated realizable amount is presented as a charge or credit for loan impairment through the allowance for credit losses. An impaired loan is once again recorded under the accrual method when the principal and interest payments are current and there is no longer any reasonable doubt that the impaired loan will be recovered. Loan fees Loan origination, restructuring and renegotiation fees are considered as adjustments to loan yield and are deferred and amortized to Interest income over the expected term of such loans using the effective interest method. In the likelihood that a loan will result, commitment and standby fees are also included in Interest income over the expected term using the effective interest method. Otherwise, fees are recorded as Other income during the commitment or standby period. Loan syndication fees are presented under Other income when the syndication agreement is signed, unless the yield of any loan retained by Caisse centrale is less than one of the other comparable lenders involved in the financing. In such cases, an appropriate portion of the fees is deferred and amortized to interest income over the term of the loan using the effective interest method. ALLOWANCE FOR CREDIT LOSSES The allowance for credit losses is maintained at an amount considered sufficient to absorb the estimated losses related to the loan portfolio, off-balance sheet commitments, acceptances and derivative financial instruments. This allowance is increased by the provision for credit losses charged to consolidated income and reduced by write-offs net of recoveries. This allowance comprises specific provisions and a general provision for credit losses. Management conducts ongoing credit risk assessments and establishes specific provisions when impaired loans are identified. Specific provisions Specific provisions are established on an individual basis for all identified impaired loans, reducing their carrying value to their estimated realizable value. General provision The general provision for credit losses reflects management s estimate of probable portfolio losses that are not covered by specific provisions. The general provision for credit losses does not represent future losses nor replace specific provisions. It takes into account economic and market conditions that affect the main lending activities, recent credit loss experience, and trends in credit quality and concentration. This provision also reflects model and estimation risks, which are reviewed and revised where conditions indicate the initial assumptions will differ from actual results. SECURITIZATION OF MORTGAGES As part of Desjardins Group s capital and liquidity management strategy, Caisse centrale participates in the National Housing Act ( NHA ) Mortgage-Backed Securities Program. Under this program, Caisse centrale converts mortgage loans previously acquired from Desjardins Group member caisses into NHA mortgage-backed securities ( NHA-MBSs ) and then transfers them to Canada Housing Trust. These securitization transactions are recorded as sales; the loans are therefore removed from the Consolidated Balance Sheets since Caisse centrale has surrendered control over the transferred assets and has received consideration other than beneficial interests in these assets.

69 2007 CONSOLIDATED FINANCIAL STATEMENTS 67 In securitization transactions, Caisse centrale retains the right to an excess interest spread, which is initially recorded at fair value on the Consolidated Balance Sheets under Other assets and is considered a retained interest. The excess interest spread is amortized over the term of the mortgage loans transferred and is recorded in consolidated income under Trading activities. Since transfers are made on a fully serviced basis, a servicing liability is initially recorded at fair value and presented under Other liabilities on the Consolidated Balance Sheets. The servicing liability is amortized to consolidated income over the term of the transferred mortgage loans, and amortization is presented under Trading activities. At the time of transfer, Caisse centrale recognizes the gain or loss on the transfer in consolidated income under Trading activities, net of transaction fees. The gain or loss on the transfer depends on the previous carrying value of the loans sold as well as the fair value of the assets received and liabilities assumed. This fair value is determined using the present value of future expected cash flows taking into account best estimates, which are based on certain key assumptions made by management, including the forward yield curve for mortgage loans, discount rates proportional to the risks involved and prepayment rates. ACCEPTANCES AND CUSTOMERS LIABILITY UNDER ACCEPTANCES Caisse centrale s potential liability under acceptances is reported as a liability on the Consolidated Balance Sheets. The recourse of Caisse centrale against the customer in the case of a call on commitments of this nature is reported as an offsetting asset of the same amount. These financial instruments are recognized at amortized cost on the Consolidated Balance Sheets. Fees paid to Caisse centrale are recognized in consolidated income under Fees on Desjardins Acceptances in Other income over the expected term using the effective interest method. OBLIGATIONS RELATED TO SECURITIES SOLD SHORT Securities sold short as part of trading activities, which represent Caisse centrale s obligation to deliver securities sold which were not owned at the time of sale, are recorded as liabilities and are carried at fair value. Realized and unrealized gains and losses thereon are recorded in consolidated income under Trading activities in Other income. ASSETS UNDER ADMINISTRATION Caisse centrale manages liquidities on behalf of third parties. These assets under administration are not the property of Caisse centrale and therefore are not reflected on the Consolidated Balance Sheets. Management fees earned with respect to liquidity management services are recorded in consolidated income under Managements fees in Other Income. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGES Caisse centrale uses derivative financial instruments for trading purposes or for asset and liability management. The derivative financial instruments most frequently used are forward exchange contracts, currency, interest rate and credit swaps, forward rate agreements and foreign currency, interest rate and stock index options. Derivative financial instruments, including embedded derivatives required to be recognized separately, are stated at fair value on the Consolidated Balance Sheets. Fair value is based on market prices, where there is an active market. Otherwise, fair value is estimated by using valuation techniques or models that incorporate current market prices and the contractual prices of the underlying instruments, the time value of money, yield curves and volatility factors. On the Consolidated Balance Sheets, derivative instruments are presented under Derivative financial instruments in Other, and are classified as assets or liabilities depending on their respective positive or negative fair value. Embedded derivative financial instruments Embedded derivative financial instruments are separated from their host contract and accounted for as derivatives if: (a) the economic characteristics and risks of the embedded derivatives are not closely related to the economic characteristics and risks of the host contract; (b) the embedded derivative financial instrument has the same terms as a separate instrument; (c) the hybrid instrument or contract is not measured at fair value with changes in fair value recognized in net income. Embedded derivative financial instruments which are to be recognized separately are measured at fair value, and the changes in fair value are recognized in consolidated income. Caisse centrale selected January 1, 2003 as the transition date for embedded derivative financial instruments; consequently, only financial instruments or contracts entered into or modified after such transition date were reviewed in order to identify embedded derivative financial instruments. Derivatives held for trading purposes Derivatives held for trading purposes are mainly used in intermediation activities to meet the needs of the Desjardins network or its customers. Realized and unrealized gains and losses on such derivatives are presented under Trading activities in Other income. Derivatives held for purposes of asset and liability management Derivatives held for purposes of asset and liability management are used to manage the interest rate and foreign exchange risk exposure of consolidated balance sheet assets and liabilities, firm commitments and forecasted transactions. Some of these derivative financial instruments qualify for hedge accounting provided they meet certain criteria which are set out below. Hedging activities are designed to modify the exposure of Caisse centrale to one or more risks by creating an offset between changes in the fair value of, or the cash flows attributable to, the hedged item and the hedging item. Hedge accounting ensures that offsetting gains, losses, revenues and expenses are recognized in net income in the same period or periods because otherwise they would be recognized in different periods CONSOLIDATED FINANCIAL STATEMENTS

70 CONSOLIDATED FINANCIAL STATEMENTS 2007 CONSOLIDATED FINANCIAL STATEMENTS a) Derivatives qualifying for hedge accounting To qualify for hedge accounting, a hedging relationship must be designated and documented at its inception. The documentation should address, among others, the specific risk management strategy, the hedged asset, liability or cash flows and the measure of the effectiveness of the hedging relationship. Therefore, each hedging relationship should be documented and tested for effectiveness, individually and on a regular basis, in order to determine, with reasonable assurance, whether it has remained and will continue to be effective. The derivative financial instruments must be highly effective in offsetting changes in the fair value or cash flows of the hedged item that are attributable to the hedged risk exposure. Whenever hedge accounting is appropriate, the hedging relationship will be designated as fair value or cash flow hedge. Fair Value Hedges Fair value hedging relationships are used in risk management strategies. Caisse centrale therefore uses derivative financial instruments, mainly interest rate swaps, to hedge changes in the fair value of fixed-rate financial instruments. These derivative financial instruments mitigate the impact of fluctuating interest rates on results by changing the benchmark rate of the hedged item. Gains and losses resulting from the revaluation of the fair value of the derivative financial instrument are recognized in consolidated income under net interest income regardless of the classification of the hedged item. However, an amount corresponding to the impact of the designated risk on the hedged item will be recognized in this hedged item and in consolidated income. Lastly, the ineffective portion of the hedging instrument will be immediately recognized in consolidated income under Trading activities in Other income. The designation of a derivative financial instrument as a hedge is discontinued in the following cases: the hedged item is sold or matures, the hedge is no longer effective or Caisse centrale terminates its designation of the hedging relationship. At the time the hedging relationship is terminated, the amount recognized in the hedged item attributable to the designated risk exposure is amortized in consolidated income under net interest income over the expected remaining life of the hedging relationship that was discontinued. If a designated hedged item is sold or matures before the related derivative financial instrument ceases to exist, the amount recorded in the hedged item is immediately recognized in consolidated income under net interest income. Cash Flow Hedges Cash flow hedging relationships are used in risk management strategies. Caisse centrale therefore uses derivative financial instruments, mainly interest rate swaps, to hedge the risk of changes in future cash flows related to floating-rate financial instruments. Among other things, such derivative financial instruments convert certain floating-rate financial instruments to fixed-rate financial instruments. Gains or losses resulting from changes in the fair value of the effective portion of the derivative financial instrument are recorded in Consolidated other comprehensive income until the hedged item is recognized in consolidated income, at which time such change is recognized under net interest income. The ineffective portion of the hedging instrument is recognized immediately in consolidated income under Trading activities in Other income. If a hedge is discontinued, gains or losses recorded in Consolidated other comprehensive income are amortized in consolidated income under net interest income over the expected remaining life of the hedging relationship that was discontinued. If a designated hedged item is sold or matures before the related derivative financial instrument ceases to exist, all gains or losses are immediately recognized in consolidated income under net interest income. b) Derivatives not qualifying for hedge accounting Realized and unrealized gains and losses on derivative financial instruments held for purposes of asset and liability management that do not qualify for hedge accounting are recognized in consolidated income under Trading activities in Other income. Prior to January 1, 2007, Caisse centrale was already recognizing derivative financial instruments on the Consolidated Balance Sheets at fair value, but for those instruments designated as part of a hedging relationship, the change in fair value was deferred in Other assets and Other liabilities and recognized in consolidated income over the same period as the revenue and expenses of the hedged item. In addition, when a hedging relationship was discontinued, the difference between the fair value and the recognized value of the derivative financial instrument was deferred in Other assets or Other liabilities on the Consolidated Balance Sheets and recognized in consolidated income over the expected remaining term of the hedging relationship being discontinued. When a hedged item was sold or matured before the corresponding derivative financial instrument, any realized or unrealized gain or loss on the derivative finanicial instrument was recognized immediately in consolidated income under Investment activities in Other income. TRANSACTION COSTS Transaction costs for financial instruments are capitalized and then amortized over the term of the instrument using the effective interest method unless such instruments are classified as held for trading, in which case these costs are expensed as incurred. SECURITIES PURCHASED UNDER REVERSE REPURCHASE AGREEMENTS AND SECURITIES SOLD UNDER REPURCHASE AGREEMENTS Caisse centrale enters into short-term purchases and sales of securities 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 lending and borrowing transactions and are recorded on the Consolidated Balance Sheets at amortized cost. Interest income on reverse repurchase agreements is presented as interest income in the Consolidated Statements of Income, whereas interest incurred on repurchase agreements is presented as interest expense.

71 2007 CONSOLIDATED FINANCIAL STATEMENTS 69 FOREIGN CURRENCY TRANSLATION Monetary items denominated in foreign currencies are translated at rates prevailing on the consolidated balance sheet date and non-monetary items are translated at historical rates. Income and expenses are translated at the average rates prevailing during the year. Unrealized foreign exchange gains or losses and realized foreign exchange gains or losses are recorded in consolidated income under Other income, except for unrealized gains or losses on available-for-sale securities, which are recognized in Consolidated accumulated other comprehensive income. Foreign exchange positions, including spot and forward contracts, are valued at prevailing market rates. All assets and liabilities of the self-sustaining foreign subsidiary denominated in foreign currencies are translated at rates prevailing on the balance sheet date, and income and expenses of this foreign operation are translated at the average rate for the period. Exchange gains and losses resulting from the translation of the financial statements of this subsidiary, including the related effects of hedging and taxes, are recorded in Consolidated accumulated other comprehensive income. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash and deposits with financial institutions. Cash includes bank notes and coins. The deposits are issued by investment grade financial institutions. PREMISES AND EQUIPMENT Premises and equipment are recorded at cost, less accumulated depreciation, and are depreciated over their estimated useful lives in accordance with the following methods and annual rates or term: Amortization Classes methods Rates/Term Office furniture and equipment Declining balance 20 % Computer equipment Declining balance 30 % Leasehold improvements Straight-line Term of the lease INTANGIBLE ASSETS WITH FINITE USEFUL LIFE Computer software is recorded at cost, less accumulated amortization, is amortized over its estimated useful life on a straight-line basis at a rate of 20% and is written down when its net carrying value cannot be recovered in the long term. If applicable, any excess of the carrying value over the fair value is charged to consolidated income. EMPLOYEE FUTURE BENEFITS The employees of Caisse centrale participate in the Desjardins Group pension plans as part of defined benefit multi-employer pension plans and in supplemental plans which provide pension benefits in excess of statutory limits. Furthermore, Caisse centrale also provides life insurance coverage and health and dental care benefits to its eligible retired employees through the Desjardins Group multi-employer group insurance plan. Caisse centrale applies the recommendations regarding defined contribution plans since the costs and funding of these plans are not allocated among Desjardins Group member entities. In addition, Caisse centrale provides additional defined benefit pension plans to certain active and retired executive employees, and applies the recommendations regarding defined benefit pension plans to such plans. INCOME TAXES Caisse centrale accounts for income taxes under the asset-liability method. Under this method, future tax assets and liabilities are calculated based on differences between the carrying amount and the tax basis of assets and liabilities using enacted or substantively enacted tax laws and rates expected to apply at the date such differences reverse. Future tax assets and liabilities are included under Other assets or Other liabilities, as applicable. The recovery of income taxes appearing in the Consolidated Statements of Members Equity under Retained earnings is related to the remuneration of capital stock, which is deductible for income tax purposes. GUARANTEES A guarantee is a contract or indemnification agreement that contingently requires Caisse centrale to make payments to the guaranteed party; as for instance, (i) based on changes in an interest rate, a foreign currency exchange rate, a security or commodity price, or a price or rate index, or the occurrence or non-occurrence of a specified event that is related to an asset, a liability or an equity security of the guaranteed party; (ii) based on failure by a third party to perform under an obligating agreement or (iii) the failure by a third party to repay its debt when it becomes due and payable. Guarantees are initially recognized at fair value on the Consolidated Balance Sheets. No revaluation of the fair value is required thereafter. Prior to January 1, 2007, Caisse centrale was required to disclose only certain characteristics of guarantees, and was not required to measure or recognize them. COMPARATIVE FIGURES Certain 2006 financial information has been reclassified to conform with the presentation adopted in FUTURE CHANGES IN ACCOUNTING POLICIES In December 2006, the CICA issued new accounting standards entitled Capital Disclosures (Section 1535), Financial Instruments Disclosures (Section 3862) and Financial Instruments Presentation (Section 3863), which will apply to Caisse centrale effective January 1, The purpose of Section 1535 is to require the disclosure of information that enables users of financial statements to evaluate the entity s objectives, policies and processes for managing capital. It should be noted that Section 3861, Financial Instruments Disclosure and Presentation, will be replaced by sections 3862 and Section 3863 carries forward unchanged the presentation standards contained in Section The purpose of Section 3862 is to inform users and enhance their understanding and evaluation of the significance of financial instruments for the entity s financial position and performance, as well as to help them better evaluate the nature and extent of risks arising from financial instruments and how the entity manages those risks. Since that new standard specifically covers the disclosures to be provided, it will not affect Caisse centrale s results or financial position CONSOLIDATED FINANCIAL STATEMENTS

72 CONSOLIDATED FINANCIAL STATEMENTS Note 3 SECURITIES Maturity CONSOLIDATED FINANCIAL STATEMENTS Less than 1 to 3 Over 3 to Over 5 to Over 10 Total carrying Total carrying 1 year years 5 years 10 years years amount amount AVAILABLE-FOR-SALE SECURITIES Issued or guaranteed by Canada $ 22,033 $ 17,059 $ 168,815 $ $ $ 207,907 $ 287,222 Provinces and municipalities in Canada 194, , ,414 20, , ,355 U.S. public administrations 8, ,501 15,790 23,661 Other securities Banks and financial institutions 381, , ,964 1,121,404 Financial asset-backed securities 12, , , ,981 Foreign banks 4,613 Other 45,919 39,700 85, ,765 Total available-for-sale securities $ 664,429 $ 290,506 $ 715,853 $ 20,851 $ 46,201 $ 1,737,840 $ 2,963,001 SECURITIES HELD FOR TRADING Securities required to be classified as held for trading Issued or guaranteed by Canada $ $ $ $ 4,853 $ $ 4,853 $ Other securities Banks and financial institutions 805,522 2, ,322 80,904 Financial asset-backed securities 39,983 39,983 1,946 Entities included in the scope of consolidation of Desjardins Group 751,451 Foreign banks 8,096 8,096 Other 55,010 55,010 7,719 Subtotal $ 908,611 $ 2,800 $ $ 4,853 $ $ 916,264 $ 842,020 Securities designated as held for trading Other securities Financial asset-backed securities $ $ 1,288 $ 100,117 $ $ $ 101,405 $ Entities included in the scope of consolidation of Desjardins Group 827, ,284 Equity securities 132, ,570 Other 6,987 6,987 Subtotal $ $ 1,288 $ 100,117 $ $ 966,841 $ 1,068,246 $ Total securities held for trading $ 908,611 $ 4,088 $ 100,117 $ 4,853 $ 966,841 $ 1,984,510 $ 842,020 TOTAL SECURITIES $ 1,573,040 $ 294,594 $ 815,970 $ 25,704 $ 1,013,042 $ 3,722,350 $ 3,805,021 1 Prior to January 1, 2007, available-for-sale securities were classified as investment account securities. Term-to-maturity classifications are based on the contractual maturity of the security. Securities with no maturity date are classified in the Over 10 years category. Total available-for-sale securities include securities denominated in foreign currencies in the amount of C$312,713,095 (2006: C$263,163,556), of which C$95,425,681 is denominated in U.S. dollars (2006: C$23,660,642) and C$157,099,944 is denominated in euros (2006: C$174,888,915). Total securities held for trading include securities denominated in foreign currencies in the amount of C$1,190,560,970 (2006: C$759,169,707), of which C$1,180,461,370 is denominated in U.S. dollars (2006: C$759,169,707) and C$10,099,600 is denominated in euros (2006: C$0).

73 2007 CONSOLIDATED FINANCIAL STATEMENTS 71 The following table shows unrealized gains and losses on available-for-sale securities Amortized Gross Gross Fair Amortized Gross Gross Fair cost unrealized unrealized value cost unrealized unrealized value gains losses gains losses AVAILABLE-FOR-SALE SECURITIES Issued or guaranteed by Canada $ 206,297 $ 1,624 $ (14) $ 207,907 $ 287,222 $ 820 $ (475) $ 287,567 Provinces and municipalities in Canada 699,451 4,395 (78) 703, ,355 6,699 (79) 853,975 U.S. public administrations 15, (41) 15,790 23, (36) 23,764 Other securities Banks and financial institutions 492, (1,252) 490,964 1,121, (390) 1,121,056 Financial asset-backed securities 258,166 (24,374) 233, , (105) 524,915 Foreign banks 4,613 4,613 Other 85, (241) 85, , (194) 153,770 TOTAL AVAILABLE-FOR-SALE SECURITIES $ 1,757,665 $ 6,175 $ (26,000) $ 1,737,840 $ 2,963,001 $ 7,938 $ (1,279) $ 2,969,660 1 Prior to January 1, 2007, available-for-sale securities were classified as investment account securities. Gross unrealized losses on available-for-sale securities resulted from wider credit spreads due to recent disruptions on capital markets as well as increase in market interest rates, and not from deterioration in the creditworthiness of issuers. Caisse centrale has the ability and intent to hold these securities for a period of time sufficient to allow for recovery in fair value. As at December 31, 2007, Caisse centrale determined that the gross unrealized losses are temporary in nature. ASSET-BACKED COMMERCIAL PAPER ISSUED BY CANADIAN NON-BANK CONDUITS As at December 31, 2007, Caisse centrale held investments of $39.6 million on the Canadian non-bank asset-backed commercial paper (ABCP) market, although it never issued this type of financial product to its customers. These securities are presented on the Consolidated Balance Sheetsunder Available-for-sale securities. Since August 2007, this market has been shaken by disruptions on the international capital markets, especially by a deterioration of the global credit market. Although the context in Canada is different from the one prevailing in the United States, this situation has nonetheless led to a loss of confidence in certain financial products, especially ABCP, and has triggered a liquidity crisis in the ABCP market. As a result, since August 13, Caisse centrale has been unable to collect, at maturity, amounts due with respect to its ABCP holdings. In order to mitigate the impact of the lack of liquidity in the ABCP market and to restore a climate of confidence, an initial agreement was entered into in August 2007 by several investors and financial institutions, including Desjardins Group, which is aiming to favour the resumption of normal activities on the ABCP market (the Montreal Accord). This agreement has led to the formation of a pan-canadian committee (the Crawford committee ), which includes investors who were signatories of the Montreal Accord and other key players bringing a national perspective, relevant experience and associations with the private sector, institutional investors, government agencies and Crown corporations. The committee was aiming to propose a restructuring that was fair and equitable to all investors, through which ABCP securities would be converted into floating rate long-term notes and the value of underlying assets would be preserved, and their transparency improved. At the outset of the crisis, these ABCP securities had received an investment grade rating of R1 High from the Dominion Bond Rating Service (DBRS) and complied with the criteria of Caisse centrale s investment policies. On December 23, 2007, the committee announced that an agreement in principle had been reached regarding a comprehensive restructuring of the ABCP issued by 20 out of the 22 trusts covered by this agreement which was approved by the investors committee, by certain of the dealer bank asset providers as well as by the sponsors of each of the trust. The investors committee also mentioned that it anticipates that the restructuring, which implementation is subject to certain conditions (including consents and approvals, notably a favourable vote by the APBC holders on an individual trust basis), will be completed in March The main goals of the agreement in principle are to replace ABCP issued by new securities having a maturity similar to that of the underlying assets, to pool certain series of ABCP which are supported in whole or in part by synthetic assets, to mitigate the margin call obligations of the existing trusts and implement credit facilities to address such margin calls if they occur, and to support the liquidity needs of those ABCP holders requiring it. The proposed restructuring includes the following steps: Implement a comprehensive and contemporaneous restructuring with distinct solutions for: a) ABCP which is supported by synthetic assets, or a combination of synthetic and traditional securitized assets (synthetic assets); b) ABCP which is supported solely by traditional securitized assets (traditional assets); c) ABCP which is supported by assets related to U.S. subprime mortgage loans (subprime assets); Restructure substantially all triggers to become more transparent and spread in time; Obtain credit ratings for the restructured notes, which are expected by the investors committee and its advisors to be of high quality for synthetic assets. ÉTATS FINANCIERS CONSOLIDÉS 2007

74 CONSOLIDATED FINANCIAL STATEMENTS 2007 CONSOLIDATED FINANCIAL STATEMENTS With respect to synthetic assets, the agreement in principle provides for the creation of two limited partnerships which will issue floating rate notes in exchange for the existing ABCP. The conditions include the establishment of a credit facility for each limited partnership to fund future margin calls on the underlying assets. Each investor can join either limited partnership. By joining the first limited partnership, the investor undertakes to participate on a proportionate basis to his investments in the credit facility of such limited partnership, whereas the investor who decides to join the second limited partnership will not have to participate in the credit facility as it will be provided by a third party. Desjardins Group has indicated that it intends to join the first limited partnership and thus to participate in the credit facility. Since there is no active market for ABCP securities subject to the agreement in principle, Caisse centrale s management estimated the fair value of its holdings and the resulting write-downs by using a valuation technique based on two types of scenarios, a liquidation scenario and a restructuring scenario. Under the liquidation scenario, should the agreement in principle fail, the fair value of the ABCP is determined based on the estimated fair value of the underlying assets as at December 31. Under the restructuring scenario, the fair value of ABCP is determined based on a financial model incorporating uncertainties regarding the return, credit spreads, type and credit risk of underlying assets, the amount and timing of cash flows to be received and maturity dates of the new notes in order to provide a fair value reflecting market conditions as at December 31. Assumptions used are based as much as possible on data from observable markets such as interest rates and credit quality. They also reflect the specific features of the December 23 agreement in principle and are partially based on assumptions not supported by prices and rates from observable markets. Caisse centrale gives a high probability to the restructuring, being the successful implementation of the agreement in principle resulting from the Montreal Accord, and a low probability to the liquidation scenario. For synthetic assets, the fair value used is a weighted average of the estimated values under the liquidation and restructuring scenarios based on the estimated probability of realization of each scenario. For traditional assets and subprime assets, the fair value used was determined using the liquidation scenario, as Desjardins Group assumes that the restructuring should not have a significant impact on their fair value. Based on the foregoing, a decline of value of $10.1 million was charged to consolidated income for the year ended December 31, This decline in value is considered to be, in accordance with accounting standards, other than temporary for available-for-sale securities. ABCP AGREEMENT IN PRINCIPLE Amortized cost Write-down Fair value Synthetic assets $ 13,943 $ 1,485 $ 12,458 Traditional assets 12,630 1,950 10,680 Subprime assets 13,050 6,646 6,404 Total $ 39,623 $ 10,081 $ 29,542 The above estimated fair values may not be indicative of the ultimate net realizable value or the future fair value. While management believes that its valuation technique is appropriate in the circumstances, changes in significant assumptions, especially those relating to the determination of the probability of realization of the scenarios, return, credit spreads and credit risk of the underlying assets and the quality of assets given as collateral by the trusts, and more detailed information of the exact nature of the underlying assets could significantly affect the value ascribed to ABCP securities in the next quarters. The most critical assumption used in the fair value valuation model is the probability of success of the agreement in principle. As mentioned earlier, Caisse centrale believes strongly in such a success considering the benefits provided by the agreement in principles to all stakeholders. Finally, some trust series took significant writedown during February Discussions are still under way between members of the pan-canadian committee as to the implementation of the agreement in principle.

75 2007 CONSOLIDATED FINANCIAL STATEMENTS 73 Note 4 LOANS Securities purchased under reverse repurchase agreements $ 158,647 $ 16,963 Day, call and short-term loans to investment dealers and brokers 61, ,000 Public and parapublic institutions 1,672,344 1,526,534 Members Fédération 6,481,829 5,644,679 Other 1,974 70,000 Other entities included in the scope of consolidation of Desjardins Group 2,411, ,962 Loans purchased from Desjardins Group 123,728 78,242 Private sector 2,880,457 2,568,685 Allowance for credit losses $ 13,791,709 $ 11,012,065 (103,794) (87,895) Total $ 13,687,915 $ 10,924,170 Gross impaired loans $ 11,626 $ 17,952 Specific provisions (7,553) (6,800) Impaired loans net of specific provisions $ 4,073 $ 11,152 Total loans before the allowance for credit losses include loans for an amount of C$810,241,181 (2006: C$934,493,179) denominated in U.S. dollars. The following table shows an analysis of the allowance for credit losses. The allowance for credit losses relates entirely to loans and commitments classified in the Private sector category. Allowance for credit losses Balance at beginning of year $ 87,895 $ 72,123 Provision for credit losses 15,799 16,797 Write-offs (1,250) Recoveries Changes in foreign exchange rates (368) 7 Balance at end of year $ 103,794 $ 87,895 Consisting of: Specific provisions $ 7,553 $ 6,800 General provision for credit losses 96,241 81,095 Total $ 103,794 $ 87, CONSOLIDATED FINANCIAL STATEMENTS

76 CONSOLIDATED FINANCIAL STATEMENTS Note 5 SECURITIZATION OF MORTGAGE LOANS Under the NHA Mortgage-Backed Securities Program, Caisse centrale securitized guaranteed residential mortgage loans through the creation of NHA-MBSs. The following table summarizes the new mortgage loan securitization activities in 2007 and 2006: CONSOLIDATED FINANCIAL STATEMENTS Loans securitized $ 1,683,814 $ 1,263,047 Net cash proceeds received 1,569,659 1,248,064 Retained interests 62,474 57,763 Retained servicing liabilities 14,992 19,377 Gain on sale, net of transaction fees 15,009 8,349 Mortgage-backed securities created and retained as securities held for trading 95,081 As at December 31, 2007, Caisse centrale recorded retained interests of $82.1 million (2006: $55.1 million) and retained servicing liabilities of $20.1 million (2006: $9.8 million) on the Consolidated Balance Sheets. The following table contains other cash flows from securitization activities: In addition, amortization of the servicing liabilities amounted to $5.6 million in 2007 (2006: $2.6 million). The key assumptions used in determining the initial fair value of the retained interests as at the date of sale were as follows: Total loans securitized outstanding amounted to $2.6 billion as at December 31, 2007 (2006: $1.3 billion) Cash flows from retained interests $ 23,351 $ 7,001 Servicing fees paid 4,919 3, Discount rate 4.76 % 4.32 % Prepayment rate for fixed rate and floating rate mortgages, respectively 11 % and 21 % 5 % and 15 % Weighted average life of mortgage loans 35 months 36 months No credit losses are expected because the mortgage loans transferred are guaranteed. The sensitivity of the current fair value of retained interests to 10% and 20% adverse changes in the key assumptions is as follows: Prepayment rate 11 % et 21 % 5 % et 15 % Impact of 10% adverse change (2,302) (718) Impact of 20% adverse change (4,515) (1,422) Discount rate 4.76 % 4.32 % Impact of 10% adverse change (560) (426) Impact of 20% adverse change (1,017) (847) The results of this analysis should be used with caution because changes in fair value based on a variation in assumptions generally cannot be extrapolated since the relationship involved may not be linear. It should be borne in mind that each change in one factor may contribute to changes in another, magnifying or counteracting the sensitivities.

77 2007 CONSOLIDATED FINANCIAL STATEMENTS 75 Note 6 OTHER ASSETS Amounts receivable from brokers and dealers $ 159,756 $ 52,211 Interest receivable 111,366 60,370 Accounts receivable 84,503 21,724 Premises and equipment, net of accumulated depreciation of 13,405 (2006: $11,753) 16,118 10,494 Intangible assets with finite useful life, net of accumulated amortization of $9,976 (2006: $4,290) 22,413 26,666 Future tax assets (note 13) 23,810 20,021 Income taxes recoverable 133 4,300 Other 81,670 80,197 Total $ 499,769 $ 275,983 Note 7 DEPOSITS Deposits consist of deposits payable on demand and deposits payable on a fixed date. Deposits payable on demand are interest-bearing or non-interest-bearing deposits for which Caisse centrale does not have the right to require notice prior to withdrawal. These deposits are in general chequing accounts. Deposits payable on a fixed date are interest-bearing deposits with a term that generally varies from one day to 10 years. These deposits include term deposits, guaranteed investment certificates and other similar instruments Payable Payable on on demand a fixed date Total Total Governments $ 169,010 $ 2,041,255 $ 2,210,265 $ 1,060,871 Financial institutions and businesses 680,812 4,116,813 4,797,625 3,172,500 Capital Market 5,436,169 5,436,169 5,848,614 Members Fédération 242,208 1,059,513 1,301,721 2,031,749 Other 63,202 36,284 99, ,175 Other entities included in the scope of consolidation of Desjardins Group 423,429 1,768,930 2,192,359 1,179,712 Total $ 1,578,661 $ 14,458,964 $ 16,037,625 $ 13,430, CONSOLIDATED FINANCIAL STATEMENTS Total deposits include deposits in foreign currencies in the amount of C$7,171,094,424 (2006: C$6,774,957,713), of which C$2,090,411,560 Note 8 OTHER LIABILITIES (2006: C$2,276,767,997) is denominated in U.S. dollars and C$4,995,883,580 (2006: C$4,451,092,337) is denominated in euros Amounts payable to brokers and dealers $ 411,919 $ 481,450 Remuneration of capital stock payable 88,420 64,551 Interest payable 75,233 60,385 Cheques and other items in transit 157,390 62,288 Accounts payable and other payables 26,631 38,083 Other 107,151 42,756 Total $ 866,744 $ 749,513

78 CONSOLIDATED FINANCIAL STATEMENTS Note 9 SUBORDINATED DEBENTURE The debenture is subordinated to the claims of depositors and certain other creditors. Maturity Interest rate Terms March 18, % Nominal value of 76,224,509; 5.5% interest payable $ 109,955 $ 117,103 annually in euros until March 18, 2008; thereafter, interest payable quarterly at Euribor plus 1.40% CONSOLIDATED FINANCIAL STATEMENTS Caisse centrale may, with the prior approval of the Autorité des marchés financiers, call the subordinated debenture on March 18, 2008 or at any time in the event of an applicable tax amendment. Caisse centrale will exercise its prepayment privilege on the scheduled date and has already Note 10 CAPITAL STOCK The capital stock of Caisse centrale is composed of an unlimited number of Class A capital shares, Class B capital shares and qualifying shares. Class A capital shares can only be issued to members and each has a par value of $1,000. The Board of Directors has the discretionary power to determine the remuneration to be paid and the payment terms for these shares. They are transferable between members, with the approval of the Board of Directors, and their reimbursement, only possible in the event of the winding-up, insolvency or dissolution of Caisse centrale, is subordinated to the deposits and other debts of Caisse centrale. They are redeemable by Caisse centrale, in whole or in part, with the authorization of the Autorité des marchés financiers. They are convertible by Caisse centrale, with the approval of the Board of Directors, into shares of other classes issued for this purpose. Class B capital shares As at December 31, 2007 and 2006, no Class B capital shares had been issued or were outstanding. obtained the approval of the Autorité des marches financiers. Furthermore, Caisse centrale entered into hedging transactions to eliminate foreign exchange exposure. Class A capital shares The following table presents changes in the number of outstanding shares and their total ascribed value during the year Number Amount Number Amount Capital shares at beginning of year 887,203 $ 887, ,203 $ 666,203 Capital shares issued 100, , , ,000 Capital shares at end of year 987,203 $ 987, ,203 $ 887,203 Class B capital shares can only be issued to members. The Board of Directors has the discretionary power to determine the remuneration to be paid and the payment terms for these shares. The remuneration and payment terms may differ from those for Class A capital shares. They are transferable between members, with the approval of the Board of Directors, and their reimbursement, only possible in the event of the winding-up, insolvency or dissolution of Caisse centrale, is subordinated to the deposits and other debts of Caisse centrale. They are redeemable by Caisse centrale, in whole or in part, with the authorization of the Autorité des marchés financiers. They are convertible by Caisse centrale, with the approval of the Board of Directors, into shares of other classes issued for this purpose. Qualifying shares The following table presents changes in the number of outstanding qualifying shares and their total ascribed value during the year Number Amount Number Amount Qualifying shares at beginning and end of year 600 $ $ 3 Qualifying shares can only be issued to members according to the conditions, terms and criteria provided for in the internal management by-laws of Caisse centrale. Their issue price is set at $5.00 each and they are non-interest-bearing. They are redeemable by Caisse centrale only in the event of the withdrawal, exclusion, winding-up, insolvency or dissolution of a member. They are not transferable and their reimbursement, only possible in the event of the winding-up, insolvency or dissolution of Caisse centrale, is subordinated to the deposits and other debts of Caisse centrale and to the holders of the other classes of shares.

79 2007 CONSOLIDATED FINANCIAL STATEMENTS 77 CAPITAL MANAGEMENT Capital is an important factor for assessing the security and soundness of Caisse centrale in relation to all the risks associated with its activities. The goal of capital management at Caisse centrale is to ensure that a sufficient level of high-quality capital is maintained to provide flexibility for its development, to maintain a favourable credit rating and to preserve the confidence of depositors and capital markets. The standards of the Fédération require that risk-weighted balances be calculated for off-balance sheet credit instruments, derivative financial instruments and assets, and that aggregate values be weighted using a common definition of capital. Section 46 of the Act respecting the Mouvement Desjardins states that Caisse centrale must maintain an adequate capital base consistent with sound and prudent management, in accordance with the standards of the Fédération (and approved by the Autorité des marchés financiers). The capital adequacy of Caisse centrale is regulated by the standards of the Fédération, which were approved by the Autorité des marchés financiers. These standards are based on the regulatory requirements of the Basel Committee on Banking Supervision of the Bank for International Settlements ( BIS ), which oversees the capital adequacy of financial institutions operating on international markets. In this way, Caisse centrale can determine where it stands relative to other financial institutions also involved on international markets. Total regulatory capital, which constitutes capital, differs from the equity disclosed on the Consolidated Balance Sheets It comprises two classes: Tier I capital and supplementary or Tier II capital. Tier I capital includes more permanent capital items than Tier II capital. It consists of members equity (which includes capital stock, retained earnings and the general reserve). Tier II or supplementary capital essentially consists of subordinated debentures and the eligible general provision for credit losses. It should be noted that debentures must be amortized on a straight-line basis over the five years preceding their maturity. According to these standards, Caisse centrale must at all times maintain capital in accordance with the following ratios: a) its total capital must be greater than or equal to 5% of its total assets; b) its total capital must be greater than or equal to 8% of its risk-weighted assets, of which at least one half is Tier I capital. Furthermore, the member federations formally undertook to maintain, in proportion to their respective holdings, Caisse centrale s total capital at a minimum level of (i) 5.5% of its total assets, or if higher, at (ii) 8.5% of its risk-weighted assets, as determined in accordance with the established standards. In fiscal 2007 and 2006, Caisse centrale complied with these standards. The regulatory capital of Caisse centrale was broken down as follows as at December 31, 2007 and Tier I capital Capital stock $ 987,206 $ 887,206 Retained earnings 4,612 2,954 General reserve 20,845 20,845 1,012, ,005 Tier II capital Subordinated debenture 109, ,103 Eligible general provision 82,091 71, , ,919 Total capital $ 1,204,709 $ 1,099,924 Note 11 CONSOLIDATED ACCUMULATED OTHER COMPREHENSIVE INCOME Consolidated accumulated other comprehensive income includes the aftertax change in unrealized gains and losses on available-for-sale securities and cash flow hedging activities and unrealized exchange gains and losses arising from the translation of the financial statements of a self-sustaining foreign operation, net of hedging transactions. The components were as follows as at December 31, 2007: (in thousands of dollars) 2007 Net unrealized losses on available-for-sale securities $ (17,072) Net gains on derivatives financial instruments designated as cash flow hedges 5,009 Net unrealized foreign exchange loss resulting from the translation of the financial statements of a foreign operation, net of hedging transactions (2,119) Accumulated other comprehensive income $ (14,182) 2007 CONSOLIDATED FINANCIAL STATEMENTS Net unrealized losses on available-for-sale securities include gross unrealized losses of $19,895,219.

80 CONSOLIDATED FINANCIAL STATEMENTS Note 12 EMPLOYEE FUTURE BENEFITS 2007 CONSOLIDATED FINANCIAL STATEMENTS Caisse centrale employees who are 25 years of age or older are enrolled in the Desjardins Group pension plan (the Plan ) as part of a defined benefit multi-employer pension plan. In addition, certain active executive employees participate in the unified multi-employer supplemental pension plan. The most recent actuarial valuation, dated December 31, 2006, showed a stated surplus of $167.5 million for funding purposes and a deficiency of $63.4 million for solvency purposes. In order to eliminate this deficiency of $63.4 million as at December 31, 2006, the employers must make special payments from January 1, 2007 to December 31, 2011 or until the next actuarial valuation shows that the Plan no longer has a solvency deficiency. The accrued benefit obligation and assets were measured as at September 30, The next actuarial valuation will be required for funding purposes no later than December 31, The amount charged to consolidated income with respect to employer contributions to the Plan was $2,449,000 in 2007 (2006: $2,281,000). Caisse centrale also provides a defined benefit supplemental pension plan to certain members of management. This supplemental pension plan provides pension benefits in excess of statutory limits and is not funded. Benefits are calculated on the basis 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 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 determined using the projected benefit method prorated on years of service and management s best estimate assumptions concerning salary increases and the retirement ages of employees. Caisse centrale s costs and liabilities for the supplemental pension plan are set out in the tables below. The date of the actuarial valuation was December 31, Accrued benefit obligation Balance at beginning of year $ 4,784 $ 4,045 Service cost for the year Interest cost Actuarial (gain) loss (341) 329 Benefits paid (26) (26) Balance at year-end $ 4,902 $ 4,784 Accrued benefit liabilities Balance at beginning of year $ 3,504 $ 2,781 Service cost for the year Interest cost Amortization Benefits paid (26) (26) Balance, at year-end $ 4,241 $ 3,504 1 Amortization is comprised of realized gains and losses on the obligation since the last measurement as well as the annual amortization resulting from the recognition of past service cost. The main actuarial assumptions used by Caisse centrale are: In addition, Caisse centrale provides life insurance coverage and health and dental care benefits to its eligible retired employees through the Desjardins Group multi-employer group insurance plan. This group insurance plan is not funded. Employer contributions with respect to group insurance offered to retired employees charged to consolidated income totalled $71,000 in 2007 (2006: $67,000) Discount rate 5.75 % 5.25 % Rate of compensation increase 3.50 % 3.50 % The total cash payments for employee future benefits in 2007, which are comprised of Caisse centrale s contributions to the multi-employer pension plan, the supplemental pension plan and the multi-employer group insurance plan of Desjardins Group, amounted to $2,546,000 (2006: $2,374,000).

81 2007 CONSOLIDATED FINANCIAL STATEMENTS 79 Note 13 INCOME TAXES The income taxes as shown in the consolidated financial statements are detailed as follows: Consolidated Statements of Income Current income taxes $ 24,466 $ 13,980 Future income taxes (3,789) 2,309 $ 20,677 $ 16,289 Consolidated Statements of Members Equity Recovery of income taxes related to the remuneration of capital stock $ 18,303 $ 15,604 Consolidated Statement of Comprehensive Income 1 Tax expense (benefit) in respect of: Net unrealized gains and losses on available-for-sale securities $ (5,926) $ Reclassification to net income in respect of gains and losses on available-for-sale securities 57 Gains and losses on derivative financial instruments designated as cash flow hedges 1,765 Reclassification to net income in respect of gains and losses on derivative financial instruments designated as cash flow hedges (427) Net unrealized foreign exchange loss resulting from the translation of the financial statements of a foreign operation, net of hedging transactions (277) $ (4,808) $ Total $ (2,434) $ The Consolidated Statement of Comprehensive Income is not presented on a comparative basis because there was no other comprehensive income in the fiscal years prior to 2007 and, therefore, net income was equal to comprehensive income. The principal components of the future tax assets and liabilities are as follows: Future tax assets Allowance for credit losses $ 22,000 $ 18,392 Deferred income 1,421 1,673 Loan fees 1, Tax losses carried forward 1,711 2,766 Other $ 26,555 $ 23,988 Future tax liabilities Premises and equipment and intangible assets $ (209) $ (602) Other (2,536) (3,365) $ (2,745) $ (3,967) Future tax assets (net) $ 23,810 $ 20,021 The difference between the statutory income tax rate applicable to credit unions and the effective income tax rate is as follows: Income taxes applicable to credit unions $ 19, % $ 16, % Increase from: Future taxes resulting from changes to income tax rates Other 1, (73) (0.10) Income taxes, as reported in the Consolidated Statements of Income, and effective tax rates $ 20, % $ 16, % 2007 CONSOLIDATED FINANCIAL STATEMENTS

82 CONSOLIDATED FINANCIAL STATEMENTS Note 14 TRADING ACTIVITIES 2007 Income from financial instruments required to be classified as held for trading Net interest income $ 5,718 Other income 6,792 Income (loss) from financial instruments designated as held for trading Net interest income $ 9,477 Other income (loss) (2,131) Gains on derivative financial instruments held as an economic hedge for financial instruments designated as held for trading 2, CONSOLIDATED FINANCIAL STATEMENTS Note 15 FINANCIAL INSTRUMENT RISK MANAGEMENT Caisse centrale is exposed to different types of risk in the normal course of operations, including risk related to the use of financial instruments such as loans, deposits, securities and derivative financial instruments. Caisse centrale s objective in financial instrument risk management is to optimize the risk-return trade-off by applying risk management and control strategies, policies and procedures throughout the organization s various functions. Caisse centrale s policies and procedures aim to proactively identify, measure and assess potential risks, and ensure their sound and prudent management, in particular by specifying the controls to be applied and officer reporting responsibilities. In addition to the on-going risk monitoring performed by management and business unit managers of Caisse centrale, the oversight of integrated risk management is the responsibility of the Board of Directors, the Risk Management, Credit and Investment, and Audit Commissions, the Board of Ethics and Professional Conduct, and the management committees of Caisse centrale. The main risks to which Caisse centrale is exposed are described below. CREDIT RISK MANAGEMENT The use of financial instruments may result in a credit risk corresponding to the risk of credit losses if a borrower or a counterparty fails to honour its contractual obligations. Caisse centrale has set up a credit risk management framework integrating policies, practices, and the allocation of responsibilities to ensure the development, analysis, assessment, approval, handling, oversight, compliance and diversification of credit risk. In regard to diversification, credit policy establishes guidelines to limit concentration of credit risk by counterparty, business segment, type of financing and geographical region. Policies are reviewed and approved periodically by the Risk Management Commission of the Board of Directors. Caisse centrale strictly and systematically monitors its financial instrument portfolios through policies and procedures to review the various types of files, update risk rating systems and examine pricing. Credit risk assessment involves a series of factors to evaluate both the quantitative and qualitative aspects of counterparties. The quantitative aspect of examining credit risk consists of measuring Caisse centrale s credit exposure to each counterparty. Credit exposure is measured in terms of both current and potential credit exposure. Current credit exposure is represented by the notional or face value for consolidated on-balance sheet financial instruments and by the replacement value for derivative financial instruments. Caisse centrale also estimates potential credit exposure by considering its sensitivity to market changes. The credit risk exposure of derivative financial instruments corresponds to the risk of credit losses that can occur if a counterparty fails to fully honour its contractual obligations to Caisse centrale and if the market conditions are such that replacing the transaction would result in a loss for Caisse centrale. Credit risk is managed on the basis of approval limits granted to counterparties and the netting programs entered into with significant counterparties. Caisse centrale follows procedures that ensure detection of deteriorating credit risk in order to manage the risk or take immediate action. Specific provisions can then be made to cover the resulting risk. LIQUIDITY RISK MANAGEMENT Liquidity risk refers to Caisse centrale s capacity to raise the necessary funds to meet the needs of its clients and members. This risk may arise from asset and liability mismatching, structural risks reflecting the institution s balance sheet weaknesses, or risks of possible market disruptions or disturbances affecting economic conditions. Liquidity management is based on prudent policies and techniques for the effective measurement, oversight and control of liquidity risk. It is a dynamic management process because it must ensure at all times that the financial commitments of Caisse centrale are met as they become due. Managing liquidity risk involves maintaining a minimum level of liquid securities, stable and diversified sources of funding, and a contingency plan to implement in the event of unusual circumstances.

83 2007 CONSOLIDATED FINANCIAL STATEMENTS 81 Caisse centrale must maintain a minimum amount of liquid securities, as prescribed under a specific framework. This amount is monitored on a daily basis. Eligible securities must meet high safety and negotiability standards. Caisse centrale ensures that it has access, at all times, to stable and diversified sources of funding. It can diversify funding by using varied maturities, multiple sources and different types of financial instruments. Moreover, Caisse centrale issues securities on a regular basis, either through its own programs or by specific, one-time borrowings on national and international markets. A securitization program for mortgages insured by Canada Mortgage and Housing Corporation (CMHC) is also used to generate liquidity as part of Caisse centrale s overall funding strategy. Caisse centrale has drawn up an action plan for rapid and effective intervention to minimize disturbances caused by sudden changes in member and client behaviour, market disruptions or other unusual circumstances. MARKET RISK MANAGEMENT Market risk refers to the risk of changes in the market value of financial instruments resulting from fluctuations in the parameters affecting this value; in particular, interest rates, exchange rates, and their volatility. The risk of loss as a result of interest rate and exchange rate volatility is the main aspect of market risk to which Caisse centrale is exposed. The integrated risk management group, which is independent from the sectors initiating transactions, is responsible for examining market risk exposure on a daily basis. It ensures that risks do not exceed set limits and that only authorized activities are undertaken, and develops and implements risk assessment models. Various techniques are used by Caisse centrale to manage and monitor market risk such as value-at-risk (VAR) and for the value of maximum losses resulting from a one-basis point change in interest rates on unmatched positions. Caisse centrale also uses derivative financial instruments to hedge interest rate and exchange rate risks. Further information on hedging instruments is presented in note 2 on Significant Accounting Policies and note 16 on Derivative Financial Instruments. OPERATIONAL RISK MANAGEMENT Operational risk, which is inherent in all of Caisse centrale s business activities, is defined as the risk of inadequacy or failure attributable to processes, people, internal systems or outside events resulting in losses, unattained objectives, or an adverse affect on reputation. Caisse centrale endeavours to minimize operational risk through its internal control systems which provide for the segregation of duties and the delegation of decision-making powers, as well as for setting up appropriate monitoring, methods and infrastructure for transaction processing and control. In addition, measures have been taken to ensure business continuity CONSOLIDATED FINANCIAL STATEMENTS

84 CONSOLIDATED FINANCIAL STATEMENTS Note CONSOLIDATED FINANCIAL STATEMENTS DERIVATIVE FINANCIAL INSTRUMENTS In the normal course of business, Caisse centrale offers its customers various instruments to meet their needs for protection against different risks, such as fluctuations in foreign exchange and interest rates. Caisse centrale uses some of these instruments to hedge its own exposure to foreign exchange and interest rate risks and to earn trading income. All financial instruments are subject to credit standards, financial controls and other usual monitoring procedures that are normally applied. Caisse centrale uses derivative financial instruments primarily for purposes of asset and liability management as well as in intermediation activities conducted to meet the needs of the Desjardins network or its customers (for trading purposes). Interest rate contracts include interest rate swaps, forward rate agreements and futures. Interest rate swaps are transactions in which two parties exchange interest flows on a specified notional principal amount for a predetermined period based on agreed-upon fixed and floating rates. Principal amounts are not exchanged. Forward rate agreements are forward transactions on interest rates, based on a notional principal amount, which call for a cash settlement at a future date for the difference between the contractual rate of interest and the market rate. Futures represent a future commitment to purchase or deliver commodities or financial instruments on a future date at a specified price. Futures are traded in predetermined amounts on organized exchanges and are subject to daily cash margins. Foreign exchange contracts include forward contracts and currency swaps. Foreign exchange forward contracts represent commitments to exchange two currencies at a specified future date based on a rate agreed upon by both parties at the inception of the contract. Currency swaps are transactions in which fixed interest payments on notional amounts denominated in different currencies are exchanged. For cross-currency interest rate swaps, fixed and floating interest payments on notional amounts denominated in different currencies are exchanged. Caisse centrale uses currency swaps and interest rate swaps to manage its own asset/liability exposure. Options are contractual agreements under which the writer grants the purchaser the right, but not the obligation, to buy (call option) or sell (put option) by or at a set date a specified amount of a financial instrument at a predetermined price. The writer receives a premium from the purchaser for this right. Caisse centrale enters into these contracts primarily to serve the needs of customers and to manage its own asset/liability exposure. Credit swaps are agreements under which the counterparty is compensated for losses on a designated asset (usually a loan or a bond) should a default or a predetermined triggering event occur. The following table presents the term to maturity of the notional amounts of derivative financial instruments Maturity 1 year Over 1 to Over 3 to Over Notional Notional or less 3 years 5 years 5 years amount amount Interest rate contracts Interest rate swaps $ 20,384,131 $ 32,510,812 $ 23,768,531 $ 4,169,853 $ 80,833,327 $ 79,563,455 Forward rate agreements 4,673, ,000 5,526,000 14,701,000 Futures 1,204,000 30,000 1,234,000 5,964,823 Options purchased 183, , , ,680 Options written 208, , , ,680 Total interest rate contracts 26,652,561 33,689,044 23,768,531 4,169,853 88,279, ,630,638 Foreign exchange contracts Forward contracts 9,441, , ,025 10,017,299 5,558,881 Currency swaps 1,212,449 3,177,961 1,442, ,478 5,949,688 6,312,708 Options purchased 131,927 8, , ,170 Options written 153,517 36, , ,566 Total foreign exchange contracts 10,939,595 3,551,763 1,442, ,503 16,297,661 12,377,325 Other contracts Credit swaps 102,489 64, ,431 1,117,147 1,122,499 Stock index options purchased 328,325 1,068, , ,580 2,420,855 1,985,425 Stock index options written 328,325 1,048, , ,580 2,420,855 1,985,425 Total other contracts 759,139 2,180,627 2,817, ,160 5,958,857 5,093,349 Total derivative financial instruments $ 38,381,295 $ 39,391,434 $ 28,029,262 $ 4,734,516 $ 110,536,507 $ 118,101,312

85 2007 CONSOLIDATED FINANCIAL STATEMENTS 83 The fair value of derivative financial instruments is presented in the table below. Derivative financial instruments Positive Negative Net Positive Negative Net value value amount value value amount ASSET/LIABILITY MANAGEMENT PURPOSES Interest rate contracts Interest rate swaps $ 13,876 $ 11,244 $ 2,632 $ 9,013 $ 10,530 $ (1,517) Total interest rate contracts 13,876 11,244 2,632 9,013 10,530 (1,517) Foreign exchange contracts Currency swaps 198, ,105 (129,829) 280, , ,058 Total foreign exchange contracts 198, ,105 (129,829) 280, , ,058 Total Asset/liability management purposes $ 212,152 $ 339,349 $ (127,197) $ 289,770 $ 183,229 $ 106,541 TRADING PURPOSES Interest rate contracts Interest rate swaps $ 287,642 $ 325,303 $ (37,661) $ 289,101 $ 361,304 $ (72,203) Forward rate agreements 1,449 1, ,673 (713) Futures (533) 1,946 (1,946) Options purchased ,195 1,195 Options written 1,019 (1,019) 1,195 (1,195) Total interest rate contracts 290, ,446 (38,061) 291, ,118 (74,862) Foreign exchange contracts Forward contracts 182, ,468 (17,954) 77,158 51,956 25,202 Currency swaps 17,847 17, ,995 11, Options purchased 3,967 3,967 5, ,414 Options written 56 6,599 (6,543) 5,214 (5,214) Total foreign exchange contracts 204, ,556 (20,172) 94,694 68,878 25,816 Other contracts Credit swaps 256 3,831 (3,575) 990 6,334 (5,344) Stock index options purchased 473, , , ,462 Stock index options written 473,897 (473,897) 500,462 (500,462) Total other contracts 474, ,728 (3,575) 501, ,796 (5,344) Total Trading purposes $ 968,922 $ 1,030,730 $ (61,808) $ 887,402 $ 941,792 $ (54,390) Total derivative financial instruments before impact of master netting agreements $ 1,181,074 $ 1,370,079 $ (189,005) $ 1,177,172 $ 1,125,021 $ 52,151 Less impact of master netting agreements 1 1,107,138 1,107, , ,970 Total derivative financial instruments $ 73,936 $ 262,941 $ (189,005) $ 241,202 $ 189,051 $ 52,151 1 Without the intent of settling the contracts on a net basis or simultaneously The fair values of exchange-traded derivative financial instruments are based on quoted market prices or dealer quotes. Fair values of nonexchange-traded or over-the-counter derivative financial instruments are generally calculated at present value, net of contractual cash flows, using prevailing market rates for instruments with similar characteristics and maturities CONSOLIDATED FINANCIAL STATEMENTS

86 CONSOLIDATED FINANCIAL STATEMENTS The following table presents the derivative financial instruments recorded on the Consolidated Balance Sheets: CONSOLIDATED FINANCIAL STATEMENTS Notional amounts Assets Liabilities Fair value of derivative financial instruments Asset/liability management purposes Fair value hedges $ 8,113,897 $ 146,418 $ 336,364 Cash flow hedges 999,215 9,434 1,653 Not qualified for hedge accounting 783,589 56,300 1,332 Total $ 9,896,701 $ 212,152 $ 339,349 Fair value of derivative financial instruments Trading purposes 100,639, ,922 1,030,730 Total $ 110,536,507 $ 1,181,074 $ 1,370,079 For the year ended December 31, 2007, the ineffective portion of fair value and cash flow hedges recognized under Trading activities in Other income amounted to $234,908. All the components of the change in the fair value of the derivative financial instruments used were included to assess the effectiveness of the fair value and cash flow hedges. In fiscal 2008, Caisse centrale expects that net gains estimated at $515,000, recorded in consolidated other comprehensive income as at December 31, 2007, will be reclassified to net income. The maximum length of time over which Caisse centrale hedges its exposure to variability in future cash flows for forecasted transactions is five years.

87 2007 CONSOLIDATED FINANCIAL STATEMENTS 85 The following table summarizes the derivative financial instruments portfolio and related credit exposure of Caisse centrale. Notional amount Amount to which a rate or price is applied in order to calculate the exchange of cash flows. Such amounts do not appear on the Consolidated Balance Sheets. Replacement cost The cost of replacing, at estimated fair value, all contracts which have a positive fair value. The amounts do not take into consideration contracts which permit offsetting of positions or any collateral which may be obtained. Future credit exposure The potential for future changes in value based upon a formula prescribed by the Bank for International Settlements ( BIS ). Credit risk equivalent The total of replacement cost and future credit exposure excluding items prescribed by the BIS, namely the replacement cost of foreign exchange forward contracts with an original maturity of less than 14 days and exchange-traded derivative instruments subject to daily margin requirements. Risk-weighted balance The credit risk equivalent, weighted according to the creditworthiness of the counterparty, as prescribed by the BIS. Derivative Financial Instruments Credit Risk Future Credit Risk Risk Notional Remplacement credit risk weighted Remplacement weighted amount cost exposure equivalent balance cost balance ASSET/LIABILITY MANAGEMENT PURPOSES Interest rate contracts Interest rate swaps $ 4,226,129 $ 13,876 $ 9,550 $ 23,426 $ 4,685 $ 9,013 $ 3,793 Total interest rate contracts 4,226,129 13,876 9,550 23,426 4,685 9,013 3,793 Foreign exchange contracts Currency swaps 5,670, , , ,878 86, , ,283 Total foreign exchange contracts 5,670, , , ,878 86, , ,283 Total Asset/liability management purposes $ 9,896, ,152 $ 246,152 $ 458,304 $ 91,661 $ 289,770 $ 115,076 TRADING PURPOSES Interest rate contracts Interest rate swaps $ 76,607,198 $ 287,642 $ 339,727 $ 627,369 $ 114,568 $ 289,101 $ 120,079 Forward rate agreements 5,526,000 1,449 4,265 5,714 1, Futures 1,234, Options purchased 330, , , Options written 355,831 Total interest rate contracts 84,053, , , , , , ,355 Foreign exchange contracts Forward contracts 10,017, , , , ,572 77,158 36,222 Currency swaps 279,116 17,847 15,296 33,143 11,702 11,995 9,127 Options purchased 140,622 3,967 1,754 5,721 1,440 5,541 3,827 Options written 190, Total foreign exchange contracts 10,627, , , , ,714 94,694 49,176 Other contracts Credit swaps 1,117, ,322 87,578 17, ,814 Stock index options purchased 2,420, , , , , , ,247 Stock index options written 2,420,855 Total other contracts 5,958, , , , , , ,061 Total Trading purposes $ 100,639,806 $ 968,922 $ 940,653 $ 1,908,973 $ 450,770 $ 887,402 $ 402,592 Total derivative financial instruments before impact of master netting agreements $ 110,536,507 $ 1,181,074 $ 1,186,805 $ 2,367,277 $ 542,431 $ 1,177,172 $ 517,668 Less impact of master netting agreements 1 1,107, , , ,029 Total derivative financial instruments $ 73,936 $ 207,214 $ 241,202 $ 177, CONSOLIDATED FINANCIAL STATEMENTS 1 Without the intent of settling the contracts on a net basis or simultaneously.

88 CONSOLIDATED FINANCIAL STATEMENTS The following table shows the breakdown of the replacement cost of derivative financial instruments by geographic area, on the basis of the country of domicile of the counterparties as at December 31: Derivative financial instruments Canada $ 551, % $ 405, % International 629, , Total $ 1,181, % $ 1,177, % 2007 CONSOLIDATED FINANCIAL STATEMENTS The following table shows the breakdown of the replacement cost of derivative financial instruments by the counterparties industry segment as at December 31: Foreign Interest rate exchange Other contracts % contracts % contracts % Total Total Banks $ 199, $ 371, $ 371, $ 942,678 $ 793,671 Members Fédération 58, , ,634 77,612 Other 4, ,737 2,955 Other entities included in the scope of consolidation of Desjardins Group 1,155 3, ,416 14,081 Government 33, ,472 34,683 Private sector 7, , , , ,170 Total $ 304, $ 402, $ 474, $ 1,181,074 $ 1,177,172

89 2007 CONSOLIDATED FINANCIAL STATEMENTS 87 Note 17 FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair values are intended to approximate amounts at which these financial instruments could be exchanged in a current transaction between willing parties. Published price quotations represent the best evidence of fair value and, if they are available, Caisse centrale uses them to measure financial instruments. The fair value of a financial asset traded on an active market generally reflects the bid price, and the fair value of a financial liability traded on an active market, the asking price. However, many of the financial instruments lack an available trading market. Therefore, fair values are based on estimates using present value and other valuation techniques which are significantly affected by the assumptions used concerning the amount and timing of estimated future cash flows and discount rates which reflect varying degrees of risk. In addition, The following methods and assumptions were used to estimate the fair value of the financial instruments: Financial instruments measured at carrying value: Due to their short-term maturity, the carrying values of certain financial instruments recorded on the Consolidated Balance Sheets were assumed to approximate their fair values. These financial instruments include Cash and deposits with financial institutions, Securities purchased under reverse repurchase agreements, Obligations related to securities sold short, Customers liability under acceptances, Commitments under repurchase agreements, Acceptances and Accrued interest. Securities: The fair value of securities are presented in note 3 to the consolidated financial statements. They are determined based on quoted market prices and may not be realized upon sale. When the quoted price of a security is not available, the fair value is estimated using quoted market prices of similar securities. the estimated fair values disclosed do not reflect the value of assets and liabilities that are not considered financial instruments, such as premises and equipment and intangible assets with finite useful life. Given the use of judgment in applying a large number of acceptable valuation and estimation techniques to calculate fair values, the fair value estimates cannot necessarily be compared to those of other financial institutions. The estimated fair values reflect market conditions at a specific date and, as such, may not be representative of future fair values. They should also not be interpreted as being realizable in an immediate settlement of the instruments. The table below presents the carrying value and estimated fair value of financial assets and liabilities, except for financial instruments whose fair value is deemed to approximate their carrying value and financial instruments measured at fair value in the Consolidated Balance Sheets. On-balance sheet financial instruments Consolidated Balance Sheets (excluding derivative financial instruments) Positive/ Positive/ Fair Carrying (Negative) Fair Carrying (Negative) value value difference value value difference Financial assets Investment account securities $ $ $ $ 2,969,660 $ 2,963,001 $ 6,659 Loans 13,683,836 13,687,915 (4,079) 10,934,687 10,924,170 10,517 Financial liabilities Deposits $ 16,029,861 $ 16,037,625 $ 7,764 $ 13,432,573 $ 13,430,621 $ (1,952) Subordinated debenture 109, , , ,103 (1,963) Loans: The fair values of loans are estimated using a discounted cash flow calculation based on market interest currently charged for similar new loans as at December 31 and expected amounts at maturity. For certain floating rate loans, for which rates are revised frequently, estimated fair values are assumed to be equal to the carrying values. Deposits: The fair values of deposits at floating rates or with no stated maturity are assumed to be equal to their carrying values. The estimated fair values of fixed rate deposits are determined by discounting the contractual cash flows, using market interest rates currently offered for deposits of similar remaining maturities. Subordinated debenture: The fair value of the debenture is based on current rates offered to Caisse centrale for debt securities of the similar remaining maturities. For 2007, since the debenture will mature within less than three months because of the call scheduled for March 2008, the fair value is presumed to be equal to the carrying value CONSOLIDATED FINANCIAL STATEMENTS

90 CONSOLIDATED FINANCIAL STATEMENTS Note 18 INTEREST RATE RISK EXPOSURE The following table shows Caisse centrale s position with regard to interest rate sensitivity as at December 31, This is the position at that particular date and could have subsequently changed, taking into account forecasted interest rates and customers preferences for products and maturities. Assets and liabilities recorded on the consolidated balance sheets and derivative financial instruments presented in the following table are reported in time frames based on the earlier of their contractual repricing date or maturity date. Certain on-balance sheet items, such as investments in equity securities and members equity, do not create an interest rate exposure for Caisse centrale. These items are reported in the non-interest sensitive column of the table CONSOLIDATED FINANCIAL STATEMENTS Immediately Over Over Over Noninterest-rate 0 to 3 3 to 6 6 to 12 1 to 5 Over interest-rate (in millions of dollars) sensitive months months months years 5 years sensitive Total Assets Cash and deposits with financial institutions $ $ 214 $ $ $ $ $ 234 $ 448 Effective interest rate % Securities Available for sale 40 1, ,737 Effective interest rate % 5.25 % 4.69 % 4.17 % 4.70 % Held for trading ,985 Effective interest rate % 4.47 % 3.99 % Loans 3,472 7, , (104) 13,688 Effective interest rate % 5.44 % 5.39 % 5.53 % 6.09 % Other (44) 29 2,361 2,573 Total assets $ 3,512 $ 10,062 $ 841 $ 775 $ 1,688 $ 95 $ 3,458 $ 20,431 Liabilities and members equity Deposits $ 1,579 $ 8,337 $ 299 $ 1,765 $ 4,051 $ 7 $ $ 16,038 Effective interest rate % 4.46 % 4.22 % 3.77 % 2.18 % Obligations related to securities sold short Effective interest rate % Subordinated debenture Effective interest rate % Other 525 (206) 29 2,781 3,129 Members equity Total liabilities and members equity $ 1,579 $ 9,128 $ 299 $ 1,765 $ 3,845 $ 36 $ 3,779 $ 20,431 Consolidated balance sheet gap $ 1,933 $ 934 $ 542 $ (990) $ (2,157) $ 59 $ (321) $ Derivative financial instruments 2 4,248 (1,715) (13) (2,564) 44 Total interest rate sensitivity gap $ 1,933 $ 5,182 $ (1,173) $ (1,003) $ (4,721) $ 103 $ (321) $ 2007 cumulative interest rate sensitivity gap $ 1,933 $ 7,115 $ 5,942 $ 4,939 $ 218 $ 321 $ $ 2006 Consolidated balance sheet gap $ (2,547) $ 2,476 $ 75 $ 179 $ 403 $ 113 $ (699) $ Derivative financial instruments 2 2,914 (1,401) (370) (1,256) 113 Total interest rate sensitivity gap $ (2,547) $ 5,390 $ (1,326) $ (191) $ (853) $ 226 $ (699) $ 2006 cumulative interest rate sensitivity gap $ (2,547) $ 2,843 $ 1,517 $ 1,326 $ 473 $ 699 $ $ 1 The effective interest rates are determined by discounting all future cash flows, including fees paid or received, premiums and discounts, and transaction costs. 2 Derivative financial instruments represent the net notional amounts of derivative financial instruments such as forward rate agreements and interest rate swaps, which are used to manage interest rate risk.

91 2007 CONSOLIDATED FINANCIAL STATEMENTS 89 Note 19 CREDIT RISK EXPOSURE Concentrations of credit risk exist when a certain number of borrowers or counterparties involved in similar activities are located in the same geographic area or present comparable economic characteristics. Their ability to meet contractual obligations can also be affected by changes in economic, political or other conditions. Management considers that the following concentrations are within acceptable limits. Consolidated balance sheet assets Of total loans as at December 31, 2007 and 2006, 97.9% and 97.3% respectively were made to borrowers from Canada, with the largest concentration in Québec (2007: 89.5% and 2006: 85.4%) and Ontario (2007: 6.5% and 2006: 7.7%). Note 20 COMMITMENTS AND GUARANTEES a) Off-balance sheet credit instruments In the normal course of business, Caisse centrale offers its customers various instruments to meet their liquidity needs. All these products are subject to credit standards, financial controls and other usual monitoring procedures that are normally applied. The primary purpose of these instruments is to ensure that funds are available to a customer as required. Caisse centrale s policy with respect to collateral for these instruments is generally the same as the one which applies to loans. Guarantees and standby letters of credit, which represent irrevocable commitments that Caisse centrale will make payments in the event that a customer cannot meet its financial obligations to third parties, carry the same credit risk as loans. Cash requirements under guarantees and standby letters of credit are considerably less than the amount of the commitment because Caisse centrale does not generally expect the third party to draw funds under the agreement. Commitments to extend credit represent unused portions of authorizations to extend credit in the form of loans, guarantees or letters of credit. Caisse centrale is exposed to a potential credit risk in an amount equal to the total unused commitments. However, most commitments to extend credit are contingent upon customers complying with specific credit standards. The total commitments to extend credit do not necessarily represent future cash requirements, since many of these commitments will expire or terminate without being funded. The commitments to extend credit are primarily at floating rates and therefore do not expose Caisse centrale to interest rate risk. The following table discloses the contractual amount and the risk-weighted balance, based on the capital adequacy rules prescribed by the BIS Risk- Risk- Contractual weighted Contractual weighted amount balance amount balance Guarantees and standby letters of credit $ 311,260 $ 232,065 $ 608,241 $ 409,479 Commitments to extend credit (original term to maturity) Over one year 2,657,444 1,050,520 1,373, ,182 One year or less and conditionals 8,807,680 7,611,957 Commitments to purchase assets 12,076 Total $ 11,776,384 $ 1,282,585 $ 9,605,548 $ 1,065,661 b) Contractual commitments As at December 31, 2007, future minimum commitments under long-term leases and service contracts were as follows: 2013 and thereafter Total $ 1,690 $ 1,668 $ 1,635 $ 1,455 $ 1,252 $ 8,423 $ 16, CONSOLIDATED FINANCIAL STATEMENTS Of the total commitments, $12,315,865 was for commitments made with entities included in the scope of consolidation of Desjardins Group.

92 CONSOLIDATED FINANCIAL STATEMENTS 2007 CONSOLIDATED FINANCIAL STATEMENTS c) Guarantees A guarantee is a contract or indemnification agreement that contingently requires Caisse centrale to make payments to the guaranteed party; as for instance, (i) based on changes in an interest rate, a foreign currency exchange rate, a security or commodity price, or a price or rate index, or the occurrence or non-occurrence of a specified event that is related to an asset, a liability or an equity security of the guaranteed party; (ii) based on the failure by a third party to perform under an obligating agreement or (iii) the failure by a third party to repay its debt when it becomes due and payable. Caisse centrale has issued the following guarantees to third parties: Guarantees and standby letters of credit Guarantees and standby letters of credit (including Publi-privilège securities) represent an irrevocable commitment by Caisse centrale to make payments in the event that a customer cannot meet its financial obligations to third parties. These instruments are generally collateralized in accordance with the same policy as the one which Caisse centrale applies with respect to loans. The term of these products is not more than five years. Maximum potential amount of future payments as guarantees The allowance for credit losses covers all credit risks, including those related to guarantees and standby letters of credit. Other indemnification agreements In the normal course of its operations, Caisse centrale enters into a number of agreements containing indemnification provisions such as those normally related to purchase agreements, service agreements and lease agreements. Under these agreements, Caisse centrale may be liable for indemnifying the counterparty pursuant to amendments to statutes and regulations (including tax rules) or as a result of litigation. The term of the agreements varies from one contract to the next. Caisse centrale is not in a position to make a reasonable estimate of the maximum amount that it could be required to pay counterparties. Historically, payments made under these agreements have been immaterial. No amounts have been recognized on the Consolidated Balance Sheets with respect to these agreements. Derivative financial instruments Caisse centrale trades in credit swaps under which the counterparty is compensated for losses it incurs on designated property (usually a loan or a bond) should a default or a predetermined triggering event occur. The maximum amount of the guarantee is equal to the notional amount of the swaps and totalled $154,048,000 as at December 31, Guarantees and standby letters of credit $ 157,212 $ 250,181 Credit swaps 154, ,060 Total $ 311,260 $ 608,241 d) Pledged assets The assets pledged as security by Caisse centrale in the normal course of business are presented in the table below: Assets pledged to the following counterparties: Bank of Canada $ 125,000 $ 160,000 Clearing systems, payment systems and depositories 176, ,200 $ 301,630 $ 305,200 Assets pledged for the following transactions: Commitments under repurchase agreements $ 25,000 $ Derivative transactions 19,400 9,400 $ 44,400 $ 9,400 Total $ 346,030 $ 314,600 e) Tactical rate management term savings In connection with the various sales campaigns for tactical rate management term savings carried out by the Desjardins caisses, the Fédération has deposited with Caisse centrale a portion of the amounts raised during each of the campaigns. In order to earn a return on the amounts under management, Caisse centrale invests in fixed income financial instruments (including Government of Canada bonds, derivative financial instruments contracts and other investment vehicles). The face value of these investments of Caisse centrale exceeds the amounts deposited by the Fédération. Caisse centrale deposits an amount equal to the positive returns it earns on these investments in the Fédération s account and recovers from the latter negative returns. However, the cumulative balance of a campaign account cannot become negative as a result of recoveries by Caisse centrale. As at December 31, 2007, the face value of Caisse centrale investments was $443,322,000 (2006: $609,490,000) and the balance of the amounts deposited by the Fédération amounted to $31,100,000 (2006: $35,846,000).

93 2007 CONSOLIDATED FINANCIAL STATEMENTS 91 Note 21 OTHER TRANSACTIONS WITH DESJARDINS GROUP These transactions with members and other entities included in the scope of consolidation of Desjardins Group represent those not disclosed elsewhere in the consolidated financial statements. Pursuant to its Constituent Legislation, the Fédération and its member caisses are members of Caisse centrale. Consequently, transactions with the Fédération for the benefit of its member caisses are carried out under more favourable conditions for the member caisses than those granted to unrelated third parties. These transactions are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. Transactions entered into for the Fédération s own financing needs and with other entities included in the scope of consolidation of Desjardins Group are carried out under similar conditions to those negotiated with unrelated third parties. These transactions are in the normal course of business of Caisse centrale and are measured at the exchange amount, which approximates fair market value and is the amount of consideration established and agreed to by the related parties Members Other entities Members Other entities included in included in the scope of the scope of consolidation consolidation of Desjardins of Desjardins Fédération Other Group Fédération Other Group Assets Day, call and short-term loans to investment dealers and brokers $ $ $ 61,500 $ $ $ 234,000 Derivative financial instruments 12,342 52,538 1,192 9,703 67,962 2,031 Customers liability under acceptances 732,100 1,038,000 Other assets 41,378 10,035 11,088 21,060 4,969 5,744 Liabilities Derivative financial instruments 482,081 96,979 3, , ,167 7,037 Acceptances 892,600 1,247,000 Other liabilities 92,682 13,175 13,063 75,292 5,720 6,902 Income Interest income 302,217 (2,536) 84, ,264 4,879 54,618 Interest expense 61,088 5,418 57,461 32,396 2,855 44,123 Other income 28,750 51,267 (42,306) (23,828) 10,868 (5,597) Non-interest expense 15, ,655 18, , CONSOLIDATED FINANCIAL STATEMENTS

94 CONSOLIDATED FINANCIAL STATEMENTS Note 22 SEGMENTED INFORMATION Caisse centrale conducts its activities in three segments. Each segment offers different services, uses separate strategies and is managed by a senior vice-president. The accounting policies used by the segments are the same as those described in the significant accounting policies. Caisse centrale measures the performance of these segments based on the gross income generated by each segment. Non-interest expense is managed on a consolidated basis and is not allocated by segment. The following table summarizes the consolidated financial results of Caisse centrale by business segment: Financing Desjardins Group Treasury Other Total 2007 CONSOLIDATED FINANCIAL STATEMENTS Net interest income $ 62,988 $ 57,568 $ 67,560 $ 53,965 $ 8,065 $ 7,147 $ 138,613 $ 118,680 Other income 22,347 22,180 37,995 39,600 8,927 8,303 69,269 70,083 Gross income $ 85,335 $ 79,748 $ 105,555 $ 93,565 $ 16,992 $ 15,450 $ 207,882 $ 188,763 Average assets 1 $ 7,997,397 $ 7,097,694 $ 8,662,600 $ 8,130,970 $ 330,674 $ 192,540 $ 16,990,671 $ 15,421,204 1 Assets are disclosed on an average basis, as this basis is the most relevant to a financial institution and is the measure examined by Caisse centrale s management. Financing: This segment offers a range of financial products and services and grants financing in the form of lines of credit and term loans to members and other entities included in the scope of consolidation of Desjardins Group, public and parapublic entities, and private sector enterprises. This segment also includes cross-border financing for clients of the U.S. branch. The branch s total gross income and total average assets stood respectively at $2.8 million and $130 million in 2007 (2006: $2 million and $67 million). Desjardins Group Treasury: This segment manages Caisse centrale s assets and liabilities, securities and derivative financial instruments portfolios, and the cash of Desjardins Group. Other: Other combines the international sector and the operations of the subsidiary Desjardins Bank, N.A. Total gross income and total average assets of the subsidiary totalled $6.7 million and $179 million in 2007 (2006: $6.0 million and $180 million).

95 CONSTITUTION, REGULATION AND CONTROL 93 CONSTITUTION, REGULATION AND CONTROL CONSTITUTION La Caisse centrale du Québec was created on June 22, 1979 by an Act to amend the Act respecting La Confédération des caisses populaires et d économie Desjardins du Québec (1979 S.Q., c. 46), replaced on June 22, 1989 by an Act respecting the Mouvement des caisses Desjardins (1989 S.Q., c. 113), which was replaced on July 1, 2001 by the Act respecting the Mouvement Desjardins (2000 S.Q., c. 77). La Caisse centrale du Québec may also be identified under the name Caisse centrale. Pursuant to its Constituent Legislation, Caisse centrale continues its existence as a financial services cooperative and is therefore also governed by the Act respecting financial services cooperatives (2000 S.Q., c. 77) as if it were a federation within the meaning of that Act. Caisse centrale, through its holding company Desjardins FSB Holdings, Inc., incorporated under the laws of the State of Delaware, USA, holds the aggregate of the capital stock of Desjardins Bank N.A., a savings and loan association incorporated under US federal law which has its place of business in Hallandale Beach, Florida, USA. Caisse centrale also operate a branch in Florida under the name of «Caisse centrale Desjardins U.S. Branch» incorporated under US federal law. The capital stock of Caisse centrale is composed of an unlimited number of qualifying shares and an unlimited number of Class A capital shares and Class B capital shares subscribed for by its members. These shares can be paid in full or in instalments in accordance with the payment terms and in the cases determined by resolution of the Board of Directors of Caisse centrale. The qualifying shares with an issue price of $5.00 each are reimbursed only in the event of the winding-up, insolvency or dissolution of Caisse centrale and are redeemable only in the event of the withdrawal, exclusion, winding-up, insolvency or dissolution of the member. The capital shares with a par value of $1,000 each are reimbursed only in the event of the winding-up, insolvency or dissolution of Caisse centrale and are redeemable with the authorization of the Autorité des marchés financiers. The shares of the capital stock of Caisse centrale are held primarily by the Fédération des caisses Desjardins du Québec, which, with its member caisses, is a full member of Caisse centrale under its Constituent Legislation, and by the three federations of caisses populaires in Ontario, Manitoba and New Brunswick, which are auxiliary members of Caisse centrale. The general meeting of Caisse centrale comprises the members of the general meeting of the Fédération des caisses Desjardins du Québec, namely the delegates of the caisses and a representative from the Fédération des caisses Desjardins du Québec. Under the provisions of the Constituent Legislation, the Board of Directors of Caisse centrale must be composed of at least three quarters of the Board members of the Fédération des caisses Desjardins du Québec (other than its president), who shall account for over one half of the Board members of Caisse centrale. As at the date of this annual report, the members of the Board of Directors of the Fédération des caisses Desjardins du Québec constitute all of the members of the Board of Directors of Caisse centrale. For the duration of his mandate, the president of the Fédération des caisses Desjardins du Québec is the Chairman of the Board and the Chief Executive Officer of Caisse centrale. CONSTITUTION, REGULATION AND CONTROL

96 94 CONSTITUTION, REGULATION AND CONTROL REGULATION AND CONTROL The Autorité des marchés financiers is responsible for the annual inspection and supervision of Caisse centrale. The Act respecting financial services cooperatives governs the control exercised by the Autorité des marchés financiers with regard to the management, transactions and solvency of Caisse centrale and to conflicts of interest and self-dealings. The Autorité des marchés financiers may make any examination and investigation he considers necessary or expedient into the internal affairs and activities of Caisse centrale, and order any inquiry into any matter within his jurisdiction. The Autorité des marchés financiers may request from Caisse centrale statements, statistics, reports and any other information he deems appropriate to enable him to determine whether Caisse centrale complies with the Constituent Legislation and the applicable provisions of the Act respecting financial services cooperatives. The Autorité des marchés financiers may, with respect to the financial statements and when deemed expedient, prescribe accounting rules that contain specific requirements or different requirements than those under Canadian generally accepted accounting principles. CONSTITUTION, REGULATION AND CONTROL Since the Fédération des caisses Desjardins du Québec and its member caisses can elect the majority of its directors, Caisse centrale is deemed to be controlled by the Fédération des caisses Desjardins du Québec within the meaning of the Act respecting financial services cooperatives. This Act therefore confers the normative powers applicable to Caisse centrale, notably with respect to capitalization and investments, on the Fédération des caisses Desjardins du Québec. Caisse centrale is required to maintain, for its operations, an adequate capital base to ensure sound and prudent management in accordance with the standards adopted by the Fédération des caisses Desjardins du Québec and approved by the Autorité des marchés financiers. Caisse centrale appoints annually, as auditor, a firm of chartered accountants to conduct the audit of its accounting records and to report to the Autorité des marchés financiers as prescribed by the Constituent Legislation, the Act respecting financial services cooperatives and government regulations. Caisse centrale establishes, in accordance with its Constituent Legislation, an Audit Commission composed of no less than three members from its Board of Directors, and a Board of Ethics and Professional Conduct consisting of no less than three members elected at the general meeting among its members. The Audit Commission reviews the financial statements of Caisse centrale and ensures that its operations are in compliance with the provisions of the applicable legislation and the orders and written instructions of the Autorité des marchés financiers. The Board of Ethics and Professional Conduct is responsible for adopting and implementing rules to protect Caisse centrale and its members with respect to self-dealings, disclosure requirements, privacy of information and conflicts of interest. Annually, the Board of Ethics and Professional Conduct must report to the Autorité des marchés financiers. Caisse centrale is registered with the Régie de l assurance-dépôts du Québec.

97 CORPORATE GOVERNANCE 95 CORPORATE GOVERNANCE Caisse centrale Desjardins ( Caisse centrale ) has developed a corporate governance program aligned with that of the Fédération des caisses Desjardins du Québec ( Fédération ). By using a single strategic management structure, whose purpose includes ensuring coherence and consistency of Desjardins Group s main directions, the Fédération and Caisse centrale share the same directors. The corporate governance policy of Caisse centrale is based on that of the Fédération and the guidelines adopted by the Canadian Securities Administrators in National Policy Corporate Governance Guidelines. HIGHLIGHTS In 2007, Caisse centrale implemented various initiatives to help maintain corporate governance in line with its cooperative nature as a Desjardins Group financial services member. The main initiatives were: Development of internal risk assessment tools and models, as part of the implementation of the Integrated Risk Management and Basel Accord program, so that Caisse centrale was able to file a formal request with the Québec Autorité des marchés financiers (AMF) to adopt Basel II advanced approaches. From the standpoint of an integrated cooperative financial group, review of how responsibilities are shared between the Board of Directors of the Fédération and the Board of Caisse centrale, as well as among the President and Chief Executive Officer of Desjardins Group, the President and Chief Operating Officer of Caisse centrale and the Chief of the Treasury of Desjardins Group, in light of developments in Desjardins Group s decision-making structures since Review of the expectations and duties of Caisse centrale s Board members in their role as Caisse centrale directors. Review of the remuneration policy for Caisse centrale s officers and the reimbursement of their expenses in order to be in line with the market, while taking into account the cooperative difference at Desjardins Group. CORPORATE GOVERNANCE Integration of indicators of the cooperative difference into Caisse centrale s profit-sharing plan. Adoption of a regulatory compliance policy. CORPORATE GOVERNANCE POLICY OF CAISSE CENTRALE The corporate governance policy of Caisse centrale is based on the policy adopted by the Fédération and describes what it must do to respect the spirit of the industry guidelines on corporate governance, while adapting these guidelines to its cooperative nature as a Desjardins Group financial services member. The first difference is a fundamental one because it relates to the very purpose behind the decisions of Desjardins Group with respect to corporate governance. Ultimately, the purpose of these decisions is to enable Desjardins Group to carry out its mission, which is to contribute to improving the economic and social well-being of individuals and communities. It is guided by long-term objectives and is focused on creating economic value for its owner-users, i.e., caisse members. This creation of value also allows Desjardins Group to contribute to the strengthening of the Canadian cooperative financial sector by forming strategic partnerships. To attain these objectives, Desjardins Group gives itself the means to ensure reasonable and sustainable profitability, which in turn allows it to ensure its longevity and respect its cooperative difference.

98 96 CORPORATE GOVERNANCE APPLICATION OF CORPORATE GOVERNANCE GUIDELINES MANDATE OF THE BOARD OF DIRECTORS 1) Stewardship of Caisse centrale The Board of Directors assumes full stewardship responsibility for Caisse centrale by administering its business in a sound and prudent manner. It ensures that procedures and structures are established so that it can fully play its role. Periodically, it reviews its operations from the standpoint of continued improvement and safeguards the assets of Desjardins Group and its 5.8 million members, and of its customers. CORPORATE GOVERNANCE The Board exercises all the powers of Caisse centrale, except for those that it may delegate from time to time to its commissions and committees. It assumes the following responsibilities in particular: a. Culture of Integrity The Board of Directors is responsible for ensuring compliance with Desjardins Group cooperative values and permanent values, namely, money at the service of human development, democratic action, personal commitment, discipline and integrity, and solidarity with the community. In this context, it is responsible for enforcing compliance with Desjardins Group s Code of Ethics and Professional Conduct, and rules specific to Caisse centrale among members of Management, employees and elected officers. A support structure for the activities of Caisse centrale s Board of Ethics and Professional Conduct enables it to raise awareness, conduct training and provide advisory services, giving concrete expression to the efforts to ensure compliance with this Code and the specific rules, which in turn provide for the possibility of imposing penalties for violations. Caisse centrale also has a confidential whistleblowing procedure for reporting violations of the Code of Ethics and Professional Conduct, the specific rules and the regulatory framework. Desjardins Group s Code of Ethics and Professional Conduct is available to the public on its site at and on the Fédération s Intranet portal, where the specific rules applicable to Caisse centrale are also posted. All individuals working at Caisse centrale are invited to demonstrate ethical values and behaviour based on honesty, transparency, social responsibility and altruism. It is up to the Board of Ethics and Professional Conduct, which reports to the General Meeting of Caisse centrale to ensure that the Code evolves properly, with specific rules, and to issue notices as needed. b. Strategic Planning Process The Board of Directors has implemented a continuous strategic and financial planning process for Caisse centrale in compliance with that of Desjardins Group, which includes the preparation of a financial plan and a capitalization plan. It is supported by the Desjardins Group Strategic Management Structure Committee, which is responsible, among other things for ensuring, from a single strategic management structure perspective, that strategic and financial plans and directions are incorporated throughout the caisses and subsidiaries and that business development strategies are consistent and coherent, while being mindful of the risks involved. This strategic plan is communicated to all Desjardins Group components to ensure a shared understanding. From the strategic and financial plan stem the cooperative network s business plan and an operational plan. Responsibility for implementing the Group s strategic and financial plan is assigned to the Group s Strategic Management Structure Committee. The Board of Directors of Caisse centrale also adopts a three-year strategic and financial plan that is updated annually. c. Identification and Management of Main Risks The Board of Directors is responsible for identifying the main risks of Caisse centrale and ensures that the required systems are in place for their integrated management. Caisse centrale has the support of the Integrated Risk Management Executive Division, which operates in tandem with the Fédération. The Board of Directors of Caisse centrale, supported by its Risk Management Commission, ensures that it works consistently with its Audit Commission, which remains responsible for risks connected with the financial disclosure process. d. Succession Planning The Board of Directors oversees the development of the succession planning program and is supported in this task by Desjardins Group s Human Resources Executive Division as part of a three-year human resources plan. The Human Resources Commission ensures that this plan is implemented and reports to the Board of Directors and makes recommendations to it, as needed.

99 CORPORATE GOVERNANCE 97 e. Integrity of Management Information and Internal Control Systems The Board of Directors, seconded by its Audit Commission, ensures the implementation of effective control systems (accounting, administrative and management) to safeguard the integrity of its operations and obtain the required accountability from managers. The Board is supported in this responsibility by Desjardins Group s Internal Auditor. Work is done on an on-going basis to meet the requirements of the Canadian Securities Administrators concerning the certification of financial disclosure and thereby improve the documentation of controls over financial reporting. The Board of Directors also ensures that the Management Committee of Caisse centrale provides the Board and its commissions and committees with information that is complete, timely, and adapted to the particular needs of the Board members so that they may take advantage of business opportunities as they arise and also measure the risks involved. Board members are asked to assess the quality of each file that supports decisions made, as it is submitted. A training session is available for staff who submit files to decision-making centres of Caisse centrale. Board members receive a quarterly management information report that combines the main financial and non-financial indicators that will enable them to assess Caisse centrale s situation and the status of projects. The Board ensures that appropriate policies and procedures are in place to facilitate the production and presentation of this information. To effectively carry out its role, the Board of Directors of Caisse centrale meets regularly according to a predetermined schedule. The directors receive the agenda and any relevant documentation far enough in advance to ensure productive discussions and facilitate the decision-making process. They use technology tools that give them access to relevant documentation and the monitoring of the activities of Caisse centrale. f. Strategic Communications Directions The Board of Directors adopts communications directions aligned with its strategic and financial planning by setting the actions to be taken and the results to be measured. Caisse centrale has also adopted internal and external communication policies in order to better monitor its relations with the caisses and their members, its employees, the subsidiaries and their clients, socio-economic and community organizations, opinion makers, the public, the media, the rating agencies and the various levels of government. In view of the regulatory requirements for continuous disclosure dictated by the Canadian Securities Administrators, the Fédération adopted a strategic plan for Group-wide communications to oversee, in particular, the disclosure of financial information and material changes that could affect the financial condition of Desjardins Group and its components. CORPORATE GOVERNANCE Caisse centrale uses different channels to communicate effectively with its various stakeholders, including the annual general meetings, the release of Caisse centrale s quarterly financial results, periodic communication with the Desjardins network, a toll-free telephone line, the Web site and the confidential whistleblowing procedure for violations of the Code of Ethics and Professional Conduct, the specific rules and regulatory frameworks. Caisse centrale also has contacts at international rating agencies in conjunction with the Fédération; it also communicates with the various levels of government through Desjardins Group s Government Relations Division. 2) Composition of the Board of Directors The Board of Directors of Caisse centrale is composed of 22 members, a majority of whom are unrelated parties and whose designation criteria are listed in Section 3. Within the context of Desjardins Group s single management structure, they are the same directors as those of the Fédération. The Vice-Presidents of the Councils of Representatives of the Abitibi-Témiscamingue-Nord et Ouest du Québec and of the Bas-Saint-Laurent-Gaspésie- Îles-de-la-Madeleine regions also serve on the Board of Directors in their capacity as Managing Directors.

100 98 CORPORATE GOVERNANCE 3) Applying the Definition of Unrelated Party There are five related Directors on the Board of Directors; namely the Chairman of the Board and Chief Executive Officer of Caisse centrale and the four Caisse General Managers. The first is related because he is a member of Caisse centrale s Management and the other four, because they are employed by enterprises within the Group, namely by individual caisses. In addition, the Directors have no business or personal relationships with members of the Management Committee of Caisse centrale, or interests which, in the opinion of the Board, could significantly interfere with their ability to act in the best interests of Caisse centrale and Desjardins Group, or any interests which, again in the opinion of the Board, could reasonably be perceived as such. CORPORATE GOVERNANCE 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 Directors and the declarations of interest filed annually by the Directors. It should be noted that a study of the Directors declarations of interest shows that they focus on their role and responsibilities at Desjardins Group because none of them serve on other boards of large corporations, except for the President and Chief Executive Officer of Desjardins Group, who is a member of the board of directors of the Caisse de dépôt et placement du Québec. In general, they are also directors of one or two non-profit organizations. The list of Directors with their status (related or unrelated) appears on page 105 of this Annual Report. 4) Nomination Procedure Given the cooperative structure of Caisse centrale and the principle of delegation which prevails within it, the Board of Directors of Caisse centrale is comprised of persons elected by the delegates of Caisse centrale s and the Fédération s member caisses, who at regional or group caisse meetings, directly elect 17 of the 22 members of the Board of Directors. These individuals assume the chairmanship of the Councils of Representatives 1. Thus, it is the caisse delegates who must choose from among the interested candidates, those who are most apt to assume two roles, namely, that of Director of Caisse centrale and Desjardins Group as a whole and that of regional representative. Once nominated, candidates are reminded of the responsibilities of the position of chair of a Council of Representatives. Because they are at the same time officers of a caisse, members of their Council of Representatives and members of the Board of Directors of Caisse centrale, Caisse centrale can rely on Directors with a thorough knowledge of the activities of Desjardins Group who are nonetheless independent of Management. This knowledge of the organization s activities is a significant advantage resulting from the cooperative structure. The chairs of the Councils of Representatives are also responsible for ensuring that the directions, as defined by the Board, are understood by the caisses and that the channels for providing support, consultations and suggestions are effective, as well as for communicating to the Board the concerns of the caisses they represent. The energy and the commitment of the officers of the caisses encourage the members of the Board of Directors to take decisions for the common good of the members and other stakeholders of Desjardins Group. The four remaining positions filled by caisse general managers are determined by an election held at a meeting of representatives of Caisse centrale, and the final position is reserved for the Chairman of the Board and Chief Executive Officer of Desjardins Group. The Corporate Governance Commission is not involved in the selection of the directors of Caisse centrale. The electoral process for the Caisse centrale s Directors itself therefore ensures the independence of the members of the Board of Directors vis-à-vis the Chairman of the Board and Chief Executive Officer of Caisse centrale, who has no say in their selection. Furthermore, the rules concerning the composition of the Board of Directors promote otherwise a stability and continuity for the corporate governance of Caisse centrale because the term of office of its members is three years and is renewable, and the tenure of a third of the members ends each year. Consequently, Directors have the time to gain a deeper understanding of files and to participate actively in the Board s work. The composition of the Board of Directors is balanced not only by the presence of representatives from all the regions of Québec, from the group caisses and from Ontario credit unions, but also by the sum of the skills and experience that it contains (accountant, lawyer, notary, manager, professional mediator, university professor of management, contractor, caisse general manager, etc.). All processes, terms, conditions and requirements concerning the responsibilities of a Caisse centrale Director and of a chair of the Council of Representatives are set out in a guide, which was made available to caisse officers in order to support those persons interested in seeking nomination and to assist those who elect the officers of the Fédération and Caisse centrale. 1 The Councils of Representatives are democratic bodies within the Fédération and Caisse centrale. The role of a Council of Representatives is, within each of the regions or for the group caisses, to ensure a dynamic associative life by fostering cooperation between the caisses in the region and the Fédération and Caisse centrale; by influencing decisions made concerning major directions and large projects through active participation in consultations; by helping identify regional issues and business development opportunities; by monitoring member satisfaction and Desjardins image in the region; and by being present as an institution in the region. It drives the associative life of the Group through its motivational role which is taken over by each council member. It also ensures that the concerns voiced by the caisses in the region are considered by the Fédération and by Caisse centrale.

101 CORPORATE GOVERNANCE 99 5) Assessing the Effectiveness of Structures The Board of Directors and its commissions and committees annually assess their performance by using quantifiable objectives set by the Board at the beginning of the year. Areas for improvement and points requiring further examination, as determined by the assessment exercise, are included in an action plan recommended to the Board of Directors by the Corporate Governance Commission, which is in charge of monitoring this plan. The Board receives a progress report in mid-year. In addition, the assessment program for the various bodies making up Caisse centrale provides for an individual self-assessment procedure followed by a separate meeting of each Director with the Chairman of the Board. In 2007, the Chairman of the Board met individually with seven members of the Board. The Chairman of the Board is responsible for the assessment process, while the Corporate Governance Commission ensures its supervision. 6) Orientation and Training Program for New Directors Caisse centrale offers its Directors orientation and ongoing training, and develops training sessions tailored to their specific needs. In 2007, as part of the ongoing training program, members of the Board of Directors were able to learn more about financial performance. Board members also received training on the rules of conduct and ethic decision-making process. All new Directors attend an integration session, including, in particular, a meeting with certain members of Management and a reference manual containing all the information they need to carry out their duties. Every Director receives a document reiterating the expectations and duties of his or her office. Orientation sessions are also held to ensure the effective integration of new members of a Board commission or committee. CORPORATE GOVERNANCE As needed and upon request, meetings with specialists from Caisse centrale are also organized to help new Directors obtain a more complete picture of the organization and of its main strategic projects. The training program for members of the Board of Directors is incorporated into the programming of the activities of the Desjardins Cooperative Institute, a training institute created for elected officers and managers of Desjardins Group. The Institute s mission is threefold: Desjardins Awareness, Desjardins Governance and Management, and Desjardins Innovation. 7) Size of the Board of Directors The composition of the Board of Directors ensures adequate representation of the caisses in the 17 regions of Québec and in parts of Ontario, as well as of the group caisses. Moreover, the presence of four caisse general managers aims to ensure that the directions adopted by the Board and their implementation are adapted to the reality of the caisses. The efficient running of meetings and good discipline among the Directors themselves compensate for the relatively large number of Directors. Furthermore, the informal meetings held periodically by the Chairman of the Board and Chief Executive Officer with the Directors increase the effectiveness of the formal meetings. The results of the performance review of the Board of Directors confirm, each and every year, the very great relevance of these meetings. Since 2005, meetings in camera, which are not attended by Caisse centrale s Management, except for the Chairman of the Board and Chief Executive Officer whenever he is not required to withdraw because of questions of independence, have been scheduled after every meeting of the Board of Directors or of a commission or a committee.

102 100 CORPORATE GOVERNANCE 8) Remuneration Policy for Directors The Board has adopted a policy for the remuneration of its Directors, members of the Board of Ethics and Professional Conduct, and members of the Councils of Representatives. In view of all the functions that Directors hold with respect to Caisse centrale, the Fédération, Desjardins Venture Capital and Desjardins Trust, the schedules in this policy are below industry trends but reflect appropriately nonetheless the responsibilities, requirements and risks inherent in the Directors functions. The remuneration schedules are as follows: Chairman of the Board $15,000 paid to the Fédération because it is assumed by the President and Chief Executive Officer of the Group CORPORATE GOVERNANCE Annual retainer for the Chair of a commission 1 $6,500 Annual retainer for a member of the Board 2 $6,670 Attendance allowance for a Board meeting 3 $1,000 (maximum per day) Attendance allowance for a commission or $500 (per half-day) committee meeting Teleconference $200 Attendance allowance for members of the Board $1,500 for the Chair of Ethics and Professional Conduct $750 for members Moreover, in accordance with the Act respecting financial services cooperatives, the aggregate budget envelope for the payment of attendance allowances for members of the Board of Directors and the Board of Ethics and Professional Conduct is authorized at the General Meeting of Caisse centrale. In fact, the total remuneration budget (annual retainers and attendance allowances) is reported at the General Meeting in an annual statement on changes in such remuneration. 9) Composition of Commissions and Committees The Board of Directors has created and defined mandates for a number of commissions and committees necessary to support it in discharging its direction, planning, control and monitoring responsibilities and to streamline its activities. These commissions and committees are comprised entirely or almost entirely of unrelated parties. The composition and the mandate of these commissions and committees are reviewed annually. 10) Responsibility for Corporate Governance The Board of Directors has entrusted the Corporate Governance Commission with the responsibility of applying and updating the corporate governance program in light of new industry trends; the commission reports its observations and makes recommendations to the Board of Directors. 11) Defining the Authority of the Management Committee The responsibilities of the Chairman of the Board and Chief Executive Officer of Caisse centrale are set out in the internal management by-laws of Caisse centrale. The responsibilities of the President and Chief Operating Officer are also defined in this by-law. In addition, the Board of Directors has set out in writing a very clear distribution of responsibilities between the Board of Directors and the Management Committee. The Board continually clarifies this distribution to enhance the effectiveness of corporate governance. The annual objectives of the Chairman of the Board and Chief Executive Officer are recommended to the Board of Directors by the Committee on the Aggregate Remuneration of the President and Chief Executive Officer of Desjardins Group (the CAR ). The objectives of the President and Chief Operating Officer are established by the President and Chief Executive Officer as part of the profit-sharing plan of Caisse centrale. 1 For commissions which meet fewer than four times, the attendance allowance is doubled and replaces the annual retainer. 2 As for the four general managers who are members of the Board of Directors, the policy stipulates that the Board of Directors for their caisse is responsible for deciding if they are to keep all their remuneration. 3 Regardless of the number of Board, commission or 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.

103 CORPORATE GOVERNANCE 101 The Board of Directors has developed guidelines for setting objectives to ensure sound management and an equitable application of profit-sharing plans for all Desjardins Group components. The degree to which these objectives are achieved is measured through an annual review process. Under the supervision of the Committee on the Aggregate Remuneration of the President and Chief Executive Officer of Desjardins Group, each Director participates anonymously in the review process for the performance of the Chairman of the Board and Chief Executive Officer, using a model prepared in advance by this Committee and without the members of Management being present. 12) The Board s Independence from the Management Committee The Board of Directors has created various structures and procedures to safeguard its independence from Caisse centrale s Management. These include: a) having only one member of Management on the Board of Directors of Caisse centrale who is also an officer elected by representatives of members (the Chairman of the Board and Chief Executive Officer of Caisse centrale); b) the creation, at the General Meeting, of the position of Vice-Chair of the Board of Directors, whose incumbent presides over Board meetings when the items of business being discussed require the withdrawal of the Chairman of the Board and Chief Executive Officer. The internal management by-law provides that the Vice-Chair of the Board shall replace the Chairman of the Board if he cannot act; c) periodic, informal meetings of the Directors, of which the Chairman of the Board and Chief Executive Officer informs the President and Chief Operating Officer, who is not present at such meetings. Both related and unrelated Directors, however, are present at these meetings as the discussions pertain to matters that do not bear any risk of conflict of interest for the related Directors; d) meetings in camera, without Management being present (except for the Chairman of the Board and Chief Executive Officer), at the end of each meeting of the Board of Directors. The same applies to Board commissions; CORPORATE GOVERNANCE e) having an unrelated Director chair the Audit Commission and the Credit and Investment Commission; and f) assigning responsibility to the Corporate Governance Commission (of which only one member is a related party) for: 1) managing relations between the Board and the Management Committee of Caisse centrale; and 2) ensuring that the Board of Directors fulfills its duties. In addition, the Chairman of the Board and Chief Executive Officer is assigned the responsibility of setting or supervising the agenda for meetings of the Board, and of its committees. g) ensuring that the members of the Human Resources Commission are seconded by an external consultant with respect to matters dealing with the aggregate remuneration of officers. Note also that Caisse centrale has a Board of Ethics and Professional Conduct whose members are elected at the General Meeting. Its members are all independent from senior management and the Board of Directors. 13) Audit Commission The Audit Commission, established under the Act respecting financial services cooperatives, acts as an audit committee for Caisse centrale. It is composed entirely of unrelated Directors; four of them, including the Commission Chair, have accounting expertise. The roles and responsibilities of the Commission have been defined in such a way as to give its members a very clear understanding of their oversight duties. The Audit Commission has all the powers and information it needs to fulfill its mandate. The Commission reviews all financial information and oversees the implementation of an effective control process and the required accountability. It has direct communication channels with the persons responsible for Desjardins Group s internal audit, as well as with the external auditors to discuss and review certain issues, if any. The Commission may, as needed, discuss these issues with them without the managers responsible being present. 14) Hiring Outside Advisors A Director may engage the services of an outside advisor at the expense of Caisse centrale. However, to ensure that such services are relevant, a request must be submitted to the Corporate Governance Commission.

104 102 CORPORATE GOVERNANCE MANDATES AND COMPOSITION OF THE COMMISSIONS, COMMITTEES AND BOARD OF ETHICS AND PROFESSIONAL CONDUCT OF CAISSE CENTRALE AS AT DECEMBER 31, 2007 Note : * means an unrelated person **means a Managing Director EXECUTIVE COMMITTEE (COMPOSED OF 7 DIRECTORS) This committee has the same functions and powers as the Board of Directors, with the exception of those which the Board may reserve for itself or assign to another committee or commission. Its mandate was drawn up by the Board of Directors. In 2007, it met twice and had one conference call. CORPORATE GOVERNANCE Members: Alban D Amours, Chairman of the Board Pierre Tardif, Vice-Chair of the Board* André Lachapelle, Secretary of the Board* André Gagné* Daniel Lafontaine Marcel Lauzon* Clément Samson* AUDIT COMMISSION (COMPOSED OF 5 DIRECTORS) This commission supports the Board of Directors in its oversight and control responsibilities for Caisse centrale, and it examines in detail all elements related to financial disclosure. It met seven times in Membres : Andrée Lafortune, FCA, Chair* Thomas Blais* Pierre Leblanc* Serge Tourangeau* Benoît Turcotte* RISK MANAGEMENT COMMISSION (COMPOSED OF 5 DIRECTORS) This commission assists the Board of Directors in identifying and monitoring major risk exposures of Caisse centrale. It met five times and held a training session in Members: Serges Chamberland, Chair* 1 Pierre Tardif, Vice-Chair of the Board* Norman Grant* Pierre Grenon* André Lachapelle* Andrée Lafortune sits on the Commission as an observer. 1 Commenced his term of office at the end of March HUMAN RESOURCES COMMISSION (COMPOSED OF 5 DIRECTORS) This commission has as its mandate the periodic review of the positioning of the aggregate remuneration system of Caisse centrale in order to enable Caisse centrale to maintain a competitive position in the market. It ensures that the remuneration practices in effect comply with Desjardins Group s policies and guiding principles. The mandate of this commission excludes the examination of issues concerning the conditions of employment of the Chairman of the Board and Chief Executive Officer. It met three times in Members: Alban D Amours, Chairman of the Board Pierre Tardif, Vice-Chair of the Board* André Lachapelle, Secretary of the Board* Marcel Lauzon* 1 Denis Paré* 1 Commenced his term of office at the end of March Raymond Gagné served until March 2007.

105 CORPORATE GOVERNANCE 103 CORPORATE GOVERNANCE COMMISSION (COMPOSED OF 5 DIRECTORS) This commission is mandated to support the Board of Directors in applying and updating the corporate governance program. It is also responsible for monitoring the performance review program for members of the Board of Directors and its commissions and committees and the implementation of the sustainable development policy and the policy on the exercise of voting rights. The Corporate Governance Commission met four times and had one conference call in Members: Alban D Amours, Chairman of the Board André Gagné* Pierre Leblanc* Daniel Mercier* Sylvie St-Pierre Babin** CREDIT AND INVESTMENT COMMISSION (COMPOSED OF 5 DIRECTORS) This commission is mandated to support the Board of Directors in establishing and monitoring investment policies. The Credit and Investment Commission is responsible for determining the loans to be granted by Caisse centrale as well as its investments and borrowings and other financial commitments and, to this end, operates within the approval limits set out in the general policies adopted from time to time by the Board of Directors. It met 12 times and had seven conference calls in The President and Chief Operating Officer of Caisse centrale as well as its Senior Executive Vice-President and its Senior Vice-President, Integrated Risk Management, serve on the Commission as non-voting members. Members: Jacques Baril, Chair* Laurier Boudreault Louise Charbonneau Alain Dumas Daniel Lafontaine CORPORATE GOVERNANCE BOARD OF ETHICS AND PROFESSIONAL CONDUCT (COMPOSED OF 3 ELECTED OFFICERS) In accordance with the Act, Caisse centrale has a Board of Ethics and Professional Conduct that is independent of the Board of Directors and whose members are elected officers of Desjardins Group. The role of the Board of Ethics and Professional Conduct is to adopt the rules of conduct applicable to the officers and employees of Caisse centrale, present them for approval to the Board of Directors and ensure that they are complied with, support Caisse centrale in applying the rules of conduct, issue opinions, make observations and recommendations with respect to ethical and professional conduct issues, especially in cases of misconduct, and notify the Board of Directors thereof. In 2007, it met six times and held a training session. Members: Denis Rousseau, Chair* Germain Perron* 1 Jacques Sansoucy* 1 Commenced his term of office at the end of March Dominique Arseneault served until March 2007.

106 104 CORPORATE GOVERNANCE ATTENDANCE OF DIRECTORS AT MEETINGS OF THE BOARD OF DIRECTORS The following table shows the attendance of the Directors of Caisse centrale at Board meetings throughout Name Number of Meetings Name Number of Meetings CORPORATE GOVERNANCE Arsenault, Dominique** 7/11 Lafontaine, Daniel 11/11 Baril, Jacques 11/11 Lafortune, Andrée 11/11 Blais, Thomas 11/11 Lauzon, Marcel 11/11 Boudreault, Laurier 11/11 Leblanc, Pierre 11/11 Chamberland, Serges 11/11 Mercier, Daniel 11/11 Charbonneau, Louise 11/11 Paré, Denis 11/11 D Amours, Alban 11/11 Roy, Michel 11/11 Dumas, Alain 11/11 Samson, Clément 11/11 Gagné, André 11/11 Tardif, Pierre 11/11 Gagné, Raymond 11/11 Tourangeau, Serge 11/11 Grant, Norman 11/11 Turcotte, Benoît 11/11 Grenon, Pierre 11/11 St-Pierre Babin, Sylvie** 11/11 Lachapelle, André 10/11 ** Unrelated director RECORD OF ATTENDANCE OF MEMBERS OF THE BOARD OF ETHICS AND PROFESSIONAL CONDUCT OF CAISSE CENTRALE The following table shows the attendance of the Directors of Caisse centrale at Board of ethics and professional conduct meetings throughout Name Number of Meetings Name Number of Meetings Arsenault, Dominique 1 1/6 Rousseau, Denis 6/6 Perron, Germain 2 5/6 Sansoucy, Jacques 6/6 1 Served until March Commenced his term of office at the end of March The absences of the directors were due to professional duties or to the illness of relatives. In addition, when they are absent, the chairs of the Councils of Representatives are replaced by the vice-chairs in the capacity of Managing Directors, thus assuring a continuous presence of the region.

107 GENERAL INFORMATION 105 BOARD OF DIRECTORS 1 Alban D Amours President and Chief Executive Officer Desjardins Group Pierre Tardif 2 Vice-Chair of the Board President Council of Representatives Rive-Sud de Montréal Louise Charbonneau General Caisse Manager Council of Representatives Est de Montréal Alain Dumas General Caisse Manager Council of Representatives Mauricie Pierre Leblanc 2 President Council of Representatives Mauricie Daniel Mercier 2 President Council of Representatives Centre du Québec André Lachapelle 2 Secretary of the Board President Council of Representatives Lanaudière Jacques Baril 2 President Council of Representatives Est de Montréal Thomas Blais 2 President Council of Representatives caisses populaires de l Ontario Laurier Boudreault General Caisse Manager Council of Representatives Québec-Ouest, Rive-Sud Serges Chamberland 2 President Council of Representatives Saguenay-Lac St-Jean, Charlevoix, Côte Nord MANAGING DIRECTORS Dominique Arsenault 2 Vice-President Council of Representatives Bas Saint-Laurent, Gaspésie et Îles-de-la-Madeleine 1 As at December 31, Unrelated director André Gagné 2 President Council of Representatives Québec-Est Norman Grant 2 President Council of Representatives Bas St-Laurent, Gaspésie et Îles-de-la-Madeleine Pierre Grenon 2 President Council of Representatives Richelieu-Yamaska Daniel Lafontaine General Caisse Manager Council of Representatives Centre du Québec Andrée Lafortune 2 President Council of Representatives Ouest de Montréal Marcel Lauzon 2 President Council of Representatives Laval-Laurentides Sylvie St-Pierre Babin 2 Vice-President Council of Representative Abitibi-Témiscamingue, Nord et Ouest-du-Québec Denis Paré 2 President Council of Representatives Estrie Michel Roy 2 President Council of Representatives Kamouraska-Chaudière-Appalaches Clément Samson 2 President Council of Representatives Québec Ouest, Rive-Sud Serge Tourangeau 2 President Council of Representatives caisses de groupes Benoît Turcotte 2 President Council of Representatives Abitibi-Témiscamingue, Nord et Ouest-du-Québec GENERAL INFORMATION

108 106 GENERAL INFORMATION OFFICERS GENERAL INFORMATION Alban D Amours Chairman of the Board and Chief Executive Officer Jean-Guy Langelier President and Chief Operating Officer MEMBERS Fédération des caisses Desjardins du Québec and their caisses Fédération des caisses populaires de l Ontario Inc. Fédération des caisses populaires du Manitoba Inc. André Bellefeuille Senior Executive Vice President Jacques Descôteaux Senior Vice President Treasury of Desjardins Group Huu Trung Nguyen Senior Vice President Finance, Strategic Alliances and International Fédération des caisses populaires acadiennes Ltd Desjardins General Insurance Group Desjardins Financial Security Michel Paradis Senior Vice President Integrated Risk Management Christian St-Arnaud Senior Vice President Financing and Banking Services Desjardins Trust Inc. AUDITOR PricewaterhouseCoopers LLP Montreal, Quebec

109 GENERAL INFORMATION 107 OTHER INFORMATION Head Office 1170 Peel Street Suite 600 Montreal, Quebec, Canada H3B 0B1 Telephone: Facsimile: Internet address: Toronto Office 365 Bay Street, Suite 300 Toronto, Ontario, Canada M5H 2V1 Telephone: Facsimile: BRANCHES OUTSIDE CANADA DESJARDINS BANK N.A. Head Office Hallandale Beach 1001 East Hallandale Beach Blvd. Hallandale Beach, Florida, USA Telephone: Facsimile: Pompano Beach Branch 2741 East Atlantic Blvd. Pompano Beach, Florida, USA Telephone: Facsimile: Lauderhill Branch 7329 West Oaklank Park Blvd. Lauderhill, Florida, USA Telephone: Facsimile: Caisse centrale Desjardins U.S. Branch 1001 East Hallandale Beach Blvd. Suite 200 Hallandale Beach, Florida, USA Telephone: Facsimile: GENERAL INFORMATION REGIONAL OFFICES Estrie 1845 King Street West Suite 300 Sherbrooke, Quebec J1J 2E3 Telephone: [1310] Telephone: [1310] Outaouais 880 de la Carrière Blvd. Suite 100 Gatineau, Quebec J8Y 6T5 Telephone: [455] Telephone: [455] Quebec City 5600 des Galeries Blvd. Suite 140 Quebec City, Quebec G2K 2H6 Telephone: Saint-Lambert 2051 Victoria Street Saint-Lambert, Quebec J4S 1H1 Telephone: DESJARDINS INTERNATIONAL SERVICE CENTERS Montreal 1 Complexe Desjardins Suite 2822 Montreal, Quebec H5B 1B3 Telephone: Quebec City 5600 des Galeries Blvd. Suite 140 Quebec City, Quebec G2K 2H6 Telephone: Saguenay/Lac St-Jean 1700 Talbot Blvd. Suite 200 Saguenay, Quebec G7H 7Z4 Telephone: Trois-Rivières 2000 des Récollets Blvd. P.O. Box 1000 Trois-Rivières, Quebec G9A 5K3 Telephone: [202]

110 108 FINANCIAL GLOSSARY FINANCIAL GLOSSARY Acceptance and Customers Liability under Acceptances Short-term debt securities traded on the money market which Caisse centrale guarantees on behalf of a borrower and for which the borrower pays a stamping fee. Asset under Administration Asset managed by Caisse centrale. These assets are not the property of Caisse centrale and therefore are not reported in the consolidated balance sheet. Basis Point Unit of measure equal to one one-hundredth of one percent. Commitment to Extend Credit Credit facility available to customers either in the form of loans, acceptances and other on-balance sheet financing, or through derivatives products such as guarantees and letters of credit. Currency and Interest Rate Swap Transaction where two parties agree to exchange, over a specified period, currencies or interest flows, generally a fixed rate and a floating rate, based on a notional amount. Derivative Financial Instrument A contract whose value is derived from interest rates, foreign exchange rates, or equity or commodity prices. Use of derivatives financial instruments allows for the transfer, modification, or reduction of current or expected risks, including interest rate, foreign exchange and other market risks. The most common types of derivatives financial instruments include foreign exchange forward contracts, foreign currency and interest rate futures, forward rate agreements, and foreign currency and interest rate options. Derivatives financial instruments can be traded either on organized exchanges or through over-the-counter agreements. Foreign Exchange Forward Contract A commitment to buy or sell a specified amount of foreign currency on or before the maturity date at a set exchange rate. Forward Rate Agreement A type of derivative which obliges two parties to make a cash settlement at a future date for the difference between a contracted rate of interest and the current market rate, based on a notional amount. Used as a hedge, a forward rate agreement protects against future movements in market interest rates. Guarantee and Standby Letter of Credit Irrevocable commitment that payments will be made in the event a customer cannot meet its obligations to third parties. Hedge A risk management technique used to insulate financial results from market, interest rate, or foreign currency exchange risk (exposure) arising from normal banking operations. The elimination or reduction of such exposures is accomplished by establishing offsetting positions. For example, assets denominated in foreign currencies can be offset with liabilities in the same currencies or through the use of foreign exchange hedging instruments such as futures, options, or foreign exchange contracts. Interest Rate Sensitivity Earning assets and interest-bearing liabilities which mature or are subject to interest rate adjustments within a specified term or have an interest rate that floats in reference to a base interest rate. Liquidities Generally, assets in cash or in securities easily convertible to cash, such as deposits with financial institutions and securities. Mark-to-Market Valuation at market rates, as at the balance sheet date, of securities, loans, deposits, subordinated debenture and derivatives financial instruments. Net Interest Income The difference between interest income earned on assets and the interest expense related to liabilities. The ratio of net interest income to average assets is called the net interest margin. Notional Amount The amount used as a reference point to calculate payments for financial instruments such as forward rate agreements or interest rate swaps. The amount is not exchanged. Obligation Related to Securities Sold Short Transaction in which the seller sells securities it does not own. The seller borrows the securities in order to deliver them to the purchaser. At a later date, the seller buys identical securities in the market to replace the borrowed securities. Return on Average Asset The ratio of net income to average total assets during a year. Risk Weighting The process by which weighting factors are applied to the face value of certain assets in order to reflect a comparable risk level. Off-balance credit instruments and derivatives financial instruments are also converted by adjusting the notional amounts to balance sheet (or credit) equivalents and by applying appropriate risk weighting factors. Total risk-weighted assets constitute the denominator of the various capital ratios as prescribed by the Bank for International Settlements (BIS). Securitization Mechanism by which financial assets (ex.: mortgage loans) are converted into financial asset-backed securities. These securities are thereafter transferred into a Trust. Stock Index Option The right (as opposed to obligation) to sell (put option) or buy (call option) on or before a maturity date a specified amount of a stock index at a set price (exercise price). Subordinated Debenture Unsecured liability issued by Caisse centrale whose repayment, in the event of liquidation, is subordinated to the claims of depositors and certain other creditors.

111 WITH OUR HEARTFELT THANKS, MR. D AMOURS Mr. Alban D Amours has fulfilled the role of President and CEO of Desjardins Group for two consecutive mandates, from March 2000 to March During that time, he demonstrated an extraordinary ability to listen to people s concerns and to encourage discussion and the exchange of ideas, while steadfastly supporting the Desjardins Group mission and rigorously applying the means to accomplish it. Under the leadership of Mr. D Amours, Desjardins has striven to combine financial performance with cooperative performance. This approach has enabled the organization to achieve excellent financial results while ensuring that it is always ready to meet the needs of its members and their communities. The Desjardins Group that Mr. D Amours leaves us today is now strengthened by a cooperative governance and strategic management approach that direct the actions of all its components. It stands out for its high-quality, diversified range of financial services, its commercial and management practices imbued with cooperative values, a rich and active democracy, and business development focused on the whole of Canada. It draws its strength from employees who enjoy a working environment that offers them numerous opportunities for personal and professional development. All these aspects serve to inspire us with great confidence for the future. The elected officers of all the caisses and branches and all Desjardins employees would therefore like to express their sincere acknowledgement and deep appreciation to Mr. D Amours, in addition to their heartfelt thanks for his achievements, as well as for the very human qualities that he displayed during his busy time in office. We all wish him every success and happiness as he embarks on this new stage in his life. ALBAN D AMOURS The Senior Vice-president, Finance, Strategic Alliances and International of Caisse centrale Desjardins is responsible for the production of this Annual Report. On peut obtenir la version française de ce rapport annuel sur demande ou sur Graphic design: Lg2boutique Production: Groupe Produlith inc. Printing: Groupe Produlith inc. PRINTED IN CANADA 100% Cert. no. SGS-COC FSC

112 DIFFERENCE PERFORMANCE PRESENCE Desjardins is more than a bank. It s the largest integrated cooperative financial group in Canada. Thanks to the complementary relationship of the cooperative network and more than twenty subsidiaries, Desjardins offers to 5.8 million member-owners and to its clients diversified financial services, adapted to their needs, accessible from anywhere on the planet, day and night, at competitive cost. This group force, combined with rigorous management of the collective wealth with which it is entrusted, enables Desjardins to post enviable financial returns. It is therefore not surprising that Desjardins, whose assets approximate $150 billion, is the #1 financial institution in Quebec, the 6 th largest in Canada and one of the top 100 in the world. With its caisses, business centres, distribution networks and subsidiaries, as well as numerous virtual access options, including the most popular financial Web site in Quebec, Desjardins is also the most accessible financial institution in the province. As well, its numerous components have enabled the Group to increase its presence to growing acclaim elsewhere in Canada, particularly in Ontario, as well as abroad, where it is recognized as a leader and a model in international cooperation, among other fields. Backed by its solid financial performance, its cooperative difference, the commitment of its elected officers and the engagement of its employees throughout all its components, Desjardins has remained faithful to its mission for the past 107 years, which is to put money to work for its members and clients. DESJARDINS.COM CAISSES