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With approximately $100 billion in assets, Desjardins is thelargest financial institution in Québec and the sixth largest in Canada. Its five million members and clients have chosen to do things differently.

The emissary of Desjardins on financial markets around the world.A partner for businesses in their search for new markets.

And its name isCaisse centrale

This is not a financial institution like the others

2003 ANNUAL REPORT

VERSION FRANÇAISELa version française de ce rapport annuel peut être obtenue sur demande.

Graphic Design Lg2d Production J.B. Deschamps inc. Photoengraving and Printing J.B. Deschamps inc. PRINTED IN CANADA

December 31, 2003

Note: Chart does not reflect the legal ownership-structure.

Ownership linkAuxiliary members

■ Corporations linked to the Fédération

■ Holding companies

■ Intermediary holding-companies

(*) Shared ownership

DESJARDINS GROUPAN INTEGRATED COOPERATIVE FINANCIAL GROUP

OTHER INFORMATIONAs at December 31

2003 2002

Outside(2) Group Outside(2) Group Québec Québec Total Québec Québec Total

Total number of employees 36,139 1,989 38,128 37,320 1,932 39,252 Cooperative network of Desjardins caisses 27,135 1,989 29,124 27,245 1,932 29,177 Holding companies and other Group components(1) 9,004 – 9,004 10,075 – 10,075Number of members 5,162,662 391,947 5,554,609 5,161,120 394,339 5,555,459Number of elected officers 7,431 696 8,127 7,980 761 8,741Number of member caisses 608 68 676 671 77 748Number of service centres 898 179 1,077 849 178 1,027Number of automated teller machines 2,728 211 2,939 2,688 210 2,898

(1) Includes employees of subsidiary companies active outside Québec.(2) The caisses and federations in Ontario, Manitoba and New Brunswick.

(1) On January 1, 2004, the Fédération des caisses populaires de l’Ontario became a voting auxiliary member of the Fédération des caisses Desjardins du Québec; member Ontario caisses now benefit from the same rights and assume the same responsibilities as Québec caisses. Support for caisse operations was assigned to the Fédération des caisses Desjardins du Québec, a result of which was the establishment of a regional executive division for Ontario caisses populaires.

(2) Desjardins Venture Capital primarily manages the funds of Capital régional et coopératif Desjardins, a public corporation created in 2001 by Desjardins Group in accordance with legislation adopted by Québec’s National Assembly.

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The Senior Vice-President, Finances, Strategic Alliances and International of Caisse centrale Desjardins is responsable for the production of this Annual Report.

PURPOSE

Caisse centrale Desjardins (Caisse centrale) is a cooperative institution belonging to Desjardins Group. It is Desjardins Group’s financial arm stretching across the world as well as its ambassador without borders on capital markets. It is a dynamic team player complementing the other Desjardins entities, and a solid partner for businesses and institutions.

Caisse centrale is also a robust team of specialists in many areas, with a mandate encompassing the four main roles of:

■ FINANCIAL AGENT supplying in particular funds and various treasury products, providing clearing settlement services for instruments moving through the caisse network, and managing cash for Desjardins Group as well as major liquidity and investment portfolios for Desjardins entities.

■ CUSTOMIZED FINANCING AND SERVICES PROVIDER for both other Desjardins entities and various external clienteles which can directly benefit from its special expertise, such as large corporations, medium-sized businesses, and public and parapublic agencies. Such services include operating credits, term loans, bank accounts and bill payments, to name a few. In the business segment, where Caisse centrale focuses on the service and manufacturing sectors, many of its team specialize in agrifood, forest products, high technology, communications, real estate, steel and transportation.

■ INTERNATIONAL SERVICES MANAGER for individuals and businesses: foreign exchange contracts, foreign currency accounts, import/export letters of credit, funds transfers, export financing or U.S. bank accounts through its Florida-based subsidiary, Desjardins Bank.

■ SAVINGS PRODUCTS DESIGNER AND CAPITAL MARKET SERVICES PROVIDER offering an extensive line of derivatives such as interest rate and cross-currency swaps, forward exchange contracts, options and “Desjardins Acceptances”. In recent years, innovative and high-performing indexed term savings solutions have periodically been added to the product line, and have been particularly successful in their target markets.

Caisse centrale represents a quarter of a century of expertise generating significant benefits for Desjardins Group. It is a front-line player promoting the Group’s development in existing markets and in penetrating new ones.

MISSION

Caisse centrale Desjardins is a cooperative institution that is owned by the Desjardins caisses.

Its mission consists mainly of carrying on activities on domestic and international markets:

■ it fulfils this complementary role in cooperation with the other Desjardins components;

■ it thus generates attractive financial benefits for Desjardins Group.

Desjardins Group’s mission is to contribute to the improved economic and social well-being of

people and groups within the compatible limits of its field of activity:

■ by developing an integrated cooperative network of sound and profitable financial services,

on an ongoing basis, that are owned and administered by the members, as well as a network

of complementary financial enterprises, all performing well in their respective fields of activity,

controlled by their members;

■ by teaching democracy, economics, solidarity and individual and collective responsibility,

especially to members, officers and employees.

RESULTS OF OPERATIONSAs at December 31

2003 2002 2001

Gross income $ 130 M $ 123 M $ 116 M

Provision for credit losses $ 16 M $ 21 M $ 13 M

Net income $ 40 M $ 35 M $ 40 M

Total contribution to network $ 67 M $ 60 M $ 64 M

FINANCIAL POSITION

Total assets $ 13,433 M $ 10,604 M $ 10,176 M

Average assets $ 10,486 M $ 10,722 M $ 10,257 M

Securities $ 3,619 M $ 3,868 M $ 3,132 M

Loans

Caisse network $ 1,350 M $ 179 M $ 413 M

Other $ 6,772 M $ 4,908 M $ 5,088 M

Total $ 8,122 M $ 5,087 M $ 5,501 M

Deposits and subordinated debenture $ 10,246 M $ 7,914 M $ 7,665 M

Members’ equity $ 687 M $ 532 M $ 532 M

Off-balance sheet financial instruments $ 79,546 M $ 96,476 M $ 67,613 M

Capital ratio* 16.4 % 13.7 % 14 %

* Based on the risk-weighted off-balance sheet commitments and assets.

HIGHLIGHTS

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GROSS INCOME(in $M)

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LOAN PORTFOLIO(in $B)

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2002

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TOTAL NETWORK CONTRIBUTION(in $M)

CREDIT RATINGS

Moody’s Standard & Poor’s D.B.R.S.

Short-term P-1 A-1+ R-1 M

Medium and long term Aa3 AA- AA (low)

DESJARDINS GROUP STRATEGIC PLAN ACHIEVEMENTS

MAINTAINING SOUND PROFITABILITY,

MAXIMIZING OUR PRODUCTIVITY AND

OPTIMIZING DEVELOPMENT CAPITAL

■ Record contribution of $67 million to the caisse network in 2003, up 13%

from 2002

■ Increase of more than $2 billion in loans to the caisse network and to

Desjardins entities

■ Record issue of 500 million euros on European markets

■ Very high quality loan portfolio

GUARANTEEING BUSINESSES

THE BEST SERVICE OFFERING

■ New business up 30%

■ Role of agent or coagent in half of the new corporate business

■ Satisfaction rate among business and institutional clients of over 90%

■ Almost perfect retention score

■ Increase of 26% in outstanding loans to private, public and parapublic

sectors

ENSURING PROFITABLE BUSINESS DEVELOPMENT

IN OUR NEW MARKETS

■ Oversight role in development of Desjardins Credit Union

■ Commercial charter obtained for Desjardins Bank

■ Support for business clients across Canada and internationally

■ Major financing for credit unions in British Columbia

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MAXIMIZING THE PERFORMANCE

AND SYNERGY OF OUR DISTRIBUTION NETWORKS

■ Business agreements made with Corporate Financial Centres and

Desjardins Securities

■ Growth in business volume of international services

■ Over 90% satisfaction rate on the part of the caisses and Corporate

Financial Centres.

BECOMING THE PREFERRED WEALTH

MANAGEMENT INSTITUTION (DESJARDINS GROUP)

IN QUEBEC

■ Success of Tactical Rate Management Term Savings (TRMTS) with

Desjardins members (close to $400 million outstanding)

■ Major contribution to the offering of other Desjardins indexed savings

products

■ Deposits up significantly at Desjardins Bank

DEMONSTRATING OUR COOPERATIVE DIFFERENCE

■ Capital infusion of $154 million in Caisse centrale by the Desjardins

caisses

■ Cooperative movement strengthened in many ways across Canada

■ Donations and sponsorships provided to some 300 charitable

organizations

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A team of expertssupporting its clientsin their searchfor new markets.


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TABLE OF CONTENTS

8 MANAGEMENT’S MESSAGE

13 REVIEW OF OPERATIONS

14 Foresight and Sustainability

18 Close Business Relationships

22 New Markets

26 Unity of Action Among Distribution Networks

30 Savings Product Offering

33 Cooperative Difference

35 MANAGEMENT’S REPORT

A SENSE OF DIRECTION

IT IS WITH GREAT PRIDE AND ENTHUSIASM THAT WE REVIEW THE 2003 RESULTS FOR THE CAISSE CENTRALE TEAM, LOOKING BACK OVER A YEAR OF CONTINUED DEVELOPMENT IN ALL OUR BUSINESS SEGMENTS.

ALBAN D’AMOURSChairman of the Board and Chief Executive Officer

JEAN-GUY LANGELIERPresident andChief Operating Officer

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First, in quantitative terms, we need only consider the more than $3 billion increase in the financing portfolio, the 30% annual growth in new corporate business and the capital infusion of $154 million in Caisse centrale by the caisse network. Also worth mentioning are public issues of $2 billion in deposit liabilities during the year under our various funding programs. A record issue of 500 million euros deserves to be singled out in this area. All issues were made to meet robust credit demand from Desjardins Group entities.

Particularly noteworthy is the record contribution of $67 million to the caisse network by Caisse centrale for 2003, which was up 13% over the previous year and 60% over the past five years.

Our 2003 results are also remarkable in qualitative terms. Against a backdrop of steadily rising numbers, there is a sound growth dynamic within not only Caisse centrale, but also the entire Desjardins Group. This encouraging trend is based on trust, commitment, solidarity and the high quality of the relationships with our members, customers, colleagues, partners and various stakeholders in the financial industry. More and more doors are opening to us, and new markets as well.

REMAINING ALERT, RESPONDING TO NEEDSThis dynamic has led us to Ontario in particular, where Caisse centrale is playing a key role in the Desjardins Credit Union development on the Group’s behalf. In the United States as well, our Florida-based subsidiary, Desjardins Bank, has acquired more leeway under its new charter to help its business clients reach greater heights. We are tapping all markets offering sustainable and profitable development opportunities, such as for instance the Canada-wide market for companies such as Rona, CGI and Sun Media, and south of the border for clients including Shermag, Alimentation Couche-Tard and Polycor. During this prosperous year, Caisse centrale also took a leadership role in extending the geographic reach and scope of Desjardins Group in quantitative and qualitative terms.

NOTEWORTHY GROWTHOur 2003 results were achieved, however, in a context of economic growth that was significantly less remarkable than initially expected by specialists. Since the turn of the millennium, businesses in certain industries have been grappling with trying economic conditions. Many of them must now ensure that they do not lose in sales and profits what our Canadian dollar is gaining in value against the greenback. Once again, they are finding customized tools and advice at Desjardins. Our reputation for prudence has persuaded them that Caisse centrale can be a valuable ally in protecting their assets.

AN EVEN MORE INTEGRATED SERVICE OFFERINGCaisse centrale solutions are largely distributed by other Desjardins entities, particularly by the caisse network and their Corporate Financial Centres. For us, the quality of our service offering is inseparable from the synergy of the distribution channels. Throughout 2003, we invested time and energy in this critical aspect of the Group’s strategic plan. As a result, not only did we establish closer connections that were highly lucrative, but we also launched a number of innovative initiatives. These include, in particular, formal business agreements between Caisse centrale and certain affiliated entities: first, with the Corporate Financial Centres in order to develop the medium-sized business market even more effectively; and second, with Desjardins Securities, which will now work more closely with Caisse centrale to enhance Desjardins’ full line of financing offered to business clients.

By being constantly innovative, Caisse centrale also helps the caisse network and its clients to find a position of strength under all economic conditions. Our integrated service offering was enhanced once again this year through the addition of derivatives, one of the leading specialized tools used today by astute financial managers. Since 2003, our business and institutional clients have been able to obtain these tools from Caisse centrale, while benefiting from the expertise of our specialists. One has only to think of certain derivatives and the same market makers who are instrumental, for instance, in the ample return earned by the Tactical Rate Management Term Savings product, which is successfully offered by the caisses to their members. This product’s return may, in fact, be about 40% more than that of other traditional term savings products with the same maturity. In addition, with its various areas of expertise, Caisse centrale continues to play a major role in offering the full line of Desjardins indexed savings products.

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CONTINUED APPLICATION OF PRINCIPLESLike all Desjardins entities, Caisse centrale will continue to implement the Group’s strategic orientations by 2006, which, as the following pages will show, have so effectively underpinned its success in recent years. Being committed to a series of common principles considerably promotes the growth dynamic mentioned at the beginning of this message. We intend to see to it that such a successful formula will continue to be applied for some time to come.

The entire Caisse centrale team therefore continues to build on this remarkable momentum for the greater benefit of those who envision the same promising future. A future with certain milestones that already inspire confidence and enthusiasm, such as the upcoming opening of a Caisse centrale point of service in the United States in order to provide better support for companies in pursuing their plans south of the border. We are also continuing to form partnerships not only with businesses, but also with governments, with which we forged closer ties in 2003. We will also ensure the geographic and industrial diversification of our loan portfolio in the pan-Canadian market, as well as further diversification of our capital funding sources in order to meet the Group’s needs on an ongoing basis. Finally, let us note the large-scale optimization of our technology investments; namely the systems and processes on which Caisse centrale depends to fulfil its mandate as expeditiously and effectively as our day and age requires.

In short, we have come to the successful conclusion of a chapter in our history. We are now about to embark upon other eventful, challenging and enriching episodes.

ALBAN D’AMOURS JEAN-GUY LANGELIERChairman of the Board and President and Chief Operating OfficerChief Executive Officer

A team of financialexperts tapping global markets and constantly making money work for its partners. Never the other way around.

And its name is Caisse centrale

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STRATEGIC ORIENTATIONS

Desjardins Group has established a three-year plan with six major strategic orientations which Caisse centrale will continue to underpin until 2006.

■ Maintaining sound profitability, maximizing productivity and optimizing development capital to enhance competitiveness and ensure Desjardins Group’s sustainability. FORESIGHT AND SUSTAINABILITY

■ Ensuring business development by mobilizing every resource to become Quebec’s leading wealth manager for individuals and to be recognized as the SMB partner with the best integrated service offering. CLOSE BUSINESS RELATIONSHIPS

■ Ensuring profitable business development in new markets in order to increase revenues, diversify market risk and broaden the spectrum of services offered. NEW MARKETS

■ Maximizing the performance and synergy of physical and virtual distribution networks. UNITY OF ACTION AMONG DISTRIBUTION NETWORKS

■ Assuming a leadership role in quality business relations through its unique customized approach and integrated product and consulting service offering and through the ongoing development of highly qualified advisory staff committed to the satisfaction of members and customers. SAVINGS PRODUCT OFFERING

■ Demonstrating the cooperative difference especially through the involvement of members and a commitment to community development and commercial and management practices. COOPERATIVE DIFFERENCE

FORESIGHT AND SUSTAINABILITY

CAISSE CENTRALE IS A KEY PLAYER WITHIN THE EXTENDED DESJARDINS FAMILY. IT IS RECOGNIZED AS THE FINANCIAL ARM OF DESJARDINS GROUP, AND IT PLAYS A LEADING ROLE BOTH AT THE LOCAL LEVEL AND IN THE LARGEST AND MOST INFLUENTIAL INTERNATIONAL FORUMS. GIVEN ITS MULTIPLE FUNCTIONS AS SUPPLIER OF FUNDS, FINANCIAL PARTNER OF BUSINESSES AND INSTITUTIONS, AMBASSADOR AND PREFERRED CONTACT, SPECIALIZED PRODUCTS DESIGNER AND LIQUIDITY MANAGER, IT HAS A MAJOR IMPACT ON THE DEVELOPMENT AND SUSTAINABILITY OF DESJARDINS GROUP.

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5-YEAR TOTAL CONTRIBUTION TO NETWORK(in $M)

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s The 2003 balance sheet contains some very telling figures that are worth mentioning: first of all, the annual contribution of $67 million to the network. This is certainly a record, up 13% from 2002 and 60% over five years.

This growth is also fundamentally sound because it is keeping with the undeniable prudence of the Caisse centrale team. Proof of this is the ratio of low-risk loans in our aggregate portfolio, which rose to 99% in 2003, even higher than the prior year’s excellent rate of 97.6%.

As a result, Caisse centrale, backed by Desjardins Group, has enjoyed exemplary credit ratings to date from the main credit rating agencies. Its ratings rank among the best in the entire financial industry, not only in Canada, but also internationally, in the financial cooperative sector.

The role of Caisse centrale is to support Desjardins Group in its business development. Consequently, it must also maintain a high level of capitalization and constantly increase its funding sources. This is exactly what it strived to do in 2003, as shown by various key achievements.

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OUTSTANDING LOANS(in $B)

■ Outstanding Loans to the Caisse Network

■ Outstanding Loans to affiliated companies

FARSIGHTED SUPPLIERResidential real estate is booming in Quebec, which translates into soaring demand for mortgages at Desjardins. After starting off 2003 with surplus liquidity, the caisse network had to call upon its funds supplier in early autumn after further boosting its market shares in the sector. In barely the space of a quarter, Caisse centrale supplied almost $1.5 billion to support the network. Outstanding loans to the caisse network therefore rose from $28 million in August to $1.4 billion as at December 31, 2003. Concurrently, outstanding loans to other Desjardins companies also grew annually by more than $1 billion to stand at $3.4 billion. However, they were able to rely on Caisse centrale’s multi-disciplinary team, which had, over the years, set up a series of complementary funding programs across well-diversified sources.

Take, for example, the public issue of 500 million euros under the medium-term European note program. This historic record was achieved not only because of the quality of the securities offered but also as a result of the road show held before they were issued. A Caisse centrale team had, in fact, travelled throughout Europe, establishing the soundness of Desjardins Group in various financial circles. Meanwhile, in Canada, a new program was launched under which $2 billion in medium-term notes could be issued over the next few years. Two campaigns were conducted in 2003, raising more than $600 million.

Total proceeds for 2003 under all programs exceeded $2 billion. Such an accomplishment, which guarantees the financial health of Desjardins as a whole, also enhances the Group’s reputation and credibility in the global financial community.

BREAKDOWN OF DEPOSITSAs at December 31, 2003

■ 63% Canada■ 37% International

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s CONSTANT CONSOLIDATION OF CAPITALIn 2003, Caisse centrale benefited from the caisse network’s second capital infusion scheduled under its five-year capitalization plan. The $154 million investment is evidence of the scope of the mandate conferred to it by its members. As a result of this infusion, the capital ratio of Caisse centrale, based on the risk-weighted off-balance sheet commitments and assets, climbed from 13.7% to 16.4%, a very sound capitalization level. The Group thus demonstrated its commitment to support its ambassador in financial circles in order to build its vision of the future.

Another essential condition for the success of Caisse centrale is its investment in information technology. By the end of 2004, employees in various work units will have access to new systems and highly sophisticated management applications. This infrastructure project, initiated in 2002 and vigorously pursued in 2003, presages considerably enhanced services to members and clients. As in the case of the work required under the Basel accord, the "Présage" project will also help improve Caisse centrale’s risk management.

CAPITAL RATIOS1999 - 2003

%

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— Total Capital— Tier 1 Capital

CLOSE BUSINESS RELATIONSHIPS

WHATEVER FINANCIAL NEEDS BUSINESSES AND ORGANIZATIONS HAVE, CAISSE CENTRALE CAN MEET THEM. SINCE ITS INTEGRATED OFFERING EXPANDS EACH YEAR, BUSINESSES AND PUBLIC AND PARAPUBLIC INSTITUTIONS ARE IN A POSITION TO SELECT THE EXACT PRODUCTS AND SERVICES THAT BEST SUPPORT THEIR STRATEGIES. THE CAISSE CENTRALE TEAM MAY ALSO FREQUENTLY DESIGN ORIGINAL SOLUTIONS WHICH, ONCE CUSTOMIZED, WILL CONTRIBUTE TO THEIR DEVELOPMENT.

CUSTOMER RELATIONS

■ Retention rate of 99%.

■ Satisfaction rate of 90%.

■ Relationship with 40 of Quebec’s major employers.

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s How can such a process be explained, except by the quality of business relationships? Would an institution founded on only quantitative values have an over 90% customer satisfaction rate and an almost 100% client retention rate as Caisse centrale does? Would it have managed to do business, like Caisse centrale, with 40 of the 50 largest employers with a head office in Quebec? Caisse centrale greatly appreciates the 2003 survey results and more than ever it intends, through its productive relationships with its customers and partners, to continue to further help them create, build up and manage their assets.

BUSINESS SEGMENT: “WHOLESALE” INVOLVEMENTAfter the downturn experienced in 2002 as a result of uncertain economic conditions, Caisse centrale’s business financing activities rebounded in response to the more promising outlook for 2003. New business consequently rose to more than $800 million, or nearly 30% in 12 months. Moreover, not only did average outstanding loans rise by 7% over the prior year, but they traced a rather spectacular five-year ascending curve, with an increase of close to 50% since 1998. Major breakthroughs were achieved in 2003 through banking syndicates; namely Dorel, Aliments Prince, and Norampac. In addition, given its privileged role as agent or coagent at the head of 20 banking syndicates, Caisse centrale consolidates, renews and broadens its mandates. During 2003, it thus concluded new business worth $325 million as agent or coagent and provided further support to our economic success stories. For instance, Caisse centrale was coagent for the financing which allowed the hardware giant Rona to acquire the Réno-Dépôt chain. It also sustained the development of companies such as Cirque du Soleil, SITQ, CGI and many others to propel their expansion in Quebec, across Canada and throughout North America.

Providing support to these businesses until they achieve their vision is a great privilege. The role of financing agent or coagent, among others, is very rewarding from many standpoints. The remuneration for it is, of course, higher than for simply participating in a banking syndicate. As an agent or coagent, Caisse centrale is also exposed to numerous business opportunities which extend well beyond financing. It may also position itself, in its own name or that of Desjardins Group, as a provider of complete solutions or even as a partner in growth.

Such a privilege challenges Caisse centrale to continue to innovate to meet a host of new needs. The innovations which attracted considerable attention in 2003 included the extended line of derivatives, currency options and interest rate swaps, for instance, which businesses may now obtain to optimize their risk management. The value of such products obviously lies mainly in the expertise added by Caisse centrale’s capital markets team. Behind the impressive numbers, there is a team of specialists who ensure the judicious operation of many highly sophisticated financial instruments and securities. More than ever, this same team will now make its skills available to the business and institutional segments.

EXCHANGE RATES: SAFEGUARD STRATEGIES As we know, the higher the Canadian dollar climbs, the less money exports bring in. Fortunately, our businesses have tools at their disposal to protect themselves, to a certain extent, against sharp fluctuations in the dollar, such as forward exchange contracts and direct access to foreign exchange traders. This no doubt explains, for the most part, why foreign exchange transactions rose by 12% in 2003. In addition, an increasing number of businesses that are caisse members carry out this type of operation directly with the foreign exchange traders at Caisse centrale. Their numbers, in fact, grew again by 10% in 2003.

Caisse centrale clients get invaluable advice from the foreign exchange market specialists, who make their observations available to businesses and institutions on a daily basis. The best hedging strategies are then proposed to each client depending on the client’s specific situation.

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FOREIGN EXCHANGE VOLUME WITH THE CAISSES(in US$B)

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s ORGANIC TIES WITH THE PUBLIC AND PARAPUBLIC SECTORSTies with business members and clients were not the only ones to be further strengthened in 2003. Caisse centrale is also reaping the benefits of building a closer relationship with public and parapublic agencies, as demonstrated by its results. Authorized credit has grown over 40% in the past five years to $5.2 billion as at December 31, 2003. Mandates have not only been renewed, but also broadened, as in the case of Hydro-Québec, where Caisse centrale, as coagent, increased the authorized credit. This was also the case for the Société de développement de Montréal, for which Caisse centrale acts as agent. Furthermore, Caisse centrale has concluded new banking service contracts with prestigious clients such as la Régie des rentes and le ministère des Finances du Québec for certain banking activities with le ministère du Revenu and also le ministère de l’Emploi, de la Solidarité sociale et de la Famille du Québec.

In addition to its direct involvement with public or parapublic institutions, Caisse centrale provides various agencies with money market financing products through the caisse network and the CFCs. Equipped with such solutions, the Desjardins caisses and their CFCs have an additional competitive advantage to ensure the loyalty of institutional members such as CÉGEPS or community colleges, school boards, health institutions and municipalities, to which they already provide banking services. At year-end, the average outstandings for financings in participation with the network had exceeded $1 billion, up 60% over the previous year.

Conclusion: confidence reigns and for good reason. It is a very good sign, considering, for instance, how many municipal administrations will soon be looking for financial partners to meet the growing financial needs of their new city.

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5 - YEAR COMMITMENTS PUBLIC & PARAPUBLIC SECTORS(in $B)

NEW MARKETS

CAISSE CENTRALE IS ONE OF THE ENTITIES THAT HAVE WORKED DILIGENTLY TO KEEP AN OPEN CIRCUIT FOR DESJARDINS GROUP ACROSS CANADA AND NORTH AMERICA, AND EVEN WORLDWIDE. AS A SUPPLIER OF FUNDS, IT HAS FOR QUITE SOME TIME REPRESENTED THE GROUP AND ESTABLISHED ITS SOUNDNESS IN ORDER TO EARN THE TRUST OF FINANCIAL MARKETS BOTH IN CANADA AND ABROAD, ON BOTH PUBLIC AND PRIVATE MARKETS.

NEW BUSINESS 2003

■ 82% of the companies have a national or international scope

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s Established in the heart of Toronto’s financial district since the 1980s, Caisse centrale also enjoys a solid reputation in Florida, where its subsidiary, Desjardins Bank, was formed about 12 years ago. Caisse centrale’s considerable expansion in the business financing segment, both domestically and internationally, should also of course be mentioned, especially as a growth partner for many business people often associated with Desjardins from their first steps. The main achievements in developing new markets in 2003 are therefore the result, in a sense, of long-term work that is paying off in doors and borders being opened to Caisse centrale today.

PRESENCE ON ALL FRONTSNav Canada, Alimentation Couche-Tard, CGI. Three names among so many other Quebec and Canadian companies with an outreach across Canada or even North America. Three names that say much about the geographic scope of the financings arranged by Caisse centrale in 2003. An even more telling fact: more than 80% of new business in 2003 was with large corporations or medium-sized businesses operating across Canada, other parts of North America or throughout the world.

Caisse centrale also contributes very significantly to the development of financial cooperative sector institutions. Its commitment in this regard, particularly as agent or coagent at the helm of cooperative banking syndicates, has made possible major breakthroughs with many credit unions in British Columbia since 2002. During 2003, Envision Credit Union joined the ranks of dynamic Canadian institutions such as Van City, Coast Capital and North Shore Credit Union. These financial cooperatives, which are among the largest in British Columbia, are counting on Caisse centrale to carve out the strategic niche to which they aspire. The aggregate of the financings granted to them over the year exceeded $300 million.

ONTARIO: A SUPPORT MANDATE FOR DESJARDINS CREDIT UNIONNot only does Caisse centrale circulate in the Canadian market with ease because it has provided support to many members or clients across the country, but it also understands how the banking industry works in Canada. It in fact represents Desjardins Group on the board of directors of the Canadian Payments Association, side by side with the Bank of Canada and several other major Canadian financial institutions. This role goes hand in hand with that of being Desjardins’ financial agent. The board of directors of Desjardins Group recently entrusted Caisse centrale with another assignment which is just as ambitious: that of overseeing the development of Desjardins Credit Union (DCU).

When the government at Queen’s Park decided to privatize the well-known Province of Ontario Savings Office in 2002, Desjardins immediately understood the exceptional business development opportunity being offered in Ontario. It had to act quickly and think outside the box, while exercising excellent judgment. Caisse centrale and the Ontario and Quebec federations joined forces to fulfil the mandate. Therefore, in its oversight role, Caisse centrale supported Ontarians in building their DCU, and it managed, in record time, to make it possible for DCU to submit an offer to purchase to the Ontario government. Consequently, on April 1, 2003, DCU took over the 28 locations, with the continued assistance of Caisse centrale to ensure the related organizational transition of 200 employees and 75,000 customer accounts, as well as to judiciously manage the current operations of DCU and its $2 billion in liquidity.

Desjardins Credit Union represents a decade of intense business development. The impacts are profitable for the Group, Caisse centrale, the customers and the province of Ontario. Through this network, Caisse centrale has increased its ability to provide support services to businesses in Ontario, and it has broadened its service offering to businesses in this province while sharing financings and back-up services with DCU.

This expansion of the Desjardins network will also enable Caisse centrale and Desjardins Group to establish closer ties with credit unions in Ontario and to form new partnerships for the benefit of Ontario’s cooperative sector and communities.

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s UNITED STATES: DREAMS AND REALITYThe American dream has long captivated the hearts and minds of this world’s visionaries. Whereas, in the past, people left without a dime in search of a better future, today, our businesses can enter the United States through the front door. These businesses sometimes have spectacular achievements to their credit in their home market and are equipped with a clear and ambitious business plan. What they ask is to be given solid support by a financial partner that sees as far down the road as they do.

In recent years, Caisse centrale has accompanied a constantly growing number of business people to increasingly broader and more diversified markets, as shown by the results of its Florida-based banking subsidiary, Desjardins Bank. Specifically, profits before taxes have doubled since 2002, and commercial loans climbed another 44% in 2003. Having acquired a new charter, Desjardins Bank now has more leeway regarding business loans throughout a large portion of the United States.

More than ever, Desjardins Bank is an extension of the Desjardins caisse network. Thus, in 2003, attractive new treasury management services, such as lockbox and direct deposit services were added to the solutions expressly created for Canadian businesses operating in the United States. The Florida-based subsidiary will also be offering its clients an online transactional service via Internet in early 2004.

An interesting point of synergy to be noted is that Desjardins Credit Union quite logically entrusted its U.S. dollar liquidity to Desjardins Bank.

Caisse centrale can certainly be pleased with the gravitational pull that is drawing us south of the border, but it must also take the necessary steps to operate freely and keep the promises made to the businesses that depend on it in the United States, whether they are from Canada or the United States. Consequently, tougher and more narrowly focused strategies are needed, such as setting up a Caisse centrale point of service in the near future on U.S. territory to be able to offer even more complete financing solutions on the spot, among other things.

EUROPE: A CENTER OF SHARED INTERESTSIn an entirely different core business development area, we should also remember the key position that Caisse centrale has always enjoyed with B.P. Invest Consult, alongside four Popular European banks. This overseas presence allows it to stay abreast of major opportunities, especially in Central and Eastern Europe.

UNITY OF ACTION AMONG DISTRIBUTION NETWORKS

THE DUTY TO PROMOTE SYNERGY IS CRUCIAL TO THE STRATEGIC ORIENTATIONS OF DESJARDINS GROUP. HENCE THE OBVIOUS NEED FOR EACH ENTITY TO MAKE IT A PRIORITY. THIS IS A PARTICULARLY CRITICAL SUCCESS FACTOR IN THE CASE OF CAISSE CENTRALE, WHOSE MANY SOLUTIONS ARE DISTRIBUTED SOLELY THROUGH THE DESJARDINS CAISSE NETWORK AND ITS CORPORATE FINANCIAL CENTRES (CFCS).

CAREFULLY CRAFTED SYNERGY

■ Business agreements with its CFC partners.

■ Formal business arrangement with Desjardins Securities.

■ Satisfaction rate of 90% on the part of the caisse network.

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s MEDIUM-SIZED BUSINESS FINANCINGIn 2003, Caisse centrale team targeted their efforts more than ever to promote synergy in the medium-sized business market. The previous year, in conjunction with the Fédération des caisses Desjardins du Québec, it had prepared a new file distribution model with all the CFCs, based on a fixed financing threshold of $2.5 million. However, since the regions do not all have the same customer profile or the same development potential, there is a need to plan and allocate available resources even more precisely and to be more aware of each area’s geographic, economic and industrial uniqueness.

For many years, Caisse centrale has played a complementary role to that of Desjardins network in the medium-sized business financing market so that Desjardins could handle the sharp increase in the funding requirements of very fast-growing business members such as Lauzon Planchers de bois exclusifs, Cirque du Soleil and Aliments Carrière, to name a few. The caisse or CFC that sustained these businesses from their inception cannot alone provide further support to them while complying with the minimum measures for financial prudence. Given the broad expertise of Caisse centrale on domestic and international markets and its financing capacity, it is at this point that it intervenes in order to allow such businesses to pursue their development without having to leave the large Desjardins family.

Result: not only are cooperative ties forged between Caisse centrale and its CFC partners, but these ties lead to customized regional business agreements. Each agreement sets out the method of cooperation and the sharing of responsibilities, as agreed by Caisse centrale and the signatory CFC for the next few years. It also contains, among other things, perceived business opportunities and the financing threshold beyond which the Caisse centrale team will intervene directly in a file. This threshold, now variable according to the geographic sector, will depend on various parameters which considerably facilitate the assessment of regional needs, in terms of both advisors and capital. Such customized management of distribution networks has already allowed the judicious transfer, from Caisse centrale to the CFCs, of some 30 financing files with commitments totalling close to $40 million.

BUSINESS LOANS

■ 75% large businesses■ 25% medium-sized businesses

A business is therefore immediately partnered with the Desjardins entity that is in the best position to contribute to its success. Another key benefit is that the aggregate resources of Desjardins Group are calculated, distributed and utilized even more productively, not to mention more proactively. Caisse centrale team can then focus even more on large corporate files in order to improve at the same time the positioning of Desjardins in this market segment.

A few figures are enough to give an idea of the foreseeable development potential. In 2003, new business concluded with medium-sized businesses and realized by Caisse centrale team was up nearly 45% from the previous year, totalling not less than $151.4 million. Outstanding loans granted in participation with the Desjardins network stood at $339 million, or almost 25% of the private sector loan portfolio of Caisse centrale.

WORKING IN CONJUNCTION WITH DESJARDINS SECURITIESAs shown again in the 2003 surveys, Caisse centrale knows how to build a loyal customer base. It also knows that non-negotiable strategic considerations can test even well-established customer loyalty. Imagine, for example, that a business decides to obtain financing on the capital market rather than by renewing its loan with Caisse centrale. This is something that could occur under economic conditions that clearly favour bond issuers, as was the case in 2003. Deeply satisfied with its relationship with Desjardins, the company in question would prefer to change financing strategy without changing financial institutions.

What is the solution? Carefully crafted synergy between Caisse centrale and Desjardins securities. Since 2003, a formal business agreement has set out the cooperative approach used by these two affiliated companies in complementary sectors of expertise. Both offer their financing services in turn whenever the opportunity arises, depending on the needs of clientele. Aéroports de Montréal, Domtar and Rona, for instance, have all tried it and were satisfied. There is more very good news as a result of this agreement. Business and institutional clients of Desjardins Securities will now be able to access an extensive line of derivatives, owing to Caisse centrale’s role as a supplier of funds. Derivatives, recognized as tools for balancing risk and for innovative income management, are a valuable addition to the Desjardins integrated service offering.

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s LOCAL BUSINESSThrough their generally behind-the-scenes work, Caisse centrale teams must support the business development efforts of their front-line colleagues in the Desjardins network. They consequently make sure each year that they visit the employees who represent them to members and customers so that Caisse centrale solutions, in particular for international services, actually reach all their target markets.

Thus, some 1,850 caisse or CFC employees have already participated in Desjardins International Service Centre (DISC) customized training sessions. Like their colleagues targeted in previous years, they learned valuable information and especially the ability to serve the business people in their community who buy or sell abroad. The DISC team also met with close to 650 businesses operating almost everywhere in the world. The team provided participants with information on all the methods available at Desjardins, of which they may have been unaware, to simplify, insure or accelerate their international transactions.

This formula has been very well received. Not only is it bringing people closer together but it is also producing measurable results, as shown by the good news below. First of all, revenues from import/export letters of credit were up nearly 20% in 2003. In addition, each DISC session coincides with a sharp increase in new registrations for the direct access service with Caisse centrale’s foreign exchange traders. Throughout the year, businesses flocked to Desjardins to make the most of this winning solution. In fact, nearly 350 SMBs that are caisse members are currently using this service.

Caisse centrale also visited more caisses in 2003 to explain its full service offering and its contribution to each of them. In a survey of Desjardins caisses and their CFCs that was conducted afterwards, over 90% of respondents stated that they were satisfied with the Caisse centrale offering, as well as with the services and benefits that the Caisse centrale provides. Caisse centrale greatly appreciates such testimonials from the network and plans to increase its activities to establish closer ties with caisses and CFCs in order to further enhance the unity of action among the distribution networks.

SAVINGS PRODUCT OFFERING

ALTHOUGH CAISSE CENTRALE IS NOT VERY WELL KNOWN BY THE GENERAL PUBLIC, IT IS A BENEVOLENT FORUM FOR THOUSANDS OF INDIVIDUAL MEMBERS SEEKING TO GROW THEIR ASSETS. CAISSE CENTRALE, IN FACT, PROVIDES PEOPLE WHO ARE LOOKING FOR SECURE AND EFFICIENT SAVINGS SOLUTIONS FROM THEIR DESJARDINS CAISSES WITH THE EXPERTISE OF SPECIALIZED RESOURCES WHO ARE REGULARLY IN CONTACT WITH LARGE INSTITUTIONAL INVESTORS.

EXPERTISE AT THE SERVICE OF DESJARDINS AND ITS MEMBERS

■ Liquidity portfolios of $10 billion.

■ Derivatives totalling $65 billion.

■ Supporting Desjardins indexed savings products.

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s Caisse centrale also makes available to caisse members the expertise of its traders, who manage three investment and liquidity portfolios totalling close to $10 billion: the liquidity maintained by Caisse centrale itself, the regulatory liquidity of the Desjardins caisse network, and DCU liquidity. The specialists use various strategies and institutional financial market products including derivatives. Caisse centrale is a major player on the derivatives market with total outstandings of $65 billion.

Take, for example, Tactical Rate Management Term Savings, better known by the acronym TRMTS. The TRMTS product is both created and administered by a team of leading-edge Caisse centrale experts, and is available to investors through the Desjardins caisse network. First introduced in the fall of 2002, TRMTS became one of the most important products in its class in 2003. Caisse centrale initially thought that its return could be at least 30% higher than on traditional savings products issued at the same time. It was right because a year after the first TRMTS issue, investors had earned an annual return of 3.9% on their 2.5 year-term investment, or almost 40% more than they would have earned by opting on the same date for a traditional term savings product with the same maturity. The news spread fast and the number of issues grew to five during the year. Already up sharply from $61 million at the beginning of 2003, outstandings jumped to over $373 million as at December 31, 2003. At the beginning of 2004, $1 million of TRMTS were being sold every day in the Desjardins caisse network, and there seems to be every indication that the trend will grow even stronger in the months ahead.

61

373

500

400

300

200

100

0

2002

2003

TRMTS OUTSTANDINGS(in $M)

TRMTS is not, however, the only solution that has been created from the highly sophisticated financial instruments managed by the Caisse centrale team. The Stock-Market Indexed Term Savings product, for instance, is offered according to exactly the same principles but its underlying instruments include other types of derivatives such as options. Outstandings for this product amounted to over $2 billion at the end of 2003. Caisse centrale continues, however, to be innovative in this field since its traders are currently testing a very promising savings concept denominated in U.S. dollars. In addition, in 2003, Caisse centrale took back the financing of the Alternative Term Savings solution from an outside partner. The anticipated financial benefits are not only savings on management costs, but also new financing revenues that will further enhance Caisse centrale’s contribution to the Desjardins caisse network.

FLORIDA: GREAT NEWS, FAR-REACHING OPPORTUNITIESA stronger canadian dollar is a boon to individual members who frequently travel to the United States. Many have in fact taken the opportunity to deposit funds at Desjardins Bank in Florida. In most cases, they have quite simply done this remotely, via the Internet or by telephone, to the extent that AccèsD deposits jumped by almost 50% in 2003.

In Florida, there was no lack of business at either location of Caisse centrale’s subsidiary. Cash in the form of individual deposits was up 42% over 2002 at Desjardins bank. For mortgages alone, for instance, year-end figures show an increase of about 30%.

This simply proves once again how important it is for desjardins to continue to provide support to its members during their stays in Florida. It is with this in mind that a number of Desjardins entities sponsor CanadaFest, an annual event at Hollywood Beach, Florida. For the past few years, the Desjardins booth has always been one of the most popular ones, attracting several thousand caisse members. This is a tremendous opportunity to inform them of all Desjardins products useful for travellers.

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COOPERATIVE DIFFERENCE

SOLIDARITY FORMS AN INTEGRAL PART OF THE COOPERATIVE DIFFERENCE EMBODIED BY CAISSE CENTRALE SINCE IT WAS FORMED. THE OUTSTANDING RESULTS RECORDED IN 2003 THEREFORE BENEFIT MANY MEMBERS OF THE LARGE DESJARDINS FAMILY, SUCH AS THE $67 MILLION CONTRIBUTION TO THE CAISSE NETWORK, UP 13% FROM 2002. SINCE THERE IS NO SOLIDARITY WITHOUT RECIPROCITY, CAISSE CENTRALE ALSO BENEFITED FROM A MAJOR CAPITAL INFUSION FROM THE NETWORK IN 2003. THE $154 MILLION OBTAINED IS THE SECOND INFUSION UNDER THE CAPITALIZATION PLAN ADOPTED IN 1998.

Caisse centrale has also demonstrated its support for the Group and cooperative business development by overseeing the development of Desjardins Credit Union (DCU) since 2002. Given the special skills and know-how of its team, Caisse centrale was able to make a major contribution to this business development initiative in Ontario. In 2003, it again became involved, in close cooperation with the Fédération and the subsidiaries, in harmonizing the integration of the DCU network and in quickly improving its service offering. Note also that Caisse centrale fully manages DCU’s treasury.

There would be no question of cooperative difference if an active contribution was not made to the growth of the entire cooperative sector. That is why Caisse centrale is involved, on a large scale, in the financing of British Columbia credit unions, for instance. Some of the recipient credit unions have been able, with its assistance, to complete critical expansion or strategic repositioning projects.

Elsewhere in the world, various actions are sustaining a similar process of mutual assistance between Caisse centrale and a solid correspondent network, which includes numerous cooperative partners. Whether for funding purposes, interbank exchanges or cooperation agreements, Desjardins is therefore proudly and staunchly represented by Caisse centrale in the international arena.

Finally, there is another aspect of the cooperative difference in which Caisse centrale continues to distinguish itself by demonstrating its direct support for social, cultural, scientific or educational organizations. Many of its employees are active in the United Way/Centraide campaign. An annual golf tournament organized by Caisse centrale management has generated donations of $300,000 over the previous eight years. In addition, from approximately 300 organizations which reaped the benefits of such an undertaking in 2003, let us mention, for example, the Portage drug rehabilitation centre, La Traversée, a sexual assault centre for women and young girls of the South Shore, the Camp des dialysés, the foundation of Musée Pointe-à-Callière, the École nationale de cirque and the Institut de gériatrie de Montréal.

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FINANCIAL REVIEW

36 MANAGEMENT’S DISCUSSION AND ANALYSIS

39 Income and expenses

39 Net interest income

40 Other income

40 Provision for credit losses

41 Non-interest expenses

42 Other payments to the Desjardins network

42 Income taxes and other taxes

42 Remuneration of capital stock

43 Comments on assets

45 Risk management review

46 Credit risk

49 Liquidity risk management

52 Market risk management

55 Operational risk management

56 Capital management

62 CONSOLIDATED FINANCIAL STATEMENTS

62 Audit commission’s annual report

63 Management’s report

64 Auditors’ report

65 Consolidated balance sheets

69 Notes to the consolidated financial statements

89 CONSTITUTION, REGULATION AND CONTROL

91 CORPORATE GOVERNANCE

98 BOARD OF DIRECTORS

99 FINANCIAL GLOSSARY

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MANAGEMENT’S DISCUSSION AND ANALYSIS

This Management’s Discussion and Analysis (MD&A) compares the financial condition and results of operations of Caisse centrale for the years ended December 31, 2003 and 2002, prepared in accordance with Canadian generally accepted accounting principles. This MD&A is dated February 12, 2004 and unless otherwise indicated, all stated figures are in Canadian dollars. It also discusses forecasts and risk management. To assist the reader, we have added a glossary of financial terms at the end of the document. Additional information on Caisse centrale, notably its Annual Information Form, is also available on the SEDAR website.

ECONOMIC REVIEW

This section briefly summarizes the economic conditions in 2003 and includes our forecasts for 2004.

The global economy seems to have experienced an upswing in 2003. According to our most recent forecasts, real GDP in the United States climbed by 3.2% during the year, recording an outstanding second half of the year, with annualized quarterly growth of 8.2% and 5.4% in the third and fourth quarters, respectively. In Japan, economic expansion was fuelled by exports despite a stronger yen and persisting structural problems. There are still, however, some soft spots. The Euro zone countries experienced rather sluggish economic growth in 2003, and Germany, the major pillar of the zone, suffered a recession.

The Canadian economy encountered a number of obstacles in 2003, thereby creating a climate of uncertainty. The SARS epidemic, the discovery of an incidence of mad cow disease, forest fires, flooding, and a major power outage in Ontario specifically spring to mind, all against the backdrop of a sharply appreciating Canadian dollar over the year. Despite accelerating U.S. demand, our economy should therefore record a somewhat lacklustre performance in 2003; namely a 1.6% growth, according to our most recent projections. This means that there is still a significant lag between actual production and full capacity utilization, which should push down Canadian inflation.

Quebec did not escape the slowdown in 2003. The impact of the rising value of the Canadian dollar and the side effects of SARS and mad cow disease were instrumental in curtailing GDP growth. The strength of domestic demand, as evidenced most convincingly by higher retail sales and vigorous spending on housing, did however offset corporate losses triggered by deteriorating foreign sales and the downturn in manufacturing shipments.

With the recovery of the stock market, the number of merger and acquisition projects increased over the previous year, although it was still below the levels reached in 2000 and 2001. The volume of major transactions was thus low, but the number of bond issues continued to grow.

But the economic outlook is improving for 2004, although there is no exceptional growth on the horizon. Since the U.S. economy is in good shape and real GDP is expected to grow by 4.7%, this should reflect favourably on our foreign sector, partially offsetting the negative impact of the increased value of the loonie. During the first six months, Canada’s real GDP should grow at a rate close to its potential (estimated at about 3%), and then pick up its pace somewhat.

In this context, the key interest rates and money market rates should continue to decline in the early months of 2004. The Bank of Canada should, in fact, take advantage of slowly growing inflation to further reduce its key interest rates and bolster the economic recovery in Canada. The drop in inflation forecast over the next few quarters should also curb any increase in bond rates despite brighter economic prospects and advancing stock markets. The growth of the S&P/TSX index should, however, be less than in 2003. As for the Canadian dollar, the expected narrowing of the spread between short-term Canadian and U.S. interest rates should keep our currency from rising in the first half of 2004. Nonetheless, the overall downward trend of the greenback should push our dollar up again in the last six months of the year.

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ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS AND CRITICAL ACCOUNTING POLICIES

This section contains the analysis of the financial results of Caisse centrale, which focuses on the statement of income and the balance sheet in the consolidated financial statements starting on page 62 of the Annual Report. Note 2 to the consolidated financial statements presents a summary of the significant accounting policies used in preparing the consolidated financial statements of Caisse centrale. Some of the accounting policies are considered critical because they are key to understanding the financial condition and results of operations of Caisse centrale; they require management to make difficult, subjective and complex estimates and assumptions since they concern basically uncertain issues. Any change in these estimates and assumptions could have a material impact on the consolidated financial statements of Caisse centrale. Critical accounting policies concern the allowance for credit losses, financial instruments measured at fair value and income taxes.

ALLOWANCE FOR CREDIT LOSSES The allowance for credit losses is an estimate of probable credit losses related to financial instruments, whether or not presented in the consolidated balance sheet of Caisse centrale, including loans, off-balance sheet commitments, acceptances and derivative instruments. This allowance comprises a general provision for credit losses and specific provisions. A number of factors affect the estimates for the allowance for credit losses, including risk assessment, default probability, valuation of security, economic conditions and borrowers’ specific situations. Any change in the estimates can lead to modifications of the allowance for credit losses. Note 4 to the consolidated financial statements provides more details on the allowance for credit losses.

FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE Caisse centrale records securities and derivative financial instruments associated with trading activities at their fair value. Fair value represents the estimated amounts at which these instruments could actually be exchanged in a current transaction between willing parties. The fair values of a number of financial instruments are based on market prices. If market prices are unavailable, fair values are estimated by using various valuation techniques or the prices of similar securities. Valuation techniques include the discounted cash flow method and option pricing models. Caisse centrale must make judgments in selecting the methods to determine fair value and the assumptions used in the valuation models. These choices can affect fair value and the corresponding gains and losses. Other information on the methods for determining fair values applied by Caisse centrale is provided in notes 2 and 12 to the consolidated financial statements.

INCOME TAXES The income tax provision is established on the basis of the tax treatment of transactions recorded in the consolidated statement of income or the consolidated statement of members’ equity. In order to determine the current and future portions of the income tax provision, assumptions are established concerning the tax laws and the dates on which future tax assets and liabilities will reverse. If this interpretation differs from that of tax authorities or if the date on which future tax assets and liabilities will reverse is not the same as estimated, the income tax provision could increase or decrease over subsequent periods.

ACCOUNTING POLICIES TO BE ADOPTED Note 2 to the consolidated financial statements also presents a summary of the significant accounting policies to be adopted by Caisse centrale in fiscal 2004 and 2005.

TABLE I

NET INTEREST INCOME ON AVERAGE ASSETS AND LIABILITIESFor the years ended December 31 (in thousands of dollars)

Average volume Interest

Averagerate

Average volume 1 Interest 1

Averagerate

Volumegap

RateGap

Incomegap

2003 2002 2003 / 2002

ASSETS

Cash and securities $ 3,272,461 $ 136,194 4.16 % $ 4,230,623 $ 159,849 3.78 % $ (39,877) $ 16,222 $ (23,655)

Loans

Securities purchased

under resale agreements 19,122 327 1.71 10,198 134 1.31 153 40 193

Day to day 215,550 6,405 2.97 213,847 5,394 2.52 51 960 1,011

Fédération

- treasury activities 402,859 12,310 3.06 191,956 7,280 3.79 6,444 (1,414) 5,030

- financing activities 1,870,593 47,438 2.54 1,519,565 39,386 2.59 8,902 (850) 8,052

Entities under common control 637,836 20,872 3.27 234,690 11,015 4.69 13,192 (3,335) 9,857

Public and parapublic

institutions 1,067,636 39,694 3.72 1,055,007 41,487 3.93 470 (2,263) (1,793)

Private sector 2 1,570,617 72,169 4.59 1,468,639 67,840 4.62 4,686 (357) 4,329

Loans purchased from

Desjardins Group 165,141 9,536 5.77 254,246 14,782 5.88 (5,145) (101) (5,246)

5,949,354 208,749 3.51 4,948,148 187,318 3.79 35,130 (13,699) 21,431

Total interest-earning assets 9,221,815 344,943 3.74 9,178,771 347,167 3.78 1,610 (3,834) (2,224)

Other assets 1,264,506 — — 1,543,180 — — — — —

TOTAL ASSETS $ 10,486,321 $ 344,943 3.29 % $ 10,721,951 $ 347,167 3.24 % $ (7,751) $ 5,527 $ (2,224)

LIABILITIES AND

MEMBERS’ EQUITY

Deposits

Demand deposits 724,933 $ 15,147 2.09 % $ 682,281 $ 14,364 2.11 % $ 891 $ (108) $ 783

Fixed-term deposits 7,131,934 228,500 3.20 7,158,123 229,797 3.21 (839) (458) (1,297)

Subordinated debenture 120,361 6,642 5.52 163,921 10,564 6.44 (2,404) (1,518) (3,922)

Total interest-bearing liabilities 7,977,228 250.289 3.14 8,004,325 254,725 3.18 (2,352) (2,084) (4,436)

Other liabilities 1,897,100 — — 2,173,500 — — — — —

Members’ equity 611,993 — — 544,126 — — — — —

TOTAL LIABILITIES AND

MEMBERS’ EQUITY $ 10,486,321 $ 250,289 2.39 % $ 10,721,951 $ 254,725 2.38 % $ (5,625) $ 1,189 $ (4,436)

NET INTEREST INCOME $ 10,486,321 $ 94,654 0.90 % $ 10,721,951 $ 92,442 0.86 % $ (2,126) $ 4,338 $ 2,212

1 Reclassified to conform to the current year’s presentation.

2 Average impaired loans, net of specific provisions, are included in this caption.

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INCOME AND EXPENSES

In fiscal 2003, Caisse centrale posted gross income of $130.4 million, up $7.0 million or 6% from 2002. Net income was $39.8 million

NET INTEREST INCOME

Net interest income is the difference between the interest income earned on assets such as loans and securities, and the interest expense paid on liabilities such as deposits and debenture. Net interest income is affected by interest rate fluctuations, funding strategies and the composition of interest-earning and non-interest-earning financial instruments.

Table I presents the changes in net interest income by major asset and liability class. The last three columns in the table show the relative contribution of rate and volume changes on assets and liabilities. The impact is broken down into its volume and rate components.

In 2003, net interest income was up $2.2 million from the prior year, closing the year at $94.7 million. Net interest margin therefore rose from 0.86% to 0.90% of average consolidated assets at the end of fiscal 2003.

As shown in Table II, growth in the loan portfolio resulted in a higher net interest margin. The lower interest rates were reflected

in the net interest income from Treasury segment activities, especially the income generated by assets associated with capital stock. Net interest income from this segment was down $1.3 million for a total of $50.1 million by year-end. However, certain sales of investments and trading activities allowed the Treasury segment to increase its income and surpass the exceptional performance recorded in 2002.

Net interest income from the Treasury segment, coupled with results from trading and investment activities under “Other income,” totalled $45.8 million in 2003, against $43.9 million in 2002. It should be noted that the breakdown of income from Treasury segment activities (interest or gain on disposal) may vary significantly based on market opportunities.

Net interest income from “Other” segments remained relatively stable in 2003.

Caisse centrale expects net interest income to grow in 2004.

TABLE II

COMPONENTS OF NET INTEREST INCOME BY SEGMENT OF ACTIVITYFor the years ended December 31 (in thousands of dollars)

Change

2003 2002 $

Net interest income from Financing segment $ 39,347 $ 35,768 $ 3,579

Net interest income from Treasury segment 50,084 51,409 (1,325 )

Other 5,223 5,265 (42 )

TOTAL $ 94,654 $ 92,442 $ 2,212

compared to $35.3 million in 2002. The following sections provide a detailed analysis of income and expenses.

OTHER INCOME

Other income includes all income that is not interest.

Other income, which accounted for 27% of Caisse centrale’ gross income, against 25% in 2002, amounted to $35.7 million, versus $30.9 million a year earlier, for an increase of $4.8 million or 15%. The difference stems mostly from the improved results of investment and trading activities. It should be borne in mind that these results are derived mainly from the disposal of investments to capitalize on certain market conditions. In 2002, a large volume

PROVISION FOR CREDIT LOSSES

The provision for credit losses is an amount allocated to the allowance for credit losses to cover credit losses.

In 2003, the provision for credit losses charged to income amounted to $16.4 million, compared to $21.1 million in 2002, a decrease of 22%. It should be remembered that fiscal 2002 was affected by

higher provisions attributable to a loan to a telecommunications company.

A more detailed analysis of the specific provisions and the general provision for credit losses is provided on page 48.

of investments was sold, resulting in higher net interest income. It should be noted that the performance of Treasury activities must be examined overall by taking into account the various sources of income. Thus overall investment and trading segment activities generated income of $45.8 million, compared to $43.9 million in 2002.

Caisse centrale expects to be able to increase its other income in the coming year.

TABLE III

OTHER INCOMEFor the years ended December 31 (in thousands of dollars)

Change

2003 2002 $

Service charges on chequing and deposit accounts $ 10,805 $ 9,955 $ 850

Foreign exchange revenue 14,559 14,556 3

Trading and investment activities (4,262) (7,497) 3,235

Commissions on “Desjardins Acceptances” 10,164 9,549 615

Credit fees 2,115 1,717 398

Other 2,321 2,668 (347)

TOTAL $ 35,702 $ 30,948 $ 4,754

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TABLE IV

NON-INTEREST EXPENSESFor the years ended December 31 (in thousands of dollars)

Change

2003 2002 $

SALARIES AND BENEFITS $ 22,354 $ 17,267 $ 5,087

PREMISES, EQUIPMENT AND FURNITURE, INCLUDING DEPRECIATION

Rent and taxes 1,945 1,893 52

Depreciation 2,848 3,358 (510)

Subcontracting 5,058 4,146 912

Other 1,980 1,174 806

11,831 10,571 1,260

OTHER FEES

Communications and external relations 4,566 4,452 114

Professional fees 3,791 3,180 611

Other 4,964 4,597 367

13,321 12,229 1,092

TOTAL $ 47,506 $ 40,067 $ 7,439

NON-INTEREST EXPENSES

Non-interest expenses include salaries and benefits, premises, equipment and furniture and other operating expenses.

Table IV above shows the breakdown of non-interest expenses by category. Non-interest expenses totalled $47.5 million in 2003, compared to $40.1 million in 2002.

Staff salaries and benefits accounted for almost half of all non-interest expenses. A highlight of 2003 was the implementation of new compensation policies throughout Desjardins Group. The $5.1 million increase in salaries and benefits is mainly attributable to this policy restructuring, coupled with the annual indexation of salaries and the increase in related benefits. As at December 31, 2003, the number of employees (on a full-time equivalent basis) working for Caisse centrale and its U.S. subsidiary was 265, compared to 254 in 2002.

For greater operational efficiency, technology investments were made to enhance the processing capability of the external server required for Caisse centrale operating software. These investments account for most of the increase in subcontracting expenses, which totalled $5 million as at December 31, 2003. In this context, technology upgrades also resulted in higher “Other” expenses, which rose by $0.8 million from $1.2 million in 2002 to $2 million in fiscal 2003.

As a financial institution present on both domestic and international markets, Caisse centrale must adjust its risk management practices to comply with the new integrated risk management requirements to be set out in the New Basel Capital Accord rules and to be adopted by our regulatory authorities. In order to comply with the new requirements, Caisse centrale has joined forces with the Fédération des caisses Desjardins du Québec in the Integrated Risk Management - Basel Accord (IRMBA) project. The review of

risk management practices required by regulatory authorities will enable Caisse centrale to further mitigate the risks incurred. In 2003, Caisse centrale also set up a new Canadian medium-term deposit note program, which will enable it to further diversify its medium-term funding sources. Legal and accounting fees related to this program as well as professional fees related to the IRMBA project account for the increase under “Professional fees.”

Higher insurance premiums resulting in particular from recent governance problems on the capital markets are reflected in the increased expenses under “Other” in “Other fees.”

These two factors - namely, a tighter regulatory framework and the standardization of remuneration policies within Desjardins Group - substantially affected the productivity ratio at Caisse centrale, represented by non-interest expenses as a proportion of gross income. This ratio rose from 32.5% in 2002 to 36.4% at the end of 2003.

Also noteworthy is that Caisse centrale undertook a major re-engineering project of its management systems and applications in fiscal 2003. This project aims to design a system solution to support banking and loan management activities, support services for treasury operations, payment functions, accounting functions and management information.

The project should be completed by the end of fiscal 2004. As mentioned in note 15 to the consolidated financial statements, as at December 31, 2003, Caisse centrale was committed to pay $5.3 million under a service contract related to this project.

Caisse centrale intends to continue to rigorously manage its non-interest expenses throughout 2004, with a view to enhancing its financial performance.

OTHER PAYMENTS TO THE DESJARDINS NETWORK

In cooperation with the Desjardins network, Caisse centrale offers a broad spectrum of banking and financing services to Canadian private and public entities. Of the total fees collected, $17.3 million was redistributed to the Desjardins network, including patronage allocations paid on interest margins on participating loans and

foreign exchange transactions, for an increase of $1.2 million or 8% over 2002. This increase is primarily reflected in the patronage allocations paid on loans, given the growth in loans. Caisse centrale expects that its other payments will continue to grow over the next year.

INCOME TAXES AND OTHER TAXES

In the budget tabled on June 12, 2003, the Quebec Minister of Finance adopted measures to abolish the lower tax rate for savings and credit unions that had applied to Caisse centrale.

The decrease in income taxes charged to the consolidated statement of income was primarily due to this rate change, which resulted in

the recording of future tax liabilities of approximately $2.6 million. It should be noted that Caisse centrale can recover a substantial portion of the income taxes when it declares remuneration of capital stock. Accordingly, a $10.3 million income tax recovery was recorded in the statement of retained earnings as a result of the remuneration of capital stock in 2003.

REMUNERATION OF CAPITAL STOCK

Under An Act respecting the Mouvement Desjardins (the Constituent Legislation), the Board of Directors of Caisse centrale may declare interest on capital shares; it then determines the terms of payment thereof. For the past few years, the Board of Directors of Caisse centrale has applied the principle of declaring, as remuneration of capital stock, an amount corresponding to its consolidated net income, including recovery of related income taxes. However, given the capital requirements for the forthcoming years, the Board of Directors also applied the principle of suspending the quarterly payment of the remuneration on capital stock, notably for the purpose of retaining amounts that could be quickly made

available to Caisse centrale when needed. For the year ended December 31, 2003, interest of $50.1 million was declared on subscribed and paid-up capital shares, representing an increase of $6.5 million or 15% compared to the preceding year. An amount of $66.8 million was recorded on the consolidated balance sheet as remuneration of capital stock payable.

Overall, amounts paid to the Desjardins network, including other payments to members, amounted to $67.4 million, up $7.8 million or 13% from $59.6 million in 2002. This represents a return on capital stock of 11.4% compared to 11.7% in 2002.

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TABLE V

ASSET MIXAs at December 31 (in millions of dollars)

2003 2002 2001 2000 1999

Cash and securities $ 3,731 28% $ 3,935 37% $ 3,323 33% $ 3,308 33% $ 4,107 36%

Loans 8,122 60 5,087 48 5,501 54 5,528 54 6,280 55

Other 1,580 12 1,582 15 1,352 13 1,262 13 1,078 9

TOTAL $ 13,433 100% $ 10,604 100% $ 10,176 100% $ 10,098 100% $ 11,465 100%

Average assets $ 10,486 $ 10,722 $ 10,257 $ 10,531 $ 10,560

COMMENTS ON ASSETS

Total assets on the consolidated balance sheet of Caisse centrale amounted to $13.4 billion as at December 31, 2003, or $2.8 billion higher than at the end of 2002. Average assets decreased by $236 million or 2% from 2002 to $10.5 billion in 2003.

Liquidities reached $3.7 billion at the end of 2003, compared to $3.9 billion as at December 31, 2002. The ratio of liquidities to total assets was 28% at year-end, down from 37% at the close of the year in 2002. As projected, funding requirements for the Desjardins network grew during the year. In fact, loans granted for treasury purposes to the caisse network totalled $1.4 billion as at December 31, 2003, versus $179 million at the close of fiscal 2002. The funding requirements of the caisse network should reach $2 billion in 2004, and a number of issues are planned during the year to meet this demand. It should be remembered that Caisse centrale’ liquidities are intended to ensure adequate funding for the Desjardins network and reflect the Desjardins Group’s resolve to build a contingency liquidity reserve in order to underpin its business development.

It also bears mentioning that 90% of securities held were securities issued or guaranteed by the federal and provincial governments, municipal, school or public corporations, as well as by Canadian banks. Note 3 to the consolidated financial statements presents a detailed analysis of the securities portfolio.

At the end of 2003, the loan portfolio stood at $8.1 billion, up $3 billion or 60% from 2002. As a result of the network’s increased funding requirements, loans to the Fédération des caisses Desjardins du Québec rose sharply, as shown in Table VI. Loans for treasury and financing activities increased respectively by $495 million and $1.2 billion. Loans to entities under common control also grew from $291 million at the end of fiscal 2002 to $1 billion as at December 31, 2003, reflecting the popularity of Desjardins alternative savings products.

Caisse centrale also concludes a number of financing transactions in the form of loans and “Desjardins Acceptances” with member businesses or entities under common control. For more information about the entities concerned, please refer to the Desjardins Group organization chart. As mentioned in note 16 to the consolidated financial statements, transactions with the Fédération des caisses Desjardins du Québec for the benefit of its member caisses are concluded under more favourable conditions than those granted to unrelated third parties. Moreover, transactions concluded with the Fédération for its own financing needs and with entities under common control are carried out under similar conditions to those negotiated with unrelated third parties.

Public and parapublic sector loans were up $605 million since December 31, 2002, reflecting the increase in the financing requirements in these sectors and our continued business development efforts.

A major payment at the very end of fiscal 2003 accounts for the relative stability of the private sector loan portfolio. It bears mentioning that throughout 2002, Caisse centrale intentionally curtailed credit in certain industrial sectors. Despite the impact of these repayments, the average volume of private sector loans was up $102 million or 7% over 2002.

Also helping to fuel growth was the increase in the “Publi-privilège” securities and “Desjardins Acceptances” issued, whose combined average outstandings reached $1.3 billion. These instruments give public entities access to low-cost money market financing. Note that the “Publi-privilège” program does not appear on the balance sheet of Caisse centrale. This program is guaranteed by Caisse centrale, whose commitment is presented under “Guarantees and standby letters of credit” in the off-balance sheet financial instruments section.

Other assets amounted to $1.6 billion in 2003, down $2 million from the preceding year.

TABLE VI

LOAN PORTFOLIONet of allowance for credit losses

As at December 31 (in millions of dollars)

2003 2002 2001 2000 1999

COMPOSITION

Securities purchased under resale agreements $ 15 $ 6 $ 2 $ 38 $ 2

Day, call and short-term loans to investment dealers and brokers 218 159 38 — —

Public and parapublic institutions 1,523 918 1,188 1,050 1,191

Members

Fédération

- treasury activities 1,350 179 413 1,424 2,355

- financing activities 2,370 1,875 1,503 928 894

Other — — — 20 50

Entities under common control 1,032 291 223 169 98

Loans purchased from Desjardins Group 134 206 328 430 508

Private sector 1,570 1,532 1,865 1,515 1,226

Allowance for credit losses (90) (79) (59) (46) (44)

TOTAL $ 8,122 $ 5,087 $ 5,501 $ 5,528 $ 6,280

GEOGRAPHIC DISTRIBUTION

Quebec $ 7,068 $ 4,676 $ 5,020 $ 5,251 $ 6,070

Other canadian provinces 939 265 377 225 176

International 115 146 104 52 34

TOTAL $ 8,122 $ 5,087 $ 5,501 $ 5,528 $ 6,280

Average loans $ 5,949 $ 4,948 $ 5,484 $ 4,763 $ 6,467

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RISK MANAGEMENT REVIEW

OVERVIEW

The risk management objective of Caisse centrale is to optimize the risk/return trade-off by applying integrated management and control strategies, policies and processes to all functions of the organization.

Caisse centrale’ policies and processes aim to proactively identify, measure and assess potential risks, and ensure their sound and prudent management, in particular by specifying the controls to be applied and the reporting responsibility to officers.

As already mentioned, the Basel Committee on Banking Supervision is currently finalizing a new capital accord intended to emphasize capital and promote the on-going development of risk assessment capabilities in financial institutions by closely associating capital requirements with modern risk management methods. Caisse centrale, in conjunction with Desjardins Group, is committed to

applying best practices in the area of risk management. During the year, it continued to implement its Integrated Risk Management and Basel Accord program (IRMBA). Such integrated management will promote risk identification and measurement as well as optimal allocation of capital, and will become integrated with strategic planning and performance evaluation. Extensive work on credit, liquidity, market and operational risks will be continued in 2004 and in coming years in order to finetune our global vision of risk and its integration into the overall management of the Group’s activities.

In addition to the ongoing risk monitoring performed by the management and business unit managers of Caisse centrale, the integrated risk management framework is the responsibility of the Board of Directors and the following commissions and boards: the Corporate Governance, Human Resources, Credit and Investment and Audit Commissions, the Board of Ethics and the management committees of Caisse centrale.

COMMITTEES AND COMMISSIONS OF THE BOARD OF DIRECTORS OF CAISSE CENTRALE 1

BOARD OF DIRECTORS ■ Ensures that Caisse centrale has an adequate strategic management process that includes risk assessment.

CORPORATE GOVERNANCE COMMISSION ■ Supervises the program to evaluate Board effectiveness ■ Recommends the orientation and professional development program for Board members ■ Examines the roles of the Board of Directors and its committees.

HUMAN RESOURCES COMMISSION ■ Ensures that the compensation plan is compatible with the realization of objectives and the prudent management of activities and risks.

CREDIT AND INVESTMENT COMMISSION ■ Determines the credits to be granted by Caisse centrale as well as investments and loans and other financial commitments, and accordingly exercises the necessary authorities under the general policies adopted by the Board of Directors.

AUDIT COMMISSION ■ Ensures that Caisse centrale has a control environment that promotes the appropriate management of its activities and risks ■ Examines all financial information documents and recommends their approval to the Board of Directors.

BOARD OF ETHICS ■ Ensures compliance with rules of professional conduct regarding, among other matters, conflicts of interest and self-dealings.

MANAGEMENT COMMITTEES OF CAISSE CENTRALE

MANAGEMENT COMMITTEE ■ Determines the mandate and composition of the management committees of Caisse centrale ■ Specifies the strategic orientations, performance objectives and risk limits for Caisse centrale ■ Approves delegation powers and limits for the management committees of Caisse centrale.

RISK MANAGEMENT COMMITTEE ■ Evaluates and revises risk management policies ■ Ensures that risks are managed in accordance with established policies ■ Reviews self-assessment program results ■ Ensures the implementation of and compliance with control procedures ■ Examines the impact of succession planning and the methods of managing the activities of Caisse centrale.

INTERNAL CREDIT COMMITTEE ■ Defines parameters for granting credit and monitors their application ■ Authorizes loans within its scope ■ Reviews impaired loans and loans on the watch list ■ Reviews loan delinquency and credit losses.

ASSETS/LIABILITIES COMMITTEE ■ Ensures compliance with opera-tional limits concerning liquidity and investment management, interest rate risk and foreign exchange risk ■ Evaluates hedging strategies to maintain the level of risk within the limits approved by the Board of Directors ■ Evaluates positioning strategies for loan, liquidity or derivative portfolios to adapt to market chang-es ■ Examines financial management and treasury policies.

1 Please refer to the Governance section of the Annual Report for a more detailed description of the roles and responsibilities of the committees and commissions of the Board of Directors of Caisse centrale.

CREDIT RISK

Credit risk is the risk of credit losses that can occur if a counterparty fails to honour its contractual obligations, whether or not presented in the balance sheet. It also includes concentration risk. The term “counterparty” refers to an issuer, a debtor, a borrower, a broker and a guarantor.

CREDIT RISK MANAGEMENT

Diversification is a key part of risk management. To improve the quality of its credit portfolio, Caisse centrale has made a commitment to reduce its exposure by diversifying risk among categories of borrowers, industries, types of financing and geographic regions.

Credit losses can occur if a borrower or counterparty does not fully honour its contractual obligations to Caisse centrale. These obligations can involve loans, commitments, guarantees and derivative contracts with positive replacement values.

Managing credit risk has both quantitative and qualitative aspects. Experienced credit officers evaluate the credit quality of counterparties and assign internal credit ratings based on this evaluation. These officers, who have direct knowledge of clients and their industry sectors, are responsible for credit screening and monitoring credit risks, which are reviewed by an independent department. Credit concentration limits for various industries, products and geographic regions are set by the Internal Credit Committee and approved by the Board of Directors. This committee also sets credit limits for clients and counterparties which are also approved by the Board of Directors. The members of the Credit and Investment Commission of the Board of Directors periodically review the authorized limits and their monitoring.

The quantitative aspect of examining credit risk consists of measuring Caisse centrale’ credit exposure to each counterparty. The Internal Credit Committee is responsible for monitoring the policies and practices to measure such risk. Credit exposure is measured in terms of both current and potential credit exposure. Current credit exposure is generally represented by the notional or principal value for on-balance sheet financial instruments and by the replacement value for derivative instruments. Caisse centrale also estimates potential credit exposure by considering its sensitivity to market changes.

These elements are subject to review, as are products and credit risks requiring strict follow-up. These risks are examined regularly by the Internal Credit Committee. This group of senior officers evaluates the adequacy of the provisions for credit losses and

informs the members of the Credit and Investment Commission of the Board of Directors of the portion of credit exposures that should be written off and the amount of any provision for credit losses.

CREDIT POLICIES Throughout the years, Caisse centrale has developed and adopted credit policies and practices to react rapidly and take appropriate measures to mitigate or minimize file exposure. The general credit policy and operational policies are revised annually. During the year, significant effort was made to enhance the quality of the loan portfolio. Whenever required, collection or turnaround of higher risk files is transferred to specialized teams.

The general credit policy sets forth the principles and limits within which financing transactions involving a credit risk must be conducted and the requisite authorizations. The policy enhances control and diversification of the commitments portfolio while favouring orderly business development. It defines borrowers’ eligibility criteria and establishes the credit risk assessment mechanisms and the types of financing available. It also establishes the monetary, sector-related, geographic, risk and term limits in order to ensure the desired level of diversification of the loan portfolio. Finally, the policy establishes the levels of authorization and delegations of authority required for the approval and management of credit commitments.

Borrower limits are based on a customer’s risk rating and the maximum commitment determined by the Desjardins Group’s credit management framework. Credit commitment limits for each sector of activity in the private portfolio cannot be more than 15% of the aggregate of the credit commitments in this sector without the prior authorization of the Credit and Investment Commission. At year-end, all sectors of activity were in compliance with this limit.

Caisse centrale also deals with foreign correspondents. International transactions involving credit risk are governed by the international services credit policy. More specifically, this policy ensures sound apportionment of Caisse centrale’ foreign risks by setting out eligibility criteria for countries and correspondents, monetary limits by country and correspondent, and term limits. This policy is also updated annually.

The loan portfolio of Caisse centrale is very diversified. Business sector loans from all sectors of the economy account for approximately 19% of outstanding loans (Table VII). Caisse centrale monitors the economic sectors in which it is involved on an ongoing basis.

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TABLE VII

PRIVATE SECTOROutstandings as at December 31 (in millions of dollars)

2003 2002 1

Primary industries $ 36 2% $ 46 3%

Manufacturing industries

Food and tobacco 193 12 145 9

Textiles, rubber and plastics 41 3 52 3

Wood and furniture 123 8 121 8

Pulp and paper 96 6 88 6

Metal products 40 2 45 3

Other 65 4 75 5

Construction 2 — — —

Real estate 46 3 226 15

Transportation and warehousing 97 6 93 6

Telecommunications 69 4 122 8

Publics services 27 2 28 2

Wholesale and retail trade 154 10 95 6

Financial intermediaries 166 11 123 8

Other service corporations 216 14 197 13

Other 199 13 76 5

TOTAL $ 1,570 100% $ 1,532 100%

1 Reclassified to conform to the current year’s presentation.

IMPAIRED LOANS

A loan is considered to be impaired and the interest thereon ceases to be recorded when (a) there is reason to believe that a portion of the principal or interest cannot be collected or (b) the interest or principal is contractually 90 days in arrears, except where the loan is fully guaranteed or is in collection, or (c) the loan has been in arrears for more than 180 days. Further details on our accounting policies are provided in note 2 to the consolidated financial statements.

Despite a difficult environment, the quality of the loan portfolio continues to be excellent. Gross impaired loans amounted to

$86.2 million at year-end, compared to $46.2 million in 2002, and their coverage by specific provisions reached 54%. This increase is attributable, among other things, to the problems experienced by the steel and forest products sectors and the strong Canadian dollar, which has affected certain exporting manufacturers. Overall, the total allowance (specific and general provisions) for credit losses exceeded gross impaired loans by $4.1 million. It is worth noting that these loans represent only 1% of total loans in a $8.2 billion portfolio.

Caisse centrale management intends to continue to closely monitor its loan portfolio as part of a cautious approach toward credit risk management in order to maintain asset quality.

ALLOWANCE FOR CREDIT LOSSES

As demonstrated by the foregoing sections, Caisse centrale will continue to rigorously manage its loan portfolio. Despite the economy’s modest growth in 2003, the quality of the loan portfolio continues to be excellent, as evidenced by the low proportion of impaired loans.

The provisions specifically related to particular elements of the loan portfolio were up in comparison to 2002. Consequently, these provisions amounted to $46.5 million, compared to $36.4 million at the same date in 2002. Table VIII provides the breakdown of specific provisions by industry. The general provision for credit losses totalled $43.8 million as at December 31, 2003.

It is determined by the credit rating, maturity dates, default probabilities, volatility, the type of security, and the expected collection. It also takes into account the diversification of the counterparties and the economic and geographic sectors of activity of the credit portfolio. This assessment is reviewed where conditions indicate that initial assumptions will differ from actual results. Further details on our accounting policies are provided in note 2 to the consolidated financial statements.

Consequently, at the close of 2003, the specific and general provisions amounted overall to $90.4 million. This amount represented 5.8% of the private sector loan portfolio and 1% of the total portfolio.

TABLE VIII

BREAKDOWN OF SPECIFIC PROVISIONSAs at December 31 (in thousands of dollars)

2003 2002 2001 2000 1999

Manufacturing industries - Other $ 11,800 $ 1,650 $ 2,600 $ 700 $ 1,400

Transportation and warehousing 250 250 2,000 2,000 2,000

Other service corporations — — 2,016 325 —

Telecommunication 34,500 34,500 — — —

Other 5 — — — —

TOTAL $ 46,555 $ 36,400 $ 6,616 $3,025 $ 3,400

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LIQUIDITY RISK MANAGEMENT

Liquidity risk is part and parcel of asset and liability management and, as such, is incorporated into treasury strategies. It refers to the possibility that Caisse centrale may be unable to fulfil its obligations in a timely manner without offering excessive rates on deposits or liquidating assets at unfavourable prices. Caisse centrale must manage its liquidities in such a way that, even in adverse conditions, it will be able to meet its commitments and its customers’ requirements. Caisse centrale therefore ensures that diversified sources of funds can be directly accessed at competitive prices.

As a direct clearer of the Canadian Payments Association, Caisse centrale can, if necessary, borrow from the Bank of Canada.

Management practices are developed to ensure that liquidities are available in sufficient quantity. Caisse centrale must maintain sufficient liquid assets at all times to achieve its business plan. In addition, it must factor in differences between the expected

maturities of assets and liabilities, the settlement of off-balance sheet financial instruments as well as future requirements, by developing, if need be, multiple scenarios, including worst case scenarios.

Caisse centrale also maintains an adequate level of securities to ensure compliance with the liquidity regulatory requirements established by the Autorité des marchés financiers. Liquidities, comprising mainly cash, deposits with Bank of Canada and securities, totalled $3.7 billion as at December 31, 2003, or 28% of assets, versus 37% the previous year. The decline is due to a stronger demand for funds from the Desjardins caisse network.

Securities issued or guaranteed by the federal and provincial governments, municipal, school or public corporations and by Canadian banks account for 90% of the securities portfolio. More than 46% of these high-quality securities will mature within one year.

TABLE IX

LIQUIDITYAs at December 31 (in millions of dollars)

2003 2002 2001 2000 1999

Cash and deposits with Bank of Canada $ 112 $ 67 $ 191 $ 105 $ 108

Securities 3,619 3,868 3,132 3,203 3,999

TOTAL $ 3,731 $ 3,935 $ 3,323 $ 3,308 $ 4,107

Average liquidity $ 3,272 $ 4,231 $ 3,616 $ 4,787 $ 3,248

SOURCES OF FUNDS

One component of Caisse centrale’ mission is to assume the strategic role of supplier of funds to the Desjardins network. Over the years, Caisse centrale has built national- and international-scale funding sources by varying the markets, financial instruments, maturity dates and currencies of its deposits. Table XI and Chart I present deposits as at December 31, 2003 by counterparty type and maturity.

Chart I

DEPOSITS AND DEBENTURE BY COUNTERPARTY TYPEAs at December 31, 2003

■ 1% Public issues Canada■ 4% Canada and provinces■ 19% Desjardins Group■ 25% Commercial paper■ 36% Banks and others■ 7% Public issues Europe■ 8% MTN Europe

Once again in 2003, as has been the case for many years, Caisse centrale was assigned high credit ratings by agencies, thus giving it access to attractive funding sources. Caisse centrale intervenes on financial markets using the following instruments:

ON THE CANADIAN MARKET: ■ A short-term commercial paper program with no pre-set limit ■ A medium-term commercial paper program of $2 billion ■ A new medium-term deposit note program of $2 billion, allowing public distribution of the deposits issued.

ON THE INTERNATIONAL MARKET: ■ A short-term European commercial paper program of US$600 million ■ A short-term American commercial paper program of US$600 million ■ A European multi-currency medium-term deposit note program of US$5 billion.

Chart II

DEPOSITS AND DEBENTURE BY CURRENCYAs at December 31, 2003

■ 58% Canadian dollars■ 21% U.S. dollars■ 21% Other currencies

In the second half of the year, Caisse centrale made several medium-term deposit issues, of which the first two public issues were in Canada, in order to meet the strong demand for funds from the Desjardins caisse network. While extending the term of institutional borrowing, the issues have raised the profile of Desjardins Group and allowed it to firmly establish the value of its credit against rival banking institutions in both Canada and Europe. Desjardins Group is thus well positioned to raise funds on the capital markets on other occasions.

TABLEAU X

BREAKDOWN OF THE SECURITIES PORTFOLIOAs at December 31 (in millions of dollars)

2003 2002 2001 2000 1999

Canada $ 681 $ 531 $ 309 $ 390 $ 301

Provinces and municipal corporations in Canada 1,375 1,431 1,524 862 868

School and public corporations in Canada 30 80 116 142 110

Entities under common control 118 84 56 — 25

Other Canadian issuers 1,357 1,616 931 1,601 2,618

Foreign issuers 58 126 196 208 77

TOTAL $ 3,619 $ 3,868 $ 3,132 $ 3,203 $ 3,999

Average securities $ 3,230 $ 4,028 $ 3,541 $ 4,708 $ 3,174

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TABLE XII

DEPOSITS AND SUBORDINATED DEBENTUREAs at December 31 (in millions of dollars)

2003 2002 2001 2000 1999

Canada $ 101 $ 15 $ 165 $ 169 $ 547

Provinces 301 344 347 132 108

Banks and financial institutions 932 166 207 269 210

Members

Fédération 1,033 1,951 1,553 1,846 1,590

Other 206 274 228 177 118

Entities under common control 707 507 281 197 212

Other 6,842 4,531 4,724 4,884 6,515

10,122 7,788 7,505 7,674 9,300

Subordinated debenture 124 126 160 159 163

TOTAL $ 10,246 $ 7,914 $ 7,665 $ 7,833 $ 9,463

Average liabilities $ 7,977 $ 8,004 $ 8,046 $ 8,536 $ 9,050

GEOGRAPHIC DISTRIBUTION

2003 2002 2001 2000 1999

Canada $ 6,489 63% $ 4,519 57% $ 3,628 47% $ 3,310 42% $ 3,133 33%

International 3,757 37 3,395 43 4,037 53 4,523 58 6,330 67

TOTAL $ 10,246 100% $ 7,914 100% $ 7,665 100% $ 7,833 100% $ 9,463 100%

As at December 31, 2003, outstanding deposits and subordinated debenture (Table XII) totalled $10.2 billion, up $2.3 billion or 29% from the $7.9 billion posted the previous year.

As at December 31, 2003, 42% of the deposits and subordinated debenture were denominated in foreign currencies and hedged in order to eliminate foreign exchange risk; moreover, 37% were for a term of more than one year versus 31% the previous year.

Funds raised on the Canadian market totalled $6.5 billion as at December 31, 2003, up $1.9 billion, or 63% of the aggregate of the deposits and subordinated debenture, versus 57% in 2002.

In 2004, interest rate conditions should not change considerably and the demand for residential mortgages should therefore remain high. Caisse centrale anticipates borrowing requirements similar to those in 2003, including an issue of subordinated debt for the account of Capital Desjardins.

TABLEAU XI

DEPOSITS BY MATURITY As at December 31 (in millions of dollars)

Payable on a fixed date

Payableon

demandWithin

3 months3 to 12

months1 to 5years

Over5 years Total Total

2003 2002

Canada $ — $ 101 $ — $ — $ — $ 101 $ 15

Provinces 123 178 — — — 301 344

Banks and financial institutions 64 511 256 31 70 932 166

Members

Fédération 140 265 202 418 8 1,033 1,951

Other 36 126 24 20 — 206 274

Entities under common control 60 282 269 96 — 707 507

Other 365 2,491 923 2,792 271 6,842 4,531

TOTAL $ 788 $ 3,954 $ 1,674 $ 3,357 $ 349 $ 10,122 $ 7,788

MARKET RISK MANAGEMENT

Market risk is the risk that results from changes in the market value of financial instruments due to a fluctuation in the parameters affecting this value; notably in interest and foreign exchange rates and their volatility. The risk of losses related to interest rate and foreign exchange rate volatility is the main component of market risk to which Caisse centrale is exposed. The estimation of potential losses is a key element of managing risk.

The integrated risk management group, which is independent from the sectors initiating transactions, is responsible for examining market risk exposure on a daily basis. It ensures that risks remain within the set limits and that only authorized activities are undertaken, and develops and implements risk assessment models. It reports daily to senior management on profits and losses, value-at-risk (VAR) and compliance with maximum loss limits established as a result of a one-basis point change in interest rates on unmatched positions. The independent risk management unit is responsible for periodically examining models and assessments.

VAR is a generally accepted risk measurement concept that utilizes statistical models and information on historical market prices to calculate, according to a given confidence level, the maximum loss in market value that Caisse centrale would sustain in its asset and liability management portfolios from adverse movements in market rates and prices in a single day. Caisse centrale’ VAR is based on a 99% and 95% confidence level and represents an estimate of the maximum loss that Caisse centrale could sustain in its portfolios. Caisse centrale uses a historical simulation of scenarios from the previous two years to calculate the VAR of its asset and liability management portfolios. Management recognizes that VAR is not an absolute measurement of market risk and that its use is limited, since it is based solely on historical information. Management therefore uses various measures and information to help it assess and control the market risks to which its products and portfolios will be exposed.

Chart III presents the daily changes in the overall VAR of Caisse centrale’ asset and liability management portfolios in Canadian dollars during 2003. Based on a 99% confidence level, the average VAR amounted to $167,000 in 2003.

INTEREST RATE RISK MANAGEMENT

Interest rate risk is the sensitivity of Caisse centrale’ financial condition to movements in interest rates. The magnitude and direction of the effect depend on the amount of assets and liabilities that reprice in a given period.

Caisse centrale can lower or eliminate this risk by changing the mix of assets and liabilities through pricing initiatives or the use of derivative instruments.

Exposure to interest rate risk is reviewed on a regular basis by the Assets/Liabilities Committee. This committee establishes Caisse centrale’ position in view of anticipated interest rate changes and recommends hedging any undesired or unexpected interest rate risk.

Note 13 to the consolidated financial statements shows Caisse centrale’ position with regard to interest rate sensitivity as at December 31, 2003, in accordance with the provisions of Section 3860 of the Canadian Institute of Chartered Accountants Handbook, “Financial Instruments – Disclosure and Presentation.” Balance sheet and off-balance sheet assets and liabilities are presented in the table based on the earlier of the maturity date or the contractual repricing date. This is the position at that particular date, but could have subsequently changed, taking into account forecasted interest rates and clients’ preferences for products and terms.

Caisse centrale is very prudent with regard to interest rate sensitivity. Various means are used to monitor and manage interest rate risk. In addition, Caisse centrale has established policies describing principles and procedured regarding risk management, and periodic reports are reviewed by the Board of Directors.

Chart III

2003 VALUE-AT-RISKMillions $

0.5

0.4

0.3

0.2

0.1

0

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June

2003

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FOREIGN EXCHANGE RISK MANAGEMENT

Caisse centrale has assets and liabilities denominated in a number of foreign currencies. Foreign exchange risk arises when the actual or forecasted assets in a foreign currency are either greater or lesser than the liabilities in that currency. Caisse centrale has established specific foreign exchange risk management policies.

OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

As part of the management of interest and foreign exchange rate risk, Caisse centrale uses off-balance sheet financial instruments. To help selected clients meet their liquidity requirements and protect themselves against fluctuations in interest and foreign exchange rates, Caisse centrale offers a number of off-balance sheet financial instruments in the normal course of business. These off-balance sheet financial instruments can be broadly divided into two categories (i) financial instruments with contractual amounts representing credit risk and (ii) derivatives.

All off-balance sheet financial instruments are subject to Caisse centrale’ usual credit standards, financial controls, risk ceilings and monitoring procedures. Caisse centrale constantly improves its risk management systems and assessment models for these products. In the opinion of management, these transactions do not represent an unusual risk and no material losses are anticipated as a result of these transactions. Notes 2 and 11 to the consolidated financial statements provide further details on these instruments and their accounting.

FINANCIAL INSTRUMENTS WITH CONTRACTUAL AMOUNTS REPRESENTING CREDIT RISK

Products in this category, which consist of guarantees, standby letters of credit, commitments to extend credit and commitments to purchase assets, are designed to provide clients with funds for anticipated needs. Since conditional commitments to extend credit are subject to clients’ compliance with particular credit standards, the risk associated with such commitments is reduced considerably. A firm commitment requires a duly signed offer, including confirmation of acceptance by the customer. In such cases, Caisse centrale must pay out the amount specified in the commitment when the customer is unable to meet its financial or contractual obligations. Caisse centrale takes these commitments into consideration in its forward-looking management of liquidity needs to be met. Table XIII presents off-balance sheet credit instruments over the next few years.

CONTRACTUAL COMMITMENTS AND GUARANTEES

In the normal course of its business, Caisse centrale, like other major Canadian financial institutions, pledges part of its liquid assets in order to participate in the clearing and payments systems. It also enters into long-term leases or service contracts entailing minimum future payments. Table XIV presents the contractual commitments over the next few years. Additional information is also provided in note 15 to the consolidated financial statements.

TABLE XIV

CONTRACTUAL COMMITMENTS As at December 31 (in thousands of dollars)

2004 2005 2006 2007 2008 Other Total

$ 1,217 $ 910 $ 417 $ 166 $ 163 $ 316 $ 3,189

TABLE XIII

CREDIT INSTRUMENTSNOTIONAL AMOUNTS


2004 2005 2006 2007 2008 Other Total

Guarantees and standby letters of credit $ 115 $ 50 $ 15 $ 6 $ 1 $ — $ 187

Commitments to extend credit

Firm 12,203 246 1,017 78 54 96 13,694

Conditional 517 47 — — — — 564

Commitments to purchase assets 34 — — — — — 34

$ 12,869 $ 343 $ 1,032 $ 84 $ 55 $ 96 $ 14,479

TABLE XV

OFF-BALANCE SHEET FINANCIAL INSTRUMENTSNOTIONAL AMOUNTS


Members and

entities under

common control Other Total

Members and

entities under

common control Other Total

2003 2002

CREDIT INSTRUMENTS

Guarantees and standby letters of credit $ 43 $ 144 $ 187 $ 107 $ 74 $ 181


Firm 8,877 4,817 13,694 8,649 4,729 13,378

Conditional — 564 564 — 736 736

Commitments to purchase assets — 34 34 — 38 38

8,920 5,559 14,479 8,756 5,577 14,333

DERIVATIVES

Interest rate contracts 19,980 30,312 50,292 45,910 23,792 69,702

Foreign exchange contracts 659 10,048 10,707 704 6,435 7,139

Other contracts 2,022 2,046 4,068 2,651 2,651 5,302

22,661 42,406 65,067 49,265 32,878 82,143

TOTAL $ 31,581 $ 47,965 $ 79,546 $ 58,021 $ 38,455 $ 96,476

DERIVATIVES

Derivative financial instruments are financial contracts which derive their value from the underlying price, interest or exchange rate or index. Derivatives include many financial contracts such as futures, swaps, forward rate agreements, forward exchange contracts and options. Derivatives are a key risk management tool, both for Caisse centrale and for its clients. A description of derivatives and their use by Caisse centrale is provided in note 11 to the consolidated financial statements.

Derivatives, like balance sheet financial instruments, are subject to market and credit risk. As outlined in the Risk Management section, Caisse centrale evaluates the risk associated with derivatives in much the same way as the risks associated with other financial instruments. However, unlike balance sheet financial instruments, where credit exposure is generally represented by the nominal or principal value, the credit exposure associated with derivatives is generally a small fraction of the notional amount of the instrument and is represented by the positive market value of the derivative. The various derivatives allow for the transfer, modification or reduction of foreign exchange and interest rate risks stemming from variations thereof. The vast majority of currency and interest rate swaps, forward exchange contracts and options are transacted with banks, members or entities under common control.

As illustrated in Table XV, derivative transactions decreased 21% or $17.1 billion as at year-end. The most pronounced decline was in interest rate contracts, the value of which decreased by 28% to $50.3 billion from a year earlier, especially in the transactions with members and entities under common control category. In fact, preliminary work has been performed by the Fédération

des caisses Desjardins du Québec to reduce the number of derivative transactions in order to simplify the application of CICA Accounting Guideline 14, “Hedging Relationships”, adopted on January 1, 2004.

Chart IV presents the credit risk equivalent amounts of Caisse centrale’ derivative portfolio by credit rating of its partners. The chart shows that close to 82% of the real credit exposure is attributable to counterparties whose credit ratings are equal to or above Caisse centrale’ own credit rating (Moody’s Aa3).

Chart IV

DERIVATIVE CREDIT RISK EQUIVALENTBy credit rating

■ 10% Aaa to Aa1■ 72% Aa2 to Aa3■ 18% A1 to Baa2

To mitigate risk, Caisse centrale uses risk mitigating techniques such as netting, collateralization and setting counterparty limits.

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Chart V details the notional amounts of derivatives by counterparty type. Measured by notional amounts, 45% of counterparties were banks. Members and entities under common control accounted for 35%. It should be remembered that Caisse centrale acts as an intermediary to meet the Desjardins network’s needs in terms of derivative instruments. Additional information on the transactions carried out with Desjardins Group is found in note 16 to the consolidated financial statements. Transactions with private sector entities accounted for only 18% of the portfolio.

Chart V

DERIVATIVE NOTIONAL AMOUNTSBy counterparty

■ 45% Banks■ 35% Members and entities under common control■ 18% Private sector■ 2% Government

Chart VI shows the maturity profile of the derivative portfolio. Generally, the market risk associated with short-term financial instruments is lower than with long-term ones. As measured by notional amounts, 71% of these derivatives have remaining terms of less than three years and more than half of these will mature within one year. Of note is that close to 75% of the forward exchange contracts have a remaining term of less than three months.

Chart VI

DERIVATIVE NOTIONAL AMOUNTSBy maturity

■ 41% Within 1 year■ 30% 1 to 3 years■ 26% 3 to 5 years■ 3% Over 5 years

OPERATIONAL RISK MANAGEMENT

Operational risk is defined as the risk of losses, of failure to achieve objectives or of a negative impact on reputation resulting from inadequate or failed processes, people and systems, or from external events.

Operational risk is the potential risk that Caisse centrale may incur losses arising from fraud, damage to tangible assets, acts in violation of legislation, lawsuits, system failures, problems in transaction processing or process management as well as disruptions due to external factors.

Operational risk is inherent to all of Caisse centrale’ business activities and can never be completely eliminated. However, Caisse centrale endeavours to minimize operational risk through its internal control systems which provide for segregation of duties, a disciplined approach to decision-making and delegation of authority, the development of appropriate policies, methods and infrastructures, and duly confirmed recording of transaction-related information. Internal controls also involve risk monitoring, financial reporting and insurance coverage measures. In addition, Caisse centrale possesses back-up capabilities and engages in business resumption planning to ensure ongoing service delivery under adverse conditions. Effective management of operational risk depends as well on the commitment, competence and ability of Caisse centrale staff. The internal controls and systems in place are examined from time to time by internal auditors of Desjardins Group.

Aware of the need for a coordinated approach to implement new methods and manage developments in operational risk, Caisse centrale created a unit responsible for operational risk management. This unit initiated and completed various tasks throughout 2003, which will be continued over the next few years to ensure sound and prudent management of operational risk. Among these tasks is our contribution to the joint project with Desjardins Group intended to further organize the management of its information base for operational losses. In addition, other work continues to be done with Desjardins Group to set up an on-going self-assessment process for operational risk and integrate it more effectively into our management approaches.

Through its committees and the completion of specific projects, Caisse centrale ensures that the assessment of its technology environment is monitored and secure. Consequently, strategic planning with respect to implementations, disaster recovery, system robustness, security, management of human resources expertise, and proper control of its operations are considerations to which Caisse centrale devotes considerable effort in order to counter the specific related operational risks.

CAPITAL MANAGEMENT

Capital is an important factor for assessing the security and soundness of Caisse centrale in relation to all the risks associated with its activities. In recent years, regulators and rating agencies have paid a great deal of attention to financial institutions’ capital levels.

REGULATORY CAPITAL

The capital adequacy of Caisse centrale is regulated by the standards of the Fédération des caisses Desjardins du Québec, which were approved by the Autorité des marchés financiers. These standards are based on the regulatory requirements of the Basel Committee on Banking Supervision of the Bank for International Settlements (BIS), which oversees the capital adequacy of financial institutions operating on international markets. In this way, Caisse centrale can determine where it stands relative to other financial institutions on international markets given its presence on such markets.

Total regulatory capital, which constitutes capital, differs from the capital disclosed on the balance sheet. It comprises two classes: Tier I capital and supplementary or Tier II capital. Tier I capital includes more permanent capital items than Tier II capital. It consists of members’ equity (which includes capital stock, retained earnings and the general reserve). Tier II or supplementary capital essentially consists of subordinated debentures and the eligible general provision for credit losses. It should be noted that debentures must be amortized on a straight-line basis over the five years preceding their maturity.

In 1998, the Board of Directors of Caisse centrale approved a capitalization plan for Caisse centrale aimed at ensuring the development of its operations and providing, in particular, for an aggregate $200 million injection of capital from the caisses through the Fédération des caisses Desjardins du Québec. A portion of $102 million was received in 1999. In fiscal 2003, Caisse centrale issued $154.8 million of capital shares. Members holding capital shares agreed that an amount equal to the unpaid remuneration of capital stock should be reinvested in the form of capital shares. As previously stated, given the needs in forthcoming years, the

Board of Directors agreed to suspend the quarterly payment of the remuneration of capital stock.

Consequently, as at December 31, 2003, capital, as defined by the standards of the Fédération des caisses Desjardins du Québec, totalled $784 million, up $167 million over fiscal 2002 as a result of the previously mentioned capital stock issue.

RISK-WEIGHTED ASSETS AND OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

The standards of the Fédération des caisses Desjardins du Québec require that “risk-weighted balances” be calculated for assets and off-balance sheet financial instruments, and that aggregate values be weighted using a common definition of capital.

Off-balance sheet financial instruments are initially converted to “credit risk equivalents,” as shown in Table XVI. For credit instruments such as guarantees, standby letters of credit and commitments to extend credit, the “credit risk equivalent” is determined by multiplying the principal or nominal amount by the appropriate “credit conversion factor,” which can range from 0% to 100% depending on the nature of the instrument and the original term to maturity. The “credit risk equivalent” for foreign exchange, interest rate and currency contracts takes into account the replacement cost of contracts with a positive value and the potential credit exposure on the contracts, calculated on their residual term to maturity.

The “credit risk equivalent” for off-balance sheet financial instruments, together with on-balance sheet assets, are then multiplied by appropriate “risk weights” to determine risk-weighted balances. The risk weights depend on the relative credit risk of the counterparty and vary from 0% for claims on or guaranteed by the Canadian or provincial governments to 100% for claims on or guaranteed by the business sector.

As shown in Table XVI, Caisse centrale’ risk-weighted assets and off-balance sheet financial instruments totalled $4.8 billion as at December 31, 2003, up slightly over the prior year.

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CAPITAL RATIO

Section 46 of the Act respecting the Mouvement Desjardins stipulates that Caisse centrale must maintain an adequate capital base consistent with sound and prudent management, in accordance with the standards of the Fédération des caisses Desjardins du Québec (and approved by the Autorité des marchés financiers).

According to these standards, Caisse centrale must maintain, at all times, capital in accordance with the following ratios:

a) its total assets may not be more than 18.2 times its total capital (or a minimum of 5.5%);

b) its total capital must be more than or equal to 8.5% of its risk-weighted assets, of which at least one half is Tier I capital.

As at December 31, 2003, the asset/capital ratio was 5.9%. Tier I capital and total capital ratios determined according to risk-weighted assets and off-balance sheet commitments stood at 14.4% and 16.4%, respectively, compared to 11.8% and 13.7%, respectively, one year earlier.

It should be noted, however, that both the Tier I capital ratio and total capital ratio of Caisse centrale determined according to risk-weighted assets and off-balance sheet commitments exceed the 7% and 10% which the Office of the Superintendent of Financial Institutions of Canada has determined to be characteristic of a financial institution with a sound capital structure.

CHANGES TO REGULATORY CAPITAL REQUIREMENTS

As already stated, the BIS proposed a new capital adequacy framework to replace the 1988 Basel Capital Accord. Amendments to the Accord are being finalized, but implementation of “Basel II” should not be required until fiscal 2007.

Chart VII

1999 - 2003

CAPITAL RATIOS

%

18

16

14

12

10

8

6

1999

2000

2001

2002

2003

— Total Capital— Tier 1 Capital

TABLE XVI

RISK-WEIGHTED ASSETS AND OFF-BALANCE SHEET FINANCIAL INSTRUMENTSAs at December 31 (in thousands of dollars)

Balancesheet

amountRisk-

weight

Risk-weighted balance

2003 2002

ASSETS

Cash and deposits with Bank of Canada $ 112,509 0% $ — $ —

Securities issued or guaranteed by Canada, provinces,

municipal, school or public corporations in Canada 2,085,234 0-20% 8,503 20,734

Securities issued or guaranteed by U.S. public administrations 28,999 20% 5,800 25,135

Securities issued by banks 1,182,951 20% 236,590 195,518

Securities issued by members and entities under common control 27,728 20-100% 27,728 34,283

Other securities 293,627 100% 293,627 648,635

Loans issued or guaranteed by Canada, provinces,

municipalities, school boards and public agencies 1,522,989 0-20% 301,881 183,584

Loans to members and entities under common control 4,751,757 20-100% 1,333,950 649,955

Securities purchased under resale agreements 14,919 0% — —

Day, call and short-term loans to investment dealers and brokers, secured 218,000 0-100% 13,607 24,467

Other loans 1,614,513 0-100% 1,512,372 1,481,076

Other assets 1,580,053 0-100% 170,766 402,186

$ 13,433,279 $ 3,904,824 $ 3,665,573

OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

Notional amount

Credit conversion

factorCredit risk equivalent

Risk-weight

Risk-weighted balance

2003 2002

FINANCIAL INSTRUMENTS WITH

CONTRACTUAL AMOUNTS REPRESENTING

CREDIT RISK

Guarantees and standby letters of credit $ 186,337 0-100% $ 186,337 20-100% $ 153,359 $ 144,165


Original term to maturity

Over one year 1,491,115 50% 745,558 0-100% 509,719 486,780

One year or less and conditional 12,767,004 0% — 0% — —

Commitments to purchase assets 34,119 100% 34,119 0-100% — 2,781

DERIVATIVES

Interest rate contracts 50,292,095 (1) 788,824 20-50% 191,055 266,316

Foreign exchange contracts 10,707,359 (1) 543,856 20-50% 140,267 153,379

Other contracts 4,067,614 (1) 330,574 20-50% 112,962 84,862

$ 79,545,643 $ 2,629,268 $ 1,107,362 1,138,283

Less impact of master netting agreements (235,707) $ (296,601)

$ 871,655 $ 841,682

TOTAL RISK-WEIGHTED ASSETS AND OFF-BALANCE SHEET FINANCIAL INSTRUMENTS $ 4,776,479 $ 4,507,255

(1) Derivatives are converted to their “credit risk equivalent” by adding the total replacement cost (at market value) of all outstanding contracts with a positive value and an amount for potential credit exposure based on the total contract amount broken out by remaining term to maturity, as follows:

Remaining term to maturity Foreign exchange contracts Interest rate contracts Other contracts

Within 1 year 1.0 % 0 % 6 %

Over 1 year to 5 years 5.0 % 0.5 % 8 %

Over 5 years 7.5 % 1.5 % 10 %

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FIVE-YEAR CONSOLIDATED BALANCE SHEETSAs at December 31 (in thousands of dollars)

2003 2002 2001 2000 1999

ASSETS

Cash and deposits with Bank of Canada $ 112,509 $ 67,202 $ 191,142 $ 105,437 $ 107,743

Securities 3,618,539 3,868,115 3,131,843 3,203,401 3,998,672

Loans

Securities purchased under resale agreements 14,919 6,222 2,477 37,598 1,907

Day, call and short-term loans to investment

dealers and brokers 218,000 158,739 37,500 — —

Members

Fédération 3,719,748 2,054,660 1,916,180 2,352,606 3,250,146

Other — — — 20,000 50,322

Entities under common control 1,032,009 291,023 222,606 168,997 97,547

Public and parapublic sectors 1,522,989 917,921 1,187,642 1,049,116 1,190,470

Loans purchased from Desjardins Group 134,319 205,967 327,965 429,606 507,738

Private sector 1,570,584 1,531,872 1,864,691 1,515,414 1,225,801

Allowance for credit losses (90,390) (78,922) (58,518) (46,146) (43,528)

8,122,178 5,087,482 5,500,543 5,527,191 6,280,403

Assets related to derivatives 1,049,047 1,151,680 990,190 547,610 396,759

Customers’ liability under acceptances 450,300 349,300 280,600 629,736 582,350

Other 80,706 80,723 81,221 84,396 98,941

TOTAL ASSETS $ 13,433,279 $ 10,604,502 $ 10,175,539 $ 10,097,771 $ 11,464,868

LIABILITIES AND MEMBERS’ EQUITY

Deposits

Payable on demand $ 787,512 $ 698,940 $ 782,253 $ 762,069 $ 765,880

Payable on a fixed date 9,334,350 7,089,162 6,722,971 6,912,015 8,534,354

10,121,862 7,788,102 7,505,224 7,674,084 9,300,234

Liabilities related to derivatives 1,432,974 1,501,163 1,422,033 786,095 675,081

Acceptances 450,300 349,300 280,600 629,736 582,350

Other 617,181 307,883 274,982 316,177 211,696

Subordinated debenture 123,911 125,806 160,452 159,431 163,259

Members’ equity

Capital stock 666,206 511,403 511,403 511,403 511,403

General reserve 20,845 20,845 20,845 20,845 20,845

687,051 532,248 532,248 532,248 532,248

TOTAL LIABILITIES AND MEMBERS’ EQUITY $ 13,433,279 $ 10,604,502 $ 10,175,539 $ 10,097,771 $ 11,464,868

FIVE-YEAR CONSOLIDATED STATEMENTS OF INCOMEFor the years ended December 31 (in thousands of dollars)

2003 2002 2001 2000 1999

INTEREST INCOME

Loans $ 208,749 $ 187,318 $ 323,007 $ 304,826 $ 320,311

Securities 136,194 159,849 182,778 277,772 238,790

344,943 347,167 505,785 582,598 559,101

INTEREST EXPENSE 250,289 254,725 406,127 519,634 493,958

NET INTEREST INCOME 94,654 92,442 99,658 62,964 65,143

Other income 35,702 30,948 16,726 34,633 20,265

GROSS INCOME 130,356 123,390 116,384 97,597 85,408

Provision for credit losses 16,425 21,146 12,605 3,124 3,042

113,931 102,244 103,779 94,473 82,366


Salaries and benefits 22,354 17,267 17,669 17,428 17,416

Premises, equipment and furniture, including depreciation 11,831 10,571 9,072 9,071 8,369

Other 13,321 12,229 10,397 10,848 10,510

47,506 40,067 37,138 37,347 36,295

NET INCOME BEFORE OTHER PAYMENTS TO THE

DESJARDINS NETWORK AND INCOME TAXES 66,425 62,177 66,641 57,126 46,071

Other payments to the Desjardins network 17,306 16,059 14,337 12,310 10,091

NET INCOME BEFORE INCOME TAXES 49,119 46,118 52,304 44,816 35,980

Income taxes 9,313 10,790 11,843 9,530 8,306

NET INCOME $ 39,806 $ 35,328 $ 40,461 $ 35,286 $ 27,674

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QUARTERLY FINANCIAL INFORMATION(in thousands of dollars)

Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1

2003 2002

(QUARTER-END)

BALANCE SHEET

ASSETS

Cash and deposits with Bank

of Canada $ 112,509 $ 85,436 $ 133,090 $ 58,965 $ 67,202 $ 2,964 $ 67,351 $ 146,998

Securities 3,618,539 3,161,523 3,833,363 2,660,440 3,868,115 4,332,218 4,142,746 3,819,641

Loans 8,122,178 6,982,975 5,796,878 5,356,344 5,087,482 5,074,881 4,982,054 5,386,558

Assets related to derivatives 1,049,047 902,479 926,970 634,804 1,151,680 1,213,583 819,572 879,353

Customers’ liability under

acceptances 450,300 316,100 464,300 548,030 349,300 415,500 286,800 421,700

Other assets 80,706 68,754 75,935 81,322 80,723 77,607 73,327 86,592

$ 13,433,279 $ 11,517,267 $ 11,230,536 $ 9,339,905 $ 10,604,502 $ 11,116,753 $ 10,371,850 $ 10,740,842

LIABILITIES AND MEMBERS’

EQUITY

Deposits $ 10,121,862 $ 8,488,409 $ 7,978,197 $ 6,928,100 $ 7,788,102 $ 8,158,581 $ 7,826,000 $ 7,940,612

Liabilities related to derivatives 1,432,974 1,338,401 1,440,394 900,504 1,501,163 1,504,369 1,226,475 1,338,519

Acceptances 450,300 316,100 464,300 548,030 349,300 415,500 286,800 421,700

Obligations related to securities

sold short 14,919 21,189 8,030 1,698 8,896 8,939 36,692 2,004

Other 602,262 546,738 534,294 307,576 298,987 319,912 294,290 348,765

Subordinated debenture 123,911 119,382 118,273 121,749 125,806 177,204 169,345 156,994

Members’ equity 687,051 687,048 687,048 532,248 532,248 532,248 532,248 532,248

$ 13,433,279 $ 11,517,267 $ 11,230,536 $ 9,339,905 $ 10,604,502 $ 11,116,753 $ 10,371,850 $ 10,740,842

(QUARTER)

STATEMENTS OF INCOME

Net interest income $ 19,939 $ 26,588 $ 23,953 $ 24,174 $ 22,704 $ 23,763 $ 22,664 $ 23,311

Other income 12,191 3,851 11,193 8,467 6,153 8,416 8,099 8,280

Provision for credit losses (6,400) (3,000) (3,986) (3,039) (7,554) (4,533) (4,536) (4,524)

Non-interest expenses (12,949) (11,608) (11,561) (11,388) (10,061) (9,781) (10,247) (9,978)

Net income before other

payments to the Desjardins

network and income taxes 12,781 15,831 19,599 18,214 11,242 17,865 15,980 17,089

Other payments to the

Desjardins network (5,194) (719) (6,352) (5,041) (3,723) (4,229) (4,418) (3,689)

Net income before income taxes 7,587 15,112 13,247 13,173 7,519 13,636 11,562 13,400

Income taxes 450 (3,908) (2,906) (2,949) (2,033) (3,144) (2,640) (2,972)

NET INCOME $ 8,037 $ 11,204 $ 10,341 $ 10,224 $ 5,486 $ 10,492 $ 8,922 $ 10,428

AUDIT COMMISSION’S ANNUAL REPORT

The role of the Audit Commission is to support the Board of Directors in its oversight function. Its mandate consists primarily of analyzing consolidated financial statements, their presentation and the quality of the accounting principles used, as well as the management of financial information risks, internal control systems, internal and external audit processes, the procedures applied to such audits and regulatory compliance management.

To this end, the Audit Commission examines the annual and quarterly financial statements, related press releases, Management’s Discussion and Analysis of Financial Condition and Results of Operations, the Annual Information Form and the prospectus. It discusses major issues regarding accounting principles and consolidated financial statements presentation. Furthermore, it reviews various reports, including reports on regulatory ratios, capitalization and the quarterly valuation of the off-balance sheet derivatives portfolio.

It ensures that management has prepared and implemented an effective internal control system for financial information disclosure, protection of assets, fraud detection and regulatory compliance.

The Audit Commission further ensures that management has set up management systems for the main risks that could affect the financial results of the entity.

The external auditor reports directly to the Audit Commission. In order to discharge its responsibilities in this area, the Commission ensures and maintains the independence of the external auditor by authorizing all non audit-related services, by recommending its appointment or continuance, by fixing and recommending its remuneration and by conducting an annual review of its performance. In addition, it supervises the work of the external auditor, examines its proposal, its mandate, its annual audit plan, its reports, its letter to management and management’s comments. In 2003, the Audit Commission had the Board of Directors adopt a policy on the rules for awarding contracts for related services regarding (a) services that can or cannot be rendered by the external auditor, (b) the governance procedure to be followed before granting mandates, and (c) the responsibilities of the main stakeholders. Consequently, it receives a quarterly report on the contracts awarded to external auditors by Caisse centrale and Desjardins Group.

With regard to relations with the Autorité des marchés financiers, the Audit Commission reviews the inspection report issued by the agency, as well as the quarterly financial reports submitted to it.

The Audit Commission ensures that the independence of the internal audit function of Desjardins Group is safeguarded. It examines the annual internal audit plan for Caisse centrale, as well as the responsibilities, return, objectivity and staffing of this team. It reviews the summary reports of the internal audits performed and, where necessary, ensures their follow-up. For such purpose, it meets with the Internal Auditor of the Group to examine any major issues submitted to management.

The Audit Commission meets privately with the external auditors, management, the Internal Auditor of the Group and the officials of the Autorité des marchés financiers. It submits a quarterly report to the Board of Directors and makes recommendations, if necessary.

Finally, in compliance with sound corporate governance practices, it annually assesses the effectiveness and efficiency with which it has performed the tasks set out in its charter.

The Audit Commission is composed of five directors; namely Andrée Lafortune, FCA, Jacqueline Mondy, Jean-Guy Bureau, Marcel Lauzon and Pierre Leblanc, FCA. It met eight times during fiscal 2003.

ANDRÉE LAFORTUNE, FCAChair of the Audit Commission

Montreal, QuebecFebruary 24, 2004

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MANAGEMENT’S REPORT

Management is responsible for preparing the consolidated financial statements and related information appearing in the Annual Report and for ensuring their reliability and accuracy. These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles. When required to make estimates, management did so to the best of its knowledge.

The accounting system of Caisse centrale and related internal controls and procedures are designed to ensure the reliability of financial information and, to a reasonable degree, safeguard assets against loss or unauthorized use. These procedures include standards in hiring and training employees, an organizational structure with clearly defined lines of responsibility, written and updated policies and procedures, planning and follow-up of projects, budget controls by cost centre and divisional performance accountability. The internal control systems are supplemented by regular independent reviews of Caisse centrale’ major business segments. In addition, in the course of his duties, the Internal Auditor may confer at any time with the Board of Directors’ Audit Commission. Composed entirely of directors who are neither officers nor employees of Caisse centrale, this Commission ensures that management has fulfilled its responsibilities with respect to financial information and the application of internal controls. During 2003, the Audit Commission met 8 times. In addition, the Board of Ethics, composed entirely of volunteer officers elected by the general meeting, ensures compliance with rules of professional conduct regarding, among other matters, conflicts of interest and transactions with related parties. This Board met 4 times.

The Autorité des marchés financiers examines the affairs of Caisse centrale annually to ensure that the provisions of its constituent legislation, particularly with respect to the protection of depositors, are duly observed and that Caisse centrale is in sound financial condition.

The independent auditors appointed by the general meeting of members, PricewaterhouseCoopers LLP, have the responsibility of auditing the consolidated financial statements in accordance with Canadian generally accepted auditing standards and of expressing their opinion. Their report follows. They may, at any time, confer with the Audit Commission on all matters concerning the nature and execution of their mandate, particularly with respect to the accuracy of financial information provided by Caisse centrale and the reliability of its internal control systems.

ALBAN D’AMOURS JEAN-GUY LANGELIERChairman of the Board and President and Chief Operating OfficerChief Executive Officer


AUDITORS’ REPORT

To the Members of Caisse centrale,

We have audited the consolidated balance sheets of Caisse centrale as at December 31, 2003 and 2002 and the consolidated statements of income, members’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of Caisse centrale’ management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of Caisse centrale as at December 31, 2003 and 2002 and the consolidated results of its operations and its cash flows for the years then ended in accordance with Canadian generally accepted accounting principles.

PRICEWATERHOUSECOOPERS LLPChartered Accountants


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CONSOLIDATED BALANCE SHEETSAs at December 31 (in thousands of dollars)

2003 2002

ASSETS

CASH AND DEPOSITS WITH BANK OF CANADA $ 112,509 $ 67,202

SECURITIES (notes 3 and 15)

Investment account 3,209,294 3,690,061

Trading account 409,245 178,054

3,618,539 3,868,115

LOANS (note 4) 8,122,178 5,087,482

OTHER

Assets related to derivatives 1,049,047 1,151,680

Customers’ liability under acceptances 450,300 349,300

Other assets (note 5) 80,706 80,723

1,580,053 1,581,703

$ 13,433,279 $ 10,604,502


DEPOSITS (note 6)

Payable on demand $ 787,512 $ 698,940

Payable on a fixed date 9,334,350 7,089,162

10,121,862 7,788,102

OTHER

Liabilities related to derivatives 1,432,974 1,501,163

Acceptances 450,300 349,300

Obligations related to securities sold short 14,919 8,896

Commitment under the repurchase agreements 409,245 —

Other liabilities (note 7) 193,017 298,987

2,500,455 2,158,346

SUBORDINATED DEBENTURE (note 8) 123,911 125,806

MEMBERS’ EQUITY 687,051 532,248

$ 13,433,279 $ 10,604,502

The accompanying notes are an integral part of the consolidated financial statements.

On behalf of the Board,

ALBAN D’AMOURS MADELEINE LAPIERREChairman of the Board and Vice-Chair of the BoardChief Executive Officer

CONSOLIDATED STATEMENTS OF INCOMEFor the years ended December 31 (in thousands of dollars)

2003 2002

INTEREST INCOME

Loans $ 208,749 $ 187,318

Securities 136,194 159,849

344,943 347,167

INTEREST EXPENSE

Deposits 243,647 244,161

Subordinated debenture 6,642 10,564

250,289 254,725

NET INTEREST INCOME 94,654 92,442

OTHER INCOME

Service charges on chequing and deposit accounts 10,805 9,955

Foreign exchange revenue 14,559 14,556

Investment and trading activities (4,262) (7,497)

Fees on acceptances 10,164 9,549

Credit fees 2,115 1,717

Other 2,321 2,668

35,702 30,948

GROSS INCOME 130,356 123,390

Provision for credit losses (note 4) 16,425 21,146

113,931 102,244


Salaries and benefits 22,354 17,267

Premises, equipment and furniture, including depreciation 11,831 10,571

Other 13,321 12,229

47,506 40,067

NET INCOME BEFORE OTHER PAYMENTS TO THE DESJARDINS NETWORK AND INCOME TAXES 66,425 62,177

Other payments to the Desjardins network 17,306 16,059

NET INCOME BEFORE INCOME TAXES 49,119 46,118

Income taxes (note 10) 9,313 10,790

NET INCOME $ 39,806 $ 35,328


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CONSOLIDATED STATEMENTS OF MEMBERS’ EQUITYFor the years ended December 31 (in thousands of dollars)

2003 2002

CAPITAL STOCK (note 9)

Balance at beginning of year $ 511,403 $ 511,403

Issuance of Class A capital shares 154,800 —

Issuance of qualifying shares 3 —

Balance at end of year $ 666,206 $ 511,403

RETAINED EARNINGS

Balance at beginning of year $ — $ —

Net income 39,806 35,328

Remuneration of capital stock (50,146) (43,595)

Recovery of income taxes related to the remuneration of capital stock (note 10) 10,340 8,267

Balance at end of year $ — $ —

GENERAL RESERVE

Balance at beginning and end of year $ 20,845 $ 20,845

TOTAL MEMBERS’ EQUITY $ 687,051 $ 532,248


CONSOLIDATED STATEMENTS OF CASH FLOWSFor the years ended December 31 (in thousands of dollars)

2003 2002

CASH FLOWS FROM OPERATING ACTIVITIES

Net income $ 39,806 $ 35,328

Adjustments to determine cash flows provided by operating activities:

Depreciation of fixed and intangible assets 2,848 3,358

Provision for credit losses 16,425 21,146

Gain on sale of investment account securities (1,672) (4,147)

(Increase) decrease in future income taxes (6,412) 1,778

Net increase in trading account securities (231,191) (140,229)

Decrease in accrued interest receivable 4,512 701

Decrease in accrued interest payable (22,491) (4,349)

Increase (decrease) in income taxes payable 6,304 (7,024)

Decrease (increase) in unrealized gains and amounts receivable on derivatives 102,633 (161,490)

(Decrease) increase in unrealized losses and amounts payable on derivatives (68,189) 79,130

Other items, net amount 24,177 16,547

(133,250) (159,251)

CASH FLOWS FROM FINANCING ACTIVITIES

Net increase in deposits 2,333,760 282,878

Net decrease in the debenture — (52,745)

Net increase in obligations related to securities sold short 6,023 2,870

Net increase in obligations under repurchase agreements 409,245 —

Issuance of capital shares 154,800 —

Remuneration of capital stock paid (154,816) (19)

2,749,012 232,984

CASH FLOWS FROM INVESTING ACTIVITIES

Net decrease (increase) in investment account securities 482,439 (591,896)

Net (increase) decrease in loans (3,042,424) 395,660

Net increase in securities purchased under resale agreements (8,697) (3,745)

Acquisition of fixed and intangible assets (4,909) (4,889)

(2,573,591) (204,870)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 42,171 (131,137)

Cash and cash equivalents at beginning of year 49,511 180,648

CASH AND CASH EQUIVALENTS AT END OF YEAR $ 91,682 $ 49,511

REPRESENTED BY:

Cash and deposits with Bank of Canada $ 112,509 $ 67,202

Cheques and other items in transit, net (20,827) (17,691)

$ 91,682 $ 49,511

ADDITIONAL INFORMATION

Interest paid during the year $ 266,138 $ 259,074

Income taxes (received) paid during the year (919) 8,771


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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2003 and 2002 (All tabular figures are in thousands of dollars, unless otherwise indicated)

1. INCORPORATION AND MANDATE

La Caisse centrale Desjardins du Québec, created on June 22, 1979, is a financial services cooperative governed by An Act respecting the Mouvement Desjardins [2000, S.Q., c. 77] (the “Constituent Legislation”) and by An Act respecting financial services cooperatives (Quebec).

Caisse centrale is a cooperative institution which offers financial services to the Mouvement des caisses Desjardins, governments, public and parapublic sector institutions, and medium-sized and large businesses. It serves the needs of the Fédération des caisses Desjardins du Québec (the “Fédération”), its Desjardins caisses (the “member caisses”), and the other entities of the Mouvement des caisses Desjardins. Caisse centrale’ 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. Caisse centrale’ activities on the Canadian and international markets complement those of the other entities of the Mouvement des caisses Desjardins.

2. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements of Caisse centrale are prepared in accordance to section 163 under An Act respecting financial services cooperatives which requires that, unless otherwise specified by the Autorité des marchés financiers, consolidated financial statements be prepared under Canadian generally accepted accounting principles. There is no significant difference between Canadian generally accepted accounting principles and the accounting rules prescribed by the Autorité des marchés financiers. The preparation of consolidated financial statements in conformity with these principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the consolidated balance sheet date as well as the recorded amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The significant accounting policies are summarized below.

CONSOLIDATIONThe consolidated financial statements include the assets and liabilities and results of operations of Caisse centrale and those of its wholly owned self-sustaining American subsidiary, Desjardins Federal Savings Bank, after elimination of intercompany transactions and balances.

LIQUIDITIESLiquidities consist of cash and cash equivalents including cash, deposits with Bank of Canada and checks and other items in transit.

SECURITIESSecurities include investment account and trading account securities. Investment account securities are purchased with the primary intent of holding them until maturity or until market conditions are more favourable for other types of securities. Equity securities are stated at cost and debt securities at unamortized cost. Premiums and discounts are amortized over the terms of the related securities on a straight-line basis. Trading account securities, which are purchased for resale over a short period of time, are stated at their fair value, which is determined based on quoted market prices. When the price of a security is not available, the fair value is estimated based on the quoted market price of similar securities.

Realized gains and losses on investment account securities and realized and unrealized gains and losses on trading account securities, which are calculated using average cost, as well as write-downs to reflect a permanent impairment in value are recorded in consolidated income under “Investment and trading activities” in “Other income.” Dividend and interest income, including amortization of premiums and discounts on investment account securities, are recorded in consolidated income under “Interest income.”

LOANSLoans are stated net of the allowance for credit losses, unamortized discounts and loan fees. Where deemed appropriate, Caisse centrale obtains security in the form of cash, securities, immovable property, accounts receivable, surety, inventories or other assets.

As intermediary for the Desjardins Group entities, Caisse centrale buys and sells mortgage, farm and other loans. These loans are accounted for at fair value and are included in “Loans purchased from Desjardins Group.”

Interest income is recorded on the accrual basis, except when the loan is considered impaired. A loan is considered impaired when: a) there is reason to believe that a portion of the principal or interest cannot be collected, or b) the interest or principal is contractually 90 days in arrears, except when there is reasonable assurance of collecting the principal or interest. The loan is then classified as impaired and the interest, previously accrued but not received on such a loan, is reversed to interest income from loans in the current year. No portion of cash received on a loan subsequent to its classification as impaired is recorded as income before any prior write-off has been recovered or any specific provision has been reversed and it is deemed that the loan principal is fully collectible.

An impaired loan is recorded at its estimated realizable value, measured by discounting the expected future cash flows at the interest rate inherent in the loan. When the amount or timing of future cash flows cannot be estimated with reasonable reliability, the loan is recorded at either the fair value of the underlying security or the market price for the loan. Any change in the estimated realizable amount is presented as a charge or credit for loan impairment through the allowance for credit losses. An impaired loan is once again recorded under the accrual method when the principal and interest payments are current and there is no longer any reasonable doubt that the impaired loan will be recovered.

Fees related to loan origination and loan restructuring or renegotiating are considered as adjustments to loan yield and are deferred and amortized to “Interest income” for the estimated term of such loans. In the likelihood that a loan will result, commitment and standby fees are also included in “Interest income” over the expected term. Otherwise, fees are recorded as “Other income” during the commitment or standby period. Loan syndication fees are presented under “Other income” when the syndication agreement is signed, unless the yield of any loan retained by Caisse centrale is less than that of other comparable lenders involved in the financing. In such cases, an appropriate portion of the fees is deferred and amortized to interest income over the term of the loan.

According to the changes to Section 3025 “Impaired Loan” of the Canadian Institute of Chartered Accountants (CICA) handbook, since May 1, 2003, foreclosed assets held for sale in settlement of an impaired loan are recorded at fair value less selling costs at the date of foreclosure. Foreclosed assets held for use in settlement of an impaired loan, to be held or applied, are measured at fair value at the date of foreclosure. Any excess of carrying value of the loan over the original estimated realizable value of the acquired assets is recorded as a debit in the cumulative allowance for credit losses.

ALLOWANCE FOR CREDIT LOSSESThe allowance for credit losses is maintained at an amount considered sufficient to absorb the estimated losses related to the loan portfolio, off-balance sheet commitments, acceptances and derivative instruments. This allowance is increased by the provision for credit losses charged to consolidated income and reduced by write-offs net of recoveries. This allowance comprises specific provisions and a general provision for credit losses. Management conducts ongoing credit risk assessments and establishes specific provisions when impaired loans are identified.

Specific provisions are established on an individual basis for all identified impaired loans, reducing their carrying value to their estimated realizable value.

The general provision for credit losses reflects management’s estimate of probable portfolio losses that are not covered by specific provisions. The general provision for credit losses does not represent future losses nor replace specific provisions. It takes into account economic and market conditions, regulatory requirements that affect the main lending activities, recent credit loss experience, and trends in credit quality and concentration. This provision also reflects model and estimation risks, which are reviewed and revised where conditions indicate the initial assumptions differ from actual results.

ACCEPTANCES AND CUSTOMERS’ LIABILITY UNDER ACCEPTANCESCaisse centrale’ potential liability under acceptances is reported as a liability in the consolidated balance sheets. The recourse of Caisse centrale against the customer in the case of a call on commitments of this nature is reported as an offsetting asset of the same amount. Fees paid to Caisse centrale are recognized in consolidated income under “Other” in “Other income.”

OBLIGATIONS RELATED TO SECURITIES SOLD SHORTSecurities sold short as part of trading activities, which represent Caisse centrale’ obligation to deliver securities sold which were not owned at the time of sale, are recorded as liabilities and are carried at fair value. Realized and unrealized gains and losses thereon are recorded in consolidated income under “Investment and trading activities” in “Other income.”

ASSETS UNDER ADMINISTRATIONCaisse centrale manages liquidities on behalf of third parties. These assets under administration are not the property of Caisse centrale and therefore are not reflected on the consolidated balance sheets. Management fees earned with respect to liquidity management services are recorded in “ Other Income ” in the consolidated statement of income.

DERIVATIVESCaisse centrale uses derivatives primarily for asset/liability management and as intermediary for the Desjardins network. The derivatives most frequently used are forward exchange contracts, cross-currency and interest rate swaps, forward rate agreements and foreign currency, interest rate and stock index options.

Derivatives designated for asset/liability management are used to manage the interest rate and foreign exchange risk exposure of consolidated balance sheet assets and liabilities, firm commitments and anticipated transactions. Certain derivatives can qualify as hedges of these financial risks. To qualify as a hedging item, the derivative must be designated as “other than trading” and must offset with a high degree of correlation the effect of Caisse centrale’ exposure to price and interest rate or foreign exchange risk. This high degree of correlation with Caisse centrale’ risk must exist at inception and during the hedging period.

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Derivatives designated for asset/liability management are recorded at cost. Gains or losses on these derivative instruments are recognized in consolidated income at the same time as the gains, losses, revenues and expenses associated with the managed risk items. In particular, interest rate and cross-currency swaps used to manage Caisse centrale’ financial risks are accounted for under the accrual method, whereby interest income or expense recognized on these financial instruments is included in consolidated income as an adjustment to the underlying instrument’s interest income or expense. Interest payable to or receivable from counterparties is recorded on the consolidated balance sheets under “Other liabilities” or “Other assets.” Exchange gains and losses on cross-currency swaps are also recorded under “Other liabilities” or “Other assets” and offset exchange gains and losses on the corresponding foreign currency denominated instrument.

Derivatives cease to be designated as a hedge in the following cases: when the hedging item is sold or matures, the hedge ceases to be effective, Caisse centrale terminates its designation of the hedge or when it is no longer probable that the anticipated transaction will occur substantially as and when identified on inception of the hedging relationship. Realized and unrealized gains or losses associated with derivatives that ceased to exist or to be effective prior to maturity are deferred on the consolidated balance sheets under “Assets related to derivatives” or “Liabilities related to derivatives” and recognized in the consolidated statement of income in the same period as the underlying hedged transaction. When a designated hedged item is sold, expires or matures before the related derivative ceases to exist, any realized or unrealized gain or loss associated with this derivative is recognized in the statements of income.

Derivatives designated for trading purposes are recorded at their estimated fair value and the corresponding realized and unrealized gains and losses are included in “Investment and trading activities” under “Other income.” Estimated fair value is determined using pricing models which incorporate current market prices and the contractual prices of the underlying instruments, the time value of money, and yield curves. In the consolidated balance sheets, derivatives designated for trading purposes having a positive fair value are presented as assets, whereas those that have a negative fair value are presented as liabilities, under the captions “Assets related to derivatives” and “Liabilities related to derivatives,” respectively, under “Other.”

SECURITIES PURCHASED UNDER RESALE AGREEMENTS AND SECURITIES SOLD UNDER REPURCHASE AGREEMENTSCaisse centrale enters into short-term purchases and sales of securities with simultaneous agreements to sell and buy them back at a specified price and on a specified date. These agreements are accounted for as collateralized lending and borrowing transactions and are recorded on the consolidated balance sheets at the selling or repurchase price specified under the agreement. The difference between the specified selling price and the purchase price is recorded using the accrual method under “Interest income.” Conversely, the difference between the selling price and the specified repurchase price is recorded under “Interest expense.”

FOREIGN CURRENCY TRANSLATIONMonetary items denominated in foreign currencies are translated at rates prevailing on the balance sheet date; income and expenses are translated at the average rates prevailing during the year. Foreign exchange gains or losses arising from the translation or the settlement of a monetary item denominated in a foreign currency are recorded in income. Foreign exchange trading positions, including spot and forward contracts, are valued at prevailing market rates and the resulting gains and losses are included in “Other income.”

FIXED ASSETSFixed assets are recorded at cost, less accumulated depreciation and are depreciated over their estimated useful lives in accordance with the following methods and annual rates:

Classes Depreciation methods Rates

Office furniture and equipment Diminishing balance 20%

Computer equipment Diminishing balance 30%

Leasehold improvements Straight-line Term of the leases

INTANGIBLE ASSETS WITH FINITE USEFUL LIFEComputer softwares are recorded at cost, less accumulated depreciation, and are depreciated over their probable useful life on a straight-line basis at a rate of 20%.

EMPLOYEE FUTURE BENEFITSThe employees of Caisse centrale participate in the Desjardins Group pension plans as part of a defined benefit multi-employer pension plan. Caisse centrale also provides life insurance coverage and health and dental care benefits to its eligible retired employees through the Desjardins Group multi-employer group insurance plan. Caisse centrale applies the recommendations regarding defined contribution plans since plan costs and funding of these plans are not allocated among the member entities of the Desjardins Group.

INCOME TAXESCaisse centrale accounts for income taxes under the tax liability method. Under this method, future tax assets and liabilities are calculated based on existing differences between the carrying amount and the tax basis of assets and liabilities using enacted or substantially enacted tax laws and rates expected to apply at the date such differences reverse. Future tax assets and liabilities are included under “Other assets” or “Other liabilities,” as applicable.

The recovery of income taxes appearing in the consolidated statements of members’ equity under “Retained earnings” is related to the remuneration of capital stock, which is deductible for income tax purposes.

FUTURE EFFECT OF RECENT ACCOUNTING STANDARDSHEDGING RELATIONSHIPS In December 2001, the CICA issued Accounting Guideline 13, “Hedging relationships”, (AcG-13) which applies to hedging relationships in effect in fiscal years beginning on or after July 1, 2003. AcG-13 establishes the required conditions under which derivative financial instruments qualify for hedge accounting. It also addresses the identification, designation, documentation and efficiency of hedging relationships and deals with the circumstances leading to discontinuance of hedge accounting. Under this accounting guideline, each hedging relationship has to be documented and tested for efficiency, individually and on a regular basis, in order to determine whether it has remained and will continue to be efficient. Any derivative instrument that does not qualify for hedge accounting will be recorded at fair value as an asset or a liability on the balance sheet, with changes in fair value recognized in income.

On January 1, 2004, Caisse centrale has adopted this new accounting guideline. As of that date, Caisse centrale assessed its existing hedging relationships and discontinued hedge accounting with respect to those that did not satisfy the conditions for hedge accounting. Caisse centrale has elected to account for all these derivative financial instruments at fair value on the balance sheet. Gains and losses arising on qualifying hedging relationships will be deferred and recognized concurrently with gains and losses on hedged items. Consequently, assets will increase by $47.4 million and liabilities, by $90.9 million. The resulting loss of $43.5 million will be deferred and amortized to income over the remaining term of the derivative instruments recognized on the balance sheet.

COMPARATIVE FIGURESCertain 2002 financial information has been reclassified to conform with the presentation adopted in 2003.

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3. SECURITIES

Maturity

Less than1 year

1 to 3years

Over 3 to5 years

Over 5 to10 years

Over 10 years Total Total

2003 2002

INVESTMENT ACCOUNT SECURITIES

ISSUED OR GUARANTEED BY

Canada $ 159,240 $ 51,242 $ 60,911 $ — $ — $ 271,393 $ 352,411

Yield 4.63% 4.69% 4.68% 4.66% 4.67%

Provinces and municipalities in Canada 152,363 483,526 484,830 253,848 — 1,374,567 1,430,982

Yield 5.33% 5.60% 4.04% 6.25% 5.14% 6.41%

School boards or other government

entities in Canada 30,029 — — — — 30,029 80,456

Yield 6.06% 6.06% 5.43%

U.S. public administrations 6,585 20 11,784 2,136 8,474 28,999 81,728

Yield 0.85% 7.35% 1.83% 2.79% 4.87% 2.57% 2.81%

OTHER SECURITIES

Debt securities of Canadian issuers

Banks and financial institutions 1,154,040 — — — — 1,154,040 977,588

Entities under common control — 118,009 — — — 118,009 84,324

Financial asset-backed debt securities 193,907 — — — — 193,907 480,429

Other — — — 9,318 121 9,439 158,198

Yield 2.79% 2.04% 6.35% 2.76% 2.94%

Foreign banks 28,911 — — — — 28,911 43,945

Yield 2.65% 2.65% 2.01%

TOTAL INVESTMENT ACCOUNT SECURITIES $ 1,725,075 $ 652,797 $ 557,525 $ 265,302 $ 8,595 $ 3,209,294 $ 3,690,061

TRADING ACCOUNT SECURITIES


Canada $ — $ 409,245 $ — $ — $ — $ 409,245 $ 178,054

TOTAL TRADING ACCOUNT SECURITIES $ — $ 409,245 $ — $ — $ — $ 409,245 $ 178,054

TOTAL SECURITIES $ 1,725,075 $ 1,062,042 $ 557,525 $ 265,302 $ 8,595 $ 3,618,539 $ 3,868,115

Yields are calculated on year-end carrying values, adjusted for amortization of premiums and discounts.

Term-to-maturity classifications are based on the contractual maturity of the security. Securities with no maturity date are classified in the “Over 10 years” category.

Total investment account securities includes amounts denominated in foreign currencies of C$426,023,327 (2002: C$673,871,608), of which C$275,239,235 is denominated in U.S. dollars (2002: C$517,739,152).

The following table shows unrealized gains and losses on securities.

Carryingvalue

Gross unreal-

izedgains

Gross unreal-

izedlosses

Estimatedmarket

valueCarrying

value

Gross unreal-

izedgain

Gross unreal-

izedlosses

Estimatedmarket

value

2003 2002

INVESTMENT ACCOUNT SECURITIES


Canada $ 271,393 $ 4,898 $ — $ 276,291 $ 352,411 $ 7,607 $ — $ 360,018

Provinces and municipalities in Canada 1,374,567 58,258 (606) 1,432,219 1,430,982 71,811 (5) 1,502,788

School boards or other government

entities in Canada 30,029 418 — 30,447 80,456 1,407 — 81,863

U.S. public administrations 28,999 123 (15) 29,107 81,728 283 (230) 81,781

OTHER SECURITIES

Debt securities of Canadian issuers

Banks and financial institutions 1,154,040 131 (35) 1,154,136 977,588 — (42) 977,546

Entities under common control 118,009 1,199 — 119,208 84,324 2,407 — 86,731

Financial asset-backed debt securities 193,907 289 (5) 194,191 480,429 8 (45) 480,392

Other 9,439 979 — 10,418 158,198 890 (410) 158,678

Foreign banks 28,911 — (1) 28,910 43,945 — — 43,945

TOTAL INVESTMENT ACCOUNT

SECURITIES $ 3,209,294 $ 66,295 $ (662) $ 3,274,927 $ 3,690,061 $ 84,413 $ (732) $ 3,773,742

TRADING ACCOUNT SECURITIES


Canada $ 409,245 $ — $ — $ 409,245 $ 178,054 $ — $ — $ 178,054

TOTAL TRADING ACCOUNT SECURITIES $ 409,245 $ — $ — $ 409,245 $ 178,054 $ — $ — $ 178,054

TOTAL SECURITIES $ 3,618,539 $ 66,295 $ (662) $ 3,684,172 $ 3,868,115 $ 84,413 $ (732) $ 3,951,796

The estimated market value of securities is based on the quoted market price, which may not necessarily be realized on sale. Where a quoted price is not readily available, the estimated fair value is determined using market prices of similar securities.

Interest rate sensitivity is the main cause of changes in the estimated market value of the investment account securities. The carrying value of securities is not adjusted to reflect current increases or decreases in the estimated market value due to interest rate changes, as Caisse centrale’ initial intention is to hold these securities to maturity or until market conditions are more favourable for other types of securities.

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4. LOANS

2003 2002

Securities purchased under resale agreements $ 14,919 $ 6,222

Day, call and short-term loans to investment dealers and brokers 218,000 158,739

Public and parapublic institutions 1,522,989 917,921

Fédération 3,719,748 2,054,660

Entities under common control 1,032,009 291,023

Loans purchased from Desjardins Group 134,319 205,967

Private sector 1,570,584 1,531,872

$ 8,212,568 $ 5,166,404

Allowance for credit losses (90,390) (78,922)

TOTAL $ 8,122,178 $ 5,087,482

Gross impaired loans $ 86,244 $ 46,244

Specific provisions (46,555) (36,400)

IMPAIRED LOANS NET OF SPECIFIC PROVISIONS $ 39,689 $ 9,844

Total loans before the allowance for credit losses include loans for an amount of C$658,536,785 (2002: C$237,570,071) denominated in U.S. dollars.

The cumulative allowance for credit losses relates entirely to loans classified in the “Private sector” category.

The following table shows an analysis of the allowance for credit losses.

ALLOWANCE FOR CREDIT LOSSES 2003 2002

Balance at beginning of year $ 78,922 $ 58,518

Provision for credit losses 16,425 21,146

Write-offs (7,712) (2,729)

Recoveries 2,755 1,987

BALANCE AT END OF YEAR $ 90,390 $ 78,922

CONSISTING OF:

Specific provisions 1 $ 46,555 $ 36,400

General provision for credit losses 43,835 42,522

TOTAL $ 90,390 $ 78,922

1 As at December 31, 2003 and 2002, the specific provisions included an amount of $0.3 million related to off-balance sheet commitments.

5. OTHER ASSETS

2003 2002

Interest receivable $ 44,345 $ 48,857

Future tax assets (note 10) 16,665 10,253

Fixed assets, net of cumulative depreciation of $6,021 (2002: $6,662) 5,675 6,773

Intangible assets with finite useful life, net of accumulated depreciation of $2,364 (2002: $2,373) 4,397 1,238

Income taxes recoverable — 3,527

Other 9,624 10,075

TOTAL $ 80,706 $ 80,723

6. DEPOSITS

Payable on demand

Payable on a fixed date Total Total

2003 2002

Canada $ 641 $ 100,000 $ 100,641 $ 15,462

Provinces 123,032 177,598 300,630 343,622

Banks and financial institutions 65,345 866,819 932,164 165,618

Member

Fédération 139,949 893,153 1,033,102 1,951,513

Other 34,113 172,048 206,161 273,599

Entities under common control 59,614 647,139 706,753 507,589

Other 364,818 6,477,593 6,842,411 4,530,699

TOTAL $ 787,512 $ 9,334,350 $ 10,121,862 $ 7,788,102

Total deposits include deposits in foreign currencies in the amount of C$4,200,218,000 (2002: C$3,758,100,000), of which C$2,123,068,000 (2002: C$2,631,035,000) is denominated in U.S. dollars.

7. OTHER LIABILITIES

2003 2002

Interest payable $ 49,344 $ 71,835

Remuneration of capital stock payable 66,822 171,492

Cheques and other items in transit, net 20,827 17,691

Income taxes payable 2,777 —

Other 53,247 37,969

TOTAL $ 193,017 $ 298,987

8. SUBORDINATED DEBENTURE

The debenture, subordinated to the claims of depositors and certain other creditors:

Maturity Interest rate Terms 2003 2002

March 18, 2013 5.5 % Nominal value of €76,224,509; 5.5% interest payable annually

in euros until March 18, 2008; thereafter, interest payable

quarterly at the rate of Euribor plus 1.40%.

$ 123,911 $ 125,806

Caisse centrale may, with the prior approval of the Autorité des marchés financiers, redeem the subordinated debenture on March 18, 2008 or at any time in the event of an applicable tax amendment. Further, Caisse centrale entered into hedging transactions to eliminate foreign exchange exposure.

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9. CAPITAL STOCK

The capital stock of Caisse centrale is composed of an unlimited number of Class A capital shares, Class B capital shares and qualifying shares.

CLASS A CAPITAL SHARESThe following table presents changes in the number of outstanding shares and their total ascribed value during the year.

Number Amount Number Amount

2003 2002

Capital shares at beginning of year 511,403 $ 511,403 511,403 $ 511,403

Capital shares issued 154,800 154,800 — —

CAPITAL SHARES AT END OF YEAR 666,203 $ 666,203 511,403 $ 511,403

Class A capital shares can only be issued to members and each have a par value of $1,000. The Board of Directors has the discretionary power to determine the remuneration to be paid and the payment terms for these shares. They are transferable between members, with the approval of the Board of Directors, and their reimbursement, only possible in the event of the winding-up, insolvency or dissolution of Caisse centrale, is subordinated to the deposits and other debts of Caisse centrale. They are redeemable by Caisse centrale, in whole or in part, with the authorization of the Autorité des marchés financiers. They are convertible by Caisse centrale, with the approval of the Board of Directors, into shares of other classes issued for this purpose.

CLASS B CAPITAL SHARESAs at December 31, 2003 and 2002, no Class B capital shares had been issued or were outstanding.

Class B capital shares can only be issued to members. The Board of Directors has the discretionary power to determine the remuneration to be paid and the payment terms for these shares. The remuneration and payment terms may differ from those for Class A capital shares. They are transferable between members, with the approval of the Board of Directors, and their reimbursement, only possible in the event of the winding-up, insolvency or dissolution of Caisse centrale, is subordinated to the deposits and other debts of Caisse centrale. They are redeemable by Caisse centrale, in whole or in part, with the authorization of the Autorité des marchés financiers. They are convertible by Caisse centrale, with the approval of the Board of Directors, into shares of other classes issued for this purpose.

QUALIFYING SHARESThe following table presents changes in the number of outstanding qualifying shares and their total ascribed value during the year.

Number Amount Number Amount

2003 2002

Qualifying shares at beginning of year — $ — — $ —

Qualifying shares issued and unpaid 600 3 — —

QUALIFYING SHARES AT END OF YEAR 600 $ 3 — $ —

Qualifying shares can only be issued to members according to the conditions, terms and criteria provided for in the internal management by-laws of Caisse centrale. Their issue price is set at $5.00 each and they are non- interest-bearing. They are redeemable by Caisse centrale only in the event of the withdrawal, exclusion, winding-up, insolvency or dissolution of a member. They are not transferable and their reimbursement, only possible in the event of the winding-up, insolvency or dissolution of Caisse centrale, is subordinated to the deposits and other debts of Caisse centrale and to the holders of the other classes of shares.

10. INCOME TAXES

The income taxes as shown in the consolidated financial statements are detailed as follows:

2003 2002

CONSOLIDATED STATEMENTS OF INCOME

Current income taxes $ 15,725 $ 9,012

Future income taxes (6,412) 1,778

$ 9,313 $ 10,790

CONSOLIDATED STATEMENTS OF MEMBERS’ EQUITY

Recovery of income taxes related to the remuneration of capital stock $ (10,340) $ (8,267)

$ (1,027) $ 2,523

The principal components of the future tax assets and liabilities are as follows:

2003 2002

FUTURE TAX ASSETS

Allowance for credit losses $ 14,269 $ 8,666

Deferred income 900 374

Fees on loans 1,038 630

Securities — 603

Fixed and intangible assets 420 218

Other 401 281

$ 17,028 $ 10,772

FUTURE TAX LIABILITIES

Subordinated debenture issue expenses $ (355) $ (513)

Other (8) (6)

$ (363) $ (519)

FUTURE TAX ASSETS (NET) $ 16,665 $ 10,253

The difference between the statutory income tax rate applicable to credit unions and the effective income tax rate is as follows:

$ % $ %

2003 2002

Income taxes applicable to credit unions 10,128 20.62 8,746 18.96

Increase from:■ Large corporations tax 1,792 3.65 1,472 3.65■ Other 30 0.06 572 0.79

Future taxes from changes to income tax rates (2,637) (5.37) — —

Income taxes, as presented in the consolidated statement of income,

and effective tax rate 9,313 18.96 10,790 23.40

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11. OFF-BALANCE SHEET FINANCIAL INSTRUMENTS

In the normal course of business, Caisse centrale offers its customers various off-balance sheet instruments to meet their needs for liquidity and protection against different risks, such as fluctuations in foreign exchange and interest rates. Caisse centrale uses some of these instruments to hedge its own exposure to foreign exchange and interest rate risks.

All off-balance sheet financial instruments are subject to regular credit standards, financial controls and other usual monitoring procedures that are normally applied. In the opinion of management, these transactions do not represent an unusual risk.

FINANCIAL INSTRUMENTS EXCLUDING DERIVATIVES WITH CONTRACTUAL AMOUNTS REPRESENTING CREDIT RISKThe primary purpose of these instruments is to ensure that funds are available to a customer as required. Caisse centrale’ policy with respect to collateral security for these instruments is generally the same as for loans.

Guarantees and standby letters of credit, which represent irrevocable commitments that Caisse centrale will make payments in the event that a customer cannot meet its obligations to third parties, carry the same credit risk as loans. Cash requirements under guarantees and standby letters of credit are considerably less than the amount of the commitment because Caisse centrale does not generally expect the third party to draw funds under the agreement.

Commitments to extend credit represent unused portions of authorizations to extend credit in the form of loans, guarantees or letters of credit. Caisse centrale is exposed to a potential credit risk in an amount equal to the total unused commitments. However, most commitments to extend credit are contingent upon customers maintaining specific credit standards.

The total outstanding contractual amount of commitments to extend credit does not necessarily represent future cash requirements, since many of these commitments will expire or terminate without being funded.

The following table discloses the contractual amount and the risk-weighted balance, which is based on the rules of capital adequacy as prescribed by the Bank for International Settlements (BIS).

Contractualamount

Risk-weighted

balanceContractual

amount

Risk-weighted

balance

2003 2002

Guarantees and standby letters of credit $ 186,337 $ 153,359 $ 181,567 $ 144,165

Commitments to extend credit (original term to maturity)

Over one year 1,491,115 509,719 1,391,145 486,780

One year or less and conditionals 12,767,003 — 12,722,475 —

Commitment to purchase assets 34,119 — 37,893 2,781

TOTAL $ 14,478,574 $ 663,078 $ 14,333,080 $ 633,726

DERIVATIVESCaisse centrale uses derivatives primarily for asset/liability management and as intermediary to meet the needs of the Desjardins network and its customers.

Interest rate contracts include interest rate swaps, forward rate agreements and futures contracts. Interest rate swaps are transactions in which two parties exchange interest flows on a specified notional principal amount for a predetermined period based on agreed-upon fixed and floating rates. Principal amounts are not exchanged. Forward rate agreements are forward transactions on interest rate, based on a notional principal amount, which call for a cash settlement at a future date for the difference between a contractual rate of interest and the market rate. Futures contracts represent a future commitment to purchase or deliver commodities or financial instruments on a future date at a specified price. Futures contracts are traded in predetermined amounts on regulated stock exchanges and are subject to daily cash margins.

Foreign exchange contracts include forward contracts and currency swaps. Foreign exchange forward contracts represent commitments to exchange two currencies at a specified future date based on a rate agreed upon by both parties at the inception of the contract.

Options are contractual agreements under which the seller grants the buyer the right, but not the obligation, to buy (call option) or sell (put option) by or at a set date a specified amount of a financial instrument at a predetermined price. The seller receives a premium from the buyer for this right. Caisse centrale enters into these contracts primarily to serve the needs of customers and to manage its own asset/liability exposure.

Currency swaps are transactions in which fixed interest payments on notional amounts denominated in different currencies are exchanged. For cross-currency interest rate swaps, fixed and floating interest payments on notional amounts denominated in different currencies are exchanged. Caisse centrale uses currency swaps and cross-currency interest rate swaps to manage its own asset/liability exposure.

The credit risk exposure of derivatives corresponds to the risk of credit losses that can occur if a borrower or counterparty does not fully honour its contractual obligations to Caisse centrale. Credit risk is managed within the authorization limits granted to customers.

The following table summarizes the derivatives portfolio and related credit exposure of Caisse centrale.

■ NOTIONAL AMOUNT The amount to which a rate or price is applied in order to calculate the exchange of cash flows.

■ REPLACEMENT COST The cost of replacing, at estimated fair value, all contracts which have a positive market value. The amounts do not take into consideration contracts which permit offsetting of positions or any collateral which may be obtained.

■ FUTURE CREDIT EXPOSURE The potential for future changes in value based upon a formula prescribed by the BIS.

■ CREDIT RISK EQUIVALENT The total of replacement cost and future credit exposure excluding items prescribed by the BIS, namely the replacement cost of foreign exchange forward contracts with an original maturity of less than 14 days and derivative instruments negotiated through exchanges when they are subject to daily margin requirements.

■ RISK-WEIGHTED BALANCE The credit risk equivalent weighted according to the creditworthiness of the counterparty, as prescribed by the BIS.

Notionalamount

Replacement cost

Futurecredit

exposure

Creditrisk

equivalent

Risk-weighted

balanceReplacement

cost

Risk-weighted

balance

2003 2002

INTEREST RATE CONTRACTS

Interest rate swap contracts $ 43,002,878 $ 607,982 $ 175,349 $ 783,332 $ 189,957 $ 853,333 $ 265,229

Forward rate agreements 3,169,000 1,004 3,005 4,009 801 4,173 1,087

Futures contracts 3,486,217 583 — — — 1,326 —

Options purchased 317,000 1,483 — 1,483 297 — —

Options written 317,000 — — — — — —

TOTAL INTEREST RATE CONTRACTS 50,292,095 611,052 178,354 788,824 191,055 858,832 266,316

FOREIGN EXCHANGE CONTRACTS

Forward contracts 6,537,311 109,174 64,473 173,548 39,134 17,107 16,099

Currency swap contracts 4,170,048 185,108 185,200 370,308 101,133 265,681 137,280

Options purchased — — — — — — —

Options written — — — — — — —

TOTAL FOREIGN EXCHANGE CONTRACTS 10,707,359 294,282 249,673 543,856 140,267 282,788 153,379

OTHER CONTRACTS

Stock index options - purchased 2,033,807 174,751 155,823 330,574 112,962 94,332 84,862

Stock index options - written 2,033,807 — — — — — —

TOTAL OTHER CONTRACTS 4,067,614 174,751 155,823 330,574 112,962 94,332 84,862

TOTAL $ 65,067,068 $ 1,080,085 $ 583,850 $ 1,663,254 $ 444,284 $ 1,235,952 $ 504,557

Less impact of master netting agreements 1 587,930 235,707 750,609 296,601

TOTAL DERIVATIVES $ 492,155 $ 208,577 $ 485,343 $ 207,956

1 Without the intent of settling the contracts on a net basis or simultaneously.

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The following table presents the term to maturity of the notional amounts of the derivatives.

Maturity

1 year and less

Over 1 to3 years

Over 3 to5 years

Over5 years

Notionalamount

Notionalamount

2003 2002


Interest rate swap contracts $ 12,411,007 $ 14,579,187 $ 14,315,431 $ 1,697,253 $ 43,002,878 $ 61,202,780

Forward rate agreements 2,643,000 526,000 — — 3,169,000 5,673,000

Futures contracts 2,639,220 846,997 — — 3,486,217 2,826,000

Options purchased 317,000 — — — 317,000 —

Options written 317,000 — — — 317,000 —

TOTAL INTEREST RATE CONTRACTS 18,327,227 15,952,184 14,315,431 1,697,253 50,292,095 69,701,780


Forward contracts 6,456,999 80,312 — — 6,537,311 3,287,654

Currency swap contracts 1,268,142 939,171 1,486,770 475,965 4,170,048 3,851,273

Options purchased — — — — — —

Options written — — — — — —

TOTAL FOREIGN EXCHANGE CONTRACTS 7,725,141 1,019,483 1,486,770 475,965 10,707,359 7,138,927

OTHER CONTRACTS

Stock index options - purchased 358,510 1,100,472 560,425 14,400 2,033,807 2,651,281

Stock index options - written 358,510 1,100,472 560,425 14,400 2,033,807 2,651,281

TOTAL OTHER CONTRACTS 717,020 2,200,944 1,120,850 28,800 4,067,614 5,302,562

TOTAL DERIVATIVES $ 26,769,388 $ 19,172,611 $ 16,923,051 $ 2,202,018 $ 65,067,068 $ 82,143,269

12. FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair values are intended to approximate amounts at which these financial instruments could be exchanged in a current transaction between willing parties; however, many of the financial instruments lack an available trading market. Therefore, fair values are based on estimates using present value and other valuation techniques which are significantly affected by the assumptions used concerning the amount and timing of estimated future cash flows and discount rates which reflect varying degrees of risk. In addition, the estimated fair values disclosed do not reflect the value of assets and liabilities that are not considered financial instruments, such as “fixed assets and and intangible assets with finite useful life.” Also, the values of other non-financial intangible assets and liabilities have been excluded. Given the use of subjective judgment in applying a large number of acceptable valuation and estimation techniques to calculate fair values, the fair value estimates cannot necessarily be compared to those of other financial institutions. The estimated fair values reflect market conditions at a specific date and, as such, may not be representative of future fair values. They should also not be interpreted as being realizable in an immediate settlement of the instruments. Detailed information on the estimated fair value of on-balance sheet financial instruments and of the derivatives which are excluded from the table of on-balance sheet financial instruments is presented on the following page.

ON-BALANCE SHEET FINANCIAL INSTRUMENTS (excluding derivatives)

Fairvalue

Carryingvalue Difference

Fairvalue

Carryingvalue Difference

2003 2002

ASSETS

Cash and deposits with Bank of Canada $ 112,509 $ 112,509 $ — $ 67,202 $ 67,202 $ —

Securities 3,684,172 3,618,539 65,633 3,951,796 3,868,115 83,681

Loans 8,171,930 8,122,178 49,752 5,115,476 5,087,482 27,994

Customers’ liability under acceptances 450,300 450,300 — 349,300 349,300 —

Other 44,345 44,345 — 48,857 48,857 —

LIABILITIES

Deposits 10,184,177 10,121,862 (62,315) 7,874,071 7,788,102 (85,969)

Acceptances 450,300 450,300 — 349,300 349,300 —

Obligations related to securities sold short 14,919 14,919 — 8,896 8,896 —

Subordinated debenture 135,707 123,911 (11,796) 135,407 125,806 (9,601)

Other 549,015 549,015 — 261,018 261,018 —

DERIVATIVE FINANCIAL INSTRUMENTS

Positivevalue

Negative value

Net fairvalue

Positivevalue

Negative value

Net fairvalue

2003 2002


Interest rate swap contracts $ 607,982 $ 735,504 $ (127,522) $ 853,333 $ 1,112,195 $ (258,862)

Forward rate agreements 1,004 1,792 (788) 4,173 3,164 1,009

Futures contracts 583 — 583 1,326 — 1,326

Options purchased 1,483 — 1,483 — — —

Options written — 154 (154) — — —

TOTAL INTEREST RATE CONTRACTS 611,052 737,450 (126,398) 858,832 1,115,359 (256,527)


Forward contracts 109,174 128,850 (19,676) 17,107 12,305 4,802

Currency swap contracts 185,108 445,940 (260,832) 265,681 389,354 (123,673)

Options purchased — — — — — —

Options written — — — — — —

TOTAL FOREIGN EXCHANGE CONTRACTS 294,282 574,790 (280,508) 282,788 401,659 (118,871)

OTHER CONTRACTS

Stock index options - purchased 174,751 — 174,751 94,332 — 94,332

Stock index options - written — 174,751 (174,751) — 94,332 (94,332)

TOTAL OTHER CONTRACTS 174,751 174,751 — 94,332 94,332 —

TOTAL $ 1,080,085 $ 1,486,991 $ (406,906) $ 1,235,952 $ 1,611,350 $ (375,398)

Less impact of master netting agreements 1 587,930 587,930 — 750,609 750,609 —

TOTAL DERIVATIVE

FINANCIAL INSTRUMENTS $ 492,155 $ 899,061 $ (406,906) $ 485,343 $ 860,741 $ (375,398)

1 Without the intent of settling the contracts on a net basis or simultaneously .

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THE FOLLOWING METHODS AND ASSUMPTIONS WERE USED TO ESTIMATE THE FAIR VALUE OF THE ON-BALANCE SHEET FINANCIAL INSTRUMENTS:

■ FINANCIAL INSTRUMENTS VALUED AT CARRYING VALUE Due to their short-term maturity, the carrying values of certain consolidated on-balance sheet financial instruments were assumed to approximate their fair values. These financial instruments include “Cash and deposits with Bank of Canada,” “Securities purchased under resale agreements, “Commitment under the repurchase agreements”, “Obligations related to securities sold short,” “Customers’ liability under acceptances,” “Acceptances” and “Accrued interest.”

■ SECURITIES The estimated market value of securities are presented in note 3 to the consolidated financial statements. It is determined based on their quoted market price and may not be realized upon sale. When the quoted price of a security is not available, the market value is estimated using quoted market prices of similar securities.

■ LOANS The fair values of loans are estimated using a discounted cash flow calculation that uses market interest currently charged for similar new loans as at December 31 and expected amounts at maturity. For certain floating rate loans that revise frequently, estimated fair values are assumed to be equal to the carrying values.

■ DEPOSITS The fair values of deposits at floating rates or with no stated maturity are assumed to be equal to their carrying values. The estimated fair values of fixed rate deposits are determined by discounting the contractual cash flows, using market interest rates currently offered for deposits of similar remaining maturities.

■ SUBORDINATED DEBENTURE The fair value of the debenture is based on current rates offered to Caisse centrale for debt of the same remaining maturity.

THE FOLLOWING METHODS AND ASSUMPTIONS WERE USED TO ESTIMATE THE FAIR VALUE OF THE DERIVATIVES:

■ OFF-BALANCE SHEET FINANCIAL INSTRUMENTS WITH CONTRACTUAL AMOUNTS REPRESENTING CREDIT RISK The commitments to extend credit are primarily floating rate and therefore do not expose Caisse centrale to interest rate risk.

■ DERIVATIVES The fair values of exchange-traded derivatives are based on quoted market prices or dealer quotes. Fair values of non-exchange-traded or over-the-counter derivatives are generally calculated as a net present value, net of contractual cash flows, using prevailing market rates for instruments with similar characteristics and maturities.

13. INTEREST RATE SENSITIVITY

The following table shows Caisse centrale’ position with regard to interest rate sensitivity as at December 31, 2003. This is the position at that particular date and could have subsequently changed, taking into account forecasted interest rates and customers’ preferences for products and maturities.

Assets and liabilities recorded on the consolidated balance sheet and derivatives presented in the following table are reported in time frames based on the earlier of their contractual repricing date or maturity date. Certain on-balance sheet items, such as investments in equity securities and members’ equity, do not create an interest rate exposure to Caisse centrale. These items are reported in the non-interest sensitive column of the table.

(in millions of dollars)Floating

rate0 to 3

months

Over3 to 6

months

Over6 to 12

months

Over1 to 5years

Over 5years

Non-interest

sensitive Total

ASSETS

Cash and deposits with Bank of Canada $ — $ — $ — $ — $ — $ — $ 113 $ 113

Securities

- Investment account 315 1,345 286 52 846 274 91 3,209

Effective interest rate 1 2.81 % 4.78 % 6.16 % 5.43 % 6.19 %

- Trading account — — — — 409 — — 409

Effective interest rate 1 2.97 %

Loans 914 5,775 94 438 716 188 (3) 8,122


Other — (476) 427 4 5 203 1,417 1,580

TOTAL ASSETS $ 1,229 $ 6,644 $ 807 $ 494 $ 1,976 $ 665 $ 1,618 $ 13,433


Deposits $ 3,966 $ 3,396 $ 732 $ 279 $ 1,450 $ 299 $ — $ 10,122


Obligations related to securities

sold short — — — — 15 — — 15


Subordinated debenture — — — — — 124 — 124


Other — 778 (44) — (258) (24) 2,033 2,485

Members’ equity — — — — — — 687 687

TOTAL LIABILITIES AND MEMBERS’ EQUITY $ 3,966 $ 4,174 $ 688 $ 279 $ 1,207 $ 399 $ 2,720 $ 13,433

Balance sheet gap $ (2,737) $ 2,470 $ 119 $ 215 $ 769 $ 266 $ (1,102) $ —

Derivatives 2 — 1,238 (948) (156) 44 (178) — —

Total interest rate sensitivity gap $ (2,737) $ 3,708 $ (829) $ 59 $ 813 $ 88 $ (1,102) $ —

CUMULATIVE INTEREST RATE

SENSITIVITY GAP 2003 $ (2,737) $ 971 $ 142 $ 201 $ 1,014 $ 1,102 $ — $ —

2002

Balance sheet gap $ (1,406) $ 600 $ 265 $ (15) $ 895 $ 527 $ (866) $ —

Derivatives 2 — (3,011) 2,307 (1,273) 2,248 (271) — —

Total interest rate sensitivity gap $ (1,406) $ (2,411) $ 2,572 $ (1,288) $ 3,143 $ 256 $ (866) $ —

CUMULATIVE INTEREST RATE

SENSITIVITY GAP 2002 $ (1,406) $ (3,817) $ (1,245) $ (2,533) $ 610 $ 866 $ — $ —

1 The effective interest rates shown express the historical rates of the fixed rate instruments stated at unamortized cost and the current market rates of the instruments stated at fair value.

2 Derivatives represent the net notional amounts of derivative financial instruments such as forward rate agreements and interest rate swaps, which are used to manage interest rate risk.

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14. CONCENTRATIONS OF CREDIT RISK

Concentrations of credit risk exist when a certain number of borrowers or counterparties involved in similar activities are located in the same geographic area or present comparable economic characteristics. Their ability to meet contractual obligations can also be affected by changes in economic, political or other conditions. Management considers that the following concentrations are within acceptable limits.

BALANCE SHEETS ASSETOf total loans as at December 31, 2003 and 2002, 98.6% and 97.2% respectively were made to borrowers from Canada, with the largest concentration in Quebec (2003: 86.8%; 2002: 89.1%), and 8.6% to borrowers from Ontario (2002: 3.3%).

DERIVATIVESThe following table shows credit risk by geographic area, on the basis of the country of domicile of the counterparties, based on notional amounts as at December 31.

2003 % 2002 %

Canada $ 48,896,934 75 $ 66,775,269 81

International 16,170,134 25 15,368,000 19

TOTAL $ 65,067,068 100 $ 82,143,269 100

The following table shows credit risk by industry segment based on notional amounts as at December 31.

Interestrate

contracts %

Foreign exchange

contract %Other

contracts % Total Total

2003 2002

Banks $ 21,187,829 42 $ 6,994,414 65 $ 1,107,302 27 $ 29,289,545 $ 23,035,194

Members

Fédération 19,580,479 39 359,159 3 1,939,187 48 21,878,825 48,632,066

Other 308,900 1 — — 82,820 2 391,720 312,924

Entities under common control 90,281 — 300,125 3 — — 390,406 320,859

Government 50,000 — 1,164,330 11 — — 1,214,330 50,000

Private sector 9,074,606 18 1,889,331 18 938,305 23 11,902,242 9,792,226

TOTAL $ 50,292,095 100 $ 10,707,359 100 $ 4,067,614 100 $ 65,067,068 $ 82,143,269

15. CONTRACTUAL COMMITMENTS AND GUARANTEES

A) CONTRACTUAL COMMITMENTS As at December 31, 2003, future minimum commitments under long-term leases and service contracts are as follows:

2004 2005 2006 2007 2008 Other Total

$ 1,217 $ 910 $ 417 $ 166 $ 163 $ 316 $ 3,189

Caisse centrale is also committed to pay an amount of $5,329,000 pursuant to a service contract in 2004.

B) PLEDGING OF ASSETS In the normal course of business, Caisse centrale pledges assets as security for liabilities incurred. As at December 31, 2003, Caisse centrale deposited assets, principally in the form of securities, in the amount of $249,000,000 (2002: $259,500,000) for the purposes of participating in clearing and payment systems and as security for contract settlements with derivative exchanges or other derivative counterparties.

C) TACTICAL INTEREST RATE TERM DEPOSIT In connection with the various sales campaigns for “Tactical interest rate term deposit” carried out by the caisses Desjardins, Fédération des caisses Desjardins du Québec has deposited a portion of the amounts raised during each of the campaigns with Caisse centrale. In order to earn a return on the amounts under management, Caisse centrale invests in fixed income financial instruments (including Government of Canada bonds, derivative financial instrument contracts and other investment vehicles). The face value of these investments of Caisse centrale exceeds the amounts deposited by the Fédération. Caisse centrale deposits an amount equal to the positive returns it earns on these investments in the Fédération’s account and recovers from the latter negative returns. However, the cumulative balance of a campaign account cannot become negative as a result of recoveries by Caisse centrale. As at December 31, 2003, the face value of Caisse centrale investments is $394,790,000 (2002: $78,400,000)and the balance of the amounts deposited by the Fédération amounts to $21,417,000 (2002: $3,700,000).

D) GUARANTEES In February 2003, the CICA published Accounting Guideline 14 (AcG-14) concerning financial statement disclosures to be made by an entity about guarantees it has issued. AcG-14 took effect on January 1, 2003.

Under this accounting guideline, a guarantee is a contract or indemnification agreement that contingently requires Caisse centrale to make payments to the guaranteed party; as for instance, (i) based on changes in an interest rate, a foreign currency exchange rate, a security or commodity price, or a price or rate index, or the occurrence or non-occurrence of a specified event that is related to an asset, a liability or an equity security of the guaranteed party; (ii) based on another entity’s failure to perform under an obligating agreement or (iii) another entity’s failure to repay its debt when it becomes due and payable.

Caisse centrale has issued the following guarantees to third parties:

GUARANTEES AND STANDBY LETTERS OF CREDIT Guarantees and standby letters of credit (including Publi-privilège securities) represent an irrevocable commitment by Caisse centrale to make payments in the event that a customer cannot meet its obligations to third parties.

These instruments are generally collateralized in accordance with the same policy as the one that Caisse centrale has with respect to loans. The term of these products is not more than five years.

The general provision for credit losses covers all credit risks, including those related to guarantees and standby letters of credit.

OTHER INDEMNIFICATION AGREEMENTSIn the normal course of its operations, Caisse centrale enters into a number of agreements containing indemnification provisions such as those normally related to purchase agreements, service delivery agreements and lease agreements. Under these agreements, Caisse centrale may be liable for indemnifying the counterparty pursuant to amendments to statutes and regulations (including tax rules) or as a result of litigation. The term of the agreements varies from one contract to the next. Caisse centrale is not in a position to make a reasonable estimate of the maximum amount that it could be required to pay counterparties. Historically, payments made under these agreements have been negligible. No amounts have been recognized in the consolidated balance sheet with respect to these agreements.

OTHER GUARANTEESCaisse centrale irrevocably guarantees, jointly and severally, the obligations of Desjardins Credit Union Inc. (DCU) until April 1, 2006 pursuant to an agreement between the Government of Ontario and DCU regarding the acquisition by the latter of certain assets of the Province of Ontario Savings Office. The agreement contains several conditions, including minimum standards regarding personnel and branch operations. Caisse centrale cannot reasonably estimate the maximum amount it may have to pay under this agreement. No amounts have been recognized in the consolidated balance sheet with respect to this agreement.

MAXIMUM POTENTIAL AMOUNT OF FUTURE PAYMENTS AS GUARANTEES

(in thousands of dollars)

Guarantees and standby letters of credit $ 186,337

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16. OTHER TRANSACTIONS WITH DESJARDINS GROUP

These transactions with members and entities under common control represent those not disclosed elsewhere in the consolidated financial statements. Pursuant to its Constituent Legislation, the Fédération and its member caisses are members of Caisse centrale. Consequently, transactions with the Fédération for the benefit of its member caisses are concluded under more favourable conditions for the member caisses than those granted to unrelated third parties. These transactions are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. Transactions concluded for the Fédération’s own financing needs and with the entities under common control of Caisse centrale are carried out under similar conditions to those negotiated with unrelated third parties. These transactions are in the normal course of business of Caisse centrale and are measured at the exchange amount, which approximates fair market value and is the amount of consideration established and agreed to by the related parties.

Members

Entities under

common control

Members

Entities under

common controlFédération Other Fédération Other

2003 2002

ASSETS

Assets related to derivatives $ 41,997 $ 54,292 $ 477 $ 214,655 $ 748 $ 298

Customers’ liability under acceptances 164,800 — — 190,000 — —

Other assets 10,584 2,863 4,274 1,050 — 2,779

LIABILITIES

Liabilities related to derivatives 607,311 106,498 1,402 804,564 10,329 117

Acceptances — — 450,300 — — 349,300

Other liabilities 70,423 6,649 1,348 175,998 15,192 668

INCOME

Interest income 67,175 17,179 24,621 47,037 64 17,838

Interest expense 42,716 5,561 14,702 85,005 8,245 6,013

Other income (136,206) 45,720 1,050 8,779 10,079 856

Non-interest expenses 9,657 12 2,152 7,521 30 1,691

17. EMPLOYEE FUTURE BENEFITS

Caisse centrale enrols all its employees 25 years of age or older in the multi-employer pension plan of the Desjardins Group. An actuarial valuation of the plan is performed at least once every three years. As at January 1, 2002, the most recent valuation date, this defined benefit pension plan was fully funded.

The Board of Directors of the Fédération agreed, in accordance with the pension plan by-laws, to allow a portion of the stated surplus as at January 1, 2000, amounting to $259 million, to be used in the form of a partial contribution holiday for participants registered as at December 31, 2000 and for employers for the 130-week period from July 1, 2001 to December 27, 2003. Full contribution has been reinstated since December 28, 2003.

The amount expensed as employer contributions with respect to the pension plan was $889,000 in 2003 (2002: $741,000).

Caisse centrale also provides life insurance coverage and health and dental care benefits to its eligible retired employees through the Desjardins Group multi-employer group insurance plan. This group plan is not funded.

18. SEGMENTED INFORMATION

Caisse centrale conducts its activities in three segments. Each segment offers different services, uses separate strategies and is managed by a senior vice-president.

The accounting policies used by the segments are the same as those described in the significant accounting policies. Caisse centrale measures the performance of these segments based on the gross income generated by each segment. Non-interest expenses are managed on a consolidated basis and are not allocated by segment.

The following table summarizes the consolidated financial results of Caisse centrale by business segment:

Financing Treasury Other Adjustments Total

2003 2002 2003 2002 2003 2002 2003 2002 2003 2002

Net interest income $ 39,347 $ 35,768 $ 45,823 $ 43,912 $ 5,223 $ 5,265 $ ,4,261 $ 7,497 $ 94,654 $ 92,442

Other income 20,044 18,496 15,309 14,493 4,610 5,456 (4,261) (7,497) 35,702 30,948

Gross income $ 59,391 $ 54,264 $ 61,132 $ 58,405 $ 9,833 $ 10,721 $ — $ — $ 130,356 $ 123,390

Average assets 1 $ 5,121,434 $ 4,341,446 $ 5,256,123 $ 6,286,658 $ 108,764 $ 93,847 $ — $ — $ 10,486,321 $ 10,721,951

1 Assets are disclosed on an average basis, as this basis is the most relevant to a financial institution and is the measure examined by Caisse centrale’ management.

FINANCING SEGMENT This 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 entities under common control, public and parapublic entities, and Private sector clients.

TREASURY SEGMENT This segment manages Caisse centrale’ assets and liabilities, securities and derivatives portfolios, and the cash of the entire cooperative network.

OTHER “Other” combines the international sector and the unallocated income from centralized service units. This segment also includes the operations of the Florida-based subsidiary, Desjardins Federal Savings Bank. This subsidiary’s gross income and average assets totalled $5.4 million and $85.1 million in 2003 (2002: $6.6 million and $72.2 million).

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CONSTITUTION, REGULATION AND CONTROL

CONSTITUTION

La Caisse centrale Desjardins du Québec was created on June 22, 1979 by an Act to amend the Act respecting La Confédération des caisses populaires et d’économie Desjardins du Québec (1979 S.Q., c. 46), replaced on June 22, 1989 by an Act respecting the Mouvement des caisses Desjardins (1989 S.Q., c. 113), which was replaced on July 1, 2001 by the Act respecting the Mouvement Desjardins (2000 S.Q., c. 77). Caisse centrale Desjardins du Québec may also be identified under the name “Caisse centrale.” Pursuant to its Constituent Legislation, Caisse centrale continues its existence as a financial services cooperative and is therefore also governed by the Act respecting financial services cooperatives (Québec) as if it were a federation within the meaning of that Act.

Caisse centrale, through its holding company Desjardins FSB Holdings, Inc., incorporated under the laws of the State of Delaware, USA, holds the aggregate of the capital stock of Desjardins Federal Savings Bank, a savings and loan association incorporated under US federal law which has its place of business in Hallandale Beach, Florida, USA.

The capital stock of Caisse centrale is composed of an unlimited number of qualifying shares and an unlimited number of Class A capital shares and Class B capital shares subscribed for by its members. These shares can be paid in full or in instalments in accordance with the payment terms and in the cases determined by resolution of the Board of Directors of Caisse centrale.

The qualifying shares with an issue price of $5.00 each are reimbursed only in the event of the winding-up, insolvency or dissolution of Caisse centrale and are redeemable only in the event of the withdrawal, exclusion, winding-up, insolvency or dissolution of the member. The capital shares with a par value of $1,000 each are reimbursed only in the event of the winding-up, insolvency or dissolution of Caisse centrale and are redeemable with the authorization of the Autorité des marchés financiers.

The shares of the capital stock of Caisse centrale are held primarily by the Fédération des caisses Desjardins du Québec, which, with its member caisses, is a full member of Caisse centrale under its Constituent Legislation, and by the three federations of caisses populaires in Ontario, Manitoba and New Brunswick, which are auxiliary members of Caisse centrale.

The general meeting of Caisse centrale comprises the members of the general meeting of the Fédération des caisses Desjardins du Québec, namely the delegates of the caisses and a representative from the Fédération des caisses Desjardins du Québec. Under the provisions of the Constituent Legislation, the Board of Directors of Caisse centrale must be composed of at least three quarters of the Board members of the Fédération des caisses Desjardins du Québec (other than its president), who shall account for over one half of the Board members of Caisse centrale. As at the date of this annual report, the members of the Board of Directors of the Fédération des caisses Desjardins du Québec constitute all of the members of the Board of Directors of Caisse centrale. For the duration of his mandate, the president of the Fédération des caisses Desjardins du Québec is the Chairman of the Board and the Chief Executive Officer of Caisse centrale.

REGULATION AND CONTROL

The Autorité des marchés financiers is responsible for the annual inspection and supervision of Caisse centrale. The Act respecting financial services cooperatives governs the control exercised by the Autorité des marchés financiers with regard to the management, transactions and solvency of Caisse centrale and to conflicts of interest and self-dealings.

The Autorité des marchés financiers may make any examination and investigation he considers necessary or expedient into the internal affairs and activities of Caisse centrale, and order any inquiry into any matter within his jurisdiction.

The Autorité des marchés financiers may request from Caisse centrale statements, statistics, reports and any other information he deems appropriate to enable him to determine whether Caisse centrale complies with the Constituent Legislation and the applicable provisions of the Act respecting financial services cooperatives. The Autorité des marchés financiers may, with respect to the financial statements and when deemed expedient, prescribe accounting rules that contain specific requirements or different requirements than those under Canadian generally accepted accounting principles.

Since the Fédération des caisses Desjardins du Québec and its member caisses can elect the majority of its directors, Caisse centrale is deemed to be controlled by the Fédération des caisses Desjardins du Québec within the meaning of the Act respecting financial services cooperatives. This Act therefore confers the normative powers applicable to Caisse centrale, notably with respect to capitalization and investments, on the Fédération des caisses Desjardins du Québec.

Caisse centrale is required to maintain, for its operations, an adequate capital base to ensure sound and prudent management in accordance with the standards adopted by the Fédération des caisses Desjardins du Québec and approved by the Autorité des marchés financiers.

Caisse centrale appoints annually, as auditor, a firm of chartered accountants to conduct the audit of its accounting records and to report to the Autorité des marchés financiers as prescribed by the Constituent Legislation, the Act respecting financial services cooperatives and government regulations.

Caisse centrale establishes, in accordance with its Constituent Legislation, an Audit Commission composed of no less than three members from its Board of Directors, and a Board of Ethics consisting of no less than three members elected at the general meeting among its members. The Audit Commission reviews the consolidated financial statements of Caisse centrale and ensures that its operations are in compliance with the provisions of the applicable legislation and the orders and written instructions of the Autorité des marchés financiers. The Board of Ethics is responsible for adopting and implementing rules to protect Caisse centrale and its members with respect to self-dealings, disclosure requirements, privacy of information and conflicts of interest.

Caisse centrale is registered with the Régie de l’assurance-dépôts du Québec.

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CORPORATE GOVERNANCE

The corporate governance practices of Caisse centrale contribute to enhanced corporate oversight and management and ensure the effectiveness and integrity of its operations. Caisse centrale deems it appropriate, for reasons of transparency toward its members, clients and other stakeholders, to provide an overview of its practices in its annual report.

HIGHLIGHTS

The main improvements made or major initiatives taken in 2003 regarding the Corporate Governance Program consisted of:

■ adopting a plan to implement the integrated risk management program for Caisse centrale in conjunction with the Fédération des caisses Desjardins du Québec, and defining corporate governance as it applies to integrated risk management;

■ identifying Desjardins initiatives concerning enacted Bill 198 with respect to financial disclosure and internal controls in order to ensure compliance with the rules dictated by the Canadian Securities Administrators;

■ examining new accounting standards and their impact on Desjardins;■ preparing a draft Charter for the Audit Commission;■ preparing a draft Code of Ethics and Professional Conduct;■ implementing a succession plan for executive positions at Caisse centrale.

CORPORATE GOVERNANCE POLICY OF CAISSE CENTRALE

The corporate governance policy of Caisse centrale, which is based on the policy adopted by the Fédération des caisses Desjardins du Québec, confirms Caisse centrale’ concurrence with the guidelines and other good corporate governance practices currently applied in the industry 1. It describes what Caisse centrale must do in order to comply with the spirit of the guidelines. This nuance is important since the guidelines must be adapted to the specific circumstances of Desjardins Group.

APPLICATION OF CORPORATE GOVERNANCE GUIDELINES

MANDATE OF THE BOARD OF DIRECTORS1) MANAGEMENT OF CAISSE CENTRALE The Board of Directors assumes full responsibility for the administration of Caisse centrale. The Board of Directors exercises all the powers of Caisse centrale except for those which it may delegate from time to time to its commissions and committees. The Board discharges the following responsibilities in particular:

a.Strategic Planning Process The Board of Directors has implemented an ongoing Strategic Planning Process for Caisse centrale in compliance with the vision and the strategic orientations of Desjardins Group. This process provides for the following steps:

■ annual update of Caisse centrale’ strategic plan and business plan and ensuring their consistency with the Fédération des caisses Desjardins du Québec through the Strategic Integration Group and the Strategic Planning and Development Committee;

■ quarterly reporting to the Board of Directors of Caisse centrale on the progression of work to attain strategic objectives;

■ regular follow-up of the plans by the Management Committee of Caisse centrale to enable the Board of Directors to correct any discrepancies observed.

Responsibility for implementing the various components of the ongoing Strategic Planning Process lies with management, and the Board’s role in this respect is one of follow-up, oversight and control.

b. Identification and Management of Major Risks The Board of Directors is responsible for identifying the main risks to the business and ensuring that the required controls are in place to provide integrated risk management. In this respect, Caisse centrale can count upon the support of a Senior Vice President, Integrated Risk Management, an Internal Credit Committee, an Assets/Liabilities Committee and a Risk Management Committee.

Caisse centrale is in keeping with the ongoing work of the Fédération to implement procedures for securing compliance with the integrated risk management methods advocated by the New Basel Capital Accord.

c. Succession Planning Caisse centrale intends to adopt an integrated human resources planning program and a succession plan. This plan is being prepared in conjunction with the Fédération des caisses Desjardins du Québec.

1 The Canadian Securities Administrators (CSA) now have the responsibility for issuing corporate governance guidelines.

d. Communication Policy The Board of Directors and the management of Caisse centrale favour open, transparent communications with the Fédération des caisses Desjardins du Québec, caisses, subsidiaries of Desjardins Group, regulatory bodies and rating agencies. Caisse centrale ensures the timely dissemination of important information. Particular attention is paid to quarterly and annual financial information. The content of press releases is submitted for approval to the Board of Directors upon recommendation of the Audit Commission. Requests for information and comments received are rapidly forwarded to management for review and response.

Through the Fédération des caisses Desjardins du Québec, Caisse centrale also has access to other channels such as the Ombudsman, the complaint settlement process in the caisse (Your Satisfaction Is Our Priority), the annual general meetings, the release of quarterly financial results of Caisse centrale and Desjardins Group, publications, the toll-free telephone line and the Web site (www.desjardins.com).

Caisse centrale also has contacts at the rating agencies. It also communicates with the various levels of government in conjunction with the Vice-President, Government Affairs at the Fédération des caisses Desjardins du Québec.

e. Management Information System and Integrity of Control Systems The Board of Directors ensures the implementation of effective control systems (accounting, administrative and management) to safeguard the integrity of its operations and requires accountability from its managers. The Board of Directors is supported in this responsibility by the Internal Auditor of Desjardins Group.

The Board of Directors ensures that the Management Committee of Caisse centrale provides the Board and its commissions and committees with information that is reliable, timely, and adapted to the particular needs of the Board members so that they may take advantage of opportunities when they arise and assess the risks involved.

Board members receive a complete report of the financial and operating results of Caisse centrale on a quarterly basis. The Board of Directors ensures that appropriate policies and procedures are in place to facilitate the production and presentation of this information.

To effectively carry out its orientation and control duties, the Board of Directors of Caisse centrale meets regularly, according to a predetermined schedule. In 2003, nine Board meetings were held. Board members received the agenda, along with any appropriate documentation, in advance to ensure productive discussions and facilitate the decision-making process.

2) COMPOSITION OF THE BOARD OF DIRECTORS The Board of Directors of Caisse centrale is comprised of a majority of unrelated parties. In actual fact, the Directors of Caisse centrale are the same as those of the Fédération des caisses Desjardins du Québec, within the context of a single management structure.

3) APPLYING THE DEFINITION OF UNRELATED PARTY There are five related Directors on the Board of Directors; namely the Chairman of the Board and Chief Executive Officer of Desjardins Group and the four General Caisse Managers serving on the Board. The Directors have no business or personal relationships with members of the Management Committee of Caisse centrale, or interests which, in the opinion of the Board, could significantly interfere with their ability to act in the best interests of the Fédération des caisses Desjardins du Québec and Desjardins Group, or the interests of another nature which, again in the opinion of the Board, could reasonably be perceived as such.

For guidance in these matters, the Board refers to the Code of Ethics, which governs the actions of its Directors.

See the list of Directors, in which they are identified as related or unrelated.

4) NOMINATION PROCEDURE Given the cooperative structure of Caisse centrale, its Board of Directors is comprised of persons elected by the delegates of the member caisses of Caisse centrale who hold meetings in each region to directly elect 16 of the 21 members of the Board of Directors. Four other positions are filled by General Managers of the caisses at an election held at a general meeting of Caisse centrale. The remaining position is reserved by law for the President and Chief Executive Officer of Desjardins Group. The Corporate Governance Commission does not have a role in the selection of Caisse centrale’ Directors.

5) ASSESSING THE EFFECTIVENESS OF THE VARIOUS BODIES The Board of Directors, its commissions and its committees annually assess their performance based on objectives set by the Board at the beginning of the year. Opportunities for improvement and aspects requiring further examination, as determined by the assessment exercise, are included in an action plan recommended to the Board of Directors by the Corporate Governance Commission, which is in charge of monitoring this plan. The Assessment Program for the various bodies making up Caisse centrale also provides for an individual self-assessment procedure followed by a separate meeting with the Chairman of the Board, who is responsible for the assessment process, while the Corporate Governance Commission ensures its supervision.

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6) ORIENTATION AND PROFESSIONAL DEVELOPMENT PROGRAM FOR NEW DIRECTORS Caisse centrale ensures the Orientation and Professional Development Program of its Directors and develops training sessions based on their specific needs. All new Directors are provided with an orientation session, including, in particular, a meeting with certain members of management and a reference manual containing all the information they need to carry out their duties. Meetings with specialists from Caisse centrale are also organized, when necessary, to impart to them a more complete picture of certain strategic projects. In 2003, the Directors were requested to voice their needs in this respect.

As a follow-up to the assessment of the Board’s effectiveness in 2002, the members of Caisse centrale’ Credit and Investment Commission attended a day of training in early 2004 with a view to enhancing their knowledge of investment operations.

Since 2003, the training program for members of the Board of Directors has been included in the programming of the activities of Institut coopératif Desjardins, the new cooperative training centre designed for elected Officers and Managers of Desjardins Group. The mission of this institute will be three-pronged: the Desjardins Culture, Corporate Governance and Management at Desjardins, and Innovation Desjardins.

7) SIZE OF THE BOARD OF DIRECTORS The Board of Directors is larger than recommended and generally found in the industry. As at December 31, 2003, the Board of Directors was made up of 21 members.

The total number of Directors serving on the Board of Directors of Caisse centrale is due primarily to the broad ownership of Desjardins Group and the democratic structure of this group of cooperative financial institutions. The composition of the Board of Directors ensures representation of all Quebec regions according to the regional mapping established by Desjardins Group. About 600 member caisses of the Fédération des caisses Desjardins du Québec are the ultimate owners of Caisse centrale.

Efficient meeting management and sound discipline on the part of the Directors makes up for the rather large number of Directors. In addition, informal meetings between the Chairman of the Board and Chief Executive Officer and the Directors on the day before Board meetings increase the efficiency of the actual meetings.

8) COMPENSATION POLICY The Board of Directors adopted a policy regarding the payment of compensation to its Directors, which takes into account the responsibilities, risks and requirements inherent in their duties. In 2003, the Corporate Governance Commission examined industry practices and recommended to the Board of Directors amendments regarding the compensation policy of Directors.

9) COMPOSITION OF COMMISSIONS AND COMMITTEES The Board of Directors has created various commissions and committees, which are necessary for it to carry out its oversight and control duties and to streamline its procedure. All or most members of these commissions and committees are unrelated parties. Only the Chairman of the Board and Chief Executive Officer of Caisse centrale is an ex-officio member of these commissions and committees, which meet regularly and whose Chairs report to the Board of Directors.

The mandate of these commissions and committees are reviewed annually so that they properly support the Board of Directors in its duties of orientation, planning and oversight.

10) RESPONSIBILITY FOR CORPORATE GOVERNANCE The Board of Directors has entrusted the Corporate Governance Commission with the responsibility of ensuring the application and development of the Corporate Governance Program. This Commission must report its observations and make recommendations to the Board of Directors.

11) LIMITS TO THE AUTHORITY OF THE MANAGEMENT COMMITTEE The responsibilities of the Chairman of the Board and Chief Executive Officer of Caisse centrale are set out in the Corporate Governance by-law of Caisse centrale. The responsibilities of the President and Chief Operating Officer are also defined in this by-law. The Board of Directors has established a very clear division of responsibilities between the Board and the Management Committee. The annual objectives of the Chairman of the Board and Chief Executive Officer are recommended to the Board of Directors by the Committee on the Overall Compensation of the President of Desjardins Group and Chief Executive Officer. The objectives of the President and Chief Operating Officer are set by the Board of Directors within the parameters of the profit-sharing plan of Caisse centrale.

The degree to which these objectives are achieved is measured through an annual review process. With respect to the performance of the Chairman of the Board and Chief Executive Officer, under the supervision of the above-mentioned committee, each Director participates anonymously in the review process, without members of management being present, using a model prepared in advance by this committee.

12) THE BOARD’S INDEPENDENCE FROM THE MANAGEMENT COMMITTEE The Board of Directors has created various structures and procedures to safeguard its independence from the management of Caisse centrale. These include:

a) having only one member of management on the Board of Directors (i.e., the Chairman of the Board and Chief Executive Officer of Caisse centrale);

b) having the Directors meet informally the day before each Board meeting;

c) having an unrelated Director chair the Audit Commission and the Credit and Investment Commission; and

d) entrusting to the Corporate Governance Commission (of which only one member is a related party) the responsibility for:

1) managing relations between the Board and the Management Committee of Caisse centrale; and 2) ensuring that the Board fulfills its duties. In addition, the Chairman of the Board and Chief Executive Officer of

Caisse centrale is in charge of setting or supervising the agenda for meetings of the Board and its commissions and committees.

Desjardins does not intend to separate the functions of Chairman of the Board and President and Chief Executive Officer of Caisse centrale in keeping with the corporate governance orientations of Desjardins Group.

13) AUDIT COMMISSION – MANDATE AND COMPOSITION The Audit Commission is entirely made up of unrelated parties; two among them, including the Chair of the Commission, have accounting expertise. The roles and responsibilities of the Commission have been defined in such a way as to give its members a very clear understanding of their duties. The Audit Commission has all the powers and information it needs to fulfill its mandate. The role of the Commission is to review all financial information and to supervise the implementation of an effective control process and accountability. The Commission has direct communication channels with the internal and external auditors to discuss and review certain issues, if any. The Commission may, as needed, discuss these issues with them without the Managers responsible being present.

14) HIRING OUTSIDE ADVISORS A Director may engage the services of an outside Advisor at the expense of Caisse centrale. However, to ensure that such services are relevant, a request must be submitted to the Corporate Governance Commission in this respect.

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COMMISSIONS OF THE BOARD OF DIRECTORS AND COMMITTEES OF CAISSE CENTRALE

Note : * means that the director is unrelated

EXECUTIVE COMMITTEE (7 DIRECTORS)The Executive Committee of Caisse centrale met twice in 2003. It supports the Board of Directors in its duties of orientation, planning and oversight by making recommendations on:

■ the strategic and financial plan of Caisse centrale. In this respect, it examines the budgetary focus and priorities, analyzes the budget and conducts a quarterly follow-up;

■ the proposed major transactions, after review thereof.

It follows up on the main strategic initiatives and high-benefit projects of Caisse centrale. It is also responsible for the following:

■ approving any financial undertaking in excess of the limits established for management, in compliance with the policy;

■ tracking the realization of the benefits of the projects authorized by the Board of Directors;■ ensuring follow-up of the out-of-court settlements of Caisse centrale;■ supervising the enforcement of the strategic communication policy.

MEMBERS:■ Alban D’Amours, Chairman of the Board of Directors■ Madeleine Lapierre, Vice-Chair of the Board of Directors*■ Pierre Tardif, Secretary of the Board of Directors*■ André Gagné*■ Olivier Lavoie*■ André Shatskoff ■ Sylvie St-Pierre-Babin*

AUDIT COMMISSION (5 DIRECTORS)The Audit Commission met eight times in 2003. It supports the Board of Directors in its duties of orientation, planning and oversight by carrying out the following mandate:

■ it guarantees the protection of the independence of the Internal Audit Department and ensures that the latter fulfills its mandate;

■ it examines the annual program of the activities of the Internal Audit Department of Desjardins Group and, if need be, makes a recommendation to the Board of Directors. It follows the conduct of the Audit Program and may, where necessary, request a special audit;

■ it receives, and follows up upon, the reports on the activities of the Internal Audit Department;■ it examines the reports drawn up in order to monitor the financial results and the risks to which Caisse centrale is

exposed and, when needed, makes recommendations to the Board of Directors;■ it reviews the press releases with respect to the financial results and makes recommendations to the Board of

Directors;■ it studies the reports of the External Auditors and the letter to management and receives the comments from

management; it oversees the quality of their work;■ it makes a recommendation to the Board of Directors with respect to the selection of the External Auditor, and

the External Auditor’s mandate and compensation. It ensures the independence of the External Auditors and reviews the special engagements entrusted to the External Auditors and the fees in connection therewith. Where a proposal is made to change the External Auditors, it reviews any matter connected therewith, including all disclosure requirements which must be observed in the notice of change of auditors, the information circular and the steps to be taken in order to ensure an orderly transition;

■ it examines the reports to be filed with the governmental authorities, including the Autorité des marchés financiers;

■ it monitors the efficiency of the internal control procedures, the integrated risk management systems, the accounting controls, procedures and methods;

■ it ensures regulatory compliance of the transactions performed by Caisse centrale.

Upon request, it carries out any other duties entrusted by the Board of Directors and reports thereon.

The External Auditors attend the meetings of the Commission. The Senior Vice-President, Finance, Strategic Alliances and International, submits the quarterly financial results of Caisse centrale. The Commission meets annually with the External Auditors without the members of Management being present.

MEMBERS:■ Andrée Lafortune, FCA, Chair*■ Jean-Guy Bureau*■ Raymond Gagné*■ Pierre Leblanc, FCA*■ Jacqueline Mondy*

CORPORATE GOVERNANCE COMMISSION (5 DIRECTORS)The Corporate Governance Commission of Caisse centrale held three meetings in 2003. It supports the Board of Directors in its duties of orientation, planning and oversight by carrying out the following mandate:

■ enforcing, supervising and updating the Corporate Governance Program and, in this respect, receiving the report of the Internal Auditor with respect to the implementation of the Corporate Governance Policy;

■ ensuring that a tracking of the development of industry trends and practices is in place;■ reviewing the wording of the Corporate Governance disclosure in the annual report of Desjardins Group;■ supervising the Assessment Program with respect to the efficiency of the Board of Directors and proposing goals to

the Board of Directors for the upcoming year;■ reviewing annually the role of the Board of Directors and its commissions and committees in light of the annual

assessment of the performance of these bodies;■ assessing the overall quality and relevance of the information submitted to the Board of Directors, the commissions

and the committees;■ recommending the orientation and professional development program for Board members;■ ensuring the availability of the Officers’ Reference Manual;■ following up on the compensation policy in respect of Officers and recommending amendments to the Board of

Directors, where necessary;■ recommending to the Board of Directors the appointment of members of the various boards of directors of the

subsidiaries, other than the Chairs of such boards;■ reviewing the relationship between Management and the Board of Directors;■ reporting and, if necessary, making recommendations to the Board of Directors.

MEMBERS:■ Alban D’Amours, Chairman of the Board of Directors■ Pierre Tardif, Secretary of the Board of Directors*■ André Gagné*■ André Lachapelle*■ Pierre Leblanc*

HUMAN RESOURCES COMMISSION (5 DIRECTORS)The Human Resources Commission of Caisse centrale held three meetings in 2003. It supports the Board of Directors in its duties of orientation, planning and oversight, in particular by making recommendations on:

■ the three-year human resources plan of Caisse centrale, including plans for the development of human resources and succession management;

■ the implementation of the compensation policy of Caisse centrale, in keeping with the compensation policy of Desjardins Group adopted by the Fédération des caisses Desjardins du Québec;

■ the overall compensation of the Executives of Caisse centrale in respect of whom the Commission conducts a follow-up, in keeping with the policies of Desjardins Group adopted by the Fédération des caisses Desjardins du Québec.

At the request of the Board of Directors, the Commission studies any matter regarding employer-employee relations and makes recommendations to the Board. It reviews, in particular, the results of the survey on satisfaction and motivation of the staff of Caisse centrale.

The Commission ensures that practices in the area of employer-employee relations are in line with management values, policies and guidelines and reflect internal equity and values of Desjardins Group.

The Commission also ensures tracking of the major trends in the performance of group insurance plans, of relations with unions, of the implementation of salary recommendations, of the mentoring framework and of the annuity plan.

It ensures compliance with Desjardins Group Human Resources policies.

It reports to the Board of Directors.

MEMBRES :■ Alban D’Amours, Chairman of the Board of Directors■ Madeleine Lapierre, Vice-Chair of the Board of Directors*■ Pierre Tardif, Secretary of the Board of Directors*■ Raymond Gagné*■ Denis Paré*

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CREDIT AND INVESTMENT COMMISSION (4 MEMBERS)The Credit and Investment Commission met 15 times in 2003. It is responsible for determining the loans to be granted by Caisse centrale as well as its investments and borrowings and other financial commitments and, to this end, operates within the approval limits set out in the general policies adopted from time to time by the Board of Directors.

The President and Chief Operating Officer of Caisse centrale as well as its Senior Executive Vice-President and its Senior Vice-President, Integrated Risk Management, sit on the Commission as non-voting members.

MEMBERS:■ Madeleine Lapierre, Chair*■ Louise Charbonneau■ Richard Sarrazin■ André Shatskoff

BOARD OF ETHICS (3 MEMBERS)The Board of Ethics met six times in 2003. It is responsible for:

■ adopting rules of professional conduct applicable to the officers and employees of Caisse centrale, submitting them to the Board of Directors for approval and enforcing them;

■ supporting Caisse centrale in applying the rules of professional conduct;■ notifying the Board of Directors when the rules of professional conduct have been infringed;■ dealing with complaints about Caisse centrale from its members;■ reporting annually on its activities.

MEMBRES :■ Denis Rousseau, Chairman*■ Claude Leblond*■ Jacques Sansoucy*

MANAGEMENT COMMITTEEThe Management Committee of Caisse centrale is not a committee of the Board of Directors. It is comprised of the Chairman of the Board and Chief Executive Officer of Caisse centrale, the President and Chief Operating Officer of Caisse centrale, the Senior Executive Vice-President, the Senior Vice-President, Capital Markets, the Senior Vice-President, Administration and International, the Senior Vice-President, Integrated Risk Managemen, the Senior Vice-President, Financing and Banking Services, the Vice-President, Institutional Financing and Banking Services, the Vice-President and General Manager, Desjardins International Service Centre, the Vice-President, Legal and Corporate Affairs and Assistant Secretary of the Board of Directors, and the Vice-President, Finance and Control.

ASSETS/LIABILITIES COMMITTEEThis subcommittee of the Management Committee is composed of the President and Chief Operating Officer of Caisse centrale, the Senior Executive Vice-President and the five Senior Vice-Presidents of Caisse centrale.

INTERNAL CREDIT COMMITTEEThis subcommittee of the Management Committee is made up of the President and Chief Operating Officer of Caisse centrale, the Senior Executive Vice-President and the five Senior Vice-Presidents of Caisse centrale.

RISK MANAGEMENT COMMITTEEThis subcommittee of the Management Committee is made up of the President and Chief Operating Officer of Caisse centrale, the Senior Executive Vice-President, the Senior Vice-President, Capital Markets, the Senior Vice-President, Integrated Risk Management, the Vice-President, Legal and Corporate Affairs and Assistant Secretary of the Board of Directors, and the Vice-President, Finance and Control.

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BOARD OF DIRECTORS 1

ALBAN D’AMOURSPresident and Chief Executive Officer Desjardins Group

MADELEINE LAPIERREVice-Chair of the BoardPresident Council of Representatives Richelieu-Yamaska

PIERRE TARDIFSecretary of the BoardPresident Council of Representatives Rive-Sud de Montréal

JACQUES BARILPresident Council of Representatives Est de Montréal

JEAN-GUY BUREAUPresident Council of Representatives Caisses de groupes

FRANCES CARRIERGeneral Caisse Manager

LOUISE CHARBONNEAUGeneral Caisse Manager

ANDRÉ GAGNÉPresident Council of Representatives Québec Est

RAYMOND GAGNÉPresident Council of Representatives Bas St-Laurent, Gaspésie et Îles-de-la-Madeleine

DANIEL MERCIERPresident Council of Representatives Centre du Québec

ANDRÉ LACHAPELLEPresident Council of Representatives Lanaudière

ANDRÉE LAFORTUNEPresident Council of Representatives Ouest de Montréal

MARCEL LAUZONPresident Council of Representatives Laval-Laurentides

OLIVIER LAVOIEPresident Council of Representatives Saguenay-Lac Saint-Jean, Charlevoix, Côte Nord

PIERRE LEBLANCPresident Council of Representatives Mauricie

JACQUELINE MONDYPresident Council of Representatives Kamouraska, Chaudière, Appalaches

DENIS PARÉPresident Council of Representatives Estrie

CLÉMENT SAMSONPresident Council of Representatives Québec Ouest, Rive-Sud

RICHARD SARRAZINGeneral Caisse Manager

ANDRÉ SHATSKOFFGeneral Caisse Manager

SYLVIE ST-PIERRE BABINPresident Council of Representatives Abitibi-Témiscamingue, Nord et Ouest-du-Québec

MANAGING DIRECTORS

PAUL-ANDRÉ LAVOIEVice-President Council of Representatives Bas Saint-Laurent, Gaspésie et Îles-de-la-Madeleine

BENOÎT TURCOTTEVice-President Council of Representatives Abitibi-Témiscamingue, Nord et Ouest-du-Québec

OBSERVERS

THOMAS BLAISChairman of the Board Fédération des caisses populaires de l’Ontario Inc.

NORMAND COLLETPresident Fédération des caisses populaires du Manitoba Inc.

GILLES LEPAGEPresident and Chief Executive Officer Fédération des caisses populaires acadiennes Ltd

OFFICERS 1

ALBAN D’AMOURS*Chairman of the Board and Chief Executive Officer

JEAN-GUY LANGELIER*President and Chief Operating Officer

ANDRÉ BELLEFEUILLE*Executive Senior Vice-President

JACQUES DESCÔTEAUX*Senior Vice-President Capital Markets

HUU TRUNG NGUYEN*Senior Vice-President Administation and International

MICHEL PARADIS*Senior Vice-President Integrated Risk Management

CHRISTIAN ST-ARNAUD* Senior Vice-President Financing and Banking Services

PHILIPPE BÉLAND*Vice-President Institutional Financing and Banking Services

ALAIN FRANCOEURVice-President Financing and Banking Services

SYLVAIN GASCONVice-President Financing and Banking Services

JACQUES LANDRY*Vice-President and General Manager Desjardins International Service Centre

GILLES LAPIERRE*Vice-President Legal and Corporate Affairs

PIERRE MASSÉVice-President Financing and Banking Services

PIERRE PELLETIERVice-President Financing and Banking Services

DIANE ROBERT*Vice-President Finance and Control

BERNARD VENNEVice-President Treasury and Investment

MEMBERS

■ Desjardins caisses■ Fédération des caisses Desjardins du

Québec■ Fédération des caisses populaires de

l’Ontario Inc.■ Fédération des caisses populaires du

Manitoba Inc.■ Fédération des caisses populaires

acadiennes Ltd■ Desjardins Financial Security■ Desjardins Trust Inc.■ Desjardins General Insurance Group

AUDITOR

■ PricewaterhouseCoopers LLP Montreal, Quebec

* Member of the Management Committee1 As at December 31, 2003

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OTHER INFORMATION

HEAD OFFICE1 Complexe DesjardinsSuite 2822Montreal, Quebec, CanadaH5B 1B3Telephone: (514) 281-7070Facsimile: (514) 281-7083Internet address: http://www.desjardins.com/ccd

TORONTO OFFICE365 Bay StreetSuite 300Toronto, Ontario, CanadaM5H 2V1Telephone: (416) 599-0381Facsimile: (416) 599-5172

BRANCHES OUTSIDE CANADA

DESJARDINS BANK

HALLANDALE BEACH BRANCH1001 East Hallandale Beach BlvdHallandale, Florida, USA 33009-4429Telephone: (954) 454-1001Facsimile: (954) 457-7927

POMPANO BEACH BRANCH2741 East Atlantic BlvdPompano Beach, Florida, USA 33062Telephone: (954) 785-7110Facsimile: (954) 785-2115

AFFILIATE

B.P. INVEST CONSULT GMBHPeregringasse 3A1090 Vienna, AustriaTelephone: (131) 340-7201Facsimile: (131) 340-7209

REGIONAL OFFICES

ESTRIE1845 King Street WestSuite 110Sherbrooke, QuebecJ1J 2E4Telephone: 1 800 481-3220 [230]Telephone: (819) 821-3220 [230]

OUTAOUAIS880 de la Carrière BlvdSuite 100Hull, QuebecJ8Y 6T5Telephone: 1 877 441-1400 [455]Telephone: (819) 778-1400 [455]

QUEBEC CITY 5600 des Galeries BlvdSuite 140Quebec City, QuebecG2K 2H6Telephone: 1 866 835-1881

RICHELIEU-YAMASKA2175 Girouard Street WestSaint-Hyacinthe, QuebecJ2S 3A9Telephone: 1 800 363-1003 [302]

SAINT-LAMBERT2051 Victoria StreetSaint-Lambert, QuebecJ4S 1H1Telephone: (450) 672-4116

SAGUENAY/LAC ST-JEAN1700 Talbot BlvdSuite 200Chicoutimi, QuebecG7H 7Z4Telephone: (418) 543-1718 [601]

DESJARDINS INTERNATIONAL SERVICE CENTERS

MONTREAL300 Léo Pariseau StreetSuite 1810Montreal, QuebecH2X 4B3Telephone: 1 800 707-2305

QUEBEC CITY5600 des Galeries BlvdSuite 140Quebec City, QuebecG2K 2H6Telephone: 1 866 634-5775

TROIS-RIVIÈRES2000 des Récollets BlvdP.O. Box 1000Trois-Rivières, QuebecG9A 5K3Telephone: (819) 374-3594 [202]

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FINANCIAL GLOSSARY

ACCEPTANCES AND CUSTOMERS’ LIABILITY UNDER ACCEPTANCESShort-term debt securities traded on the money market which Caisse centrale Desjardins guarantees on behalf of a borrower and for which the borrower pays a stamping fee.

ASSETS UNDER ADMINISTRATIONAssets owned by certain members federations and managed by Caisse centrale Desjardins. These assets are not the property of Caisse centrale Desjardins and therefore are not reported in the consolidated balance sheet.

BASIS POINTUnit of measure equal to one one-hundredth of one percent.

COMMITMENTS TO EXTEND CREDITCredit facilities available to customers either in the form of loans, acceptances and other on-balance sheet financing, or through off-balance sheet products such as guarantees and letters of credit.

CURRENCY AND INTEREST RATE SWAPSTransaction where two parties agree to exchange, over a specified period, currencies or interest flows, generally a fixed rate and a floating rate, based on a notional amount.

DERIVATIVEA contract whose value is derived from interest rates, foreign exchange rates, or equity or commodity prices. Use of derivatives allows for the transfer, modification, or reduction of current or expected risks, including interest rate, foreign exchange and other market risks. The most common types of derivatives include foreign exchange forward contracts, foreign currency and interest rate futures, forward rate agreements, and foreign currency and interest rate options. Derivatives can be traded either on organized exchanges or through over-the-counter agreements.

FOREIGN EXCHANGE FORWARD CONTRACTSA commitment to buy or sell a specified amount of foreign currency on or before the maturity date at a set exchange rate.

FORWARD RATE AGREEMENTSA type of derivative which obliges two parties to make a cash settlement at a future date for the difference between a contracted rate of interest and the current market rate, based on a notional amount. Used as a hedge, a forward rate agreement protects against future movements in market interest rates.

GUARANTEES AND STANDBY LETTERS OF CREDITIrrevocable commitment that payments will be made in the event a customer cannot meet its obligations to third parties.

HEDGEA risk management technique used to insulate financial results from market, interest rate, or foreign currency exchange risk (exposure) arising from normal banking operations. The elimination or reduction of such exposures is accomplished by establishing offsetting positions. For example, assets denominated in foreign currencies can be offset with liabilities in the same currencies or through the use of foreign exchange hedging instruments such as futures, options, or foreign exchange contracts.

INTEREST RATE SENSITIVITYEarning assets and interest-bearing liabilities which mature or are subject to interest rate adjustments within a specified term or have an interest rate that floats in reference to a base interest rate.

LIQUIDITIESGenerally, assets in cash or in securities easily convertible to cash, such as Bank of Canada deposits and securities.

MARK-TO-MARKETValuation at market rates, as at the balance sheet date, of securities, loans, deposits, subordinated debentures and derivatives

NET INTEREST INCOMEThe difference between interest income earned on assets and the interest expense related to liabilities. The ratio of net interest income to average assets is called the “net interest margin.”

NOTIONAL AMOUNTThe amount used as a reference point to calculate payments for financial instruments such as forward rate agreements or interest rate swaps. The amount is said to be “notional” since it is not exchanged.

OBLIGATIONS RELATED TO SECURITIES SOLD SHORTTransactions in which the seller sells securities it does not own. The seller borrows the securities in order to deliver them to the purchaser. At a later date, the seller buys identical securities in the market to replace the borrowed securities.

OFF-BALANCE SHEET FINANCIAL INSTRUMENTSA variety of products offered to customers which fall into two broad categories: (i) credit-related arrangements which provide customers with liquidity protection, and (ii) derivatives, which are defined above.

RETURN ON AVERAGE ASSETSThe ratio of net income to average total assets during a year.

RISK WEIGHTINGThe process by which weighting factors are applied to the face value of certain assets in order to reflect a comparable risk level. Off-balance sheet instruments are also converted by adjusting the notional amounts to balance sheet (or credit) equivalents and by applying appropriate risk weighting factors. Total risk-weighted assets constitute the denominator of the various capital ratios as prescribed by the Bank for International Settlements (BIS).

STOCK INDEX OPTIONThe right (as opposed to obligation) to sell (put option) or buy (call option) on or before a maturity date a specified amount of a stock index at a set price (exercise price).

SUBORDINATED DEBENTURESUnsecured liabilities issued by Caisse centrale Desjardins whose repayment, in the event of liquidation, is subordinated to the claims of depositors and certain other creditors.

TRADING ACCOUNTLiquidities used for arbitrage transactions on financial markets. The account is presented at market value on the balance sheet.

VERSION FRANÇAISELa version française de ce rapport annuel peut être obtenue sur demande.

Graphic Design Lg2d Production J.B. Deschamps inc. Photoengraving and Printing J.B. Deschamps inc. PRINTED IN CANADA

December 31, 2003

Note: Chart does not reflect the legal ownership-structure.

Ownership linkAuxiliary members

■ Corporations linked to the Fédération

■ Holding companies

■ Intermediary holding-companies

(*) Shared ownership

DESJARDINS GROUPAN INTEGRATED COOPERATIVE FINANCIAL GROUP

OTHER INFORMATIONAs at December 31

2003 2002

Outside(2) Group Outside(2) Group Québec Québec Total Québec Québec Total

Total number of employees 36,139 1,989 38,128 37,320 1,932 39,252 Cooperative network of Desjardins caisses 27,135 1,989 29,124 27,245 1,932 29,177 Holding companies and other Group components(1) 9,004 – 9,004 10,075 – 10,075Number of members 5,162,662 391,947 5,554,609 5,161,120 394,339 5,555,459Number of elected officers 7,431 696 8,127 7,980 761 8,741Number of member caisses 608 68 676 671 77 748Number of service centres 898 179 1,077 849 178 1,027Number of automated teller machines 2,728 211 2,939 2,688 210 2,898

(1) Includes employees of subsidiary companies active outside Québec.(2) The caisses and federations in Ontario, Manitoba and New Brunswick.

(1) On January 1, 2004, the Fédération des caisses populaires de l’Ontario became a voting auxiliary member of the Fédération des caisses Desjardins du Québec; member Ontario caisses now benefit from the same rights and assume the same responsibilities as Québec caisses. Support for caisse operations was assigned to the Fédération des caisses Desjardins du Québec, a result of which was the establishment of a regional executive division for Ontario caisses populaires.

(2) Desjardins Venture Capital primarily manages the funds of Capital régional et coopératif Desjardins, a public corporation created in 2001 by Desjardins Group in accordance with legislation adopted by Québec’s National Assembly.

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The Senior Vice-President, Finances, Strategic Alliances and International of Caisse centrale Desjardins is responsable for the production of this Annual Report.

PURPOSE

Caisse centrale Desjardins (Caisse centrale) is a cooperative institution belonging to Desjardins Group. It is Desjardins Group’s financial arm stretching across the world as well as its ambassador without borders on capital markets. It is a dynamic team player complementing the other Desjardins entities, and a solid partner for businesses and institutions.

Caisse centrale is also a robust team of specialists in many areas, with a mandate encompassing the four main roles of:

■ FINANCIAL AGENT supplying in particular funds and various treasury products, providing clearing settlement services for instruments moving through the caisse network, and managing cash for Desjardins Group as well as major liquidity and investment portfolios for Desjardins entities.

■ CUSTOMIZED FINANCING AND SERVICES PROVIDER for both other Desjardins entities and various external clienteles which can directly benefit from its special expertise, such as large corporations, medium-sized businesses, and public and parapublic agencies. Such services include operating credits, term loans, bank accounts and bill payments, to name a few. In the business segment, where Caisse centrale focuses on the service and manufacturing sectors, many of its team specialize in agrifood, forest products, high technology, communications, real estate, steel and transportation.

■ INTERNATIONAL SERVICES MANAGER for individuals and businesses: foreign exchange contracts, foreign currency accounts, import/export letters of credit, funds transfers, export financing or U.S. bank accounts through its Florida-based subsidiary, Desjardins Bank.

■ SAVINGS PRODUCTS DESIGNER AND CAPITAL MARKET SERVICES PROVIDER offering an extensive line of derivatives such as interest rate and cross-currency swaps, forward exchange contracts, options and “Desjardins Acceptances”. In recent years, innovative and high-performing indexed term savings solutions have periodically been added to the product line, and have been particularly successful in their target markets.

Caisse centrale represents a quarter of a century of expertise generating significant benefits for Desjardins Group. It is a front-line player promoting the Group’s development in existing markets and in penetrating new ones.

www.desjardins.com/ccd

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With approximately $100 billion in assets, Desjardins is thelargest financial institution in Québec and the sixth largest in Canada. Its five million members and clients have chosen to do things differently.

The emissary of Desjardins on financial markets around the world.A partner for businesses in their search for new markets.


This is not a financial institution like the others

2003 ANNUAL REPORT

this a financial institution like - desjardins.com€¦ · largest financial institution in québec...

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