Personal and Business Services

PROFILE

Personal and Business Services is central to Desjardins Group’s operations. This segment is responsible for finetuning a comprehensive, integrated line of products and services designed to meet the needs of individuals, businesses, institutions, non-profit organizations and cooperatives offered through the Desjardins caisse network, Desjardins Business centres, Signature Service centres and specialized teams. This is what makes Desjardins Group a leader in financial services in Québec and a player on the financial services scene in Ontario as well.

Desjardins’s offer includes everyday financial management, savings transactions, payment services, wealth management, financing, specialized services, access to capital markets, development capital, business ownership transfers and advisory services, and through its distribution network, life and health insurance and property and casualty insurance products.

In addition, caisse members and clients know that they can rely on the largest advisory force in Québec, made up of dedicated professionals who are there for them at every stage in their life or entrepreneurial growth.

To meet the constantly changing needs of caisse members and clients, the Federation supports the caisse network and its service centres in distributing products and services by optimizing the performance and profitability of physical and virtual networks through the implementation and management of complementary access methods by phone, online, via applications for mobile devices, and at ATMs.

The operations of Desjardins Securities Inc. and Desjardins Investment Management Inc., such as securities brokerage and private management activities, formerly reported in the Wealth Management and Life and Health Insurance segment, have been fully included in the Personal and Business Services segment since the first quarter of 2020, while the operations of Desjardins Trust Inc., such as custodial and trust services, formerly reported in the Personal and Business Services segment, have been fully included in the in the Wealth Management and Life and Health Insurance segment since the first quarter of 2020. Data for 2019 have been reclassified to conform to these changes.

On December 31, 2019, the Federation completed the sale to Global Payments of the entire portfolio of merchants receiving services from the Federation under the Monetico brand and finalized, as at January 1, 2020, a long-term partnership agreement with Global Payments, a company operating in the electronic payment sector. Thus, as announced on October 31, 2019, the Federation has been gradually phasing out in-store Accord D financing since May 1, 2020.

SERVICES

 Everyday financial management:

- Routine transaction services and term savings, as well as specialty services, such as foreign exchange and funds transfers. These services are increasingly available on the Web and mobile devices.

 Integrated business offer:

- Customized solutions to support businesses of all sizes in their expansion plans, whether on Québec, Canadian or international markets.

 Financing:

- Residential mortgages, for the purchase of land, new or existing homes and for renovations;

- Consumer loans, such as loans for the purchase of automobiles and durable goods, personal lines of credit, student loans and Accord D financing solutions;

- Commercial credit, which makes it possible to offer financing in the commercial and industrial, agricultural and agri-food, and public and institutional sectors, as well as for commercial and multi-residential real estate.

 Payment:

- Debit, credit and prepaid card payment services for individuals and businesses, merchant payment acceptance services, electronic payment services and both domestic and international funds transfers.

 AccèsD:

- Desjardins Group products and services are available at anytime, anywhere in the world, by phone, online and via applications for mobile devices.

 Wealth management advisory services:

- Online brokerage: High-performance tools that enable caisse members and clients to trade and invest independently. Whether they are beginners or seasoned investors, the tools offer a rich and unique experience that will help them grow their portfolios.

- Signature Service: A turnkey service to help high net worth clients move from saving to investing. It guides members with complex requirements in building their wealth.

- Private wealth management: An integrated service that takes charge of wealthy members and their families, down to the last detail. It meets sophisticated requirements by providing members with a trustworthy team they can count on.

- Securities: Customized service that enables high net worth and wealthy members and clients a way to be involved in their financial decisions. It provides members and clients with a personalized offer for growing their wealth.

 Capital markets:

- Meeting the financing needs of Canadian corporations, institutions and cooperatives, and providing advisory services for mergers and acquisitions, as well as intermediation and execution services on the stock and fixed income securities markets;

 Specialized services:

- International services, factoring, banking and cash management services, Desjardins employer solutions (payroll and human resources management, as well as group retirement savings), specialized financing for institutional clients, the franchise sector, health care and professional firms.

2020 ACHIEVEMENTS

 From the start of the COVID-19 pandemic, a number of support measures have been offered to caisse members and clients. In addition to those already mentioned under “COVID-19 pandemic” in Section 1.3, “Significant events”, here are other measures taken in the Personal and Business Services segment:

- Reimbursement of fees exceeding the package limit for personal chequing accounts.

- Maintaining of no service charges for students who have reached the age limit of 26.

- Focus on our relief measures for seniors: priority waiting line, donation to Info Aidant, support for adoption of digital tools, highlighting the “In Charge of Your Life and Your Property” program.

 Desjardins was one of the three North American financial institutions recognized by the United Nations Environment Programme – Finance Initiative (UNEP FI), and the UNEP FI paid tribute to Desjardins for its leadership in managing the pandemic situation.

 A new, simplified range of cards, along with a redesigned program of benefits and rewards, was launched in October 2020.

 Deployment of a Web tool for obtaining a property appraisal report (digital or digitized) with a short turnaround time and at a low cost for members, and a preliminary analysis tool for prequalification of rental property files of all types.

 Deployment of business continuity mechanisms for our caisse members and clients, such as remote signature and electronic document transmission.

 Recipient of the 2020 GRAAL award for the project “Octroi Cinq Jours”: the project simplifies the credit granting process, providing a rapid response and disbursement for caisse members. The new process is aimed at SMEs and residential and commercial rental properties.

 Online financing solution: An automated process, from financing application to disbursement, designed to be used in self-service mode by business members.

 Catalogue 100 % membres: featuring more than 800 businesses to discover: restaurants, spas, outfitters, campgrounds, hotels, activities and more.

 Fundica x Desjardins: a free, high-performance search tool for entrepreneur members and non-members to find government funding from among 250 assistance programs for businesses. Easy to use, the site can help businesses find grants, tax credits and loan guarantees that best suit their needs in relation to their projects and the entrepreneur’s needs, while increasing the visibility of the organizations offering the programs.

 Continuation of the “Tous engagés pour la jeunesse” youth-centred program that conveys our commitment to young people. More than $50 million is invested annually to support youth and put them in the spotlight.

 The Personal and Business Services segment is continuing its digital shift with the following:

- Functionalities added to AccèsD Particuliers on the Web and mobile devices to give caisse members and clients greater freedom:

 Enhanced client experience for credit cards: suspend and activate a credit card, list of billed transactions.

 A “My security” section to facilitate access to functionalities such as password management, secret questions and trusted devices.

 Same-day cancellation of a payment by credit card.

 “My First Home” is a tool that offers Desjardins caisse members a way to obtain mortgage financing and insurance 100% digitally that will be gradually available on AccèsD.

 Digital mortgage renewal: available for a large number of eligible loans, allows eligible caisse members to renew their mortgage online 120 days before the term expiry date.

 Simplified experience for high interest savings accounts (RRSP, TFSA, non-registered). A member can now open a TFSA on the mobile app.

 New “Make an investment” gateway from the AccèsD Overview page to provide members with information and guide them to the investment that best meets their needs.

- Functionalities added to AccèsD Affaires:

 Sending of Interac transfers now available for more than 230,000 businesses in Québec.

 Alerts are sent for timely notification of insufficient funds or transactions to be signed.

 Deployment of new cheque imaging interface for AccèsD Affaires and AccèsD caisse members and clients.

 Nilson Report 2020: Desjardins stood out from the top 10 Canadian issuers (based on 2019 data), with the strongest growth in purchase volume (15.0%), number of active accounts (6.2%) and number of cards (5.4%).

 Bond Survey 2020 on loyalty programs in Canada: the Odyssey World Elite MasterCard card ranked 1^st among travel cards in the Elite category for a second consecutive year, far ahead of its nearest rival.

 Canadian government recognition: Desjardins received official thanks in the form of a letter to the President and CEO, Desjardins Group, from the Honourable Anita Anand, federal Minister of Public Services and Procurement, for our cooperation in setting up direct deposit in conjunction with the Canada Revenue Agency. December 31, 2020, for a year-over-year increase of 9.8%, compared to an 11.5% increase a year earlier. This slight slowing is due to difficulties in the Canadian stock market index (the Toronto Stock Exchange’s S&P/TSX posted a weak increase of 2.4% versus a gain of 16.3% for the New York Stock Exchange’s S&P 500) related to the COVID-19 pandemic, which had a negative impact on the value of off-balance sheet savings products, such as investment funds and securities in custody with securities brokers.

- Outstanding volume of loans to individuals estimated at $2,356 billion as at December 31, 2020, a year-over-year increase of 3.5%, compared to an increase of 4.1% at year-end 2019.

- Business financing outstanding estimated at $1,030 billion as at December 31, 2020, a year-over-year increase of 5.8%, in spite of difficulties related to the pandemic, compared to an increase of 7.6% as at December 31, 2019.

 Québec market

- On-balance sheet and off-balance sheet personal savings outstanding estimated at $976 billion as at December 31, 2020, a year-over-year increase of 10.7%, compared to 12.2% growth at year-end 2019 due to the same factors as mentioned for personal savings in the Canadian market.

- Outstanding volume of loans to individuals estimated at $417 billion as at the same date, for a year-over-year increase of 3.3%, compared to a 5.1%

increase recorded a year earlier.

- Business financing outstanding estimated at $204 billion as at December 31, 2020, for a year-over-year increase of 4.7%, compared to a 9.4%

upsurge observed at year-end 2019.

 Competition in Québec for financial services

- The major industry players are focusing primarily on client experience, access to services and proactive advice.

- The fight for market share is therefore very fierce, since all players are adopting strategies aimed at intensifying business relations with their clients and getting to know them better.

Additional information about the economic environment can be found in Section 1.5, “Economic environment and outlook”, of this MD&A.

2021 STRATEGIES AND PRIORITIES

The 2021 strategies and priorities of the Personal and Business Services segment are incorporated into Desjardins Group’s strategic priorities and are aimed at helping Desjardins to achieve its ambition of being first in people’s hearts, by working in the best interests of members and clients. The Personal and Business Services segment intends to enhance its leadership position in financing, savings and, through its distribution network and life and health and P&C insurance products. Additional information can be found in Section 1.4, “Strategic orientations and financial objectives”, of this MD&A.

Reaching objectives requires the commitment of every director, manager and employee, as well as a high-calibre, comprehensive and integrated offer that is innovative and easy to access, all in the best interests of caisse members and clients.

ANALYSIS OF FINANCIAL RESULTS FOR THE PERSONAL AND BUSINESS SERVICES SEGMENT Table 13 – Personal and Business Services – Segment results

For the years ended December 31

(in millions of dollars and as a percentage) 2020 2019⁽¹⁾ 2018⁽¹⁾⁽²⁾

Net interest income $ 1,195 $ 1,235 $ 1,140

Other operating income⁽³⁾ 2,096 2,476 1,969

Operating income⁽³⁾ 3,291 3,711 3,109

Investment income⁽³⁾ 70 11 48

Total income 3,361 3,722 3,157

Provision for credit losses 537 308 288

Non-interest expense 2,704 2,566 2,426

Income taxes on surplus earnings 31 171 114

Net surplus earnings for the year $ 89 $ 677 $ 329

Specific item, net of income taxes

Gain related to the sale of the entire portfolio of merchants receiving services from the Federation

under the Monetico brand - (309)

-Adjusted net surplus earnings for the year⁽³⁾ $ 89 $ 368 $ 329

Indicators

Average gross loans and acceptances⁽³⁾ $ 33,262 $ 32,761 $ 29,742

Average deposits⁽³⁾ 20,152 17,773 18,066

Credit loss provisioning rate⁽³⁾ 1.61% 0.94% 0.97%

Gross credit-impaired loans/gross loans and acceptances ratio⁽³⁾ 1.34 1.08 1.08

(1)Data for 2019 and 2018 have been reclassified to conform to the current year's presentation.

(2)In accordance with the standards in effect before the adoption by the Federation of IFRS 16, “Leases”, on January 1, 2019, on a retrospective basis without restatement of comparative periods.

(3)See “Non-GAAP measures”.

Average gross loans and acceptances and average deposits

(in millions of dollars)

COMPARISON OF 2020 AND 2019

–

 Surplus earnings of $89 million, down $588 million, and adjusted net surplus earnings down $279 million, essentially due to the following:

- Increase in the provision for credit losses due mainly to the significant deterioration in the economic outlook and the anticipated effects on credit quality as a result of the COVID-19 pandemic.

- Increase in investments, particularly related to the digital shift and security.

- Decrease in business volumes from payment and financing activities at Desjardins Card Services as a result of the COVID-19 pandemic.

This decrease was partially offset by the following items:

- Higher trading income.

- Growth in income from new capital market issues.

 Operating income of $3,291 million, down $420 million, or 11.3%.

- Decrease of $40 million in net interest income particularly as a result of a decrease in average consumer and credit card loans outstanding related to the decline in purchases as well as the prevention and relief measures and lower interest rates on certain credit cards introduced to support caisse members and clients during the COVID-19 pandemic. This decrease was mitigated by an increase in average loans outstanding to medium-sized businesses and large corporations.

- Other operating income of $2,096 million, down $380 million, or 15.3%, mainly due to the following:

 $349 million gain before income taxes in 2019 related to Monetico.

 Decrease in income related to the sale of the entire portfolio of merchants receiving services from the Federation under the Monetico brand.

 Decrease in business volumes from payment and financing activities at Desjardins Card Services as a result of the COVID-19 pandemic.

This decrease was partially offset by the following:

 Growth in income from new capital market issues.

 Higher income from securities brokerage activities.

 Investment income of $70 million, up $59 million, basically as a result of the higher trading income.

 Total income of $3,361 million, down $361 million, or 9.7%.

 Provision for credit losses of $537 million, up $229 million compared to 2019, essentially because of the following:

- The significant deterioration in the economic outlook as a result of the COVID-19 pandemic, particularly the unemployment rate and the GDP growth rate, and the anticipated effects on credit quality. For additional information on the main sources of uncertainty related to the pandemic that required management to make important judgments to estimate the loss allowance for expected credit losses, see Note 7, “Loans and allowance for credit losses” to the Consolidated Financial Statements.

- The increase in the provision related to credit-impaired loans in business loan portfolios.

- In 2019, refining the methodology for assessment of the risk parameters for non credit-impaired loans related to the lifespan of revolving exposures such as credit cards ended up reducing the provision for credit losses. This positive impact was mitigated, however, by a migration of exposures to higher risk ratings in the personal loan portfolio for credit cards in the third and fourth quarters of 2019.

 Non-interest expense of $2,704 million, up $138 million, or 5.4%, essentially due to:

- Business growth, especially growth in activities to enhance the service offer to caisse members and clients, including offers related to wealth management advisory services, AccèsD services, the online business centre and the shared services centre.

- Increase in investments, particularly related to the digital shift and security.

This increase was partially offset by the following:

- Reduction in expenses following the sale of the entire portfolio of merchants receiving services from the Federation under the Monetico brand.

- Contraction in certain costs related to the COVID-19 pandemic situation.