Second Quarter - Desjardins

Financial Report Second Quarter 2012 June 30, 2012

The Fédération des caisses Desjardins du Québec (the Federation) is a cooperative entity whose primary role is to assume orientation, coordination and development activities for Desjardins Group (Desjardins Group or Desjardins). Desjardins Group comprises the Federation, its member caisses and its subsidiaries, including Caisse centrale Desjardins and Capital Desjardins inc., the Fédération des caisses populaires de l’Ontario and its member caisses and the Fonds de sécurité Desjardins.

The principal subsidiaries of the Federation are mentioned in "The Federation’s profile" on page 4.

FINANCIAL HIGHLIGHTS

SUMMARY OF FINANCIAL DATA

CONSOLIDATED RESULTS OF THE FEDERATION (in millions of dollars)

For the three-month periods

ended June 30 For the six-month periods

ended June 30 2012 2011 2012 2011

Net interest income $ 196 $ 170 $ 390 $ 359

Net premiums 1,322 1,266 2,577 2,451

Other income 1,202 1,117 1,982 1,817

Total income 2,720 2,553 4,949 4,627

Provision for credit losses 50 41 113 71 Claims, benefits, annuities and changes in insurance and investment contract liabilities 1,425 1,277 2,171 2,098

Non-interest expense 948 1,002 2,003 1,985

Income taxes on surplus earnings 70 46 153 98

Surplus earnings after dividends to member caisses $ 227 $ 187 $ 509 $ 375

TABLE OF CONTENTS

1 Financial highlights 5 Review of financial results 15 Risk management 1 Summary of financial data 5 Analysis of the Federation’s results 15 Risk management

2 Message from senior management 7 Results by business segment 19 Additional information concerning 3 Management’s Discussion and Analysis 11 Summary of interim results exposure to certain risks of the Fédération des caisses Desjardins 12 Review of financial position 20 Additional information du Québec 12 Financing activities 20 Framework 3 Basis of presentation of financial 13 Savings recruitment activities 20 Related party disclosures information 13 Capital management 20 Critical accounting policies and 3 Caution concerning forward-looking 14 Analysis of cash flows estimates statements 14 Off-balance sheet arrangements 20 Future accounting changes 4 The Federation’s profile 20 Material event 4 Economic environment 21 Unaudited Condensed Interim Consolidated Financial Statements

MESSAGE FROM SENIOR MANAGEMENT

Lévis, August 10, 2012 – For the second quarter ended June30, 2012, the Federation posted surplus earnings after dividends to member caisses of $227 million, compared to $187 million for the year-earlier quarter, for an increase of 21.4%. Desjardins Card Services and the Property and Casualty Insurance segment recorded growth in their business volumes, allowing the Federation to pursue its development in its various market segments. The second quarter was also characterized by a lower loss ratio than in the same quarter of 2011 in the Property and Casualty Insurance segment and by growth in other income as a result of the increase in the fair value of certain investments.

“We are very satisfied with our results for second quarter 2012,” said Monique F. Leroux, Chair of the Board, President and Chief Executive Officer of Desjardins Group. “They come at a time when the Federation is continuing its development across Canada and abroad, particularly through acquisitions in the area of property and casualty insurance. We are especially proud of the first issue of capital shares for up to $1.2 billion, which allows the Federation to contribute to the financial strength of Desjardins.”

The Personal Services and Business and Institutional Services segment contributed $41 million to surplus earnings for the second quarter of 2012, compared to $56 million for the corresponding quarter of 2011. The Wealth Management and Life and Health Insurance segment posted surplus earnings of $49 million for the second quarter of 2012, down $24 million compared to the same quarter in 2011, while the Property and Casualty Insurance segment recorded an increase of $24 million in its surplus earnings, for a $47 million contribution for the second quarter of 2012.

Return on equity was 15.5% for the second quarter of 2012, down compared to the second quarter of 2011.

The Federation actively pursues development opportunities across Canada and abroad, with tangible results, such as the opening of a representation office in Paris; the signing of an agreement with Coast Capital Savings, one of the top financial cooperatives in Western Canada, for card services; the implementation of a service offer to support the development of cooperatives and mutuals; and, finally, the launch of an investment program to improve Desjardins’s technological infrastructure and accelerate the digital shift under way in its caisse and subsidiary network. In addition, during the second quarter, the Federation, through its subsidiary Western Financial Group Inc., acquired Hodges & Company Insurance Services Ltd., an insurance brokerage network specializing in commercial insurance and based in Victoria, British Columbia. This is the subsidiary’s ninth acquisition since joining Desjardins. Furthermore, on July 31, 2012, Maple Group Acquisition Corporation, an entity in which the Federation has a stake as an investor along with 12 other partners, announced that the offer to purchase all shares of TMX Group Inc. had been successful.

The Federation is a component of Desjardins Group, which remains one of the best capitalized financial institutions in Canada: its Tier 1 and total capital ratios, measured under the Basel II regulatory framework, stood at 16.1% and 18.8%, respectively, as at June 30, 2012. These ratios were 17.3% and 19.3%, respectively, as at December 31, 2011. Since the implementation of Basel II, Desjardins Group has applied the deferred treatment prescribed by the Autorité des marchés financiers (AMF), under which equity related to investments in its insurance subsidiaries made before January 1, 2007 was fully deducted from Tier 2 capital until the end of fiscal 2011. Effective 2012, this equity must be deducted in equal shares of 50% from Tier 1 capital and Tier 2 capital. The end of the application of this deferred treatment resulted in a decline of 143 basis points in the Tier 1 capital ratio in the second quarter of 2012, but the total capital ratio remained the same.

On June 18, 2012, the Federation implemented, for the first time in its history, a program to issue capital shares for a maximum of $1.2 billion. As at June 30, 2012, an amount of $291 million had been issued. These capital shares, currently included in the Tier 1 capital under Basel II, meet with the upcoming regulatory capital requirements (Basel III) for Tier 1 Common Equity.

FEDERATION DES CAISSES DESJARDINS DU QUEBEC INTERIM FINANCIAL STATEMENT

Second quarter - June 30, 2012 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF THE FÉDÉRATION DES CAISSES DESJARDINS DU QUÉBEC

This Management’s Discussion and Analysis (MD&A), dated August 10, 2012, presents the results of the analysis of the key elements of and changes in the Federation’s financial position for the period ended June 30, 2012, in comparison with the previous period. This MD&A should be read in conjunction with the unaudited Condensed Interim Consolidated Financial Statements (the Interim Consolidated Financial Statements), including the notes thereto, as at June 30, 2012, and the final long form non-offering Prospectus issued on April 30, 2012 (the Prospectus), containing the annual MD&A for 2011 and the audited annual Consolidated Financial Statements as at December 31, 2011 (the annual Consolidated Financial Statements).

Additional information about the Federation, including the Prospectus, is available on the SEDAR website at www.sedar.com (under the Fédération des caisses Desjardins du Québec profile), as well as information on Desjardins Group and the Annual Information Form of Capital Desjardins inc. (under the Capital Desjardins inc. profile) and of Caisse centrale Desjardins (under the Caisse centrale profile). More information is also available on the Desjardins website at www.desjardins.com/en/a_propos/investisseurs; however, none of the information presented on these sites is incorporated by reference into this report.

BASIS OF PRESENTATION OF FINANCIAL INFORMATION_________________________________________________________________________

The Federation’s Interim Consolidated Financial Statements are presented in accordance with International Financial Reporting Standards (IFRS), which constitute Canadian generally accepted accounting principles (GAAP) of the Federation, and the AMF’s accounting requirements, which do not differ from GAAP. The Interim Consolidated Financial Statements of the Federation were prepared in accordance with IFRS, as issued by the International Accounting Standards Board (IASB), and, more specifically, in accordance with International Accounting Standard (IAS) 34, "Interim Financial Reporting". For further information about accounting policies, see the interim and annual Consolidated Financial Statements.

This MD&A was prepared in accordance with the National Instruments in force on continuous disclosure obligations issued by the Canadian Securities Administrators. Unless otherwise indicated, all the amounts are unaudited and are presented in Canadian dollars. To assess its performance, the Federation uses and presents both IFRS measures and one non-IFRS financial measure. This non-IFRS financial measure is not directly comparable to similar measures used by other companies, and may not be directly comparable to any IFRS measures. Investors may find this non-IFRS measure is useful in analyzing financial performance, among other things. This measure is defined below:

Return on equity

Return on equity, which is expressed as a percentage, is equal to surplus earnings before dividends to member caisses, excluding the non-controlling interests’ share and interest paid to holders of PL and PL-2 investment shares (which are not eligible for the distribution of surplus earnings), divided by average equity before non-controlling interests and PL and PL-2 investment shares.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

The Federation’s public communications often include oral or written forward-looking statements. Such forward-looking statements are contained in this MD&A, and may be incorporated in other filings with Canadian regulators or in any other communications. Forward-looking statements in this MD&A include, but are not limited to, comments with respect to the Federation’s objectives, regarding financial performance, its priorities, its operations, the review of economic conditions and markets, as well as the outlook for the Canadian, U.S., European and other international economies. Among the forward-looking statements are those in the “Economic environment”, “Review of financial position” and “Additional information” sections. Such statements are typically identified by words or phrases such as “believe”, “expect”, “anticipate”, “intend”, “estimate”, and “may”; words and expressions of similar import, and future and conditional verbs. By their very nature, such statements involve assumptions, uncertainties and inherent risks, both general and specific. It is therefore possible that the predictions, projections or other forward-looking statements as well as the Federation’s objectives and priorities may not materialize or may prove to be inaccurate because of a number of factors and that actual results differ materially. A number of factors beyond the Federation’s control could influence the accuracy of the forward-looking statements in this MD&A. These factors include those discussed in the “Risk management” section, such as credit, market, liquidity, operational, insurance, strategic and reputation risk. Additional risk factors include legislative or regulatory developments in Quebec, Canada or globally, such as changes in fiscal and monetary policies; new liquidity reporting and regulatory guidance, or interpretations thereof; and amendments to and new interpretations of capital guidelines.

There are also factors related to changes in economic and financial conditions in Quebec, Canada or globally, including the unemployment rate; the geographic concentration of operations; changes in interest rates and exchange rates; trade between Quebec and the United States; the ability of third parties to comply with their obligations to the Federation; consumer spending; credit demand; the effects of increased competition in a market open to globalization; the presence of new and established competitors; fraud, including the use of new technologies in unprecedented ways against the Federation, its members or its clients; legal or regulatory procedures and lawsuits; consumer saving habits; the effect of possible international conflicts, including terrorism, or natural disasters; and new developments.

Lastly, there are also operational risk factors, including the inherent limits of risk management models; changes to technology; disruption of service for the Internet and other technologies; the ability to design new products and services and bring them to market in a timely fashion; the ability to collect complete and accurate information about our clients and their counterparties; the ability to perform and integrate strategic acquisitions and alliances; changes to the accounting policies and methods the Federation uses to present its financial position and operating results, including the uncertainties involving main accounting assumptions and estimates, as well as changes in estimates; the impact of future accounting changes; the ability to recruit and retain key officers; and management’s ability to foresee and manage risk factors.

It is important to note that the above-mentioned list of factors that could influence future results is not exhaustive. Other factors could have an adverse effect on results. Additional information on these and other factors is found in section 4.0, “Risk management”, of the Prospectus. Although the Federation believes that the expectations expressed in these forward-looking statements are reasonable, it can give no assurance or guarantee that these expectations will prove to be correct. The Federation cautions readers against placing undue reliance on forward-looking statements when making decisions.



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

THE FEDERATION’S PROFILE

In addition to being responsible for assuming orientation, coordination and development activities for Desjardins Group, the Federation provides its member caisses with a variety of services, including certain technical, financial and administrative services, including through its subsidiaries. The Federation also holds the rights and privileges to use and participate in the Visa payment system in Canada for Desjardins Group, and, through holding companies, manages controlling interests in business corporations. The Federation enables the caisses and other Desjardins Group components to accelerate their development and better respond to the needs of their members and clients. The Federation’s structure has been designed to take into account the needs of Desjardins Group’s members and clients, as well as those of the markets in which it operates. The caisse network in Quebec and Ontario therefore has the support of the four main business sectors to reinforce their ability to build on products and services, namely, the “Personal Services”, “Business and Institutional Services”, “Wealth Management and Life and Health Insurance” and “Property and Casualty Insurance” segments.

The Federation’s main subsidiaries are Caisse centrale Desjardins, Desjardins Financial Corporation Inc., Desjardins Financial Security Life Assurance Company, Desjardins Asset Management Inc., Desjardins General Insurance Group Inc., Western Financial Group Inc., Desjardins Securities Inc., Desjardins Trust Inc., Capital Desjardins inc. and Desjardins Technology Group Inc. The roles of treasurer and official representative with the Bank of Canada and the Canadian banking system are assumed by Caisse centrale Desjardins, also a cooperative financial institution, which is an integral part of Desjardins Group.

In addition to the Federation and its subsidiaries, Desjardins Group’s components and subsidiaries include the caisses in Quebec and Ontario, the Fédération des caisses populaires de l’Ontario and the Fonds de sécurité Desjardins.

ECONOMIC ENVIRONMENT

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

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

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

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

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

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

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



REVIEW OF FINANCIAL RESULTS RESULTS AND RATIOS

(in millions of dollars and as a percentage)



ended June 30

2012 2011 Change 2012 2011 Change

Results Net interest income $ 196 $ 170 15.3 % $ 390 $ 359 8.6 % Net premiums 1,322 1,266 4.4 2,577 2,451 5.1 Other income 1,202 1,117 7.6 1,982 1,817 9.1 Total income 2,720 2,553 6.5 4,949 4,627 7.0

Provision for credit losses 50 41 22.0 113 71 59.2 Claims, benefits, annuities and changes in insurance and investment contract liabilities 1,425 1,277 11.6 2,171 2,098 3.5 Non-interest expense 948 1,002 (5.4) 2,003 1,985 0.9 Income taxes on surplus earnings 70 46 52.2 153 98 56.1 Surplus earnings before dividends to member caisses $ 227 $ 187 21.4 % $ 509 $ 375 35.7 % Contribution to consolidated surplus earnings by business segment(1) Personal Services and Business and Institutional Services $ 41 $ 56 (26.8) % $ 91 $ 116 (21.6) % Wealth Management and Life and Health Insurance 49 73 (32.9) 110 136 (19.1) Property and Casualty Insurance 47 23 104.3 117 64 82.8 Treasury and Support to Desjardins Group Entities 90 35 157.1 191 59 223.7

$ 227 $ 187 21.4 % $ 509 $ 375 35.7 % Remuneration and other payments to member caisses $ 93 $ 94 (1.1) % $ 181 $ 178 1.7 % Ratio Return on equity(2) 15.5 % 16.3 % 18.0 % 16.7 %

(1) Information about each segment is presented in Note 15, “Segmented information”, to the Interim Consolidated Financial Statements. (2) See “Basis of presentation of financial information”.

ANALYSIS OF THE FEDERATION’S RESULTS

COMPARISON OF THE SECOND QUARTERS OF 2012 AND 2011

For the second quarter ended June 30, 2012, the Federation recorded surplus earnings after dividends to member caisses of $227 million, compared to $187 million a year earlier, an increase of 21.4%. These surplus earnings included the non-controlling interests’ share, which amounted to $13 million for the second quarter of 2012 and $6 million for the second quarter of 2011.

Return on equity was 15.5%, compared to 16.3% for the corresponding quarter of 2011.

Total income

Total income for the second quarter of 2012 was $2,720 million, an increase of $167 million, or 6.5%, over the same quarter in 2011.

Net interest income was up 15.3% during the second quarter of 2012, totalling $196 million. This increase was primarily due to a $1.3 billion increase in outstanding loans to member caisses over the past year and outstanding loans on credit cards for the same period.

Growth in insurance business generated a 4.4% increase in net premiums, which amounted to $1,322 million. The overall insurance operations of the Wealth Management and Life and Health Insurance segment posted net insurance and annuity premium income of $865 million for the second quarter of 2012, compared to $856 million for the same period in 2011, representing a 1.1% increase. Net insurance premiums were up 3.4%, both in Quebec and in the other provinces, compared to second quarter of 2011, totalling $764 million. The activities of the Property and Casualty Insurance segment generated net premium income of $487 million in the second quarter of 2012, compared to $438 million for the same period in 2011, an increase of 11.2%. This increase stemmed from the larger number of policies issued as a result of growth initiatives targeting mass market clients and groups both in Quebec and across Canada, the development of white label partnerships and of business insurance, and the increase in the average premium in certain market segments, among other factors.

Other income stood at $1,202 million, an increase of $85 million, or 7.6%, compared to the same quarter in 2011, chiefly because of growth in credit card activities and fee income from the sale of insurance generated by Western Financial Group Inc.



Provision for credit losses

The provision for credit losses was up $9 million, or 22.0%, compared to the same period in 2011 as a result, among other things, of growth in outstanding credit card loans.

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

Expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities totalled $1,425 million, up 11.6% compared to the same period in 2011. For the Wealth Management and Life and Health Insurance segment, these expenses were $1,088 million, up $149 million, or 15.9%, compared to the same quarter in 2011. The change was chiefly the result of a $154 million increase in actuarial liabilities included under “Insurance and investment contract liabilities”, including the increase in the fair value of investments. The deterioration of the claims experience in long-term disability insurance also accounted for the change.

Expenses for the Property and Casualty Insurance segment were $343 million, compared to $334 million for the same period in 2011, representing an increase of $9 million, or 2.7%, essentially due to the growth in the Ontario automobile insurance policy portfolio, largely offset by a reduction in the loss ratio. The loss ratio was 70.4% for the second quarter of 2012, compared to 76.3% for the same period in 2011. This change was mostly attributable to the decrease in claims resulting from milder weather conditions and the higher average premium earned compared to the same period in 2011.

Non-interest expense and other items

Non-interest expense was $948 million, a decrease of $54 million, or 5.4%, compared to the second quarter of 2011. This decrease was mainly due to significant IT upgrade investments in 2011, as well as lower provisions related to the investment portfolio. These factors were offset by the annual increase in salaries and fringe benefits due to indexing.

Remuneration and other payments to member caisses represented an amount of $93 million, similar to the corresponding quarter in 2011. COMPARISON OF THE FIRST SIX MONTHS OF 2012 AND 2011

For the six-month period ended June 30, 2012, the Federation recorded surplus earnings before dividends to member caisses of $509 million, compared to $375 million a year earlier, an increase of 35.7%. These surplus earnings included the non-controlling interests’ share, which amounted to $25 million for the first half of 2012 and $13 million for the first half of 2011.

Return on equity was 18.0%, compared to 16.7% for the corresponding period of 2011.

Total income

Total income was $4,949 million, an increase of $322 million, or 7.0%, compared to the first half of 2011. Net interest income was up $31 million, or 8.6%, to total $390 million, compared to the first half of 2011, mainly because of a $1.3 billion increase in outstanding loans to member caisses over the past year and outstanding credit card loans for the same period. Net premiums in the insurance segments were up 5.1%, to total $2,577 million. The overall insurance operations of the Wealth Management and Life and Health Insurance segment generated net insurance and annuity premium income of $1,676 million for the first half of 2012, compared to $1,653 million for the same period in 2011, representing an increase of 1.4%. The activities of the Property and Casualty Insurance segment generated net premium income of $956 million in the first half of 2012, compared to $841 million for the same period in 2011, an increase of 13.7% for the same reasons as for the second quarter.

Other income stood at $1,982 million, an increase of $165 million, or 9.1%, compared to the first half of 2011, chiefly because of growth in credit card activities and fee income from the sale of insurance generated by Western Financial Group Inc., the subsidiary acquired in the second quarter of 2011. Investment income totalled $797 million for the first semester of 2012, an increase of $20 million compared to the same period in 2011, mainly due to the disposal of certain investments.

Provision for credit losses

The provision for credit losses was up $42 million, or 59.2%, compared to the same period in 2011. The increase was the result, among other things, of growth in outstanding credit card loans, an adjustment to the provision and recoveries made in the first half of 2011.

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

Expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities totalled $2,171 million, up 3.5%, compared to the same period in 2011. For the Wealth Management and Life and Health Insurance segment, these expenses were $1,543 million, up $47 million, or 3.1%, compared to first half of 2011. This change was a result of a $41 million increase in actuarial liabilities included under “Insurance and investment contract liabilities”.

Expenses for the Property and Casualty Insurance segment were $634 million, compared to $603 million for the same period in 2011, representing an increase of $31 million, or 5.1%. This change resulted basically from the same factors as those mentioned for the second quarter. Furthermore, the loss ratio was 66.3% for the first half of 2012, compared to 71.7% for the same period in 2011.

Non-interest expense and other items

Non-interest expense was $2,003 million, up $18 million compared to the first half of 2011. This change was the result of growth in salaries and fringe benefits due to annual indexing, offset by significant IT upgrade investments in 2011, as well as lower provisions related to the investment portfolio.

Remuneration and other payments to member caisses amounted to $181 million, for an increase of $3 million, or 1.7%, compared to the same period of 2011.



RESULTS BY BUSINESS SEGMENT The Federation’s financial reporting is based on accounting by operations structured according to the needs of members and clients, as well as the markets in which it operates, thereby reflecting its internal management method. The Federation’s financial results are therefore divided into the following three business segments: Personal Services and Business and Institutional Services, Wealth Management and Life and Health Insurance, and Property and Casualty Insurance. This section includes an analysis of the results of each segment. The Treasury and Support to Desjardins Group Entities category is also added to these three business segments. Intersegment transactions are carried out in the normal course of business and are measured at the exchange amount, which corresponds to the amount of consideration established and agreed to by each of the legal entities and business units.

PERSONAL SERVICES AND BUSINESS AND INSTITUTIONAL SERVICES The Federation’s Personal Services and Business and Institutional Services segment is responsible for developing and marketing the service offer to individuals and businesses. It provides support to the caisses and their service and business centres for the distribution of their products and services. It also makes its products and services available to members and clients through complementary distribution networks, by phone, online, via applications for mobile devices, as well as at ATMs.

PERSONAL SERVICES AND BUSINESS AND INSTITUTIONAL SERVICES – SEGMENT RESULTS (in millions of dollars and as a percentage)

For the three-month periods ended June 30

For the six-month periods ended June 30

2012 2011 Change 2012 2011 Change

Net interest income $ 151 $ 141 7.1 % $ 301 $ 293 2.7 % Other income 245 282 (13.1) 533 545 (2.2)

Total income 396 423 (6.4) 834 838 (0.5)

Provision for credit losses 50 41 22.0 113 71 59.2 Non-interest expense 292 308 (5.2) 600 613 (2.1) Income taxes on surplus earnings 13 18 (27.8) 30 38 (21.1)

Surplus earnings after dividends to member caisses 41 56 (26.8) 91 116 (21.6)

Non-controlling interests’ share 1 1 ― 1 2 (50.0)

Surplus earnings for the period after dividends to member caisses – Group’s share $ 40 $ 55 (27.3) % $ 90 $ 114 (21.1) %


The Personal Services and Business and Institutional Services segment recorded surplus earnings after dividends to member caisses of $41 million for the second quarter of 2012, a decrease of $15 million, or 26.8%, compared to the same period in 2011.

Total income for the segment stood at $396 million, down 6.4% compared to the same period in 2011. Net interest income was up $10 million compared to the previous year, an increase of 7.1% due to growth in outstanding credit card loans. Other income was $245 million, down $37 million, or 13.1%, compared to the same period of 2011, as a result of lower trading income stemming from capital market volatility. The decrease was offset by growth in credit card activities that led to higher income.

The provision for credit losses was up $9 million, or 22.0%, compared to the same period in 2011 as a result, among other things, of growth in outstanding credit card loans.

Non-interest expense was down $16 million, or 5.2%, compared to the same period in 2011 as a result of the decrease in variable compensation due to the sharp drop in trading income. This was mitigated, however, by the increase in salaries and fringe benefits due to business growth and annual indexing.

COMPARISON OF THE FIRST SIX MONTHS OF 2012 AND 2011

For the first half of 2012, surplus earnings after dividends to member caisses were $91 million, a decrease of $25 million, or 21.6%, compared to the first half of 2011.

Total income for the segment stood at $834 million, down $4 million, or 0.5%, compared to the same period in 2011. These results included an $8 million, or 2.7% increase in net interest income, mainly due to growth in outstanding credit card loans. Other income decreased by $12 million, or 2.2%, compared to the first half of 2011. The decrease is partly due to the reduction in trading income, for the same reasons as mentioned for the second quarter, mitigated by growth in credit card activities and point-of-sale financing, as well as the disposal of an investment which generated a gain of $21 million.

The provision for credit losses increased $42 million, or 59.2%, compared to the same period in 2011, as a result, among other things, of growth in outstanding credit card loans, an adjustment to the provision and the recoveries made in the first half of 2011.

Non-interest expense was down $13 million, or 2.1%, compared to the same period in 2011, for the same reasons as mentioned for the second quarter.



WEALTH MANAGEMENT AND LIFE AND HEALTH INSURANCE

The Wealth Management and Life and Health Insurance segment offers a wide range of products and services tailored to the changing needs of individuals, groups and businesses, either as caisse network members or clients of complementary distribution channels, in terms of asset management and financial security. Its products and services are also distributed by financial planners in the caisse network, and by phone, online and via applications for mobile devices. WEALTH MANAGEMENT AND LIFE AND HEALTH INSURANCE – SEGMENT RESULTS (in millions of dollars and as a percentage)

For the three-month periods ended June 30


2012 2011 Change 2012 2011 Change

Net interest income $ 1 $ 1 ― % $ 1 $ 2 (50.0) %Net premiums 865 856 1.1 1,676 1,653 1.4 Other income 675 562 20.1 814 793 2.6

Total income 1,541 1,419 8.6 2,491 2,448 1.8

Claims, benefits, annuities and changes in insurance and investment contract liabilities 1,088 939 15.9 1,543 1,496 3.1

Non-interest expense 387 389 (0.5) 802 780 2.8 Income taxes on surplus earnings 17 18 (5.6) 36 36 ―

Surplus earnings after dividends to member caisses 49 73 (32.9) 110 136 (19.1)

Non-controlling interests’ share 6 1 500.0 9 1 800.0

Surplus earnings for the period after dividends to member caisses – Group’s share $ 43 $ 72 (40.3) % $ 101 $ 135 (25.2) %


For the second quarter of 2012, the Wealth Management and Life and Health Insurance segment recorded surplus earnings after member caisses dividends of $49 million, down $24 million, or 32.9%, compared to the same quarter in 2011. Capital market volatility, low interest rates and the deterioration of the claims experience in long-term disability insurance accounted for most of the change compared to the results for the second quarter of 2011.

The segment’s total income was $1,541 million, an increase of $122 million, or 8.6%, due mainly to the $89 million increase in investment income from life and health insurance operations, partially offset by an increase in insurance contract liabilities included in expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities. Net insurance premium income was up $25 million, although offset by a $16 million decrease in net annuity premiums. In addition, the growth in average assets under management for the distribution of various products contributed to the increase in other income.

Expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities were $1,088 million, up $149 million, or 15.9%, compared to the same quarter in 2011, mainly as a result of a $154 million increase in actuarial liabilities included under “Insurance and investment contract liabilities”, including the upward fluctuation in the fair value of investments.

Non-interest expense was down $2 million, or 0.5%, to total $387 million for the second quarter of 2012.


For the first half of 2012, surplus earnings after member caisses dividends were $110 million, a decrease of $26 million, or 19.1%, compared to the first half of 2011.

The segment’s total income was $2,491 million, an increase of $43 million, or 1.8%, due mainly to the $66 million increase in net insurance premiums. Furthermore, net annuity premiums were down $43 million compared to the first half of 2011. Finally, the growth in average assets under management for the distribution of various products contributed to the increase in other income.

Expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities were up $47 million, or 3.1%, compared to the first half of 2011, mainly as a result of a $41 million increase in actuarial liabilities included under “Insurance and investment contract liabilities”.

The $22 million, or 2.8%, increase in non-interest expense for the first half of 2012 was mainly attributable to the increase in salaries and fringe benefits due to business growth, growth in commissions on sales of savings products and the remuneration paid to the caisse network, as well as the acquisition of MGI Financial Inc. in October 2011, which generated additional expenses of $8 million.



PROPERTY AND CASUALTY INSURANCE

The Property and Casualty Insurance segment offers a line of home and automobile insurance products directly to the general public, to members of partner groups and to businesses. In addition to being offered through the caisse network, these products are distributed across Canada via several client care centres, online, via applications for mobile devices and through an extensive financial service and insurance product distribution network operated by Western Financial Group Inc.

PROPERTY AND CASUALTY INSURANCE – SEGMENT RESULTS (in millions of dollars and as a percentage)



ended June 30 2012 2011 Change 2012 2011 Change

Net interest income $ 3 $ 4 (25.0) % $ 7 $ 4 75.0 % Net premiums 487 438 11.2 956 841 13.7 Other income 78 63 23.8 138 85 62.4

Total income 568 505 12.5 1,101 930 18.4

Claims, benefits, annuities and changes in insurance and investment contract liabilities 343 334 2.7 634 603 5.1 Non-interest expense 165 143 15.4 320 241 32.8 Income taxes on surplus earnings 13 5 160.0 30 22 36.4

Surplus earnings after dividends to member caisses 47 23 104.3 117 64 82.8

Non-controlling interests’ share 5 3 66.7 12 7 71.4

Surplus earnings for the period after dividends to member caisses – Group’s share $ 42 $ 20 110.0 % $ 105 $ 57 84.2 %

OTHER INFORMATION Gross premiums written $ 587 $ 529 11.0 % $ 1,075 $ 948 13.4 % Loss ratio 70.4 % 76.3 % (5.9) points 66.3 % 71.7 % (5.4) points


For the second quarter of 2012, the Property and Casualty Insurance segment recorded surplus earnings after member caisses dividends of $47 million, an increase of $24 million, or 104.3%, compared to 2011, chiefly due to higher net premium income and an improved loss ratio.

The segment’s total income was $568 million for the second quarter of 2012, up $63 million, or 12.5%, compared to the same period in 2011. This performance was due to the $49 million growth in net premium income stemming from the larger number of policies issued. This increase came as a result of growth initiatives targeting mass market clients and groups, both in Quebec and across Canada, the development of white label partnerships and of business insurance, and the increase in the average premium in certain market segments. Other income increased by $15 million as a result, in particular, of higher fee income.

Expenses related to claims, benefits, annuities and changes in insurance and investment contract liabilities were up $9 million, or 2.7%, compared to 2011. The change was chiefly attributable to growth in the Ontario automobile insurance policy portfolio, largely offset by a decrease in the loss ratio. The loss ratio was 70.4% for the second quarter of 2012, down 5.9 points compared to its corresponding 2011 level, mostly due to the decrease in the frequency of claims because of more favourable weather conditions and the higher average premium earned compared to the same period in 2011.

The increase of $22 million, or 15.4%, in non-interest expense was primarily attributable to the expansion of the operations of Western Financial Group Inc., the increase in salaries and fringe benefits as a result of growth in personnel and annual indexing, and higher IT costs to support business growth.


For the first half of 2012, the segment’s surplus earnings after member caisses dividends amounted to $117 million, an increase of $53 million, or 82.8%, compared to the same period in 2011, mainly as a result of an improved loss ratio in 2012. The loss ratio was 66.3% in 2012, down 5.4 points compared to its corresponding 2011 level. Western Financial Group Inc. contributed $12 million to surplus earnings for the first half of 2012, a $7 million increase compared to the first half of 2011.

Total income for the segment stood at $1,101 million, up $171 million, or 18.4%, compared to the same period in 2011. This performance was due to the same reasons as those for the quarter, except that there was also an increase in gains realized on the disposal of investments.

Expenses related to claims, benefits, annuities and changes in insurance liabilities were up $31 million from the same period in 2011, for the same reasons as those mentioned for the quarter.

Non-interest expense was up $79 million, or 32.8%, especially owing to the consolidation of the operation of Western Financial Group Inc., which was acquired in the second quarter of 2011, for an amount of $59 million, to an increase in salaries and fringe benefits and to higher IT costs.



TREASURY AND SUPPORT TO DESJARDINS GROUP ENTITIES CATEGORY The Treasury and Support to Desjardins Group Entities category includes results that are not specific to a business segment. It primarily includes treasury activities related to Caisse centrale Desjardins’s operations, the financial intermediation between surpluses and liquidity needs of the caisses, as well as orientation and organizational activities for Desjardins Group. This category also includes the operations of Capital Desjardins inc. and the operating results related to the asset-backed term notes (ABTN) held by the Federation. It also includes Desjardins Technology Group Inc., which covers all of the Federation’s IT operations. In addition to various consolidation adjustments, the category includes intersegment balance eliminations.

The Federation considers that an item-by-item comparative analysis of this category is not appropriate given the integration of various consolidation adjustments and intersegment balance eliminations. Consequently, the Federation presents an analysis based on its contribution to surplus earnings before dividends to member caisses.

Contribution to surplus earnings

Surplus earnings before dividends to member caisses for the second quarter of 2012 totalled $90 million, versus $35 million for the same period in 2011. For the first six months of 2012, surplus earnings before dividends to member caisses totalled $191 million, compared to $59 million for the corresponding period in 2011.

Second quarter 2012

Surplus earnings before dividends to member caisses of $90 million were mainly attributable to treasury activities, to the favourable net impact of changes in the fair value of derivatives used in hedging operations, and to lower investment portfolio provisions.

Second quarter 2011

Surplus earnings before dividends to member caisses of $35 million were chiefly due to the favourable net impact of changes in the fair value of derivatives used in hedging operations, and to treasury activities, offset by significant IT upgrade investments.

First six months of 2012

Surplus earnings before dividends to member caisses of $191 million were primarily due to the $79 million increase in the fair value of the ABTN portfolio, net of hedging positions, to treasury activities, and to lower investment portfolio provisions.

First six months of 2011

Surplus earnings before dividends to member caisses of $59 million were due, among other things, to treasury activities, to the favourable net impact of changes in the fair value of derivatives used in hedging operations, and to an increase in the fair value of the ABTN portfolio and related items totalling $32 million, offset by significant IT upgrade investments.



SUMMARY OF INTERIM RESULTS

The table below presents a summary of data related to the results for the Federation’s most recent eight quarters.

RESULTS OF MOST RECENT EIGHT QUARTERS (in millions of dollars)

2012 2011 2010

Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3

Net interest income $ 196 $ 194 $ 205 $ 177 $ 170 $ 189 $ 159 $ 184 Net premiums 1,322 1,255 1,248 1,260 1,266 1,185 1,207 1,105 Other income 1,202 780 1,372 1,560 1,117 700 597 1,200

Total income 2,720 2,229 2,825 2,997 2,553 2,074 1,963 2,489

Provision for credit losses 50 63 59 47 41 30 17 33 Claims, benefits, annuities and changes in insurance and investment contract liabilities

1,425 746 1,444 1,750 1,277 821 907 1,310

Non-interest expense 948 1,055 1,133 971 1,002 983 1,107 868 Income taxes on surplus earnings (recovery) 70 83 24 62 46 52 (22) 72

Surplus earnings (deficit) before dividends to member caisses 227 282 165 167 187 188 (46) 206 Provision for dividends to member caisses, net of tax recovery ― ― 34 ― ― ― 23 2

Surplus earnings (deficit) for the period after dividends to member caisses $ 227 $ 282 $ 131 $ 167 $ 187 $ 188 $ (69) $ 204

Quarterly income, expenses and surplus earnings before dividends to member caisses fluctuate based on certain trends, including, among other things, seasonal variations and changes in the general economic and market conditions. For more information about quarterly trends, see the 2011 Management’s Discussion and Analysis included in the Prospectus on page 53.



REVIEW OF FINANCIAL POSITION

CONDENSED STATEMENT OF FINANCIAL POSITION (in millions of dollars and as a percentage)

As at June 30, 2012 As at December 31, 2011

Assets Cash and deposits with financial institutions $ 278 0.3 % $ 497 0.6 % Securities 34,928 40.3 36,955 43.0 Securities borrowed or purchased under reverse repurchase agreements 7,925 9.1 5,869 6.8 Loans 26,671 30.8 26,821 31.2 Segregated fund assets 5,890 6.8 5,427 6.3 Other assets 10,965 12.7 10,451 12.1

Total assets $ 86,657 100.0 % $ 86,020 100.0 %

Liabilities and equity Deposits $ 30,148 34.8 % $ 28,519 33.2 % Other liabilities 45,998 53.1 47,413 55.1 Subordinated bonds 3,045 3.5 3,350 3.9 Equity 7,466 8.6 6,738 7.8

Total liabilities and equity $ 86,657 100.0 % $ 86,020 100.0 % As at June 30, 2012, the Federation’s total assets stood at $86.7 billion, up slightly by $637 million, or 0.7%, since December 31, 2011. At the end of the second quarter of 2012, cash and deposits with financial institutions as well as securities, including those borrowed or purchased under reverse repurchase agreements, totalled $43.1 billion, compared to a volume of $43.3 billion at the end of 2011, for a decline of $190 million, or 0.4%. Total securities, excluding those borrowed or purchased under reverse repurchase agreements, totalled $34.9 billion as at June 30, 2012, for a decline of $2.0 billion, or 5.5%, while securities borrowed or purchased under reverse repurchase agreements grew by $2.1 billion, or 35.0%, to total $7.9 billion.

FINANCING ACTIVITIES

LOANS BY BORROWER CATEGORY (in millions of dollars and as a percentage)


Member caisses $ 9,066 33.8 % $ 9,410 34.9 % Residential mortgages 2,377 8.9 2,404 8.9 Consumer, credit card and other personal loans $ 10,091 37.6 $ 9,405 34.9 Business and government 5,284 19.7 5,742 21.3

26,818 100.0 % 26,961 100.0 % Allowance for credit losses (147) (140)

Total loans by borrower category $ 26,671 $ 26,821 As at June 30, 2012, the Federation’s outstanding loan portfolio, net of the allowance for credit losses, totalled $26.7 billion, down $150 million, or 0.5%, since December 31, 2011. Outstanding loans in all other loan categories except for consumer, credit card and other personal loans were down during the same period.

Outstanding loans to member caisses were down by $344 million, or 3.7%, since December 31, 2011, to total $9.1 billion as at June 30, 2012. Note that this credit category accounted for 33.8% of the Federation’s loan portfolio. Residential mortgage financing fell somewhat, by $27 million, or 1.1%, during the same period to total $2.4 billion at the end of the second quarter, while business and government loans showed a decline of $458 million, or 8.0%, to stand at $5.3 billion. Consumer, credit card and other personal loans grew by $686 million, or 7.3%, during the first six months of 2012, to reach a volume of $10.1 billion as at June 30, 2012.

Quality of loan portfolio Information about the quality of the Federation’s credit portfolio is presented under “Risk management”, on page 16 of this MD&A.



SAVINGS RECRUITMENT ACTIVITIES

DEPOSITS (in millions of dollars and as a percentage)


Member caisses $ 8,156 27.1 % $ 7,220 25.3 % Individuals 2,701 8.9 2,652 9.3 Business and government 7,421 24.6 6,739 23.6 Deposit-taking institutions and other 11,870 39.4 11,908 41.8

Total deposits $ 30,148 100.0 % $ 28,519 100.0 %

As at June 30, 2012, the Federation's outstanding deposits totalled $30.1 billion, up $1.6 billion, or 5.7%, since the end of 2011. Deposits of member caisses, which accounted for 27.1% of the Federation’s savings portfolio, rose by $936 million, or 13.0%, to stand at $8.2 billion.

Deposits from individuals were up $49 million, or 1.8%, since the end of 2011, to total $2.7 billion as at June 30, 2012, while outstanding business and government deposits were up $682 million, or 10.1%, to stand at $7.4 billion. Deposits from deposit-taking institutions and other sources, such as securities issues on capital markets, fell by $38 million, or 0.3%, to $11.9 billion. Note that this last deposit category accounted for 39.4% of the Federation’s total deposits as at June 30, 2012.

CAPITAL MANAGEMENT

Capital management aims to ensure that the capital structure and level of Desjardins Group and its components are adequate in terms of the risks taken by the organization, rating agencies’ expectations, regulators’ requirements, profitability targets, and growth objectives. In this context, the Federation must optimize the allocation of capital and the internal capital flow mechanisms, and support growth, development, and risk management of the assets of Desjardins Group and its components.

With regard to regulatory capital, the capital composition and adequacy of Desjardins Group as a whole are evaluated according to the AMF’s guideline on adequacy of capital base. The AMF requires that a minimum amount of capital be maintained on a combined basis by all components and, in particular, the caisses, the Federation (non-consolidated), Caisse centrale Desjardins, the Fonds de sécurité Desjardins, Capital Desjardins inc., Western Financial Group Inc., Desjardins Securities Inc. and Desjardins Trust Inc. The Federation is not required to comply with any regulatory capital ratio requirements for its Consolidated Financial Statements. However, the AMF reserves the right to demand that the Federation comply with prescriptive requirements for capital adequacy in the future.

Desjardins Group’s capital ratios are calculated according to the AMF’s guideline on adequacy of capital base standards applicable to financial services cooperatives. This regulatory framework is largely based on the revised framework for international convergence of capital measurement and capital standards (Basel II) issued by the Bank for International Settlements (BIS). In this regard, the AMF allowed Desjardins Group to use the Advanced Internal Ratings-Based Approach, subject to conditions, for credit risk related to retail loan portfolios (Individuals). Other credit exposures and market risk are assessed according to the Standardized Approach, while operational risk is calculated based on the Basic Indicator Approach. Desjardins Group’s Tier 1 and total capital ratios stood at 16.1% and 18.8%, respectively, as at June 30, 2012. These ratios were 17.3% and 19.3%, respectively, as at December 31, 2011. Desjardins Group therefore still has excellent capitalization, with a Tier 1 capital ratio above its target of 15%.

Since the implementation of Basel II, Desjardins Group has applied the deferred treatment prescribed by the AMF, under which equity related to investments in its insurance subsidiaries made before January 1, 2007, is fully deducted from Tier 2 capital until the end of fiscal 2011. Effective in 2012, this equity must be deducted in equal shares of 50% from Tier 1 capital and Tier 2 capital. The end of the application of this deferred treatment had an unfavourable impact of 143 basis points on the Tier 1 capital ratio during the first half of 2012, but the total capital ratio remained the same.

On June 18, 2012, The Federation introduced a program to issue capital shares for a maximum of $1.2 billion. An amount of $291 million had been issued as at June 30, 2012. These capital shares, currently included in the Tier 1 capital under Basel II, meet the upcoming regulatory capital requirements (Basel III) for Tier 1 Common Equity. To this end, on May 1, 2012, the Federation was granted venture issuer status. During the second quarter, Desjardins Group also called all outstanding Series C Senior subordinated bonds, in the amount of $300 million.



ANALYSIS OF CASH FLOWS

Because of the nature of the Federation’s operations, most of the items on the Consolidated Statements of Income and the Consolidated Statements of Financial Position are cash items. Normal operations therefore cause considerable fluctuations in liquidity and affect numerous items, such as loans, deposits and securities. The main changes in cash flows are explained in the following paragraphs.

For the six-month period ended June 30, 2012, cash and cash equivalents were down $219 million, versus a decrease of $271 million for the corresponding quarter in 2011. As at June 30, 2012, cash and cash equivalents stood at $278 million, compared to $607 million a year earlier.

For the six-month period ended June 30, 2012, cash flows used in operating activities totalled $1,037 million, primarily because of an increase of $2,056 million in securities borrowed or purchased under reverse repurchase agreements, and of a decrease of $1,802 million in commitments related to securities lent or sold under repurchase agreements, offset primarily by an increase of $1,629 million in deposits, and a decrease of $1,110 million in securities at fair value through profit or loss. For the corresponding period in 2011, cash flows used in operating activities were $712 million primarily due to an increase of $3,121 million in securities borrowed or purchased under reverse repurchase agreements, and of a decrease of $830 million in commitments related to securities sold short, mostly offset by an increase of $2,933 million in deposits.

Cash flows used in financing activities amounted to $33 million for the six-month period ended June 30, 2012, largely as a result of the redemption of $300 million in subordinated bonds, offset primarily by the issuance of capital shares for $291 million. For the corresponding period in 2011, cash flows from financing activities were $1,115 million, chiefly as a result of the issue of PL-2 Investment Shares for $1.1 billion.

Cash flows from investing activities were $851 million for the six-month period ended June 30, 2012, largely as a result of proceeds from the sale of available-for-sale securities, and of proceeds from the maturities of available-for-sale securities for $10,753 million and $726 million, respectively, offset primarily by the purchase of $10,884 million of available-for-sale securities. For the corresponding period in 2011, cash flows used in investing activities amounted to $674 million mainly due to the purchase of $7,124 million of available-for-sale securities, offset primarily by proceeds of $6,467 million from the sale of bonds and maturities of available-for-sale securities. OFF-BALANCE SHEET ARRANGEMENTS

In the normal course of operations, the Federation enters into different off-balance sheet arrangements, including assets under administration and under management on behalf of members and clients, credit instruments, derivative financial instruments, contractual commitments, financial assets received as collateral and special purpose entities, including securitization. These types of arrangements are described in the 2011 Management’s Discussion and Analysis on pages 63 to 67 of the Prospectus. There were no additions to or material changes in these off-balance sheet items as at December 31, 2011.

Off-balance sheet savings

The Federation is one of Canada’s leading trustees and wealth managers. Off-balance sheet savings are comprised essentially of financial assets in the form of investment funds and other types of funds mainly held by individuals. As a result, they do not belong to the Federation, but to its members and clients.

Stock market activity in Canada was affected by the more uncertain financial and economic conditions during the second quarter of 2012. The S&P/TSX index fell 6.4% during this period, while it had advanced 3.7% in the previous quarter. Despite the more difficult environment, the Federation’s recruitment of off-balance sheet savings was not unduly affected, as shown by the increase of $1.5 billion, or 3.1%, since December 31, 2011, in investment funds and securities under administration or under management, for a total of $50.1 billion as at June 30, 2012.

Special purpose entities (SPEs)

In the normal course of operations, the Federation enters into various financial transactions with SPEs. These entities are usually created for a single and distinct purpose, and they often have a limited life. They are used to legally isolate the financial assets they hold from the transferring organization, which can be the Federation or one of its clients. SPEs are generally not going-concern entities, and if they were, they would only very rarely have employees. Under IFRS, SPEs may be recognized or not in the Consolidated Statements of Financial Position, depending on their characteristics.

The Federation also participates in the National Housing Act Mortgage-Backed Securities Program. Transactions under the Program involve the use of off-balance sheet arrangements with an SPE. The SPE used by the Federation is Canada Housing Trust, set up by Canada Mortgage and Housing Corporation (CMHC) under the Canada Mortgage Bonds (CMB) Program. Note 9, “Securitization and other transferred financial assets”, to the annual Consolidated Financial Statements provides more information concerning the financial assets transferred by the Federation through securitization transactions.



Details concerning significant exposure to SPEs are provided in the table below: SIGNIFICANT EXPOSURE TO OTHER SPECIAL PURPOSE ENTITIES (SPEs) (in millions of dollars)


The Federation’s

exposure

Total assets of special

purpose entities(1)

The Federation’s exposure

Total assets of special

purpose entities(1)

Unconsolidated SPEs Trusts for Canadian non-bank asset-backed term notes (ABTN)(2) $ 2,720 $ 16,081 $ 2,561 $ 16,185 Private investment funds related to guaranteed-capital products and other activities 86 243 84 233 Consolidated SPEs Private hedge funds related to guaranteed-capital products and other activities 83 83 59 59

(1) The total assets of the SPEs disclosed correspond to the most recent data available to the Federation. For investment funds and hedge funds related to guaranteed-capital structured products, the amount presented corresponds to the entity’s net assets.

(2) See Note 6, “Securities”, to the Interim Consolidated Financial Statements for information about the ABTNs, the margin funding facility (MFF), and the hedging positions to minimize risk on the ABTN portfolio. The amount in the “The Federation’s exposure” column comprises only the margin funding facility of $1,193 million ($1,193 million as at December 31, 2011) and the fair value of the new notes totalling $1,527 million ($1,368 million as at December 31, 2011).

RISK MANAGEMENT

RISK MANAGEMENT

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

The Federation’s objective in risk management is to optimize the risk-return trade-off, within tolerance limits set for the Federation, by applying integrated risk management and control strategies, policies and procedures to all its activities. It also aims to provide a prudent and appropriate management framework that complies with accepted accountability and independence principles.

In this regard, the Federation has an integrated risk management framework. The purpose of the framework is to provide the organization with reasonable assurance with respect to the understanding and management of the full spectrum of major risks to which the Federation is exposed.

During the first six months of 2012, the Federation’s risk management policies and practices did not change from those stated in the 2011 Management’s Discussion and Analysis on pages 68 to 87 of the Prospectus.

The Federation’s risk management approach is based on principles promoting the accountability of business segments and entities with respect to consolidated results and risk management quality as well as the leading role played by the Board of Directors of all the subsidiaries in risk and result monitoring. A number of committees support the Board of Directors and management of each subsidiary in discharging their risk management responsibilities.

CREDIT RISK

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

The Federation is exposed to credit risk first through its direct loans to member caisses and its direct personal, business and government loans. It is also exposed through its various other commitments, including letters of credit, foreign exchange lines and transactions involving derivative financial instruments and securities.

Counterparty and issuer risk

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

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

Exposure to sovereign borrowers

The Federation is not directly exposed to the sovereign debt of the European countries most affected by the recent financial upheaval, namely Greece, Portugal, Italy, Ireland and Spain. Its exposure to U.S. and European financial institutions is marginal.



Quality of loan portfolio

As at June 30, 2012, gross impaired loans outstanding were $91 million, compared to $89 million as at December 31, 2011. The gross impaired loans ratio, as a percentage of the total gross loan portfolio, was 0.34% at the end of the second quarter, up slightly over the ratio of 0.33% as at December 31, 2011, which is still one of the best in the Canadian banking industry.

Individual allowances for credit losses totaled $15 million, resulting in a total coverage ratio of 16.5% as at June 30, 2012, down 3.7 basis points compared to the ratio as at December 31, 2011. The collective allowance amounted to $132 million as at June 30, 2012, up from $122 million as at December 31, 2011. An allowance for off-balance sheet arrangements exposures of $67 million as at June 30, 2012, and of $63 million as at December 31, 2011, was recognized under “Other liabilities – Other” in the Consolidated Statements of Financial Position.

IMPAIRED LOANS BY BORROWER CATEGORY (in millions of dollars and as a percentage)

As at June 30, 2012 As at

December 31, 2011

Gross loans

Gross impaired loans

Individual allowances

Net impaired loans

Net impaired loans

Member caisses $ 9,066 $ ― $ ― $ ― $ ― Residential mortgages 2,377 10 ― 10 9 Consumer, credit card and other personal loans 10,091 47 ― 47 40 Business and government 5,284 34 15 19 22

Total $ 26,818 $ 91 $ 15 $ 76 $ 71

As a percentage of gross loans 0.34 % 0.28 % 0.26 %

COVERAGE RATIO(1)

(as a percentage)

As at June 30,

2012 As at December 31,

2011 Residential mortgages ― % ― % Consumer, credit card and other personal loans ― 2.4 Business and government 44.1 43.6 Total coverage ratio 16.5 20.2

(1) The coverage ratio is the sum of the individual allowances for each impaired loan, divided by the total balance of gross impaired loans.

MARKET RISK

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

The Federation is exposed to market risk primarily through positions taken in the course of its traditional financing and savings recruitment activities. It is also exposed to market risk through its trading activities. The Federation and its subsidiaries have adopted policies that set out the principles, limits and procedures to use in managing market risk.

Interest rate risk management

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

Sound and prudent management is applied to achieve the objective of optimizing net interest income while minimizing the negative incidence of interest rate movements. The established policies describe the principles, limits and procedures that apply to interest rate risk management. Simulations are used to measure the effect of different variables on changes in net interest income and the economic value of equity.

Desjardins Group’s asset and liability management committee (the Asset/Liability Committee) is responsible for analyzing and approving the global matching strategy on a monthly basis while respecting the parameters defined in interest rate risk management policies. The following table presents the potential pre-tax impact on the non-trading portfolio of a sudden and sustained 100-basis-point increase or decrease in interest rates on net interest income and the economic value of equity.



INTEREST RATE SENSITIVITY (BEFORE INCOME TAXES) (in millions of dollars)


Net interest

income(1) Economic value

of equity(2) Net interest

income(1) Economic value of

equity(2) Impact of a 100-basis-point increase in interest rates $ (19) $ 53 $ (21) $ 122

Impact of a 100-basis-point decrease in interest rates 11 (69) 15 (74)

(1) Represents interest rate sensitivity of net interest income for the next 12 months. (2) Represents the present value of assets, liabilities and off-balance sheet instruments.

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

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

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

The management of market risk on trading portfolios is handled on a daily basis and outlined in a specific policy. The main tool used to measure the market risk of trading portfolios is “Value-at-Risk” (VaR), which represents an estimate of the potential loss for a certain period of time at a given confidence level.

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

The following table presents the aggregate VaR of the trading activities by risk category as well as the diversification effect, which represents the difference between aggregate VaR and the sum of the VaR for different risk categories. Equity, interest rate and foreign exchange risks are the three risk categories. The definition of a trading portfolio meets the criteria defined in the Basel Capital Accord.

VaR BY RISK CATEGORY (TRADING PORTFOLIO) (in millions of dollars)

As at

June 30, 2012

For the quarter ended June 30, 2012

As at March 31,

2012 For the quarter ended

March 31, 2012 Average High Low Average High Low

Equities $ 0.2 $ 0.3 $ 0.5 $ 0.2 $ 0.3 $ 0.3 $ 0.5 $ 0.2

Foreign exchange 0.1 0.1 0.2 ― 0.1 0.1 0.2 ―

Interest rate 1.7 3.5 6.6 1.6 3.6 3.9 7.9 2.3

Diversification effect(1) (0.2) (0.4) N/A(2) N/A(2) (0.3) (0.4) N/A(2) N/A(2)

Aggregate VaR $ 1.8 $ 3.5 $ 6.6 $ 1.6 $ 3.7 $ 3.9 $ 7.8 $ 2.4

(1) Represents risk reduction related to diversification, namely the difference between the sum of the VaR for the various market risks and the aggregate VaR. (2) Not applicable: The highs and lows of the various market risk categories can refer to different dates.

As at June 30, 2012, the aggregate VaR was $1.8 million, the interest rate VaR being the largest component. This aggregate VaR was lower than its quarterly average of $3.5 million. Risk mitigation related to diversification amounted to $0.2 million as at June 30, 2012.



Back testing

To validate the VaR model used, back testing is conducted daily by comparing the VaR with the profits or losses (P&L) on the portfolios.

The Federation carries out back testing daily, applying a hypothetical P&L to its trading portfolios. The hypothetical P&L is calculated by determining the difference in value resulting from changes in market conditions between two consecutive days. The portfolio mix between these two days remains static. The chart below presents changes in VaR for trading activities as well as P&L related to these activities. During the second quarter of 2012, the hypothetical P&L was not exceeded.

LIQUIDITY RISK

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

Managing liquidity risk involves maintaining a sufficient level of liquid securities, ensuring stable and diversified sources of funding, monitoring indicators and adopting a contingency plan to implement in the event of a liquidity crisis. The Federation and its subsidiaries have established policies describing the principles, limits, risk appetite and tolerance levels as well as the procedures that apply to liquidity risk management.

Policies and standards are reviewed on a regular basis to ensure that they are appropriate for the operating environment and prevailing market conditions. They are also updated according to regulatory requirements and sound liquidity risk management practices. Sources of financing

Core funding, which includes capital, long-term liabilities and a diversified deposit portfolio, is the foundation upon which the Federation’s liquidity position depends. As at June 30, 2012, the Federation’s deposits outstanding totalled $30.1 billion, an increase of $1.6 billion, or 5.7%, since December 31, 2011. This growth was mainly attributable to the deposits of member caisses as well as business and government deposits. Aggregate deposits accounted for 38.1% of the Federation’s total liabilities as at June 30, 2012.

In order to maintain stable and diversified funding, the Federation diversifies its sources of financing from institutional capital markets. The Federation also raises financing on institutional capital markets through Capital Desjardins inc. for subordinated bonds, and through Caisse centrale Desjardins for money market instruments, commercial paper, medium-term deposit notes, covered bonds and securitization of the caisse network’s mortgage loans.

In keeping with its extension strategy for institutional funding and its mission as Desjardins Group’s treasurer, Caisse centrale Desjardins issued debt securities in the first half of 2012 on the U.S. market, namely US $1.5 billion of medium-term covered bonds. Desjardins Group’s presence on the U.S. market helps expand its pool of institutional investors, since several new major international players were interested in this issue.

Caisse centrale Desjardins also participated in the National Housing Act Mortgage-Backed Securities Program under the Canada Mortgage Bonds Program. Caisse centrale Desjardins was active on this market, with a total participation of $652 million for the first two quarters of 2012. The main objective of the program is to obtain a source of long-term financing at the lowest price on the market.

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

VaR compared to P&L from trading activities

-8,0

-6,0

-4,0

-2,0

0,0

2,0

4,0

April 2, 2

012

April 1

0, 2012

April 1

7, 2012

April 2

4, 2012

May 1, 2

012

May 8, 2

012

May 15,

2012

May 22,

2012

May 29,

2012

June

5, 2012

June

12, 2

012

June

19, 2

012

June

26, 2

012

in m

illio

ns o

f dol

lars

Hypothetical P&L 99% Monte Carlo VaR



Note that on June 1, 2012, Capital Desjardins inc. called all its outstanding Series C Senior Notes due in 2017, in the amount of $300 million. In addition, the Federation issued capital shares amounting to $291 million as at June 30, 2012.

Credit ratings of securities

Desjardins Group’s financial strength is reflected in the excellent credit ratings of the securities issued by Caisse centrale Desjardins and Capital Desjardins inc.

Caisse centrale Desjardins, a reporting issuer, and Capital Desjardins inc., a venture issuer, boast excellent credit ratings from rating agencies. In fact, their ratings are among the best of the major banking institutions in Canada.

The reports of the rating agencies deal primarily with Desjardins Group on a combined basis, since the credit ratings of Caisse centrale Desjardins and Capital Desjardins inc. are backed by the financial strength of Desjardins Group.

Rating agencies maintained Desjardins Group’s credit ratings during the second quarter, once again recognizing its very strong capitalization, the stability of its operating surplus earnings, its leading role in local markets and the quality of its assets. Since the beginning of the year, Moody’s Investors Service (March 15, 2012), DBRS (June 26, 2012) and Standard & Poor’s (February 13, 2012 for Capital Desjardins inc. and July 27, 2012 for the Caisse centrale Desjardins) have confirmed the credit ratings of the securities issued by Desjardins Group.

The high credit ratings reflect the financial strength of Desjardins Group and its network of caisses, and ensure its credibility and reputation among institutional investors. The borrowing programs set up by Caisse centrale Desjardins and Capital Desjardins inc. provide Desjardins Group with access to diversified capital by client, market, maturity, currency and region.

DBRS STANDARD & POOR’S

MOODY’S INVESTORS

SERVICE FITCH

Caisse centrale Desjardins

Short-term R-1 (high) A-1+ P-1 F1+

Medium- and long-term, senior AA AA- Aa1 AA-

Capital Desjardins inc.

Medium- and long-term, senior AA (low) A+ Aa2 A+

ADDITIONAL INFORMATION CONCERNING EXPOSURE TO CERTAIN RISKS The tables below provide more details about more complex financial instruments that have a higher risk.

ASSET-BACKED SECURITIES (in millions of dollars)


Notional amounts

Fair value

Notional amounts

Fair value

Commercial mortgage-backed securities(1) $ 244 $ 259 $ 249 $ 260

Financial asset-backed securities(2) 71 66 71 59

(1) These securities are presented in the Consolidated Statements of Financial Position under “Securities at fair value through profit or loss”. (2) None of the securities held are directly backed by subprime residential mortgages. These securities are presented in the Consolidated Statements of Financial Position

under “Securities at fair value through profit or loss” and “Available-for-sale securities”.

DERIVATIVE FINANCIAL INSTRUMENTS (in millions of dollars)


Notional amounts

Positive value

Negative value

Notional amounts

Positive value

Negative value

Credit default swaps(1) $ 603 $ ― $ 4 $ 601 $ ― $ 8

Total return swaps(2) 176 ― ― 271 ― ―

(1) Credit default swaps are presented in the Consolidated Statements of Financial Position as derivative financial instruments. (2) These amounts do not include any amounts realized as part of securitization activities. Total return swaps are presented in the Consolidated Statements of Financial Position

as derivative financial instruments.



LEVERAGED FINANCE LOANS AND SUBPRIME LOANS (in millions of dollars)

As at June 30, 2012

As at December 31, 2011

Leveraged finance loans(1) $ 163 $ 90

Alt-A mortgages(2) 41 43

Subprime residential mortgages(3) 1 1 (1) Leveraged finance loans are defined as loans to large corporations and finance companies whose credit rating is between BB+ and D, and whose level of indebtedness is very

high compared to other companies in the same industry. (2) These loans are defined as loans to borrowers with non-standard income documentation. Alt-A mortgages are recorded on the Consolidated Statements of Financial Position

under “Loans – Residential mortgages” and are measured at amortized cost. (3) Subprime residential mortgages are defined as mortgages to borrowers with a high credit risk profile. Only one of these loans is currently in default. Subprime residential

mortgages are recorded on the Consolidated Statements of Financial Position under “Loans – Residential mortgages” and are measured at amortized cost.

ADDITIONAL INFORMATION

FRAMEWORK

During the interim period ended June 30, 2012, the Federation did not make any changes to its financial reporting framework that materially affected, or are likely to materially affect, its activities. The parties involved in this framework and their responsibilities are described on page 89 of the 2011 Management’s Discussion and Analysis presented in the Prospectus. On May 1, 2012, the Federation became a venture issuer, subject to continuous disclosure.

RELATED PARTY DISCLOSURES In the normal course of business with related parties, the Federation offers financial services, enters into agreements for operating services and pays key management personnel compensation. Such related party transactions, including transactions with other Desjardins entities, are explained in Note 32, “Related party disclosures”, to the Federation’s annual Consolidated Financial Statements, on pages F-165 and F-166 of the Prospectus.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Federation’s unaudited Condensed Interim Consolidated Financial Statements were prepared in accordance with IFRS, which constitute GAAP for the Federation. The significant accounting policies are described in Note 2, “Significant accounting policies”, to the Federation’s annual Consolidated Financial Statements, on pages F-82 to F-99 of the Prospectus. Some of these policies are of particular importance in presenting the Federation’s financial position and results of operations since they require management to make assumptions and estimates that may involve uncertainties and since any change to these assumptions and estimates could have a significant impact on the Federation’s Interim Consolidated Financial Statements. Pages 90 to 94 of the 2011 Management’s Discussion and Analysis included in the Prospectus provide explanations for such accounting policies. No material change was made to these accounting policies, estimates and assumptions during the first six months of 2012.

FUTURE ACCOUNTING CHANGES

Accounting standards issued but not yet effective as at December 31, 2011 are discussed in Note 3, “Future accounting changes”, to the Federation’s annual Consolidated Financial Statements on pages F-100 and F-101 of the Prospectus. In addition, during the first six months of 2012, the IASB issued the following amendments:

Annual improvements

In May 2012, the IASB issued amendments to several standards as part of its annual improvement process. Except for the amendment to IAS 32, “Financial Instruments: Presentation”, these amendments are minor and will have no impact on the Federation’s results and financial position. The amendment to IAS 32 clarifies that the income tax consequences of dividends should now be recognized in accordance with IAS 12, “Income Taxes”. Therefore, when certain conditions are met, the income tax consequences of dividends must be presented in profit or loss rather than in equity. The Federation will have to apply this amendment retrospectively for the year beginning January 1, 2013.

MATERIAL EVENT

On July 31, 2012, Maple Group Acquisition Corporation (Maple), in which the Federation has a stake as an investor along with 12 other Canadian financial institutions and pension funds, announced that the offer to purchase all shares of TMX Group Inc. (TMX Group) had been successful following the tender of 91% of the TMX shares then outstanding for a cash consideration of $50 per TMX group share. The offer was also extended for an additional 10 days to August 10, 2012, for the TMX Group shareholders who have not yet tendered their shares to the offer. Under the transaction, the Federation’s equity commitment is for a maximum of $97.6 million, or 4.7%. The scheduled cash payments for the TMX Group shares acquired by Maple under the offer will be made on August 10, 2012. Furthermore, Maple completed the acquisition of Alpha Trading Systems Inc., Alpha Trading Limited Partnership, and The Canadian Depository for Securities Limited on August 1, 2012.



CONSOLIDATED STATEMENTS OF FINANCIAL POSITION(unaudited)

As at As at(in millions of Canadian dollars) June 30, 2012 December 31, 2011ASSETSCash and deposits with financial institutions $ 278 $ 497 Securities Note 6

Member caisses 3,105 3,405 Securities at fair value through profit or loss 21,369 22,479 Available-for-sale securities 10,454 11,071

34,928 36,955 Securities borrowed or purchased under reverse repurchase agreements 7,925 5,869 Loans Note 7

Member caisses 9,066 9,410 Residential mortgages 2,377 2,404 Consumer, credit card and other personal loans 10,091 9,405 Business and government 5,284 5,742

26,818 26,961 Allowance for credit losses Note 7 (147) (140)

26,671 26,821 Segregated fund assets 5,890 5,427 Other assets

Clients' liability under acceptances 474 676 Derivative financial instruments Note 9 2,695 3,082 Amounts receivable from clients, brokers and financial institutions 1,983 1,274 Investment property 594 591 Property, plant and equipment 486 475 Deferred tax assets 455 476 Other 4,278 3,877

10,965 10,451 TOTAL ASSETS $ 86,657 $ 86,020

LIABILITIES AND EQUITYLIABILITIESDeposits

Member caisses $ 8,156 $ 7,220 Individuals 2,701 2,652 Business and government 7,421 6,739 Deposit-taking and other institutions 11,870 11,908

30,148 28,519 Other liabilities

Acceptances 474 676 Commitments related to securities sold short 5,377 5,341 Commitments related to securities lent or sold under repurchase agreements 6,441 8,243 Derivative financial instruments Note 9 2,263 2,867 Amounts payable to clients, brokers and financial institutions 4,116 3,762 Insurance and investment contract liabilities 17,420 17,008 Segregated fund liabilities 5,890 5,427 Defined benefit plan liabilities 1,016 1,049 Deferred tax liabilities 104 104 Other 2,897 2,936

45,998 47,413 Subordinated bonds 3,045 3,350 TOTAL LIABILITIES 79,191 79,282

EQUITYCapital stock Note 10 3,952 3,661 Undistributed surplus earnings 2,211 1,877 Accumulated other comprehensive income Note 11 259 302 Reserves 569 436

Equity - Group's share 6,991 6,276 Non-controlling interests 475 462 TOTAL EQUITY 7,466 6,738 TOTAL LIABILITIES AND EQUITY $ 86,657 $ 86,020

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

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

Monique F. Leroux, FCPA, FCA, FCMA Denis Paré, LL.L., D.D.N.Chair of the Board Vice-Chair of the Board



CONSOLIDATED STATEMENTS OF INCOME(unaudited)

(in millions of Canadian dollars) 2012 2011 2012 2011INTEREST INCOME

Loans to member caisses $ 47 $ 36 $ 95 $ 77 Other loans 232 212 459 430 Securities 99 88 201 179

378 336 755 686 INTEREST EXPENSE

Deposits of member caisses 53 54 104 109 Other deposits 87 71 175 143 Subordinated bonds and other 42 41 86 75

182 166 365 327 NET INTEREST INCOME 196 170 390 359 NET PREMIUMS 1,322 1,266 2,577 2,451 OTHER INCOME

Assessments from member caisses 81 73 153 144 Other income from member caisses 90 82 159 146 Lending fees and credit card service revenues 129 117 256 233 Brokerage, investment fund and trust services 168 169 350 345 Net income on securities at fair value through profit or loss Note 13 504 477 551 554 Net income on available-for-sale securities 42 45 133 93 Net other investment income 57 72 113 130 Other 131 82 267 172

1,202 1,117 1,982 1,817 TOTAL INCOME 2,720 2,553 4,949 4,627 PROVISION FOR CREDIT LOSSES 50 41 113 71 CLAIMS, BENEFITS, ANNUITIES AND CHANGES IN INSURANCE AND INVESTMENT CONTRACT LIABILITIES 1,425 1,277 2,171 2,098 NON-INTEREST EXPENSE

Remuneration and other payments to member caisses 93 94 181 178 Salaries and fringe benefits 393 394 794 752 Premises, equipment and furniture, including depreciation 55 58 121 117 Service agreements and outsourcing 45 57 103 152 Communications 57 54 108 97 Other 305 345 696 689

948 1,002 2,003 1,985 OPERATING SURPLUS EARNINGS 297 233 662 473

Income taxes on surplus earnings 70 46 153 98 NET SURPLUS EARNINGS FOR THE PERIOD AFTER DIVIDENDS TO MEMBER CAISSES $ 227 $ 187 $ 509 $ 375 of which:

Group's share $ 214 $ 181 $ 484 $ 362 Non-controlling interests' share 13 6 25 13



For the three-month period ended June 30



-

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(unaudited)

(in millions of Canadian dollars) 2012 2011 2012 2011Net surplus earnings for the period after dividends to member caisses $ 227 $ 187 $ 509 $ 375 Other comprehensive income, net of income taxes Note 14

Net unrealized gains (losses) on available-for-sale securities (10) 26 12 31 Reclassification to Consolidated Statements of Income of gains on available-for-sale securities (1) (10) (48) (41)

(11) 16 (36) (10) Net gains (losses) on derivative financial instruments designated as cash flow hedges 3 2 (7) (16) Reclassification to Consolidated Statements of Income of gains on derivative financial instruments designated as cash flow hedges (2) (2) (5) (4)

1 - (12) (20) Total other comprehensive income (10) 16 (48) (30) COMPREHENSIVE INCOME FOR THE PERIOD $ 217 $ 203 $ 461 $ 345 of which:

Group's share $ 206 $ 195 $ 441 $ 338 Non-controlling interests' share 11 8 20 7


For the three-month period ended June 30




-

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY(unaudited)

(in millions of Canadian dollars)Balance at December 31, 2011 $ 3,661 $ 1,877 $ 302 $ 182 $ 254 $ 436 $ 6,276 $ 462 $ 6,738 Net surplus earnings for the period after dividends to member caisses - 484 - - - - 484 25 509 Other comprehensive income for the period - - (43) - - - (43) (5) (48) Total comprehensive income for the period - 484 (43) - - - 441 20 461 Issuance of capital shares 291 - - - - - 291 - 291 Payments to member caisses - (15) - - - - (15) - (15) Transfer from undistributed surplus earnings (to reserves) - (133) - 115 18 133 - - - Dividends on preferred shares - - - - - - - (3) (3) Other - (2) - - - - (2) (4) (6) Balance at June 30, 2012 $ 3,952 $ 2,211 $ 259 $ 297 $ 272 $ 569 $ 6,991 $ 475 $ 7,466

Balance at December 31, 2010 $ 2,334 $ 1,310 $ 263 $ 57 $ 334 $ 391 $ 4,298 $ 379 $ 4,677 Net surplus earnings for the period after dividends to member caisses - 362 - - - - 362 13 375 Other comprehensive income for the period - - (24) - - - (24) (6) (30) Total comprehensive income for the period - 362 (24) - - - 338 7 345 Net change in capital stock 1,075 - - - - - 1,075 - 1,075 Payments to member caisses - (4) - - - - (4) - (4) Transfer from undistributed surplus earnings (to reserves) - (79) - 125 (46) 79 - - - Dividends on preferred shares - - - - - - - (2) (2) Impact of acquisitions and disposals - - (2) - - - (2) 73 71 Other - (2) - - - - (2) (12) (14) Balance at June 30, 2011 $ 3,409 $ 1,587 $ 237 $ 182 $ 288 $ 470 $ 5,703 $ 445 $ 6,148


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CONSOLIDATED STATEMENTS OF CASH FLOWS(unaudited)For the six-month periods ended June 30

(in millions of Canadian dollars) 2012 2011Cash flows from (used in) operating activitiesOperating surplus earnings $ 662 $ 473 Non-cash adjustments:

Depreciation of property, plant and equipment and investment property 30 31 Net change in insurance and investment contract liabilities 412 370 Provision for credit losses 113 71 Net realized gains of available-for-sale securities (89) (22) Other 85 54

Change in operating assets and liabilitiesSecurities at fair value through profit and loss 1,110 (551) Securities borrowed or purchased under reverse repurchase agreements (2,056) (3,121) Loans 37 (310) Derivative financial instruments, net amount (226) (205) Deposits 1,629 2,933 Commitments related to securities sold short 36 (830) Commitments related to securities lent or sold under repurchase agreements (1,802) 578 Other (739) 7

Income tax paid on surplus earnings (194) (148) Payment of dividends to member caisses (45) (42)

(1,037) (712) Cash flows from (used in) financing activitiesReimbursement of subordinated bonds (300) - Sale (purchase) of debt securities and subordinated bonds to (from) third parties on the market (6) 46 Net change in capital stock – Group's share - 1,075 Issuance of capital share 291 - Payments to member caisses (15) (4) Dividends on preferred shares – Non-controlling interests' share (3) (2)

(33) 1,115 Cash flows from (used in) investing activitiesNet change in member caisse securities 300 (4) Purchase of available-for-sale securities (10,884) (7,124) Proceeds from disposals of available-for-sale securities 10,753 6,467 Proceeds from maturities of available-for-sale securities 726 263 Business acquisition, net of cash and cash equivalents acquired - (219) Proceeds from the disposal of an interest, net of cash and cash equivalents sold - (51) Net acquisitions of property, plant and equipment and investment property (44) (6)

851 (674) Net decrease in cash and cash equivalents (219) (271) Cash and cash equivalents at beginning of period 497 878 Cash and cash equivalents at end of period $ 278 $ 607 Supplemental information on cash flows from (used in) operating activitiesInterest paid $ 369 $ 388 Interest and dividends received 780 714




NOTES TO THE CONDENSED

INTERIM CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1 – INFORMATION ON THE FÉDÉRATION DES CAISSES DESJARDINS DU QUÉBEC

NATURE OF OPERATIONS

The Fédération des caisses Desjardins du Québec (Federation) is the cooperative entity responsible for providing direction, coordination, and development support to Desjardins Group. It provides its member caisses with a variety of services, including certain technical, financial and administrative services. The member caisses collectively control the Federation. Each member caisse has a significant influence on the Federation.

The Federation is responsible for inspecting and auditing the caisses as well as for designing and developing all caisse network systems. It holds the rights and privileges to use and to participate in the VISA payment system in Canada, and, through holding companies, manages controlling interests in business corporations. The address of the head office is 100 Des Commandeurs Street, Lévis, Quebec, Canada.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

GENERAL INFORMATION

STATEMENT OF COMPLIANCE

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

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

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

SIGNIFICANT JUDGMENTS, ESTIMATES AND ASSUMPTIONS

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

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

FUNCTIONAL CURRENCY AND REPORTING CURRENCY

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



NOTE 3 – FUTURE ACCOUNTING CHANGES

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

Annual improvements

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

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

NOTE 4 – CARRYING AMOUNT OF FINANCIAL INSTRUMENTS

CLASSIFICATION AND CARRYING AMOUNT OF FINANCIAL INSTRUMENTS

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

At fair value through

profit or loss

As at June 30, 2012 Held fortrading

Designated as at fair

value through profit or loss

Available for sale

Loans and receivables,

and financial liabilities at

amortized cost

Derivatives designated as

hedging instruments (2) Total

Financial assets Cash and deposits with financial institutions $ --- $ --- $ --- $ 278 $ --- $ 278Securities

Member caisses --- --- --- 3,105 --- 3,105Securities at fair value through profit or loss 8,757 12,612 --- --- --- 21,369Available-for-sale securities --- --- 10,454 --- --- 10,454

Securities borrowed or purchased under reverse repurchase agreements --- --- --- 7,925 --- 7,925

Loans (1) --- --- --- 26,671 --- 26,671Other financial assets

Clients’ liability under acceptances --- --- --- 474 --- 474Derivative financial instruments 2,307 --- --- --- 388 2,695Amounts receivable from clients, brokers

and financial institutions --- --- --- 1,983 --- 1,983Other --- --- 19 1,829 --- 1,848

Total financial assets $ 11,064 $ 12,612 $ 10,473 $ 42,265 $ 388 $ 76,802

Financial liabilities Deposits $ --- $ --- $ --- $ 30,148 $ --- $ 30,148Other financial liabilities

Acceptances --- --- --- 474 --- 474Commitments related to securities sold

short 5,377 --- --- --- --- 5,377Commitments related to securities lent or

sold under repurchase agreements --- --- --- 6,441 --- 6,441Derivative financial instruments 2,022 --- --- --- 241 2,263Amounts payable to clients, brokers and

financial institutions --- --- --- 4,116 --- 4,116Other --- --- --- 1,632 --- 1,632

Subordinated bonds --- --- --- 3,045 --- 3,045Total financial liabilities $ 7,399 $ --- $ --- $ 45,856 $ 241 $ 53,496(1) For more information, see Note 7, "Loans and allowance for credit losses". (2) For details on derivatives designated as hedging instruments, see Note 9, “Derivative financial instruments and hedging activities”.



NOTE 4 – CARRYING AMOUNT OF FINANCIAL INSTRUMENTS (continued)

At fair value through

profit or loss

As at December 31, 2011 Held fortrading

Designated as at fair

value through profit or loss

Available for sale

Loans and receivables,

and financial liabilities at amortized

cost

Derivative designated as

hedging instruments (2) Total

Financial assets Cash and deposits with financial institutions $ --- $ --- $ --- $ 497 $ --- $ 497 Securities

Member caisses --- --- --- 3,405 --- 3,405 Securities at fair value through profit or loss 9,494 12,985 --- --- --- 22,479 Available-for-sale securities --- --- 11,071 --- --- 11,071

Securities borrowed or purchased under reverse repurchase agreements --- --- --- 5,869 --- 5,869

Loans (1) --- --- --- 26,821 --- 26,821 Other financial assets

Clients’ liability under acceptances --- --- --- 676 --- 676 Derivative financial instruments 2,700 --- --- --- 382 3,082 Amounts receivable from clients, brokers

and financial institutions --- --- --- 1,274 --- 1,274 Other --- --- 18 1,693 --- 1,711

Total financial assets $ 12,194 $ 12,985 $ 11,089 $ 40,235 $ 382 $ 76,885

Financial liabilities Deposits $ --- $ --- $ --- $ 28,519 $ --- $ 28,519 Other financial liabilities

Acceptances --- --- --- 676 --- 676 Commitments related to securities sold

short 5,341 --- --- --- --- 5,341 Commitments related to securities lent or

sold under repurchase agreements --- --- --- 8,243 --- 8,243 Derivative financial instruments 2,451 --- --- --- 416 2,867 Amounts payable to clients, brokers and

financial institutions --- --- --- 3,762 --- 3,762 Other --- --- --- 1,680 --- 1,680

Subordinated bonds --- --- --- 3,350 --- 3,350 Total financial liabilities $ 7,792 $ --- $ --- $ 46,230 $ 416 $ 54,438 (1) For more information, see Note 7, "Loans and allowance for credit losses". (2) For details on derivatives designated as hedging instruments, see Note 9, “Derivative financial instruments and hedging activities”.



NOTE 5 – FAIR VALUE OF FINANCIAL INSTRUMENTS

LEVELS OF FAIR VALUE HIERARCHY

The measurement of financial instruments recognized at fair value is determined using the following three levels of the fair value hierarchy: • Level 1 – Measurement based on quoted prices (unadjusted) in active markets for identical assets or liabilities • Level 2 – Valuation techniques based primarily on observable market data • Level 3 – Valuation techniques not based primarily on observable market data.

The following tables present the breakdown of fair value measurements of financial instruments recognized at fair value on the Consolidated Statements of Financial Position. As at June 30, 2012 Level 1 Level 2 Level 3 Total Financial assets Securities

Securities at fair value through profit or loss $ 14,399 $ 4,650 $ 2,320 $ 21,369 Available-for-sale securities 7,796 2,592 66 10,454

Other financial assets Derivative financial instruments 1 2,594 100 2,695 Other 19 --- --- 19

Total financial assets $ 22,215 $ 9,836 $ 2,486 $ 34,537 Financial liabilities Other financial liabilities

Commitments related to securities sold short $ 5,295 $ 82 $ --- $ 5,377 Derivative financial instruments 22 2,241 --- 2,263

Total financial liabilities $ 5,317 $ 2,323 $ --- $ 7,640

As at December 31, 2011 Level 1 Level 2 Level 3 Total Financial assets Securities

Securities at fair value through profit or loss $ 16,178 $ 4,186 $ 2,115 $ 22,479 Available-for-sale securities 8,450 2,557 64 11,071

Other financial assets Derivative financial instruments 2 2,920 160 3,082 Other 18 --- --- 18

Total financial assets $ 24,648 $ 9,663 $ 2,339 $ 36,650 Financial liabilities Other financial liabilities

Commitments related to securities sold short $ 5,249 $ 92 $ --- $ 5,341 Derivative financial instruments 7 2,860 --- 2,867

Total financial liabilities $ 5,256 $ 2,952 $ --- $ 8,208

No transfers attributable to changes in the observability of market data were made between fair value measurement hierarchy levels during the period ended June 30, 2012. During the year ended December 31, 2011, government bonds and money market securities of $579 million were transferred from Level 2 to Level 1 to more adequately reflect the valuation methodology for these securities.

Sensitivity of Level 3 financial assets and financial liabilities

The Federation performs sensitivity analyses for the fair value measurements of financial instruments classified in Level 3. Changing unobservable inputs to one or more reasonably possible alternative assumptions does not significantly change the fair value of financial instruments classified in Level 3, except for asset-backed term notes (ABTN) and the total return swap that hedges ABTN. A sensitivity analysis is provided in the “Securities – Asset-backed term notes” section of Note 6, “Securities”.



NOTE 6 – SECURITIES

UNREALIZED GAINS AND LOSSES ON AVAILABLE-FOR-SALE SECURITIES

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

As at June 30, 2012 Amortized

cost Unrealized

gross gains Unrealized

gross lossesCarryingamount

Securities issued or guaranteed by Canada $ 1,522 $ 17 $ --- $ 1,539 Provinces and municipal corporations in Canada 5,123 229 --- 5,352 Other public administrations 43 1 --- 44

Other securities in Canada Financial institutions 2,142 19 --- 2,161 Other issuers 148 11 --- 159 Shares 506 55 9 552

Securities from foreign issuers 633 39 25 647 $ 10,117 $ 371 $ 34 $ 10,454

As at December 31, 2011 Amortized

cost Unrealized

gross gainsUnrealized

gross losses Carryingamount

Securities issued or guaranteed by Canada $ 2,378 $ 24 $ 1 $ 2,401 Provinces and municipal corporations in Canada 4,704 262 --- 4,966 Other public administrations 73 1 --- 74

Other securities in Canada Financial institutions 2,193 20 2 2,211 Other issuers 171 10 --- 181 Shares 488 70 9 549

Securities from foreign issuers 682 33 26 689 $ 10,689 $ 420 $ 38 $ 11,071

Impairment losses recognized

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



NOTE 6 – SECURITIES (continued)

SECURITIES – ASSET-BACKED TERM NOTES

The Federation holds ABTN the face value of which is allocated among the various following vehicles:

As at June 30, 2012 As at December 31, 2011 MAV 1 Classes A-1, A-2, B and C $ 1,914 $ 1,915

MAV 1 Class IA – Ineligible (subprime) assets 21 22 Class IA – Ineligible (other) assets 18 18

MAV 3 Class IA – Ineligible (subprime) assets 38 38 Class TA – Traditional assets 29 44

Total ineligible and traditional assets 106 122 Total MAV 1 and MAV 3 $ 2,020 $ 2,037

As at June 30, 2012, the fair value of ABTN was $1,466 million for MAV 1 A-1, A-2, B and C notes and $61 million for ineligible and traditional assets ($1,296 million for MAV 1 A-1, A-2, B and C notes and $72 million for ineligible and traditional assets as at December 31, 2011). The ABTN valuation methodology used as at June 30, 2012, is the same as at December 31, 2011. The fair value of derivative financial instruments, including the total return swap, hedging ABTN amounted to $122 million as at June 30, 2012 ($190 million as at December 31, 2011). For more information about the valuation methodology used for ABTN and the total return swap, see the “Securities – Asset-backed term notes” section of Note 7, “Securities” and Note 6, “Fair value of financial instruments”, respectively, to the Consolidated Financial Statements included in the 2011 Annual Report.

The Federation is committed to participate in the margin funding facility (MFF) for an amount of $1,193 million. As at June 30, 2012, no amount had been drawn on the MFF. In addition, the Federation purchased a $400 million protection for its commitments under the MFF from one of the participants in MAV 1. For more information about the terms and conditions of the MFF and the protection purchased, see the “Securities – Asset-backed term notes” section of Note 7, “Securities” to the Consolidated Financial Statements included in the 2011 Annual Report.

Impact on income

The Federation recognized in its Consolidated Statements of Income a loss of $47 million related to ABTN for the three-month period ended June 30, 2012 (gain of $19 million for the three-month period ended June 30, 2011) and a gain of $176 million for the six-month period ended June 30, 2012 (gain of $85 million for the six-month period ended June 30, 2011).

The above estimated fair values may not be indicative of the ultimate net realizable value or the future fair value. While management is of the opinion that its valuation technique is the most appropriate in the circumstances, the carrying amount remains sensitive to credit spreads. As previously mentioned, the Federation entered into transactions with a view to reducing, in particular, the risk of the ABTN portfolio. Consequently, the sensitivity analysis present the impact of a 10% change in credit spreads on the estimated fair value of MAV 1 A-1, A-2, B and C notes and the total return swap as well as equity.


Increase of10% in

credit spreads

Decrease of 10 % in

credit spreads

Increase of 10 % in

credit spreads

Decrease of 10 % in

credit spreads Fair value MAV 1 A-1, A-2, B and C notes $ (32) $ 32 $ (49) $ 49 Total return swap 1 16 (16) 24 (24)

Total $ (16) $ 16 $ (25) $ 25 Equity Equity – MAV 1 A-1, A-2, B and C notes $ (23) $ 23 $ (36) $ 36 Equity – Total return swap 11 (11) 18 (18)

Total $ (12) $ 12 $ (18) $ 18

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

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



NOTE 7 – LOANS AND ALLOWANCE FOR CREDIT LOSSES

LOANS, IMPAIRED LOANS AND ALLOWANCES

The following tables present the credit quality of loans.

As at June 30, 2012

Gross loans neither past

due nor impaired

Gross loans past due

but not impaired

Gross impaired

loans Individual

allowances Collective allowance Net loans

Member caisses $ 9,066 $ --- $ --- $ --- $ --- $ 9,066 Residential mortgages 2,351 16 10 --- 4 2,373 Consumer, credit card and other

personal loans 9,612 432 47 --- 70 10,021 Business and government 5,247 3 34 15 58 5,211 $ 26,276 $ 451 $ 91 $ 15 $ 132 $ 26,671

As at December 31, 2011

Gross loans neither past

due nor impaired

Gross loans past due

but not impaired

Gross impaired

loans Individual

allowances Collective allowance Net loans

Member caisses $ 9,410 $ --- $ --- $ --- $ --- $ 9,410 Residential mortgages 2,380 15 9 --- 3 2,401 Consumer, credit card and other

personal loans 8,846 518 41 1 73 9,331 Business and government 5,699 4 39 17 46 5,679 $ 26,335 $ 537 $ 89 $ 18 $ 122 $ 26,821

GROSS LOANS PAST DUE BUT NOT IMPAIRED

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

As at June 30, 2012 1 to

29 days30 to

59 days 60 to

89 days 90 daysor more Total

Residential mortgages $ --- $ 2 $ 1 $ 13 $ 16 Consumer, credit card and other

personal loans 319 78 35 --- 432 Business and government 2 1 --- --- 3

$ 321 $ 81 $ 36 $ 13 $ 451

As at December 31, 2011 1 to

29 days30 to

59 days 60 to

89 days 90 daysor more Total

Residential mortgages $ --- $ 1 $ 1 $ 13 $ 15 Consumer, credit card and other

personal loans 368 111 39 --- 518 Business and government 3 1 --- --- 4

$ 371 $ 113 $ 40 $ 13 $ 537



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

ALLOWANCE FOR CREDIT LOSSES

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

Residential mortgages

Consumer, credit card and other personal loans

Business and government Total

June 30,

2012 December 31,

2011June 30,

2012December 31,

2011June 30,

2012December 31,

2011 June 30,

2012December 31,

2011Balance at beginning of period $ 3 $ 5 $ 108 $ 98 $ 92 $ 88 $ 203 $ 191Provision for credit losses 1 1 97 173 15 3 113 177Write-offs and recoveries --- (3) (100) (163) (2) 1 (102) (165)

Balance at end of period $ 4 $ 3 $ 105 $ 108 $ 105 $ 92 $ 214 $ 203Composed of: Allowance for credit

losses $ 4 $ 3 $ 70 $ 74 $ 73 $ 63 $ 147 $ 140Allowance for off-balance

sheet credit commitments (1) --- --- 35 34 32 29 67 63

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

NOTE 8 – COVERED BONDS

During the first quarter of 2012, the Federation issued covered bonds amounting to US $1,500 million. CCDQ Covered Bond Guarantor Partnership, a special purpose entity has been created to guarantee principal and interest payments due to the holders of these securities. The operations of this entity are included in Federation’s Interim Consolidated Financial Statements since, in substance, according to the requirements of SIC 12, Consolidation – Special purpose entities, the relationship between this entity and Federation indicates that the special purpose entity is controlled by the Federation. The Federation sold CMHC-insured residential mortgage loans to this entity and granted to this enity a loan to facilitate the acquisition of these assets. Under the terms and conditions of the issuance agreements, the Federation has limited access to the loans that are legally owned by this special purpose entity. These loans, totalling $2,536 million as at June 30, 2012 ($1,017 million as at December 31, 2011), are presented as loans in the Consolidated Statements of Financial Position.



NOTE 9 – DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

The following table presents the derivative financial instruments recognized in the Consolidated Statements of Financial Position. As at June 30, 2012 As at December 31, 2011

Notional amount Assets Liabilities

Notional amount Assets Liabilities

Designated as hedging instruments Fair value hedges $ 13,719 $ 351 $ 84 $ 13,397 $ 326 $ 289Cash flow hedges 2,516 37 157 3,099 56 127

Total – Designated as hedging instruments 16,235 388 241 16,496 382 416Trading purposes 143,952 2,307 2,022 145,154 2,700 2,451Total derivative financial instruments before impact of master netting agreements 160,187 2,695 2,263 161,650 3,082 2,867

Less impact of master netting agreements (1) --- 442 442 --- 780 780Total derivative financial instruments after impact of master netting agreements $ 160,187 $ 2,253 $ 1,821 $ 161,650 $ 2,302 $ 2,087

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

Fair value hedges

A net loss of $7 million for the three-month period ended June 30, 2012 (an immaterial loss for the three-month period ended June 30, 2011) and a net loss of $7 million for the six-month period ended June 30, 2012 (net loss of $3 million for the six-month period ended June 30, 2011) related to the ineffectiveness of fair value hedging activities were recognized under “Net loss on securities at fair value through profit or loss” in the Consolidated Statements of Income.

Cash flow hedges

An immaterial net gain for the three-month period ended June 30, 2012 (an immaterial gain for the three-month period ended June 30, 2011) and an immaterial loss for the six-month period ended June 30, 2012 (an immaterial loss for the six-month period ended June 30, 2011) related to the ineffectiveness of cash flow hedging activities were recognized under “Net loss on securities at fair value through profit or loss” in the Consolidated Statements of Income.

NOTE 10 – CAPITAL STOCK

During the period ended June 30, 2012, the Federation issued 29 397 514 F capital shares for a cash consideration of $291 million.

NOTE 11 – ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table presents the main components of accumulated other comprehensive income (net of taxes). As at June 30, 2012 As at December 31, 2011

Group’s share Non-controlling interests’ share Group’s share

Non-controlling interests’ share

Net unrealized gains on available-for-sale securities $ 225 $ 27 $ 257 $ 31

Net gains on derivative financial instruments designated as cash flow hedges 34 --- 45 1

Accumulated other comprehensive income $ 259 $ 27 $ 302 $ 32



NOTE 12 – CAPITAL MANAGEMENT

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

With respect to regulatory capital, the capital adequacy and composition of Desjardins Group as a whole are evaluated against the guideline on adequacy of capital base standards issued by the AMF. The AMF requires that a minimum capital be maintained on a combined basis by all the components, including the caisses, the Federation (non-consolidated), Caisse centrale Desjardins, Fonds de sécurité Desjardins, Capital Desjardins inc., Western Financial Group Inc., Desjardins Securities and Desjardins Trust. However, for purposes of its Consolidated Financial Statements, the Federation, by itself, is not subject to any regulatory capital ratio requirements. However, the AMF reserves the right to require that the Federation be subject to capital adequacy normative requirements in the future.

During the second quarter, the Federation launched an issuance of capital shares, as described in Note 10, “Capital stock”. As at June 30, 2012, an amount of $291 million had been issued. These capital shares currently included in Tier 1 capital under Basel II of Desjardins Group meet the upcoming capital regulatory requirements (Basel III) for Common Equity Tier 1. To this end, the Federation was granted, on May 1, 2012, the venture issuer status. The Federation also reimbursed all of its outstanding Senior Series C subordinated bonds amounting to $300 million.

NOTE 13 – NET INCOME ON SECURITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

FINANCIAL INSTRUMENTS HELD FOR TRADING

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



ended June 31 2012 2011 2012 2011

Income Net interest income $ 9 1 $ 16 $ 7 Net income on securities at fair value through profit or loss 245 188 159 242

$ 254 189 $ 175 $ 249

FINANCIAL INSTRUMENTS DESIGNATED AS AT FAIR VALUE THROUGH PROFIT OR LOSS

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



ended June 31 2012 2011 2012 2011

Income Net interest income $ 7 12 $ 16 $ 23 Net income on securities at fair value through profit or loss 259 289 392 312

$ 266 301 $ 408 $ 335



NOTE 14 – INCOME TAXES ON OTHER COMPREHENSIVE INCOME

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

For the three-month periods ended

June 30

For the six-month periods ended

June 30 2012 2011 2012 2011 Net unrealized gains on available-for-sale securities $ 3 $ 10 $ 1 $ 9 Reclassification to the Consolidated Statements of Income of gains on

available-for-sale securities (4) (1) (19) (11) Net gains (losses) on derivative financial instruments designated as

cash flow hedges 1 --- (2) (5) Reclassification to the Consolidated Statements of Income of gains on

derivative financial instruments designated as cash flow hedges (1) --- (2) (1) Total income tax expense (income) $ (1) $ 9 $ (22) $ (8) Composition of tax expense (income)

Current income taxes $ (1) $ 11 $ (22) $ (6) Deferred income taxes --- (2) --- (2)

$ (1) $ 9 $ (22) $ (8)

NOTE 15 – SEGMENTED INFORMATION

The Federation is made up of the following business segments: Personal Services and Business and Institutional Services; Wealth Management and Life and Health Insurance, and Property and Casualty Insurance. The financial information related to activities that are not specific to a business segment is presented under the Treasury and Support to Desjardins Group Entities category. These business segments have been structured according to the needs of the members of the Desjardins caisse network and clients as well as the markets in which the Federation operates.

The Personal Services and Business and Institutional Services business segment offers to members of the Desjardins caisse network and clients a broad range of financial products. The Federation mainly participates in the VISA payment system in Canada for Desjardins Group and offers financing solutions to individuals and businesses. These products are distributed through the caisse network, complementary networks and Caisse centrale Desjardins.

The Wealth Management and Life and Health Insurance business segment offers to members of the Desjardins caisse network and clients a range of advisory services and products adapted to the evolving asset management and financial security needs of individuals. These products are distributed through the caisse network and complementary networks.

The Property and Casualty Insurance business segment provides a range of automobile and home insurance products to members of the Desjardins caisse network and clients, both individuals and businesses. In addition to being offered through the caisse network, these products are distributed by many client care centres, through the Internet and, for some of them, by smartphone. In addition, the Property and Casualty Insurance business segment has included the operations of Western Financial Group Inc. since April 15, 2011, the date of its acquisition.

The Treasury and Support to Desjardins Group Entities category includes financial information that is not specific to a business segment and intersegment balance eliminations. It primarily includes treasury activities related to Caisse centrale Desjardins’ operations. This category also includes the results of the support functions provided by the Federation to Desjardins Group as a whole, the operating results related to ABTN securities held by the Federation and the activities of Capital Desjardins inc.

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



NOTE 15 – SEGMENTED INFORMATION (continued)

RESULTS BY BUSINESS SEGMENT

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

Personal Services and Business

and Institutional Services

Wealth Management

and Life and Health Insurance

Property and Casualty

Insurance

Treasury and Support to

Desjardins Group Entities Consolidated

2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 Net interest income $ 151 $ 141 $ 1 $ 1 $ 3 $ 4 $ 41 $ 24 $ 196 $ 170Net premiums --- --- 865 856 487 438 (30) (28) 1,322 1,266Other income(1) 245 282 675 562 78 63 204 210 1,202 1,117Total income 396 423 1,541 1,419 568 505 215 206 2,720 2,553Provision for credit losses 50 41 --- --- --- --- --- --- 50 41Claims, benefits, annuities and changes

in insurance and investment contract liabilities --- --- 1,088 939 343 334 (6) 4 1,425 1,277

Non-interest expense 292 308 387 389 165 143 104 162 948 1,002Operating surplus earnings 54 74 66 91 60 28 117 40 297 233Income taxes on surplus earnings 13 18 17 18 13 5 27 5 70 46Net surplus earnings for the period

after dividends to member caisses $ 41 $ 56 $ 49 $ 73 $ 47 $ 23 $ 90 $ 35 $ 227 $ 187of which: Group’s share $ 40 $ 55 $ 43 $ 72 $ 42 $ 20 $ 89 $ 34 $ 214 $ 181Non-controlling interests’ share 1 1 6 1 5 3 1 1 13 6

(1) Includes “Assessments from member caisses”, “Other income from member caisses”, “Lending fees and credit card service revenues”, “Brokerage, investment fund and trust services”, “Net income on securities at fair value through profit or loss”, “Net income on available-for-sale securities”, “Net other investment income ” and “Other income -Other”.



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NOTE 15 – SEGMENTED INFORMATION (continued)

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

Personal Services and Business

and Institutional Services

Wealth Management



Insurance



2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 Net interest income $ 301 $ 293 $ 1 $ 2 $ 7 $ 4 $ 81 $ 60 $ 390 $ 359Net premiums --- --- 1,676 1,653 956 841 (55) (43) 2,577 2,451Other income(1) 533 545 814 793 138 85 497 394 1,982 1,817Total income 834 838 2,491 2,448 1,101 930 523 411 4,949 4,627Provision for credit losses 113 71 --- --- --- --- --- --- 113 71Claims, benefits, annuities and changes

in insurance and investment contract liabilities --- --- 1,543 1,496 634 603 (6) (1) 2,171 2,098

Non-interest expense 600 613 802 780 320 241 281 351 2,003 1,985Operating surplus earnings 121 154 146 172 147 86 248 61 662 473Income taxes on surplus earnings 30 38 36 36 30 22 57 2 153 98Net surplus earnings for the period

after dividends to member caisses $ 91 $ 116 $ 110 $ 136 $ 117 $ 64 $ 191 $ 59 $ 509 $ 375of which: Group’s share $ 90 $ 114 $ 101 $ 135 $ 105 $ 57 $ 188 $ 56 $ 484 $ 362Non-controlling interests’ share 1 2 9 1 12 7 3 3 25 13

(1) Includes “Assessments from member caisses”, “Other income from member caisses”, “Lending fees and credit card service revenues”, “Brokerage, investment fund and trust services”, “Net income on securities at fair value through profit or loss”, “Net income on available-for-sale securities”, “Net other investment income” and “Other income -Other”.

SEGMENT ASSETS

Personal Services and

Business and Institutional

Services

Wealth Management



Insurance



As at June 30, 2012 $ 25,987 $ 26,926 $ 5,123 $ 28,711 $ 86,657As at December 31, 2011 $ 27,448 $ 26,358 $ 4,908 $ 27,306 $ 86,020



NOTE 16 – SUBSEQUENT EVENTS

The Federation had been identified in a class action suit to reimburse foreign currency exchange fees charged to consumers holding VISA Desjardins cards. On June 11, 2009, the Superior Court of Quebec had allowed this class action by ruling that foreign currency exchange fees are credit fees under the Consumer Protection Act and had required Desjardins Group to reimburse such fees under terms that were to be set by the Court. A notice of appeal had been filed with the Court of Appeal of Quebec to bring out the determining mistakes of law and of facts that affected, in Desjardins Group’s opinion, this judgment. The appeal was heard by the Court of Appeal of Quebec in September 2011. On August 2, 2012, the Court of Appeal of Quebec ruled to overturn the decision of the Superior Court of Quebec and to dismiss the class action.



Documents

Second Quarter - Desjardins