2007 first nine-month results
Desjardins increases its surplus earnings by nearly 18% to 828 million as a result of solid growth in business and better operating cost control

Increase in the provision for member dividends of nearly 20% to $415 million

Financial highlights

Surplus earnings before member dividends of $828 million for the first nine months of the year and $248 million for the third quarter of 2007.
Member dividends of $415 million, up 19.3% for the first nine months of 2007.
Excellent financial performance by the caisse network with an increase in surplus earnings before member dividends of approximately 26% for the first nine months.
Tier 1 capital ratio is still one of the best in the industry.
Return on equity of 12.5% for the first nine months, compared to 11.6% for the same period last year.
Improvement in the productivity ratio as a result of better cost control and strong growth in operating income.
Assets grew by 15.2% to $146.9 billion.
Increase of 90% in net sales of Desjardins Funds since the beginning of the year.
Assumption of assets held in the form of non-bank-sponsored asset-backed commercial paper to protect members and clients from prevailing market uncertainty.

	For the three-month periods ended September 30			For the nine-month periods ended September 30
	2007	2006	Change	2007	2006	Change
Surplus earnings before member dividends	$248M	$328M	(24.4%)	$828M	$704M	17.6%
Provision for member dividends	$127M	$147M	(13.6%)*	$415M	$348M	19.3%
Return on equity	11.0%	15.8%	---	12.5%	11.6%	---

* Decrease explained by the adjustment of the accounting provision during the third quarter of 2006.

Other financial data

	For the three-month periods ended September 30
	2007	2006	Change
Assets	$146.9B	$127.5B	15.2%
Equity	$9.1B	$8.3B	9.6%
Tier 1 capital ratio	14.02%	14.08%	---
Growth in total loans	8.1%	7.5%	---
Growth in total deposits	8.7%	7.7%	---

2007 third-quarter results

Lévis (Québec), November 15, 2007 – For the third quarter ended September 30, 2007, Desjardins Group, the largest integrated cooperative financial group in Canada, recorded combined surplus earnings before member dividends of $248 million, down $80 million or 24.4% from the same quarter of 2006. This decrease was primarily due to a write-down of 8.3% or $160 million ($107 million after taxes) related to non-bank-sponsored asset-backed commercial paper (ABCP) holdings. Excluding this write-down, combined surplus earnings before member dividends would have been $355 million, up more than 8%.

Furthermore, Desjardins Group announced during the quarter that it had entered into a transaction with Canada’s Credit Union Centrals in connection with a strategic partnership. This transaction, together with the Visa Canada Association restructuring, pursuant to which Desjardins will receive shares of Visa Inc. in exchange for its interest in the former corporation’s structure, should generate non-recurring gains in the order of $110 million after taxes. These gains will be recorded in the fourth quarter.

For the third quarter, the caisse network strongly contributed to Desjardins Group’s solid financial performance with financial results up about 15% from the same quarter a year earlier. Similarly, the insurance subsidiaries made a much higher contribution to Desjardins Group’s combined results, namely 38.5% for the life and health insurance subsidiary, and 64.3% for the general insurance subsidiary.

The provision for member dividends amounted to $127 million compared to $147 million for the corresponding quarter of 2006, primarily as a result of the adjustment of the accounting provision during the third quarter of 2006.

“Consistent with the first six months of the year, the third-quarter results were solid and continued to reflect the concerted efforts of all Desjardins Group components, including the caisse network and their various subsidiaries. We will be pursuing our game plan while maintaining rigorous cost control,” said Alban D’Amours, President and Chief Executive Officer of Desjardins Group.

Net interest income totalled $827 million, up $48 million or 6.2% from the corresponding quarter of 2006, in particular as a result of higher business volume. Insurance premiums increased by $68 million or 7.7%, while annuity premiums were down by $10 million or 19.6%, resulting in an overall increase of $58 million or 6.5% in net insurance premiums compared to the third quarter of 2006. Other income was favourably affected by an increase of $20 million or 14.5% in income from brokerage, investment fund and trust services, as well as by an increase of $13 million or 15.7% in lending fees and credit card service revenues.

It should be noted that the effect of these increases in total income was however mitigated by a $221 million decrease in investment income primarily as a result of the accounting changes concerning to the life and health insurance company’s financial instruments and the non-bank-sponsored ABCP holdings.

Overall, Desjardins Group’s total income amounted to $2,253 million for the third quarter of 2007, down $58 million or 2.5% on a year-over-year basis.

The provisions for credit losses charged to income for the third quarter of 2007 were $47 million, compared to $27 million a year earlier.

Expenses related to claims, benefits, annuities and changes in insurance provisions totalled $775 million for the third quarter of 2007, similar to the corresponding quarter of 2006.

Non-interest expenses amounted to $1,090 million, up $45 million or 4.3% from the third quarter of 2006, as a result of effective control over operating expenses.

The return on equity, namely surplus earnings before member dividends divided by average equity, stood at 11.0%, down from 15.8% for the same quarter one year ago.

It should be noted that last August, Desjardins announced that it would assume the non-bank-sponsored ABCP held in certain mutual funds in order to protect its members and clients from the prevailing market uncertainty. A few weeks later, it also assumed the non-bank-sponsored ABCP acquired in connection with the securities custody and lending activities undertaken by Desjardins Trust on behalf of institutional clients for whom Desjardins had not originally assumed the risk. All of this commercial paper, valued at $1.2 billion, together with the commercial paper held by Desjardins for its own investment purposes, was subsequently transferred to separate entities created for that purpose. The overall amount of ABCP involved totals $1.9 billion, on which the write-down of $160 million before income taxes is applied.

Furthermore, as part of its investing activities involving certain guaranteed-capital savings products, Desjardins Group also had on its balance sheet as at September 30, 2007, ABCP securities of $809 million. An equivalent amount was recorded under deposit liabilities. Consequently, changes in the value of this portfolio have no impact on Desjardins’ financial performance. It should also be noted that Desjardins Group was not a sponsor nor a distributor of non-bank-sponsored ABCP.

“I remain very confident about the success of the efforts of the committee formed in connection with the Montréal Accord and to which we are making an active contribution, insisted Mr. D’Amours. Above all, it was in the best interest of our members and clients that we assumed these securities held on their behalf. Given the complexity of this issue, we felt that it was more appropriate under the circumstances to manage the overall situation from the perspective of the entire Desjardins Group so that our members and clients would not have to be concerned about the situation.”

The asset transfer related to non-bank-sponsored ABCP holdings and the recognition of a write-down of these securities slightly reduced capital ratios, with Tier 1 capital ratio falling, more specifically, by approximately 50 basis points. Nonetheless, Desjardins Group is still very strongly capitalized, and its Tier 1 capital ratio is about 450 basis points above the median for the major Canadian banks.

Key third-quarter events

Background on Capital Markets and Non-Bank-Sponsored ABCP

The past few months were particularly marked by turbulence on Canadian and international capital markets stemming primarily from the situation of structured products linked to the U.S. subprime mortgage market. This led to a loss of confidence in certain financial products, especially asset-backed commercial paper issued by non-bank conduits, and triggered a liquidity crisis in the markets.

In order to mitigate the impact of the lack of liquidity in the non-bank-sponsored ABCP market and restore a climate of confidence, an agreement was entered into in August 2007 by several investors and financial institutions, including Desjardins Group, which is aiming to favour the resumption of normal activities on the Canadian non-bank-sponsored ABCP market. This agreement has since led to the formation of a pan-Canadian committee, which includes investors who were signatories of the Montréal Accord and other significant holders bringing a national perspective, relevant experience and associations with the private sector, institutional investors, government agencies and crown corporations. The deadline for the work of this committee has been extended to December 14, 2007.

Canada-wide development

In the third quarter of 2007, Desjardins Group announced the creation of a strategic partnership with Canada’s Provincial Credit Union Centrals aimed at accelerating the growth of NorthWest Mutual Funds Inc. and The Ethical Funds Company through enhanced distribution of their products. This new partnership involves the creation of a national mutual fund firm with $5.5 billion in assets under management. This initiative is consistent with Desjardins’ strategy to enhance its position in the Canadian mutual fund market. The transaction is expected to be completed by the end of 2007 and it should enable Desjardins Group to record a gain of approximately $50 million after income taxes, the final amount of which will be calculated once the transaction has been completed.

It should also be noted that during the third quarter, Desjardins announced the renewal of its partnership with Alimentation Couche-Tard inc., as its payment solutions provider. After their 10 years of partnership, Desjardins and Alimentation Couche-Tard inc. not only renewed their agreement in Québec, but also extended it to the rest of the Canadian market, which is served by Alimentation Couche-Tard inc. under the Mac’s banner, as the exclusive point-of-sale transaction processing provider.

Global VISA restructuring

Early in October 2007, Visa Inc. announced that it had restructured its operations. This involved a series of transactions, through which Visa Canada, Visa U.S.A. and Visa International became subsidiaries of Visa Inc. In exchange of its membership interest in the Visa Canada Association member, the Fédération des caisses Desjardins du Québec will receive Visa Inc. shares and expects to record a gain on this transaction in its fourth quarter of 2007. The amount of the gain will be calculated following completion of an independent valuation and the determination of the number of shares to be allocated to the Fédération (and to the other former members of the Visa Canada Association) at the time of restructuring. This gain is estimated at about $60 million after income taxes.

Results for the first nine months of 2007

For the nine-month period ended September 30, 2007, Desjardins Group declared combined surplus earnings before member dividends of $828 million, up $124 million or 17.6% from $704 million during the same period of 2006. The return on equity stood at 12.5%, up from 11.6% for the corresponding period of 2006. Excluding the ABCP securities write-down, combined surplus earnings before member dividends would have been $935 million, up 32.8%, and the return on equity would have been 14.1%.

The provision for member dividends recorded for the first nine months of 2007 totalled $415 million, up 19.3% from $348 million one year ago.

Desjardins still ranks among the best-capitalized financial institutions in Canada, with a Tier 1 capital ratio of 14.02% as at September 30, 2007. This exceeded Desjardins Group’s capitalization target and was one of the best in the industry. The total capital ratio was 13.48%, compared to 14.11% as at September 30, 2006. This decrease stemmed from the repayment of the Series B subordinated debt of Capital Desjardins totalling $500 million on June 1, 2007.

The solid profitability of the first nine months of 2007 resulted from the strong financial performance of all Desjardins Group components. The Personal and Commercial segment performed particularly well and increased significantly its profitability, especially in the caisse network, whose financial results were up sharply by approximately 26%. This segment benefited in fact from both increased operating revenue and effective control over operating expenses. In addition, the insurance subsidiaries’ profitability was up. The life and health insurance subsidiary’s was favourably impacted by improved experience and slow growth in administrative expenses, among other things. As for the general insurance subsidiary, it benefited from strongly performing investments and a favourable claims experience.

“There is no question that our results for the first nine months of the year are very encouraging. Indeed, and they motivate us to pursue our efforts to continually improve the way we meet our members’ and clients’ needs,” added Mr. D’Amours. “These financial results bear witness to the strength of the caisse network, in addition to the buoyancy of our subsidiaries, which have maintained successful growth in Quebec and across Canada. With its track record of success and development, Desjardins Group – the largest financial cooperative in Canada – provides daily proof that the financial cooperative model has a very bright future.”

Desjardins Group’s results for the first nine months of 2007 fall within the financial framework established during the creation of the 2006-2008 Strategic Plan. The objectives were achieved as a result of substantially higher profitability, higher business volume and effective operating expense controls. We would like to recognize the hard work of all Desjardins Group components to improve the gap between revenue and expense growth (namely, the operating leverage). Their sustained efforts, in conjunction with the positive results of work relating to the Group’s financial, real estate and operational synergies, contributed to overall improved productivity.

As for revenues, net interest income totalled $2,424 million, up $143 million or 6.3% primarily due to higher business volume. Insurance premiums grew by $194 million or 7.6% for the first nine months, while annuity premiums decreased by $144 million or 48.7%, for a $46 million or 1.7% increase in net insurance premiums compared to the same period in 2006. Other income reflected a $75 million or 17.8% increase in income from brokerage, investment fund and trust services, and of $43 million or 18.3% increase in income from lending fees and credit card service revenues.

These substantial increases were however reduced by a $414 million decrease in investment income resulting primarily from the impairment loss recorded in the quarter with respect to accounting changes concerning the life and health insurance company’s financial instruments (a decrease offset by an equivalent decrease in expenses related to claims, benefits, annuities and changes in insurance provisions) and to non-bank-sponsored ABCP holdings.

Overall, Desjardins Group’s total income amounted to $6,827 million for the first nine months of 2007, down slightly by 0.8% from the corresponding period of 2006.

The provisions for credit losses for the first nine months of 2007 totalled $132 million, compared to $94 million a year earlier. Desjardins Group continues to enjoy a high-quality loan portfolio with a ratio of gross impaired loans to the gross loan portfolio of 0.42%.

Expenses related to claims, benefits, annuities and changes in insurance provisions for the first nine months ended September 30, 2007 stood at $2,108 million, down $355 million or 14.4% on a year-over-year basis, as a result of the decrease in annuity activities coupled with the life and health insurance subsidiary’s decline in investment income, as previously noted.

Non-interest expenses totalled $3,424 million for the first nine months of 2007, for a limited increase of 3.2% from a year earlier, because of effective operating expense controls.

The productivity ratio, i.e., Desjardins Group’s non-interest expenses to total income, net of expenses related to claims and insurance benefits, improved to 72.6% for the first nine months of 2007, versus 75.1% for the corresponding period in 2006, reflecting improved operating leverage despite the impairment loss recorded in the third quarter with respect to ABCP holdings.

Finally, as at September 30, 2007, Desjardins Group’s total assets stood at $146.9 billion, up from $127.5 billion one year ago, representing a significant increase of 15.2% or $19.4 billion.

Results by business segment

Personal and Commercial

This segment primarily consists of the caisse network, the Fédération des caisses Desjardins du Québec, Caisse centrale Desjardins, the Fonds de sécurité Desjardins, Capital Desjardins Inc., Desjardins Trust and the Ontario federation and caisses.

For the third quarter ended September 30, 2007, surplus earnings before member dividends for the Personal and Commercial segment totalled $272 million, a similar level to the corresponding quarter of 2006. Total income grew $42 million or 3.6%, while net interest income was up $49 million or 6.3%. Other income benefited from increases of $17 million in income from brokerage, investment fund and trust services, and of $13 million in income from credit card activities. However, due to a decrease of $58 million for investing and trading income, other income fell overall by $7 million or 1.8% on a year-over-year basis.

For the first nine months of 2007, surplus earnings before member dividends for this segment totalled $668 million, up $120 million or 21.9% compared to the same period one year ago. This strong improvement in financial performance is attributable, in particular, to the increase in operating income in tandem with effective cost control. The caisse network’s higher profitability and the resounding success of investment fund sales are also noteworthy.

Total income for the Personal and Commercial segment for the first nine months of 2007 stood at $3,569 million, up $283 million or 8.6% from the corresponding period in 2006. Net interest income was $2,430 million, up $143 million or 6.3%, chiefly as a result of higher business volume.

Other income amounted to $1,139 million for the first nine months of 2007, up $140 million or 14.0% from a year earlier. Income from brokerage, investment fund and trust services rose $53 million especially because of a growth of approximately 28% in Desjardins Funds outstanding compared to September 30, 2006. Lastly, income from credit card activities was up $43 million as a result of higher business volume.

The provisions for credit losses totalled $130 million for the first nine months of 2007, versus $95 million a year earlier. The ratio of gross impaired loans to the gross loan portfolio remained stable.

Non-interest expenses were $2,527 million, up $102 million or 4.2% from the same period in 2006. Nearly 55% of this increase stemmed from higher salaries and fringe benefits, largely due to the annual indexation of salaries.

In addition, Caisse centrale Desjardins contributed $81.8 million to the Personal and Commercial segment for the first nine months of 2007, up 4.9% on a year-over-year basis.

In the area of financing activities, the Personal and Commercial segment turned in a solid performance in the third quarter of 2007. The loan portfolio grew by 9.2% or $7.8 billion on an annual basis. These excellent results were attributable to higher demand for residential mortgages and for commercial and industrial credit. Residential mortgages increased by 7.2% or $3.6 billion on an annual basis to a total of $53.9 billion as at September 30, 2007. The boom in the Québec housing market translated into a 14.7% increase in housing starts and a 14.0% increase in the number of transactions in the existing home resale market since the beginning of the year, creating a favourable business development climate.

In the Personal and Commercial segment, outstanding loans to business and government increased significantly during the third quarter, with loans outstanding rising by 17.5% or $3.6 billion on an annual basis to $24.0 billion as at September 30, 2007.

As regards Caisse centrale Desjardins’ corporate financing activities, new business approved totalled more than $1.3 billion as at September 30, 2007, as a result in particular of the approval of a number of files in which Caisse centrale acted as banking co-syndicate agent. Caisse centrale owes this development to its ability, among other things, to assist businesses in new markets in Canada, as well as in the United States and Europe. New financing approved outside Québec therefore accounted for about 45% of the approved business, partly as a result of the involvement of Caisse centrale Desjardins U.S. Branch, which has been in operation since August 2006.

Desjardins Group’s securitized mortgage loan program, involving Desjardins caisses in Québec and Ontario as well as Desjardins Credit Union, continued successfully. The cumulative total since the program was launched in September 2005 stands at nearly $2.5 billion.

It should be pointed out that Caisse centrale’s assets exceeded the $20-billion mark for the first time as at September 30, 2007, for an 8% increase since the end of the previous quarter. This growth stems from its activities as Desjardins Group’s Treasurer, which included issuing $100 million in capital during the third quarter of 2007, allowing it to maintain a sound capitalization.

Caisse centrale also owns non-bank-sponsored ABCP securities for an amount of $39.6 million on assets of $20 billion. Caisse centrale continues to enjoy investment grade credit ratings from Standard & Poor’s (AA-) and Moody’s (Aa1), and its capitalization remains excellent with Tier 1 capital and total capital ratios determined based on risk-weighted assets and commitments of 10.6% and 12.6%, respectively, as at September 30, 2007.

As at September 30, 2007, outstanding deposits in the Personal and Commercial segment totalled $94.8 billion, up 8.9% or $7.8 billion from $87.0 billion one year ago. Savings from individuals rose by 5.7% or $3.5 billion on an annual basis to $64.8 billion as at September 30, 2007 and represented 68.4% of the segment’s deposit liabilities as of that date. Deposits from businesses and governments grew by an even more robust 19.6% or $3.2 billion on an annual basis, reaching $19.6 billion.

Finally, despite stock market volatility during the third quarter of 2007, due in part to the financial crisis caused by the situation in the U.S. subprime mortgage sector, the Personal and Commercial segment performed very well in terms of off-balance sheet savings product sales. The segment‘s amounts outstanding of investment funds and assets under its custody in the securities brokerage area increased by 19.1% or $4.1 billion over the past year, totalling $25.7 billion as at September 30, 2007.

Life and Health Insurance

For the third quarter of 2007, the contribution of Desjardins Financial Security (DFS) was $54.0 million, up 38.5% from $39.0 million for the corresponding period of 2006. Insurance premium income for the period rose 12.7% to $595.1 million, while insurance sales totalled $30.4 million.

For the first nine months of 2007, DFS’ net earnings increased sharply. The portion of net earnings attributable to the ultimate shareholders, the Desjardins caisses, amounted to $164.6 million, up $57.7 million. As a result, return on equity still ranks as one of the best in the financial services industry.

Gross insurance premium income for the first nine months of 2007 reached $1,801.4 million, up $193.8 million or 12.1%. However, total income of $2,192.4 million was down 7.4% due to a decrease in investment income following accounting changes concerning financial instruments and to a decrease in annuity premiums. In terms of net earnings, however, these decreases were offset by an equivalent change in expenses related to claims, benefits, annuities and changes in insurance provisions.

New insurance sales totalled $240.4 million, up $41.4 million compared to the first nine months of 2006. This increase was attributable to the major group insurance contracts awarded in Ontario, as well as in Newfoundland and Labrador. Sales of individual savings products totalled $858.9 million, up $41.4 million. A 33.9% increase in mutual fund sales and a 27.1% increase in Millennia segregated fund sales offset the 35.9% decrease in sales of group retirement products, compared to the first nine months of 2006, when a number of major annuity payment contracts had been entered into.

Assets under management and administration totalled $22.3 billion, up 12.0% since the beginning of the year.

General Insurance

For the third quarter ended September 30, 2007, the contribution of Desjardins General Insurance Group (DGIG) to Desjardins Group’s results was $46.4 million, up 64.3% from a year earlier. This growth was due to an increase in underwriting profit as well as to the solid performance of investments. Return on equity rose to 39.8%, compared to 26.1% in the previous year.

For the first nine months of 2007, DGIG’s contribution totalled $118.3 million, up from $87.8 million for the corresponding period of 2006. This growth resulted from a higher underwriting profit and an increase in investment income. Return on equity rose to 32.3%, compared to 27.5% a year earlier.

The solid results for the first nine months of 2007 is explained by the declining claims experience in home insurance, which offsets the higher operating expenses ratio. The increase of this ratio was attributable to major investment projects initiated by DGIG in the previous few months in order to enable it to reposition itself in terms of its competitive advantages.

In addition, investment income rose by $28.0 million from the previous year as a result of higher interest and dividend income stemming from an increase in the investment portfolio and the return on equity investments.

In addition, gross premiums written, totalling $1,084.1 million, were up slightly from $1,078.0 million for the first nine months of 2006, given the context of lower automobile insurance rates throughout the Canadian market.

Securities Brokerage, Asset Management, Venture Capital and Other

This segment primarily encompasses the operations of Desjardins Securities, Desjardins Asset Management and Desjardins Venture Capital.

During the third quarter of 2007, Desjardins Securities recorded $72.1 million in income, up 20% from $59.9 million for the same period of 2006. Desjardins Securities’ net earnings totalled $1.5 million for the third quarter of 2007, compared to a net loss of $3.9 million for the corresponding quarter in 2006.

For the first nine months of 2007, Desjardins Securities’ income totalled $230.8 million, up 15.5% from $199.9 million a year earlier. The performance of all the company’s divisions matched or, for the most part, exceeded that of the corresponding period of 2006.

Desjardins Securities’ net earnings totalled $4.2 million for the first nine months of 2007, as opposed to a net loss of $6.2 million a year earlier, representing a turnaround of $10.4 million. It is noteworthy that Desjardins Securities has posted higher sales for the fifth consecutive year and continues to strive to recruit new clients and develop new markets.

For the third quarter of 2007, Desjardins Asset Management reported net earnings of $3.8 million, compared to $8.1 million for the same period in 2006, thus bringing net earnings for the first nine months to $12.6 million, compared to $22.7 million for the corresponding period of 2006.

It should be noted that the 2006 results of Desjardins Asset Management were enhanced by a dilution gain related to its interest in a company subject to significant influence. In addition, as a result of the commissioning agreement that it entered into at the end of fiscal 2006 with the Fédération des caisses Desjardins du Québec, as part of the efforts to promote structured savings products sold by the caisse network, net earnings were lower for the period ended September 30, 2007.

In addition, assets under management grew by close to 10%, from $46.7 billion as at December 31, 2006, to $50.6 billion as at September 30, 2007, essentially because of changes in securities and real estate investments, as well as in securities lending. This last asset class, which is subject to significant fluctuations, increased by 15.0% since December 31, 2006.

As a result of fluctuations in the value of venture capital investments due mainly to market developments, the investment funds of Desjardins Group managed by Desjardins Venture Capital recorded a net loss of close to $6 million for the third quarter of 2007, compared to a net loss of nearly $1 million for the corresponding year-earlier quarter. This brought the cumulative net loss to $2 million for the first nine months of 2007, compared to the break-even point a year earlier.

Desjardins Group’s combined results also reflect various consolidation adjustments that were not included in the business segment results, particularly the employee future benefits expense, which recorded a significant $36 million after-tax decrease compared to 2006, primarily due to the updating of certain actuarial assumptions.

The write-down recorded in the third quarter of 2007 with respect to ABCP holdings was recorded in the “Other” segment. This write-down will be allocated to the respective business segments during the fourth quarter of 2007.

Relying on the strength of its cooperative difference, its network of subsidiaries and its financial equilibrium, Desjardins Group seeks to become the leading financial institution in terms of meeting the needs of members and clients and fostering business development through an accessible, effective and comprehensive service offering. Desjardins Group’s mission is to contribute to the economic and social well-being of both individuals and communities.

Desjardins Group quarterly financial statements - September 2007 (PDF format 503 KB)

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