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Tuesday 04 March, 2014

Caisse Centrale

CCD Annual Financial Report

RNS Number : 2667B
Caisse Cent. Desjardins Du Quebec
28 February 2014
 



 

CONSOLIDATED FINANCIAL STATEMENTS

AS AT DECEMBER 31, 2013

CAISSE CENTRALE DESJARDINS

 

 

Audit Commission's Annual Report

The role of the Audit Commission (the Commission) is to support the Board of Directors of Caisse centrale Desjardins (CCD) in its oversight responsibilities. Its mandate consists primarily of analyzing the financial statements, their presentation and the quality of the accounting principles adopted, risk management relating to financial reporting, internal control systems, internal audit and independent audit processes, the procedures applied to these audits, and the management of regulatory compliance.

 

The Commission reviews CCD's interim and annual financial statements, Management's Discussion and Analysis, Annual Information Form and prospectuses. The Commission ensures that management has designed and implemented an effective internal control system with respect to the organization's business processes, financial reporting, asset protection, fraud detection, and regulatory compliance. It also ensures that management has set up systems to manage the principal risks that may influence the financial results of CCD. The Commission analyzes the information resulting from this financial governance process every quarter.

 

The independent auditor is under the authority of the Commission. To fulfil its responsibilities in this regard, the Commission ensures and preserves the independent auditor's independence by authorizing all of its non-audit services, by recommending its appointment or the continuance of its engagement, by setting and recommending auditor compensation and by conducting annual auditor evaluations. In addition, the Commission supervises the work of the independent auditor and examines its audit proposal, its mandate, its annual strategy, its reports, its letter to management, and management's comments. Desjardins Group has adopted a policy that governs the awarding of contracts for related services, which addresses the following issues: (a) services that can or cannot be performed by the independent auditor, (b) governance procedures that must be followed before mandates may be awarded, and (c) responsibilities of the key players involved. Accordingly, the Commission receives a quarterly report on the contracts awarded to the independent auditor by CCD.

 

The Commission ensures the independence of internal audit function, which is performed by the Desjardins Group Monitoring Office. The Commission analyzes the annual internal audit strategy for CCD as well as the internal audit team's responsibilities, performance, objectivity and staffing. The Commission also reviews the internal audit team's summary reports and, if necessary, takes appropriate follow-up action. As part of this review, the Commission meets with the head of internal audit at Desjardins Group to discuss any major issues submitted to management.

 

With respect to relations with the Autorité des marchés financiers (AMF), the Commission reviews and follows up on the inspection reports issued by the AMF and examines the financial reports that are submitted each quarter to the AMF.

 

The Commission meets privately with the independent auditor, management, the Chief Financial Officer of CCD, the Chief Monitoring Officer of Desjardins Group and AMF representatives. It reports to the Board of Directors on a quarterly basis and, if necessary, makes recommendations.

 

Lastly, in accordance with sound corporate governance practices, once a year the Commission reviews the degree of efficiency and effectiveness with which it has executed the tasks set out in its charter.

 

The Commission is made up of five independent directors as well as one observer, being a caisse general manager who sits on the board of directors of the Fédération des caisses Desjardins du Québec (the Federation). Except for the general manager, none of the Commission members receives compensation from Desjardins Group, either directly or indirectly, for services other than those rendered as a member of the Board of Directors of the Federation or other Desjardins Group entity, including committees.

 

All members of the Commission possess the knowledge required to read and interpret the financial statements of a financial institution, according to the criteria established in the Commission's charter. In light of significant changes made to accounting and financial reporting requirements, the members of the Commission attended several presentations and one training session, in particular on changes to the International Financial Reporting Standards (IFRS) and on the impact of changes to the normative and regulatory frameworks to which capital management and corporate governance are subject.

 

The Commission held 10 meetings and its members attended one training session in fiscal 2013. As at December 31, the five independent directors who are members of the Commission are Annie P. Bélanger, Donat Boulerice, André Gagné, CPA, CGA, Pierre Levasseur and Benoît Turcotte. The observer was Yves Genest.

 

 

André Gagné, CPA, CGA

Chair,

 

Montreal, Quebec

February 25, 2014

 

 

Management's responsibility for financial reporting

The Consolidated Financial Statements of Caisse centrale Desjardins (CCD) and all the information contained in the annual Management's Discussion and Analysis are the responsibility of CCD's management, which is responsible for ensuring reporting integrity and reliability.

 

These Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and the accounting requirements of the Autorité des marchés financiers (AMF) in Quebec, which do not differ from IFRS. These Consolidated Financial Statements necessarily contain amounts established by management based on estimates which it deems fair and reasonable. All financial information in the annual Management's Discussion and Analysis is consistent with the audited Consolidated Financial Statements.

 

CCD's management is responsible for the accuracy of CCD's Consolidated Financial Statements and related information, as well as the accounting systems from which they are derived, for which purposes it maintains controls over transactions and related accounting practices. Such controls include an organizational structure that ensures effective segregation of duties, a code of ethics, hiring and training standards, policies and procedure manuals, and regularly updated control methods, designed to ensure adequate supervision of operations. The internal control system is supported by a compliance team, which helps management ensure that all regulatory requirements are met, and a team from the Desjardins Group Monitoring Office with full and unrestricted access to the Audit Commission. Management has also implemented a financial governance structure based on best market practices to ensure the effectiveness of the disclosure controls and procedures over the financial information presented in the annual and interim filings of CCD.

 

The AMF examines the affairs of CCD on a regular basis.

 

For purposes of approving the financial information contained in the Annual Report, the Board of Directors of CCD relies on the recommendation of the Audit Commission. The Commission is mandated by the Board of Directors to review the Consolidated Financial Statements and the Management's Discussion and Analysis of CCD. In addition, the Audit Commission, comprising independent directors and one observer who are neither management nor employees of CCD, exercises an oversight role to ensure that management has developed and implemented adequate control procedures and systems to ensure quality financial reporting that includes all the required disclosures within the required timeframes.

 

These Consolidated Financial Statements were audited by PricewaterhouseCoopers LLP, the independent auditor appointed by the Board of Directors, whose report follows. The independent auditor may meet with the members of the Audit Commission at any time to discuss its audit and any issues related thereto, including the integrity of the financial information provided and the quality of internal control systems.

 

 

 

 

 

Monique F. Leroux, C.M., O.Q., FCPA, FCA                                      Daniel Dupuis, CPA, CA

Chair of the Board of Directors                                                             Senior Vice-President and Chief Financial Officer

and Chief Executive Officer                                                                  Caisse centrale Desjardins

Caisse centrale Desjardins                                                                

 

Montreal, Quebec

February 25, 2014

 

 

 

Independent auditor's report

To the members of Caisse centrale Desjardins

 

We have audited the accompanying consolidated financial statements of Caisse centrale Desjardins, which comprise the consolidated balance sheets as at December 31, 2013, December 31, 2012, and January 1, 2012, and the consolidated statements of income, comprehensive income, changes in members' equity and cash flows for the years ended December 31, 2013 and 2012, and the accompanying notes, including a summary of significant accounting policies and other explanatory information.

 

Management's responsibility for the consolidated financial statements

 

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards (IFRS), and for such internal control as management determines is necessary to enable the preparation of consolidated 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 the consolidated financial statements based on our audits. We conducted our audits 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 consolidated financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated 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 consolidated 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 presentation of the consolidated financial statements.

 

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

 

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Caisse centrale Desjardins as at December 31, 2013, December 31, 2012, and January 1, 2012, and its financial performance and its cash flows for the years ended December 31, 2013 and 2012, in accordance with International Financial Reporting Standards (IFRS).

 

 

 

 

 

PricewaterhouseCoopers LLP (1)

(1) CPA auditor, CA, public accountancy permit No. A110766

 

Montreal, Quebec

February 25, 2014

 

 

CONSOLIDATED BALANCE SHEETS

 

(in thousands of Canadian $)

 Notes

 

As at

December 31,  2013

 

 

As at December  31, 2012

Restated

(note 3)

 

As at January 1, 2012

Restated

(note 3)

ASSETS








Cash and deposits with financial institutions


$

236,360

$

554,110

$

343,544

Securities

8 and 10







Securities at fair value through profit or loss



2,016,184


1,763,551


1,776,279

Available-for-sale securities



5,257,483


5,017,104


5,308,822




7,273,667


6,780,655


7,085,101

Securities purchased under reverse repurchase

   agreements



877,949


345,342


735,367

Loans

9 and 10







Gross loans



22,610,623


18,297,955


17,847,696

Allowances for credit losses



(49,221)


(52,800)


(58,451)




22,561,402


18,245,155


17,789,245

Other assets








Clients' liability under acceptances



985,150


841,000


676,500

Derivative financial instruments

15


2,375,996


2,048,542


2,888,139

Deferred tax assets

20


28,418


26,603


 26,867

Other

11


444,758


439,305


443,257




3,834,322


3,355,450


4,034,763

TOTAL ASSETS


$

34,783,700

$

29,280,712

$

29,988,020

LIABILITIES AND MEMBERS' EQUITY








LIABILITIES








Deposits

13







Individuals



142,773


136,785


111,934

Business and government



23,242,563


18,566,938


17,321,365

Deposit-taking institutions



3,904,419


3,866,338


4,206, 609




27,289,755


22,570,061


21,639,908

Other liabilities








Acceptances



985,150


841,000


676,500

Commitments related to securities sold short



224,483


57,115


 73,322

 Commitments related to securities sold under

  repurchase agreements



538,236


574,817


242,422

Derivative financial instruments

15


2,064,425


2,032,621


3,118,583

Net defined benefit plan liabilities

21


28,028


32,991


 31,408

Other

14


1,444,967


1,255,163


2,268,901




5,285,289


4,793,707


6,411,136

TOTAL LIABILITIES



32,575,044


27,363,768


28,051,044

MEMBERS' EQUITY








Capital stock

16


2,187,206


1,887,206


1,887,206

Retained earnings



1,532


(6,310)


(4,147)

Accumulated other comprehensive income

17


18,451


34,581


 51,215

General reserve



1,467


1,467


2,702

TOTAL MEMBERS' EQUITY



2,208,656


1,916,944


1,936,976

TOTAL LIABILITIES AND MEMBERS' EQUITY


$

34,783,700

$

29,280,712

$

29,988,020

 

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

 

On behalf of the Board of Directors of Caisse centrale Desjardins,

 

 

 

 

 

 

Monique F. Leroux, C.M., O.Q., FCPA, FCA                                                             Denis Paré, LL.L., D.D.N

Chair of the Board of Directors                                                                                      Vice-Chair of the Board of Directors

 

 

 

 

CONSOLIDATED STATEMENTS OF INCOME

 

 

For the years ended December 31

 

(in thousands of Canadian $)

 Notes

2013

 

2012

Restated (Note 3)

INTEREST INCOME






Loans


$

495,397

$

433,878

Securities



141,637


169,543




637,034


603,421

INTEREST EXPENSE






Deposits



380,215


324,704




380,215


324,704

NET INTEREST INCOME



256,819


278,717

OTHER INCOME






Deposit and payment service charges



20,517


21,563

Foreign exchange income



43,812


45,155

Trading activities



     (17,225)


       (62,985)

Net gains on available-for-sale securities



7,257


4,075

Credit fees



5,162


5,591

Management fees



5,442


5,070

Other

19


4,193


2,835




69,158


21,304

TOTAL INCOME



325,977


300,021

PROVISION FOR CREDIT LOSSES

9


1,552


7,384




324,425


292,637

NON-INTEREST EXPENSE






Salaries and fringe benefits



41,243


35,867

Premises, equipment and furniture, including

    depreciation



9,254


6,095

Service agreements and outsourcing



37,601


35,870

Fees



6,811


8,179

Other

19


23,604


19,958




118,513


105,969

OPERATING INCOME BEFORE OTHER PAYMENTS TO THE DESJARDINS NETWORK



205,912


186,668

Other payments to the Desjardins network



38,878


39,253

OPERATING INCOME



167,034


147,415

Income taxes

20


36,185


35,591

Income tax recovery on remuneration on capital stock

20


      (37,898)


       (32,838)

NET INCOME FOR THE YEAR


$

168,747

$

144,662

 

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

 

 

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

For the years ended December 31

 

(in thousands of Canadian $)

Notes

2013

2012

Restated (Note 3)

Net income for the year


$ 168,747

$ 144,662

Other comprehensive income (net of income taxes)

20



Item that will not be reclassified subsequently to the 

  Consolidated Statements of Income




 Remeasurement of net defined benefit plan liabilities


1,308

(2,851)



1,308

(2,851)

Items that will be reclassified subsequently to the

  Consolidated Statements of Income




Net change in unrealized gains (losses) on available-

  for-sale securities



 

 

Unrealized net gains (losses) on available-for-sale

  securities


(1,211)

51

Reclassification to the Consolidated Statements of

  Income of gains on available-for-sale securities


(5,549)

(3,146)



(6,760)

(3,095)

Net change in cash flow hedges




Net losses on derivative financial  instruments

  designated as cash flow  hedges


(11,177)

(15,433)

Reclassification to the Consolidated Statements

  of Income of losses on derivative financial

  instruments designated as cash flow hedges

15

1,848

1,925



(9,329)

(13,508)

Net unrealized exchange losses on the translation

  of an investment in a foreign operation, net of a

  loss of  $1.3 million (gain of $0.4 million in 2012)

  on hedging transactions


(41)

(31)

Total other comprehensive income


(14,822)

(19,485)

COMPREHENSIVE INCOME FOR THE YEAR


$ 153,925

$ 125,177

 

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

 

 

 

INCOME TAXES ON OTHER COMPREHENSIVE INCOME

 

The tax expense or recovery related to each component of other comprehensive income is presented in the following table:

 

For the years ended December 31

 

(in thousands of Canadian $)


2013

2012

Restated (Note 3)

Item that will not be reclassified subsequently to the

  Consolidated Statements of Income




Remeasurement of net defined benefit plan liabilities


$          6

$   (840)



6

(840)

Items that will be reclassified subsequently to the

 Consolidated Statements of Income




Net change in unrealized gains (losses) on available-

  for-sale securities



 

 

Unrealized net gains (losses) on available-for-sale

  securities


(26)

(85)

Reclassification to the Consolidated Statements of

  income of gains on available-for-sale securities


(1,708)

(929)



(1,734)

(1,014)

Net change in cash flow hedges




Net losses on derivative financial instruments

  designated as cash flow hedges


(3,445)

(4,537)

Reclassification to the Consolidated Statements of

  Income of losses on derivative financial

  instruments designated as cash flow hedges


575

565



(2,870)

(3,972)



(4,604)

(4,986)

Total income tax recovery


$  (4,598)

$ (5,826)

 

 

 

CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY

 

For the years ended December 31

(in thousands of Canadian $)

Capital stock

(Note 16)

Retained earnings

Accumulated other comprehensive income

(Note 17)

General reserve

Total members' equity

Balance as at January 1, 2012, as

  reported

$

1,887,206

$

             --

$

      51,215

$

2,702

$

1,941,123

Impact of changes in accounting policies

  (Note 3)


--


     (4,147)


               --


--


(4,147)

Balance as at January 1, 2012

  (restated)


1,887,206


     (4,147)


       51,215


2,702


1,936,976

Net income for the year


--


  144,662


               --


          --


      144,662

Other comprehensive income for the year


--


    (2,851)


     (16,634)


          --


(19,485)

Total comprehensive income for the year


--


  141,811


     (16,634)


          --


      125,177

Remuneration on capital stock


--


 (144,508)


               --


          --


(144,508)

Related party transactions (Note 28)


--


       (701)


               --


        --


(701)

Transfer from the general reserve


--


      1,235


               --


(1,235)


               --

Balance as at December 31, 2012

  (restated)

$

1,887,206

$

    (6,310)

$

34,581

$

1,467

$

1,916,944

Net income for the year


--


  168,747


--


--


168,747

Other comprehensive income for the year


--


      1,308


(16,130)


--


(14,822)

Total comprehensive income for the year


--


  170,055


(16,130)


--


153,925

Issuance of Class A capital shares


300,000


           --


--


--


300,000

Remuneration on capital stock


--


(162,213)


--


--


(162,213)

Balance as at December 31, 2013

$

2,187,206

$

      1,532

$

18,451

$

1,467

$

2,208,656

 

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

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

For the years ended December 31 

2013

 

2012

Restated (Note 3)

(in thousands of Canadian $)

Cash flows from (used in) operating activities





Operating income

$

167,034

$

147,415

Non-cash adjustments :





Depreciation of premises and equipment and amortization of

    intangible assets


4,533


2,539

Provision for credit losses


1,552


7,384

Net realized gains on available-for-sale securities


(7,257)


(4,075)

Change in operating assets and liabilities:





Securities at fair value through profit or loss


(252,633)


12,728

Securities purchased under reverse repurchase agreements


(532,607)


390,025

Loans


(4,313,023)


(462,818)

Derivative financial instruments, net amount


(295,650)


(246,365)

Deposits


4,719,694


930,153

Commitments related to securities sold short


167,368


(16,207)

 Commitments related to securities sold under repurchase

    agreements


(36,581)


332,395

Other


185,471


(920,386)

Income taxes recovered (paid)


1,790


(7,601)



(190,309)


165,187

Cash flows from (used in) financing activities





Issuance of Class A capital shares


300,000


--

Remuneration on capital stock paid


(144,508)


(153,911)



155,492


(153,911)

Cash flows from (used in) investing activities





Purchase of available-for-sale securities


(14,465,262)


(11,032,272)

Proceeds from disposals of available-for-sale securities


7,600,901


10,784,472

Proceeds from maturities of available-for-sale securities


6,589,600


493,619

Acquisition of premises and equipment and intangible assets


(10,596)


(9,586)

Proceeds from disposals of premises and equipment and intangible

  assets


6,227


--



(279,130)


236,233

Net (decrease) increase in cash and cash equivalents


(313,947)


247,509

Cash and cash equivalents at beginning of year


454,690


207,181

Cash and cash equivalents at end of year

$

140,743

$

454,690

Supplemental information on cash flows from (used in)

  operating activities





   Interest paid

$

379,580

$

325,717

   Interest received


679,373


653,465

 

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

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 - INFORMATION ON CAISSE CENTRALE DESJARDINS

 

NATURE OF OPERATIONS

 

Caisse centrale Desjardins du Québec (CCD), created on June 22, 1979, is a cooperative institution that offers financial services to Desjardins Group, governments, public and parapublic sector institutions, individuals, medium-sized businesses and large corporations. It serves the needs of the Fédération des caisses Desjardins du Québec (the Federation), the Desjardins caisses (the member caisses) and other Desjardins Group components. CCD's mandate is to provide institutional funding for the Desjardins network and to act as financial agent, in particular by supplying interbank exchange services, including clearing house settlements. CCD's activities on the Canadian and international markets complement those of other Desjardins Group entities. The Desjardins network comprises the entities included in the group scope of Desjardins Group. The various business segments in which CCD operates are described in Note 27, "Segmented information". The address of its head office is 1170 Peel Street, Suite 600, Montreal, Quebec, Canada.

 

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

 

a) General information¸

 

STATEMENT OF COMPLIANCE

 

Pursuant to the Act Respecting Financial Services Cooperatives (the Act), these Consolidated Financial Statements have been prepared by CCD's management in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and the accounting requirements of the Autorité des marchés financiers (AMF) in Quebec, which do not differ from IFRS.

 

The Consolidated Financial Statements for the year ended December 31, 2013 were approved by the Board of Directors of CCD on February 25, 2014.

 

The significant measurement and presentation rules applied to prepare these Consolidated Financial Statements are described below.

 

SIGNIFICANT JUDGEMENTS' ESTIMATES AND ASSUMPTIONS

The preparation of consolidated financial statements in accordance with IFRS requires management to make judgments and estimates and rely on assumptions which have an impact on the reported amount of certain assets, liabilities, income and expenses as well as related disclosures. The significant accounting policies that require management to make difficult, subjective or complex judgments, often about matters that are inherently uncertain, are related to consolidation of the structured entity, determination of the fair value of financial instruments, derecognition of financial assets, allowance for credit losses, objective evidence of impairment of available-for-sale securities, impairment of non-financial assets, provisions, income taxes and employee benefits. Consequently, actual results could differ from those estimates.

 

PRINCIPLES OF CONSOLIDATION

The Consolidated Financial Statements of CCD include the assets, liabilities, operating results and cash flows of CCD and its wholly-owned U.S. subsidiary, Desjardins FSB Holdings Inc., and the structured entity it controls, and take into account the elimination of intercompany transactions, balances, income and expenses. The Consolidated Financial Statements of all these entities have been prepared for the same reference period using consistent accounting policies.

 

Subsidiaries

 

An entity is considered as a subsidiary when it is controlled by a group entity. A group entity controls an investee if and only if it has all the following:

 

·     Power over the investee;

 

·     Exposure, or rights, to variable returns from its involvement with the investee; and

 

·     The ability to use its power over the investee to affect the amount of its returns.

 

Management must make significant judgments when it assesses these various elements and all related facts and circumstances as a whole to determine whether control exists, especially in the case of structured entities.

 

Structured entity

 

A structured entity is an entity that has been designed so that voting rights or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. A structured entity often has some or all of the following features or attributes: restricted activities, a narrow and well-defined objective, insufficient equity to permit it to finance its activities without subordinated financial support, or financing in the form of multiple contractually linked instruments to investors.

 

 

 

 

Presentation and functional currency

 

These Consolidated Financial Statements are expressed in Canadian dollars, which is also the functional currency of CCD. Dollar amounts presented in the tables of the Notes to the Consolidated Financial Statements are in thousands of dollars, unless otherwise stated.

 

b) Financial assets and liabilities

 

Financial assets mainly consist of securities, loans and derivative financial instruments, whereas financial liabilities mainly include deposits and derivative financial instruments.

 

Financial assets and liabilities are recognized on the date CCD becomes a party to their contractual provisions, namely the date of acquisition or issuance of the financial instrument. Regular-way purchases and sales of financial assets are recognized on a trade-date basis.

 

Classification and measurement

 

Financial assets and liabilities are classified based on their characteristics and the intention of management upon their acquisition.

 

The classification of financial assets can be summarized as follows:

 

Categories

Classes

Recognition

Initial

Subsequent

Financial

Assets

At fair value through profit or loss (i)

Held for trading (ii)

Fair value

Fair value

Designated as at fair value through profit or loss (iii)

Fair value

Fair value

Loans and receivables (iv)

Fair value

Amortized cost

Available for sale (v)

Fair value

Fair value

Held to maturity (vi)

Fair value

Amortized cost

 

(i)         Financial assets classified in the "At fair value through profit or loss" category include financial assets "Held for trading" and "Designated as at fair value through profit or loss". Therefore:

 

· Changes in fair value of assets classified in this category are recorded in the Consolidated Statements of Income under "Trading activities";

 

· Interest income from securities classified in the "At fair value through profit or loss" category is recognized under "Interest income - Securities". Interest income from derivative financial instruments is recognized under "Trading activities".

 

(ii)         Financial assets classified as "Held for trading" include:

 

· Securities acquired for resale purposes in the near term and securities that are part of a portfolio of securities that are managed together and for which there is evidence of an actual pattern of short-term profit-taking; and 

 

· Derivative financial instruments.

 

Derivative financial instruments designated as fair value or cash flow hedging items cannot be classified in the "At fair value through profit or loss" category. Section l), "Derivative financial instruments and hedging activities", specifies the nature of the recognition of derivative financial instruments designated as part of hedging relationships.

 

(iii)        Financial assets classified as "Designated as at fair value through profit or loss" are essentially securities designated as such by management upon initial recognition, on an instrument-by-instrument basis. Management may designate a financial instrument as at fair value through profit or loss upon initial recognition when one of the following conditions is met:

 

· The designation eliminates or significantly reduces a measurement or recognition inconsistency;

 

· The assets are part of a group of financial assets or financial assets and liabilities that are managed and whose performance is evaluated on a fair value basis;

 

· The assets are hybrid financial instruments containing at least one embedded derivative that would otherwise be separated from the host contract and recognized separately.

 

CCD's financial assets classified in this category comprise certain investments made in connection with derivative instruments that are not designated as part of a hedging relationship, thereby significantly reducing a recognition inconsistency.

 

(iv)       Securities classified in the "Loans and receivables" category are non-derivative financial assets with fixed or determinable income that are not quoted in an active market and that are not held for sale upon their acquisition or their granting. Securities in this category comprise those included in "Cash and deposits with financial institutions", "Securities purchased under reverse repurchase agreements", "Loans" and "Clients' liability under acceptances" and other assets.

 

Outstanding securities classified in the "Loans and receivables" category are initially recognized at fair value in the Consolidated Balance Sheets and, at subsequent reporting dates, they are measured at amortized cost using the effective interest method. Income recognized on securities classified in the "Loans and receivables" category is presented under "Interest income - Loans" in the Consolidated Statements of Income.

 

(v)        Securities classified in the "Available-for-sale securities" category are non-derivative financial assets that are initially designated as available for sale or that are not classified in the "At fair value through profit or loss", "Held to maturity" or "Loans and receivables" categories. Available-for-sale securities can be sold further to or in view of fluctuations in interest rates, exchange rates or prices of equity instruments or changes in financing sources or terms, or to meet the liquidity needs of CCD.

 

Gains and losses resulting from changes in fair value, except for impairment losses and foreign exchange gains and losses, are recognized in the Consolidated Statements of Comprehensive Income under "Net unrealized gains (losses) on available-for-sale securities" until the financial asset is derecognized. Premiums and discounts on the purchase of available-for-sale securities are amortized over the life of the securities using the effective interest method and recognized in consolidated profit or loss.

 

(vi)       Securities classified in the "Held to maturity" category are non-derivative financial assets with fixed or determinable payments and fixed maturity that management has the intention and ability to hold to maturity. These securities are recognized at amortized cost using the effective interest method. CCD held no instruments in this category at the reporting dates.

 

The classification of financial liabilities can be summarized as follows:

Categories

Classes

Recognition

Initial

Subsequent

Financial liabilities

At fair value through profit or loss (i)

Held for trading (ii)

Fair value

Fair value

Designated as at fair value through profit or loss (iii)

Fair value

Fair value

At amortized cost (iv)

Fair value

Amortized cost

 

(i)      Financial liabilities classified in the "At fair value through profit or loss" category include financial liabilities "Held for trading" and "Designated as at fair value through profit or loss". Therefore:

 

· Changes in fair value of liabilities classified in this category are recorded in the Consolidated Statements of Income under "Trading activities";

 

· Interest expense related to financial liabilities classified in the "At fair value through profit or loss" category is recognized under "Trading activities".

 

(ii)      Financial liabilities classified as "Held for trading" are debt securities issued with the intention to repurchase them in the near term and securities that are part of a portfolio of securities that are managed together and for which there is evidence of an actual pattern of short-term profit-taking, such as "Commitments related to securities sold short". Derivative financial instruments are also classified as "Held for trading". Derivative financial instruments designated as fair value or cash flow hedging instruments cannot be classified in this category. Section l), "Derivative financial instruments and hedging activities", specifies the nature of the recognition of derivative financial instruments designated as part of hedging relationships.

 

(iii)     Financial liabilities classified as "Designated as at fair value through profit or loss" have been designated as such by management upon initial recognition, on an instrument-by-instrument basis. Management may designate a financial instrument as at fair value through profit or loss upon initial recognition when one of the following conditions is met:

 

· The designation eliminates or significantly reduces a measurement or recognition inconsistency;

 

· The liabilities are part of a group of financial liabilities or financial assets and liabilities that are managed and whose performance is evaluated on a fair value basis;

 

· The liabilities are hybrid financial instruments containing at least one embedded derivative that would otherwise be separated from the host contract and recognized separately.

 

CCD held no instruments in this category at the reporting dates.

 

(iv)    Financial liabilities that are not classified in the "At fair value through profit or loss" category are classified in the "At amortized cost" category. Financial liabilities measured at amortized cost comprise those included in "Deposits", "Acceptances" and "Commitments related to securities sold under repurchase agreements" and other liabilities.

 

Financial liabilities classified in the "At amortized cost" category are initially recognized at fair value in the Consolidated Balance Sheets and, at subsequent reporting dates, they are measured at amortized cost using the effective interest method. Interest expense on securities classified in the "At amortized cost" category is recognized under "Interest expense" in the Consolidated Statements of Income.

 

DETERMINATION OF THE FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

 

There is little subjectivity in the determination of the fair value of financial instruments, especially securities and commitments related to securities sold short, obtained from quoted prices on active markets. This fair value is based on the quoted price within the bid-ask spread that is most representative of fair value in the circumstances.

 

If there are no quoted prices on active markets, fair value is determined using models that maximize the use of observable inputs and minimize the use of unobservable inputs. In such cases, fair value estimates are established using valuation techniques such as cash flow discounting, comparisons with similar financial instruments, option pricing models and other valuation techniques commonly used by market participants, if these techniques have been demonstrated to provide reliable estimates. Valuation techniques rely on assumptions concerning the amount and timing of estimated future cash flows and discount rates that are mainly based on observable data, such as interest rate yield curves, exchange rates, credit curves and volatility factors. When one or several material inputs are not observable on the market, fair value is determined mainly based on internal inputs and estimates that take into account the characteristics specific to the financial instrument and any factor relevant to the measurement. For complex financial instruments, significant judgment is made in determining the valuation technique to be used and in selecting inputs and adjustments associated with this technique. Due to the need to use estimates and make judgments when applying many valuation techniques, fair value estimates for identical or similar assets may differ between entities. Fair value reflects market conditions on a given date and may not be representative of future fair values. It should not be considered as being realizable in the event of immediate settlement of these instruments.

 

Loans

 

The fair value of loans is determined by discounting expected contractual cash flows using market interest rates charged for similar new loans at the reporting date and takes estimated prepayments into account. Changes in interest rates and changes related to the creditworthiness of borrowers are the main causes of changes in the fair value of loans held by CCD, which result in a favourable or unfavourable difference compared to their carrying amount. The fair value of impaired loans is assumed to be equal to their carrying amount.

 

Deposits

 

The fair value of fixed-rate deposits is determined by discounting expected cash flows using market interest rates currently being offered for deposits with substantially the same term and takes estimated prepayments into account. The fair value of deposits with floating-rate features or with no stated maturity is assumed to be equal to their carrying amount.

 

Derivative financial instruments

 

The fair value of derivative financial instruments is determined using pricing models that incorporate the current market prices and the contractual prices of the underlying instruments, the time value of money, interest rate yield curves, credit curves and volatility factors. The fair value of derivative financial instruments is presented without taking into account the impact of legally enforceable master netting agreements. However, CCD adjusts the measurement of these instruments based on credit risk, and such adjustments reflect the financial ability of the counterparties to the contracts and the creditworthiness of CCD, as well as credit risk mitigation measures such as legally enforceable master netting agreements. Note 15, "Derivative financial instruments and hedging activities", specifies the nature of derivative financial instruments held by CCD.

 

Financial instruments whose fair value equals their carrying amount

 

The carrying amount of certain financial instruments that mature in the next 12 months is a reasonable approximation of their fair value. These financial instruments include the following items: "Cash and deposits with financial institutions", "Securities purchased under reverse repurchase agreements", "Clients' liability under acceptances", some items included in "Other assets - Other", "Acceptances", "Commitments related to securities sold under repurchase agreements" and some items included in "Other liabilities - Other".

 

Transaction costs

 

Transaction costs for financial instruments are capitalized and then amortized over the life of the instrument using the effective interest method, except if such instruments are classified or designated as part of the "At fair value through profit or loss" category, in which case they are expensed as incurred.

 

 

 

 

OFFSETTING OF FINANCIAL ASSETS AND LIABILITIES

 

Financial assets and liabilities are presented on a net basis when there currently is a legally enforceable right to set off the recognized amounts and CCD intends to settle on a net basis or to realize the asset and settle the liability simultaneously.

 

DERECOGNITION OF FINANCIAL ASSETS AND LIABILITIES

 

A financial asset is derecognized from the Consolidated Balance Sheets when the contractual rights to the cash flows from the asset expire, when the contractual rights to receive these cash flows are retained but the Federation has the obligation to pay them to a third party under certain conditions, or when CCD transfers the contractual rights to receive the cash flows and substantially all the risks and rewards of ownership of the asset have been transferred.

 

When substantially all the risks and rewards of ownership of the transferred financial asset are retained by CCD, such asset is not derecognized from the Consolidated Balance Sheets, and a financial liability is recognized, when appropriate.

 

When substantially all the risks and rewards related to a financial asset are neither transferred nor retained, CCD derecognizes the financial asset over which it does not retain control and recognizes an asset or a liability representing the rights and obligations created or retained in the asset transfer. If control of the financial asset is retained, CCD continues to recognize the asset in the Consolidated Balance Sheets to the extent of its continuing involvement in that asset.

 

When a financial asset is derecognized in its entirety, a gain or a loss is recognized in the Consolidated Statements of Income for an amount equal to the difference between the carrying amount of the asset and the value of the consideration received.

 

Management must use its judgment to determine whether the contractual rights to the cash flows have expired, have been transferred or have been retained with an obligation to pay them to a third party. With respect to the transfer of substantially all the risks and rewards of ownership of the assets, management evaluates CCD's exposure before and after the transfer as well as the changes in the amount and timing of the net cash flows of the transferred asset. Lastly, management must make judgments to determine whether it controls the financial asset and to measure retained rights.

 

A financial liability is derecognized when the related obligation is discharged, cancelled or expires. The difference between the carrying amount of the transferred financial liability and the consideration paid is recognized in the Consolidated Statements of Income.

 

c) Cash and deposits with financial institutions

 

Cash and deposits with financial institutions" includes cash and cash equivalents. Cash equivalents consist of deposits with the Bank of Canada, deposits with financial institutions-including net amounts receivable related to cheques and other items in the clearing process-as well as the net amount of cheques and other items in transit. These financial instruments mature in the short term, are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value. They are classified as "Loans and receivables".

 

d) Securities

 

Securities are instruments classified based on their characteristics and management's intention in the various categories presented in section b), "Financial assets and liabilities", above.

 

Securities purchased under reverse repurchase agreements

 

Securities purchased under reverse repurchase agreements are not recognized in the Consolidated Balance Sheets, as substantially all the risks and rewards of ownership of these securities have not been transferred.

 

Reverse repurchase agreements are accounted for as collateralized lending transactions. Cash pledged as collateral is derecognized from "Cash and deposits with financial institutions", and an asset representing the right to receive the securities is recognized under "Securities purchased under reverse repurchase agreements" in the Consolidated Balance Sheets.

 

The fair value of securities purchased under reverse repurchase agreements for which the securities received can subsequently be resold or repledged is presented in Note 22, "Commitments, guarantees and contingent liabilities", under assets held as collateral that can be sold or repledged.

 

Securities sold under repurchase agreements

 

Securities sold under repurchase agreements are not derecognized from the Consolidated Balance Sheets, as substantially all the risks and rewards of ownership of these securities have not been transferred.

 

Repurchase agreements are accounted for as collateralized borrowing transactions. The consideration received for the securities sold, including accrued interest, is therefore recognized under "Cash and deposits with financial institutions" in the Consolidated Balance Sheets, and a liability representing the obligation to return the securities is recognized under "Commitments related to securities sold under repurchase agreements". The difference between the price received and the repurchase price is recognized as interest expense.

 

The carrying amount of securities sold under repurchase agreements is presented in Note 22, "Commitments, guarantees and contingent liabilities", under financial assets pledged as collateral.

 

SECURITIES SOLD SHORT

 

Securities sold short as part of trading activities, which represent CCD's obligation to deliver securities that it did not possess at the time of sale, are recognized as liabilities at their fair value. Realized and unrealized gains and losses on these securities are recognized in the Consolidated Statements of Income under "Trading activities". Securities sold short are classified in the "Securities at fair value through profit or loss - held for trading" category.

 

e) Loans

 

Loans are recorded at amortized cost, net of the allowance for credit losses, using the effective interest method.

 

The fees collected and the direct costs related to the origination, restructuring and renegotiation of loans are treated as being integral to the yield of the loan. They are deferred and amortized using the effective interest method, and the amortization is recognized as interest income over the life of the loan. Collateral is obtained if deemed necessary, based on an assessment of the borrower's creditworthiness. Collateral normally takes the form of assets such as cash, government securities, shares, receivables, inventory or capital assets.

 

f)  Impairment of financial assets

 

At the reporting date, CCD assesses whether there is any objective evidence that a financial asset or a group of financial assets is impaired.

 

Allowance for credit losses

 

Evidence of impairment results from a loss event that occurred after the loan was granted but before the reporting date and that has an impact on the estimated future cash flows of loans.

 

The impairment of a loan or a group of loans is determined by estimating the recoverable amount of these financial assets. The allowance is equal to the difference between this amount and the carrying amount. This allowance is presented in deduction of assets under "Allowance for credit losses". To determine the estimated recoverable amount of a loan, CCD discounts the estimated future cash flows at the effective interest rate inherent to the loan. When the amounts and timing of future cash flows cannot be estimated with reasonable reliability, the estimated recoverable amount is determined using the fair value of the collateral underlying the loan, net of expected costs of realization, or the observable market price for the loan. The collateral may vary depending on the type of loan.

 

The allowance for credit losses represents management's best estimate for loan impairment at the reporting date. As part of its evaluation, management must make judgments to determine the data, assumptions and estimates to be used, including determining when a loan is considered impaired and the amount that could be recovered. Changing these estimates and assumptions would have an impact on the allowance for credit losses and the provision for credit losses for the year.

 

The allowance resulting from this impairment is established using two components: individual allowances and collective allowance.

 

Individual allowances

 

CCD first reviews its loan portfolios on a loan-by-loan basis to assess credit risk and determine if there is any objective evidence of impairment for which a loss should be recognized in the Consolidated Statements of Income. Loan portfolios for which an individual allowance has not been established are then included in groups of assets having similar credit risk characteristics and are subject to a collective allowance.

 

There is objective evidence of impairment when a loan is considered impaired. A loan is classified as an impaired loan when one of the following conditions is met:

 

· There is reason to believe that a portion of the principal or interest cannot be collected; or

 

· The interest or principal repayment is contractually 90 days past due, unless the loan is fully secured and in the process of collection; or

 

· The interest or principal is more than 180 days past due.

 

A loan is not classified as impaired when it is fully guaranteed or insured by a Canadian government (federal or provincial) or an agency of a Canadian government.

 

A loan is considered past due when the borrower has failed to make a payment by the contractual due date.

 

When a loan becomes impaired, the interest previously accrued but not collected is capitalized to the loan. Payments received subsequently are recorded as a deduction of the principal. A loan ceases to be considered impaired when principal and interest payments are up to date and there is no doubt as to its collection or when it is restructured, and is treated as a new loan, and there is no doubt as to the collection of principal and interest.

 

Assets foreclosed to settle impaired loans are recognized on the date of the foreclosure at their fair value less costs to sell. Any difference between the carrying amount and the fair value recorded for the acquired assets is recognized under "Provision for credit losses".

 

A loan classified as "Loans and receivables" is written off when all attempts at restructuring or collection have been made and the likelihood of future recovery is remote. When a loan is written off completely, any subsequent payments are recorded under "Provision for credit losses" in the Consolidated Statements of Income.

 

Changes in the individual allowance for credit losses due to the passage of time are recognized under "Interest income - Loans", while those that are due to a revision of expected receipts are recognized under "Provision for credit losses" in the Consolidated Statements of Income.

 

Collective allowance

 

Loan portfolios for which an individual allowance has not been established are included in groups of financial assets with similar credit characteristics and are subject to a collective allowance.

 

The method used by CCD to determine the collective allowance takes into account the risk parameters of the various loan portfolios, in particular through the integration of sophisticated credit risk models. These collective allowance models take into account certain factors such as the probabilities of default (loss frequency), loss given default (extent of losses) and gross exposures at default. These parameters, which are based on historical losses, are determined according to the category and risk rating of each loan. The measurement of the collective allowance relies heavily on management's judgements and depends on management's assessment of current credit quality trends with respect to business sectors, the impact of changes in its credit policies, and economic conditions.

 

The allowance related to off-balance sheet exposures, such as letters of guarantee and certain unrecognized credit commitments, is recognized under "Other liabilities - Other" in the Consolidated Balance Sheets and under "Provision for credit losses" in the Consolidated Statements of Income.

 

Available-for-sale securities

 

Securities classified in the "Available-for-sale" category are examined at the reporting date to determine whether there is any objective evidence that they are impaired. In measuring a decline in value, CCD takes into account many facts specific to each investment and all the factors that could indicate that there has been impairment. Factors considered include, but are not limited to, a significant or prolonged decline in fair value, significant financial difficulties of the issuer, a breach of contract, the increasing probability that the issuer will enter bankruptcy or a restructuring, and the disappearance of an active market for the financial asset in question. Management also uses its judgment to determine when to recognize an impairment loss.

 

CCD individually assesses debt securities classified in the "Available for sale" category to determine whether there is any objective evidence of impairment. The impairment loss represents the cumulative loss, which is the difference between amortized cost and current fair value, less any impairment loss previously recognized. Future interest income is calculated on the reduced carrying amount using the interest rate used to discount future cash flows in order to measure the impairment loss. When, during a subsequent period, the fair value of a debt security increases and that increase can be objectively related to a credit event occurring after the impairment loss had been recognized in the Consolidated Statements of Income, the impairment loss is reversed through the Consolidated Statements of Income.

 

For equity securities classified in the "Available for sale" category, the objective evidence would also include a "significant" or "prolonged" decline in the fair value below cost. When evidence of impairment exists, the cumulative loss (the difference between acquisition cost and current fair value, less any impairment loss previously recognized) is transferred out of other comprehensive income, in the Consolidated Statements of Comprehensive Income, and recognized in the Consolidated Statements of Income. Impairment losses on equity securities are not reversed through the Consolidated Statements of Income, and increases in fair value occurring subsequent to impairment are recorded directly in other comprehensive income, in the Consolidated Statements of Comprehensive Income. Any impairment loss on securities previously impaired is directly recognized in the Consolidated Statements of Income.

 

g) Premises and equipment

 

Premises and equipment consists of land, buildings, computer hardware, furniture, fixtures and other items as well as leasehold improvements. These assets are recognized at cost less any accumulated depreciation and any accumulated impairment losses, and are depreciated over their expected useful life using the straight-line method.

 

The depreciable amount of an item of premises and equipment is determined after deducting its residual value less costs to sell. The useful life of premises and equipment is generally equal to its expected useful life.

 

The depreciation expense for premises and equipment is recognized under "Non-interest expense - Premises, equipment and furniture, including depreciation" in the Consolidated Statements of Income.

 

Depreciation

 

Premises and equipment are depreciated over the following depreciation periods:

 


Depreciation periods

Land

Non-depreciable

Buildings

15 to 60 years

Computer equipment

5 years

Furniture, fixtures and other

5 years

Leasehold improvements

Expected term of the lease

When an item of premises and equipment is made up of several significant parts having different useful lives or providing economic benefits according to different patterns, each part is recognized separately and is depreciated over its own depreciation period.

 

Derecognition

 

Premises and equipment are derecognized upon disposal or when they are permanently withdrawn from use and no future economic benefits are expected. Gains or losses on the disposal or sale of premises and equipment are recognized in the Consolidated Statement of Income for the year in which they are realized under "Non-interest expense - Other".

 

Impairment

 

Premises and equipment are tested for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Assessing whether such events or circumstances exist is subject to management's judgment.

 

h) Intangible assets

 

Intangible assets include acquired and internally generated intangible assets and are initially recognized at cost. The cost of an intangible asset acquired as part of a business combination corresponds to its fair value at the date of acquisition. Subsequent to initial recognition, intangible assets are measured at cost less any accumulated amortization and any impairment losses. Expenditures related to internally generated intangible assets, except for development costs, are recognized in profit or loss as incurred.

 

CCD assesses whether the useful life of an intangible asset is finite or indefinite. Intangible assets with finite useful lives include mainly software and are amortized using the straight-line method over their estimated useful lives, which do not exceed five years. CCD does not own any intangible assets with an indefinite useful life.

 

Gains or losses resulting from the derecognition of an intangible asset correspond to the difference between the net proceeds of disposal and the net carrying amount of the asset. They are recognized under "Non-interest expense - Other" in the Consolidated Statements of Income upon derecognition of the asset.

 

i) Impairment of non-financial assets

 

CCD assesses at the reporting date whether there is an indication that an asset may be impaired. An impairment loss is recognized when the carrying amount of an asset exceeds its recoverable amount.

 

The recoverable amount represents the higher of the fair value less costs of disposal and the value in use.  Fair value represents the best estimate of the amount obtainable from the sale, less costs of disposal, in an arm's-length transaction between knowledgeable and willing parties. The value in use is calculated using the most appropriate method, generally by discounting recoverable future cash flows.

 

Any impairment loss recognized in the Consolidated Statements of Income represents the excess of the carrying amount of the asset over the recoverable amount. Impairment losses on an asset may be subsequently reversed and are recognized in the Consolidated Statements of Income in the year in which they occur.

 

Estimating the recoverable amount of a non-financial asset to determine if it is impaired also requires that management make estimates and assumptions, and any change in these estimates and assumptions could impact the determination of the recoverable amount of non-financial assets and, therefore, the outcome of the impairment test. The main estimates and assumptions used in calculating the recoverable amount are future cash flows estimated based on internal financial forecasts, expected future earnings, the growth rate and the discount rate.

 

j) Acceptances and clients' liability under acceptances

 

The potential liability of CCD under acceptances is recorded as a liability in the Consolidated Balance Sheets. Recourse against the client, in the event of a call on any of these commitments, is recorded as an equivalent offsetting asset. These financial instruments are classified in the "Loans and receivables" category.

 

k) Provisions

 

Provisions are liabilities of uncertain timing or amount. A provision is recognized when CCD has an obligation (legal or constructive) as a result of a past event, the settlement of which should result in an outflow of resources embodying economic benefits, and when a reliable estimate can be made of the amount of the obligation. The amount of the obligation is discounted where the effect of the time value of money is material.

 

Provisions are based on management's best estimate of the amounts required to settle the obligation on the reporting date, taking into account the relevant uncertainties and risks. As these estimates are forward-looking in nature, management must use its judgment to forecast the timing and amount of future cash flows. Actual results may differ significantly from these forecasts.

 

Charges to and reversals of provisions are recognized in profit or loss under the items corresponding to the nature of the expenditures covered.

 

 

 

l) Derivative financial instruments and hedging activities

 

DERIVATIVE FINANCIAL INSTRUMENTS

 

Derivative financial instruments are financial contracts whose value depends on assets, interest rates, foreign exchange rates or financial indexes. The vast majority of CCD's derivative financial instruments are negotiated by mutual agreement with the counterparty and include forward exchange contracts, currency swaps, interest rate swaps, credit default swaps, total return swaps, forward rate agreements, and currency, interest rate and stock index options. Other transactions are carried out as part of regulated trades and mainly consist of futures. The types of contracts used are defined in Note 15, "Derivative financial instruments and hedging activities".

 

Derivative financial instruments, including embedded derivatives which are required to be recognized separately, are recognized at fair value on the Consolidated Balance Sheets.

 

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 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 consolidated profit or loss. Embedded derivatives that are required to be recognized separately are measured at fair value, and changes in their fair value are recognized under "Trading activities" in the Consolidated Statements of Income.

 

CCD uses derivative financial instruments for trading or asset-liability management purposes.

 

Derivative financial instruments held for trading purposes are mainly used in intermediation activities conducted to meet the needs of the Desjardins network or its clients. These derivative financial instruments are recognized at fair value in the Consolidated Balance Sheets, and changes in their fair value are recognized under "Trading activities" in the Consolidated Statements of Income.

 

Derivative financial instruments held for asset/liability management purposes are used to manage current and expected risks related to market risk. These instruments enable CCD to transfer, modify or reduce the interest rate and foreign currency exposures of assets and liabilities recorded in the Consolidated Balance Sheets, as well as firm commitments and forecasted transactions.

 

Hedging activities

 

CCD mainly designates its derivative financial instruments as part of a fair value, cash flow or net investment in a foreign operation hedging relationship.

 

When derivative financial instruments are used to manage assets and liabilities, CCD must determine, for each derivative, whether or not hedge accounting is appropriate. To qualify for hedge accounting, a hedging relationship must be designated and documented at its inception. Such documentation must address the specific strategy for managing risk, the asset, liability or cash flows that are being hedged as well as the measure of hedge effectiveness. Consequently, the effectiveness of each hedging relationship must be assessed, regularly and on an individual basis, to determine with reasonable assurance whether the relationship is effective and will continue to be effective. The derivative financial instrument must prove highly effective to offset changes in the fair value or the cash flows of the hedged item attributable to the risk being hedged.

 

CCD may also use derivative financial instruments as an economic hedge for certain transactions in situations where the hedging relationship does not qualify for hedge accounting or where it elects not to apply hedge accounting. In such circumstances, derivative financial instruments are classified as "Held for trading", and realized and unrealized gains and losses are recognized in the Consolidated Statements of Income under "Trading activities".

 

The designation of a derivative financial instrument as hedging instrument is discontinued in the following cases: the hedged item is sold or matures, the derivative financial instrument is repurchased or matures, the hedge is no longer effective, or CCD terminates the designation of the hedge or no longer expects that the forecasted transaction will occur.

 

Hedging instruments that meet the strict hedge accounting conditions are recognized as follows:

 

Fair value hedges

 

Fair value hedge transactions involve mostly the use of interest rate swaps to hedge the changes in fair value of a fixed-rate financial instrument caused by a change in interest rates on the market. The change in fair value of hedging derivative financial instruments offsets the change in fair value of hedged items. CCD uses fair value hedge strategies for its securities, loan and deposit portfolios.

 

In a fair value hedge transaction, changes in the fair value of the hedging derivative financial instrument are recognized under "Trading activities" in the Consolidated Statements of Income, as are changes in fair value of the hedged asset or liability attributable to the hedged risk. The gain or loss attributable to the hedged risk is applied to the carrying amount of the hedged item. When the changes in the fair value of the hedging derivative financial instrument and the hedged item do not entirely offset each other, the resulting amount, which represents the ineffective portion of the relationship, is recognized under "Trading activities" in the Consolidated Statements of Income.

 

 

 

 

When a fair value hedging relationship is discontinued, hedge accounting is discontinued prospectively. The hedged item is no longer adjusted to reflect the fair value impact of the designated risk. Adjustments previously recorded in the hedged item are amortized using the effective interest method and are recognized in net interest income, in the Consolidated Statements of Income, following the underlying instrument, over the remaining life of the hedged item, unless the hedged item ceased to exist, in which case the adjustments for the impact of the designated risk are immediately recognized under "Trading activities" in the Consolidated Statements of Income.

 

Cash flow hedges

 

Cash flow hedge transactions involve mostly the use of interest rate swaps to hedge the changes in future cash flows from a floating-rate financial instrument. Hedging derivative financial instruments reduce the variability of future cash flows from the hedged item. CCD uses cash flow hedge strategies for its loan, deposit and securities portfolios.

 

In a cash flow hedge transaction, gains and losses resulting for changes in the fair value of the effective portion of the derivative financial instrument are recognized in other comprehensive income under "Net gains (losses) on derivative financial instruments designated as cash flow hedges" until the hedged item is recognized in the Consolidated Statements of Income, at which time such changes are recognized under net interest income in the Consolidated Statements of Income, following the underlying instrument. The ineffective portion of cash flow hedge transactions is immediately recognized in the Consolidated Statements of Income under "Trading activities".

 

When a cash flow hedging relationship no longer qualifies for hedge accounting, CCD discontinues such accounting prospectively. Gains or losses recognized in other comprehensive income are amortized to net interest income, in the Consolidated Statements of Income, following the underlying instrument, 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 profit or loss under "Trading activities".

 

Hedges of a net investment in a foreign operation

 

CCD uses non-derivative financial instruments to hedge the foreign exchange risk of hedging transactions of the net investment in a foreign operation. Exchange gains and losses are presented under "Net unrealized exchange gains (losses) on the translation of an investment in a foreign operation" in the Consolidated Statements of Comprehensive Income. The ineffective portion is immediately recognized in the Consolidated Statements of Income under "Trading activities".

 

m) Financial guarantees

A financial guarantee is a contract or an indemnification agreement that could contingently require CCD to make payments to the guaranteed party following a loss resulting from the default by a specified third party to make a payment upon maturity in accordance with the original or modified provisions of the borrowing instrument.

 

Financial guarantees are initially recognized as liabilities in the Consolidated Financial Statements for an amount corresponding to the fair value of the commitment resulting from the issuance of the guarantee.  After initial recognition, the guarantee is measured at the higher of the following amounts:

 

i)       The amount initially recorded less, when appropriate, cumulative amortization of costs recognized in the Consolidated Statements of Income; or

 

ii)       The best estimate of cash outflows required to settle any financial obligation resulting from the guarantee.

 

If a financial guarantee meets the definition of a derivative, it is measured at fair value at each reporting date and presented as a derivative financial instrument. Guarantees presented as derivative financial instruments are a type of over-the-counter credit derivative under which one party transfers to another party the credit risk of an underlying financial instrument.

 

The carrying value of guarantees does not reflect the maximum potential amount of future payments under guarantees. Therefore, CCD continues to consider guarantees as off-balance sheet credit instruments.

 

n) Reserve

 

The general reserve presented in members' equity represents amounts appropriated by CCD; it also comprises a portion of its surplus earnings since its inception. This reserve can only be used to eliminate a deficit and cannot be divided amongst members nor used to pay a member dividend.

 

o)  Revenue recognition

 

Revenue is recognized to the extent that it is probable that the economic benefits will flow to CCD and that it can be measured reliably. In addition to the items mentioned in section b), "Financial assets and liabilities", the specific recognition criteria that follow must also be met before revenue can be recognized.

 

Net interest income

 

Interest income and expense are recognized using the effective interest method for all financial instruments measured at amortized cost, for interest-bearing financial assets classified in the "Available for sale" category and for financial instruments classified in the "At fair value through profit or loss" category.

 

The effective interest method is a method of calculating the amortized cost of a financial asset or liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts future payments or receipts through the expected life of the financial instrument or, when appropriate, over a shorter period, to obtain the net carrying amount of the financial instrument.

 

When calculating the effective interest rate, CCD estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes transaction costs and income between parties to the contract as well as premiums or discounts. Transaction costs and income that form an integral part of the effective rate of the contract, such as file setup fees and finders' fees, are assimilated to supplemental interest.

 

Service charges, fees and management fees

 

CCD earns revenue from service charges and fees related to the broad range of services and products it provides its clients.

 

Service charges and fees are recognized once the service has been provided or the product has been delivered. This revenue is recognized under "Deposit and payment service charges" in the Consolidated Statements of Income.

 

Loan syndication fees are recognized as revenue when the syndication agreement is signed unless the yield on the loan retained by CCD is less than the yield of other comparable lending institutions that participate in the financing. In such instances, an appropriate portion of the fees is deferred using the effective interest method.

 

Fee income is recognized under "Credit fees" and "Other income - Other" in the Consolidated Statements of Income.

 

Portfolio management fees are recognized based on the applicable service contracts pro rata over the period during which the service is provided. Portfolio management income is recognized under "Other income - Management fees" in the Consolidated Statements of Income.

 

Other payments to the Desjardins network

 

Other payments to the Desjardins network represent a redistribution to the Desjardins network components of net income from financial services offered as an intermediate in transactions carried out on behalf of these components. These redistributions are recognized when the service is provided.

 

p)  Assets under management

 

CCD performs liquidity management on behalf of third parties. These assets under management are held by and for the benefit of clients. These assets are therefore excluded from CCD's Consolidated Balance Sheets. Income from these management services is recognized under "Other income - Other" in the Consolidated Statements of Income when the service is provided.

 

q) Foreign currency translation

 

Monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the exchange rate prevailing at the reporting date. Non-monetary assets and liabilities measured at historical cost are translated at the exchange rate prevailing at the transaction date, while those that are measured at fair value are translated at the exchange rate prevailing at the date fair value was determined. Income and expenses are translated at the average exchange rate for the year. Realized and unrealized gains and losses resulting from the translation are recognized in the Consolidated Statements of Income under "Other income - Other". However, unrealized gains and losses on non-monetary financial instruments classified as "Available for sale", and gains and losses on derivatives designated as cash flow hedging instruments are presented in other comprehensive income in the Consolidated Statements of Comprehensive Income. All assets and liabilities of the self-sustaining foreign subsidiary denominated in foreign currencies are translated at rates prevailing on the reporting date, while income and expenses of this subsidiary are translated at the average rate for the year. Exchange gains and losses resulting from the translation of the financial statements of this subsidiary, including the effects of hedging and taxes, are recorded in other comprehensive income in the Consolidated Statements of Comprehensive Income.

 

r) Leases

 

Under a finance lease, the lessor transfers to the lessee substantially all the risks and rewards inherent to the asset. This type of lease is analyzed as financing granted to the lessee to purchase the asset. In contrast, under an operating lease, the lessor retains substantially all the risks and rewards inherent to the leased asset. CCD mainly enters into operating leases as lessee. In such a situation, the leased asset is not recognized as an asset by CCD, and lease payments made under operating leases are recognized on a straight-line basis over the lease period under "Premises, equipment and furniture, including depreciation", in the Consolidated Statements of Income.

 

s)  Income taxes

 

The income tax expense comprises the current income tax expense and the deferred tax expense. Income taxes are recognized in the Consolidated Statements of Income unless they relate to items that were recognized outside profit or loss directly in the Consolidated Statements of Comprehensive Income or to Consolidated Statements of Changes in Members' Equity. In such cases, income taxes are also recognized outside profit or loss, except for the income tax consequences of remuneration on capital stock when certain conditions are met.

 

The calculation of income taxes is based on the expected tax treatment of the transactions. To determine the current and deferred portions of income taxes, management must make judgments to establish the assumptions concerning the dates on which deferred income tax assets and liabilities will be reversed. Significant judgment must be used to interpret the relevant tax legislation in order to determine the income tax expense. If CCD's interpretation differs from that of the taxation authorities or if the reversal dates do not correspond with the forecasted dates, the provision for income taxes may increase or decrease in subsequent years.

 

Current income taxes

 

Current income tax assets and liabilities for the current year and prior years are measured based on the amount that CCD expects to recover from or pay to the taxation authorities. Tax rates and tax laws applied to determine these amounts are those that have been enacted or substantively enacted at the reporting date.

 

Deferred income taxes

 

Deferred taxes are recognized, using the balance sheet liability method, for all temporary differences existing at the reporting date between the tax basis of assets and liabilities and their carrying amount in the Consolidated Balance Sheets.

 

Deferred tax liabilities are recognized for all taxable temporary differences, except in the following cases:

 

(i)   When the deferred tax liability arises from the initial recognition of goodwill or the initial recognition of an asset or liability in a transaction which is not a business combination and which, at the time of the transaction, affects neither accounting profit nor taxable profit (or tax loss); and

 

(ii)  For taxable temporary differences associated with investments in subsidiaries, when the date at which the temporary difference reverses can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

 

Deferred tax assets are recognized for all deductible temporary differences as well as all tax loss carryforwards and unused tax credits, to the extent that it is probable that a taxable profit will be available against which these deductible temporary differences, tax loss carryforwards and unused tax credits can be utilized, except in the following cases:

 

(i)   When the deferred tax asset associated with the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction which is not a business combination and which, at the time of the transaction, affects neither accounting profit nor taxable profit (or tax loss); and

 

(ii)  For deductible temporary differences associated to investments in subsidiaries. Deferred tax assets are recognized only to the extent that it is probable that the temporary difference will reverse in the foreseeable future and that a taxable profit will be available against which the temporary difference can be utilized.

 

The carrying amount of a deferred tax asset is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of a deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it becomes probable that a future taxable profit will be available to recover them.

 

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply during the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

 

Deferred tax assets and liabilities are offset if there is a legally enforceable right to set off current tax assets against current tax liabilities, and if these deferred taxes relate to the same taxable entity and the same taxation authority.

 

t)  Employee benefits

 

Short-term benefits

 

Short-term benefits include salaries and commissions, social security contributions and certain bonuses payable within 12 months after the reporting date. An expense is recorded for these benefits in the period during which the services giving right to them were rendered.

 

Post-employment benefits 

 

Pension and other plans

 

CCD offers to a majority of its employees a defined benefit pension plan and a defined benefit supplemental pension plan. It also offers to certain active and retired executives another defined benefit supplemental pension plan. It also offers life, medical and dental insurance coverage to retiring employees and their dependents.

 

The cost of these plans is recognized in the Consolidated Statements of Income and includes current service cost, past service cost and net interest on net defined benefit plan liabilities. Past service cost resulting from a plan amendment or curtailment is immediately recognized in the Consolidated Statements of Income.

 

 

 

Remeasurements of net defined benefit plan liabilities are recognized in items of other comprehensive income that will not be reclassified subsequently to the Consolidated Statements of Income and are immediately reclassified to retained earnings. Remeasurements of net defined benefit plan liabilities include actuarial gains and losses and the difference between the actual return on plan assets and the interest income generated by such assets, which is recognized in the Consolidated Statements of Income.  Actuarial gains and losses result from changes in actuarial assumptions used to determine the defined benefit plan obligation and experience gains and losses on such obligation.

 

Net defined benefit plan assets or liabilities are equal to the present value of the plans' obligation, calculated using the projected unit credit method, less the fair value of plan assets. The value of any defined benefit plan asset is, when appropriate, limited to the present value of any economic benefits available in the form of refunds from the plans or reductions in future contributions to the pension plans.

 

Pension plan and other post-employment benefit plan liabilities are recognized under "Net defined benefit plan liabilities" in the Consolidated Balance Sheets.

 

CCD participates in defined benefit group plans whose risks are shared by entities under common control. CCD's share in the cost recognized and the liability for the defined benefit group pension plans of Desjardins Group is mainly determined based on the funding rules described in the plan's by-laws. The main Desjardins Group pension plan is funded by both employee and employer contributions, which are determined based on the financial position and the funding policy of the plan. Employers' contributions are determined using a percentage of the assessable payroll for their employees participating in the plan.

 

CCD's share in the cost of the other group plan of Desjardins Group is determined based on the number of active insureds of CCD as a percentage of total number of active insureds for Desjardins Group as a whole.

 

NOTE 3 - CHANGES IN ACCOUNTING POLICIES, DISCLOSURES AND

RECLASSIFICATIONS

 

Presentation of financial statements

 

On January 1, 2013, CCD adopted the amendments to IAS 1, "Presentation of Financial Statements". These amendments, which relate to the presentation of other comprehensive income, require the presentation by nature of items of other comprehensive income by distinguishing those that will be reclassified to the Consolidated Statements of Income in a subsequent period from those that will not.

 

The retrospective application of these amendments resulted in changes in the presentation of the Consolidated Statements of Comprehensive Income but had no impact on CCD's profit or loss or financial position.

 

Income tax consequences of remuneration on capital stock

 

On January 1, 2013, CCD also applied the new requirements of IAS 32, "Financial Instruments: Presentation".

 

The amendments to this standard specify that the income tax consequences of remuneration on capital stock must now be recognized in accordance with IAS 12, "Income Taxes". Therefore, when certain conditions are met, these consequences are presented in profit or loss rather than in members' equity.

 

These amendments have been applied retrospectively. Certain comparative figures have been reclassified from the Consolidated Statements of Changes in Members' Equity to the Consolidated Statements of Income. For the year ended December 31, 2012, "Income tax recovery on remuneration on capital stock", amounting to $33 million and presented in the Consolidated Statement of Changes in Members' Equity, was reclassified to the Consolidated Statement of Income as a deduction to "Income taxes".

 

Principles of consolidation

 

On January 1, 2013, CCD adopted IFRS 10, "Consolidated Financial Statements", and IFRS 12, "Disclosure of Interests in Other Entities".

 

IFRS 10 introduces a new control model that applies to all types of interests in other entities. Consequently, the accounting policy used as a basis to determine the entities that must be included in the scope of consolidation of CCD has been changed to this new model. CCD analyzed its interests in other entities to determine whether the accounting for some of them had to be changed.

 

The retrospective application of this standard had no impact on CCD's profit or loss or financial position.

 

IFRS 12 enhances disclosure requirements for an entity's interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities. Some of the disclosures required by this new standard were already required by standards in effect prior to its application, while others are new, such as disclosures about significant assumptions and judgments the entity has made in determining the nature of its relationship with another entity as well as the nature of, and risks associated with, its interests in other entities.

 

As IFRS 12 specifically concerns disclosures, its adoption had no impact on CCD's profit or loss or financial position. CCD applied this standard retrospectively and the new disclosure requirements are presented in Note 2, "Significant accounting policies", and Note 12, "Interests in other entities".

 

 

Fair value measurement

 

On January 1, 2013, CCD adopted IFRS 13, "Fair Value Measurement". This standard defines fair value and sets out a single framework for measuring the fair value of all transactions and balances for which IFRS require or permit such measurement. It improves the consistency between the various fair value concepts defined in various existing IFRS. In addition, it carries forward disclosure requirements concerning the fair value of financial instruments and expands their scope to all items measured at fair value.

 

With respect to fair value measurements, the prospective application of this new standard had no impact on CCD's profit or loss or financial position. The new IFRS 13 disclosure requirements are presented in Note 2, "Significant accounting policies", and Note 6, "Fair value of financial instruments".

 

Offsetting financial assets and liabilities

 

On January 1, 2013, CCD adopted the amendments to IFRS 7, "Financial Instruments: Disclosures". These amendments enhance the disclosure requirements with respect to offsetting of financial assets and liabilities. Their objective is to help users of financial statements better evaluate the impact of netting agreements on the financial position of an entity and understand how it manages the credit risk associated with such agreements.

 

CCD has applied these amendments on a retrospective basis. Since these amendments specifically concern disclosures, they had no impact on CCD's profit or loss or financial position. The new IFRS 7 disclosure requirements are presented in Note 7, "Offsetting financial assets and liabilities".

 

Employee benefits

 

On January 1, 2013, CCD adopted the amendments to IAS 19, "Employee Benefits", which change the accounting rules related to employee benefits, mainly those related to defined benefit plans. This standard now requires the following:

 

· All actuarial gains and losses are immediately recognized in other comprehensive income as an item that will not be reclassified subsequently to the Consolidated Statements of Income. The use of the "corridor approach", under which the recognition of actuarial gains and losses could be deferred, is no longer allowed;

 

· The difference between the actual return on plan assets and the interest income included in interest cost must be recognized in items of other comprehensive income that will not be reclassified subsequently to the Consolidated Statements of Income;

 

· Past service cost must be directly recognized in the Consolidated Statements of Income when it occurs; and

 

· Employee contributions used to make up the deficit that are required and set out in the terms of the defined benefit plans must reduce the liability recognized on the Consolidated Balance Sheets.

 

The requirements of this amended standard have been applied retrospectively. The impact of adopting these amendments is as follows:

 


As at December 31, 2012(2)

As at January 1, 2012(2)

CONSOLIDATED BALANCE SHEETS





Deferred tax assets

$

1,858

$

1,223

Net defined benefit plan liabilities(1)


8,168


5,370

Retained earnings


(6,310)


(4,147)

 

 

(1) Prior to adopting the amended version of IAS 19, this item was entitled "Defined benefit plan liabilities".

(2) Increase (decrease) in the balance presented in the Consolidated Balance Sheets prior to adopting the amended version of IAS 19.

 



For the year ended

December 31, 2012(1)

CONSOLIDATED STATEMENTS OF INCOME





Salaries and fringe benefits



$

           (892)

Income taxes




            204

Net income for the year



$

            688






CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME





Net income for the year



$

            688

Remeasurement of net defined benefit plan liabilities, net of taxes




        (2,851)

Comprehensive income for the year



$

        (2,163)

 

 (1) Increase (decrease) in the balance presented in the Consolidated Statements of Income prior to adopting the amended version of IAS 19.

IAS 36, "Impairment of Assets" - Recoverable amount disclosures for non-financial assets

 

CCD early adopted the amendments to IAS 36, "Impairment of Assets", which limit the requirement to disclose the recoverable amount to non-financial assets for which an impairment loss has been recognized or reversed during the year. These amendments also enhance and clarify the disclosures required when the recoverable amount is determined based on fair value less costs of disposal.

 

CCD has applied these amendments on a retrospective basis. Since these amendments specifically concern disclosures, they had no impact on CCD's profit or loss or financial position.

 

Reclassifications

 

During the year, the classification of certain income and expense items related to derivative financial instruments has been reviewed.  Consequently, certain comparative figures presented in the Consolidated Statements of Income were reclassified to be consistent with the presentation for the current year. As a result of these reclassifications, "Other income" decreased by $19.3 million for the year ended December 31, 2012, and "Net interest income" increased by a corresponding amount. This reclassification had no impact on CCD's total income or net income.

 

 

NOTE 4 - FUTURE ACCOUNTING CHANGES

 

Accounting standards that have been issued by the IASB but are not yet effective as at December 31, 2013 are presented below. Regulatory authorities have stated that early adoption of these standards will not be permitted, unless they indicate otherwise.

 

IAS 32, "Financial Instruments: Presentation"

 

In December 2011, the IASB issued amendments to IAS 32, "Financial Instruments: Presentation", to clarify the criteria for offsetting financial assets and financial liabilities.

 

CCD is currently assessing the impact of the amendments made to this standard, which are effective for annual periods beginning on or after January 1, 2014.

 

IAS 39, "Financial Instruments: Recognition and Measurement" - Novation of derivatives and continuation of hedge accounting

 

In June 2013, the IASB issued amendments to IAS 39, "Financial Instruments: Recognition and Measurement". According to these amendments, hedge accounting should be continued when a derivative financial instrument designated as a hedging instrument is novated from one counterparty to a central counterparty or an entity acting in that capacity and certain conditions are met.

 

The amendments to this standard, which are effective for annual periods beginning on or after January 1, 2014, will have no impact on CCD's profit or loss and financial position.

 

Annual improvements

 

In December 2013, the IASB issued Annual Improvements 2010-2012 Cycle and Annual Improvements 2011-2013 Cycle, which contain necessary, but not urgent, amendments to certain standards.

 

Some of these amendments are effective for annual periods beginning on or after July 1, 2014, while others are effective for transactions entered into on or after July 1, 2014. These amendments will have no material impact on CCD's profit or loss or financial position.

 

IFRS 9, "Financial Instruments"

 

The IASB issued in November 2009 and amended in October 2010 the first phase of a project that will replace IAS 39, "Financial Instruments: Recognition and Measurement". This standard defines a new way of classifying and measuring financial assets and liabilities. Financial assets will be classified in two categories (amortized cost and fair value through profit or loss) based on the entity's business model for managing its financial assets and the contractual cash flow characteristics of the financial assets. However, an exposure draft issued in November 2012 proposes the introduction of a third financial instrument category for debt securities: fair value through other comprehensive income. Financial liabilities will be classified in the same categories as those defined in IAS 39, but their measurement under the fair value option has been modified.

 

In November 2013, the IASB also issued the phase of its IAS 39 replacement project addressing hedging activities. The IFRS 9 hedge accounting model retains the current types of hedging relationships (fair value, cash flow and net investment hedges) but includes significant changes that will allow hedge accounting to better reflect the entity's risk management policies. The assessment of the effectiveness of a hedge has been replaced by the economic relationship principle, and changes have been made to the accounting for certain derivative financial instruments designated as part of a hedging relationship. The obligation to retrospectively assess the effectiveness of a hedge and the option under which a hedging relationship may be voluntarily terminated have been eliminated, while disclosure requirements about the entity's risk management activities have been enhanced. Entities that apply IFRS 9 are  able to choose an accounting policy under which they will continue to apply the IAS 39 hedge accounting model instead of adopting the IFRS 9 model until the IASB completes its project dealing with accounting for macro hedging.

 

The IASB's project phase dealing with impairment of financial asset methodology is still ongoing. The IASB has temporarily removed the mandatory effective date of IFRS 9, which was January 1, 2015, and will determine a new effective date when all the phases of this project will be finalized.

CCD is currently assessing the impact of the adoption of IFRS 9.

 

 

NOTE 5 - CARRYING AMOUNT OF FINANCIAL INSTRUMENTS

 

CLASSIFICATION AND CARRYING AMOUNT OF FINANCIAL INSTRUMENTS

The following tables present the carrying amount of all financial assets and liabilities according to their classification in the categories defined in the financial instrument standards as well as the carrying amount of financial instruments designated in a hedging relationship.

 


At fair value through profit or loss









As at December 31, 2013

Held for trading

Designated as at fair value through profit or loss

Available-

for-sale

Loans and receivables, and financial liabilities at amortized cost

Derivatives designated as hedging instruments (2)

Total

 

Financial assets













 

Cash and deposits with 

   financial institutions

$

--

$

--

$

--

$

236,360

$

--

$

236,360

 

Securities













 

   Securities at fair value

      through profit or loss


1,766,239


249,945


--


--


--


2,016,184

 

Available-for-sale 

   securities


--


--


5,257,483


--


--


5,257,483

 

Securities purchased under

  reverse repurchase

    agreements


--


--


--


877,949


--


877,949

 

Loans(1)


--


--


--


22,561,402


--


22,561,402

 

Other financial assets













 

   Clients' liability under

      acceptances


--


--


--


985,150


--


985,150

 

   Derivative financial

      instruments


2,012,249


--


--


--


363,747


2,375,996

 

   Other


--


--


--


416,053


--


416,053

 

Total financial assets

$

3,778,488

$

249,945

$

5,257,483

$

25,076,914

$

363,747

 $

 34,726,577

 

Financial liabilities













 

Deposits

$

--

$

--

$

--

$

27,289,755

$

--

 $

27,289,755

 

Other financial liabilities













 

Acceptances


--


--


--


985,150


--


985,150

 

   Commitments related to

      securities sold short


224,483


--


--


--


--


224,483

 

   Commitments related to

      securities sold under

       repurchase    

         agreements


--


--


--


538,236


--


538,236

 

    Derivative financial  

       instruments


1,923,138


--


--


--


141,287


2,064,425

 

Other


--


--


--


1,444,967


--


1,444,967

 

Total financial liabilities

$

2,147,621

$

--

$

--

$

30,258,108

$

141,287

$

32,547,016

 

 

 

(1) For more information, see Note 9, "Loans and allowance for credit losses".

(2) For details on derivatives designated as hedging instruments, see Note 15, "Derivative financial instruments and hedging activities".

 

 

 


At fair value through profit or loss


 

As at December 31, 2012

Held for trading

Designated as at fair

value

through

profit or loss

Available-for- sale

Loans and receivables,

and financial liabilities at amortized cost

Derivatives designated as hedging instruments (2)

Total

 

Financial assets













Cash and deposits with

   financial institutions

$

--

$

--

$

--

$

554,110

$

--

$

554,110

Securities













Securities at fair value

   through profit or loss


1,330,683


432,868


--


--


--


1,763,551

Available-for-sale

   securities


--


--


5,017,104