65th ANNUAL REPORT BUSINESS HOURS. Caisse de Chomedey HEAD OFFICE AND SAMSON SERVICE CENTRE HEAD OFFICE SAMSON SERVICE CENTRE

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1 65th ANNUAL REPORT Caisse de Chomedey HEAD OFFICE 3075, Cartier Blvd. West Laval (Quebec) H7V 1J4 Phone: Fax: SAMSON SERVICE CENTRE 4595, Samson Blvd. Laval (Quebec) H7W 2H2 Phone: Fax: COMPTOIR DE SERVICES RÉSIDENCE VILLAGIA DE L ÎLE PATON Visit our Web Site: BUSINESS HOURS HEAD OFFICE AND SAMSON SERVICE CENTRE PERSONAL SERVICES Monday Tuesday Wednesday Thursday Friday 10:00 a.m. to 3:00 p.m. 10:00 a.m. to 3:00 p.m. 10:00 a.m. to 8:00 p.m. 10:00 a.m. to 8:00 p.m. 10:00 a.m. to 3:00 p.m. ADVISORY AND CONVENIENCE SERVICES* Monday Tuesday Wednesday Thursday Friday1 10:00 a.m. to 3:00 p.m. 10:00 a.m. to 5:00 p.m. 10:00 a.m. to 8:00 p.m. 10:00 a.m. to 8:00 p.m. 0:00 a.m. to 3:00 p.m. *Scheduled appointment starting at 9:00 a.m. CENTRE FINANCIER AUX ENTREPRISES 2550, Daniel-Johnson, Suite 210 Laval (Quebec) H7T 2L1 Phone: Fax: ADVISORY AND CONVENIENCE SERVICES Monday Tuesday Wednesday Thursday Friday 8:30 a.m. to 4:30 p.m. 8:30 a.m. to 4:30 p.m. 8:30 a.m. to 4:30 p.m. 8:30 a.m. to 4:30 p.m. 8:30 a.m. to 4:30 p.m.

2 NOTICE OF MEETING TO MEMBERS OF CAISSE DESJARDINS DE CHOMEDEY You are hereby convened to the Annual General Meeting of your Caisse, which will take place: Date: April 18, 2011 Time: Location: 7:00 p.m. Château Royal 3500, boulevard du Souvenir Laval At the Meeting, members will receive information on the Annual Report and the Board of Supervision Report. They will decide on the distribution of annual surplus earnings and on the interest payable on permanent shares and on surplus shares, vote on the payment of member dividends from the reserve, adopt a budget for certain investments, elect members of the Board of Directors and the Board of Supervision, and deal with any other item on the agenda. There will be two question periods, one directed to the Board of Directors and the other to the Board of Supervision. ELECTIONS Any physical person who is a full member shall be considered eligible, as long as that person has been a member for at least 90 days and is not ineligible under the terms of the Act. Nominations may not be submitted to the General Meeting unless prior written notice, signed by five members and countersigned by the candidate, is given according to the rules defined by the Caisse Internal By-laws and remitted to the Caisse before closing time on April 8, All Members of the Caisse are cordially invited to attend and participate in this General Meeting. Signed, January 26, 2011 SERGE HAMELIN Secretary Secrétaire 2 CAISSE DESJARDINS DE CHOMEDEY 65 th ANNUAL REPORT

3 AGENDA ANNUAL GENERAL MEETING APRIL 18, Welcome 2. Approval of the agenda 3. Approval of the minutes of the last Annual General Meeting 4. Report from the Board of Directors 5. Report from the Board of Supervision 6. Presentation of financial statements 7. Report on the use of the Community Development Fund 8. Presentation of the Cooperative difference Report 9. Questions for the Board of Directors 10. Questions for the Board of Supervision 11. Approval of interest rate on permanent shares and on surplus shares 12. Approval of allocation of the year s surplus earnings 13. Elections to the Board of Directors 14. Elections to the Board of Supervision 15. Reading and signature of the solemn commitment 16. Years of service 17. Acknowledgements 18. Closing 65 th ANNUAL REPORT CAISSE DESJARDINS DE CHOMEDEY 3

4 MESSAGE FROM THE PRESIDENT OF THE BOARD OF DIRECTORS Caisse Desjardins de Chomedey had a very good year in Thanks to the proactive approach taken by the management team and directors of your financial services cooperative, and the sound, prudent management principles observed, the Caisse generated surplus earnings of $1.2 million. Surplus earnings of $1.4 billion generated by Desjardins Group as a whole is the best ever in our history. We owe this performance to the excellent work of each and every caisse and component and to our 49,000 officers, managers and employees. These great results also testify to the trust you place in your Caisse. We could not be as active in our community or achieve such great results if you did not regularly use our services or seek out the expertise of our dedicated staff. Thanks, notably, to our Community Development Fund (CDF), sponsorships and donations in 2010, we played a significant role in ensuring the success of important events and projects in our community such as development of the school playground for École primaire l Harmonie, acquisition of materials for children with disabilities at École Jean-Piaget, purchase of non-perishable food for Partage Saint-Maxime customers and financial support to promote the economic development of organizations including but not limited to Société Alzheimer de Laval, Le Cercle des fermières de Laval and Bureau de consultation jeunesse. In 2010, we continued our efforts to offer highly professional services and advice to help you achieve your goals and projects, and to increase your satisfaction with your caisse. For example, Desjardins newly launched mobile services allow you to carry out all types of transactions and to view account information on mobile devices such as iphone, BlackBerry and ipod Touch. This past year, we also introduced our Ready-to-go plans for professionals and small business owners. These examples and many others illustrate just how much importance we place on the member experience. Also, thanks to our efforts to grow the Caisse s reserves, along with the securities issues completed this past year and to the safety margin we set up as part of our liquidity management, your caisse and Desjardins Group are solidly capitalized. In this regard, the U.S. magazine Global Finance rated Desjardins Group the world s 25 th safest financial institution and the 4 th safest in North America, which is quite an achievement when you consider that we were ranked against thousands of financial institutions around the world. At a time when we are still feeling the aftershocks of the last financial crisis, such a ranking is especially important and reassuring to our members and partners. In the post-crisis context, regulators and financial market participants alike are all paying close attention to capitalization. Moreover, with a view to better supporting the long-term growth of the caisses and Desjardins Group, work is underway to simplify the Group s structure and to optimize capital use. Desjardins Group s achievements were recognized by several independent organizations in DANIEL ROUSSEAU President of the Board of Directors For instance, The Banker, a British magazine, considered an international reference for financial information, named Desjardins Bank of the Year 2010 Canada. This is the first time that a Canadian cooperative financial institution has won this title, thus highlighting our cooperative and financial performances over the last few years. This recognition attests to the soundness of the cooperative business model used by our Caisse, by Desjardins Group and elsewhere in the world, especially during the global economic and financial crisis. For its part, the Canadian firm Waterstone Human Capital included Desjardins Group in its list of Canada s 10 Most Admired Corporate Cultures. Our organization was also a winner in the social responsibility category of the Prix québécois de l entreprise citoyenne (Québec corporate citizenship award), organized by Korn/Ferry International and L actualité magazine. In short, we have reason to be proud of belonging to Desjardins Group, Canada s leading cooperative financial group and an institution whose performance is garnering recognition today. And by choosing to step up its actions in economic and financial education, we will be able to add another reason to the long list of advantages associated with the cooperative model in today s world. In closing, I would like to thank your elected officers, who as a result of their commitment were not only instrumental in the sound management of your Caisse but also contributed to the Group s overall performance and to its reputation in Québec, Canada and abroad. Thank you also to the general manager, M r Laurent Caron, and all the employees at the Caisse who worked tirelessly throughout the year. As our advertising says, we believe that cooperation is the financial model of the future. United in cooperation, we will continue to work to build lasting prosperity for you and with you. 4 CAISSE DESJARDINS DE CHOMEDEY 65 th ANNUAL REPORT

5 REPORT FROM THE PRESIDENT OF THE BOARD OF SUPERVISION Desjardins Group and its components invest great efforts to maintain a high level of integrity, the cornerstone of the deep trust built with their members, customers, partners, the community and government officials. In this context, the function of the Board of Supervision is to oversee, on behalf of the Annual General Meeting, the Caisse s operation as it relates to ethics, professional conduct and the cooperative aspect. In order to fully carry out its duties, the members of the Board of Supervision met four (4) times during the year, attended training workshops and participated in a Caisse-organized seminar with their Board of Directors colleagues. SUPERVISION OF ETHICS Ethics refers to the organization s values and principles, in this case, Desjardins Group s cooperative and permanent values. Ethics guide the decisions and actions of the Caisse s officers and employees, particularly in situations not covered by rules. In 2010, the Board of Supervision ensured that the conduct, decisions and actions of the Caisse, its officers and employees reflected the values and principles set out in Desjardins Group s Code of Ethics and Professional Conduct and were consistent with the organization s mission. SUPERVISION OF PROFESSIONAL CONDUCT The rules of professional conduct define the duties and obligations of officers, employees and caisses in certain situations. Designed to protect the interests of members as well as those of the Caisse and Desjardins Group, these rules essentially address conflicts of interest, favouritism and duty of confidentiality. PIERRE JODOIN President Board of Supervision SUPERVISION OF COOPERATION Always with a view to contributing to the economic and social well-being of members and the community, the Board of Supervision ensured the following as regards the cooperative aspect: That the Caisse s vision and strategic directions centred on its members before profitability, the former being a fundamental component of its mission. That contemplated actions and projects in line with the Caisse s business plan took the socio-economic environment into account and were executed professionally. That the Caisse possessed and integrated cooperative difference indicators into its performance management. That employees and officers had a clear, complete and uniform understanding of the cooperative difference and were capable of easily articulating its principal elements. Finally, our Caisse s main challenges for the coming years are integrity, respect for members rights, cooperative, economic and financial education, and community involvement. The Board of Supervision promises to work with the Caisse Board of Directors and management to meet these challenges effectively. In 2010, the Board of Supervision ensured that the Code of Ethics and Professional Conduct was respected. Activity monitoring focused mainly on the following aspects: 1) Conflict of interest situations : No conflict of interest situations were noted. 2) Loans granted to restricted parties : No loans were granted to restricted parties. 65 th ANNUAL REPORT CAISSE DESJARDINS DE CHOMEDEY 5

6 MESSAGE FROM THE GENERAL MANAGER A year filled with challenges that required the commitment and solidarity of all the Caisse's officers and employees, 2010 was nevertheless marked by many achievements and results that attest to their efforts. By implementing various initiatives and rigorously pursuing its business objectives, your financial services cooperative can effectively respond to your needs and in so doing, contribute to the well-being of people and the community. The recent financial crisis, combined with new international requirements, has shown just how important sufficient capitalization and sound liquidity management are for financial institutions. Conservative surplus sharing among members and the general reserve will enable our caisse to support its business growth and strategic development, and in so doing ensure the future of our organization and the Group. Always thinking ahead, we also underscore the importance of saving to our members. Moreover, we make sure to apply strict accountability mechanisms as part of our financial governance. Finally, at a time of rapidly changing financial needs, our Caisse is constantly attuned to its members. As a result of your comments, suggestions and concerns, our management team can look out for its members interests and influence the development of new solutions and products through the various work groups in which the Caisse actively participates. In this regard, our Caisse, through the Desjardins survey group conducted three satisfaction surveys among ours members during the year CHANGES IN ACCOUNTING POLICIES In February 2008, the Canadian Accounting Standards Board confirmed that publicly accountable enterprises would be required to adopt International Financial Reporting Standards (IFRS) in As a savings and credit cooperative meeting the definition of a publicly accountable enterprise, Caisse Desjardins de Chomedey must therefore adopt IFRS standards as of January 1, IFRS uses a conceptual framework that is similar to Canadian Generally Accepted Accounting Principles (GAAP), but there are significant differences in recognition, measurement and disclosure. This new framework will be applied retrospectively except for some optional exemptions and mandatory exceptions provided for in the IFRS. The changes associated with retrospective adoption must be recognized in the asset opening balance as at January 1, As part of Desjardins Group s IFRS conversion plan, Caisse Desjardins de Chomedey has completed most of the updates to its information systems, processes and internal controls required to transition to IFRS and to respect the changeover schedule. The Caisse also participated in training sessions organized by Desjardins Group for its officers and areas that will be particularly affected by the IFRS conversion. This training was also geared to the Caisse s credit employees who use GAAP for their private enterprises. LAURENT CARON General Manager However, given developments in some of the standards, the unavailability of certain market data and the milestone schedule, Caisse Desjardins de Chomedey is unable, at this time, to reasonably predict the entire implication of the IFRS transition on its financial situation and results in The impact of the IFRS conversion will depend on the accounting choices elected, general economic conditions and conditions in the financial sector. To date, the main implications of IFRS on the Caisse s financial statements pertain to the following: Employee benefits Under IFRS, Caisse Desjardins de Chomedey will have to record its share of the obligation associated with the pension and other defined-benefit plans offered by Desjardins Group to its employees and in which the Caisse participates. This adjustment will be recorded against undistributed surplus earnings as at January 1, Previously, under GAAP, no plan-related assets or liabilities were recorded in the Caisse s financial statements, only the contributions made to these plans were. Mortgage securitization Caisse Desjardins de Chomedey assigns mortgage debt to Caisse Centrale Desjardins. Recorded as debt assignment under GAAP, these transactions do not fulfill IFRS derecognition criteria. Consequently, any debt assignment that does not meet IFRS criteria can no longer be derecognized. This accounting treatment will be applied to all debt assignment transactions after January 1, FINANCIAL REPORT BUSINESS VOLUME UNDER MANAGEMENT Backed by $681,475,211 in business under management, up 8.9% over last year, the Caisse is very well positioned in its market. As part of Desjardins Group, the Caisse has access to a complete range of financial products and services to meet the ever-growing needs of its 13,048 members. Overall, the investment-savings outstanding (Caisse and components combined) now represents 42.3% of business volume, while financing products (Caisse and components combined) make up 57.7% of total business volume. 6 CAISSE DESJARDINS DE CHOMEDEY 65 th ANNUAL REPORT

7 MESSAGE FROM THE GENERAL MANAGER (CONTINUED) Investment-savings (Caisse and components combined) grew by $18,491,922 to $288,048,511, an increase of 6.9% compared to last year. In addition to the savings offer at the Caisse, members have access to the most comprehensive, onestop offer of Desjardins financial products, from mutual funds and securities to discretionary management services. FINANCING Total Caisse financing was $393,426,700, with overall growth this year of 10.5%. Activities were largely made up of Caisse loans (personal and business combined), which grew by 20.4%, while financing through the components (loans sold or shared) decreased by 17.3%. NOTES TO THE FINANCIAL STATEMENTS BALANCE SHEET The assets of your Caisse grew by $55,585,240 to $343,128,052, representing growth of 19.3% over last year. Caisse liabilities were $315,113,795, representing growth of 19.9%. Borrowings increased by $39,423,668, or 72.8%, as a result of the rise in credit, and now total $93,608,529. As at December 31, 2010, your cooperative s holdings had shown growth, from $24,665,683 to $28,014,257, an increase of 13.6%. In addition to Caisse equity, holdings are comprised of cooperative shares of $65,385, permanent shares of $6,065,830, dividend shares of $180,966, surplus earnings to be distributed of $624,542, accumulated other comprehensive income of $352,416, and reserves of $20,725,118. The Caisse has $17,340,647 accumulated in the General Reserve and Appreciation Reserve. The Caisse has approximately $1,325,946 in its Stabilization Reserve and $328,954 in its Community Development Fund. Additionally, your Caisse has accumulated a total of $1,729,571 in its Reserve for Member Dividends (RMD). Caisse equity, meanwhile, is in accordance with the Basel II capitalization standards, i.e. 12.5% for risk assets and expansion assets equal to or less than 17 times equity. STATEMENT OF RESULTS During the past year, your Caisse generated surplus earnings before fair value, taxes and member dividends of $1,206,379, down by 20.4% from the previous year. Interest income was $11,808,306, a decrease of 1.7% over last year. Interest charges, meanwhile, rose by 0.9%, a difference of $46,286 over the previous year, due to the increase in business volume and the fall in interest rates. Losses on loans were $209,723, or 0.07% of the total personal and business loan portfolio. Other income, generated largely from products and services of Desjardins components, was $2,239,303, up 7.3% over last year. Other charges also show moderate overall growth, representing a variance of $271,703, or 3.9%. This year, our surplus distribution proposal includes the payment of member dividends totalling $458,811. Over the past 12 years, total member dividends were $9,236,785. In determining the amount, Desjardins Group seeks to strike a balance between the distribution of surplus earnings, growth and capitalization needs. In view of the current economic and financial context, it is important for your Caisse, and for Desjardins Group as a whole, to strengthen its capitalization, because a well-capitalized caisse is necessary to support business growth and by extension, ensure our future. INVESTMENT FUNDS Investment funds owned by the caisses enable the Fédération des caisses Desjardins du Québec to coordinate investments in Desjardins Group subsidiaries, as well as in regional investments. Through their activities, these subsidiaries in turn enable the caisses to provide an extensive range of financial products and services to individuals, groups and businesses. The following table shows the Caisse s investment in each of the funds, as well as the year-end yield. INVESTMENT Shares held Average FUNDS as at December 31, 2010 yield (Dollars) (Percentage) Provincial Funds Caisse centrale Desjardins (CCD) $3,398,394 6,76 % Société de Services des caisses Desjardins (SER) $(1,687) --- Desjardins Capital de risque (INV) $193,049 4,77 % Valeurs mobilières Desjardins (VM) $176,186 9,33 % Fiducie (FD) $332,463 2,07 % Desjardins Société financière (RF1) $181,117 5,93 % Desjardins Société financière (FIN3) $5,281,784 19,90 % Regional Funds FED3 $485 2,66 % FID-MON $47,486 (0,95)% OUTLOOK Your Board of Directors recently held a planning meeting in order to establish the Caisse s business plan and major budget orientations for the year. These orientations, supported by disciplined and effective management, will undoubtedly enable us to improve the Caisse s results. CONCLUSION In closing, I would like to thank the entire staff for their constant hard work and adaptability to the many changes that have taken place in our ways of doing business. I would also like to thank the officers for their commitment and availability, and all the members of the Caisse for their confidence and their loyalty to their financial services cooperative. We believe that the Caisse s close relationship with its members and the community is an important distinguishing element for Desjardins Group and a guarantee of success for the future. 65 th ANNUAL REPORT CAISSE DESJARDINS DE CHOMEDEY 7

8 INDEPENDENT AUDITOR S REPORT To the members of Caisse Desjardins de Chomedey, Report on the financial statements Pursuant to section 139 of the Act respecting Financial Services Cooperatives, we have audited the accompanying financial statements of Caisse Desjardins de Chomedey (the Caisse ), which comprise the balance sheet as at December 31, 2010, and the statements of income and of distributable surplus earnings, of distribution, of comprehensive income and accumulated other comprehensive income, of reserves, and of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian generally accepted accounting principles, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall financial statement presentation. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, these financial statements present fairly, in all material respects, the financial position of the Caisse as at December 31, 2010, and its financial performance and its cash flows for the year then ended in accordance with Canadian generally accepted accounting principles. 1 1 Chartered accountant auditor permit No Montréal (Québec), March 30, CAISSE DESJARDINS DE CHOMEDEY 65 th ANNUAL REPORT

9 BALANCE SHEET as at December 31 Note (note 6) Assets Liquid assets and investments 5 $21,489,730 $18,968,316 Loans 6 Personal 257,012, ,522,269 Business 59,087,947 56,977, ,100, ,499,837 Allowance for credit losses 636, , ,463, ,744,160 Other assets Premises and equipment 7 1,281,661 1,489,665 Accrued interest and other 4,893,151 5,340,671 6,174,812 6,830,336 Total assets $343,128,052 $287,542,812 Liabilities Deposits Term savings $144,032,862 $134,457,601 Other 72,769,649 69,590, ,802, ,048,289 Other liabilities Borrowings 8 93,608,529 54,184,861 Accrued interest and other 4,702,755 4,643,979 98,311,284 58,828, ,113, ,877,129 Equity Capital stock 9 6,312,181 4,621,058 Distributable surplus earnings , ,608 Accumulated other comprehensive income ,416 99,609 Reserves 20,725,118 19,060,408 28,014,257 24,665,683 Total liabilities and equity $343,128,052 $287,542,812 Signed for the Board of Directors, DANIEL ROUSSEAU (signed) Director, SERGE HAMELIN (signed) Director 65 th ANNUAL REPORT CAISSE DESJARDINS DE CHOMEDEY 9

10 STATEMENTS OF INCOME AND OF DISTRIBUTABLE SURPLUS EARNINGS for the year ended December 31 Results Note (note 6) Interest income $11,808,306 $12,018,517 Interest expense 5,340,470 5,294,184 Net interest income 6,467,836 6,724,333 Provision and loan losses 209, ,746 Net interest income after provision and loan losses 6,258,113 6,448,587 Other income 12 2,239,303 2,086,337 Other expenses Personnel 13 3,422,316 3,226,047 Assessments paid to Desjardins components 811, ,193 Premises 526, ,798 Community development expenses 32,722 57,677 General expenses 14 2,497,175 2,463,619 7,291,037 7,019,334 Surplus earnings before fair value, investments in Desjardins subsidiary companies, taxes and member dividends 1,206,379 1,515,590 Losses related to fair value of derivative instruments (289,632) (1,432,385) Income related to investments in Desjardins subsidiary companies 5 1,134, ,258 Surplus earnings before taxes and member dividends 2,051,312 1,012,463 Income taxes on surplus earnings ,362 62,085 Surplus earnings for the year before member dividends 1,852, ,378 Member dividends , ,436 Income tax savings relative to member dividends 15 (106,916) (98,468) Surplus earnings for the year after member dividends 1,491, ,410 Distributable surplus earnings Transfer from (allocation to) appreciation reserve: Investments in Desjardins subsidiary companies (1,117,021) (917,445) Derivative instruments 218,986 1,108,597 Transfer from community development fund 25,229 46,719 Transfer from (allocation to) statement of distribution 7,880 (3,537) Statutory allocation to general reserve 6-57,875 Permanent share issuance costs, net of income taxes (1,859) (6,011) Distributable surplus earnings 10 $624,542 $884, CAISSE DESJARDINS DE CHOMEDEY 65 th ANNUAL REPORT

11 ÉTATS STATEMENT DU RÉSULTAT ÉTENDU ET DU CUMUL DES OF DISTRIBUTION AUTRES ÉLÉMENTS DU RÉSULTAT ÉTENDU for the year ended December 31 Note Distributable surplus earnings from previous year Balance already calculated $884,608 $1,953,986 Impact of a change in accounting policy 6-573,176 Allocation to general reserve of net impact of a change in accounting policy 6 - (573,176) Restated balance 884,608 1,953,986 Transfer from (allocation to) statement of distributable surplus earnings 16 (7,880) 3,537 Distribution by members: Interest on permanent shares (108,746) (76,653) Interest on surplus shares (5,518) (3,161) General reserve (120,650) (1,146,392) Stabilization reserve (663,528) (14,673) Future member dividends reserve - (735,000) Income tax savings relative to interest paid on permanent shares and on surplus shares 21,714 18,356 Balance after distribution $- $- 65 th ANNUAL REPORT CAISSE DESJARDINS DE CHOMEDEY 11

12 STATEMENTS OF COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME for the year ended December 31 Note (note 6) Comprehensive income Surplus earnings for the year after member dividends $1,491,327 $598,410 Other comprehensive income Reclassification to the statement of income following amortization of gains on derivative instruments related to cash flow hedges discontinued in previous years, net of income taxes (4,566) (4,598) Share in other comprehensive income of Desjardins subsidiary companies for which the Caisse s investment is accounted for under the equity method 245, ,759 Reclassification to the statement of income relative to the share in other comprehensive income of Desjardins subsidiary companies for which the Caisse s investment is accounted for under the equity method 11,521 9, , ,528 Total other comprehensive income 252, ,930 Comprehensive income $1,744,134 $945,340 Accumulated other comprehensive income Balance at beginning of year $99,609 $(247,321) Other comprehensive income for the year 252, ,930 Balance at end of year 11 $352,416 $99, CAISSE DESJARDINS DE CHOMEDEY 65 th ANNUAL REPORT

13 ÉTAT STATEMENTS OF DES RESERVES RÉSERVES (SUITE) for the year ended December 31 Note (note 6) Appreciation reserve (total) Appreciation reserve investments in Desjardins subsidiary companies Balance at beginning of year $3,021,298 $2,083,726 Transactions in owners equity by Desjardins subsidiary companies in which the Caisse s share is accounted for under the equity method 7,726 20,127 Increase from statement of distributable surplus earnings as a result of statutory provisions 1,117, ,445 Balance at end of year $4,146,045 $3,021,298 Appreciation reserve derivative instruments Balance at beginning of year $1,184,445 $2,293,042 Allocation to statement of distributable surplus earnings as a result of statutory provisions (218,986) (1,108,597) Balance at end of year $965,459 $1,184,445 Appreciation reserve (total) $5,111,504 $4,205,743 General reserve Balance at beginning of year Balance already calculated $12,108,493 $10,446,800 Accumulated transfer from statement of distribution as a result of a change in accounting policy 6-573,176 Restated balance at beginning of year 12,108,493 11,019,976 Statutory allocation to statement of distributable surplus earnings as a result of a change in accounting policy 6 - (57,875) Increase resulting from distribution by members 120,650 1,146,392 Balance at end of year $12,229,143 $12,108, th ANNUAL REPORT CAISSE DESJARDINS DE CHOMEDEY 13

14 STATEMENTS OF RESERVES (CONTINUED) for the year ended December (note 6) Stabilization reserve Balance at beginning of year $662,418 $647,745 Increase resulting from distribution by members 663,528 14,673 Balance at end of year $1,325,946 $662,418 Future member dividends reserve Balance at beginning of year $1,729,571 $994,571 Increase resulting from distribution by members - 735,000 Balance at end of year $1,729,571 $1,729,571 Community development fund Balance at beginning of year $354,183 $400,902 Allocation to statement of distributable surplus earnings of amounts used during the year (25,229) (46,719) Balance at end of year $328,954 $354,183 Total reserves $20,725,118 $19,060, CAISSE DESJARDINS DE CHOMEDEY 65 th ANNUAL REPORT

15 NOTES STATEMENT AFFÉRENTES OF AUX CASH ÉTATS FLOWS FINANCIERS for the year ended December (note 6) Operating activities Surplus earnings for the year after member dividends $1,491,327 $598,410 Adjustments to determine cash flows Provision and loan losses 209, ,746 Amortization of premises and equipment 251, ,020 Net change in accrued interest receivable and payable 349,105 (479,761) Income related to investments in Desjardins subsidiary companies (1,117,021) (917,445) Losses related to fair value of derivative instruments 289,632 1,432,385 Other 233, ,291 Cash flows from operating activities 1,706,870 1,346,646 Financing activities Net change in member deposits 12,388,747 20,751,301 Transactions related to borrowings Net change in line of credit (20,884,136) 8,427,798 Net change in term loans 60,307,804 (4,907,976) New issue of permanent shares 1,640,000 2,187,060 Other net change in capital stock 49,264 64,695 Interest on permanent shares and surplus shares, net of income tax savings (92,550) (61,458) Cash flows from financing activities 53,409,129 26,461,420 Investing activities Net change in loans (53,929,073) (27,773,449) Net change in investments (1,362,833) (1,264,181) Net change in premises and equipment (43,067) (160,582) Cash flows from investing activities (55,334,973) (29,198,212) Net decrease in cash (218,974) (1,390,146) Cash at beginning of year 1,864,647 3,254,793 Cash at end of year $1,645,673 $1,864,647 Other cash flow information Amount of interest paid $5,120,072 $5,374,624 Amount of income taxes paid during the year 307, , th ANNUAL REPORT CAISSE DESJARDINS DE CHOMEDEY 15

16 NOTES TO THE FINANCIAL STATEMENTS for the year ended December 31, 2010 Note 1. Applicable Legislation and Operations Carried on by the Caisse The Caisse is a cooperative whose object is to receive the savings of its members and to invest them profitably, to extend credit and supply other financial products and services to its members, to foster cooperation and to promote economic, social and cooperative education. It is governed by the Act respecting Financial Services Cooperatives (the Act ). The Caisse is listed with the Autorité des marchés financiers (the AMF). It is also a member of Fonds de sécurité Desjardins, whose main object is to establish and administer a security, liquidity or mutual benefit fund for the benefit of the Desjardins caisses in Québec. The Caisse is a member of the Fédération des caisses Desjardins du Québec (the FCDQ) which controls other components that form Desjardins Group. Note 2. New Accounting Standard Effective interest method On January 1, 2010, the Caisse retrospectively adopted the amendment to Section 3855 Financial Instruments Recognition and Measurement of the Handbook of the Canadian Institute of Chartered Accountants (CICA). This amendment clarifies the interest calculation method for a financial asset after recognition of an impairment loss. The adoption of these amendments did not have any significant impact on the Caisse s financial statements. Note 3. Accounting Policies In preparing the financial statements according to Canadian generally accepted accounting principles, management is required to make certain estimates and assumptions that have an impact on the amounts reported in the financial statements and the Notes. Actual results may therefore differ from these estimates. 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 liabilities are initially recognized at fair value at the trade date. Financial instruments held for trading by the Caisse are comprised of cash and derivative instruments. Available-for-sale financial assets are equity securities that are recorded at cost. The held to maturity category is not used. Finally, loans and receivables and financial liabilities not held for trading are recorded at cost after amortization, using the effective interest rate method. Interest income and expense on these assets and liabilities are recorded with net interest income. Transaction costs related to financial instruments are basically attributable to loans and receivables and are capitalized and amortized over the life of the instrument, according to the effective interest rate method. Derivative instruments and hedges The Caisse uses swaps and options to manage the risks inherent in its financial assets and liabilities. As provided for in Canadian generally accepted accounting principles, the Caisse elected not to adopt hedge accounting for these derivatives in light of the complexity of the new requirements for documenting hedging relationships. 16 CAISSE DESJARDINS DE CHOMEDEY 65 th ANNUAL REPORT

17 NOTES TO AFFÉRENTES THE FINANCIAL STATEMENTS AUX ÉTATS FINANCIERS for the year ended December 31, 2010 Note 3. Accounting Policies (continued) The Caisse recognizes its derivative instruments at fair value, whether they are stand-alone or embedded. Stand-alone derivative instruments are recorded on the balance sheet as other assets and liabilities while embedded derivative instruments are presented with their host contract according to their nature, under Term savings or Other assets. Any change in the fair value of stand-alone derivatives is recognized in the statement of income under Losses related to the fair value of derivative instruments, except for any change in relation to term savings linked to the market, which is recognized under Interest expense. Moreover, any change in the fair value of embedded derivatives is recorded as an interest expense adjustment. Comprehensive income Other comprehensive income includes amortization of the balance related to cash flow hedges discontinued in previous years and the share in other comprehensive income of Desjardins subsidiary companies for which the Caisse s investment is accounted for under the equity method. The financial statements include a statement of comprehensive income. Accumulated other comprehensive income is presented as an equity item on the balance sheet. Other accounting policies To facilitate understanding of these financial statements, the significant accounting policies other than the foregoing have been integrated into the Notes. Note 4. Future Accounting Changes New financial reporting framework Effective January 1, 2011, the Caisse, as a savings and loan cooperative meeting the accounting definition of a publicly accountable enterprise, will be required to apply the International Financial Reporting Standards (IFRS). The changes associated with the retrospective adoption of this new financial reporting framework will be recognized in the opening balances for equity as at January 1, Note 5. Liquid Assets and Investments Cash $1,645,673 $1,864,647 Investments in Desjardins subsidiary companies 9,914,294 7,759,065 Investments in liquidity fund under management 9,929,763 9,344,604 $21,489,730 $18,968,316 Cash includes cash and other sums used in current operations. Investments in Desjardins subsidiary companies are accounted for under the equity method. Term deposit investments are classified as loans and receivables. So that the Caisse can manage liquidity risk, it keeps the amounts necessary to maintain a minimum level of liquidity in a fund under management designed specifically for this purpose. The amounts paid into this fund are excluded from cash because regulations do not permit them to be used for current operations. At year-end 2010 and 2009, no write-down was required to reflect a permanent impairment in value under investments. 65 th ANNUAL REPORT CAISSE DESJARDINS DE CHOMEDEY 17

18 NOTES TO THE FINANCIAL STATEMENTS for the year ended December 31, 2010 Note 6. Loans Loans are recorded at amortized cost, using the effective interest rate method, net of the allowance for credit losses, which reflects management s best estimate of potential losses on the loan portfolio. This allowance is made up of specific allowances and a general allowance. Specific allowances are determined for all loans considered to be impaired. A loan is considered impaired when one of the following situations arises: in the opinion of management, there is reasonable doubt as to the ultimate collectibility of principal and interest; the loan is more than 180 days in arrears; or the interest or principal repayment is 90 days or more past due, unless the loan is fully secured. The value of impaired loans is adjusted by discounting the expected future cash flows from these loans, and the allowance is equal to the difference between this valuation and the balance of the loan. Any variation in the allowance for credit losses due either to the passage of time or to a revision of expected payments is recorded under Provision and loan losses in the statement of income. The Caisse ceases to record interest as soon as a loan is considered impaired. When there is no longer any reasonable doubt concerning the collectibility of principal and interest on an impaired loan, it is restored to current status. Interest on this loan is once again accounted for under the accrual method, and the related allowances are reversed to income. The general allowance is intended to evaluate loan losses that cannot be determined on an individual basis, and is notably based on the profile of the loan portfolio as at the date of the balance sheet. Accounting change During the year, the Caisse changed the method it uses to measure its general allowance. The new method ensures that the most accurate calculation of risk is taken into consideration by using parameters such as probability of default, loss in case of default and gross amounts subject to default, which are determined based on historical losses by loan category and rating. This new approach is based more on coverage of undetected risks as at the balance sheet date, given that there is a period of time between the loss event and when the loan becomes impaired. The new methodology makes it possible to continue to obtain a reliable and more relevant amount for the general allowance. Further to the retrospective application of the new method to prior periods, the financial statements have been adjusted as follows. December 31, 2009 January 1, 2009 Balance sheet Assets Decrease in the allowance for credit losses $725,969 $794,797 Liabilities Increase in other liabilities 210, ,621 Equity Increase in reserves 515, ,176 Furthermore, for the year ended December 31, 2009, the retrospective adjustment of the general allowance helped to increase the provision and loan losses expense by $68,828, decrease general expenses by $5,295, decrease income tax expense by $5,658 and led to a $57,875 decrease in surplus earnings for the year, after member dividends. Given the statutory framework requiring the allocation of the impact of restatement to the general reserve, the impact of restatement on distributable surplus earnings is nil. 18 CAISSE DESJARDINS DE CHOMEDEY 65 th ANNUAL REPORT

19 NOTES TO AFFÉRENTES THE FINANCIAL STATEMENTS AUX ÉTATS FINANCIERS for the year ended December 31, 2010 Note 6. Loans (continued) Loans by category of borrower Personal Mortgages $211,541,687 $166,396,982 Consumer and other 45,470,466 39,125,287 Business Commercial and industrial 58,001,280 55,918,232 Agriculture, forestry and fishing 1,053,652 1,013,651 Government and public institutions 33,015 45,685 $316,100,100 $262,499,837 Loans and provision 2010 Personal Business General Allowance Total Loans, neither past due nor impaired, gross amount $242,325,709 $58,729,031 $- $301,054,740 Loans, past due but not impaired, gross amount 13,030, ,806-13,190,214 Gross impaired loans 1,656, ,110-1,855,146 Total gross loans 257,012,153 59,087, ,100,100 Specific allowances (18,629) (126,293) - (144,922) General allowance - - (491,668) (491,668) Total net loans $256,993,524 $58,961,654 $(491,668) $315,463, Personal Business General Allowance Total Loans, neither past due nor impaired, gross amount $193,159,296 $56,659,174 $- $249,818,470 Loans, past due but not impaired, gross amount 11,413, ,696-11,549,253 Gross impaired loans 949, ,698-1,132,114 Total gross loans 205,522,269 56,977, ,499,837 Specific allowances (187,821) (86,661) - (274,482) General allowance (1) - - (481,195) (481,195) Total net loans $205,334,448 $56,890,907 $(481,195) $261,744,160 (1) The opening balance for the year was restated as esplained earlier. 65 th ANNUAL REPORT CAISSE DESJARDINS DE CHOMEDEY 19

20 NOTES TO THE FINANCIAL STATEMENTS for the year ended December 31, 2010 Note 6. Loans (continued) The carrying amount of loans that would otherwise be past due or impaired, but whose terms were renegotiated during the year, amounted to $762,736 (none in 2009). Past due loans are loans on which the counterparty has failed to make a payment when contractually due. Loans past due but not impaired to 29 days 30 to 59 days 60 to 89 days 90 days and more Total Personal $8,921,117 $1,536,942 $1,627,111 $945,238 $13,030,408 Business 111,772 48, ,806 $9,032,889 $1,584,976 $1,627,111 $945,238 $13,190, to 29 days 30 to 59 days 60 to 89 days 90 days and more Total Personal $9,124,255 $1,464,550 $372,562 $452,190 $11,413,557 Business 110,514 25, ,696 $9,234,769 $1,489,732 $372,562 $452,190 $11,549,253 Changes in the provision 2010 Specific allowances Personal Specific allowances Business General allowance Total Balance at beginning of year (1) $187,821 $86,661 $481,195 $755,677 Provision and loan losses shown in the statement of income 91, ,320 10, ,723 Write-offs and other (261,122) (67,688) - (328,810) Balance at end of year $18,629 $126,293 $491,668 $636, CAISSE DESJARDINS DE CHOMEDEY 65 th ANNUAL REPORT

21 NOTES TO AFFÉRENTES THE FINANCIAL STATEMENTS AUX ÉTATS FINANCIERS for the year ended December 31, 2010 Note 6. Loans (continued) 2009 Specific allowances Personal Specific allowances Business General allowance Total Balance at beginning of year (1) $158,203 $13,967 $556,724 $728,894 Provision and loan losses shown in the statement of income 225, ,392 (75,529) 275,746 Write-offs and other (196,265) (52,698) - (248,963) Balance at end of year $187,821 $86,661 $481,195 $755,677 (1) The opening balance for the year was restated as esplained earlier. Transferred loans still recognized on the balance sheet As part of its liquidity and capital management strategy, Desjardins Group participates in the National Housing Act Canada Mortgage-Backed Securities Program of the Canada Mortgage and Housing Corporation (CMHC). Under this program, the Caisse transferred a mortgage loan securitization interest to a Desjardins subsidiary company. Then, once the loans covered by the securitization interests are converted into pools of loans by the subsidiary, the loans in the pool are transferred from the Caisse to the CMHC. Within the framework of these transactions, the Caisse retains substantially all the risks and benefits related to the interests in the mortgage loan securitization and the loans covered, notably prepayment risk and counterparty risk. As a result, this debt remains on the Caisse s balance sheet. The table below presents the carrying amount of the mortgage loans legally transferred by the Caisse but which remain recorded on the balance sheet. Given that no cash or other asset is received for this transaction, no related liability was recorded on the balance sheet: Mortgage loans transferred for securitization purposes $17,883,580 $- Note 7. Premises and Equipment Useful Life (years) Cost Accumulated Depreciation Net Amount Net Amount Land $531,355 $- $531,355 $531,355 Building 15 to 60 1,205,510 1,017, , ,289 Equipment and other 3 to 10 1,453,874 1,236, , ,405 Leasehold improvements , , , ,616 $3,889,351 $2,607,690 $1,281,661 $1,489, th ANNUAL REPORT CAISSE DESJARDINS DE CHOMEDEY 21

22 NOTES TO THE FINANCIAL STATEMENTS for the year ended December 31, 2010 Note 7. Premises and Equipment (continued) Premises and equipment are amortized according to the straight line method, based on their useful life. To calculate depreciation expense for buildings, the Caisse uses the component approach. Depreciation was calculated separately for the following components: structure and foundation, building envelope and technical installations as well as interior layout. The amount of depreciation charged to income for the year totalled $251,071 ($298,020 in 2009). Note 8. Borrowings Line of credit with an interest rate of 1.50%, variable $27,874,389 $48,758,525 Term loans with interest rates ranging from 2.94% to 3.20%, repayable at their maturity, between January and July ,000,000 - Term loans with interest rates of 1.97% to 2.30%, variable repayable at their maturity, between November 2013 and December ,000,000 - Term loan with an interest rate of 4.49% variable, repayable periodically, maturing on December , ,033 Term loans bearing interest at fixed rates or rates renegotiable quarterly, some of which loans have a prepayment before maturity clause (1) Fixed Rate Maturing Repayable 6.50% June 2017 June , , April 2019 April ,213,397 1,213, June 2021 June ,245,262 1,245, May 2020 May ,413, November 2020 November ,936,031 - Rate renegotiable Maturing Repayable 5.49 April 2014 n.a. 947, , June 2016 n.a. 1,237,770 1,237,770 $93,608,529 $54,184,861 (1) Term borrowings include subordinated securities with a related company redeemable at the option of the holder under certain conditions and for specified purposes. 22 CAISSE DESJARDINS DE CHOMEDEY 65 th ANNUAL REPORT