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Friday 24 May, 2013

Caisse Centrale

Desjardins Groups 1st Quarter Results

RNS Number : 4939F
Caisse Cent. Desjardins Du Quebec
23 May 2013
 



 

 

DESJARDINS GROUPS

CONDENSED INTERIM COMBINED FINANCIAL STATEMENTS

First quarter

As at March 31, 2013

(unaudited)

 

Finance Division

 

 

 

COMBINED BALANCE SHEETS

(unaudited)






Notes

As at

As at

As at



March 31, 2013

December 31, 2012

January 1, 2012

(in millions of Canadian dollars)



Restated (Note 3)

Restated (Note 3)

ASSETS








 

Cash and deposits with financial institutions


$

1,228

$

1,669

$

1,356

 

Securities

6







 

Securities at fair value through profit or loss



22,560


21,986


22,479

 

Available-for-sale securities



18,306


18,326


18,726

 




40,866


40,312


41,205

 

Securities borrowed or purchased under reverse repurchase agreements



4,063


4,377


4,959

 

Loans

7







 

Residential mortgages



86,636


85,931


79,686

 

Consumer, credit card and other personal loans



18,507


18,520


17,985

 

Business and government



29,353


28,544


27,948

 




134,496


132,995


125,619

 

Allowance for credit losses

7


(423)


(419)


(465)

 




134,073


132,576


125,154

 

Segregated fund assets



6,366


6,066


5,362

 

Other assets








 

Clients' liability under acceptances



688


841


676

 

Derivative financial instruments

9


2,437


2,238


3,059

 

Amounts receivable from clients, brokers and financial institutions



3,577


970


1,274

 

Investment property



491


512


597

 

Property, plant and equipment



1,307


1,312


1,218

 

Deferred tax assets



926


936


966

 

Other



5,611


5,009


4,356

 




15,037


11,818


12,146

 

TOTAL ASSETS


$

201,633

$

196,818

$

190,182

 

LIABILITIES AND EQUITY








 

LIABILITIES








 

Deposits








 

Individuals


$

85,532

$

84,415

$

82,486

 

Business and government



43,292


43,033


39,104

 

Deposit-taking institutions



2,246


2,176


1,813

 




131,070


129,624


123,403

 

Other liabilities








 

Acceptances



688


841


676

 

Commitments related to securities sold short



4,979


4,977


5,341

 

Commitments related to securities lent or sold under repurchase agreements



7,793


7,983


8,500

 

Derivative financial instruments

9


1,447


1,222


1,593

 

Amounts payable to clients, brokers and financial institutions



5,092


2,504


3,762

 

Insurance and investment contract liabilities



17,697


17,777


17,008

 

Segregated fund liabilities



6,363


6,075


5,362

 

Net defined benefit plan liabilities



2,462


2,524


2,578

 

Deferred tax liabilities



326


324


420

 

Other



4,652


4,427


4,517

 




51,499


48,654


49,757

 

Subordinated bonds



3,073


3,081


3,350

 

TOTAL LIABILITIES



185,642


181,359


176,510

 

EQUITY








 

Capital stock

11


3,465


3,322


2,210

 

Share capital



82


80


78

 

Undistributed surplus earnings



917


1,319


1,272

 

Accumulated other comprehensive income

12


722


694


1,044

 

Reserves



10,407


9,642


8,672

 

Equity - Group's share



15,593


15,057


13,276

 

Non-controlling interests



398


402


396

 

TOTAL EQUITY



15,991


15,459


13,672

 

TOTAL LIABILITIES AND EQUITY


$

201,633

$

196,818

$

190,182

 

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

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

 

Monique F. Leroux, c.m., fcpa, fca                                                                                                                                     Denis Paré, ll.l., d.d.n.

Chair of the Board                                                                                                                                                                    Vice-Chair of the Board

 

 

 

COMBINED STATEMENTS OF INCOME

(unaudited)




For the three-month periods
ended March 31


Notes



2013

2012

(in millions of Canadian dollars)





Restated (Note 3)

INTEREST INCOME










Loans






$

1,326

$

1,365

Securities







74


106








1,400


1,471

INTEREST EXPENSE










Deposits







426


463

Subordinated bonds and other







40


44








466


507

NET INTEREST INCOME







934


964

NET PREMIUMS







1,323


1,228

OTHER INCOME










Deposit ans payment service charges







116


123

Lending fees and credit card service revenues







134


128

Brokerage, investment fund and trust services







189


181

Net income (loss) on securities at fair value through profit or loss

14






4


(87)

Net income on available-for-sale securities







63


115

Net other investment income







65


57

Other







163


149








734


666

TOTAL INCOME







2,991


2,858

PROVISION FOR CREDIT LOSSES

7






60


82

CLAIMS, BENEFITS, ANNUITIES AND CHANGES IN INSURANCE AND INVESTMENT CONTRACT LIABILITIES







921


746

NON-INTEREST EXPENSE










Salaries and fringe benefits







785


790

Premises, equipment and furniture, including depreciation







111


103

Service agreements and outsourcing







59


58

Communications







70


70

Other







503


495








1,528


1,516

OPERATING SURPLUS EARNINGS







482


514

Income taxes on surplus earnings







104


116

SURPLUS EARNINGS BEFORE MEMBER DIVIDENDS(1)







378


398

Provision for member dividends







36


51

Tax recovery on provision for member dividends







(9)


(13)

NET SURPLUS EARNINGS FOR THE PERIOD AFTER MEMBER DIVIDENDS






$

351

$

360

of which:










Group's share






$

343

$

349

Non-controlling interests' share







8


11

(1) The Group's share of "Surplus earnings before member dividends" is presented in Note 15, "Segmented information".

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

 

COMBINED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)




For the three-month periods
ended March 31





2013

2012

(in millions of Canadian dollars)





Restated (Note 3)

Net surplus earnings for the period after member dividends






$

351

$

360

Other comprehensive income, net of income taxes










Item that will not be reclassified to the Combined Statements of Income










Remeasurement of net defined benefit plan liabilities







47


(1)








47


(1)

Item that will be reclassified to the Combined Statements of Income










Net change in unrealized gains (losses) on available-for-sale securities










Net unrealized gains (losses) on available-for-sale securities







72


(13)

Reclassification to the Combined Statements of Income of gains on available-for-sale securities







(20)


(66)








52


(79)

Net change in cash flow hedges










Net gains (losses) on derivative financial instruments designated as cash flow hedges







6


(157)

Reclassification to the Combined Statements of Income of gains on derivative financial instruments designated as cash flow hedges







(26)


(37)








(20)


(194)








32


(273)

Total other comprehensive income







79


(274)

COMPREHENSIVE INCOME FOR THE PERIOD






$

430

$

86

of which:










Group's share






$

418

$

77

Non-controlling interests' share







12


9

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

INCOME TAXES ON OTHER COMPREHENSIVE INCOME

The tax expense (recovery) related to each component of other comprehensive income for the period is presented in the following table.



For the three-month periods
ended March 31





2013

2012

(in millions of Canadian dollars)





Restated (Note 3)

Item that will not be reclassified to the Combined Statements of Income










Remeasurement of net defined benefit plan liabilities






$

16

$

1








16


1

Item that will be reclassified to the Combined Statements of Income










Net change in unrealized gains (losses) on available-for-sale securities










Net unrealized gains (losses) on available-for-sale securities







15


(14)

Reclassification to the Combined Statements of Income of gains on available-for-sale securities







(7)


(21)








8


(35)

Net change in cash flow hedges










Net gains (losses) on derivative financial instruments designated as cash flow hedges







1


(64)

Reclassification to the Combined Statements of Income of gains on derivative financial instruments designated as cash flow hedges







(8)


(8)








(7)


(72)








1


(107)

Total income tax expense (recovery)






$

17

$

(106)

 

 


 

COMBINED STATEMENTS OF CHANGES IN EQUITY

(unaudited)

For the three-month periods ended March 31


Capital

Undistributed surplus earnings

Accumulated other comprehensive income
(Note 12)

Reserves

Equity - Group's share

Non-controlling interests

Total equity

(in millions of Canadian dollars)

Capital stock
(Note 11)

Share capital

Stabilization reserve

Reserve for future member dividends

General reserve

Total reserves

Balance as at December 31, 2012

$

3,322

$

80

$

1,317

$

694

$

811

$

481

$

8,924

$

10,216

$

15,629

$

412

$

16,041

Impact of changes in accounting policies (Note 3)


---


---


2


---


---


---


(574)


(574)


(572)


(10)


(582)

Balance as at December 31, 2012
(restated)


3,322


80


1,319


694


811


481


8,350


9,642


15,057


402


15,459

Net surplus earnings for the period after member dividends


---


---


343


---


---


---


---


---


343


8


351

Other comprehensive income for the period


---


---


---


28


---


---


47


47


75


4


79

Total comprehensive income for the period


---


---


343


28


---


---


47


47


418


12


430

Other net change in capital stock


4


---


---


---


---


---


---


---


4


---


4

Issuance of F capital shares


139


---


---


---


---


---


---


---


139


---


139

Issuance of share capital


---


2


---


---


---


---


---


---


2


---


2

Redemption of share capital


---


---


---


---


---


---


---


---


---


(15)


(15)

Remuneration on permanent shares


---


---


(24)


---


---


---


---


---


(24)


---


(24)

Dividends


---


---


(3)


---


---


---


---


---


(3)


---


(3)

Transfer from udistributed surplus earnings (to reserves)


---


---


(718)


---


---


(7)


725


718


---


---


---

Other


---


---


---


---


---


---


---


---


---


(1)


(1)

Balance as at March 31, 2013

$

3,465

$

82

$

917

$

722

$

811

$

474

$

9,122

$

10,407

$

15,593

$

398

$

15,991
























Balance as at January 1, 2012

$

2,210

$

78

$

1,261

$

1,044

$

660

$

461

$

7,911

$

9,032

$

13,625

$

402

$

14,027

Impact of changes in accounting policies (Note 3)


---


---


11


---


---


---


(360)


(360)


(349)


(6)


(355)

Balance as at January 1, 2012
(restated)


2,210


78


1,272


1,044


660


461


7,551


8,672


13,276


396


13,672

Net surplus earnings for the period after member dividends


---


---


349


---


---


---


---


---


349


11


360

Other comprehensive income for the period


---


---


---


(271)


---


---


(1)


(1)


(272)


(2)


(274)

Total comprehensive income for the period


---


---


349


(271)


---


---


(1)


(1)


77


9


86

Net change in capital stock


3


---


---


---


---


---


---


---


3


---


3

Issuance of share capital


---


2


---


---


---


---


---


---


2


---


2

Remuneration on permanent shares


---


---


(23)


---


---


---


---


---


(23)


---


(23)

Dividends


---


---


(3)


---


---


---


---


---


(3)


(2)


(5)

Transfer from udistributed surplus earnings (to reserves)


---


---


(485)


---


116


(11)


380


485


---


---


---

Other


---


---


---


(1)


---


---


(1)


(1)


(2)


(1)


(3)

Balance as at March 31, 2013

$

2,213

$

80

$

1,110

$

772

$

776

$

450

$

7,929

$

9,155

$

13,330

$

402

$

13,732

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

 

 


COMBINED STATEMENTS OF CASH FLOWS

(unaudited)

For the three-month periods
ended March 31

(in millions of Canadian dollars)

2013

2012
Restated (Note 3)

Cash flows from (used in) operating activities






Operating surplus earnings


$

482

$

514

Non-cash adjustments:






Depreciation of property, plant and equipment and investment property



37


36

Net change in insurance and investment contract liabilities



(80)


(201)

Provision for credit losses



60


82

Net realized losses on available-for-sale securities



(34)


(89)

Other



39


43

Change in operating assets and liabilities:






Securities at fair value through profit and loss



(574)


(2,606)

Securities borrowed or purchased under reverse repurchase agreements



314


(2,134)

Loans



(1,557)


(977)

Derivative financial instruments, net amount



(9)


213

Deposits



1,446


1,774

Commitments related to securities sold short



2


2,011

Commitments related to securities lent or sold under repurchase agreements



(190)


1,264

Other



(487)


(910)

Income tax paid on surplus earnings



(71)


(200)




(622)


(1,180)

Cash flows from (used in) financing activities






Sale of debt securities and subordinated bonds to third parties on the market



(8)


(21)

Issuance of F capital shares



139


---

Other net change in capital stock



4


3

Remuneration on permanent shares



(24)


(23)

Issuance of preferred shares - Group's share



2


2

Redemption of preferred shares - Non-controling interests' share



(15)


---

Dividends paid - Group's share



(3)


(3)

Dividends paid - Non-controling interests' share



---


(2)




95


(44)

Cash flows from (used in) investing activities






Purchase of available-for-sale securities



(10,753)


(11,322)

Proceeds from disposals of available-for-sale securities



9,864


12,344

Proceeds from maturities of available-for-sale securities



985


33

Net acquisitions of property, plant and equipment and investment property



(10)


(38)




86


1,017

Net decrease in cash and cash equivalents



(441)


(207)

Cash and cash equivalents at beginning of period



1,669


1,356

Cash and cash equivalents at end of period


$

1,228

$

1,149

Supplemental information on cash flows from operating activities






Interest paid


$

446

$

494

Interest and dividends received



1,372


1,440

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

 



NOTES TO THE CONDENSED INTERIM
COMBINED FINANCIAL STATEMENTS

(unaudited)

 

NOTE 1 - INFORMATION ON DESJARDINS GROUP

Nature of operations

Desjardins Group is made up of the Desjardins caisses in Quebec and Ontario, the Fédération des caisses Desjardins du Québec (the Federation) and its subsidiaries, the Fédération des caisses populaires de l'Ontario and the Fonds de sécurité Desjardins. A number of the subsidiaries are active across Canada. The various business segments in which Desjardins Group operates are described in Note 15, "Segmented information". The address of the head office is 100 Des Commandeurs Street, Lévis, Quebec, Canada.

Basis of presentation of the Combined Financial Statements

As an integrated financial services group, Desjardins Group is a complete economic entity. The unaudited Condensed Interim Combined Financial Statements of Desjardins Group (the Interim Combined Financial Statements) have been prepared to present the financial position, the financial performance and the cash flows of this economic entity. The Desjardins caisses collectively control the Federation, whose mission is to determine the strategic priorities and coordinate the operations of Desjardins Group. The role of the Federation is also to protect the interests of Desjardins Group members and to promote the development of the Group.

As Desjardins caisses and the Federation are financial services cooperatives, these Interim Combined Financial Statements differ from the consolidated financial statements of a group with a traditional organizational structure. Consequently, the financial statements of Desjardins Group are a combination of the accounts of the Desjardins caisses, the caisses populaires of Ontario, the Federation, the Fédération des caisses populaires de l'Ontario and the entities controlled by them, namely the Federation's subsidiaries and the Fonds de sécurité Desjardins. The capital stock of Desjardins Group represents the aggregate of the capital stock issued by the caisses, the Federation and the Fédération des caisses populaires de l'Ontario.

 

NOTE 2  -  SIGNIFICANT ACCOUNTING POLICIES

General information

Statement of Compliance

Pursuant to the Act Respecting Financial Services Cooperatives, these Interim Combined Financial Statements have been prepared by Desjardins Group's management in accordance with Canadian generally accepted accounting principles (GAAP) and the accounting requirements of the Autorité des marchés financiers (AMF) in Québec, which do not differ from GAAP.

The International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board, constitute GAAP for Desjardins Group. These Interim Combined Financial Statements have been prepared in accordance with IFRS, and more specifically in accordance with International Accounting Standard (IAS) 34, "Interim Financial Reporting". These Interim Combined Financial Statements should be read in conjunction with the audited annual combined financial statements for the year ended December 31, 2012. All accounting policies were applied as described in Note 2, "Significant accounting policies", to the audited annual combined financial statements, except for changes described in Note 3, "Changes in accounting policies".

These Interim Combined Financial Statements were approved by the Board of Directors of Desjardins Group, which is the Board of Directors of the Federation, on May 9, 2013.

Significant Judgments, estimates And Assumptions

The preparation of interim combined financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions with respect to consolidation of structured entities, fair value measurement of financial instruments, derecognition of financial assets and liabilities, allowance for credit losses, objective evidence of impairment of available-for-sale securities, impairment of non-financial assets, insurance and investment contract liabilities, provisions, income taxes on surplus earnings, provision for member dividends, employee benefits and goodwill.

Actual results could differ from those estimates and assumptions, and the results for the interim periods presented are not necessarily representative of anticipated results for the full year. In the opinion of management, the necessary adjustments have been made to these Interim Combined Financial Statements to ensure that they present fairly the results of the periods presented.

PRESENTATION AND FUNCTIONAL CURRENCY

These Interim Combined Financial Statements are expressed in Canadian dollars, which is also the functional currency of Desjardins Group. Dollar amounts presented in the tables of the Notes to the Combined Financial Statements are in millions of dollars, unless otherwise stated.

 

NOTE 3 - CHANGES IN ACCOUNTING POLICIES

Presentation of financial statements

On January 1, 2013, Desjardins Group 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 Combined 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 Combined Statements of Comprehensive Income but had no impact on Desjardins Group's profit or loss or financial position.

Income tax consequences of remuneration on capital stock

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

The amendments to this standard specify that the income tax consequences of dividends and remuneration on capital stock must now be recognized in accordance with IAS 12, "Income Taxes". Therefore, when certain conditions are met, these income tax consequences are presented in profit or loss rather than in equity. In addition, cash flows related to these income tax consequences, which were previously classified as financing activities, are now classified as operating activities.

These amendments have been applied retrospectively. Accordingly, certain comparative figures have been reclassified from the Combined Statement of Changes in Equity to the Combined Statement of Income for the three-month period ended March 31, 2012. "Income tax recovery on remuneration of permanent shares", which was presented in the Combined Statement of Changes in Equity, decreased by $6 million, and "Income taxes on surplus earnings", in the Combined Statement of Income, decreased by a corresponding amount. In addition, cash flows of $6 million related to the income tax recovery on remuneration of permanent shares, which were previously classified as financing activities, are now classified as operating activities.

Scope of the group

On January 1, 2013, Desjardins Group adopted IFRS 10, "Consolidated Financial Statements", IFRS 11, "Joint Arrangements", andIFRS 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 which entities must be included in the group scope of Desjardins Group has been changed to the new control model defined in this standard. Desjardins Group therefore analyzed its interests in other entities to determine whether the accounting for some of them had to be changed.

IFRS 10 has been applied retrospectively. Desjardins Group determined that some investments that were previously consolidated in segregated funds on the basis of ownership interest were not in accordance with the new control model. Under this new model, these investments are not consolidated as Desjardins Group does not control their relevant activities. Accordingly, "Segregated fund assets" and "Segregated fund liabilities" that were presented in the Combined Balance Sheets have been decreased by $66 million as at December 31, 2012 and $65 million as at January 1, 2012.

IFRS 11 establishes the principles for accounting for the two types of joint arrangements, namely joint operations and joint ventures, and eliminates the possibility to account for joint ventures using the proportionate consolidation method. Since interests in joint ventures were already accounted for using the equity method, the retrospective application of this standard had no impact on Desjardins Group'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 Desjardins Group's profit or loss or financial position. New disclosures required by this standard will be presented, on a retrospective basis, in Desjardins Group's next annual combined financial statements.

Fair value measurement

On January 1, 2013, Desjardins Group 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. This standard aims at improving 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 the 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 Desjardins Group's profit or loss or financial position. The new IFRS 13 disclosure requirements are presented in Note 5, "Fair value measurement".

 

NOTE 3 - Changes in accounting policies (continued)

Offsetting financial assets and liabilities

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

Desjardins Group has applied these amendments on a retrospective basis. Since these amendments specifically concern disclosures, they had no impact on Desjardins Group's profit or loss or financial position. The new IFRS 7 disclosure requirements are presented in Note 10, "Offsetting financial assets and liabilities".

Employee benefits

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

·     All actuarial gains and losses must be recognized immediately in other comprehensive 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 other comprehensive income;

·     Past service costs must now be directly recognized in the Combined Statements of Income when they occur;

·     Employee contributions used to make up the deficit, which are required and set out in the terms of the defined benefit plans, must reduce the liability recognized on the Combined 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

As at January 1,
2012




Combined Balance Sheets





Deferred tax assets

$

178

$

110

Net defined benefit plan liabilities(1)


778


476

Deferred tax liabilities


(18)


(11)

Undistributed surplus earnings


2


11

Reserves


(574)


(360)

Non-controlling interests


(10)


(6)

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

 

 



For the three-month period
ended March 31, 2012



COMBINED STATEMENTS OF INCOME



Salaries and fringe benefits

$

40

Income taxes on surplus earnings


(11)

Decrease in net surplus earnings for the period after member dividends(1)


(29)




COMBINED STATEMENTS OF COMPREHENSIVE INCOME



Remeasurement of net defined benefit plan liabilities (net of taxes)


(1)

Decrease in comprehensive income for the period(2)

$

(30)

(1) The restatement of profit or loss items resulted in a net decrease of $29 million in "Net surplus earnings for the period after member dividends - Group's share".

(2) The restatement of comprehensive income items resulted in a net decrease of $30 million in "Comprehensive income for the period - Group's share".

 

 

 

NOTE 4  -  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 those designated in hedging relationships.


At fair value
through
profit or loss





As at March 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

$

---

$

---

$

---

$

1,228

$

---

$

1,228

Securities













Securities at fair value through profit and loss


9,574


12,986


---


---


---


22,560

Available-for-sale securities


---


---


18,306


---


---


18,306

Securities borrowed or purchased under reverse repurchase agreements


---


---


---


4,063


---


4,063

Loans(1)


---


---


---


134,073


---


134,073

Other financial assets













Clients' liability under acceptances


---


---


---


688


---


688

Derivative financial instruments(2)


1,451


---


---


---


986


2,437

Amounts receivable from clients, brokers and financial institutions


---


---


---


3,577


---


3,577

Other


---


---


---


2,624


---


2,624

Total financial assets

$

11,025

$

12,986

$

18,306

$

146,253

$

986

$

189,556

Financial liabilities













Deposits

$

---

$

---

$

---

$

131,070

$

---

$

131,070

Other financial liabilities













Acceptances


---


---


---


688


---


688

Commitments related to securities sold short


4,979


---


---


---


---


4,979

Commitments related to securities lent or sold under repurchase agreements


---


---


---


7,793


---


7,793

Derivative financial instruments(2)


1,199


---


---


---


248


1,447

Amounts payable to clients, brokers and financial institutions


---


---


---


5,092


---


5,092

Other


---


---


---


3,206


---


3,206

Subordinated bonds


---


---


---


3,073


---


3,073

Total financial liabilities

$

6,178

$

---

$

---

$

150,922

$

248

$

157,348

(1) For more information, see Note 7, "Loans and allowance for credit losses".

(2) For details on derivatives designated as hedging instruments, see Note 9, "Derivative financial instruments and hedging activities".

 

NOTE 4 - CARRYING AMOUNT OF FINANCIAL INSTRUMENTS (continued)

Classification and carrying amount of financial instruments (continued)


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

$

---

$

---

$

---

$

1,669

$

---

$

1,669

Securities













Securities at fair value through profit and loss


8,994


12,992


---


---


---


21,986

Available-for-sale securities


---


---


18,326


---


---


18,326

Securities borrowed or purchased under reverse repurchase agreements


---


---


---


4,377


---


4,377

Loans(1)


---


---


---


132,576


---


132,576

Other financial assets













Clients' liability under acceptances


---


---


---


841


---


841

Derivative financial instruments(2)


1,278


---


---


---


960


2,238

Amounts receivable from clients, brokers and financial institutions


---


---


---


970


---


970

Other


---


---


---


2,000


---


2,000

Total financial assets

$

10,272

$

12,992

$

18,326

$

142,433

$

960

$

184,983

Financial liabilities













Deposits

$

---

$

---

$

---

$

129,624

$

---

$

129,624

Other financial liabilities













Acceptances


---


---


---


841


---


841

Commitments related to securities sold short


4,977


---


---


---


---


4,977

Commitments related to securities lent or sold under repurchase agreements


---


---


---


7,983


---


7,983

Derivative financial instruments(2)


986


---


---


---


236


1,222

Amounts payable to clients, brokers and financial institutions


---


---


---


2,504


---


2,504

Other


1


---


---


2,965


---


2,966

Subordinated bonds


---


---


---


3,081


---


3,081

Total financial liabilities

$

5,964

$

---

$

---

$

146,998

$

236

$

153,198

1) For more information, see Note 7, "Loans and allowance for credit losses".

(2) For details on derivatives designated as hedging instruments, see Note 9, "Derivative financial instruments and hedging activities".

 

 

NOTE 5 - FAIR VALUE MEASUREMENT

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, 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, the fair value is determined using either models based on observable market data or models that are not based on observable market data. 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 are based 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 for this reason cannot be representative of future fair values. It also cannot 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 in the creditworthiness of borrowers are the main causes of changes in the fair value of loans held by Desjardins Group, which results 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 relatively 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.

Subordinated bonds

The fair value of subordinated bonds is based on quoted prices on the issuance markets.

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, Desjardins Group adjusts the measurement of derivative financial instruments for credit risk, and such adjustments reflect the financial ability of the counterparties to the contracts and the creditworthiness of Desjardins Group, as well as credit risk mitigation measures such as legally enforceable master netting agreements.

Financial instruments whose fair value equals carrying amount

The carrying amount of certain financial instruments that mature within 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 borrowed or purchased under reverse repurchase agreements", "Clients' liability under acceptances", "Amounts receivable from clients, brokers and financial institutions", "Other assets - Other", "Acceptances", "Commitments related to securities lent or sold under repurchase agreements", "Amounts payable to clients, brokers and financial institutions" and "Other liabilities - Other".

Fair value of financial instruments

The following table presents financial instruments whose carrying amount does not equal fair value:


As at March 31,
2013

As at December 31,
2012


Carrying amount

Fair value

Carrying amount

Fair value

FINANCIAL ASSETS









Loans

$

134,073

$

135,262

$

132,576

$

133,768

FINANCIAL LIABILITIES









Deposits


131,070


132,206


129,624


130,816

Subordinated bonds


3,073


3,396


3,081


3,384

 

 

NOTE 5 - FAIR VALUE MEASUREMENT (continued)

Fair value hierarchy levels for financial instruments measured at fair value

The measurement of financial instruments recognized at fair value is determined using the following three levels of the fair value hierarchy:

·   Level 1 - Valuation techniques based on quoted prices (unadjusted) in active markets for identical assets or liabilities

·   Level 2 - Valuation techniques based primarily on observable market data

·   Level 3 - Valuation techniques not based primarily on observable market data

The following tables present the measurement hierarchy for financial instruments recognized at fair value in the Combined Balance Sheets.

As at March 31, 2013

Level 1

Level 2

Level 3

Total

Financial assets









Financial assets at fair value through profit or loss









Securities at fair value through profit or loss









Debt securities issued or guaranteed by









Canadian governmental entities

$

5,507

$

624

$

---

$

6,131

Provincial governmental entities and municipal corporations in Canada


9,230


488


---


9,718

School or public corporations in Canada


30


140


---


170

Foreign public administrations


86


---


---


86

Other securities









Financial institutions


23


1,200


63


1,286

Other issuers


---


1,779


2,556


4,335

Shares


728


106


---


834



15,604


4,337


2,619


22,560

Derivative financial instruments









Interest rate contracts


---


1,344


---


1,344

Foreign exchange contracts


---


193


---


193

Other contracts


---


884


16


900



---


2,421


16


2,437

Total financial assets at fair value through profit or loss


15,604


6,758


2,635


24,997

Available-for-sale financial assets









Available-for-sale securities









Debt securities issued or guaranteed by









Canadian governmental entities


6,213


---


---


6,213

Provincial governmental entities and municipal corporations in Canada


6,616


297


---


6,913

School or public corporations in Canada


---


18


---


18

Foreign public administrations


35


43


---


78

Other securities









Financial institutions


---


3,181


---


3,181

Other issuers


1


192


85


278

Shares


1,420


203


---


1,623

Total available-for-sale financial assets(1)


14,285


3,934


85


18,304

Financial instruments of segregated funds


4,004


2,377


---


6,381

Total financial assets

$

33,893

$

13,069

$

2,720

$

49,682

Financial liabilities









Financial liabilities held for trading









Commitments related to securities sold short

$

4,882

$

97

$

---

$

4,979



4,882


97


---


4,979

Derivative financial instruments









Interest rate contracts


---


324


---


324

Foreign exchange contracts


---


199


---


199

Other contracts


---


906


18


924



---


1,429


18


1,447

Total financial liabilities

$

4,882

$

1,526

$

18

$

6,426

(1) As at March 31, 2013, certain available-for-sale securities having a carrying amount of $2 million were recognized at cost since their fair value cannot be reliably measured.

 

 

NOTE 5 - FAIR VALUE MEASUREMENT (continued)

Fair value hierarchy levels for financial instruments measured at fair value (continued)

As at December 31, 2012

Level 1

Level 2

Level 3

Total

Financial assets









Financial assets at fair value through profit or loss









Securities at fair value through profit or loss









Debt securities issued or guaranteed by









Canadian governmental entities

$

4,520

$

623

$

---

$

5,143

Provincial governmental entities and municipal corporations in Canada


9,343


441


---


9,784

School or public corporations in Canada


31


137


---


168

Foreign public administrations


303


---


---


303

Other securities









Financial institutions


22


1,629


63


1,714

Other issuers


---


1,714


2,431


4,145

Shares


698


30


1


729



14,917


4,574


2,495


21,986

Derivative financial instruments









Interest rate contracts


---


1,410


---


1,410

Foreign exchange contracts


---


126


---


126

Other contracts


---


676


26


702



---


2,212


26


2,238

Total financial assets at fair value through profit or loss


14,917


6,786


2,521


24,224

Available-for-sale financial assets









Available-for-sale securities









Debt securities issued or guaranteed by









Canadian governmental entities


5,468


---


---


5,468

Provincial governmental entities and municipal corporations in Canada


7,173


283


4


7,460

School or public corporations in Canada


---


18


---


18

Foreign public administrations


---


34


---


34

Other securities









Financial institutions


---


3,696


---


3,696

Other issuers


1


171


68


240

Shares


1,299


109


2


1,410

Total available-for-sale financial assets


13,941


4,311


74


18,326

Financial instruments of segregated funds


3,962


2,129


---


6,091

Total financial assets

$

32,820

$

13,226

$

2,595

$

48,641

Financial liabilities









Financial liabilities held for trading









Commitments related to securities sold short

$

4,914

$

63

$

---

$

4,977



4,914


63


---


4,977

Derivative financial instruments









Interest rate contracts


---


335


---


335

Foreign exchange contracts


---


173


---


173

Other contracts


---


695


19


714



---


1,203


19


1,222

Total financial liabilities

$

4,914

$

1,266

$

19

$

6,199

According to Desjardins Group's policy, transfers between fair value hierarchy levels are made at the reporting date.

During the three-month period ended March 31, 2012, no material transfers attributable to changes in the observability of market data were made between fair value measurement hierarchy levels. During the year ended December 31, 2012, bonds having a carrying amount of $31 million were transferred from Level 2 to Level 1, and money market securities having a carrying amount of $6 million were transferred from Level 1 to Level 2 due to the availability of quoted prices.

 

 

 

NOTE 5 - FAIR VALUE MEASUREMENT (continued)

Fair value of financial instruments categorized within Level 3

The following table presents the reconciliation from the beginning balance to the ending balance for Level 3 of the hierarchy, namely financial instruments whose fair value is determined using valuation techniques not based mainly on observable market data.


Balance
as at December 31, 2012

Realized
gains / losses recognized in profit or loss(1)

Unrealized gains / losses recognized in profit or loss(2)

Unrealized
gains / losses

recognized in
other comprehensive
income(3)

Transfers of instruments into (out of)
Level 3

Purchases/
Issuances

Sales/ Settlements

Balance as at March 31, 2013

Financial assets

















Financial assets at fair value through profit or loss

















Securities at fair value through profit or loss

















Other securities

















Financial institutions

















Mortgage bonds

$

63

$

---

$

---

$

---

$

---

$

---

$

---

$

63

Other issuers

















Hedge funds


17


---


1


---


---


---


---


18

Asset-backed term notes


1,704


2


50


---


---


---


(19)


1,737

Mortgage bonds


667


---


4


---


---


98


(12)


757

Corporate bonds


15


---


---


---


---


---


---


15

Financial asset-backed securities


28


---


1


---


---


---


---


29

Shares


1


---


---


---


(1)


---


---


---

Derivative financial instruments

















Other contracts

















Total return swap


26


---


(10)


---


---


---


---


16

Total financial assets at fair value through profit or loss


2,521


2


46


---


(1)


98


(31)


2,635

Available-for-sale financial assets

















Available-for-sale securities

















Debt securities issued or guaranted by

















Provincial governmental entities and municipal corporations in Canada


4


---


---


---


(4)


---


---


---

Other securities

















Other issuers

















Mortgage bonds


68


---


---


1


---


16


---


85

Shares


2


---


---


---


(2)


---


---


---

Total available-for-sale financial assets


74


---


---


1


(6)


16


---


85

Total financial assets

$

2,595

$

2

$

46

$

1

$

(7)

$

114

$

(31)

$

2,720

Financial liabilities

















Financial liabilities held for trading

















Derivative financial instruments

















Other contracts

$

19

$

---

$

(1)

$

---

$

---

$

1

$

(1)

$

18

Total financial liabilities

$

19

$

---

$

(1)

$

---

$

---

$

1

$

(1)

$

18

(1) Realized gains or losses on financial assets held for trading and designated as at fair value through profit or loss are presented under "Net income (loss)on securities at fair value through profit or loss". Realized gains or losses on available-for-sale financial assets are recognized under "Net income on available-for-sale securities".

(2) Unrealized gains or losses on financial assets held for trading and designated as at fair value through profit or loss are presented under "Net income (loss)on securities at fair value through profit or loss".

(3) Unrealized gains or losses on available-for-sale financial assets are recognized under "Net unrealized gains (losses) on available-for-sale securities" in the Combined Statements of Comprehensive Income.

 

 

NOTE 5 - FAIR VALUE MEASUREMENT (continued)

Fair value of financial instruments categorized within Level 3 (continued)

Measurement process for financial assets and financial liabilities categorized within Level 3

Desjardins Group has implemented various key controls and procedures to ensure that financial instruments categorized within Level 3 are appropriate and reliably measured. The financial governance framework provides for independent monitoring and segregation of duties in that respect.

Desjardins Group holds few financial assets and liabilities that are categorized within Level 3. Asset-backed term notes (ABTN) and mortgage bonds are the most significant financial instruments within this level.

Desjardins Group uses third parties to independently measure every day the values of variables that are some of the inputs to the valuation model used for ABTN and the total return swap hedging ABTN, and any significant difference is analyzed. In addition, the results from the model with respect to the fair value measurement of these securities are frequently compared with certain credit indexes and other relevant indicators. To that effect, a scorecard that presents, in particular, an overview of the credit markets and indicators that can be used to follow up on the values and the main risks arising from ABTN and the total return swap, is sent weekly to the members of a committee that supports the Management Committee of Desjardins Group. Every quarter, this committee approves the fair value of ABTN and hedging instruments as well as their measurement methodology. The Asset-Backed Commercial Paper Department is responsible for monitoring and maintaining the validity of the model, assumptions, variables and inputs used to determine the fair value of ABTN.

For mortgage bonds, Desjardins Group developed a list of parameters based on comparable inputs that is reviewed annually and adjusted based on market trends. Tests are performed quarterly to ensure that the rates used by the system are consistent with this list and follow a reasonable trend.

Sensitivity of financial assets and financial liabilities categorized within Level 3

Desjardins Group performs sensitivity analyses for the fair value measurements of financial instruments categorized within Level 3. Changing unobservable inputs to one or more reasonably possible alternative assumptions does not significantly change the fair value of financial instruments categorized within Level 3, except for ABTN and the total return swap hedging ABTN, for which a sensitivity analysis is provided in the "Securities‑Asset‑backed term notes" section of Note 6, "Securities".

The following table presents the main valuation techniques and the inputs used to measure the fair value of financial instruments categorized within Level 3.

March 31, 2013

Fair value

Main valuation techniques

Unobservable inputs

Input value ranges

Financial assets








Securities








Hedge funds



Adjusted net asset value

Adjusted net asset value (A, C)

-


- (1)

$

18

Illiquidity premium (B, C)

5%

to

100%

Asset-backed term notes



Internal model(2)

Illiquidity premium (B, C)

7%


1,737

Recovery rate (A, D)

13%

to

50%



Probability of default (B, D)

1%

to

91%

Mortgage bonds



Discounted cash flows

Credit spread (B, C)

0 bp

to

300 bp


905

Comparable inputs (A, C)

0 bp

to

520 bp

Corporate bonds


15

Brokers' quotes

Brokers' quotes

-


- (3)

Financial asset-backed securities


23

Internal model

Probability of default (B)

0%

to

100%


6

Brokers' quotes

Brokers' quotes

-


- (3)

Derivative financial instruments








Total return swap



Internal model(2)

Recovery rate (B, D)

13%

to

50%


16

Probability of default (A, D)

1%

to

91%

Total financial assets

$

2,720






Financial liabilities








Derivative financial instruments








Other contracts



Option valuation model

Proportion of credit spread (B, C)


75%


$

18

Increase in exercise price (B, C)


5%


Total financial liabilities

$

18






(1) Since hedge funds are currently being liquidated and due to the nature of this type of investment, no input value range is presented for adjusted net asset value.

(2) For a description of the internal model, see the "Securities - Asset-backed term notes" section of Note 6, "Securities", to the 2012 audited annual Combined Financial Statements.

(3) Due to the potential differences between the various brokers' quotes, no input value rage is presented for these financial instruments.

Fair value sensitivity to changes in unobservable inputs

(A) An increase (decrease) in this unobservable input, taken individually, generally results in an increase (decrease) in fair value.

(B) An increase (decrease) in this unobservable input, taken individually, generally results in a decrease (increase) in fair value.

(C) There is no predictable relationship between this input and other material unobservable inputs.

(D) An increase (decrease) in the probability of default is generally accompanied by a decrease (increase) in the recovery rate.

 

NOTE 6  -  SECURITIES

unrealized gains and losses on available-for-sale securities

The following tables present unrealized gains and losses on available-for-sale securities.

As at March 31, 2013

Amortized
cost

Unrealized
gross gains

Unrealized
 gross losses

Carrying
amount

Debt securities issued or guaranteed by









Canadian governmental entities

$

6,144

$

69

$

---

$

6,213

Provincial governmental entities and municipal corporations in Canada


6,688


226


1


6,913

School or public corporations in Canada


18


---


---


18

Foreign public administrations


77


1


---


78

Other securities









Financial institutions


3,128


53


---


3,181

Other issuers


266


13


---


279

Shares


1,405


222


3


1,624


$

17,726

$

584

$

4

$

18,306

 

As at December 31, 2012

Amortized
cost

Unrealized
gross gains

Unrealized
 gross losses

Carrying
amount

Debt securities issued or guaranteed by









Canadian governmental entities

$

5,420


50


2


5,468

Provincial governmental entities and municipal corporations in Canada


7,214


246


---


7,460

School or public corporations in Canada


18


---


---


18

Foreign public administrations


33


1


---


34

Other securities









Financial institutions


3,648


48


---


3,696

Other issuers


231


10


1


240

Shares


1,248


173


11


1,410


$

17,812


528


14


18,326

Impairment losses recognized

During the three-month period ended March 31, 2013 and 2012, Desjardins Group concluded that there was no objective evidence of impairment.

 

NOTE 6 - SECURITIES (continued)

SECURITIES - ASSET-BACKED TERM NOTES

Desjardins Group holds ABTN the face value of which is allocated among the various following vehicles:


As at March 31, 2013

As at December 31, 2012

MAV 1



Classes A-1, A-2, B and C

$

1,912

$

1,913

MAV 1





Class IA - Ineligible (subprime) assets


21


21

Class IA - Ineligible (other) assets


---


18

MAV 3





Class IA - Ineligible (subprime) assets


36


36

Class TA - Traditional assets


9


10

Total ineligible and traditional assets


66


85

Total MAV 1 and MAV 3

$

1,978

$

1,998

As at March 31, 2013, the fair value of ABTN was $1,710 million for MAV 1 A-1, A-2, B and C notes and $27 million for ineligible and traditional assets ($1,661 million for MAV 1 A-1, A-2, B and C notes and $44 million for ineligible and traditional assets as at December 31, 2012). The ABTN valuation methodology used as at March 31, 2013 was the same as at December 31, 2012. The fair value of the derivative financial instruments hedging ABTN, which include a total return swap, was $17 million as at March 31, 2013 ($32 million as at December 31, 2012). For more information on the ABTN and total return swap measurement methodology, see the "Asset-backed term notes" section of Note 6, "Securities", and Note 5, "Fair value of financial instruments" to the 2012 audited annual combined financial statements.

Desjardins Group participates, for an amount of $1,193 million, in the margin funding facility (MFF) intended to cover any potential collateral calls from the counterparties to the credit default swap of Master Asset Vehicle (MAV 1). As at March 31, 2013, no amount had been drawn on the MFF. In addition, Desjardins Group purchased a $400 million protection for its commitments under the MFF from one of the participants in MAV 1. For more information on the terms of the MFF and acquired protection, see the "Asset-backed term notes" of Note 6, "Securities" to the 2012 audited annual Combined Financial Statements.

Impact on profit or loss

A gain of $52 million related to ABTN was recognized in Desjardins Group's Combined Statements of Income for the three-month period ended March 31, 2013 (gain of $223 million for the three-month period ended March 31, 2012). In addition, the loss related to the derivative financial instruments hedging ABTN was $15 million for the three-month period ended March 31, 2013 (loss of $114 million for the three-month period ended March 31, 2012).

The above estimated fair values may not be indicative of the ultimate net realizable value or the future fair value. While management deems its valuation technique the most appropriate in the circumstances, the carrying amount remains sensitive to credit spreads. As previously mentioned, Desjardins Group entered into transactions with a view to reduce the risk of the ABTN portfolio, among other things. Accordingly, the sensitivity analysis presents the impact of a 10% change in credit spreads on the estimated fair value of MAV 1 A-1, A-2, B and C notes and the total return swap as well as Tier 1 capital.


As at March 31, 2013

As at December 31, 2012


Increase of
10% in
credit spreads

Decrease of
10% in
credit spreads

Increase of
10% in
credit spreads

Decrease of
10% in
credit spreads

Fair value









MAV 1 A-1, A-2, B and C

$

(11)

$

11

$

(13)

$

14

Total return swap


4


(4)


5


(5)

Total

$

(7)

$

7

$

(8)

$

9

Tier 1 capital









MAV 1 A-1, A-2, B and C

$

(8)

$

9

$

(8)

$

9

Total return swap


3


(3)


4


(4)

Total

$

(5)

$

6

$

(4)

$

5

Some uncertainties remain regarding the value of underlying assets, the amount and timing of cash flows as well as the development of a secondary market for traditional and ineligible asset-backed tracking notes and the liquidity of such market, which could further change the value of Desjardins Group's investment in these notes.

Desjardins Group holds or has access to the necessary funds to meet all its financial, operating or regulatory obligations, and it does not expect that any liquidity risks related to the ABTN would have a material adverse impact on its financial soundness, its credit ratings and its capital ratios.

 

 

NOTE 7 - LOANS AND ALLOWANCE FOR CREDIT LOSSES

Loans, impaired loans and allowances

The following tables present the credit quality of loans.

As at March 31, 2013

Gross loans neither past due nor impaired

Gross loans past due but not impaired

Gross impaired loans

Individual allowances

Collective allowance

Net loans

Residential mortgages

$

86,279

$

223

$

134

$

14

$

38

$

86,584

Consumer, credit card and other personal loans


16,529


1,892


86


30


92


18,385

Business and government


28,676


428


249


90


159


29,104


$

131,484

$

2,543

$

469

$

134

$

289

$

134,073

 

As at December 31, 2012

Gross loans neither past due
nor impaired

Gross loans past due but not impaired

Gross
impaired
loans

Individual allowances

Collective allowance

Net loans

Residential mortgages

$

85,541

$

261

$

129

$

13

$

37

$

85,881

Consumer, credit card and other personal loans


16,272


2,164


84


31


88


18,401

Business and government


27,785


506


253


94


156


28,294


$

129,598

$

2,931

$

466

$

138

$

281

$

132,576

 

Gross loans past due but not impaired

The following tables present the aging of gross loans that are past due but not impaired.

As at March 31, 2013

1 to
29 days

30 to
59 days

60 to
89 days

90 days
or more

Total

Residential mortgages

$

181

$

23

$

7

$

12

$

223

Consumer, credit card and other personal loans


1,430


245


97


120


1,892

Business and government


204


52


48



428


$

1,815

$

320

$

152

$

256

$

2,543

 

As at December 31, 2012

1 to
29 days

30 to
59 days

60 to
89 days

90 days
or more

Total

Residential mortgages

$

213

$

24

$

10

$

14

$

261

Consumer, credit card and other personal loans


1,675


271


99


119


2,164

Business and government


259


69


39


139


506


$

2,147

$

364

$

148

$

272

$

2,931

 

 

NOTE 7 - LOANS AND ALLOWANCE FOR CREDIT LOSSES (continued)

Allowance for credit losses

The following table present the reconciliation of the allowance for credit losses.


Residential
mortgages

Consumer, credit card and other personal loans

Business and government

Total


March 31,
2013

December 31, 2012

March 31,
2013

December 31, 2012

March 31,
2013

December 31, 2012

March 31,
2013

December 31, 2012

Balance at beginning of year

$

51

$

67

$

165

$

187

$

304

$

303

$

520

$

557

Provision for credit losses


9


(6)


48


196


3


51


60


241

Write-offs and recoveries


(7)


(10)


(47)


(218)


(7)


(50)


(61)


(278)

Balance at end of year

$

53

$

51

$

166

$

165

$

300

$

304

$

519

$

520

Composed of: 

















Allowance for credit losses

$

52

$

50

$

122

$

119

$

249

$

250

$

423

$

419

Allowance for off-balance sheet credit commitments(1)


1


1


44


46


51


54


96


101

(1) The allowance for off-balance sheet credit commitments is presented under "Other liabilities - Other".

 

NOTE 8  -  COVERED BONDS

CCDQ Covered Bond Guarantor Limited Partnership, a structured entity, was created for purposes of issuing covered bonds. This entity was put in place to guarantee principal and interest payments due to the holders of these securities. The operations of this entity are included in the Interim Combined Financial Statements of Desjardins Group as it is controlled by Desjardins Group. Desjardins Group sold residential mortgage loans insured by the Canada Mortgage and Housing Corporation to this entity and granted to this entity a loan to facilitate the acquisition of these assets. Under the terms and conditions of the issuance agreements, Desjardins Group has limited access to the loans that are legally owned by this structured entity. These loans, totalling $3,048 million as at March 31, 2013 ($3,001 million as at December 31, 2012), are presented under "Loans - Residential mortgages" in the Combined Balance Sheets, and the covered bonds, amounting to $2,532 million as at March 31, 2013 ($2,479 million as at December 31, 2012), are presented under "Deposits - Business and government".

 

 

NOTE 9  -  DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

The following table presents the fair value of derivative financial instruments recognized in the Combined Balance Sheets.


As at March 31, 2013

As at December 31, 2012


Notional amount

Assets

Liabilities

Notional
amount

Assets

Liabilities

Designated as hedging instruments













Fair value hedges

$

25,363

$

605

$

80

$

24,846

$

551

$

91

Cash flow hedges


25,321


381


168


26,259


409


145

Total - Designated as hedging instruments


50,684


986


248


51,105


960


236

Trading purposes


76,822


1,451


1,199


73,037


1,278


986

Total derivative financial instruments before impact of master netting agreements


127,506


2,437


1,447


124,142


2,238


1,222

Less:













Impact of master netting agreements(1)


---


332


332


---


356


356

Total derivative financial instruments after impact of master netting agreements

$

127,506

$

2,105

$

1,115

$

124,142

$

1,882

$

866

(1)Impact of offsetting credit exposure when Desjardins Group holds master netting agreements without the intent of settling on a net basis or simultaneously.

Hedging activities

The following table presents the net amounts related to the ineffectiveness of fair value hedges and cash flow hedges that are recognized under "Net income (loss) on securities at fair value through profit or loss" in the Combined Statements of Income.


For the three-month periods
ended March 31


2013

2012

Net losses related to the ineffectiveness of fair value hedges

$

(4)

$

(1)

Net gains (losses) related to the ineffectiveness of cash flow hedges


2


(7)


$

(2)

$

(8)

 

 

NOTE 10 - OFFSETTING FINANCIAL ASSETS AND LIABILITIES

The following tables present information about financial assets and liabilities that are set off in the Combined Balance Sheets as well as amounts that are not set off and are subject to a master netting agreement or a similar agreement.

As at March 31, 2013

Gross recognized amounts

Set off amounts

Net amounts presented in the Combined Balance Sheets

Associated amounts not set off in the Combined Balance Sheets

Net amounts

Financial instruments(1)

Assets held as collateral

Financial assets













Securities borrowed or purchased under reverse repurchase agreements

$

617

$

---

$

617

$

617

$

---

$

---

Derivative financial instruments


2,456


27


2,429


2,429


---


---

Amounts receivable from clients, brokers and financial institutions


15,727


13,100


2,627


5


---


2,622

Other


4


1


3


---


3


---


$

18,804

$

13,128

$

5,676

$

3,051

$

3

$

2,622

(1) Carrying amount of financial assets that are subject to a master netting agreement or similar agreement but that do not meet offsetting criteria.

 

As at March 31, 2013

Gross recognized amounts

Set off amounts

Net amounts presented in the Combined Balance Sheets

Associated amounts not set off in the Combined Balance Sheets

Net amounts

Financial instruments(1)

Assets pledged as collateral

Financial liabilities













Commitments related to securities lent or sold under repurchase agreements

$

1,248

$

---

$

1,248

$

1,248

$

---

$

---

Derivative financial instruments


585


27


558


558


---


---

Amounts payable to clients, brokers and financial institutions


13,122


13,100


22


5


---


17

Other


2


1


1


---


1


---


$

14,957

$

13,128

$

1,829

$

1,811

$

1

$

17

(1) Carrying amount of liabilities assets that are subject to a master netting agreement or similar agreement but that do not meet offsetting criteria.

 

 

NOTE 10 - OFFSETTING FINANCIAL ASSETS AND LIABILITIES (continued)

 

As at December 31, 2012

Gross recognized amounts

Set off amounts

Net amounts presented
in the Combined Balance Sheets

Associated amounts not
set off in the Combined Balance Sheets

Net
amounts

Financial instruments(1)

Assets
held as collateral

Financial assets













Securities borrowed or purchased under reverse repurchase agreements

$

939

$

---

$

939

$

939

$

---

$

---

Derivative financial instruments


2,304


71


2,233


2,233


---


---

Amounts receivable from clients, brokers and financial institutions


1,527


1,523


4


2


---


2


$

4,770

$

1,594

$

3,176

$

3,174

$

---

$

2

(1) Carrying amount of financial assets that are subject to a master netting agreement or similar agreement but that do not meet offsetting criteria.

 

As at December 31, 2012

Gross recognized amounts

Set off amounts

Net amounts presented
in the Combined Balance Sheets

Associated amounts not
set off in the Combined Balance Sheets

Net
amounts

Financial instruments(1)

Assets pledged as collateral

Financial liabilities













Commitments related to securities lent or sold under repurchase agreements

$

1,032

$

---

$

1,032

$

1,032

$

---

$

---

Derivative financial instruments


606


71


535


535


---


---

Amounts payable to clients, brokers and financial institutions


1,662


1,523


139


1


52


86

Other


10


---


10


---


10


---


$

3,310

$

1,594

$

1,716

$

1,568

$

62

$

86

(1) Carrying amount of liabilities assets that are subject to a master netting agreement or similar agreement but that do not meet offsetting criteria.

 

 

NOTE 11  -  CAPITAL STOCK

Issuance of capital shares

During the three-month period ended March 31, 2013, the Federation issued 13,895,784 F capital shares for a cash consideration of $138,775,319, which represents the gross proceeds for this share issue, $138,957,837 less share issue costs of $182,518.

NOTE 12 - ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table presents the main components of accumulated other comprehensive income (net of taxes).


As at March 31, 2013

As at December 31, 2012


Group's
share

Non-controlling
interests'
share

Group's
share

Non-controlling
interests'
share

Items that will be reclassified to the Combined Statements of Income









Net unrealized gains on available-for-sale securities

$

372

$

32

$

324

$

28

Net gains on derivative financial instruments designated as cash flow hedges


352


---


372


---

Other


(2)


---


(2)


---

Accumulated other comprehensive income

$

722

$

32

$

694

$

28

 

 

 

NOTE 13 - CAPITAL MANAGEMENT

The goal of capital management at Desjardins Group is to ensure that a sufficient level of high-quality capital is maintained for the following reasons: to have flexibility for its development, to maintain favourable credit ratings and to maintain the confidence of depositors and financial markets.

Desjardins Group's capital ratios are calculated according to the guideline on adequacy of capital base standards applicable to financial services cooperatives, issued by the AMF. This regulatory framework is largely based on the revised framework for international convergence of capital measurement and capital standards (Basel III) issued by the Bank for International Settlements (BIS). In that regard, the AMF allowed Desjardins Group to use the Advanced Internal Ratings-Based approach for credit risk related to retail loan portfolios (individuals). Other credit exposures and market risk are assessed according to the Standardized Approach, while operational risk is calculated based on the Basic Indicator Approach. The AMF's minimum requirement has been set at a total capital ratio of 10.5%.

In terms of developing the Integrated Capital Management Framework, the financial goal for Desjardins Group's Tier 1 capital ratio was maintained at a minimum of 15% under Basel III, given the global economic context, the new BIS regulatory requirements with respect to Basel III (effective January 1, 2013) and the application of the amendments to IAS 19. In that respect, as at the date of conversion to Basel III, Desjardins Group elected to use the transitional provisions set out in the AMF's guideline. Consequently, since January 1, 2013, for purposes of calculating Tier 1 capital ratio, Desjardins Group has amortized on a declining basis capitalization instruments that no longer meet the eligibility criteria, but that meet certain conditions, at a rate of 10% per year, and will do so until they are entirely eliminated from the capital category.

In addition, since the same date, Desjardins Group has amortized on a straight-line basis the eligible portion of the $572 million impact of the amendments to IAS 19, for a quarterly amortization of $72 million, and will do so until December 31, 2014. This election is irrevocable and mitigates the impact of the amendments to this accounting standard on Desjardins Group's capital ratios.

On May 1, 2012, the Federation obtained the venture reporting issuer status from the AMF. It therefore issued capital shares in 2012. These capital shares meet the current regulatory requirements (Basel III) and are included in Tier 1a capital. As mentioned in Note 11, "Capital stock", capital shares have been issued during the three-month period ended March 31, 2013 for gross proceeds of $139 million, bringing the total capital shares issued to $1,164 million out of a maximum of $1.5 billion. It should be noted that the AMF approved the increase in the limit for this issuance.

 

NOTE 14 - NET INCOME (LOSS) ON SECURITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

Financial instruments held for trading

The following table presents the impact of income from financial instruments held for trading on the Combined Statements of Income.


For the three-month periods
ended March 31


2013

2012

Income



Net interest income

1

$

7

Net loss on securities at fair value through profit or loss


(62)


(220)


$

(61)

$

(213)

Financial instruments designated as at fair value through profit or loss

The following table presents the impact of income from financial instruments designated as at fair value through profit or loss on the Combined Statements of Income.


For the three-month periods
ended March 31


2013

2012

Income



Net interest income

4

$

9

Net income on securities at fair value through profit or loss


66


133


$

70

$

142

 

NOTE 15 - SEGMENTED INFORMATION

Desjardins Group is made up of the three following segments: Personal Services and Business and Institutional Services; Wealth Management and Life and Health Insurance; and Property and Casualty Insurance. These business segments have been structured according to the needs of members and clients and the markets in which Desjardins Group operates, and they reflect Desjardins Group's internal management method. Financial information related to activities that are not specific to a business segment is presented under the Other category.

The Personal Services and Business and Institutional Services business segment offers Desjardins Group's members and clients a broad range of regular financial products and services that are distributed mainly through the caisse network, and also through business centres and the major accounts team. This segment also offers its products and services through complementary distribution networks and mortgage representatives, by telephone, on the Internet and through mobile applications and through ATMs.

The Wealth Management and Life and Health Insurance business segment offers Desjardins Group's members and clients a range of products and services adapted to the changing wealth management and financial security needs of individuals, groups, businesses and cooperatives. These products and services are distributed through the caisse network and complementary distribution networks, by telephone, on the Internet and through mobile applications.

The Property and Casualty Insurance business segment offers insurance products allowing Desjardins Group's members and clients to protect themselves against disasters. It includes the operations of Desjardins Group General Insurance Inc. as well as those of Western Financial Group Inc. In addition to being offered through the caisse network, the products of this segment are distributed by many client care centres and business centres, through a network of brokers and a network of exclusive agents in the field, and on the Internet and through mobile applications.

The Other category includes financial information that is not specific to a business segment. It primarily includes treasury activities related to Caisse centrale Desjardins's operations and those related to financial intermediation between the liquidity excesses or needs of the caisses. This category also includes the results of the support functions provided by the Federation to Desjardins Group as a whole, the operations of Capital Desjardins inc. and Fonds de sécurité Desjardins as well the operating results related to ABTN securities held by Desjardins Group. It also includes Desjardins Technology Group Inc., which combines all of Desjardins Group's IT-related activities. In addition to the various adjustments necessary to prepare combined financial statements, the intersegment balance eliminations are classified in this category.

Intersegment transactions are recognized at the exchange amount, which represents the amount agreed to by the various legal entities and business units. The terms and conditions of these transactions are comparable to those offered in financial markets. The results of the main segments reflect data collected by internal financial reporting systems and are consistent with the policies used in preparing the Interim Combined Financial Statements of Desjardins Group.

 

 

NOTE 15 - SEGMENTED INFORMATION (continued)

RESULTS BY BUSINESS SEGMENT

The following tables provide a summary of Desjardins Group's financial results by business segment for the three-month periods ended March 31.


Personal Services and Business and Institutional Services

Wealth Management and Life and Health Insurance

Property and Casualty Insurance

Other

Combined


2013

2012

2013

2012

2013

2012

2013

2012

2013

2012



Restated
(note 3)


Restated
(note 3)


Restated
(note 3)


Restated
(note 3)


Restated
(note 3)

Net interest income

$

894

$

911

$

---

$

---

$

2

$

4

$

38

$

49

$

934

$

964

Net premiums


---


---


862


811


518


469


(57)


(52)


1,323


1,228

Other income


426


467


277


139


60


60


(29)


---


734


666

Total income


1,320


1,378


1,139


950


580


533


(48)


(3)


2,991


2,858

Provision for
credit losses


60


82


---


---


---


---


---


---


60


82

Claims, benefits, annuities and
changes in insurance and investment contract liabilities


---


---


547


455


377


291


(3)


---


921


746

Non-interest expense


1,047


1,059


424


420


173


158


(116)


(121)


1,528


1,516

Operating surplus earnings


213


237


168


75


30


84


71


118


482


514

Income taxes on surplus earnings


44


57


42


18


6


16


12


25


104


116

Surplus earnings before member dividends (1)


169


180


126


57


24


68


59


93


378


398

Provision for member dividends, net of income tax recovery


27


38


---


---


---


---


---


---


27


38

Net surplus earnings for the period after member dividends

$

142

$

142

$

126

$

57

$

24

$

68

$

59

$

93

$

351

$

360

of which:





















Group's share

$

142

$

142

$

121

$

54

$

22

$

61

$

58

$

92

$

343

$

349

Non-controlling interests' share


---


---


5


3


2


7


1


1


8


11

(1) For the three-month periods ended March 31, 2013 and 2012, the Group's share of "Surplus earnings before member dividends" was respectively $169 million and $180 million for the Personal Services and Business and Institutional Services segment, $121 million and $54 million for the Wealth Management and Life and Health Insurance segment, $22 million and $61 million for the Property and Casualty Insurance segment and $58 million and $92 million for the Other category.

 

SEGMENT ASSETS


Personal Services and Business and Institutional Services

Wealth Management and Life and Health Insurance

Property and
Casualty Insurance

Other

Combined

As at March 31, 2013

$

162,001

$

28,545

$

5,512

$

5,575

$

201,633

As at December 31, 2012 - Restated (Note 3)

$

158,116

$

27,371

$

5,475

$

5,856

$

196,818

 

 

NOTE 16 - SUBSEQUENT EVENTS

Qtrade Canada Inc.

On April 3, 2013, Desjardins Group acquired, through Desjardins Financial Corporation Inc., a wholly-owned subsidiary of the Federation, 40% of the outstanding shares of Qtrade Canada Inc. (Qtrade) on a fully diluted basis for an aggregate amount of $65 million. Qtrade is a company specializing in online brokerage and wealth management services, primarily for credit unions.

This transaction qualifies as a business combination since Desjardins Group took control of Qtrade's operations, and it will be accounted for using the acquisition method. The allocation of the purchase price between the assets acquired and liabilities assumed has not been completed yet due to the recent closing of the transaction. Qtrade's results will be included in the Combined Financial Statements of Desjardins Group from the transaction closing date, which is April 3, 2013.

Contingent liability

On April 11, 2013, the Supreme Court of Canada granted a leave to appeal from the judgment of the Court of Appeal of Quebec, dated August 2, 2012, in favour of Desjardins Group in connection with the class action for the reimbursement of foreign currency exchange fees charged to Visa Desjardins cardholders. It is not currently possible to assess the outcome of this appeal, the timing of such outcome and the potential impact on Desjardins Group's financial position.

 


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