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Caisse Centrale (76AV)

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Wednesday 15 August, 2012

Caisse Centrale

Half Yearly Report

RNS Number : 1209K
Caisse Cent. Desjardins Du Quebec
15 August 2012
 

Desjardins
Caisse centrale                            Financial Report 

                                                          Second Quarter 2012

0BCooperating in building the future                               June 30, 2012

 

 

1BMESSAGE FROM MANAGEMENT

 

 

GOOD financial strength DESPITE A DECLINE IN NET INCOME

 

Second quarter highlights

§ Net income of $26.0 million for the second quarter of 2012, versus $27.9 million for the second quarter of 2011

§ Total income of the Business and Institutional Services segment up 10%

§ Confirmation of "AA" credit rating for securities of Caisse centrale Desjardins (CCD) by DBRS

 

Highlights of the first six months

§ Total capital ratio of 18.8% and capital/asset ratio of 6.5% as at June 30, 2012

§ Net income of $45.2 million for the first six months of 2012, compared to $55.9 million for the first six months of 2011

§ Business loan outstandings and commitments up 9% and 7%, respectively, since the beginning of the year

 

As at June 30, 2012, CCD's assets stood at $30 billion. CCD remained strongly capitalized with a total capital ratio of 18.8% and a capital/asset ratio of 6.5%, compared to the standards of 8% and 5%, respectively. These ratios were measured under the Basel II regulatory framework. CCD is therefore one of the best capitalized financial institutions in North America.

 

For the first half of 2012, CCD's net income of $45.2 million was down from $55.9 million for the first half of 2011, essentially as a result of a recovery of the provision for credit losses in the first half of 2011, as opposed to the recording of a provision for credit losses in the first six months of the current year.

 

Total income for the Treasury segment was up slightly, and the first six months were marked by both an increase in foreign exchange income and growth in income from its trading portfolios. Since the beginning of the year, the Desjardins Group Treasury segment has also continued to provide liquidities to the caisse network through various tools, including the issuance of US$1.5 billion in covered bonds and by using securitization twice through the Canada Mortgage Bonds Program. CCD's liquidities remain high, exceeding regulatory requirements.

 

In the Business and Institutional Services segment, the prudent growth strategy, which attaches the utmost importance to the quality of underlying loans, was successful as evidenced by the 10% growth in this segment's total income, compared to the first half of the previous year. This growth was largely attributable to the rise in business loan portfolio outstandings and commitments, which were up 9% and 7%, respectively, since the beginning of the year.

 

Through sound management, CCD was also able to reduce non-interest expense, which has resulted in a net improvement in the productivity index since the beginning of the year. This index stood at 36% for the first half of 2012, versus 39% for the same period in 2011.

 

 

 

 

 

4Monique F. Leroux, FCPA, FCA, FCMA                                                          L.-Daniel Gauvin

Chair of the Board and                                                                                        Senior Vice-President and

Chief Executive Officer of Caisse centrale Desjardins                                        General Manager of Caisse centrale Desjardins

 

 

 

 

2BTABLE OF CONTENTS

 

 

 

3B1

Message from management

5B10

Review of financial position

19

Additional information

9B3

0 Management's Discussion and Analysis

 

10

Financial position management

 

19

Non-IFRS measures

 

3

Basis of presentation of financial information

 

11

Capital management and credit ratings

 

19

Controls and procedures

 

4

Caution concerning forward-looking statements

 

14

Risk management

 

19

Related party disclosures

27B5

28Changes in economic conditions and the industry

 

 

 

 

19

Critical accounting policies and estimates

31B6

Review of financial results

 



 

19

Future accounting changes

 

6

Analysis of CCD's results

 

 

 

7B20

Condensed Interim Consolidated Financial Statements

 

9

Summary of interim results

 

 

 

 

 

Management's Discussion and Analysis

 

This Management's Discussion and Analysis (MD&A), dated August 10, 2012, presents the results of the analysis of the key elements and changes in the financial position of Caisse centrale Desjardins (CCD) for the period ended June 30, 2012, in comparison with prior periods. This MD&A should be read in conjunction with the unaudited Condensed Interim Consolidated Financial Statements, including the notes thereto, as at June 30, 2012, and CCD's 2011 Annual Report containing Management's Discussion and Analysis and the Consolidated Financial Statements.

 

Additional information about CCD, including CCD's Annual Information Form, is available on the SEDAR website at www.sedar.com. Further information is also available on CCD's website at www.desjardins.com/caissecentrale; however, none of the information presented on our site should be considered as incorporated by reference into this report.

 

 

BASIS OF PRESENTATION OF FINANCIAL INFORMATION

 

CCD's Interim Consolidated Financial Statements are presented in accordance with International Financial Reporting Standards (IFRS), which constitute Canadian generally accepted accounting principles (GAAP), and the accounting requirements of the Autorité des marchés financiers in Quebec (AMF), which do not differ from GAAP.  Therefore, these Interim Consolidated Financial Statements of CCD have been prepared in accordance with IFRS, as issued by the International Accounting Standards Board (IASB), and more specifically in accordance with International Accounting Standard (IAS) 34, "Interim Financial Reporting". For further information about accounting policies, see the interim and annual Consolidated Financial Statements.

 

This MD&A was prepared in accordance with the National Instruments in force on continuous disclosure obligations issued by the Canadian Securities Administrators. Unless otherwise indicated, all the amounts are unaudited and are presented in Canadian dollars ($). To assess its performance, CCD uses and presents both IFRS measures and various non-IFRS financial measures. These non-IFRS financial measures, other than the regulatory ratios, do not have a standardized definition, are not directly comparable to similar measures used by other companies and may not be directly comparable to any IFRS measures. Investors may find these non-IFRS measures useful in analyzing financial performance, among other things. These measures are described under "Non-IFRS measures".

 

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

 

CCD's public communications often include oral or written forward-looking statements. Such forward-looking statements are contained in this MD&A and may be incorporated in other filings with Canadian regulators or in any other communications. Forward-looking statements in this MD&A include, but are not limited to, comments with respect to CCD's objectives regarding financial performance, its priorities, its operations, the review of economic conditions and markets, as well as the outlook for the Canadian, U.S., European and other international economies. Forward-looking statements include those appearing under "Changes in economic conditions and the industry" and "Review of financial position". Such statements are typically identified by words or phrases such as "believe", "expect", "anticipate", "intend", "estimate", and "may"; words and expressions of similar import, and future and conditional verbs.

 

By their very nature, such statements involve assumptions, inherent risks and uncertainties, both general and specific. It is therefore possible that the predictions, projections or other forward-looking statements as well as CCD's objectives and priorities may not materialize or may prove to be inaccurate because of a number of factors and that actual results differ materially. A number of factors beyond CCD's control could influence the accuracy of the forward-looking statements in this MD&A. These factors include those discussed under "Risk management", such as credit, liquidity, market, operational, insurance, and strategic and reputation risk. Additional risk factors include legislative or regulatory developments in Quebec, Canada or globally, such as changes in fiscal and monetary policies; new liquidity reporting and regulatory guidance, or interpretations thereof; and amendments to and new interpretations of capital guidelines. There are also factors linked to changes in economic and financial conditions in Quebec, Canada or globally, including the unemployment rate; the geographic concentration of operations; changes in interest rates and exchange rates; trade between Quebec and the United States; the ability of third parties to comply with their obligations to CCD; consumer spending; credit demand; the effects of increased competition in a market open to globalization; competition from new entrants and established competitors; fraud, including the use of new technologies in unprecedented ways against CCD, its members or its clients; legal or regulatory procedures and lawsuits; consumer saving habits; and the effect of possible international conflicts, including terrorism or natural disasters; and new developments.

 

Lastly, there are operational risk factors, such as risk management models with intrinsic limitations; technological changes; disruption of service for the Internet and other technologies; the ability to develop and timely market new products and services; the ability to collect accurate and complete information on clients and counterparties; the ability to form and integrate strategic alliances and acquisitions; changes in the accounting policies and methods that CCD uses to report its financial position and results of operations, including uncertainties associated with significant accounting assumptions and estimates, including changes in estimates; the effect of applying future accounting changes; the ability to attract and retain key officers; and management's ability to foresee and manage risk factors.

 

It is important to note that the above-mentioned list of factors that could influence future results is not exhaustive. Other factors could have an adverse effect on results. Additional information on these and other factors is found under "Risk Management" in the 2011 Annual Report. Although CCD believes that the expectations expressed in these forward-looking statements are reasonable, it cannot guarantee that these expectations will prove to be correct. CCD cautions readers against placing undue reliance on forward-looking statements when making decisions.

 

Any forward-looking statements contained in this report represent the views of management only as at the date hereof, and are presented for the purpose of assisting members and analysts to understand CCD's financial position as at the dates indicated or its results for the periods ended on such dates, as well as its strategic priorities and objectives, and these statements may not be appropriate for other purposes. CCD does not undertake to update any oral or written forward-looking statements that may be made from time to time by or on behalf of CCD, except as required under applicable securities legislation.

 

 

 

CHANGES IN ECONOMIC CONDITIONS AND THE INDUSTRY

 

Despite all the efforts of euro zone governments and monetary authorities, the economic and financial situation remains tense in this region. There has been a strong outcry from citizens as a result of the negative effects of austerity plans on the economy. The European banking system is in fragile shape and there are concerns about the global repercussions that could result if a major financial institution were to go bankrupt. Investors are turning to safe-haven securities, thereby creating pressure on bond rates in countries that are perceived to be the soundest, in particular the United States and Canada, but also Germany and France. This situation will continue as long as uncertainty about the euro zone is not significantly dispelled.

In contrast to the improvements experienced at the start of the year, the U.S. economy is becoming increasingly shaky. Retail sales have been down for the past three months, the ISM Manufacturing Index has slid below 50, and employment rates are relatively disappointing. The United States' economy will therefore be hard pressed to grow more than 2% in 2012 and 2013. The pre-electoral environment and the fear that the tax cuts expiring at the end of 2012 will not be extended are creating a climate of uncertainty that is not conducive to stimulating the economy.

In Canada, the situation is a bit more positive. Job creation continues while investment spending is steadily increasing. Real GDP should be up 2.1% in 2012, and 2.4% in 2013. Weak commodity prices as a result of slow global economic growth will be one of the main obstacles to growth in Canada. Federal and provincial governments' budgetary restrictions will also curb activity in the country.

Quebec started off 2012 with moderate growth of 0.6% at an annualized rate in the first quarter, largely as a result of business and government investments. Consumer spending had stagnated because of the hike in the provincial sales tax (QST) effective January 1. However, the labour market's good performance over the past few months should make it possible to reverse this situation. Exports were adversely affected by the global economic slowdown and the high-flying loonie in relation to the U.S. dollar. Growth in Quebec is estimated at 1.4% in 2012, and should climb to 2.0% in 2013.

The mid-year picture is better than expected for the housing market in Quebec. Housing starts were practically as robust as in the first half of 2011 because of the surge in condominiums. A new record high in this market segment is about to be set in 2012. Home resales were surprisingly strong in the first half of the year, up 7.6% compared to the same period in 2011, but are expected to slow down somewhat in the second half of the year. Stricter mortgage insurance rules will be less favourable to home ownership, but strong job creation and low interest rates will prevent an excessively abrupt slowdown in the residential sector.

Given the current economic environment, major central banks are being encouraged to keep their key interest rates very low. The delicate situation in the euro zone in fact prompted the European Central Bank to reduce its key interest rates by 25 basis points on July 5, 2012. The U.S. Federal Reserve should wait until the end of 2014 before announcing an increase in key interest rates and could even set up other stimulus measures. In such a context, the Bank of Canada could wait until the fall of 2013 to raise its overnight rate.

Persisting global financial tensions will continue to exert downward pressure on U.S. and Canadian bond rates. Despite the aversion to more risky investment vehicles, high corporate profits could be beneficial to stock markets. The S&P 500 could post advances of close to 11% in 2012, and 7% in 2013. With only a 3% advance expected in 2012, the Canadian stock market will be affected by the various problems of commodity producers. It should pick up again in 2013 with anticipated growth of nearly 10%. Finally, oil prices should rise up somewhat to an average of US $94 a barrel this year, and US $96 next year. As for the Canadian dollar, it should continue to be very close to par in the months ahead.

 

 

43BREVIEW OF FINANCIAL RESULTS

 

 

ANALYSIS OF CCD'S RESULTS

 

Comparison of the second quarters of 2012 and 2011

 

CCD recorded net income of $26.0 million for the quarter ended June 30, 2012, compared to $27.9 million for the corresponding quarter in 2011. The decline from the previous year was essentially due to the recognition of a higher recovery of the provision for credit losses in the second quarter of 2011. Note that the unfavourable impact was largely mitigated by the 10% growth in income generated by the Business and Institutional Services segment.

 

Total income

 

For the three-month period ended June 30, 2012, CCD's total income stood at $70.4 million, down $1.9 million or 3% from $72.3 million for the corresponding quarter in 2011. As explained below, this decline in total income was due to certain non-recurring items that did not result from CCD's core activities. Had it not been for these items, total income would have been higher than that of the previous year.

 

The Desjardins Group Treasury segment's total income therefore decreased by $5.9 million to total $28.8 million for the second quarter of 2012, primarily as a result of the $3.9 million increase in unrealized losses on some financial instruments used to hedge deposit issues in foreign currencies. In addition, the repayment of some large loans to Desjardins entities as well as lower income from hedge funds because they were sold at the end of 2011 accounted for a decline of $1.4 million in total income compared to the previous year. Consequently, if these items were excluded, total income of the Desjardins Group Treasury segment would have been substantially the same as in 2011, despite the unfavourable impact of lower interest rates on the return of the securities portfolio.

 

The strategies implemented by the Business and Institutional Services segment were successful, as evidenced by the 10% growth in this segment's total income compared to the same period in the previous year. Total income amounted to $39.7 million for the second quarter of 2012, versus $36.0 million for the second quarter of 2011. This solid performance was partly attributable to the growth in business loan portfolio outstandings, which generated a $2.5 million increase in net interest margin over the previous year. Moreover, loan fee income was up $1.6 million compared to the same period in 2011 as a result of new business growth.

 

Provision for credit losses

 

During the quarter ended June 30, 2012, CCD recorded a $0.9 million recovery of the provision for credit losses. It should be noted that the increase in the provision resulting from the growth in the business loan portfolio and the higher credit risk was offset by changes in the parameters used in the valuation model for the collective allowance. In 2011, CCD had recognized a $2.0 million recovery of the provision for credit losses following the decline in loan commitments in the corporate sector.

 

Non-interest expense and other items

 

Even though CCD operates in a context where business growth exerts some pressure on operating expenses, non-interest expense was down $0.7 million from the corresponding period in 2011, to total $26.9 million for the three-month period ended June 30, 2012. The productivity index remained stable at 38% in relation to the same period of the previous year. Salaries and fringe benefits for the second quarter amounted to $7.8 million, down $0.2 million from a year earlier. The impact of the annual indexing of salaries and the increase in the number of employees, compared to the same period in 2011, was offset by the lower incentive compensation expense. Furthermore, the end of the amortization period for management applications implemented in 2006 accounted for the decrease in expenses for premises, equipment and furniture from the previous year. Lastly, there was a $1.0 million increase in service agreement and outsourcing expenses owing to higher charges incurred for process optimization projects.

 

Comprehensive income

 

For the quarter ended June 30, 2012, CCD's consolidated comprehensive income stood at $27.0 million, versus $32.5 million for the corresponding period in 2011. Total other comprehensive income for the period represented a gain of $1.0 million, compared to $4.6 million in 2011. Greater losses on derivative financial instruments designated as cash flow hedges accounted for the difference in relation to the previous year.

 

Payments to the Desjardins network and remuneration of capital stock

 

In cooperation with the Desjardins network, CCD offers a broad spectrum of banking and financing services and treasury products. Payments made to the Desjardins network for such services amounted to $10.2 million for the second quarter of 2012, down $0.4 million from 2011. The lower volume of foreign exchange operations carried out in conjunction with the Desjardins caisse network accounted for this decrease.

 

Under the Act respecting the Mouvement Desjardins, the Board of Directors of CCD may declare interest on capital shares; it then determines the terms of payment. The Board of Directors of CCD has applied the principle of declaring, as remuneration of capital stock, an amount corresponding to its non-consolidated net income, including recovery of related income taxes. This remuneration is distributed on a pro rata basis according to the number of shares held. For the second quarter of 2012, $34.5 million was declared as remuneration of capital stock, versus $35.6 million for the same period of the previous year. As at June 30, 2012, remuneration of capital stock payable of $214.0 million was recorded in the Consolidated Statements of Financial Position.

 

Overall, CCD's contribution to the Desjardins network therefore totalled $44.7 million for the second quarter of 2012, versus $46.2 million in 2011. As a percentage of capital stock, this contribution to the Desjardins network represented an annualized return of 9.5% for the quarter ended June 30, 2012, versus 11.7% a year earlier.

 

Comparison of the first six months of 2012 and 2011

 

CCD's net income for the six-month period ended June 30, 2012 was $45.2 million, versus $55.9 million for the corresponding period in 2011. As you may recall, the first six months of 2011 benefited from the recognition of a significant recovery of the provision for credit losses, contrary to the first six months of the current year, when an additional provision was recorded.

 

Total income

 

For the six-month period ended June 30, 2012, CCD's total income stood at $147.2 million, up $7.7 million or 6%, compared to $139.5 million for the corresponding period in 2011.

 

Total income of the Desjardins Group Treasury segment increased by $0.5 million or 1% to total $67.0 million for the first half of 2012. These results, which were better than in 2011, were achieved despite the unfavourable impact of lower interest rates and were attributable to income from trading portfolios and foreign exchange operations as traders were able to capitalize on additional opportunities on capital markets, compared to 2011. In addition, losses recorded on some hedging relationships were lower than those recorded for the same period a year earlier. 

 

As already mentioned, the strategies implemented by the Business and Institutional Services segment were successful. The segment's total income for the first half of 2012 grew by $7.1 million or 10% compared to the corresponding period in 2011 to total $76.4 million. This solid performance is partly attributable to the growth in business loan portfolio outstandings, which generated a $4.5 million increase in net interest margin compared to the previous year. In addition, the increase in income from banking services and fund transfers, because of the greater trading volume, also contributed to the segment's higher income. Lastly, there was an increase of $2.9 million in loan fee income compared to the same period in 2011, also as a result of new business growth.

 

Provision for credit losses

 

CCD recognized a provision for credit losses of $15.8 million for the first half of 2012, compared to a recovery of $8.8 million for the corresponding period in 2011. The provision recognized this year was due to the increase in business loan portfolio outstandings as well as the additional provision recognized as a result of the higher credit risk, which were partially offset by the impact of changes in the risk parameters used in the valuation model for the collective provision. It should be remembered that the recovery recognized for the corresponding period in 2011 was the result of the improved economic outlook and the decline in loan commitments.

 

Non-interest expense and other items

 

Non-interest expense totalled $52.9 million for the first six months, down $1.2 million from the corresponding period in 2011, despite the fact that CCD operates in a context where business growth exerts some pressure on operating expenses. The productivity index improved in relation to the previous year to stand at 36% for the six months ended June 30, 2012, as opposed to 39% for the corresponding period in 2011. Salaries and fringe benefits amounted to $17.0 million for the first half of the year, up $0.9 million compared to a year earlier as a result of the annual indexing of salaries and the transfer of employees from Desjardins entities in order to complete the centralization of Desjardins Group's medium-sized business lending activities initiated in 2011. Furthermore, the end of the amortization period for management applications implemented in 2006 accounted for the $2.8 million decrease in expenses for premises, equipment and furniture from the previous year. Lastly, service agreement and outsourcing expenses were up by $0.8 million owing to higher fees incurred for process optimization projects.

 

 

 

 

 

Comprehensive income

 

For the six months ended June 30, 2012, CCD's consolidated comprehensive income stood at $36.6 million, versus $43.9 million for the corresponding period in 2011. Total other comprehensive income for the period represented a loss of $8.6 million, versus $12.0 million in 2011. Lower losses on derivative financial instruments designated as cash flow hedges, partly offset by larger unrealized losses on available-for-sale securities, accounted for the difference compared to the previous year.

 

Payments to the Desjardins network and remuneration of capital stock

 

In cooperation with the Desjardins network, CCD offers a broad spectrum of banking and financing services and treasury products. Payments made to the Desjardins network for such services amounted to $19.8 million for the first half of 2012, down $1.4 million from 2011. The lower volume of foreign exchange operations carried out in conjunction with the Desjardins caisse network accounted for this decrease.

 

In addition, under the Act respecting the Mouvement Desjardins, the Board of Directors of CCD may declare interest on capital shares; it then determines the terms of payment. The Board of Directors of CCD has applied the principle of declaring, as remuneration of capital stock, an amount corresponding to its non-consolidated net income, including recovery of related income taxes. This remuneration is distributed on a pro rata basis according to the number of shares held. For the first half of 2012, $60.1 million was declared as remuneration of capital stock, versus $71.7 million for the same period of the previous year.

 

Overall, CCD's contribution to the Desjardins network therefore totalled $79.9 million for the first six months of 2012, versus $93.0 million in 2011. As a percentage of capital stock, this contribution to the Desjardins network represented an annualized return of 8.5% for the six months ended June 30, 2012, versus 11.8% a year earlier.

 

SUMMARY OF INTERIM RESULTS

 

The table below summarizes information on the results of CCD for the most recent eight quarters.

 

Results of the most recent eight quarters

 


2012

2011

2010

(in thousands of dollars)

Q2

Q1

Q4

Q3

Q2

Q1

Q4

Q3

(For the quarter)

















Consolidated Statements of Income

Net interest income

 $

   68,288 

 $

  64,931 

 $

  66,435 

 $

  62,866 

 $

  64,588 

 $

  64,375 

 $

   57,913 

 $

   60,851 

Other income


     2,076 


  11,895 


  21,220 


  18,030 


    7,734 


    2,796 


     7,065 


   (1,968)

Provision for credit losses (recovery)


   (928)


  16,715 


    6,530 


    5,070 


  (2,049)


  (6,789)


 (13,719)


 (14,614)

Non-interest expense


   26,879 


  26,065 


  29,948 


  24,691 


  27,535 


  26,591 


   17,241 


   23,217 

Operating income before other payments to Desjardins network


   44,413 


  34,046 


  51,177 


  51,135 


  46,836 


  47,369 


   61,456 


   50,280 

Other payments to Desjardins network


   10,212 


    9,621 


    9,733 


  11,036 


  10,634 


  10,598 


   10,510 


     9,113 

Operating income


   34,201 


  24,425 


  41,444 


  40,099 


  36,202 


  36,771 


   50,946 


   41,167 

Income taxes


     8,244 


    5,178 


  10,481 


    9,559 


    8,350 


    8,695 


   12,197 


     9,266 

Net income

 $

   25,957 

 $

  19,247 

 $

  30,963 

 $

  30,540 

 $

  27,852 

 $

  28,076 

 $

   38,749 

 $

   31,901 

 

 

4REVIEW OF FINANCIAL POSITION

 

 

financial position MANAGEMENT

 

Total assets

 

As at June 30, 2012, CCD's total assets stood at $30.0 billion, comparable to what they were as at December 31, 2011.

 

Liquidities comprised of cash, investments with financial institutions and securities, totalled $7.2 billion as at June 30, 2012, down $156.3 million since December 31, 2011. The liquidity/total asset ratio was 24% as at June 30, 2012, down slightly from 25% at the end of fiscal 2011. It should be noted, however, that this liquidity level amply meets regulatory requirements and enables CCD to have the manoeuvring room it needs to sustain the growth of the Desjardins network. Note that a very high percentage of the securities held by CCD are investment-grade securities, and could be soId off quickly, if necessary, to meet an increased demand for funding from the caisse network and clients.

 

The loan portfolio, including clients' liability under acceptances, totalled $17.8 billion as at June 30, 2012, down $674.0 million from $18.5 billion as at December 31, 2011.  As Desjardins Group's treasurer, CCD ensures funding for the Desjardins network. Loans granted to Desjardins entities totalled $11.7 billion and $11.8 billion, respectively, as at June 30, 2012 and as at December 31, 2011, which represented close to 40% of CCD's assets in both cases. As a result of the strategies implemented, the business loan portfolio, for its part, has grown by $249.8 million or 9% since the beginning of the year and stood at $3.1 billion at the end of the second quarter of 2012. Lastly, it should be noted that the public and parapublic sector loan portfolio has shrunk by $864.9 million since the beginning of the year because outstanding loans are cyclically down in the summer.

 

Since the beginning of the year, the fair value of derivative financial instruments presented as assets fell by $415.0 million primarily because of the increase in interest rates. For this same reason, the fair value of financial instruments presented as liabilities also decreased.

 

 

Cash position and sources of financing

 

Total deposits presented on the Consolidated Statements of Financial Position amounted to $22.4 billion as at June 30, 2012, up $754.8 million since December 31, 2011.

 

As Desjardins Group's treasurer, CCD meets the needs of its members and clients. In order to maintain stable and diversified funding, CCD ensures the diversification of its sources of financing from institutional capital markets by resorting to the money market, commercial paper, medium-term deposit notes, covered bonds, and securitization of mortgage loans from the caisse network.

 

In this regard, it should be pointed out that in keeping with its institutional funding extension strategy, and its mission as Desjardins Group's treasurer, CCD issued debt securities during the first half of 2012 on the U.S. market. In fact, CCD was present in the United States through an issuance of medium-term covered bonds of US$1.5 billion. CCD's presence on the U.S. market contributes to enlarging its pool of institutional investors since several new major international players were interested in this issuance.

 

In addition, CCD participated in the federally-guaranteed mortgage loan securitization market under the Canada Mortgage Bonds Program. CCD was active on the securitization market for five-year issues with a total participation of $651.8 million for the first two quarters of 2012. The main objective of the program is to obtain a long-term source of financing at the lowest cost on the market.

 

Extending the average term of institutional funding is an attractive strategy through which CCD can maintain its objectives even during periods of economic and financial instability.

 

Comparison of the first six months of 2012 and 2011

 

Because of the nature of CCD's operations, most of the items on the Consolidated Statements of Financial Position are liquidities. As a result, normal operations trigger significant fluctuations in liquidity, affecting numerous items such as loans, deposits and securities. The main changes are explained in the paragraphs below.

 

During the first half of 2012, cash and cash equivalents decreased by $227.8 million, as opposed to $51.1 million for the corresponding period in 2011. 

 

Operating activities have required liquidities of $711.0 million since the beginning of the year, compared to $553.6 million for the corresponding period in 2011. The current year's liquidity requirements mainly resulted from the growth in the business loan portfolio, as well as the increase in securities purchased under reverse repurchase agreements. On the other hand, deposits increased by $754.8 million as a result of the deposit issuances made since the beginning of the year, which enabled CCD to sustain the growth of network funding needs. In 2011, liquidity requirements were due to the growth in loans and securities purchased under reverse repurchase agreements, partly offset by the issuance of deposits amounting to $1.7 billion.

 

Lastly, cash flows from investing activities totalled $483.3 million for the first six months of 2012, compared to $502.5 million in the previous year as a result of the decrease in the available-for-sale securities portfolio.

 

 

Capital management and credit ratings

 

Basel II

 

CCD's capital ratios are calculated according to the guideline issued by the AMF on adequacy of capital base standards applicable to financial services cooperatives. Since fiscal 2009, this regulatory framework has been largely based on the revised framework for international convergence of capital measurement and capital standards (Basel II) issued by the Bank for International Settlements (BIS).

 

Until the new Basel III requirements are implemented in 2013, regulators have revised certain regulations, in particular concerning market risk and the weighting of some securitization categories (Basel 2.5).

 

Minimum ratios and compliance with requirements

 

The capital adequacy of CCD is regulated by standards developed by the Federation and approved by the AMF. The minimum total capital ratio recommended to institutions for compliance with BIS regulatory requirements to be considered sufficiently capitalized is 8%. In addition, the Tier 1 capital ratio must represent at least half of the total capital ratio.

 

The AMF requires that CCD maintain a capital/asset ratio of more than 5%. This measure determines overall capital adequacy against the entity's total assets, including certain off-balance sheet assets.

 

Furthermore, member federations formally undertook to maintain, in proportion to their respective holdings, CCD's total capital at a minimum level of (i) 5.5% of its total assets, or if higher, at (ii) 8.5% of its risk-weighted assets, as determined in accordance with the established standards.

 

As part of the work on the Desjardins Group capitalization plan, CCD set target ratios to ensure sound capital management in accordance with the Federation's guidelines. Target ratios of 6% and 10% were set for the "capital/asset ratio" and the "risk-based capital ratio", respectively. Given the quality of CCD's capital, it has a competitive edge and is well positioned on the markets.

 

The capital/asset ratio as at June 30, 2012, measured under the Basel II regulatory framework, was 6.50%, compared to 6.58% as at December 31, 2011. Tier 1 capital and total capital ratios measured under the Basel II regulatory framework and based on risk-weighted assets stood at 17.9% and 18.8%, respectively, compared to 18.9% and 19.6% at the end of the previous year.

 

The issued and outstanding capital stock of CCD is comprised of 1,887,203 Class A capital shares and 600 qualifying shares. During the first half of the year, CCD made a transfer of $1.2 million from the general reserve to retained earnings in order to cover an accumulated deficit for that period, compared to a transfer of $16.2 million for the same period in 2011.

 

Composition of regulatory capital

 

(in thousands of dollars)

As at June 30,
 2012

As at December 31,

2011







Tier I capital






Capital stock

$

 1,887,206 


$

         1,887,206 

General reserve


        1,467 



                2,702 

Deferral attributable to the coming into force of IFRS


        5,025 



              10,047 

Total Tier I capital


 1,893,698 



         1,899,955 







Tier II capital






Eligible general allowance


      93,007 



              75,765 

Total Tier II capital


      93,007 



              75,765 

Total capital

$

 1,986,705 


$

         1,975,720 







Capital ratios






Tier 1 capital


17,9  %



18,9%

Total capital


18,8  %



19,6%

 

 

 

 

 

 

Risk-weighted assets

 


As at

June 30,

2012

As at December 31, 2011

(in thousands of dollars)

Exposures1

Risk-weighted assets

Average
risk-weighting rate (%)

Risk-weighted assets

Credit risk









Sovereign borrowers

$

          5,899,130 

$

                       -- 


 -- %

$

                          -- 

Financial institutions


        18,594,313 


          3,714,722 


                    20   


             3,789,909 

Business


          5,892,122 


          5,018,642 


                    85   


             4,536,056 

Mortgages


             210,474 


               40,115 


                    19   


                  37,939 

Other retail client exposure


               47,999 


               35,999 


                    75   


                  33,434 

Securitization


               19,938 


                 3,988 


                    20   


                    4,431 

Equities


                 1,949 


                 1,949 


                  100   


                  13,427 

Trading portfolio


             488,942 


             108,811 


                    22   


                114,638 

Other assets


          3,601,089 


             334,785 


                      9   


                400,297 

Total credit risk

$

        34,755,956 

$

          9,259,011 


                  27  %

$

             8,930,131 

Market risk




             784,075 




                610,100 

Operational risk2




             524,508 




                541,208 

Total risk-weighted assets



$

        10,567,594 



$

           10,081,439 

 

 

1  Net exposure, after credit risk mitigation (net of specific allowances under the Standardized Approach but not under the Advanced Approach in accordance with the Guideline).

2   The Basic Indicator Approach was used to assess operational risk.

 

CCD enjoys premium credit ratings from rating agencies. Its ratings are among the best of the major banking institutions in Canada. The reports of rating agencies primarily deal with Desjardins Group, on a combined basis, since CCD's credit ratings are backed by the financial strength of the caisses.

 

Rating agencies maintained CCD's credit ratings during the second quarter, thus recognizing its very strong capitalization, the stability of its operating results, its leading role in local markets and the quality of its assets. Note that since the beginning of the year, Moody's (March 15, 2012), DBRS (June 26, 2012) and Standard & Poor's (July 27, 2012), confirmed the credit ratings of the securities issued by CCD.

 

The high credit ratings reflect the financial strength of Desjardins Group and its network of caisses and ensure the Group's credibility and recognition among institutional investors.

 

CCD's credit ratings

As at June 30, 2012

Short-term

Medium- and
long-term

Standard & Poor's

A-1+

AA-

Fitch

F1+

AA-

Moody's Investors Service

P-1

Aa1

DBRS

R-1 (high)

AA

 

Risk management

 

CCD is exposed to different types of risk in the normal course of operations, including credit risk, liquidity risk, market risk, operational risk, strategic risk and reputation risk. Strict and effective management of these risks is a priority for CCD, its purpose being to support its major orientations, particularly regarding financial stability and sustained and profitable growth.

 

Credit risk

 

Credit risk is the risk of losses resulting from a borrower's or counterparty's failure to honour its contractual obligations, whether or not these obligations appear on the Consolidated Statements of Financial Position.

 

CCD is exposed to credit risk through its direct loans to business and government, as well as through various other commitments including letters of credit, foreign exchange lines as well as derivative financial instrument and securities transactions.

 

Additional credit risk data

 

 

Risk exposure by asset class 

 


Exposure classes as at June 30, 2012

(in thousands of dollars)

Used exposure

Unused exposure

Off-balance sheet exposure1

Total  

Net exposure2

Standardized Approach











Sovereign borrowers

$

       5,242,618 

$

          572,666 

$

            83,846 

$

       5,899,130 

$

       5,899,130 

Financial institutions


     13,929,648 


       2,873,854 


       5,245,301 


     22,048,803 


     18,594,313 

Business


       3,162,175 


       2,721,289 


          137,817 


       6,021,281 


       5,892,122 

Mortgages


          210,474 


                     -- 


                     -- 


          210,474 


          210,474 

Other retail client exposure


       1,149,631 


                 100 


                     -- 


       1,149,731 


            47,999 

Securitization


            19,938 


                     -- 


                     -- 


            19,938 


            19,938 

Equities


              1,949 


                     -- 


                     -- 


              1,949 


              1,949 

Trading portfolio


                     -- 


                     -- 


          941,274 


          941,274 


          488,942 

TOTAL

$

     23,716,433 

$

       6,167,909 

$

       6,408,238 

$

     36,292,580 

$

     31,154,867 

 

1 Including repo-style transactions, over-the-counter derivatives and other off-balance sheet exposures.

2 After credit risk mitigation (CRM) techniques, including use of collateral, guarantees and credit derivatives.

 

Gross exposure by asset class and by risk tranche1

 

 

Exposure categories

Risk tranches as at June 30, 2012

(in thousands of dollars)


0%


20%


35%


50%


75%


100%


Other


Total

Sovereign borrowers

$

5,899,130

 $

--

 $

           -- 

 $

           -- 

 $

               -- 

 $

                -- 

 $

--

 $

      5,899,130 

Financial institutions


--


22,048,803


           -- 


           -- 


               -- 


                -- 


--


    22,048,803 

Business


--


102,596


           -- 


     3,006 


               -- 


   5,898,461 


27,145


      6,031,208 

Mortgages


--


--


 201,406 


           -- 


               -- 


          9,068 


--


         210,474 

Other retail client exposure


--


--


           -- 


           -- 


  1,149,731 


                -- 


--


      1,149,731 

Securitization


--


19,938


           -- 


           -- 


               -- 


                -- 


--


           19,938 

Equities


--


--


           -- 


           -- 


               -- 


          1,949 


--


             1,949 

Trading portfolio


33,583


885,370


           -- 


        250 


               -- 


        22,054 


17


         941,274 

TOTAL

 $

5,932,713

 $

23,056,707

 $

 201,406 

 $

     3,256 

 $

  1,149,731 

 $

   5,931,532 

 $

27,162

 $

    36,302,507 

 

1Exposures before specific allowances for losses and before CRM.

 

Counterparty and issuer risk

 

A large proportion of the securities in all the securities portfolios held by CCD are issued or guaranteed by public or parapublic entities. The portfolios are concentrated with Canadian issuers and counterparties having a credit rating of A- or higher.

 

The Risk Management Executive Division of Desjardins Group sets the maximum exposure for each counterparty and issuer based on quantitative and qualitative criteria. These amounts are then allocated to various components based on their needs and their risk appetite and tolerance levels.

 

Exposure to sovereign borrowers

 

CCD is not directly exposed to the sovereign debt of the European countries that were the hardest hit by the recent turbulence, more specifically Greece, Portugal, Italy, Ireland and Spain. Its exposure to U.S. and European financial institutions is marginal.

 

Market risk

 

Market risk refers to the risk of changes in the fair value of financial instruments resulting from fluctuations in the parameters affecting this value, in particular, interest rates, exchange rates, credit spreads and their volatility.

 

CCD is exposed to market risk primarily through positions taken in the course of its traditional financing and trading activities. CCD has adopted policies that set out the principles, limits and procedures to use in managing market risk.

 

Interest rate risk management

 

CCD is exposed to interest rate risk, which represents the potential impact of interest rate fluctuations on net interest income and the economic value of equity.

 

Sound and prudent management is applied to achieve the objective of optimizing net interest income while minimizing the negative impact of interest rate movements. The policies established describe the principles, limits and procedures that apply to interest rate risk management. Simulations are used to measure the impact of different variables on changes in net interest income and the economic value of equity. The assumptions for these simulations mainly concern changes in CCD's asset and liability structure. The Desjardins Group Asset/Liability Committee ("Asset/Liability Committee") is responsible for analyzing and approving the global matching strategy on a monthly basis while respecting the parameters defined in interest rate risk management policies.

 

The table below presents the potential impact before income taxes on the non-trading portfolio of a sudden and sustained 100-basis-point increase or decrease in interest rates on net interest income and the economic value of equity.

 

Interest rate sensitivity (before income taxes)


June 30, 2012

December 31, 2011

(in thousands of dollars)

Net interest income1

Economic value of equity2

Net interest income1

Economic value of equity2

Impact of a 100-basis-point increase in interest rates

$

            1,242 

$

          (1,205)

$

               815 

$

          (4,322)

Impact of a 100-basis-point decrease in interest rates

$

          (3,650)

$

            1,036 

$

          (2,966)

$

            4,517 

 

 

1Represents the sensitivity of net interest income for the next 12 months.

2 Represents the present value of assets, liabilities and off-balance sheet instruments.

 

Interest rate sensitivity is based on the earlier of the repricing or maturity date of the assets, liabilities and derivative financial instruments used to manage interest rate risk.  The situation presented reflects the position on that date only and can change significantly in subsequent quarters depending on the preferences of members and clients, and the application of policies on interest rate risk management.

 

Some Consolidated Statement of Financial Position items are considered non-interest rate sensitive instruments, as for instance: non‑performing loans, non-interest-bearing deposits, non-maturity deposits with an interest rate not referenced to a specific rate such as the prime rate, and equity. As required in our policies, our management practices are based on conservative assumptions regarding the maturity profile used in our models in order to determine the interest rate sensitivity of products.

Foreign exchange risk

 

Foreign exchange risk arises when the actual or expected value of assets denominated in a foreign currency is higher or lower than that of liabilities denominated in the same currency. CCD has established specific limits to manage foreign exchange risk. However, its exposure to this risk is limited.

 

Management of market risk related to trading activities - Value at risk

 

The market risk of trading portfolios is managed daily under a specific policy for that purpose.

 

The main tool used to measure the market risk of trading portfolios is "Value-at-Risk" (VaR), which represents an estimate of the potential loss for a certain period of time at a given confidence level.

 

A Monte Carlo VaR is calculated daily, using a 99% confidence level, on the trading portfolios for a holding horizon of one day. It is therefore reasonable to expect a loss exceeding the VaR figure once every 100 days. The calculation of VaR is based on historical data over a one‑year interval.

 

The table below presents the aggregate VaR of CCD's trading activities by risk category as well as the diversification effect, which represents the difference between aggregate VaR and the sum of the VaR for the different risk categories. Interest rate and foreign exchange risks are two risk categories to which CCD is exposed. The definition of a trading portfolio meets the various criteria defined in the Basel Capital Accord.

 

VaR by risk category (trading portfolio)


As at June 30, 2012

For the quarter ended
June 30, 2012

As at December 31, 2011

For the quarter ended
December 31, 2011

(in thousands of dollars)


Average

High

Low


Average

High

Low

Foreign exchange

$

                 40 

$

                 41 

$

               109 

$

                   1 

$

                 20 

$

                 57 

$

               114 

$

                   1 

Interest rate


               416 


               536 


               681 


               408 


               592 


               539 


               777 


               269 

Diversification effect1


               (47)


               (50)


N/A 2


N/A 2


               (27)


               (67)


N/A 2


N/A 2

Aggregate VaR

$

               409 

$

               527 

$

               674 

$

               399 

$

               585 

$

               529 

$

               745 

$

               264 

 

1 Risk reduction related to diversification, namely the difference between the sum of the VaR for the various market risks and the aggregate VaR.

2 Not applicable: The highs and lows of the various market risk categories can refer to different dates.

 

As at June 30, 2012, the aggregate VaR was $409,000, with the interest rate VaR being the largest component. The aggregate VaR was lower than its quarterly average of $527,000. The risk mitigation related to diversification was $47,000 as at June 30, 2012.

 

Back testing

 

Back testing is conducted to validate the VaR model used by comparing the VaR daily with profits or losses ("P&L") on CCD's portfolios.

 

CCD carries out back testing daily, applying a hypothetical P&L to its trading portfolios. The hypothetical P&L is calculated by determining the difference in value resulting from changes in market conditions between two consecutive days. The portfolio mix between these two days remains static.

 

The chart below presents changes in VaR for trading activities as well as the profits and losses related to these activities. No actual P&L exceeded VaR during the second quarter of 2012.

 

 

 

 

 

ValUE AT RISK AND TRADING INCOME

($ millions)

 

http://www.rns-pdf.londonstockexchange.com/rns/0827K_-2012-8-15.pdf 

 

Liquidity risk

 

Liquidity risk refers to the risk related to CCD's capacity to raise the necessary funds through Desjardins Group (by increasing liabilities or converting assets) to meet a financial obligation, whether or not it appears on the Consolidated Statements of Financial Position.

 

Managing liquidity risk involves maintaining an adequate level of liquid securities, ensuring stable and diversified sources of funding, monitoring indicators and adopting a contingency plan in the event of a liquidity crisis. CCD and Desjardins Group have established policies describing the principles, limits, risk appetite and tolerance levels and procedures that apply to liquidity risk management. Policies and standards are reviewed on a regular basis to ensure that they are appropriate for the operating environment and prevailing market conditions. They are also updated to comply with regulatory requirements and sound liquidity risk management practices.

 

Additional information concerning exposure to certain risks

 

Exposure to subprime residential and Alt-A mortgage loans

 

As part of its operations, CCD is exposed to credit risks related to subprime residential mortgage loans (defined as loans to borrowers with a high credit risk profile) and Alt-A mortgage loans (defined as loans to borrowers with non-standard income documentation). However, CCD's exposure to subprime residential mortgage loans was less than $2 million (also less than $2 million as at December 31, 2011). Exposure to Alt-A mortgage loans was $41.0 million ($42.5 million as at December 31, 2011). Subprime residential and Alt-A mortgage loans are recorded on the Consolidated Statements of Financial Position as loans measured at amortized cost. As at June 30, 2012, total subprime residential mortgage loans and Alt-A mortgage loans represented less than 0.2% of CCD's total assets, unchanged from December 31, 2011.

 

Leveraged finance loans

 

Exposure to leveraged finance loans (defined as loans to large corporations and finance companies whose credit rating is between BB+ and D and whose level of debt is very high compared to other companies in the same industry) was $163.3 million as at June 30, 2012 versus $90.5 million as at December 31, 2011. This exposure is in the form of disbursed and undisbursed commitments. Leveraged finance loans are generally used to achieve a specific objective, such as making an acquisition, or effecting a takeover or share buyback. Leveraged finance loans are presented on the Consolidated Statements of Financial Position as loans and receivables and totalled less than 0.6% (less than 0.3% as at December 31, 2011) of CCD's total assets.

 

Securitization

 

CCD participates in the National Housing Act Mortgage-Backed Securities Program. These transactions involve the use of off-balance sheet arrangements with special purpose entities. The special purpose entity used by CCD is Canada Housing Trust, set up by Canada Mortgage and Housing Corporation (CMHC) under the Canada Mortgage Bonds Program. These arrangements are described in detail under "Off‑Balance Sheet Arrangements" on page 35 of the 2011 Annual Report.

 

Special purpose entities

 

The table below contains information on unconsolidated special purpose entities.

 

Unconsolidated special purpose entities


As at June 30, 2012

(in thousands of dollars)

Exposure
of CCD

Total assets of special purpose entities

Loans by CCD to entities included in the scope of consolidation of Desjardins Group1

$

                      1,245,140 

$

                    23,594,123 

 

1 CCD was granted a $1,093,140 suretyship by the Federation. 

 

 

 

 

45BADDITIONAL INFORMATION

 

 

NON-IFRS MEASURES

 

Some of the financial measures presented in this MD&A do not have a standardized definition under IFRS and, as a result, the amounts disclosed are not comparable to similar measures presented by other financial institutions.

 

Productivity index

 

The productivity index is used to measure efficiency and is equal to the ratio of non-interest expense to total income. A lower ratio means greater productivity.

 

CONTROLS AND PROCEDURES

 

During the interim period ended June 30, 2012, CCD did not make any change in internal control over financial reporting that materially affected, or was reasonably likely to materially affect, its operations.

 

RELATED PARTY DISCLOSURES

 

In the normal course of business, CCD offers financial services to its members and other entities included in the scope of consolidation of Desjardins Group. Such related party transactions, as well as key management personnel compensation, are explained in Note 27, "Related party disclosures", to CCD's annual Consolidated Financial Statements, on pages 115 and 116 of the 2011 Annual Report.

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

CCD's unaudited Condensed Interim Consolidated Financial Statements were prepared in accordance with International Financial Reporting Standards (IFRS), which constitute Canadian generally accepted accounting principles (GAAP) for CCD. The significant accounting policies are described in Note 2, "Significant accounting policies",to CCD's audited annual Consolidated Financial Statements as at December 31, 2011, on pages 70 to 81 of the 2011 Annual Report.

 

Some of these policies are of particular importance in presenting CCD's financial position and results of operations because they require management to make assumptions and estimates that may involve uncertainties and since any change to these assumptions and estimates could have a significant impact on CCD's Interim Consolidated Financial Statements. Explanations for these accounting policies are provided on page 54 of the 2011 Annual Report. No material change was made to these assumptions, estimates and accounting policies during the first six months of 2012.

 

 

 

 

 

FUTURE ACCOUNTING CHANGES

 

Accounting standards issued but not yet effective as at December 31, 2011 are discussed in Note 3, "Future accounting changes", to CCD's audited annual Consolidated Financial Statements on pages 57 and 58 of the 2011 Annual Report. In addition, during the first six months of 2012, the IASB issued the following amendments:

Annual improvements

In May 2012, the IASB issued amendments to several standards as part of its annual improvement process. Except for the amendment to IAS 32, "Financial Instruments: Presentation", these amendments are minor and will have no impact on CCD's results and financial position.

The amendment to IAS 32 clarifies that the income tax consequences of dividends should now be recognized in accordance with IAS 12, "Income Taxes". Therefore, if certain conditions are met, the income tax consequences of dividends will have to be presented in profit or loss rather than in equity. CCD will have to apply this amendment retrospectively for the year beginning January 1, 2013.

 

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION  





(unaudited)






(in thousands of Canadian dollars)


June 30, 2012

December  31, 2011

ASSETS



       



Cash and deposits with financial institutions


$

        113,695 

$

        343,544 

Securities

Note 5


                



Securities at fair value through profit or loss



     2,361,802 


     1,776,279 

Available-for-sale securities



     4,796,861 


     5,308,822 




     7,158,663 


     7,085,101 

Securities purchased under reverse repurchase agreements



     1,889,158 


        735,367 

Loans

Note 6


                  -- 



Gross loans



   17,388,898 


   17,847,696 

Allowances for credit losses



        (71,135)


        (58,451)




   17,317,763 


   17,789,245 

Other assets



         



Clients' liability under acceptances



        474,000 


        676,500 

Derivative financial instruments

Note 8


     2,473,147 


     2,888,139 

Deferred tax assets



          29,850 


          25,644 

Other



        555,356 


        443,257 




     3,532,353 


     4,033,540 

TOTAL ASSETS


$

   30,011,632 

$

   29,986,797 

LIABILITIES AND MEMBERS' EQUITY






LIABILITIES






Deposits






Individuals



        119,690 


        111,934 

Business and government



     7,729,115 


     7,226,784 

Deposit-taking and other institutions



   14,545,937 


   14,301,190 




   22,394,742 


   21,639,908 

Other liabilities



             



Acceptances



        474,000 


        676,500 

Commitments related to securities sold short



        413,103 


          73,322 

 Commitments related to securities sold under

  repurchase agreements



        118,623 


        242,422 

Derivative financial instruments

Note 8


     2,414,982 


     3,118,583 

Defined benefit plan liabilities



          25,669 


          26,038 

Other



     2,239,189 


     2,268,901 




     5,685,566 


     6,405,766 

TOTAL LIABILITIES



   28,080,308 


   28,045,674 

MEMBERS' EQUITY



                  -- 



Capital stock



     1,887,206 


     1,887,206 

Accumulated other comprehensive income

Note 9


          42,651 


          51,215 

General reserve



            1,467 


            2,702 

TOTAL MEMBERS' EQUITY



     1,931,324 


     1,941,123 

TOTAL LIABILITIES AND MEMBERS' EQUITY


$

   30,011,632 

$

   29,986,797 

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

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

 

 

 

Monique F. Leroux, FCPA, FCA, FCMA                                                                      Denis Paré, LL.L., D.D.N

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


 

CONSOLIDATED STATEMENTS OF INCOME  

(unaudited)










(in thousands of Canadian dollars)

 

For the three-month periods
ended June 30

For the six-month periods
ended June 30



2012

2011

2012

2011

INTEREST INCOME










Loans


$

  119,488 

$

  103,696 

$

  235,148 

$

  198,986 

Securities



    49,137 


    45,054 


    97,339 


    89,801 




  168,625 


  148,750 


  332,487 


  288,787 

INTEREST EXPENSE










Deposits and other



  100,337 


    84,162 


  199,268 


  159,824 




  100,337 


    84,162 


  199,268 


  159,824 

NET INTEREST INCOME



    68,288 


    64,588 


  133,219 


  128,963 

OTHER INCOME



             -- 







Deposit and payment

service charges



      5,413 


      5,231 


    10,959 


      9,789 

Foreign exchange income



    11,569 


    10,749 


    22,996 


    21,724 

Trading activities



   (16,741)


     (3,238)


   (26,653)


   (21,278)

Net gains on available-for-

sale securities



     (1,020)


     (8,236)


      1,127 


     (4,842)

Credit fees



      1,383 


      1,283 


      2,587 


      2,717 

Management fees



         887 


      1,065 


      1,705 


      2,063 

Other



         585 


         880 


      1,250 


         357 




      2,076 


      7,734 


    13,971 


    10,530 

TOTAL INCOME



    70,364 


    72,322 


  147,190 


  139,493 

 PROVISION FOR CREDIT LOSSES (RECOVERY)

Note 6


     (928)


     (2,049)


      15,787 


     (8,838)




    71,292 


    74,371 


  131,403 


  148,331 

NON-INTEREST EXPENSE



              







Salaries and fringe benefits



      7,785 


      7,958 


    17,015 


    16,133 

Premises, equipment and

furniture, including

depreciation



      1,251 


      2,812 


      2,842 


      5,610 

Service agreements and

outsourcing



    10,039 


      9,087 


    18,994 


    18,222 

Fees



      2,228 


      2,378 


      3,882 


      4,328 

Other



      5,576 


      5,300 


    10,211 


      9,833 




    26,879 


    27,535 


    52,944 


    54,126 

OPERATING INCOME BEFORE PAYMENTS TO THE DESJARDINS NETWORK



    44,413 


    46,836 


    78,459 


    94,205 

Other payments to the

Desjardins network



    10,212 


    10,634 


    19,833 


    21,232 

OPERATING INCOME



    34,201 


    36,202 


    58,626 


    72,973 

Income taxes



      8,244 


      8,350 


    13,422 


    17,045 

NET INCOME FOR THE PERIOD


$

    25,957 

$

    27,852 

$

    45,204 

$

    55,928 

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

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)




 

 

(in thousands of Canadian dollars)

 

For the three-month periods ended June 30

For the six-month periods
ended June 30



 2012

2011

2012

2011

Net income for the period


$

    25,957 


$

    27,852 

$

    45,204 


$

    55,928 

Other comprehensive income, net of income taxes

Note 12


             -- 





            -- 




Net unrealized gains on available-for-sale securities



      2,623 



     (4,169)


    (2,356)



    (4,505)

Reclassification to the Consolidated Statements of Income of losses (gains) on available-for-sale securities



         788 



      6,361 


       (870)



      3,740 




      3,411 



      2,192 


    (3,226)



       (765)

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



     (2,548)



      1,348 


    (5,319)



  (12,750)

Reclassification to the Consolidated Statements of Income of losses on derivative financial instruments designated as cash flow hedges



         179 



      1,077 


           11 



      1,577 




     (2,369)



      2,425 


    (5,308)



  (11,173)

Net unrealized exchange gain (losses) on the conversion of the financial statements of a self-sustaining foreign operation, net of a loss of $0.1 million and a gain of $0.6 million on hedging transactions for the six-month periods ended June 30, 2012 and 2011 respectively (loss of $0.4 million and gain of $0.1 million for the three-month periods ended June 30, 2012 and 2011 respectively)



             7 



          (13)


         (30)



         (78)

Total other comprehensive income



      1,049 



      4,604 


    (8,564)



  (12,016)

Comprehensive income for the period


$

    27,006 


$

    32,456 

$

    36,640 


$

    43,912 

 

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


.

 

CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY

(unaudited)








 

 







 

 

For the six-month periods ended June 30  
(in thousands of Canadian dollars)

Capital stock

Retained earnings

General reserve

Accumulated other comprehensive income

Total members' equity

Balance at

December 31, 2011 

$

      1,887,206 

$

                   -- 

$

             2,702 

$

           51,215 

$

      1,941,123 

Net income for the period


                   -- 


           45,204 


                   -- 


                   -- 


           45,204 

Other comprehensive income for the period  


                   -- 


                   -- 


                   -- 


           (8,564)


           (8,564)

Total comprehensive income for the period


                   -- 


           45,204 


                   -- 


           (8,564)


           36,640 

Remuneration of capital stock


                   -- 


         (60,109)


                   -- 


                   -- 


         (60,109)

Recovery of income taxes related to remuneration of capital stock


                   -- 


           13,670 


                   -- 


                   -- 


           13,670 

Related party transactions


                   -- 


                   -- 


                   -- 


                   -- 


                   -- 

Transfer from the general reserve


                   -- 


             1,235 


           (1,235)


                   -- 


                   -- 

Balance at

March 31, 2012 

$

      1,887,206 

$

                   -- 

$

             1,467 

$

           42,651 

$

      1,931,324 












Balance at

December 31, 2010

$

      1,587,206 

$

         (21,777)

$

           20,845 

$

           45,179 

$

      1,631,453 

Net income for the period


                   -- 


           55,928 


                   -- 


                   -- 


           55,928 

Other comprehensive income for the period  


                   -- 


                   -- 


                   -- 


         (12,016)


         (12,016)

Total comprehensive income for the period


                   -- 


           55,928 

#

                   -- 


         (12,016)


           43,912 

Remuneration of capital stock


                   -- 


         (71,718)


                   -- 


                   -- 


         (71,718)

Recovery of income taxes related to remuneration of capital stock


                   -- 


           16,325 


                   -- 


                   -- 


           16,325 

Related party transactions


                   -- 


             5,091 


                   -- 


                   -- 


             5,091 

Transfer from the general

reserve


                   -- 


           16,151 


         (16,151)


                   -- 


                   -- 

Balance at March 31, 2011

 

$

      1,587,206 

$

                   -- 

$

             4,694 

$

           33,163 

$

      1,625,063 

 

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

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS





(unaudited)





For the six-month periods ended June 30 

2012

2011

(in thousands of Canadian dollars)

CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES





Operating income

$

        58,626 

$

        72,973 

Adjustments for :





 Depreciation of premises and equipment and amortization of intangible assets


          1,077 


          3,664 

Provision for credit losses (recovery) 


          15,787 


        (8,838)

Net gains on available-for-sale securities


        (1,127)


          4,842 

Change in operating assets and liabilities:


    



Securities at fair value through profit or loss


    (585,523)


      (78,189)

Securities purchased under reverse repurchase agreements


 (1,153,791)


(1,431,189)

Loans


      458,821 


(598,518)

Derivative financial instruments, net amount


    (288,609)


    (213,992)

Deposits


      754,834 


   1,700,992 

Commitments related to securities sold short


      339,781 


      185,751 

 Commitments related to securities sold under repurchase

 agreements


    (123,799)


    (478,732)

Other


    (183,363)


      288,885 

Income taxes paid


        (3,743)


        (1,266)



    (711,029)


    (553,617)

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES





Purchase of available-for-sale securities


 (6,388,052)


 (3,737,600)

Proceeds from disposals of available-for-sale securities


   6,705,477 


   4,008,783 

Proceeds from maturities of available-for-sale securities


      169,468 


      233,700 

Net acquisitions of premises and equipment and

intangible assets


        (3,634)


        (2,341)



      483,259 


      502,542 

Net (decrease) increase in cash and cash equivalents


    (227,770)


      (51,075)

Cash and cash equivalents at beginning of period


      207,181 


      480,698 

Cash and cash equivalents at end of period

$

      (20,589)

$

      429,623 

Supplemental information of cash flows from operating activities





Interest paid


      179,437 


      216,901 

Interest received


      327,393 


      317,432 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

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, notably 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 scope of consolidation of Desjardins Group. The various business segments in which CCD operates are described in Note 14, "Segmented information". The address of the head office is 1170 Peel Street, Suite 600, Montreal, Quebec, Canada.

 

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

 

GENERAL INFORMATION

 

Statement of compliance

 

Pursuant to An Act respecting financial services cooperatives, these unaudited Condensed Interim Consolidated Financial Statements (the Interim Consolidated Financial Statements) have been prepared by CCD's management in accordance with Canadian generally accepted accounting principles (GAAP) and the accounting requirements of the Autorité des marchés financiers in Quebec (AMF), which do not differ from GAAP.

 

The International Financial Reporting Standards (IFRS) constitute GAAP for CCD. These Interim Consolidated Financial Statements of CCD have been prepared in accordance with IFRS, as issued by the International Accounting Standards Board (IASB), and more specifically in accordance with International Accounting Standard (IAS) 34, "Interim Financial Reporting". These Interim Consolidated Financial Statements should be read in conjunction with the audited annual financial statements for the year ended December 31, 2011. All accounting policies were applied on a basis consistent with that mentioned in Note 2, "Significant accounting policies", to these audited annual financial statements.

 

These Interim Consolidated Financial Statements were approved by the Board of Directors of CCD on August 10, 2012.

 

Significant judgments, estimates and assumptions

 

The preparation of interim consolidated financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions with respect to fair value measurement of financial instruments, allowance for credit losses, objective evidence of impairment of available-for-sale securities, impairment of non-financial assets, income taxes and employee benefits.

 

Actual results could differ from those estimates and assumptions, and the results of 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 Consolidated Financial Statements to ensure that they present fairly the results of the periods presented.

 

Functional currency and reporting currency

 

These Interim 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 Interim Consolidated Financial Statements are in thousands of dollars, unless otherwise stated.

 

NOTE 3 - FUTURE ACCOUNTING CHANGES

 

Accounting standards issued but not yet effective as at December 31, 2011 are discussed in Note 3, "Future accounting changes", to the audited annual consolidated financial statements. In addition, during the first six months of 2012, the IASB issued the following amendments: 

 

Annual improvements

 

In May 2012, the IASB issued amendments to several standards as part of its annual improvement process. Except for the amendment to IAS 32, "Financial Instruments: Presentation", these amendments are minor and will have no impact on CCD's results and financial position.

 

The amendment to IAS 32 clarifies that the income tax consequences of dividends should now be recognized in accordance with IAS 12, "Income Taxes". Therefore, if certain conditions are met, the income tax consequences of dividends will have to be presented in profit or loss rather than in equity. CCD will have to apply this amendment retrospectively for the year beginning January 1, 2013.

 

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.


As at June 30, 2012


At fair value through profit or loss



 

 

 


Held for trading

Designated as at fair value through profit or loss

Available for sale

Loans and receivables, and financial liabilities at amortized cost1

Derivatives designated as hedging items2

Total

Financial assets













 

Cash and deposits with financial institutions

$

--

$

--

$

--

$

113,695

$

--

$

113,695 

 

Securities


--


--


--


--


--


--

 

Securities at fair value through profit or loss


1,832,177


    529,625


--


--


--


2,361,802

 

Available-for-sale securities


--


--


4,796,861


--


--


4,796,861

 

Securities purchased under reverse repurchase agreements


--


--




1,889,158


--


1,889,158

 

Loans


--


--


--


17,317,763


--


17,317,763

 

Other financial assets


--


--


--


--


--


--

 

Clients' liability under acceptances


--


--


--


474,000


--


474,00

 

Derivative financial instruments


2,171,759


--


--


--


301,388


2,473,147

 

Other


--


--


--


531,011


--


531,011

 

Total financial assets

$

4,003,936 

 

$

529,625

$

4,796,861

$

20,325,627

$

301,388

$

29,957,437

 

Financial liabilities













 

Deposits


--


--


--


22,394,742


--


22,394,742

 

Other financial liabilities


--


--


--


--


--


--

 

Acceptances


--


--


--


474,000


--


474,000

 

Commitments related to securities sold short


413,103


--


--


--


--


413,103

 

Commitments related to securities sold under repurchase agreements


--


--


--


118,623 


--


118,623

 

Derivative financial instruments


2,178,803


--


--


--


236,179


2,414,982

 

Other


--


--


--


2,239,189


--


2,239,189

 

Total financial liabilities

$

2,591,906

$

--

$

--

$

25,226,554

$

236,179

$

28,054,639

 

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".

 

 


As at December 31, 2011


At fair value through profit or loss







Held for trading

Designated as at fair value through profit or loss

Available for sale

Loans and receivables, and financial liabilities at amortized cost1

Derivatives designated as hedging items2

Total

Financial assets













 

Cash and deposits with financial institutions

$

--

$

--

$

--

$

343,544 

$

--

$

343,544

 

Securities













 

Securities at fair value through profit or loss


977,204


799,075 


--


--


--


1,776,279

 

Available-for-sale securities


--


--


5,308,822


--


--


5,308,822

 

Securities purchased under reverse repurchase agreements


--


--


--


735,367 


--


735,367

 

Loans


--


--


--


17,789,245 


--


17,789,245

 

Other financial assets













 

Clients' liability under acceptances


--


--


--


676,500 


--


676,500

 

Derivative financial instruments


2,629,240


--


--


--


258,899


2,888,139

 

Other


--


--


--


421,467 


--


421,467

 

Total financial assets

$

3,606,444

$

799,075

$

 5,308,822 

$

19,966,123 

$

258,899

$

29,939,363

 

Financial liabilities













 

Deposits


--

$

--

$

--

$

21,639,908 

$

--

$

21,639,908

 

Other financial liabilities













 

Acceptances


--


--


--


676,500 


--


676,500

 

Commitments related to securities sold short


73,322


--


--


--


--


73,322

 

Commitments related to securities sold under repurchase agreements


--


--


--


242,422 


--


242,422

 

Derivative financial instruments


2,707,485 


--


--


--


411,098


3,118,583

 

Other


-- 


--


--


2,268,901 


--


2,268,901

 

Total financial liabilities

$

2,780,807

$

--

$

--

$

24,827,731 

$

411,098

$

28,019,636

 

 

 

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 OF FINANCIAL INSTRUMENTS

 

Levels of fair value hierarchy

 

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

§ Level 1 - Measurement 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 breakdown of fair value measurements of financial instruments recognized at fair value on the Consolidated Statements of Financial Position.

 


As at June 30, 2012


Level 1

Level 2

Level 3

Total

Financial assets









Securities









Securities at fair value through profit or loss

$

     996,342 

$

 1,365,460 

$

            -- 

$

  2,361,802 

Available-for-sale securities


  3,807,147 


    989,714 


            -- 


  4,796,861 

Other financial assets









Derivative financial instruments


            698 


 2,371,836 


  100,613 


  2,473,147 

Total financial assets

$

  4,804,187 

$

 4,727,010 

$

  100,613 

$

  9,631,810 

Financial liabilities









Other financial liabilities









Commitments related to securities sold short

$

     413,103 

$

              -- 

$

            -- 

$

     413,103 

Derivative financial instruments


            208 


 2,314,288 


  100,486 


  2,414,982 

Total financial liabilities

$

     413,311 

$

 2,314,288 

$

  100,486 

$

  2,828,085 




















As at December 31, 2011


Level 1

Level 2

Level 3

Total

Financial assets









Securities









Securities at fair value through profit or loss

$

     680,389 

$

 1,095,890 

$

            -- 

$

  1,776,279 

Available-for-sale securities


  4,499,757 


    809,065 


            -- 


  5,308,822 

Other financial assets









Derivative financial instruments


         1,881 


 2,726,166 


  160,092 


  2,888,139 

Total financial assets

$

  5,182,027 

$

 4,631,121 

$

  160,092 

$

  9,973,240 

Financial liabilities









Other financial liabilities









Commitments related to securities sold short

$

       73,322 

$

              -- 

$

            -- 

$

       73,322 

Derivative financial instruments


            245 


 2,958,246 


  160,092 


  3,118,583 

Total financial liabilities

$

       73,567 

$

 2,958,246 

$

  160,092 

$

  3,191,905 

 

No transfers attributable to changes in the observability of market data were made between fair value measurement hierarchy levels during the period ended June 30, 2012. During the year ended December 31, 2011, government bonds of $400 million were transferred from Level 2 to Level 1 to more adequately reflect the valuation methodology for these securities.

 

 

 

Sensitivity of Level 3 financial assets and financial liabilities

 

CCD performs sensitivity analyses for the fair value measurements of financial instruments classified in Level 3. Changing unobservable inputs to one or more reasonably possible alternative assumptions does not significantly change the fair value of financial instruments classified in Level 3, except for hedging positions on credit indices.

 

Had the credit spreads of the credit default swaps on the components of these hedging positions increased or decreased by 10% from their current level, the fair value of these derivatives would have increased or decreased by $16 million as at June 30, 2012.

 

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 June 30, 2012


Amortized cost

Unrealized gross gains

Unrealized gross losses

Carrying amount

Securities issued or guaranteed by









Canada

$

     1,438,557 

$

          17,056 

$

                 (3)

$

     1,455,610 

Provinces and municipal corporations in Canada


     2,414,918 


          26,709 


               (80)


     2,441,547 

Foreign public administrations


          41,887 


               913 


               (22)


          42,778 

Other securities in Canada


                  -- 


                  -- 


                  -- 


                  -- 

Financial institutions


        846,615 


          10,471 


             (160)


        856,926 


$

     4,741,977 

$

          55,149 

$

             (265)

$

     4,796,861 




















As at December 31, 2011


Amortized cost

Unrealized gross gains

Unrealized gross losses

Carrying amount

Securities issued or guaranteed by









Canada

$

     2,201,527 

$

          24,091 

$

             (645)

$

     2,224,973 

Provinces and municipal corporations in Canada


     2,245,343 


          29,991 


             (550)


     2,274,784 

Foreign public administrations


          44,587 


               882 


               (32)


          45,437 

Other securities in Canada









Financial institutions


        751,749 


          12,340 


             (461)


        763,628 


$

     5,243,206 

$

          67,304 

$

          (1,688)

$

     5,308,822 

 

 

Impairment losses recognized

 

During the three-month and six-month periods ended June 30, 2012 and 2011, CCD concluded that there was no objective evidence of impairment.

 

 

 

 

 

 

 

NOTE 7 - LOANS AND ALLOWANCE FOR CREDIT LOSSES

 

Loans, impaired loans and allowances

 

The following tables present the credit quality of loans.

 

 


As at June 30, 2012


Gross loans neither impaired nor past due

Gross loans past due but not impaired

Gross impaired loans

Individual allowances

Collective allowance

Net loans

Day, call and short-term loans to investment dealers and brokers

$

          2,000 

$

        -- 

$

          -- 

$

          -- 

$

           -- 

$

          2,000 

Public and parapublic sectors


   1,242,380 


        -- 


          -- 


          -- 


           -- 


   1,242,380 

Members


                -- 


        -- 


          -- 


          -- 


           -- 



Fédération


   9,612,486 


        -- 


          -- 


          -- 


           -- 


   9,612,486 

Other


      155,224 


        -- 


          -- 


          -- 


           -- 


      155,224 

Other entities included in the scope of consolidation of Desjardins Group


   1,949,697 


        -- 


          -- 


          -- 


           -- 


   1,949,697 

Loans purchased from Desjardins Group


      112,682 


      17 


          -- 


          -- 


           -- 


      112,699 

Personal


   1,235,098 


 2,564 


    9,068 


          -- 


    3,406 


   1,243,324 

Business


   3,040,533 


        4 


  27,145 


   9,927 


  57,802 


   2,999,953 


$

 17,350,100 

$

 2,585 

$

  36,213 

$

   9,927 

$

  61,208 

$

 17,317,763 




























As at December 31, 2011


Gross loans neither impaired nor past due

Gross loans past due but not impaired

Gross impaired loans

Individual allowances

Collective allowance

Net loans

Day, call and short-term loans to investment dealers and brokers

$

        91,000 

$

        -- 

$

          -- 

$

$

           -- 

$

        91,000 

Public and parapublic sectors


   1,904,756 


        -- 


          -- 


          -- 


           -- 


   1,904,756 

Members













Fédération


   9,678,649 


        -- 


          -- 


          -- 


           -- 


   9,678,649 

Other


      230,195 


        -- 


          -- 


          -- 


           -- 


      230,195 

Other entities included in the scope of consolidation of Desjardins Group


   1,886,748 


        -- 


          -- 



           -- 


   1,886,748 

Loans purchased from Desjardins Group


      137,600 


      36 


          -- 


          -- 


           -- 


      137,636 

Personal


   1,091,514 


 1,583 


    7,728 


          -- 


    2,652 


   1,098,173 

Business


   2,786,961 


        -- 


  30,926 


 11,347 


  44,452 


   2,762,088 


$

 17,807,423 

$

 1,619 

$

  38,654 

$

 11,347 

$

  47,104 

$

 17,789,245 

 

 

 

 

 

Gross loans past due but not impaired

 

 

A loan is considered past due when the borrower has failed to make a payment when contractually due. The following table presents the aging of gross loans that are past due but not impaired.

 


 1 to 29 days

30 to 59 days

60 to 89 days

90 days and more

Total

June 30, 2012

$

 509 


$

   1,778 


$

  293 


$

     5 


$

   2,585 


December 31, 2011

$

    -- 


$

      873 


$

  717 


$

   29 


$

   1,619 


 

 

 

Allowance for credit losses

 

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

 


As at

June 30, 2012

As at

 December 31, 2011

Balance at beginning of period

 $

   87,112 


 $


   85,952 

Provision for credit losses


   15,787 




     2,762 

Write-offs and recoveries


           -- 




   (1,685)

Exchange rate fluctuations


          35 




          83 

Balance at end of period

 $

 102,934 

            

 $


   87,112 

Composed of :


           -- 





Allowance for credit losses

 $

   71,135 


 $


   58,451 

Off-balance sheet commitments(1)


   31,799 




   28,661 

TOTAL

 $

 102,934 


 $


   87,112 

 

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

 

 

NOTE 8 - COVERED BONDS

 

During the first quarter of 2012, CCD issued covered bonds amounting to US$1,500 million. CCDQ Covered Bond Guarantor Limited Partnership, a special purpose entity, is in place to guarantee principal and interest payments due to the holders of these securities. CCD consolidated this entity since, in substance, according to the requirements of SIC-12, "Consolidation - Special Purpose Entities", the relationship between this entity and CCD indicates that the special purpose entity is controlled by CCD. Under the terms and conditions of the issuance agreements, CCD has limited access to the assets that are legally owned by this special purpose entity. The assets legally held as collateral by this entity do not meet recognition criteria and are therefore not recognized in the Consolidated Statements of Financial Position. The covered bonds, amounting to $2,535.6 million as at June 30, 2012 ($1,016.5 million as at December 31, 2011), are presented as deposits in the Consolidated Statements of Financial Position.

 

 

 

 

 

 

NOTE 9 - DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

 

The following table presents the derivative financial instruments recognized in the Consolidated Statements of Financial Position.

 


As at June 30, 2012

As at December 31, 2011


Notional amount

Assets

Liabilities

Notional amount

Assets

Liabilities

Designated as hedging instruments













Fair value hedges

$

   15,229,557 

$

292,082 

$

89,147 

$

14,891,129 

$

247,557 

$

297,779 

Cash flow hedges


      1,512,150 


9,306 


147,032 


1,542,850 


11,342 


113,319 

Total - Designated as hedging instruments


    16,741,707 


301,388 


236,179 


16,433,979 


258,899 


411,098 

Fair value of derivative financial instruments - Trading purposes 


 149,877,855 


2,171,759 


2,178,803 


150,448,953 


2,629,240 


2,707,485 

Total derivative financial instruments before impact of master netting agreements

$

  166,619,562 

$

2,473,147 

$

2,414,982 

$

166,882,932 

$

2,888,139 

$

3,118,583 

Impact of master netting agreements1


                             -- 


406,692 


406,692 


--


748,026 


748,026 

Total derivative financial instruments after impact of master netting agreements

$

  166,619,562 

$

2,066,455 

$

2,008,290 

$

166,882,932 

$

2,140,113 

$

2,370,557 

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

 

Fair value hedges

 

A net loss of $7.8 million for the three-month period ended June 30, 2012 (net loss of $3.1 million for the three-month period ended June 30, 2011) and a net loss of $7.0 million for the six-month period ended June 30, 2012 (net loss of $9.6 million for the six-month period ended June 30, 2011) related to the ineffectiveness of fair value hedging activities were recognized under "Trading activities" in the Consolidated Statements of Income.

 

Cash flow hedges

 

A net loss of $0.1 million for the three-month period ended June 30, 2012 (net loss of $0.1 million for the three-month period ended June 30, 2011) and a net loss of $0.4 million for the six-month period ended June 30, 2012 (net loss of $0.1 million for the six-month period ended June 30, 2011) related to the ineffectiveness of cash flow hedging activities were recognized under "Trading activities" in the Consolidated Statements of Income.

 

 

 

 

 

 

NOTE 10 - ACCUMULATED OTHER COMPREHENSIVE INCOME

 

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

 


As at June 30, 2012

As at December 31, 2011

Net unrealized gains on available-for-sale securities

$

  27,834 


$

    31,061 


Net gains on derivative financial instruments designated as cash flow hedges


  14,899 



    20,207 


Net unrealized exchange losses on the translation of the financial statements of a self-sustaining foreign operation, net of a gain of $0.7 million (2011 : $1.1 million) on hedging transactions


       (82)



         (53)


Accumulated other comprehensive income

$

  42,651 


$

    51,215 


 

 

NOTE 11 - CAPITAL MANAGEMENT

 

The goal of capital management at CCD 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 a favourable credit rating and to maintain the confidence of depositors and financial markets.

 

The capital adequacy of CCD is regulated by standards developed by the Federation and approved by the AMF. CCD'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 II) issued by the Bank for International Settlements (BIS). In that respect, credit risk and market risk are assessed according to the Standardized Approach, while operational risk is calculated based on the Basic Indicator Approach.

 

The regulatory capital of CCD, which constitutes capital, differs from the equity disclosed on the Consolidated Statements of Financial Position. It comprises two classes:

 

ü Tier 1 capital, which includes more permanent capital items than Tier 2 capital. It consists of capital stock, the general reserve and retained earnings (deficit).

ü Tier 2 capital includes collective allowances for credit risk.

 

Section 46 of the Act respecting the Mouvement Desjardins stipulates that CCD shall maintain an adequate capital base consistent with sound and prudent management, in accordance with the standards of the Federation (and approved by the AMF). According to these standards, CCD must at all times maintain capital in accordance with the following ratios:

 

ü its total capital must be greater than or equal to 5% of its total assets adjusted based on the standards;

ü its total capital must be greater than or equal to 8% of its risk-weighted assets, of which at least one half is Tier I capital.

 

Furthermore, the member federations undertook to maintain, in proportion to their respective holdings, CCD's total capital at a minimum level of (i) 5.5 % of its total assets, or if higher; (ii) 8.5% of its risk-weighted assets, as determined in accordance with the established standards.

 

As at January 1, 2011, the date of conversion to IFRS, CCD elected to use the transitional provisions of the Notice issued by the AMF. This election is irrevocable and allows mitigating the impact of the new standards through a quarterly adjustment of CCD's retained earnings over a two-year period ending December 31, 2012. Accordingly, for purposes of calculating Tier 1 capital ratio, CCD has amortized, since January 1, 2011, the eligible portion of the IFRS impact of $20.1 million on a straight-line basis, for a quarterly amortization of $2.5 million, and will do so until December 31, 2012.

 

CCD maintains a general reserve that can only be used to eliminate a deficit. As a result, during the period ended June 30, 2012, an amount of $1.2 million was transferred to retained earnings to eliminate the accumulated deficit as of that date.

 

 

 

 

NOTE 12 - 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 Consolidated Statements of Income.

 


For the three-month periods
ended June 30

For the six-month periods
ended June 30


2012

2011

2012

2011

Income









Net interest income

$

            8,508 

$

             (367)

$

          15,184 

$

            5,999 

Other income (loss)


        (16,736)


        (14,207)


        (14,348)


        (26,396)


$

          (8,228)

$

        (14,574)

$

               836 

$

        (20,397)

 

 

 

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 Consolidated Statements of Income.

 


For the three-month periods
ended June 30

For the six-month periods
ended June 30


2012

2011

2012

2011

Income









Net interest income

$

            6,144 

$

          11,485 

$

          12,707 

$

          22,960 

Other income (loss)


          (3,413)


            5,151 


        (15,662)


          (2,104)


$

            2,731 

$

          16,636 

$

          (2,955)

$

          20,856 

 

 

 

 

NOTE 13 - INCOME TAXES ON OTHER COMPREHENSIVE INCOME

 

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



For the three-month periods
ended June 30


For the six-month periods
ended June 30


2012

2011

2012

2011

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

$

   735 


$

 (1,316)


$

    (755)


$

  (1,404)


Reclassification to the Consolidated Statements of Income of gains (losses) on available-for-sale securities


   232 



   1,875 



    (257)



    1,102 


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


  (749)



      398 



 (1,565)



  (3,759)


Reclassification to the Consolidated Statements of Income of losses on derivative financial instruments designated as cash flow hedges


     52 



      318 



          3 



       465 


Total of income tax expense (income)


   270 



   1,275 



 (2,574)



  (3,596)















Composition of income tax expense (income):













Current income taxes


   270 


   1,275 



 (2,574)


  (3,596)



$

   270 


$

   1,275 


$

 (2,574)


$

  (3,596)


 

NOTE 14 - SEGMENTED INFORMATION

 

CCD comprises the "Business and Institutional Services" and "Desjardins Group Treasury" business segments and the "Other" category. These business segments have been structured according to the needs of clients as well as the markets in which CCD operates.

 

The Business and Institutional Services business segment is responsible for developing and marketing the service offering to businesses. It is also responsible for distributing a range of financial products and services, including financing in the form of lines of credit and term loans to public and parapublic entities and businesses. This segment also includes cross-border financing for clients of the U.S. branch. Total income for the six-month periods ended June 30, 2012 and 2011 was $1.3 million and $1.3 million, respectively ($0.7 million and $0.6 million for the three-month periods of 2012 and 2011, respectively). The assets of the branch amounted to $106.7 million as at June 30, 2012, compared to $90.4 million in 2011.

 

The Desjardins Group Treasury business segment offers a range of financial products and services and grants financing in the form of lines of credit and term loans to members and other entities included in the scope of consolidation of Desjardins Group. This segment also manages CCD's assets and liabilities, and the securities and derivative financial instruments portfolios, as well as cash of Desjardins Group.

 

The Other category includes the operations of the subsidiary Desjardins FSB Holdings Inc.

 

CCD measures the performance of the segments based on total income generated by each segment. Non-interest expense is managed on a consolidated basis and is not allocated by segment.

 

Intersegment transactions are recognized at the exchange amount, which represents the amount agreed to by the parties. The terms and conditions of these transactions are comparable to those offered on financial markets. The results of the main segments reflect internal financial reporting systems and are consistent with the policies used in preparing the Consolidated Financial Statements of CCD.

 

 

 

 

 

 

Results by business segment

 

The following table provides a summary of CCD's financial results by business segment for the three-month periods ended June 30.

 


For the three-month periods
ended June 30


Business and
Institutional Services

Desjardins Group Treasury

Other

Total


2012

2011

2012

2011

2012

2011

2012

2011

Net interest income

$

 24,305 

$

    20,438 

$

  42,381 

$

   42,813 

$

  1,602 

$

  1,337 

$

  68,288 

$

   64,588 

Other income


  15,434 


     15,547 


 (13,605)


   (8,103)


    247 


     290 


    2,076 


     7,734 

Total income

$

 39,739 

$

    35,985 

$

  28,776 

$

   34,710 

$

  1,849 

$

  1,627 

$

  70,364 

$

   72,322 

Assets  (1)

$

   5,847 

$

       5,336 

$

  24,004 

$

  22,937 

$

     161 

$

      174 

$

   30,012 

$

   28,447 

 

1 In millions of dollars

 

The following table provides a summary of CCD's financial results by business segment for the six-month periods ended June 30.

 


For the six-month periods
ended June 30


Business and
Institutional Services

Desjardins Group Treasury

Other

Total


2012

2011

2012

2011

2012

2011

2012

2011

Net interest income

$

  46,514 

$

  39,029 

$

  83,576 

$

    87,280 

$

  3,129 

$

 2,654 

$

 133,219 

$

    128,963 

Other income


   29,911 


   30,291 


 (16,565)


  (20,805)


     625 


  1,044 


   13,971 


       10,530 

Total income

$

 76,425 

$

  69,320 

$

   67,011 

$

    66,475 

$

  3,754 

$

 3,698 

$

 147,190 

$

    139,493 

 

 

 

 


HEAD OFFICE

1170 Peel Street, Suite 600

Montréal, Québec, Canada

H3B 0B1

Telephone: 514-281-7070

Fax: 514-281-7083

Internet: www.desjardins.com/caissecentrale

 

Toronto Office

25 York Street, Suite 1000

P.O. Box 404

Toronto, Ontario, Canada

M5J 2V5

Telephone: 416-599-0381

Fax: 416-599-5172

 

 

Calgary Office

110 - 9th Avenue SW, Suite 410

Calgary, Alberta, Canada

T2P 20T1

Toll-free: 1-877-532-6601

Fax: 403-532-6641

 

 


OUTSIDE CANADA

 

UNITED STATED

Caisse centrale Desjardins U.S. Branch

1001 East Hallandale Beach Blvd., Suite 200

Hallandale Beach, FL, USA

33009-4429

Telephone: 954-456-5058

Fax: 954-457-7927

 

Desjardins Bank N.A.

Head Office

1001 East Hallandale Beach Blvd.

Hallandale Beach, FL, USA

33009-4429

Telephone: 954-454-1001

Fax: 954-457-7927

 

 


 

 

EUROPE

Desjardins Representative Office

6, avenue de Provence

75009 Paris, FRANCE

Telephone: +33(0)1 45 96 96 40

Email: [email protected]


This information is provided by RNS
The company news service from the London Stock Exchange
 
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