Annual Report 2015
Collective Bridging Overview TRANSITION YEAR 2015 was definitely an important year for the implementation of the collective bridging project. After getting the green light for the merger in November 2014, the focus of the last year was placed on rolling out our new organizational structure and continuing to take steps to work towards continuance under federal legislation on July 1st, 2016. To this end, all employees were asked to take up the challenge of transforming themselves while continuing to offer good services to our members. Given its large scope, the project was given six major directions:
•
Information technology
•
Service to members
•
Human resources
•
Transition of the caisses
•
Cooperation
•
Move to federal legislation
The chief executive officer of the new merged caisse was extremely proud to announce in January 2016 that we had honoured our first commitment to our members by allowing them to be recognized anywhere in the province, regardless of their caisse of origin. Indeed, a first milestone was achieved, giving our 155,000 members general access to 51 service centres and allowing them to manage their finances.
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Annual Report 2015
“ More than a year after getting the clear mandate from our members to move forward with a merged structure, we are aware that there is still a lot of work to be done. However, a new merged caisse is not the end of an era, but more the start of a daring approach to evolve with the market and remain relevant for generations to come. To do so, we have to offer our products and services differently, transform our image and create a new entity ”, said Mr. Camille H. Thériault early in 2016.
The face of the distribution network is evolving
The face of the future head office is also evolving
In April 2015, chief executive officer Camille H. Thériault announced several nominations for positions within the new caisse structure. The start date for these positions varies and was established according to an integration schedule geared towards having a fully operational Caisse on July 1st, 2016. The place of work for a number of employees changed. Some were transferred to the caisses, while others found themselves at the Fédération, all with the goal of creating more synergy and organizational efficiencies. At the same time, a 10% reduction in staff was planned.
In order to maintain the same level of engagement and mobilization, the chief executive officer points out that human resources will be managed in the most harmonious way possible to remain a respectful and responsible employer. We will be diligently taking care of people affected by this process, as it is the way we do things in our institution.
The transition of the 15 caisses was started, one caisse at a time, in May 2015 and was completed in 2016. Throughout the year, the teams that were put in place continued to strive to fulfill promises made to members.
To satisfy the needs of this new structure, Mr. Thériault announced last August the nomination of two new vice presidents: Mr. Robert Moreau for Corporate Services, and Mr. Sylvain Fortier for Risk Management. Early in 2016, Mr. Michel Trahan was named Internal Auditor Director.
Within the distribution network (caisses and financial business centre), estimates indicate that once the transition process is completed, 94 progressive retirements will take place, compared to the original projection of 70. At the Fédération level, 40 positions will have been cut: 15 through retirements, 8 vacancies not filled and 17 eliminated.
Survol regroupement collectif
3
12
Community Cooperative Committees
Restigouche, Campbellton and Kedgwick
Greater Caraquet Chaleur
Edmundston and Madawaska
Building a new cooperative module
Lamèque and Miscou Shippagan Tracadie-Sheila Néguac
Grand-Sault, Saint-Quentin and Saint-Léonard
Sud-Est
DieppeMemramcook Fredericton and Moncton
Putting together a new cooperative structure over the last year represents several steps in the right direction. This innovative module progressively put in place will revamp the whole community involvement strategy. An investment budgetary structure, sustainable development training for cooperative committees and a team of employees looking after organizational spirit throughout the province are but a few of the initiatives that lead us to believe we are bringing together all the ingredients for success. Preparatory work to the implementation of the new cooperative governance and organizational spirit structures that was started in February 2015 should continue until the transition to a federal charter in July. The new cooperative and organizational spirit team started its work in September, followed by a tour of 12 communities of interest to create community cooperative committees.
COMMITTEE ROLE
4
• •
Represente members
• •
Track member satisfaction
Manage the donation and sponsorship budget
Draw up a community development program
Annual Report Rapport annuel2015 2015
These committees will strive to adequately represent members and will be responsible for budgeting donations and sponsorships, constantly assess member satisfaction levels, etc. Bearing in mind the importance of continuity, the vast majority of current directors jumped at the chance of joining these committees as soon as the caisses’ board of directors ceased their operations. Members will elect representatives to these community cooperative committees as early as the spring of 2018.
Standing out with a new corporate image Very much aware that we need to gear the services we offer towards our youth in order to develop our business, we believe it is crucial for us to redefine our corporate image to reflect this fact. For this reason, an important process was started in July 2015, with the help of an external consultant, to create a new image that will convey the true essence of our new merged entity. Indeed, it was imperative to emphasize this drastic change for our institution. More than a simple logo and name change, we must also change the orientation of the services we offer and the messages we broadcast. Significant importance was placed on consultation. A number of steps had to be completed before we were able to submit a proposal to the various decision-making levels of the institution and, eventually, before presenting to the public after the annual general meeting to be held in Moncton in the spring of 2016. The last time we rebranded our image was almost 20 years ago, as we celebrated the Fédération des caisses populaires acadiennes’ 50th anniversary in 1996.
Federal regulatory framework | July 1st, 2016 target
The beginning of 2015 was highlighted by the continuance vote taken by our members, asking us to submit our request to the Office of the Superintendent of Financial Institutions (OSFI). The request was submitted on April 30th, 2015, followed by a visit from the OSFI for its first inspection. The analysis is on-going and the target date to begin operations under the federal regulatory framework is July 1st, 2016.
New faces on the Fédération’s board of directors During the Caisses populaires acadiennes’ convention held in Moncton in April 2015, new members were elected to the board of directors: Mr. Euclide Chiasson, Northeastern Region, and Mr. Jean-François Saucier, Northwestern Region. The board of directors is made up of 12 members elected from the caisses’ delegates at the Fédération’s annual general meeting. In order to guarantee that the board of directors always represents the Caisses populaires acadiennes’ members, these directors must come from the three administrative regions served by the Caisses populaires acadiennes. The democratic involvement of members to elect their next representatives on the new merged Caisse’s board of directors will begin in the spring of 2017.
After the Federal Department of Finance revised the Act’s regulations in 2012, allowing financial cooperatives to integrate the federal regulatory framework, the Caisses populaires acadiennes became the first institution to submit a continuance request to become a federally-regulated credit union. This approach, coupled with the work needed to comply with new regulations, required the involvement of a great number of resources.
Survol regroupement collectif
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Table of Contents Message from the President and Chief Executive Officer
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Mouvement des caisses populaires acadiennes Management’s Discussion and Analysis
17
Mouvement des caisses populaires acadiennes Combined financial statements
47
Fédération des caisses populaires acadiennes Summary consolidated financial statements
104
Acadia Life Summary consolidated financial statements
110
Office de stabilisation de la Fédération des caisses populaires acadiennes Summary financial statements
118
The Annual Report was created by Communications and Strategic Planning and Financial Services Management: Fédération des caisses populaires acadiennes 295 Saint-Pierre Blvd. Caraquet NB E1W 1B7 Graphic Design Mistral Communication
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Annual Report 2015
onsabilité
Bilan de resp sociale 2015
To learn more about how communities benefit from our presence, see our Social Responsibility Report (Bilan de responsabilité sociale) available in French only at www.acadie.com/bilansocial
2015 Highlights As of December 31, 2015
$2,5 MILLION MORE THAN
155,000
RETURNED TO MEMBERS AND COMMUNITIES
MEMBERS
15
CAISSES
200
ELECTED OFFICERS
1,000 EMPLOYEES
97 ATMs
$3,7 BILLION IN ASSETS
51
BUSINESS LOCATIONS
4
REGIONAL OFFICES OF THE FINANCIAL BUSINESS CENTRE
SURPLUS EARNINGS BEFORE OTHER ITEMS
$12,1 MILLION
2015 Highlights
7
Message from the President and Chief Executive Officer
The merged caisse is not the end of a process, but rather the start of a daring approach to evolve with the market and remain relevant for future generations. Which means offering different products and Camille H. Thériault services and a transformed image President and Chief of the newly created entity. Executive Officer
2015: Shaping the Future Today Another year has gone by and we have to admit that our institution as a whole was motivated by our members’ approval to go forward with the collective bridging process at the end of 2014. The merged caisse is not the end of a process, but rather the start of a daring approach to evolve with the market and remain relevant for future generations. This unifying project puts us in a position to help our current and future members while reconsidering what we have learned to make our francophone financial cooperative more intergenerational than ever.
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Annual Report 2015
During this 12-month period, we rallied to prepare a plan that would serve both as a guide and as a way to carry out this great project that will reach a new milestone in 2016. Proud to be the first francophone financial cooperative to submit a request to become part of the federal regulatory framework, we hope to give ourselves the financial means we need to transform the face of Acadia like no other institution in New Brunswick. Throughout the year, efforts were made to meet the requirements of the Office of the Superintendent of Financial Institutions in order to ensure that the new merged caisse would be ready on July 1st, 2016.
Our major priorities in this transformation had an impact on employees who had to roll up their sleeves in order to meet the demands and tight deadlines. I can proudly say that we delivered the goods. We had the audacity and the courage to modernize our institution by becoming a new entity. The structure evolved in 2015 with our caisses’ transition, but there were also changes within the Fédération, which will become the new Caisse’s head office. These changes resulted in a re-engineering of duties. Some disappeared while others were created to answer the needs of the new entity.
Some 127 positions were thus abolished in the caisses network and at the Fédération to gain organizational efficiencies. As President of this Mouvement, I am grateful to all the teams for all their hard work, as we were faced with the challenge of properly managing our institution while it was being transformed. Our 15 caisses did what they had to do to ensure a smooth transition while continuing to serve our members well. I am also extremely proud to have witnessed, at the beginning of 2016, a roll-out that gave all 155,000 members access to our 51 business locations. We have consequently followed through on one of our commitments by allowing our members to be recognized, regardless of their caisse of origin. This transformation has brought along some changes, namely to hours of operation, in order to make customer service more accessible. On the business side of things, 2015 was a difficult year since our balance sheets foreseeably absorbed the merger costs. Let’s also mention consecutive key rate decreases which put additional pressure on the financial spread of our net interest income. Falling oil prices and the weakness of our national economy had a negative impact on our profitability. With $12.1 million in surplus earnings before other items, we are still pleased by our financial performance in view of the circumstances.
For an even greater collective success With more than $3.7 billion in assets, we are more committed than ever to take part in the expansion of our cooperative distinction in New Brunswick’s Acadian and francophone community. As discussed with our members throughout the merger process, they should benefit from the savings that will be generated. Furthermore, these savings should boost the institution’s growth and help it be more competitive and have a bigger impact as a financial cooperative.
With more than $2.3 million in donations, sponsorships and scholarships in 2015, we stand out from our competition by redistributing our profits locally. As planned in our forecasts, becoming part of a federal charter might give us the means to further improve our contribution to the community and to our members in 2017. In the past year, we also implemented another important segment of our transformation: a unique cooperative concept. The goal of this model was to ignite member involvement and protect governance, principles and cooperative values, key elements of the collective bridging project. Preparatory work for the creation of this new cooperative governance and community life structure started with a tour of all 12 communities of interest in order to create community cooperative committees. The new team of cooperative and community life employees was also put together in order to prepare for the establishment of the new cooperative structure scheduled for July 2016 with the shift to the federal charter. Training of community and regional cooperative committees has started and, in the fall of 2016, these committees will be implemented. Bearing in mind the importance of continuity, the vast majority of current directors jumped at the chance of joining these committees. In the spring of 2018, these positions will be voted on by members. Democratic involvement in the election of members on the Caisse’s board of directors will start in the spring of 2017.
New entity and new image I have led this business since 2004, thus for 12 years. As someone who has always promoted the benefits of change, it is logical for me to start thinking about passing the reins to someone else. I wanted to be part of the board of directors to ensure the success of this transformation that was initiated under my tenure.
Message from the President and Chief Executive Officer
9
This new merged caisse must obviously reflect an image which demonstrates the significant change brought on by this transformation. We also made great progress in 2015 when it came time to develop a “new institution”. We started by trying to come up with a new branding which would help the institution connect with its contribution to Acadian development and prosperity, which means offering different products and services and a transformed image of the newly created entity. This collective merger is a collaborative and inclusive project marked by becoming open to a new way of being. We want our image and our name to reflect that. A caisse will remain a caisse, just like a pharmacy remains a pharmacy, but the name of the business, the perception or the image can evolve, particularly when we want to confirm a change in what we are as a business. It is important to keep on adapting our collective bridging project to serve current and future members. We are confident and determined to work hard in order to establish a francophone financial cooperation that is more intergenerational than ever. I once again wish to recognize the commitment of our employees in recent months. These people need to adapt to this transformation in different aspects of their everyday work. There is no doubt that the modernization of our institution will have a positive impact on our members and on the community. We are grateful to them for their patience and their support. In conclusion, I want to applaud once again the wisdom and the visionary mind of our caisses leaders and boards as well as our decision-making authorities for having dared to undertake the steps that have led to this collective merger.
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Annual Report 2015
Humbly, we are simply contributing to the achievement of an 80-year mission taken on by our predecessors. We can be confident in knowing that more men and women will be ready to carry the torch and adapt it to further changes for the well-being of our financial cooperative and of New Brunswick’s Acadian and francophone community!
Camille H. Thériault President and Chief Executive Officer
Executive Committee Mouvement des caisses populaires acadiennes From left to right
Denis Laverdière,
Executive Vice-President, Distribution
Simonne Godin, Corporate Secretary
Éric Aubé,
Vice-President, Strategy, Communication and Membership
Camille H. Thériault, Chief Executive Officer
Robert Moreau,
Vice-President, Corporate Services
Sylvain Fortier,
Vice-President and Chief Risk Officer
David Losier,
Executive Vice-President and CFO As of April 30, 2016
Executive Committee
11
The Caisses with their business locations As of December 31, 2015
NORTHEST AREA Acadie Bas-Caraquet, Caraquet, Grande-Anse, Inkerman, Paquetville and Pokemouche Northwest
Northest
Beresford Beresford Chaleur Allardville and Bathurst
Southeast
des Fondateurs Petit-Rocher and Robertville des Iles Lamèque le Lien des deux Rivières Saint-Isidore, Sheila and Tracadie Néguac Néguac and Rivière du Portage-Brantville Shippagan Shippagan
NORTHWEST AREA
SOUTHEAST AREA
La Vallée de l’Érable Grand-Sault, Saint-Léonard and Saint-Quentin
Beauséjour Fredericton and Moncton (4)
Madawaska Edmundston, Saint-Jacques and Sainte-Anne de Madawaska
Dieppe-Memramcook Dieppe and Memramcook
Restigouche Balmoral, Campbellton, Eel River and Kedgwick Trois Rives Clair, Edmundston, Saint-Basile and Saint-François
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Annual Report 2015
Sud-Est Baie Sainte-Anne, Grand-Barachois, Bouctouche, Cap-Pelé, Cocagne, Grande-Digue, Richibucto, Rogersville, Saint-Antoine, Saint-Louis, Sainte-Marie and Shediac
Our employees: Nobody does it better Being one of the largest private employers in New Brunswick is an ongoing challenge. And the fact that we are a cooperative adds a whole other dimension, especially since we are owned by nearly 155,000 members. Our mission makes us a dierent kind of employer, one with broader social responsibilities than other companies. A Top Employer Our caisses, subsidiaries and other Mouvement business units provide employment for nearly 1,000 individuals. We offer them competitive working conditions with professional opportunities to challenge their interests. We also provide a quality work environment and respect our employees; two critical factors in maintaining the service excellence our members enjoy.
Transparent Communication Guided by a culture of communication and openness, we maintain a productive dialogue with our employees. We work together, using various communication tools and through regular meetings, to develop and share our strategic vision, business objectives, and results.
Achieving our Full potential In order for our employees to be able to reach their full potential, we provide them with various training and information tools and the support and other means they need to excel. Training is a key element of our employees’ personal and professional growth as well as our competitive edge in the financial markets.
Supporting our Successors We also welcome students and interns looking to gain professional experience during summer jobs or on-site internships.
Our current success, as well as the one we hope to achieve, would not be possible without the contribution and commitment of competent people. Retaining qualified employees is a critical success factor in the financial services sector. We must therefore use best practices in human resource management if we wish to remain among the best of our industry.
Our employees: Nobody does it better
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Our Strategic Plan and Orientations 2013-2015
Our Mission Our Vision
Relative Efficiency • • •
Centre administratif Acadie Business locations Fédération des caisses populaires acadiennes
Relative Growth • • • •
Financial Business Centre Sales optimization Competitive offers Acadia General Insurance
Cooperative Difference • • • • •
Identity and corporate image Promise and customer experience Distinct products Cooperative dividend Member involvement
Our values
CONTEXTUAL SETTING The purpose of this document is to provide details on the 2015 performance of our activities aimed at meeting the strategic plan’s third year goals. Executive Summary We just finished the third year of this strategic plan. This means that we are heading toward the achievement of our efficiency, growth and cooperative distinction goals.
The beginning of 2015 was characterized by our members voting to extend the period allowing us to present our request to the Office of the Superintendent of Financial Institutions (OSFI). The network transition and the fieldwork needed to transition to a federal charter were launched. In general, we have achieved many strategic plan objectives during the course of the year. We also made progress on some structure and efficiency issues by downsizing and through efficiencies generated by the merged structure. Profitability, on the other hand, somewhat declined. In fact, lower key interest rates had a significant impact on the net interest income (NII) and some expenses arising from the merger (severance pays,
consulting fees, additional tasks and IT costs) caused an anticipated drop in profitability. The year 2015 also saw good progress in terms of development of a “new organization”. Work started to design a new a corporate image.
2015 - Achieving Targets
Achieved Being achieved Late
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Annual Report 2015
Tangibles benefits for our members and clients ONLINE INNOVATION FOR A SIMPLER LIFE Choose the Hop ‘n S@ve savings tool
Help is always available thanks to the AccèsD Assistant
Easy to use, the Hop ‘n S@ve instant savings tool lets you transfer money to a High Interest S@vings Account. Thanks to the money saved, you can carry out your personal projects (trip, purchase, etc.).
The AccèsD Assistant, a new context-sensitive assistance tool, is always available if you should need help during one of the following operations:
Check your account balances without having to connect to AccèsD Thanks to InstaBalance, you can easily access the balances of your caisse accounts and credit cards. All you have to do is activate the feature on your Apple or Android MC smart phone.
•
Bill payments
•
Transfer between people
•
InteracTM transfer
Mobile cheque deposits with a simple picture By using the mobile deposit option, you can deposit a cheque without having to go to the caisse or the ATM. It’s simple… All you need to do is take a picture of it! This product is offered to AccèsD Personal and Business users.
Tangibles benefits for our members and clients
15
Accessibility and proximity Accessible everywhere The new merged caisse keeps on evolving and its 155,000 members can now access all 51 business centres, everywhere in the province, to manage their finances.
Adapting to new ways of doing business We are adapting our distribution models to better answer our members’ needs. In order to offer more accessible consulting services, some caisses have extended their work hours and are now open on Saturdays as well on weeknights.
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Annual Report 2015
Mouvement des caisses populaires acadiennes Management’s Discussion and Analysis Year ended December 31, 2015
Table of Contents Note to the Reader
19
Profile and Structure
20
Organization Chart
21
Financial Results
22
Economic and Financial Forecast
25
Review of Financial Results
28
2015 Surplus Earnings
28
Operating Income
29
Net Interest Income
29
Operating Expenses
32
Analysis by Line of Business
33
Balance Sheet Review Summary Balance Sheet
35
Capital Management
37
Cash Flow Analysis
38
Off-Balance Sheet Arrangements
38
Risk Management
18
35
Annual Report 2015
39
Note to the Reader This management report offers the reader a general overview of the Mouvement des caisses populaires acadiennes. It is a complement and a supplement to the information provided in the combined financial statements of the Mouvement. It must therefore be read together with the combined financial statements, including the accompanying notes for the year ended December 31, 2015. This report also presents the analysis of the financial results and the changes in the Mouvement’s balance sheet during the fiscal year ended December 31, 2015. Other information concerning the Mouvement can be obtained from the website www.acadie.com.
DEFINITIONS Average Assets – Average Loans – Average Deposits – Average Equity The average balance of these elements matches the average of the amounts at the end of the two fiscal years.
Productivity Index The productivity index is used to assess effectiveness. This ratio is calculated by dividing other operating expenses, net of insurance and annuity benefits, by the total income, net of insurance and annuity benefits. The result is expressed in percentages. A lower ratio means a better productivity.
Operating Revenues The notion of operating revenues is used in the analysis of financial results. This notion allows the presentation of structured financial data and eases the comparison between operating activities from one period to the other. The analysis of the Mouvement’s revenues is therefore explained in two parts: operating revenues and investment income, which make up the total income. The operating revenues include net financial income, net premiums, other operating revenues such as service charges on deposits and payments, commissions on loans, credit cards and investment funds, management administrative fees and custodial services, exchange revenues and other revenues.
Net Premiums Net premiums, presented in the operating revenues, correspond to net insurance and annuity premiums, net of insurance and annuity benefits.
Management’s Discussion and Analysis
19
Profile and Structure WHAT WE ARE
Overview
With more than $3.7B in assets, the Caisses populaires acadiennes, inalienable collective heritage, is the most important Acadian financial institution. It combines, among other bodies, 15 caisses and one financial business centre, spread across New Brunswick. The personal, business, wealth management, life insurance and general insurance areas of activity offer members and customers a complete range of financial products and services that meet their needs. While playing a leadership role on New Brunswick’s economic chessboard, the Mouvement des caisses populaires acadiennes is an important provincial employer and capitalizes on the skills of more than 1,000 employees and the commitment of more than 200 elected officers.
The Caisses populaires acadiennes differ from other provincial financial institutions due to their cooperative nature. The strong mission and values which are a result of this nature are adopted by its officers, managers and employees; they are evident it their orientations and enable the implementation of their vision for a sustainable prosperity among the communities they serve. Since 1936, when the first caisse was founded in Petit-Rocher, the Caisses populaires acadiennes have always played a leading role at the education and sustainable social development levels and they believe that the cooperative business model is more relevant than ever.
MISSION To give a better quality of life to our members, all the while taking part in the socioeconomic independence of New Brunswick’s Acadian community respecting its linguistic identity and cooperative values.
VISION The Caisse populaire is the Acadian financial institution at its best, supporting the cooperative method where the first priority is the members and their needs.
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Annual Report 2015
The Mouvement’s will to be close to its members and customers is at the heart of all its actions. Thanks to its different distribution channels and to employees who really want to offer quality services, it can remain close to its members and to the communities of which they are a part. In this respect, always wanting to meet the different needs of its members, the Mouvement pays particular attention to the number of caisses and to the various distribution methods of its services. This approach is consistent with its desire to ensure the vitality of the caisses’ cooperative life with regards to democratic life, representativeness, education and training, intercooperation and social development support. The Mouvement is also characterized by the active participation of elected officials in the caisses and in the decision-making structure of the organization through local general meetings, boards of directors, the President’s Association and various bodies.
Organization Chart Mouvement des caisses populaires acadiennes Cooperative Sector
Members
15 1
caisses populaires operated in 51 Business Locations
financial business centre operated in 4 regional offices
Corporate Sector
Acadia Financial Holdings
Fédération des caisses populaires acadiennes
• • • •
Support Institutions • Fondation des caisses populaires acadiennes • Office de stabilisation de la Fédération des caisses populaires acadiennes
Acadia Life Acadia General Insurance AVie Acadia Financial Services
Acadia Service Corporation
• Conseil acadien de la coopération
• Acadia Service Centre
Fédération des caisses populaires acadiennes President
Vice-President and CFO
Camille H. Thériault
David Losier
Credit and Recovery Services
Legal Affairs
Pierre Cormier
Marc Roy
Corporate Secretary Executive Director Communications and Strategic Planning
Simonne Godin
Éric Aubé
Financial Operations Pierre Doiron
Yves Duguay
AVie
Pierre Giard
IT Network Support Services
Business Development Personal Marc-André Comeau
Business Development Commercial
Acadia Service Centre
Gilles Lanteigne
Yvon Godin
Departments Business relation or subsidiary (not part of the Management Comittee)
Human Ressources and Training
Financial Management
Health and Life Insurance and Mutual funds
Directly related to the President and CEO
Denis Laverdière
Florence Caissie Éric St-Pierre
Legend
Vice-President and COO
Acadia Financial Services Acadia Life
Acadia General Insurance
As of December 31, 2015
Management’s Discussion and Analysis
21
Financial results As of December 31, 2015
FINANCIAL SITUATION (in thousands of dollars and as a percentage)
Mouvement des caisses populaires acadiennes 2015
2014
Variance
$105,024
$128,076
(18.0)%
$52,300
$126,335
(58.6)%
$194
$1,756
(89.0)%
Assets
$3,691,150
$3,545,463
4.1%
Equity
$364,542
$358,473
1.7%
Net interest income Other income Member dividends
COMPARISON OF RESULTS OF 2015 WITH ESTABLISHED FINANCIAL TARGETS FOR THE YEAR 2015
2014
$157,324 $4.35/$100
$254,411 $7.18/$100
86.6%
75.9%
$12,057 $0.33/$100
$31,789 $0.90/$100
3.3%
8.9%
6,248,804
5,969,229
4.7%
4.7%
$7,546 $0.21/$100
$5,145 $0.15/$100
Profitability and productivity Total net revenues Productivity index net of insurance and annuity benefits Surplus earnings before other items Return of equity
Business Development Business volume
Business volume growth Risk Credit losses
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Annual Report 2015
Financial Results 2015 FINANCIAL RESULTS
(in thousands of dollars and in percentage)
Fédération des caisses populaires acadiennes 2015
2014
Variance
$17,666
$17,798
(0.7)%
$(348)
$2,872
(112.1)%
Assets
$686,145
$621,188
10.5%
Equity
$43,749
$45,268
3.4%
Financial revenue Surplus earnings before other items
Management’s Discussion and Analysis
23
FINANCIAL RESULTS
(in thousands of dollars and in percentage)
Acadia Life 2015
2014
Variance
$29,661
$120,610
(75.4)%
$6,420
$5,520
16.3%
$10,064
$11,052
(8.9)%
$2,038
$2,002
1.8%
$210,494
$205,615
2.4%
$48,499
$43,144
12.4%
2015
2014
Variance
Contribution income from the Caisses populaires acadiennes
$4,868
$4,713
3.3%
Investment income
$3,237
$3,239
(0.1)%
Assets
$114,165
$109,033
4.7%
Net assets
$103,012
$101,454
1.5%
Revenue Insurance benefits Operating income before dividends Dividends to the Caisses populaires acadiennes Assets Shareholder’s equity
FINANCIAL RESULTS
(in thousands of dollars and as a percentage)
Office de stabilisation de la Fédération des caisses populaires acadiennes
24
Annual Report 2015
Economic and ďŹ nancial forecast Economy On a global scale, poor economic growth continued in 2015 and will still be below early-year expectations, following the same trend as previous years. Developed economies show poor economic growth levels while emerging economies show a higher level of growth even if there is a downward trend. China is pursuing its economic restructuring by trying to limit its dependence to exports and by developing its internal trade. This restructuring comes with an expected growth downturn. Even though an economic slowdown is expected, impact is no less important since China is still the largest consumer of natural resources. The drop in natural resources’ prices are particularly damaging for developing economies who often export important amounts of resources.
Level of activity
The economic growth of the euro zone remained weak and, in this context, the European Central Bank maintained its very accommodating monetary policy. In the United Kingdom, growth in past years was better and its central bank is showing its first signs of a possible rate increase. The United States presented a 2.4% economic growth in 2015. This performance is the same as in 2014 and is still amongst the best for developed countries. Consumers, which represent their main economic driver, took advantage of many favourable trends such as the decrease in energy prices, the decline in unemployment rates and the strong currency. In Canada, growth slowed down in 2015, going from 2.5% to 1.2%. However, the job market remained strong. A total of 155,000 jobs were created in the country, but the unemployment rate increased from 6.7% to 7.1%. Consumption was good and followed the same growth rate as in 2014. The business investment sector experienced significant hardship. The decrease in the price of resources, especially oil, largely explains the decrease of close to 1% experienced in this sector.
Jobs (in $000)
Unemployment
2014
2015
2014
2015
2014
2015
Northwest
62.2 %
63.1 %
9.7 %
9.7 %
36.2
36.5
Northeast
56.7 %
55.7 %
17.1 %
15.2 %
61.2
61.0
Southeast
66.6 %
65.4 %
7.8 %
8.5 %
107.6
105.7
Southwest
65.2 %
63.6 %
8.2 %
8.6 %
85.4
82.7
Centre
63.3 %
65.4 %
8.5 %
8.5 %
63.5
65.8
NB
62.2 %
62.7 %
9.9 %
9.8 %
353.9
351.8
Canada
66.0 %
65.8 %
6.7 %
7.1 %
17,809.2
17,946.6
Source: Statistics Canada Management’s Discussion and Analysis
25
Economically speaking, past years were not easy for New Brunswick. The 2014 economic growth was negative and 2015 expectations are of a growth below the national average. The unemployment rate slightly decreased despite job losses in the provinces. Furthermore, construction starts decreased by more than 12% compared to 2014. Employment data show some stability in northern regions while results in southern regions bear witness to job losses. Employment rate remains lower with a higher unemployment rate in the North.
FORECASTS The International Monetary Fund (IMF) lowered its world economic outlook from 3.6% to 3.4% for 2016. The United States’ growth should continue since the job market and consumption rate remain solid. The Federal Reserve should continue increasing its rates at a moderate pace, limiting downside risks. Europe will pursue its slow recovery. Most countries are importers of resources and take advantage of the price decrease. On June 23, the British will vote on whether or not they are leaving the European Union. It is very difficult to predict the reaction of financial capital markets and the economic impacts of a withdrawal of Great Britain from the European Union. Important emerging
countries, for their part, will have a harder time. China continues its downturn while Russia and Brazil are trying to emerge from recession. In Canada, the 2016 economic growth should move ahead while remaining under the historical averages. The energy sector, economic driver of past years, will keep on moving at idle speed because of the price of oil which will remain low. Manufacturing provinces will take advantage of a weak currency in addition to the United States’ economic well-being. The first liberal budget, with its expected deficit of nearly $30G and important infrastructure investments, will have a marginal impact on the economy. New Brunswick is faced with many important economic and demographic challenges. The last provincial budget, with its expenditure reductions and HST increase, is proof of it. In the private sector, few important projects were undertaken and the closing of the potash mine in Sussex will cause a decrease in the number of exports. The province will therefore need to take advantage of the currency’s weakness to maximize its exports in the United States. Most economists believe that the province will be well below the national average for 2016 with an economic growth of less than 1%.
GDP Growth (%) Prevision World Developed Emerging and developing
10 8 6 4 2 0 -2
2020
2018
2016
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
-4
Source IMF
26
Annual Report 2015
INTEREST RATE
STOCK MARKET
Canadian and American central banks took opposite roads in 2015. The Bank of Canada surprised financial markets by lowering its key interest rate by 0.25% in January and once again in July. It is now at 0.50%. The Bank of Canada justified its interventions by stating the economy’s weakness, the decrease in oil prices and the low inflation. The Federal Reserve, for its part, increased its key rate by 0.25% in December after having kept it at 0.25% for 7 years. We don’t believe that the 2016 economic context will warrant important actions from North American central banks. The Federal Reserve should proceed with cautious rate increases. Considering that rates have recently been reduced in Canada, increases should be far and away.
The year 2015 was not an easy one for the Canadian stock market with a performance of -8.3 %. It was particularly affected by its exposure to the energy and materials sectors. Because of price cuts, both sectors decreased by more than 20 %. The performance of American and international indexes is much better. However, these results are mostly due to a fall in the value of the Canadian currency. In 2015, the value of the Canadian dollar declined by 16% compared to the American dollar.
In a time of economic uncertainty lined with Bank of Canada rate cuts and barely any inflationary pressure, Canadian interest rates have once again backtracked in 2015 to reach record lows. The economic situation for 2016 should be similar to last year’s. Few elements would lead us to believe that there will be a major rate increase. However, most economists seem to agree on the fact that current levels, which are very low, cannot be sustained in the long term and will need to be increased.
Government of Canada Yield Curve
2015
2014
Canada
-8.3 %
10.5 %
United States
20.7 %
24.2 %
EAFE*
18.8 %
4.6 %
*Europe, Australie and Far East Source: Bloomberg
Over the past few weeks, oil prices have stabilized and the worst of its decline seems to be a thing of the past. However, a challenging economic environment at the global level and a strong level of production do not signal a return to the top. If oil prices remain at the same level or if they increase, even slightly, the Canadian stock market index should get a break and perform well. In the United States, the economic situation seems less risky, but investors will still need to keep an eye on the monetary policy and its potential impacts on the economy. Predictions about the EAFE Index seem easier to anticipate considering Europe’s slow growth, the risks associated with the withdrawal of Great Britain from the European Union and the consequences of the Chinese economic restructuring.
30
25
20
15
10
5
2.50 2.00 1.50 1.00 0.50 0.00 3m 1 year
Rate %
31-Dec-14 31-Dec-15
Stock Market Return ($ CAD)
Source: Bloomberg
Management’s Discussion and Analysis
27
Review of financial results 2015 SURPLUS EARNINGS The Mouvement des caisses populaire acadiennes recorded $12,1M in surplus earnings before other items in 2015. These results are lower than those of 2014, when they totaled $31.8M. This decrease is largely due to the reorganization of the Mouvement des caisses aimed at preparing for the collective merger of the 15 caisses and at complying with the requirements of the Office of the Superintendent of Financial Institutions (OSFI). An amount in excess of $10M was accounted for severance pays, consultant fees and computer fees associated with the implementation of the new structure. Furthermore, two Bank of Canada rate decreases in 2015 put some strain on the Mouvement’s revenues. More specifically, the profitability of the personal and commercial sectors’ operations decreased by 90% to $2.0M in 2015 compared to $20.7M in 2014. In 2015, the life and health insurance sector contributed $10.2M in surplus earnings compared to $11.1M in 2014. Our projections showed a decline in profits in Personal and Business sector operations, which was one of the reasons for the collective merger. The merger will allow us to save on payroll, with more than 100 positions being cut within the Mouvement’ structure. Strict requirements at the capitalization level as well as a strong competition among financial institutions encourage the Mouvement to remain careful when allocating surplus earnings. Furthermore, collective merger costs have caused 2015 dividends to be lower than in past years. Consequently, only $0.2 million should be returned to members for the 2015 fiscal year.
28
Annual Report 2015
Surplus earnings before other items $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 -
$31,789
$28,492
$28,216
2013
2012
$12,057
2015
2014
Segment contributions to surplus earnings 17 %
83 % Personal and Business Life and Health Insurance $35 000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 -
$20,737 $1,993 $10,064
$11,052
2015
2014
$22,340 $6,152 2013
$25,609 $2,607 2012
OPERATING INCOME Operating income, which includes net financial income, net premiums as well as other operating income, totalled $146.2M in 2015 compared to $153.1M in 2014. The Mouvement’s operating income therefore decreased by $6.9M compared to the previous fiscal year.
Other revenues from operating income decreased slightly in 2015 compared to 2014. They stood at $34.5M in 2015 compared to $35.9M in 2014 for a $1.4M decrease. This decrease is primarily associated with income from service charges collected from members.
The net financial income is lower than in 2014. This $23 million decrease is partly due to Acadia Life investment gains recognized through the reorganization of its portfolio in 2014 following the purchase of a block of annuities.
The fluctuation in operating income is detailed in the following sections.
2015
2014
2013
2012
$105,024
$128,076
$90,942
$108,292
$6,733
(10,872)
22,713
5,346
Other operating income
$34,457
35,873
36,942
36,234
Total operating income
$146,214
$153,077
$150,597
$149,872
Net financial income Net premium benefits
NET INTEREST INCOME The net interest income corresponds to the difference between the financial income gained on assets such as loans and securities, and financial expenses associated with liability components such as deposits and borrowings. The net interest income totalled $105.0M at the end of 2015, which represents an amount significantly lower than the one of 2014 ($128.1M). The net financial income decreased in 2015. The purchase of an Acadia Life annuity portfolio had contributed to the strong results of 2014, but other factors explain the 2015 income decrease. Among other factors, the two Bank of Canada key rate reductions caused a drop in our investment revenues and in our loan portfolio. Furthermore, our loan portfolio growth was weaker than expected in 2015. Only $73.7M of the $145.7M increase in assets are with loan portfolios. Half of this growth happened in cash assets or other assets, which usually generate a weaker return than loans.
We also had to account for considerable financial fees associated with a loan from the Office de stabilisation with the Province of New Brunswick. Since this interest-free loan will be completely reimbursed on the expected date of the collective merger (July 1st, 2016), which is much earlier than the initial reimbursement date, a $2.7M discounting charge had to be recorded in the Mouvement’s interest expenses for 2015. The table on the following page shows the variation analysis of net financial income for important assets and liabilities. The net financial spread, expressed in a percentage of average assets, was 2.9% in 2015 compared to 3.7% in 2015, which represents a drop of 80 basis points.
Management’s Discussion and Analysis
29
Financial Income
Finance Charges
Financial income totalled $145.6M in 2015, a $20.8M decrease compared to the previous fiscal year. Financial income is made up of $21.0M revenue on cash assets and investments, and $124.6M revenue on the loan portfolio.
Finance charges totalled $40.5M, an increase of $2.3M compared to 2014. These charges include interest charges of $36.0M on the deposit portfolio and of $4.5M on money borrowed from other institutions.
Income on cash assets and securities decreased by $19.6M compared to the previous fiscal year, from $40.6M in 2014 to $21.0M in 2015. In 2014, some of Acadia Life’s investments had generated incredible returns. In 2015, the performance of the Mouvement’s investments portfolios was similar to past performances.
The interest expense on member deposits went from $36.4M in 2014 to $36.0M in 2015. Even if the deposits portfolio performed well in 2015, the average rate decreased from 1.3% in 2015 to 1.2% in 2015. This decline is due to the renewal of term savings at lower rates and to the popularity of the “Enhanced Investment Account” which offers a lower rate than conventional term savings.
Interest income from the Mouvement’s loan portfolio has declined by $1.2M compared to 2014. The interest income from loans totalled $124.6M in 2015 compared to $125.8M in 2014. This can be explained by the 20 basis point decrease of the portfolio’s average rate during the year. However, the increase of the loan portfolio’s average balance helped minimize the negative impact of the portfolio’s decline in performance caused by the strong competition between financial institutions.
30
Annual Report 2015
The interest charges associated with borrowed monies increased by $2.6M, going from $1.9M in 2014 to $4.5M in 2015. The increase of interest charges on loans is a result of the accounting of a $2.7M charge for a loan by the Office de stabilisation.
2015 Average balance
2014 Average rate
Interest
Average balance
Average rate
Interest
Assets Interest-bearing assets Cash and securities
$677,050
$21,002
3.1 %
$608,594
$40,605
6.7 %
Loans
2,851,075
124,572
4.4 %
2,758,883
125,761
4.6 %
3,528,125
145,574
4.1 %
3,367,477
166,366
4.9 %
Total interest-bearing assets Other assets Total assets
90,181
81,312
$3,618,306
$145,574
4.0 %
$3,448,789
$166,366
4.8 %
$2,906,909
$36,014
1.2 %
$2,789,281
$36,374
1.3 %
77,133
4,536
5.9 %
86,926
1,916
2.2 %
2,984,042
40,550
1.4 %
2,876,207
38,290
1.3 %
$38,290
1.1 %
$128,076
3.7 %
Liabilities and equity Interest-bearing liabilites Deposits Borrowing and overdraft Total interest-bearing liabilities Other liabilities
272,757
226,373
Equity
361,507
346,209
Total liability and equity
$3,618,306
Net interest income
$40,550
1.1 %
$105,024
2.9 %
$3,448,789
OTHER INCOME Other revenues come from several sources, as shown in the following table.
2015
2014
2013
$18,559
$19,286
$20,019
Commissions
9,503
8,886
8,118
Lending fees
1,252
1,506
1,595
Foreign exchange income
945
910
904
Statement fees
447
465
477
Safety deposit boxes
381
395
375
2,864
2,992
2,731
17,843
90,462
16,071
506
1,433
2,723
$52,300
$126,335
$53,013
Deposits and payment service charges
Sales of related services Net insurance and annuity premiums Other income Total other operating income
Management’s Discussion and Analysis
31
Revenues from service charges collected on deposits and payments have been decreasing for the past few years because of a reduction of the volume of transactions at the counter and ATMs in favour of automated transactions. These automated transactions will probably increase since the Mouvement plans on offering its members a cheaper rate. For example, it now offers free services to students and seniors. Commission income increased once again in 2015. The Mouvement receives commission income on the sale of credit cards, mutual investment funds and insurance. This increase in commission income is the result of a business volume growth of these products. Net insurance and annuity premiums greatly increased on 2014 mainly due to the transfer of an annuity portfolio to Acadia Life which generated an annuity premium of approximately $73M. For 2015, these revenues returned to a level comparable to previous years.
Provision for Credit Losses Provision for credit loss provisions totalled $7.5M, an increase of $2.4M compared to 2014. It includes two elements: the individual component and the collective component. For the individual component, losses totalled $6.2M in 2015, compared to $8.1M in 2014. The collective component had provision expenses of $1.3M in 2015 while it recovered $3M in 2014. More specifically, the individual provisions for business loans totalled $3.9M ($5.5M in 2014) while the individual provisions for individual loans totalled $2.3M ($2.7M in 2013). The provisions for business loan loss only include a few, but their scale is important because of the high amounts of the loans that are granted. That is why this charge may change from year to year. 2015 was characterized by a few important business funding files. The Mouvement chose to be careful and recorded these provisions to reflect the risk of loss. For some of these files, the provision may be recovered in coming years.
32
Annual Report 2015
The collective provision increase is mainly due to a history of more important losses for the last 2 years and to the instability of our provincial economy. Despite the increase in loan loss provisions, the Mouvement always presents a quality loan portfolio. On December 31, 2015, gross outstanding debts on loans totalled $32.7M, an increase of $5.0M from the amount of $27.7M registered in 2014. The ratio of gross doubtful loans, as a percentage of the total gross loan portfolio, totalled 1.13% at the end of the 2015 fiscal year. This ratio was similar to the one observed at the end of 2014 (0.98%).
OPERATING EXPENSES Wages and Employee Benefits Expenses related to wages and employee benefits slightly increased from $69.5M in 2014 to $69.7M in 2015. In fact, for the past few years, many jobs left vacant by resignation were eliminated allowing for savings on employee costs. This is in keeping with the Mouvement’s efforts to reduce its operating costs in order to remain competitive while ensuring its financial strength. A significant reduction in staff attributed to retirements started in 2015 and will continue in 2016. The number of employees will therefore be reduced, which equals just over 10% of the Mouvement’s payroll. Payroll savings will total close to $8M per year starting in 2017.
Other Operating Expenses The other operating expenses include costs associated with work spaces, computer costs, office and communication expenses, deposit and service charges, advertising and sponsorship costs, as well as other charges. Generally, the Mouvement’s operating expenses remained stable if we compare them to the previous fiscal year’s expenses ($46.8M in 2015 and $46.7M in 2014).
Collective merger costs Expenses associated to the collective merger are high in 2015 because many retirement incentives were accounted for. Close to 130 employees will leave the Mouvement in 2016. This will create a short-term expense for 2015 and 2016. We also incurred other expenses to adapt our computer platform and we paid consultants to help us in our transition to the federal charter.
ANALYSIS BY LINE OF BUSINESS Personal and Business The personal and business sectors include activities related to current and savings transactions in addition to lending activities. These transactions are carried out by the 51 business locations of the Caisses populaires and the 4 offices of the Financial Business Centre. The activities of the Mouvement’s branches not related to life insurance are also included in these sectors. Results associated with these activities are not significant. In order to remain in the lead, the Mouvement ensures it can offer the best possible services to its members by proposing them a complete range of financial products and services. The Mouvement also puts much effort into the delivery of technological services such as mobile services and Interac e-TransfersTM that meet the needs of its members.
Operating results for the personal and business segment ($ thousands) 2012
$25,609
2013
$22,340
2014 2015
$20,737 $1,993
This sector contributed $2.0M to surplus earnings before other elements of the Mouvement in 2015. At first glance, the decrease can mostly be explained by $10M in collective merger fees and $2.7M for financial fees associated with the Office de stabilisation loan. Also, the profitability of these sectors has been declining for a few years and this can mostly be explained by the compression of net financial income. In fact, the Mouvement is being pressured by its competitors in this sector, making it difficult for savings and financing portfolios to grow. This competitive environment helps maintain low interest rates for our members, but has a negative impact on the Mouvement’s net financial income. It is also important to mention that, in its 2013-2015 strategic plan, the Mouvement had committed to adopting a competitive pricing approach.
Management’s Discussion and Analysis
33
The 2015 fiscal year was also characterized by losses on loans higher than in previous years. As explained in the section on loan loss provisions, the expenditure increased by $2.4M in 2015. In 2015, there was a slight decrease in consumer credit market shares, from 8.9% at the end of 2014 to 8.6% at the end of 2015. Our share of the mortgage market increased in 2015. We held 9.3% of the New Brunswick mortgage loan market and this share decreased to 9.1% in 2015. Our mortgage portfolio’s balance on December 31, 2015 was $1,418M compared to $1,395M in 2014. The consumer credit portfolio increased by $23M to reach $551M on December 31, 2015, while it was $528M on December 31, 2014. The balance of our business financing portfolio increased by 3% in 2015, reaching $920M, compared to $891M in 2014. This growth helped us slightly increase our market share in this sector, going from 22.2% in 2014 to 22.5% in 2015. The deposit portfolio has increased substantially in 2015. It grew by 5.0% to reach $2,978M in member deposits at the end of 2015, compared to $2,836M in 2014.
Life Insurance The Acadia Life and AVie subsidiaries make up this line of business.
Operating income before patronage allocations, bonuses and taxes ($ millions) 2012 2013 2014 2015
$2,607 $6,152 $11,052 $10,064
The operating results of this business sector were very positive in 2015, just like in 2014. In fact, the activities associated with our branches working in the life insurance sector have generated surplus earnings before taxes of $10.1M for the 2015 fiscal year, compared to $11.1M in 2014. It represents a decrease of 9% or $1.0M. It must however be noted that the 2014 results were extraordinarily high because of a revision of the investment policy and actuarial models. The positive results of 2015 are due to changes in some actuarial assumptions, but also to the good performance of assets both at the level of the portfolio supporting liabilities and at the level of the portfolio associated with equity. For the liability-supporting portfolio, a number of goodquality bonds resulted in the release of a reserve of approximately $1.0M. The decrease in interest rates resulted in gains on equity portfolio bonds. Changes to the different assumptions associated with the calculations of technical provisions, net of reinsurance assets, were favourable in 2015. In 2014, these modifications resulted in earnings of $1.8M while they resulted in a gain of $6.0M in 2014. With regard to personal life insurance, yearly premiums totaled $9.4M, an increase of $0.5M compared to 2014. Group life insurance premiums remained steady at approximately $8.4M.
34
Rapport annuel 2015
Balance Sheet Review SUMMARY BALANCE SHEET 2015
2014
Assets Cash
$114,586
3.1 %
$72,160
2.0 %
595,096
16.1 %
572,257
16.1 %
2,864,462
77.6 %
2,791,115
78.8 %
117,006
3.2 %
109,931
3.1 %
$3,691,150
100.0 %
3,545,463
100.0 %
$2,977,723
80.7 %
$2,836,094
80.0 %
70,741
1.9 %
83,524
2.4 %
Other liabilities
278,144
7.5 %
267,372
7.5 %
Equity
364,542
9.9 %
358,473
10.1 %
$3,691,150
100.0 %
$3,545,463
100.0 %
Securities Loans Other assets Total assets Liabilities and Equity Deposits Borrowings and overdraft
Total liabilities and equity
TOTAL ASSETS Total assets ($ millions) 2012 2013 2014 2015
Liquidity Management
$3,214 $3,352 $3,545 $3,691
On December 31, 2015, the Mouvement’s total assets were $3.7B, representing a $146M or a 4.1% increase compared to 2014, when the assets totaled $3.5B.
The objective of liquidity risk management is to guarantee that the Mouvement, in a timely and profitable manner, will have access to the funds necessary to fulfill its financial commitments when they become payable, both in normal and in crisis situations. This risk management leads to the maintenance of an acceptable level of cash assets securities. The minimum level of liquid securities that must be maintained by the Caisses populaires is prescribed by the Credit Unions Act. This minimum level is centrally managed by the Mouvement’s treasury and monitored on a monthly basis. Eligible securities must meet high safety and negotiability standards. The securities portfolio is largely made up of securities issued by government, public bodies and private companies with high credit ratings. Management’s Discussion and Analysis
35
Furthermore, during the 2014 fiscal year, the Mouvement’s treasury, through the FÊdÊration, was given the opportunity to issue securitized bonds and to be present on the CMHC-insured securitized loan market. This form of financing is more economical that the traditional loan. New liquidity ratios will now be tracked by the treasury and crisis tests will be performed in order to make sure the Mouvement has the right amount of liquidities at its disposal to be able to comply with the liquidity management requirements of the OSFI.
Loans The loans portfolio, net from the provision on loan losses, totalled $2,864M. It represents a 2.6% growth compared to 2014, when the portfolio totalled $2,791M. In 2015, the growth was mainly at the personal loan level.
Loans to members net of allowance for credit losses ($ millions) 2012
$2,520
2013
$2,678
2014
$2,791
2015
$2,864
The following table presents the breakdown of the loan portfolio in the different business lines.
2015
2014
2013
$1,417,937
$1,394,839
$1,330,824
550,621
528,221
493,119
1,968,558
1,923,060
1,823,943
Real estate
287,818
272,516
271,329
Heath care and related services
155,020
148,850
145,925
Construction
89,932
90,227
92,592
Retail
54,812
52,361
56,279
Forestry
53,958
39,806
29,708
Manufacturing
38,794
43,066
35,244
Accomodation and food
36,307
43,289
44,396
Other
202,968
200,808
204,366
Total business
919,609
890,923
879,839
2,888,167
2,813,983
2,703,782
(23,705)
(22,868)
(25,663)
$2,864,462
$2,791,115
$2,678,119
Personal Residential mortgages Consumer and other Total personal Business
Allowance by credit losses Total loans by category of borrowers
36
Annual Report 2015
Residential Mortgages The housing market is experiencing a slowdown in growth in New Brunswick primarily at the level of new constructions in the southeastern part of the province. In spite of this tough climate, the Mouvement was able to increase its residential mortgage portfolio by $23M compared to 2014. The total of the mortgage portfolio before provision totalled $1,418M on December 31, 2015 and $1,395M on December 31, 2014.
Consumer Loans and Other Personal Loans
Member’s deposits ($ millions) 2012 2013
$2,668 $2,742
2014 2015
$2,836 $2,978
CAPITAL MANAGEMENT
This loan portfolio grew by $22M in 2015 to end up at $551M. In 2014, this portfolio totalled $528M. This progression was fuelled by loans granted through the financing centre which provides direct funding to our members and non-members at car and recreational product dealerships. On December 31, 2015, the loan portfolio provided by the financing centre was $182.5M compared to $172.7M in 2014. This represents a $9.8M or 6% growth.
The Mouvement’s regulatory capital ratio is well above regulatory requirements. The Credit Unions Act states that a Caisse populaire must maintain a capital amount representing at least 5% of its total assets. In addition to the capital requirements prescribed by law, the Caisses populaires must comply with strict standards established by the Office de stabilisation. In order to maintain enough capital to face all risks to which the caisses are exposed, these standards require that each caisse maintain a capital representing at least 7.5% of its assets before being authorized to pay out dividends to its members.
Business Loans
The following table presents the capital ratios of the Mouvement’s bodies.
The business loan portfolio grew more modestly in 2015 compared to previous years. Globally, this portfolio totalled $920M on December 31, 2015 compared to $891M in 2014. It represents a 3% growth. The funding provided remained stable in most lines of business. However, thanks to a new partnership with an important player from the New Brunswick forestry sector, we were able to achieve 35% growth in this sector.
Deposits
Capital ratios 2015
2014
Caisses
8.3%
8.7%
Fédération
6.4%
7.3%
Office de stabilisation
$103M
$98.7M
Acadie Vie - MCCSR
335.1%
312.6%
10.2%
10.5%
Mouvement
The member deposit portfolio increased by 5% in 2015. Total deposits reached $2,978M as of December 31, 2015, compared to $2,836M in 2014. This sector performed well in 2015. Our offer is competitive and allows the Mouvement to maintain more than adequate liquidity ratio levels.
Management’s Discussion and Analysis
37
CASH FLOW ANALYSIS The Mouvement’s regular activities can cause important fluctuations of its cash assets. In fact, the loan and deposit transactions carried out by our members greatly influence the level of the Mouvement’s cash assets. During the 2014 fiscal year, the Mouvement’s cash assets increased by $48.6M. The main variations are explained in the following paragraphs. In 2015, the operational activities of the Mouvement generated $81.8M in funds. Furthermore, in 2015, new member deposits generated $141.6M. The growth of the loan portfolio caused a $80.9M cash outflow. Because of the strong growth of our member deposit portfolio, the Mouvement was able to decrease its borrowing level. The 2015 funding activities resulted in a $6.6M reimbursement level. The investment activities led to a $26.6M cash outflow in 2015.
38
Annual Report 2015
OFF-BALANCE SHEET ARRANGEMENTS In its normal course of business, the Mouvement manages investment portfolios for many of its members. Through the Caisses populaires network, members can deposit their savings in investment funds. This savings portfolio represents off-balance sheet arrangements. The investment funds managed by the Mouvement had a total value of $365M on December 31, 2015 compared to $299M on December 31, 2014. Thanks to major growth potential in the management of investment funds in New Brunswick, this line of business has been growing significantly for the past few years. This is part of the diversification of what we offer to network members. The Mouvement also offers members different credit tools to satisfy their financing needs. These tools include credit commitments and letters of guarantee. As of December 31, 2015, these off-balance sheet credit tools totaled $668M, an increase of $36M compared to 2014 (632 M$).
Risk Management In its transition to the new merged caisse (the Caisse), the Caisses populaires acadiennes added a risk management supervision function. In 2015, many objectives were realized, including the added function of vice-president and chief risk officer, the creation of an integrated risk management team, and the establishment of policies, guidelines and procedures for the Caisse. The implementation of a risk management framework for the Caisse will continue in 2016, with a goal of reaching the standards required by the Canadian Office of the Superintendent of Financial Institutions. These changes are being made in tandem with the current structure, in a way that will benefit the caisses.
RISK MANAGEMENT FRAMEWORK The risk management framework is conservative, complete, efficient and consistent throughout the Caisse. It covers all Caisse and subsidiary activities by establishing a global and coordinated approach to manage risks in an integrated fashion. The compliance management framework is part of the risk management framework. The risk management framework is based on a strict, formal and dynamic governance structure and on a transparent risk culture aimed at guiding business development, and supervising and controlling risks through the organization. In addition to governance and culture, risk management includes a series of processes.
•
•
•
•
EXECUTIVE COMMITTEE AND SUPERVISORY DUTIES
•
•
Guidelines Rendering of accounts
THREE LINES OF DEFENCE
•
ORI
REN
DER
ING
OF ACC OUN ENT ATIO TS NS
BOARD OF DIRECTORS AND ITS COMMITTEES
Policies and mandates of committees and supervisory duties Risk Management Committee Risk appetite and tolerance Risk culture and general guidelines
COMMON RISK INFRASTRUCTURE
PEOPLE • PROCESS • TOOLS
•
Risk management process Procedures Expertise and training Communication Internal controls Data and tool availability
•
•
•
•
RISK MANAGEMENT CYCLE
IDENTIFY EVALUATE AND MEASURE MANAGE CONTROL FOLLOW RISK IDENTIFICATION AND TAXONOMY
Management’s Discussion and Analysis
39
GOVERNANCE The Caisse’s risk management framework is supported by a governance structure aligned with its organizational context. The Board of Directors established a risk management committee, as well as other committees to supervise the organization’s specific activities and the risks associated with them. It also resorts to supervisory functions such as risk management, compliance, finances, internal audit and credit for the daily monitoring of the organization’s risks. The Board of Directors expresses its risk orientations through the Risk-Taking Propensity Framewobk (RTPF). The Caisse manages its risk by adopting three lines of defense allowing the Board of Directors and the Executive Committee to get the assurance that all risks remain within the tolerance levels described in the RTPF. The risk management supervision function is responsible for the daily coordination of the framework in accordance with the Board of Directors’ orientations. The Caisse continues the process of formally putting in place three lines of defense in order to take advantage of fully functional and efficient risk governance at the time of continuance under the federal charter.
RISK CULTURE: “RISK IS EVERYBODY’S BUSINESS” The Board of Directors promotes a balanced risk taking approach with a proper return on equity to maintain a high level of capital, but not at the expense of its members’ collective objective. The spirit of risk culture is based on the following characteristics:
•
rigorous, formal, proactive, dynamic and complete risk management;
• •
transparent communication;
• •
a common language;
•
risk management as an integral part of the strategies;
•
a board of directors that is actively committed to risk governance and that sets the pace;
•
an executive committee that implements the policies approved by the board of directors and that leads by example;
•
an appropriate structure and the necessary resources assigned to daily risk management;
•
a proper division of labour within a rigorous process based on the three-defense line approach;
•
a compensation system that promotes sound risk management.
empowerment of one and all, and clear accountability;
a clear vision of appetite for risk and risk tolerance;
The Caisse defines its strategic orientations based on the risks with which it is faced and must manage in its Risk-Taking Propensity Framework. This Framework determines the risk level, appetite, tolerance and type that the Caisse is ready to accept to reach its strategic and business objectives. The risk appetite and tolerance must be defined within the Caisse’s ability to take risks. The Board of Directors is responsible for defining the RTPF.
40
Annual Report 2015
Risk Appetite (objectives): Corresponds to the Caisse’s target level or the level it wishes to maintain in order to achieve its strategic and business goals. Risk Tolerance (threshold and limit): Corresponds to the threshold and limits established and defined by taking into consideration the risk-taking ability. The Caisse does not want to be in this zone.
RISK-TAKING PROPENSITY FRAMEWORK
Ability: Corresponds to equity, expected and actual profits, tools, experts, knowledge and Caisse personnel needed to manage a risk. In terms of risk level, the defined regulatory tresholds are also the Caisse’s ability. A successful and rigorous risk culture can be defined by the usage of a common language. Being able to categorize risks and consistently and cohesively define them through the organization significantly contributes to its daily risk management. The Caisse classifies its risk under ten categories. The operational risk, because of its disparate nature, has ten subcategories.
Globally, the Caisse takes and assumes risks in a way to support a sustainable financial performance that reflects its cooperative nature and to maintain its position as one of the best capitalized financial institutions in Canada.
RISK TAXONOMY Reputation Capital Credit
Strategic Liquidities
Market
Non-compliance Insurance
Outsourcing
Operational Internal fraud
External fraud
Information security
Project management
Products, services and commercial practices
Human resources
Process implementation, delivery and management
IT system interruptions malfunctions
Damage to assets and access limitation to buildings
Financial and management information integrity
Management’s Discussion and Analysis
41
STRATEGIC RISK
CAPITAL RISK
Material gap between the financial results and the expected results of the Caisse and its subsidiaries. This financial gap may be linked to:
Probable financial losses (or shortfalls) or losses of business opportunities resulting from the lack of necessary equity to fully implement the strategy or the retention of a commercial activity, business unit, subsidiary or of the Caisse in general due to a shortfall or to a lack of capital allowance. Furthermore, this risk addresses situations in which the Caisse would not have enough equity to maintain activity comprehensiveness because of an erosion of its capital under the regulatory ratio.
•
inappropriate choices in strategies, business models, strategic partners or operation plans depending on its financial situation, operational capacity, expertise, competitive positioning, or business or economic environment;
•
adequacy of the allocation of human, financial and material resources to realize its strategy;
•
misalignment of sectorial plans with the Caisse’s strategic plan;
•
voluntary or involuntary inaction in the face of an important change in the economy or in the competitive or business environment.
Each year, the Board of Directors adopts a strategic plan which contains quantitative targets (e.g. portfolio growth, financial performance, etc.) and organizational targets (e.g. establishment of a risk management structure). The Board of Directors proceeds with a quarterly review of the strategic plan status with the members of the Executive Committee. The Executive Committee implements action plans to ensure that strategic plans are complied with. It also regularly discusses about action plans and adapts them when needed.
REPUTATIONAL RISK Revenue losses due to activities, actions or practices that are undertaken by the Caisse and that are significantly below the expectations of members, clients, employees, or the public in general. This risk is often due to bad management of one or many other risk categories, which causes a loss of confidence or negative comments in traditional or social media. The Caisse has its reputation at heart. It continuously ensures that these actions, methods and behaviours are aligned with its cooperative values. The Executive Committee closely oversees the marketing of new products and services as well as changes to our existing products and services.
42
Annual Report 2015
The Caisse has one of the highest capital levels in Canada for a financial institution. It is proud of the financial strength it offers its members and it takes the appropriate actions to maintain this level of comfort. Each year, the Caisse performs stress tests which allow it to determine the organization’s level of resistance in case of crisis. The Caisse can remain above regulatory ratios in all scenarios tested, including a severe property crisis scenario.
LIQUIDITY RISK Possible losses resulting from the Caisse resorting to expensive and unplanned sources of funding to honour its financial obligations in a timely manner. Financial obligations include commitments to depositors, borrowers (disbursement of completed loans), suppliers or members. This risk is mostly due to the asymmetry between the cash flows linked with assets and those linked with liabilities including the payment of monies owed to suppliers and dividends to members. The Caisse presents a favourable level of liquidities on the Canadian financial institution market. The main source remains Personal and Business member deposits. However, it uses mortgage securization channels guaranteed by the CMHC to diversify its sources. The Caisse also has lines of credit with some of the larger Canadian financial institutions. It established risk indicators, alerts, thresholds and limits to ensure that its liquidities are always at a comfortable level, beyond regulatory requirements.
COMPLIANCE RISK Losses that may or may not result from litigation, penalties, fines or financial sanctions (increased supervision of regulatory organizations) linked with inappropriate practices that do not comply with applicable regulations. This risk is due to the possibility that the Caisse or its subsidiaries stray from the expectations provided in laws, rules, regulations, standards or other regulatory requirements. This risk also includes significant unplanned charges associated with current regulation or regulatory modifications. The Caisse has a regulatory monitoring process which allows the identification of changes to laws, rules and other regulatory requirements. When applicable, the Caisse adjusts, in a timely manner, its policies and process in order to remain compliant. It is putting in place a new process for regulatory compliance management which will allow it to keep a computerized registry of its regulatory compliance.
The credit risk is without a doubt the most important risk for the Caisse. The Caisses populaires acadiennes’ credit portfolio is made up of residential mortgage loans, consumer loans and corporate credit. Consumer loans come from caisses and merchants through the Centre de financement Acadie (CFA). The credit policy and rules, including limitations and standards, are established by the Credit and Reversal management of the Fédération and submitted to the approval of the Office de stabilisation before being carried out by the Mouvement. The Mouvement uses grading systems allowing the quantitative assessment of borrowers’ credit risk level. These systems are used for credit granting, revision and management. As of December 31, 2015, the credit portfolio totaled $2.9B, including $1.4B in mortgage loans.
Money laundering The caisses have a system to fight against money laundering and terrorist financing (PCMLTFA) which complies with the law. This system will be reviewed and improved in future months in order to ensure its compliance with the RTPF.
CREDIT RISK Unplanned financial losses due to the inability or refusal of a borrower, endorser, guarantor or counterparty to fully comply with its contractual obligations to repay a loan or to fulfill any other preestablished financial obligation. The credit risk includes the risks of default, concentration and exposure to important commitments with a single counterparty. Concentration risk: The concentration risk is a risk resulting from a major exposition to a single factor (industrial activities sector).
Management’s Discussion and Analysis
43
MARKET RISK
Mortgage CMHC ($838M) Conventional and Versatile Line of Credit ($580M) 41% 59%
Possible losses resulting from potential changes to the interest or exchange rate, to market prices of shares, to credit gaps, to desynchronization of market indexes or liquidities. Exposition to this risk is due to negotiations or investments creating positions included or not on balance sheets.
Interest rate risk Overall porfolio 13%
6% 32%
Business ($920M) Mortgages ($1,418M) Consumer ($368M) Centre de financement (CFA) ($182M)
49%
As part of the collective merger, the Caisse is reviewing its credit risk management process. This review will increase the reliability of its credit risk management. Improvements will be made to the following components, among others:
•
separation of duties between loan development, granting and disbursement;
•
concentration limit structure based on the principle of a single financial institution;
• •
credit risk management global vision; centralization of decision-making for unproductive loans including individual provision establishment.
The Caisses populaires acadiennes have adopted a strategy through which each caisse assumes a very low level of risk associated with interest rate fluctuations. The strategy uses interest rate swaps to reduce the gap between assets and liabilities. This same strategy was also applied to the Fédération’s and Office de stabilisation’s balance sheets. In other words, each entity of the Mouvement aims and maintains an objective of zero in terms of duration deviation between assets and liabilities. After the continuance to the federal charter, the Caisse will keep on following this strategy, but will apply it on a single balance sheet. The number of required swaps and transactions to remain within the limits established by the Board of Directors should go down significantly.
Change risk The Caisses populaires acadiennes do not maintain any important positions on exchange markets. They only keep the foreign currencies (mainly American dollars) required for the expected needs of its members.
Investment management An investment policy covers the composition, the quality of titles in a portfolio, and the many management settings of a portfolio for all managed funds.
44
Rapport annuel 2015
INSURANCE RISK
OPERATIONAL RISK
Possible losses incurred when a paid compensation is different from what was planned (death, decline, etc.) when the insurance products were prepared and priced.
Losses resulting from shortcomings or defects related to procedures, employees, internal systems or external events. The outsourcing risk is treated separately because of its importance for the Caisse. Because of its heterogeneous nature, this risk is divided into ten distinct components.
The Caisses populaires acadiennes only assume life insurance risks (death, decline) for life insurance and annuity products offered by Acadia Life. This subsidiary does not offer complex insurance products. Acadia Life maintains a capital level that is much higher than regulatory requirements.
OUTSOURCING RISK Possible losses (financial or not) due to a failure by the supplier (including outsourcer and partner) to fulfill all or part of its non-financial contractual obligations (contractual misunderstanding). In such a case, potential costs associated with the implementation of an alternative solution could be incurred. Even though it is usually part of the operational risk, the Caisse believes it is a good idea to consider it as a separate category of risk given its importance. The Caisses populaires acadiennes use the information technology services offered by Desjardins according to the same standards it offers its own caisses. This strategy allows the Caisses populaires acadiennes to take advantage of the reliability of a large financial institution that is well-respected throughout Canada. Also, the caisses benefit from the improvements made by Desjardins to its systems, procedures, rules, products and services. However, the Fédération must regularly adapt all new features launched by Desjardins to the reality of Acadie and keep watch on Desjardins’ planned alterations to adapt solutions or communications within Acadian caisses to make sure that their needs are being considered by Desjardins when changes are made.
The Caisses populaires acadiennes have established different policies, guidelines, computer systems, rules, standards, business continuity plans and internal controls to minimize losses that might result from different sources associated with its operations, such as the following:
• • •
Internal fraud
•
Computer system interruptions and malfunctions
• • •
Information security
• • •
Commercial products, services and practices
External fraud Damages to assets and restricted access to buildings
Project management Process implementation, delivery and management
Human resources Financial and management information integrity
Furthermore, all Mouvement entities have insurance coverage to avoid suffering financial losses beyond their individual ability.
Management’s Discussion and Analysis
45
46
Annual Report 2015
Mouvement des caisses populaires acadiennes Combined Financial Statements As of December 31, 2015
Table of Contents
48
Management’s Responsibility for Financial Information
49
Independent Auditors’ Report
50
Combined Financial Statements
51
Combined Statement of Financial Position
51
Combined Statement of Income
52
Combined Statement of Comprehensive Income
53
Combined Statement of Changes in Equity
54
Combined Statement of Cash Flows
56
Notes to the Combined Financial Statements
57
Annual Report 2015
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL INFORMATION
The combined financial statements of the Mouvement des caisses populaires acadiennes and all the information contained in this annual report are the responsibility of the management of La Fédération des Caisses Populaires Acadiennes Limitée, whose duty is to ensure their integrity and fairness. The combined financial statements were prepared in accordance with International Financial Reporting Standards. The combined financial statements necessarily contain amounts established by management according to estimates that it deems to be fair and reasonable. These estimates include, among other things, the establishment of actuarial liabilities performed by the valuation actuaries of the Mouvement, the evaluation of the accrued employee benefit liability and the measurement of the fair values of the Mouvement's financial instruments. All financial information presented in the annual report is consistent with the audited combined financial statements. The board of directors of La Fédération des Caisses Populaires Acadiennes Limitée ensures that management fulfils its responsibilities with regard to the presentation of financial information and the approval of the combined financial statements of the Mouvement des caisses populaires acadiennes. The board of directors exercises this role mainly through the audit committees that meet with the auditors, in accordance with their mandate. The combined financial statements were audited by the auditors appointed by the board of directors, Ernst & Young LLP, whose report follows. The auditors may meet with the audit committees at any time to discuss their audit and any questions related thereto, notably the integrity of the financial information provided.
Camille H. Thériault President and Chief Executive Officer
David Losier, CPA, CGA Vice President and Chief Financial Officer
Caraquet, New Brunswick April 7, 2016
Combined Financial Statements
-1-
49
INDEPENDENT AUDITORS' REPORT
To the members of La FĂŠdĂŠration des Caisses Populaires Acadiennes LimitĂŠe, We have audited the accompanying combined financial statements of the Mouvement des caisses populaires acadiennes, which comprise the statement of financial position as at December 31, 2015 and the statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management's responsibility for the combined financial statements Management is responsible for the preparation and fair presentation of these combined financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines necessary to enable the preparation of combined financial statements that are free from material misstatement, whether due to fraud or error. Auditors' responsibility Our responsibiliy is to express an opinion on these combined financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement, whether due to fraud or error. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the combined financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity's preparation and fair presentation of the combined financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the combined financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the combined financial statements present fairly, in all material respects, the financial position of the Mouvement des caisses populaires acadiennes as at December 31, 2015 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.
Dieppe, New Brunswick April 7, 2016
50
Chartered Professional Accountants
Annual Report 2015
-2-
Mouvement des caisses populaires acadiennes Combined Statement of Financial Position As at December 31 (in thousands of dollars)
2015
Note
2014
ASSETS $
Cash Securities
4
Loans Personal Business
5
Allowance for credit losses Other assets Accrued interest, receivables and other assets Capital assets Intangible assets Reinsurance assets
6 7 8 9
Total assets
114,586
$
72,160
595,096
572,257
1,968,558 919,609
1,923,060 890,923
2,888,167 (23,705)
2,813,983 (22,868)
2,864,462
2,791,115
67,681 36,752 5,595 6,978
62,957 37,719 2,536 6,719
117,006
109,931
$ 3,691,150
$ 3,545,463
$ 1,355,045 1,622,678
$ 1,238,279 1,597,815
2,977,723
2,836,094
157,158 70,741 105,350 15,636
157,569 6,223 77,301 94,916 14,887
348,885
350,896
4,328 5,523 2,310 352,381
9,362 5,303 5,319 338,489
364,542
358,473
$ 3,691,150
$ 3,545,463
LIABILITIES AND EQUITY Liabilities Deposits Payable on demand Payable on a fixed date Other liabilities Actuarial liabilities Bank overdraft Borrowings Accrued interest, payables and other liabilities Deferred taxes
9 10 11 19
Equity Share capital Accumulated other comprehensive income Distributable surplus earnings General reserve
13 14 22
Total liabilities and equity
The accompanying notes are an integral part of the combined financial statements. On behalf of the board of directors of La Fédération des Caisses Populaires Acadiennes Limitée,
Pierre-Marcel Desjardins Chair of the board
Gilles Godin Chair of the audit committee -3-
Combined Financial Statements
51
Mouvement des caisses populaires acadiennes Combined Statement of Income
For the year ended December 31 (in thousands of dollars) 2015
Note
2014
INCOME Financial income Financial expense
10
Net financial income Provision for credit losses
5
$
145,574 40,550
166,366 38,290
105,024 7,546
128,076 5,145
Net financial income after provision for credit losses
97,478
122,931
Other income Mainly related to the administration of deposits Related to the administration of other services Net insurance and annuity premiums
18,559 15,898 17,843
19,286 16,587 90,462
52,300
126,335
69,736 46,822 11,110 10,053
69,477 46,666 101,334 -
137,721
217,477
12,057
31,789
5,627
3,442
17,684
35,231
4,841
9,857
12,843
25,374
Other expenses Salaries and employee benefits General and other expenses Net insurance and annuity benefits Expenses related to the amalgamation process
15
16 17
Surplus earnings before other items Other items
18
Surplus earnings before income taxes Income taxes
19
Surplus earnings for the year before member dividends Member dividends Income taxes recovered on member dividends
(194) 30
20 19
Surplus earnings for the year
$
12,679
The accompanying notes are an integral part of the combined financial statements.
52
$
Annual Report 2015
-4-
(1,756) 454 $
24,072
Mouvement des caisses populaires acadiennes Combined Statement of Comprehensive Income For the year ended December 31 (in thousands of dollars)
2015
Note
2014
COMPREHENSIVE INCOME $
Surplus earnings for the year
12,679
$
24,072
Other comprehensive income Item that will not be reclassified to the statement of income Change in the accrued employee benefit liability 12 Change during the year Related taxes
(2,359) 644
(296) 320
Total of the item that will not be reclassified to the statement of income
(1,715)
24
Items to be reclassified to the statement of income Unrealized changes in fair value on available-for-sale instruments Change during the year Related taxes Reclassified to income Realized gains on available-for-sale instruments Related taxes
2,618 (628)
376
1,990
(214) 58
(1,819) 455
(156)
(1,364)
220
Total of the items to be reclassified to the statement of income
626
(1,495)
Total other comprehensive income, net of income taxes Comprehensive income for the year
866 (490)
$
11,184
650 $
24,722
The accompanying notes are an integral part of the combined financial statements.
-5-
Combined Financial Statements
53
Mouvement des caisses populaires acadiennes Combined Statement of Changes in Equity For the year ended December 31 (in thousands of dollars)
2015 Accumulated other Share comprehensive capital income Beginning balance
$
Distribution by the members General reserve Balance after distribution Surplus earnings for the year Other comprehensive income Comprehensive income Net transfer to the general reserve (note 21) Net change in share capital Other Ending balance
9,362
$
-
-
9,362
5,303
-
$
5,319
General reserve $
Annual Report 2015
358,473
-
343,808
358,473
-
12,679
-
12,679
-
220
-
(1,715)
(1,495)
-
220
12,679
(1,715)
11,184
-
-
(10,369)
10,369
$
5,523
$
2,310
-6-
-
(81) $
352,381
The accompanying notes are an integral part of the combined financial statements.
54
$
-
4,328
(5,319)
338,489
Total equity
5,319
(5,034) $
5,303
Distributable surplus earnings
(5,034) (81) $
364,542
Mouvement des caisses populaires acadiennes Combined Statement of Changes in Equity (continued) For the year ended December 31 (in thousands of dollars)
2014
Beginning balance
$
Distribution by the members General reserve Balance after distribution Surplus earnings for the year Other comprehensive income Comprehensive income Net transfer to the general reserve (note 21) Net change in share capital Other Ending balance
Accumulated other Share comprehensive capital income
Distributable surplus earnings
9,460
$
$
-
-
9,460
4,677
-
7,541
$
$
333,945 -
-
319,808
333,945
-
24,072
-
24,072
-
626
-
24
650
-
626
24,072
24
24,722
-
-
18,753
-
9,362
(7,541)
312,267
Total equity
7,541
(98) $
4,677
General reserve
(18,753)
$
5,303
$
5,319
(96) $
338,489
(98) (96) $
358,473
The accompanying notes are an integral part of the combined financial statements.
-7-
Combined Financial Statements
55
Mouvement des caisses populaires acadiennes Combined Statement of Cash Flows
For the year ended December 31 (in thousands of dollars) 2015
2014
OPERATING ACTIVITIES Surplus earnings before income taxes Adjustments for determining cash flows Depreciation of capital and intangible assets Amortization of premiums and discounts on securities Net change in actuarial liabilities Change in investment contract liabilities Provision for credit losses Other items at fair value Change in accrued employee benefit liability Change in reinsurance assets Net change in interest receivable and payable Net change in loans Net change in deposits Other Income taxes paid during the year Member dividends paid
$
Cash flows from operating activities
17,684
$
35,231
3,840 (2,757) (411) (188) 7,546 (5,627) (2,763) (259) (1,006) (80,893) 141,629 7,516 (747) (1,748)
3,625 (2,084) 94,572 (29) 5,145 (3,442) (13,101) (1,025) (157) (118,141) 93,626 (11,354) (3,018) (1,695)
81,816
78,153
(6,560) (34)
(13,026) (98)
(6,594)
(13,124)
(20,641) (5,932)
(69,840) (3,682)
(26,573)
(73,522)
FINANCING ACTIVITIES Net change in borrowings Net change in share capital Cash flows from financing activities
INVESTING ACTIVITIES Net change in securities Net acquisitions of capital and intangible assets Cash flows from investing activities Increase (decrease) in cash and cash equivalents
48,649
(8,493)
Cash and cash equivalents, beginning of year
65,937
74,430
Cash and cash equivalents, end of year
$
114,586
$
65,937
$
114,586 -
$
72,160 (6,223)
$
114,586
$
65,937
$
145,927 41,909 2,350
$
166,163 38,244 4,583
The Mouvement's cash and cash equivalents consist of the following items: Cash Bank overdraft
Other cash flow information relating to operating activities: Interest received during the year Interest paid during the year Dividends received during the year
The accompanying notes are an integral part of the combined financial statements.
56
Annual Report 2015
-8-
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) The Mouvement des caisses populaires acadiennes (Mouvement) includes the Caisses populaires, the Office de Stabilisation de la Fédération des Caisses populaires acadiennes limitée (Office de stabilisation), La Fédération des Caisses Populaires Acadiennes Limitée and its subsidiaries (Fédération), the Société de portefeuille Acadie Vie Inc. and its subsidiaries Acadia Life and AVie (Acadia Life) and the Commercial Loan Fund of the Caisses Populaires Acadiennes (Commercial Loan Fund). The Mouvement, a cooperative financial group, is a leading player in the social and economic development of its environment. The headquarters of the Mouvement are located at 295 St-Pierre Boulevard West, Caraquet, New Brunswick, Canada. These combined financial statements and notes were approved by the board of directors on April 7, 2016. Note 1.
Basis of presentation International Financial Reporting Standards These combined financial statements have been prepared by the management of the Mouvement in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB). These combined financial statements have been prepared on the basis of historical cost, except for the revaluation of certain financial assets and liabilities at fair value, including securities at fair value through profit or loss, available-for-sale securities and derivative financial instruments. Statement of compliance The combined financial statements of the Mouvement as at December 31, 2015 have been prepared in accordance with IFRS.
Note 2.
Significant accounting policies Basis of presentation of the combined financial statements As an integrated services group, the Mouvement is a complete economic entity. The combined financial statements of the Mouvement have been established in order to present the financial position, financial performance and cash flows of this economic entity. As a group, the Caisses populaires own the entire share capital of the Fédération, which is responsible for setting the strategic directions and for coordinating the activities of the Mouvement. The role of the Fédération is also to protect the interests of the members of the Mouvement and to promote the development of the group. By the very nature of the Caisses populaires and the Fédération as financial services cooperatives, these combined financial statements differ from the consolidated financial statements of a group with a traditional organizational structure. Thus, the financial statements of the Mouvement are a combination of the annual accounts of the Caisses populaires and the other entities of the group. The share capital represents the total share capital issued by the Caisses populaires to their members. Scope of consolidation The combined financial statements of the Mouvement are derived from the financial statements of the Caisses populaires, the Office de stabilisation and the Commercial Loan Fund, and the consolidated financial statements of the Fédération and Acadia Life. These last three entities are included as they are held directly by the Caisses populaires; the Office de stabilisation is included since the majority of its board of directors represents the Caisses populaires and the Fédération.
-9-
Combined Financial Statements
57
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 2.
Significant accounting policies - continued The financial statements of all entities of the Mouvement have been prepared for the same reference period using consistent accounting policies. All intra-group balances, income and expenses as well as gains and losses on internal transactions have been eliminated. Use of estimates and judgment The preparation of financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities recorded and the presentation of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The actual results could differ from these estimates. The main items for which management had to make these estimates and assumptions include insurance contract liabilities and reinsurance assets, the allowance for credit losses, valuation of financial instruments at fair value, income taxes and the evaluation of the accrued employee benefit liability. The estimates and assumptions with respect to these elements are presented below. Insurance contract liabilities and reinsurance assets Actuarial liabilities are determined using the Canadian Asset Liability Method (CALM), in accordance with accepted actuarial practice in Canada. Under the CALM, the calculation of the actuarial liabilities, net of the reinsurance assets, is based on an explicit projection of cash flows using the current best estimate assumptions for each cash flow component and each significant contingency. Investment returns are based on projected investment income using the current asset portfolio and projected reinvestment strategies. Each non-economic assumption is adjusted by a margin for adverse deviation. With respect to investment returns, the provision for adverse deviation is established by using yield scenarios. These scenarios are determined using a deterministic model that includes testing prescribed by Canadian actuarial standards. The period used for the projection is the policy lifetime for most insurance contracts. For certain types of contracts, a shorter projection period may be used. However, this period is limited to the term of the liability over which the Mouvement is exposed to significant risk without the ability to adjust policy premiums or charges related to the contract. Additional information is presented in note 9. Allowance for credit losses The Mouvement establishes separately, loan by loan, individual allowances on each loan that is considered impaired. To determine the estimated recoverable amount, the Mouvement discounts the future expected cash flows at the interest rate inherent to the loan. When the amounts and timing of future cash flows cannot be estimated with reasonable reliability, the estimated recoverable amount is determined using the fair value of the collateral underlying the loan. The model for determining the collective allowance takes into account certain factors, including the probabilities of default and rates of historical losses. Model results are then examined, taking into account the level of the existing collective allowance as well as management's evaluation of the quality of the portfolio, economic conditions and credit market conditions. Given the significance of the amounts and their inherent uncertainty, a change in the estimates and judgments could materially affect the amounts of the allowances.
58
Annual Report 2015
- 10 -
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 2.
Significant accounting policies - continued Valuation of financial instruments at fair value The evaluation of the fair value of financial instruments is based on a fair value hierarchy depending on whether the inputs used for valuation are observable or not. Note 24 presents the breakdown of the fair value measurements between the three levels of the hierarchy. The fair value is based on estimates using present value and other valuation methods, which are strongly influenced by the assumptions used about the amount and timing of estimated future cash flows and about discount rates that reflect varying degrees of risk, including liquidity risk and credit risk. Given the role of judgment in the application of a large number of acceptable valuation techniques and estimates for the calculation of fair values, they are not necessarily comparable among financial institutions. The fair value reflects market conditions at a given date and, therefore, may not be representative of future fair values. It also cannot be interpreted as a realizable amount in the event of immediate settlement. Income taxes Determining the provision for income taxes involves an element of judgment. The calculation of income taxes on surplus earnings is based on the tax treatment of the transactions recorded in the combined financial statements. The Mouvement recognizes a liability for anticipated tax adjustments based on an estimate of the additional taxes payable. When the amount payable is different from that originally recorded, the difference affects the income taxes expense, and the provision for income taxes could increase or decrease in subsequent years. Deferred tax assets and liabilities reflect management's estimate of the value of loss carryforwards and other temporary differences. The valuation of deferred tax assets is based on assumptions about the results of future periods, about the timing of the reversal of temporary differences and about the tax rates in effect at the time of reversal, which may change depending on government fiscal policies. In addition, management must assess whether it is more likely than not that deferred tax assets will be realized before they expire and, according to all available evidence, whether it is necessary to record an allowance for impairment of some or all of the deferred tax assets. Moreover, in determining the income taxes on surplus earnings recorded on the combined statement of income, management interprets the tax legislation in various jurisdictions. Using other assumptions or interpretations could lead to significantly different provisions for income taxes. Evaluation of the accrued employee benefit liability The present value of the accrued defined benefit pension plans liability is calculated on an actuarial basis using a number of assumptions. Any change in these assumptions would have an impact on the carrying amount of the accrued employee benefit liability. The assumptions used and additional information can be found in note 12. Financial instruments All financial assets must, at the time of initial recognition, be recorded at fair value and classified as at fair value through profit or loss, as available-for-sale, as held-to-maturity or as loans and receivables, based on the characteristics of the instrument and the purpose for which they were acquired. Financial liabilities must be measured at amortized cost or classified as at fair value through profit or loss. Purchases and sales of financial assets are recorded using the trade date.
- 11 -
Combined Financial Statements
59
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 2.
Significant accounting policies - continued Financial instruments at fair value through profit or loss are measured at fair value and any change in fair value is recorded in profit or loss in the year in which these changes occur. Financial instruments can be classified in this category either because they are classified as held for trading or because, upon initial recognition, they were designated as at fair value through profit or loss. This designation may be made if it eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities or recognizing the gains or losses on them on different bases or if a group of financial assets, financial liabilities or both is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy and information about the group is provided internally on that basis to key management personnel. With the exception of the derivative financial instruments that are classified as held for trading, the financial instruments at fair value through profit or loss are classified in this category through initial designation. Interest income earned and dividends received are included in financial income using the accrual method. Amortization of premiums and discounts is included in unrealized gains and losses, using the accrual method. Financial instruments classified as available-for-sale (AFS) are measured at fair value and any unrealized gains or losses are recorded in other comprehensive income. AFS financial instruments are non-derivative financial assets that are designated as AFS or that are not classified as loans and receivables, held-to-maturity financial instruments or as financial assets at fair value through profit or loss. Interest revenue earned, amortization of premiums and discounts and dividends received are included in financial income, using the accrual method. When a decline in the fair value of a security is significant or prolonged, the resulting loss is immediately recognized in profit or loss. Financial assets classified as held-to-maturity (HTM), loans and receivables and other financial liabilities are carried at amortized cost using the effective interest rate method. Interest or dividends arising from these financial instruments are included in financial income and expense. Transaction costs relating to the acquisition of AFS investments are capitalized and then amortized over the term of the investment using the effective interest rate method. Those arising from the disposition of investments are deducted from the proceeds of disposition. Investment management fees are charged to income as they are incurred. Transaction costs attributable to financial instruments classified as loans and receivables are capitalized and amortized using the effective interest rate method. Derivative instruments Derivative financial instruments are financial contracts whose value depends on assets, interest rates, foreign exchange rates and other financial indices. Derivative financial instruments are negotiated by mutual agreement between the Mouvement and the counterparty and include interest rate swaps, foreign exchange contracts and stock index options. The Mouvement recognizes derivative instruments at fair value, whether they are stand-alone or embedded. Stand-alone derivative instruments are recorded on the statement of financial position among the other assets and liabilities, while embedded derivative instruments are presented in accordance with their characteristics with their host contract, under deposits payable on a fixed date. Changes in the fair value of stand-alone derivative instruments are recorded in the statement of income in the other items, except for changes in market-linked term deposits, which are recognized as a financial expense. Moreover, changes in the fair value of embedded derivative instruments are recorded as a financial expense adjustment. The Mouvement uses derivative financial instruments mainly to manage assets and liabilities. Derivative financial instruments are generally used to manage the interest rate risk exposure of the assets and liabilities recorded on the statement of financial position, firm commitments and forecasted transactions. Interest rate swaps are transactions in which two parties exchange interest flows on a specified notional amount for a predetermined period based on agreed-upon fixed and floating rates. Principal amounts are not exchanged.
60
Annual Report 2015
- 12 -
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 2.
Significant accounting policies - continued The foreign exchange contracts to which the Mouvement is a party are forward exchange contracts. Forward exchange contracts are commitments to exchange, at a future date, two currencies based on a rate agreed upon by both parties at the inception of the contract. The Mouvement has opted not to apply hedge accounting for these derivative financial instruments, given the complexity of documentation requirements. Cash Cash is classified as loans and receivables and includes cash on hand and current accounts. Securities Debt securities include money market securities, bonds and asset-backed long-term notes. Money market securities held by the Fédération and Acadia Life are classified as at fair value through profit or loss. Money market securities held by the Office de stabilisation are classified as available-for-sale. In 2015, the matched bonds held by Acadia Life and the bonds in the Fédération’s liquidity fund are classified as at fair value through profit or loss. Acadia Life's unmatched bonds as well as the bonds held in the Fédération’s general fund and those held by the Office de stabilisation are classified as available-for-sale. In 2014, all of the bonds held by Acadia Life were classified as at fair value through profit or loss. The asset-backed long-term notes are classified as at fair value through profit or loss. Equity securities include equities, investment funds and other investments. Equities are classified as available-for-sale. The investment funds that are not matched to the actuarial liabilities are classified as available-for-sale; those that are matched are classified as at fair value through profit or loss. The other investments mainly include equity securities in unrelated corporations and are classified as available-for-sale. Investment income is recorded using the accrual basis of accounting. Loans The loans are classified as loans and receivables. They are recorded at amortized cost using the effective interest rate method, net of the allowance for credit losses. The allowance for credit losses on impaired loans is charged immediately to income. Other assets With the exception of the derivative instruments, the financial assets included in other assets are classified as loans and receivables. Deposits The deposits are classified as other financial liabilities and are carried at amortized cost using the effective interest rate method. Deposits payable on demand, interest-bearing or not, are usually deposits held in chequing accounts and savings accounts. Deposits payable on a fixed date are interest-bearing deposits usually held in fixed-term deposit accounts, guaranteed investment certificates or other similar instruments, with terms generally varying from one day to five years and maturing on a predetermined date. Other liabilities The bank overdraft, the borrowings and the financial liabilities included in other liabilities, with the exception of the derivative instruments, are classified as other financial liabilities and are carried at amortized cost using the effective interest rate method.
- 13 -
Combined Financial Statements
61
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 2.
Significant accounting policies - continued Loans At the reporting date, the Mouvement assesses whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A loan is considered impaired when there is such evidence, specifically when one of the following conditions is met: a) there is reason to believe that a portion of the principal or interest cannot be collected; b) the interest or principal repayment is contractually 90 days or more past due, unless the loan is fully secured and in the process of collection; or c) the interest or principal is more than 180 days in arrears. A loan is not classified as impaired when it is fully guaranteed or insured by a Canadian government (federal or provincial) or a Canadian government agency. A loan is considered to be past due when a borrower has failed to make a payment when contractually due. When a loan becomes impaired, the interest previously accrued but not collected is capitalized to the loan. Payments subsequently received are recorded as a reduction of the principal. A loan ceases to be considered impaired when principal and interest payments are up to date and there is no longer any doubt as to the collection of the loan, or when it is restructured, in which case it is treated as a new loan, and there is no longer any doubt as to the collection of the principal and interest. A loan is written off when all attempts at restructuring or collection have been made and the likelihood of future recovery is remote. When a loan is written off completely, any subsequent payments are recorded in income. Collateral is obtained if deemed necessary for a member's loan facility, after an assessment of their creditworthiness. Collateral usually takes the form of an asset such as cash, government securities, stocks, receivables, inventory or capital assets. Assets foreclosed to settle impaired loans are recognized on the date of foreclosure at their fair value less costs of disposal. The fair value of foreclosed assets is determined by using a comparative market analysis, based on the optimal use of the assets, and considering the characteristics, location and market of each foreclosed asset. Transaction prices for similar assets are used, but certain adjustments are made to take into account the differences between assets on the market and the foreclosed assets being evaluated. Any subsequent change in fair value is recorded on the statement of income. Allowance for credit losses Objective evidence of impairment results from a loss event that occurred after the loan was granted but before the reporting date and which has an impact on the estimated future cash flows of loans. The impairment of a loan or a group of loans is determined by estimating the recoverable amounts of these financial assets. The allowance is equal to the difference between this value and the carrying amount. To determine the estimated recoverable amount of a loan, the Mouvement uses the value of the expected future cash flows discounted at the loan’s effective interest rate. When the amounts and timing of future cash flows cannot be estimated with reasonable reliability, the estimated recoverable amount is determined using the fair value of any security underlying the loan, net of expected costs of realization. The allowance for credit losses is management’s best estimate regarding impaired loans at the reporting date. In measuring the allowance for credit losses, management must exercise judgment in order to determine the inputs, assumptions and estimates to be used, including the timing of when a loan is considered impaired and the recoverable amount. A change in these estimates and assumptions would affect the allowance for credit losses, as well as the provision for credit losses for the year. The allowance for credit losses on impaired loans is established on an individual basis while the allowance on unimpaired loans is established on a collective basis. Individual allowances The Mouvement reviews its loan portfolios on a loan-by-loan basis to assess credit risk and determine if there is any objective evidence of impairment for which a loss should be recognized in the statement of income.
62
Annual Report 2015
Changes in individual allowances for credit losses due to the passage of time are recognized in financial income, while those resulting from a revision of expected receipts are recognized in the provision for credit losses. - 14 -
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 2.
Significant accounting policies - continued Collective allowance Loan portfolios for which an individual allowance has not been established are included in groups of financial assets having similar credit characteristics and are subject to a collective allowance. The method used by the Mouvement to determine the collective allowance takes into account the risk parameters of the various loan portfolios. This collective allowance impairment model takes into account certain factors such as probabilities of default (loss frequency), loss given default (extent of losses) and gross exposure to default. These parameters, which are based on historical losses, are determined according to the category of each loan for the personal loans portfolio and according to the risk rating of each loan for the business loans portfolio. The measurement of the collective allowance depends largely on management’s assessment of current credit quality trends with respect to business sectors, the impact of changes to its credit policies as well as economic conditions. Finally, the allowance related to off-statement of financial position exposures, such as letters of credit and certain unrecognized credit commitments, is recorded in the other liabilities. The allowance for credit losses also includes a collective allowance for losses on student loans. No allowance for credit losses is accrued on federal student loans while students are still in school as repayment of these loans only begins six months after studies are completed. Evaluation of the allowance for losses on student loans on a loan-by-loan basis is not possible because it is difficult to establish students’ repayment capabilities. Therefore, a collective allowance is accrued. Management uses a method based on the past history of losses on student loans to establish the amount of the allowance. Capital assets Land is recorded at cost. Buildings and equipment and other are recorded at cost less accumulated depreciation and are depreciated over their estimated useful life using the straightline method. Gains and losses from disposal are included in income in the year in which they occur and are included in other income. The capital assets are tested for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. When the carrying value exceeds the fair value, the carrying value is adjusted and an impairment loss is recognized in profit or loss.
Useful life Buildings Equipment and other
5 to 60 years 1 to 30 years
- 15 -
Combined Financial Statements
63
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 2.
Significant accounting policies - continued Intangible assets Intangible assets include software, acquired or internally generated, and are recorded at cost. They are depreciated over their useful life using the straight-line method over one year to 15 years. The intangible assets are tested for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. When the carrying value exceeds the recoverable amount, the carrying value is adjusted and an impairment loss is recognized in profit or loss. Assets held for sale An asset is classified as held for sale if its carrying amount is expected to be recovered principally through a sale transaction rather than through continuing use and such a sale transaction is highly probable. An asset held for sale is measured at the lower of its carrying amount and its fair value less costs to sell. The fair value of assets held for sale is determined by using a comparative market analysis, based on the optimal use of the assets, as well as the characteristics, location and market of each asset. Transaction prices for similar assets are used and certain adjustments are made to take into account the differences between assets on the market and assets held for sale. Impairment of non-financial assets The Mouvement assesses at the reporting date whether there is evidence that an asset may be impaired. An impairment loss is recognized when the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is the higher of its fair value less costs of disposal and its value in use. Fair value corresponds to the best estimate of the amount that can be obtained from a sale during an arm’s length transaction between knowledgeable, willing parties, less costs of disposal. The value in use is calculated according to the most appropriate method, generally by discounting recoverable future cash flows. Impairment losses on that asset may be subsequently reversed and are recognized in the statement of income in the year in which they occur. Estimating the recoverable amount of a non-financial asset to determine if it is impaired also requires that management make estimates and assumptions, and any change in these estimates and assumptions could impact the determination of the recoverable amount of nonfinancial assets and, therefore, the outcome of the impairment test. Inventory Inventories are valued at the lower of cost and net realizable value. Cost is determined using the first in, first out method. Reinsurance assets In the normal course of business, the Mouvement uses reinsurance to limit its exposure to risk. The reinsurance assets represent amounts owed to the Mouvement by reinsurance companies for ceded insurance contract liabilities. These amounts are calculated in a manner similar to the actuarial liabilities for future benefits under insurance contracts, in accordance with the reinsurance agreements. The reinsurance assets are tested for impairment annually. When there is objective evidence that a reinsurance asset is impaired, the carrying value of that asset is written down to its recoverable value and the resulting loss is recognized in profit or loss.
64
Annual Report 2015
- 16 -
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 2.
Significant accounting policies - continued Insurance and investment contract liabilities i.
Classification of contracts
Insurance contracts are contracts that transfer a significant insurance risk at the time of issue of the contract. Insurance risk is transferred when the Mouvement agrees to compensate the policyholder if an uncertain future event specified in the contract adversely affects the policyholder. Insurance contracts may also include the transfer of a non significant financial risk. Contracts issued by the Mouvement that transfer a significant insurance risk are classified as insurance contracts in accordance with IFRS 4 "Insurance contracts." Contracts that do not meet the definition of an insurance contract in accordance with IFRS are classified as investment or service contracts, accordingly. Investment contracts are contracts that involve financial risk without significant insurance risk. When a contract has been classified as an insurance contract, it remains an insurance contract for the rest of its term, even if the insurance risk decreases significantly during this period, until its expiry or the expiration of all rights and obligations. However, an investment contract may be reclassified as an insurance policy after its issue if the insurance risk becomes significant. ii. Insurance contract liabilities Actuarial liabilities represent the amounts which, together with estimated future premiums and net investment income, will allow the Mouvement to meet all of its obligations regarding estimated future benefits, taxes other than income taxes and related estimated future expenses. The appointed actuary of the Mouvement is required to determine the actuarial liabilities needed to meet its future commitments. Actuarial liabilities are determined using the CALM, in accordance with Canadian accepted actuarial practice. The reinsurers' share of the actuarial liabilities is recognized as an asset on the statement of financial position as "Reinsurance assets." iii. Liability sufficiency test The Mouvement meets the minimum requirements of the liability sufficiency test given that it takes into consideration, when determining the actuarial liabilities, current estimates of all contractual and related cash flows, such as the costs of processing claims and cash flows resulting from embedded options and guarantees. Moreover, if the liability is not sufficient, the entire deficiency is recognized in income. iv. Investment contract liabilities The investment contracts of the Mouvement comprise mainly annuity certain contracts. Amounts received as premiums are initially recognized on the statement of financial position as deposits. Subsequently, deposits and withdrawals are recorded directly as an adjustment of the liability on the statement of financial position. v. Reinsurance The Mouvement uses reinsurance treaties for contracts with coverage in excess of certain maximum amounts that vary based on the nature of the activities. In addition, it purchases additional reinsurance protection against large-scale catastrophic events. Liabilities for claims yet to be settled and not yet made These liabilities represent life insurance claims known at year end that have not yet been settled as well as an estimate of the insurance claims for which death has occurred but no claim has yet been received by the Mouvement. - 17 -
Combined Financial Statements
65
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 2.
Significant accounting policies - continued Currency translation Monetary assets and liabilities in foreign currency are converted at the exchange rate at year end. Other assets and liabilities are converted at the original exchange rate. Statement of income items are converted at the average exchange rate for the year. Exchange gains and losses are included in current profit or loss. Member dividends Member dividends are a distribution of surplus earnings for the year based on the volume of activity of each member. As such, they are recognized on the statement of income. Income taxes The Mouvement uses the tax asset and liability method of accounting for income taxes. Under this method, income taxes on earnings include both current taxes and deferred taxes. Current taxes represent the taxes on the year's taxable income. Current tax assets and liabilities for the current and prior years are measured at the amount expected to be paid to or recovered from the taxation authorities, using the tax rates that were enacted or substantively enacted at the reporting date. Deferred taxes are recognized based on the expected tax consequences of the differences between the carrying value of items on the statement of financial position and their tax basis, using the tax rates that are enacted or substantively enacted for the years in which it is expected that the differences will reverse. A deferred tax asset is recognized to the extent that future realization of the tax benefit is more likely than not. Pension plans Until December 31, 2013, the Mouvement participated in the Mouvement des caisses populaires acadiennes employee pension plan, as part of a multi-employer defined benefit plan that guaranteed the payment of pension benefits. Since January 1st, 2014, the Mouvement participates in the Mouvement des caisses populaires acadiennes shared risk pension plan. Due to the conversion to the shared risk pension plan, the Mouvement has committed to paying temporary contributions under certain conditions. The liability for these payments is determined through an analysis of probabilities and is discounted using a yield curve that takes into consideration the expected schedule of payments. The annual interest expense on this liability are recorded in net income. Actuarial gains and losses are recognized in other comprehensive income in the period in which they arise. These gains and losses are also recognized immediately in the general reserve and are not reclassified to net income in a subsequent period. Under the shared risk pension plan, the actuarial and investment risks are assumed by the employees. As a result, the pension plan is recorded as if it were a defined contribution pension plan. The Mouvement also participates in two other defined benefit pension plans. Pension plan benefits are calculated similarly to those in the shared risk plan. The Mouvement accounts for these plans as defined benefit plans. The cost of the benefits is determined using the Projected Unit Credit Method. The accrued employee benefit liability is measured using an actuarial valuation in accordance with IFRS. Actuarial gains and losses are recognized in other comprehensive income in the period in which they arise. These gains and losses are also recognized immediately in the general reserve and are not reclassified to net income in a subsequent period. The Mouvement also offers to its employees a retirement benefit payable as a lump sum payment. This benefit is based on the employee’s salary and the number of years worked within the Mouvement.
66
Annual Report 2015
- 18 -
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 2.
Significant accounting policies - continued Revenue recognition Financial income is recognized using the accrual basis of accounting. Revenues related to the administration of deposits consist primarily of fees relating to payment orders issued without sufficient funds and of service fees. These revenues are recognized when the transaction occurs in accordance with the prevailing fee agreement with the member. Gross premiums for all types of insurance contracts are recognized as revenue when due and the amount can be determined objectively. Net premiums represent gross premiums, net of the portion ceded to reinsurers. As soon as these premiums are recognized, the related actuarial liabilities are calculated so that benefits and expenses of these products are recorded. The other revenues are recognized when a good is transferred or a service rendered and the transaction is measurable.
Note 3.
Future accounting changes IFRS 9 "Financial Instruments" In July 2014, the IASB issued the final version of IFRS 9 "Financial Instruments," which reflects all phases of the financial instruments project and replaces IAS 39 "Financial Instruments: Recognition and Measurement" and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after January 1st, 2018, with early application permitted. Retrospective application is required, but comparative information is not compulsory. The Mouvement is currently assessing the impact of IFRS 9 and plans to adopt the new standard at the required effective date. IFRS 15 "Revenue from Contracts with Customers" IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to revenue arising from contracts with customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured approach to measuring and recognizing revenue. The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under IFRS. Either a full or modified retrospective application is required for annual periods beginning on or after January 1st, 2018 with early adoption permitted. The Mouvement is currently assessing the impact of IFRS 15 and plans to adopt the new standard on the required effective date. IAS 1 "Presentation of Financial Statements" The IASB published amendments in December 2014 to IAS 1 "Presentation of Financial Statements." These amendments clarify the way in which professional judgment should be exercised in the determination of the level and structure of information to be disclosed in the financial statements. Given that IAS 1 is a presentation standard, the amendments to this standard, applicable to annual periods beginning January 1st, 2016, will have no impact on the financial performance or position of the Mouvement.
- 19 -
Combined Financial Statements
67
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 3.
Future accounting changes - continued IAS 16 "Property, Plant and Equipment" - Clarification of acceptable methods of amortization The IASB published amendments in May 2014 to IAS 16 "Property, Plant and Equipment." These amendments clarify that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate. The amendments to this standard, which will be prospectively applicable to annual periods beginning January 1st, 2016, will have no impact on the financial performance or position of the Mouvement. IFRS 16 "Leases" In January 2016, the IASB published IFRS 16 "Leases," that requires that companies record most lease contracts on their statement of financial position. Under this new standard, lessees will record assets and liabilities for the majority of their lease contracts. IFRS 16 applies to annual periods beginning January 1st, 2019. Early adoption is permitted, provided IFRS 15 "Revenue from Contracts with Customers" has already been adopted, or if it is adopted at the same date as IFRS 16. The Mouvement is currently assessing the impact of IFRS 16 and plans to adopt the new standard on the required effective date.
Note 4.
Securities
2015 Term to maturity Within 1 year to 1 year 3 years $ $
3 to 5 years $
5 to 10 Over 10 Without years years maturity $ $ $
Total $
At fair value through profit or loss Canadian federal government debt Canadian provincial and municipal government debt Canadian school or public corporation debt Financial institution debt Debt of other issuers Equity securities
12,754
20,022
-
-
-
-
32,776
53,633
64,086
10,302
35,249
109,765
-
273,035
48,019 1,024 -
-
2,259 -
5,268 556 7,083 -
4,713 1,266 17,127 -
10,691
9,981 52,100 25,234 10,691
115,430
84,108
12,561
48,156
132,871
10,691
403,817
8,784
6,970
6,201
11,087
874
-
33,916
2,882
9,172
9,916
20,301
12,905
-
55,176
2,803 1,020 -
10,088 55 -
1,284 8,888 -
3,669 762 -
3,347 445 5,871 -
63,955
4,631 25,893 7,708 63,955
15,489
26,285
26,289
35,819
23,442
63,955
191,279
130,919
110,393
38,850
83,975
156,313
74,646
595,096
Available-for-sale Canadian federal government debt Canadian provincial and municipal government debt Canadian school or public corporation debt Financial institution debt Debt of other issuers Equity securities
68
Annual Report 2015
- 20 -
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 4.
Securities - continued
2014 Term to maturity Within 1 year to 1 year 3 years $ $
3 to 5 years $
5 to 10 years $
Over 10 years $
Without maturity $
Total $
At fair value through profit or loss Canadian federal government debt Canadian provincial and municipal government debt Canadian school or public corporation debt Financial institution debt Debt of other issuers Equity securities
24,801
22,020
-
2,739
727
-
50,287
18,567
58,466
28,592
18,311
118,527
-
242,463
55,996 8,479 -
1,024 -
1,229 403 -
3,026 2,668 5,040 -
6,691 1,886 22,399 -
10,679
9,717 61,779 37,345 10,679
107,843
81,510
30,224
31,784
150,230
10,679
412,270
5,912
5,533
6,998
15,204
-
-
33,647
2,651
7,571
9,333
20,668
-
-
40,223
1,139 -
6,964 1,191 -
7,952 -
1,262 2,536 -
2,208 -
62,865
1,262 20,799 1,191 62,865
9,702
21,259
24,283
39,670
2,208
62,865
159,987
117,545
102,769
54,507
71,454
152,438
73,544
572,257
Available-for-sale Canadian federal government debt Canadian provincial and municipal government debt Canadian school or public corporation debt Financial institution debt Debt of other issuers Equity securities
- 21 -
Combined Financial Statements
69
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 5.
Loans Loans by category of borrowers
Personal Residential mortgages Consumer and other Business
2015
2014
$ 1,417,937 550,621 919,609
$ 1,394,839 528,221 890,923
$ 2,888,167
$ 2,813,983
Credit quality of loans
2015 Personal
Loans, neither past due nor impaired, gross Loans, past due but not impaired, gross Gross impaired loans Total gross loans Individual allowances Collective allowance Total net loans
Residential mortgages
Consumer and other
$ 1,391,216
$
25,426 1,295
$
6,034 2,339
1,417,937 (254) (45) $ 1,417,638
542,248
550,621 (919) (2,511) $
547,191
Business
Total
883,284
$ 2,816,748
7,276 29,049
38,736 32,683
919,609 (7,327) (12,649) $
2,888,167 (8,500) (15,205)
899,633
$ 2,864,462
Business
Total
855,875
$ 2,742,563
11,910 23,138
43,707 27,713
2014 Personal Residential mortgages Loans, neither past due nor impaired, gross Loans, past due but not impaired, gross Gross impaired loans Total gross loans Individual allowances Collective allowance Total net loans
70
Annual Report 2015
$ 1,368,342
Consumer and other
$
25,317 1,180
- 22 -
$
6,480 3,395
1,394,839 (163) (46) $ 1,394,630
518,346
528,221 (1,526) (3,421) $
523,274
890,923 (7,651) (10,061) $
873,211
2,813,983 (9,340) (13,528) $ 2,791,115
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 5.
Loans - continued Past due loans are loans for which the counterparty has failed to make a payment when contractually due. Loans past due but not impaired
2015 From 1 to 29 days Personal Residential mortgages Consumer and other Business
From 30 to 59 days
From 60 to 90 days 89 days and greater
Total
$ 17,280 4,286 5,525
$
2,631 1,250 959
$
1,077 299 792
$
4,438 199 -
$ 25,426 6,034 7,276
$ 27,091
$
4,840
$
2,168
$
4,637
$ 38,736
90 days and greater
Total
2014 From 1 to 29 days Personal Residential mortgages Consumer and other Business
From 30 to 59 days
From 60 to 89 days
$ 15,082 4,836 11,152
$
3,761 924 555
$
1,057 505 203
$
5,417 215 -
$ 25,317 6,480 11,910
$ 31,070
$
5,240
$
1,765
$
5,632
$ 43,707
In addition, there is a total of $0.5 million (2014 - $0.6 million) in student loans benefing from interest-exempt periods, which implies an element of delinquency since the students cannot meet their commitments. Impaired loans and individual allowances
2015
Gross Personal Residential mortgages Consumer and other Business
- 23 -
Individual allowances
Net
$
1,295 2,339 29,049
$
(254) (919) (7,327)
$
1,041 1,420 21,722
$
32,683
$
(8,500)
$
24,183
Combined Financial Statements
71
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 5.
Loans - continued
2014
Gross Personal Residential mortgages Consumer and other Business
Individual allowances
Net
$
1,180 3,395 23,138
$
(163) (1,526) (7,651)
$
1,017 1,869 15,487
$
27,713
$
(9,340)
$
18,373
Change in the allowance for credit losses
Individual allowances, beginning of year Provision for credit losses Write-offs and other Individual allowances, end of year
Personal
Business
$
1,689 2,361 (2,877)
$
7,651 3,867 (4,191)
$
1,173
$
7,327
$
2015
2014
Total
Total
9,340 6,228 (7,068)
$
9,226 8,146 (8,032)
8,500
9,340
Collective allowance, beginning of year Provision for credit losses Other
13,528 1,318 359
16,437 (3,001) 92
Collective allowance, end of year
15,205
13,528
$ 23,705
$ 22,868
Loan securitization As part of its liquidity and capital management strategy, the Mouvement participates in the National Housing Act Mortgage-Backed Securities Program. Under this program, the Mouvement bundles residential mortgage loans guaranteed by the Canada Mortgage and Housing Corporation (CMHC) into mortgage-backed securities (NHA MBS) and transfers them to the Canada Housing Trust (CHT). The Mouvement may not subsequently transfer or sell these assets or pledge them as collateral, since they have been sold to the CHT, and it may not repurchase them before maturity. The Mouvement treats these transfers as collateralized financing transactions and recognizes a liability in that respect because it substantially retains certain prepayment and interest risks. This liability is equal to the consideration received from the CMHC for the loans that do not meet the derecognition criteria. For its part, the CHT funds these purchases by issuing Canada Mortgage Bonds (CMB) to investors. The legal guarantee of third parties holding CMB is limited to the transferred assets.
72
Annual Report 2015
- 24 -
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 5.
Loans - continued The following table presents the securitized loans as well as the related liabilities:
2015
Note 6.
2014
Securitized mortgage loans
$
65,134
$
23,944
Related liabilities (note 10)
$
62,493
$
21,867
Accrued interest, receivables and other assets
2015 Accrued interest Derivative instruments Prepaid expenses Income taxes recoverable Inventory Receivables Foreclosed assets Other
- 25 -
2014
$
14,608 32,543 8,190 198 8,634 2,750 758
$
14,961 24,422 7,321 2,470 192 9,223 3,477 891
$
67,681
$
62,957
Combined Financial Statements
73
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 7.
Capital assets
Land
Buildings
Equipment and other
Total
Cost: December 31, 2013 Acquisitions Dispositions and write-offs
$
December 31, 2014 Acquisitions Dispositions and write-offs December 31, 2015
7,863 104 (315)
$
7,652 -
48,300 1,569 (906)
$
48,963 886 (87)
34,588 1,912 (2,817)
$
33,683 1,436 (513)
90,751 3,585 (4,038) 90,298 2,322 (600)
$
7,652
$
49,762
$
34,606
$
92,020
$
-
$
25,375 1,423 (507)
$
27,425 1,675 (2,812)
$
52,800 3,098 (3,319)
Accumulated depreciation: December 31, 2013 Depreciation Dispositions and write-offs December 31, 2014 Depreciation Dispositions and write-offs December 31, 2015
-
26,291 1,464 (50)
26,288 1,781 (506)
52,579 3,245 (556)
$
-
$
27,705
$
27,563
$
55,268
$
7,652 7,652
$
22,057 22,672
$
7,043 7,395
$
36,752 37,719
Net book value: December 31, 2015 December 31, 2014
The equipment and other category includes an amount of $0.1 million (2014 - $0.2 million) for equipment that was not amortized since it was not in use at December 31.
74
Annual Report 2015
- 26 -
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 8.
Intangible assets
Acquired software
Internally generated software
Total
Cost: December 31, 2013 Acquisitions Dispositions and write-offs
$
December 31, 2014 Acquisitions Dispositions and write-offs
3,346 812 (275)
$
3,883 3,587 (129)
December 31, 2015
1,653 5 -
$
1,658 67 -
4,999 817 (275) 5,541 3,654 (129)
$
7,341
$
1,725
$
9,066
$
2,240 341 (274)
$
512 186 -
$
2,752 527 (274)
Accumulated depreciation: December 31, 2013 Depreciation Dispositions and write-offs December 31, 2014 Depreciation Dispositions and write-offs
2,307 406 (129)
December 31, 2015
698 189 -
3,005 595 (129)
$
2,584
$
887
$
3,471
$
4,757 1,576
$
838 960
$
5,595 2,536
Net book value: December 31, 2015 December 31, 2014
The acquired software category includes an amount of $3.0 million (2014 - $0.2 million) for software that was not amortized since it was not in use at December 31.
- 27 -
Combined Financial Statements
75
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 9.
Actuarial liabilities Nature Actuarial liabilities represent the estimated amount that, together with future premiums and net investment income, will be sufficient to cover future benefits and expenses related to existing insurance contracts. Actuarial liabilities are determined using the CALM, in accordance with Canadian accepted actuarial practice, as set out by the Canadian Institute of Actuaries (CIA). The calculation of the actuarial liabilities necessarily includes the risk that actual results could deviate from the best estimates. This risk varies in proportion to the length of the estimation period and the possible instability of the factors used for calculating the liability. The appointed actuary is required to add to each assumption a margin to reflect the uncertainty of the determination of the best estimates and the risk of deteriorating results. The CIA prescribes the range of acceptable margins. The appointed actuary must evaluate various scenarios using a cash flow projection method to establish a margin for adverse deviation that adequately covers the risks, including interest rate risk. This provision is recorded in future income when it is no longer required to cover estimation error. If the estimates of future conditions change during the term of a contract, the present value of the changes is recognized in profit or loss immediately. Composition The composition of the actuarial liabilities of the policies is as follows:
2015 Actuarial liabilities $
Personal life insurance Group and health insurance Annuities
$
78,746 (1,367) 79,779 157,158
Reinsurance assets
Net amount
$
6,166 812 -
$
$
6,978
$
72,580 (2,179) 79,779 150,180
2014 Actuarial liabilities Personal life insurance Group and health insurance Annuities
76
Annual Report 2015
- 28 -
Reinsurance assets
Net amount
$
72,857 1,668 83,044
$
5,739 980 -
$
67,118 688 83,044
$
157,569
$
6,719
$
150,850
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 9.
Actuarial liabilities - continued The assets covering the actuarial liabilities include the following:
2015 Life insurance Bonds and short-term securities Investment funds Reinsurance assets
Annuities
Total
$
59,710 10,691 6,978
$
79,779 -
$
139,489 10,691 6,978
$
77,379
$
79,779
$
157,158
2014 Life insurance Bonds and short-term securities Investment funds Reinsurance assets
Annuities
Total
$
63,006 4,800 6,719
$
77,165 5,879 -
$
140,171 10,679 6,719
$
74,525
$
83,044
$
157,569
Actuarial assumptions The nature and method of determining the most significant assumptions used in the computation of the actuarial liabilities comply with industry practice. The actuarial assumptions deal with mortality and morbidity, policy lapse rates, investment income and operating expenses. Measurement uncertainty The basic assumptions used to determine the actuarial liabilities represent the best estimates of the range of possible outcomes. Actuaries must include a margin in each assumption to recognize the uncertainty surrounding the determination of best estimates, to take into account possible deterioration of underwriting experience and to provide the best assurance that the actuarial liabilities will be sufficient to pay future benefits. The CIA prescribes a range of allowable margins. Margins used are at least in the middle of the suggested range. Mortality The mortality assumption is based on a combination of the Mouvement's most recent experience and the industry's recent experience as published by the CIA. An increase (a decrease for annuities) of 1% of the most likely assumption would result in an increase of approximately $0.4 million in the actuarial liabilities (2014 - $1.4 million).
- 29 -
Combined Financial Statements
77
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 9.
Actuarial liabilities - continued Morbidity The morbidity assumption is based on the Mouvement's experience and industry results over long periods of time. The majority of products for which a morbidity assumption is significant consists of products whose premiums can be adjusted to reflect the Mouvement's actual experience. In the case of products for which morbidity has a significant effect, a deterioration of 1% of the most likely assumption would not have a significant impact on the actuarial liabilities. Investment income The calculation of the actuarial liabilities reflects the projected net investment income of the assets covering the liabilities. It also takes into account the income that the Mouvement expects to earn on reinvestment or to give up in order to finance the mismatch of cash flows. Interest rate and credit risk projections include some uncertainty. The Mouvement considers this uncertainty by including margins for credit risk in its projections of investment income and by evaluating future interest rate scenarios. Projected investment returns are reduced in anticipation of future credit losses on assets. One way to measure the interest rate risk associated with these assumptions is to determine the effect of an immediate increase or decrease of 1% of interest rates on the present value of net projected cash flows of the assets and liabilities related to the Mouvement's personal insurance activities. These changes in interest rates would impact the projected cash flows. An immediate increase of 1% in interest rates would result in a decrease in the fair value of the assets matched to the liabilities of approximately $22.0 million (2014 - $20.6 million) and a decrease in the corresponding liabilities of $23.4 million (2014 - $20.2 million), resulting in a net positive impact of $1.4 million (2014 - net negative impact of $0.4 million) on income before taxes for the year. An immediate decrease of 1% in interest rates would result in an increase in the fair value of the assets matched to the liabilities of approximately $26.8 million (2014 - $25.0 million) and an increase in the corresponding liabilities of $28.8 million (2014 - $27.8 million), resulting in a net negative impact of $2.0 million (2014 - $2.8 million) on income before taxes for the year. Expenses Amounts are included in the actuarial liabilities for the costs of administering the existing contracts, including the cost of premium collection, the granting and processing of benefits, periodic actuarial calculations, preparation and sending of statements, related indirect expenses, renewal commissions and general expenses. The projections of expenses consider estimates of variables such as inflation, productivity and indirect tax rates. An increase of 1% of the most likely assumption of policy management expenses would increase the actuarial liabilities by approximately $0.2 million (2014 - $0.2 million).
78
Annual Report 2015
- 30 -
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 9.
Actuarial liabilities - continued Policy lapse or cancellation rates Policyholders can choose to allow their policy to lapse by ceasing to pay their premiums. The Mouvement bases its estimate of policy lapse rates on the past performance of each of its business lines. A business line is considered to be based on policy lapses if an increase in the policy lapse rate is accompanied by an increase in profitability. However, if a decrease in the policy lapse rate is accompanied by an increase in profitability, the business line is not considered to be based on policy lapses. Change in actuarial liabilities The following table shows the changes in actuarial liabilities over the last two fiscal years: 2015 Actuarial liabilities Balance, beginning of year
$
157,569
2014
Reinsurance assets $
6,719
Actuarial liabilities $
62,997
Normal increase (decrease) for: Existing contracts New contracts
3,814 (2,386)
207 134
21,409 79,470
Changes in assumptions
(1,839)
(82)
(6,307)
259
94,572
(411) Balance, end of year
$
157,158
- 31 -
$
6,978
$
157,569
Reinsurance assets $
5,694 1,100 194 (269) 1,025
$
6,719
Combined Financial Statements
79
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 10.
Borrowings
2015 Operating credit, authorized amount of $50.0 million, bearing interest at the cost of funds plus 0.50%, renewable in December 2016.
$
-
2014
$
40,000
Operating credit, authorized amount of $100.0 million, bearing interest at the cost of funds plus 1.40%, renewable in December 2017.
-
5,000
Operating credit, authorized amount of $100.0 million, bearing interest at the cost of funds plus 1.50%, renewable in December 2019.
-
5,000
Securitization loans, guaranteed by mortgage loans as described in note 5, repayable at maturity, interest payable semi-annually at rates of 1.20% to 2.00%, maturities from September 2019 to December 2020.
62,493
21,867
Loan from the Regional Development Corporation to the Office de stabilisation (of an original amount of $9.9 million), repayable periodically from 2023 to 2032. The interest revenue received on the stabilization preferred shares of La Caisse Populaire de Shippagan LimitÊe as well as the proceeds of any redemption of said shares must be applied against this loan’s principal. This loan is interest-free and was initially recorded at its fair value.
8,248
5,434
$
70,741
$
77,301
The loan to the Office de stabilisation is expected to be completely repaid over the next year following the redemption of the stabilization preferred shares that is expected to occur before the amalgamation (refer to note 17). Due to the earlier repayment date, the unamortized discount on the interest-free loan of $2.7M is included in the financial expense for the year. The projected loan principal repayments for the next five years are as follows: 2016 - $ 8,248 2017 0 2018 0 2019 - 21,665 2020 - 40,716 The Mouvement also has an operating credit with an authorized amount of $12.5 million, bearing interest at the prime rate plus 0.75% and renewable annually. At December 31, 2015 and 2014, this facility was not used.
80
Annual Report 2015
- 32 -
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 11.
Accrued interest, payables and other liabilities
2015 Accrued interest Derivative instruments Payables Income taxes payable Deferred revenue Promissory notes Accrued employee benefit liability (note 12) Liabilities for claims yet to be settled and not yet made Investment contract liabilities Permanent investment shares to be redeemed (note 13) Other
$
$
22,367 3,540 40,572 384 2,281 517 27,609
2014 $
23,726 1,041 36,358 2,234 474 28,013
717 129
506 317
5,000 2,234
2,247
105,350
$
94,916
The promissory notes bear interest at rates ranging from 0.95% to 1.85% and have maturities ranging from July 2016 to July 2017. They are retractable by the holder before the maturity date. Note 12.
Accrued employee benefit liability Until December 31, 2013, the Mouvement participated in a funded defined benefit pension plan through the Mouvement des caisses populaires acadiennes employee pension plan, date at which the plan was converted to a shared risk pension plan for the active employees. For those already retired, annuities were purchased in 2014 by the pension plan from an insurance company and the plan was thus liquidated. The effect of the liquidation is reflected in the following tables. In addition, the Mouvement participates in two other unfunded defined benefit pension plans. Therefore, the Mouvement records, on the combined statement of financial position, the liability for these supplementary plans. The benefits under these other two plans were modified and are calculated similarly to those in the shared risk plan. Principal actuarial assumptions The principal actuarial assumptions used in measuring the defined benefit obligation are as follows:
Discount rate Expected rate of salary increases Mortality
2015
2014
4.00% 3.50% CPM2014-B Public
4.00% 3.50% CPM2014-B Public
Defined benefit pension plans The following tables show the liabilities and costs recognized in respect of the defined benefit pension plans for the Mouvement. - 33 -
Combined Financial Statements
81
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 12.
Accrued employee benefit liability - continued
2015
2014
Change in the defined benefit plan obligation Defined benefit plan obligation at beginning of year Current service cost Interest expense Benefits paid Actuarial losses (gains) arising from: Plan experience Changes in financial assumptions Changes in demographic assumptions Impact of liquidation
$
3,549 215 145 (68)
$
191 (1) -
72,329 176 1,937 (4,190) 100 5,101 (185) (71,719)
4,031
3,549
Fair value of plan assets at beginning of year Interest on plan assets Difference between the actual return on assets and interest income Administrative expenses Employers' contributions Benefits paid Impact of liquidation
-
58,771 1,536
-
4,143 (162) 12,850 (4,190) (72,948)
Fair value of plan assets at end of year
-
Defined benefit plan obligation at end of year Change in fair value of plan assets
Accounting deficit and accrued employee benefit liability$
4,031
$
3,549
The defined benefit obligation arises completely from the unfunded plans. Expense recognized for defined benefit plans The amounts recognized on the statement of income under "Salaries and employee benefits" for the year ended December 31 are as follows:
2015
82
Annual Report 2015
2014
Current service cost Interest expense Interest on plan assets Administrative expenses Loss on liquidation of the plan Interest arising from the application of IFRIC 14
$
215 145 -
$
176 1,937 (1,536) 162 1,229 89
Expense recognized in profit or loss
$
360
$
2,057
- 34 -
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 12.
Accrued employee benefit liability - continued The amounts recognized in other comprehensive income for the year ended December 31 are as follows:
2015 Losses for the year Minimum funding requirements under IFRIC 14 Change in accrued employee benefit liability recorded in other comprehensive income
2014
$
190 -
$
873 (2,016)
$
190
$
(1,143)
Sensitivity to the discount rate The following table shows the impact of a one percentage point change in the discount rate on the defined benefit plan obligation at December 31:
2015 $
Increase of 1% Decrease of 1%
(463) 563
2014 $
(418) 510
The above sensitivity analysis was developped using a method that extrapolates the impact on the defined benefit plan obligation of reasonable changes in the significant assumptions at the closing date. Expected contributions for 2016 The Mouvement expects to contribute $0.1 million to the defined benefit pension plan in the next year. Other accrued employee benefit liability Due to the conversion to the shared risk pension plan, the Mouvement has committed to paying temporary contributions of $3 million per year for 10 years starting in 2014, or until the funding ratio reaches 140%. A liability for these payments has been determined through an analysis of probabilities that considers multiple scenarios and has been discounted using a yield curve that takes into consideration the expected schedule of payments. Since it is only an estimate, the amount of the liability could change in the future. The following table shows the recorded liability and costs of this commitment.
2015
2014
Liability at the beginning of the year Interest expense recorded in income Actuarial losses recorded in other comprehensive income Contributions paid
$
20,695 768 2,169 (3,000)
$
21,519 737 1,439 (3,000)
Liability at the end of the year
$
20,632
$
20,695
- 35 -
Combined Financial Statements
83
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 12.
Accrued employee benefit liability - continued Other retirement benefits The Mouvement also offers to some of its employees a benefit in the form of a one-time payment upon retirement. This benefit is based on the salary and the number of years worked for the Mouvement at the time of retirement. The liability recorded for these benefits amounts to $2.9 million (2014 - $3.8 million). Amount recognized under "Accrued employee benefit liability" The "Accrued employee benefit liability" recorded in note 11 consists of the following:
2015 Liability for pension plans Liability for temporary contributions Liability for other retirement benefits
2014
$
4,031 20,632 2,946
$
3,549 20,695 3,769
$
27,609
$
28,013
Shared risk pension plan During the year, the Mouvement contributed $5.1 million (2014 - $6.3 million) to the shared risk pension plan. Note 13.
Share capital Authorized The share capital is made up of membership shares, surplus shares, capitalization shares and permanent investment shares. The Caisses populaires may issue an unlimited number of membership shares with an issue price of $5 each, redeemable under certain conditions stipulated in the Credit Unions Act (Act) and in the statutes of the Caisses populaires. Members have only one vote regardless of the number of membership shares they must buy and hold according to the requirements set out in the By-laws of the Caisses populaires. The By-laws of the Caisses populaires authorize the issue of surplus shares with a par value of $10 each. These shares do not confer any right to vote or to participate in the distribution of surplus earnings and are not refundable except in certain special situations stipulated in the Bylaws and in the statutes of the Caisses populaires. The By-laws of the Caisses populaires authorize the issue of capitalization shares with a par value of $500 each. These shares confer no voting right and are not refundable except in certain special situations stipulated in the By-laws and in the statutes of the Caisses populaires. The interest rate is determined annually at the general meeting of each Caisse populaire. The permanent investment shares have been issued by a Caisse populaire in accordance with the Act. These shares have a par value of $1 each and are cumulative, non-voting and nonparticipating.
84
Annual Report 2015
- 36 -
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 13.
Share capital - continued The shares issued and paid are distributed as follows:
2015 Membership shares Permanent investment shares Permanent investment shares to be redeemed*
2014
$
4,328 5,000 (5,000)
$
4,362 5,000 -
$
4,328
$
9,362
* In accordance with the amalgamation agreement signed in 2014 (refer to note 17), any other types of shares held by members of the amalgamating caisses populaires, such as the permanent investment shares, will not be converted into membership shares of the amalgamated caisse populaire; members holding such shares will instead receive the paid par value. These shares are thus recorded as a liability on the combined statement of financial position (refer to note 11). Note 14.
Accumulated other comprehensive income The accumulated other comprehensive income includes unrealized gains of $7.6 million (2014 $7.0 million) on available-for-sale instruments less income taxes of $2.1 million (2014 $1.7 million).
Note 15.
Net insurance and annuity premiums
2015 Gross insurance and annuity premiums Premiums ceded to reinsurers
Note 16.
2014
$
19,758 (1,915)
$
92,371 (1,909)
$
17,843
$
90,462
Net insurance and annuity benefits
2015 Gross insurance benefits Benefits ceded to reinsurers Annuity benefits Change in insurance contract liabilities Change in reinsurance assets
- 37 -
2014
$
7,441 (1,021) 5,360 (411) (259)
$
$
11,110
$
6,518 (998) 2,267 94,572 (1,025) 101,334
Combined Financial Statements
85
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 17.
Expenses related to the amalgamation process The expenses related to the amalgamation comprise salaries and employee benefits and general and other expenses. These expenses were incurred for the amalgamation process, during which the caisses populaires, the FĂŠdĂŠration and the Office de stabilisation will amalgamate to become the Caisse populaire acadienne. The Commercial Loan Fund will be liquidated as part of this amalgamation and its net assets will be distributed to the newlycreated caisse. This amalgamation is expected to take place on July 1st, 2016.
Note 18.
Other items
2015 Revenues (losses) arising from the recognition of the following items at fair value: Derivative instruments Asset-backed long-term notes Bonds
2014
$
6,838 (1,211)
$
2,249 1,189 4
$
5,627
$
3,442
The change in fair value of the bonds held by Acadia Life is not included in the other items because the bonds are matched with the actuarial liabilities. Note 19.
Income taxes Income taxes for the years presented in the combined statement of income are composed of the following elements:
Income taxes
Current Income taxes Taxes related to the change in tax rate Income taxes recovered on member dividends
$
Annual Report 2015
$
-
3,482
- 38 -
1,606
$
(277)
(30) $
86
3,512
Total 2015
Deferred
$
1,329
$
5,118
Total 2014 $
9,902
(277)
(45)
(30)
(454)
4,811
$
9,403
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 19.
Income taxes - continued The provision for income taxes in the combined statement of income differs from that established by application of the Canadian statutory tax rate for the following reasons:
2015 Income taxes at the statutory rate Small business deduction, used by some entities of the Mouvement Non-deductible expenses Non-taxable revenues Change in tax rate on the beginning balance of the deferred income taxes Other
$
$
4,775
2014
27.0 %
$
9,512
27.0 %
(120) 683 (166)
(0.7)% 3.9 % (0.9)%
(96) 92 (57)
(0.3)% 0.3 % (0.2)%
(277) (54)
(1.6)% (0.3)%
(45) 451
(0.1)% 1.3 %
4,841
27.4 %
$
9,857
28.0 %
The composition of the deferred income tax liability (asset), by type of temporary difference and carryforward, is as follows:
2015 Capital and intangible assets Securities and derivative financial instruments Allowance for credit losses Employee benefits liability Non-capital losses Actuarial liabilities Stabilization fund Other
Note 20.
2014
$
(1,565) 5,481 (4,026) (8,185) (2,679) (16) 27,813 (1,187)
$
(1,585) 3,199 (3,441) (7,517) (2,316) (11) 26,654 (96)
$
15,636
$
14,887
Member dividends The member dividends of $0.2 million that appear on the statement of income are based on a resolution of the board of directors of each of the Caisses populaires recommending that their general assemblies approve these member dividends. The amount is calculated based on the interest on loans and deposits and user fees collected from members. The Caisses populaires may distribute member dividends when legal and regulatory requirements have been met.
Note 21.
Transfer to general reserve The surplus earnings for the year after member dividends have been partially transferred to the general reserve as required under the By-laws of the entities of the Mouvement.
Note 22.
Distributable surplus earnings The distribution is decided annually by members at the general meetings of certain Caisses populaires provided that their regulatory capitalization is higher than that stipulated in the Bylaws, which is 5% of total assets, subject to restrictions imposed by the Office de stabilisation. - 39 -
Combined Financial Statements
87
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 23.
Related party transactions Key management personnel compensation The key management personnel of the Mouvement are the members of the board of directors and senior management who have the authority and responsibility for planning, directing and controlling the activities of the Mouvement. For the year ended December 31, the compensation of the key management personnel of the Mouvement is as follows:
2015 Short-term benefits Post-employment benefits End of employment payments
Note 24.
2014
$
2,957 421 67
$
2,156 481 -
$
3,445
$
2,637
Fair value of financial instruments The following methods and assumptions have been used to estimate the fair value of the financial instruments: Securities: The estimated fair value of securities is based on quoted market prices, when available. When quoted market prices are not available, estimated fair value is determined using other methods such as the discounting of cash flows and the use of market prices for similar securities. Loans: For certain variable rate loans, whose rates are revised frequently, the estimated fair value is assumed to be equal to the carrying value. The fair value of the other loans is estimated using a discounted cash flow calculation method that uses market interest rates currently charged for similar new loans as of December 31, applied to expected maturity amounts. Changes in interest rates as well as in borrowers' creditworthiness are the main reasons for fluctuations in the fair value of the loans. For impaired loans, fair value is equal to carrying value in accordance with the valuation techniques described in note 2. Deposits and promissory notes: The fair value of deposits with no stated maturity is assumed to be equal to the carrying value. The fair value of fixed rate deposits and the promissory notes is determined by discounting contractual cash flows using market interest rates currently offered for deposits and promissory notes with relatively similar terms remaining to maturity. Reinsurance assets and insurance contract liabilities: The fair value of the reinsurance assets and the insurance contract liabilities has not been established. However, the Mouvement annually segments the assets that cover the actuarial liabilities or the liabilities for the different business lines. It attempts, within reasonable limits, to match the assets' cash flows with those of the liabilities. In this way, changes in the realizable values of assets should generally be offset by changes in the realizable values of the items associated with the actuarial liabilities. Borrowings: For the operating credit facilities and the securitization loans, fair value equals the book value because they bear interest either at a variable rate or at rates that approximate the market rate. For the Office de stabilisation's loan, the fair value is determined by discounting expected future contractual cash flows using a discount rate equal to the rate of return earned on the related investment at that date. Investment contract liabilities: The fair value of the investment contract liabilities is assumed to be equal to the carrying value.
88
Annual Report 2015
- 40 -
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 24.
Fair value of financial instruments - continued Derivative instruments: The fair value of derivative instruments is calculated based on the net present value of expected cash flows at current market interest rates for instruments with similar features and maturities. The fair value of financial instruments according to their classification in the categories defined by the standards for financial instruments is as follows:
2015 At fair value through profit or loss $
Loans and receivables and financial Availableliabilities at for-sale amortized cost $ $
Total $
Fair value $
Financial assets Cash Securities Money market securities Bonds Asset-backed long-term notes Equities Investment funds and other Loans Other assets
-
-
114,586
114,586
114,586
91,085 301,017 1,024 10,691 32,543
5,200 122,124 57,152 6,803 -
2,864,462 23,242
96,285 423,141 1,024 57,152 17,494 2,864,462 55,785
96,285 423,141 1,024 57,152 17,494 2,885,944 55,785
Total financial assets
436,360
191,279
3,002,290
3,629,929
3,651,411
-
-
2,977,723
2,977,723 2,998,127
Financial liabilities Deposits Other liabilities Borrowings Accrued interest, payables and other liabilities
-
-
70,741
70,741
70,741
3,540
-
71,536
75,076
75,076
Total financial liabilities
3,540
-
3,120,000
3,123,540
3,143,944
Financial instruments at fair value through profit or loss are included in this category upon initial designation, with the exception of the other assets and liabilities, which are held for trading.
- 41 -
Combined Financial Statements
89
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 24.
Fair value of financial instruments - continued
2014 At fair value through profit or loss $
Loans and receivables and financial Availableliabilities at for-sale amortized cost $ $
Total $
Fair value $
Financial assets Cash Securities Money market securities Bonds Asset-backed long-term notes Equities Investment funds and other Loans Other assets
-
-
72,160
72,160
72,160
91,227 309,340 1,024 10,679 24,422
3,812 93,310 57,669 5,196 -
2,791,115 24,184
95,039 402,650 1,024 57,669 15,875 2,791,115 48,606
95,039 402,650 1,024 57,669 15,875 2,803,749 48,606
Total financial assets
436,692
159,987
2,887,459
3,484,138
3,496,772
-
-
2,836,094 6,223
2,836,094 6,223
2,854,955 6,223
Financial liabilities Deposits Bank overdraft Other liabilities Borrowings Accrued interest, payables and other liabilities
-
-
77,301
77,301
79,112
1,041
-
63,628
64,669
64,669
Total financial liabilities
1,041
-
2,983,246
2,984,287
3,004,959
Financial instruments at fair value through profit or loss are included in this category upon initial designation, with the exception of the other assets and liabilities, which are held for trading.
90
Annual Report 2015
- 42 -
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 24.
Fair value of financial instruments - continued Classification of fair value measurements in the fair value hierarchy IFRS 13 "Fair value measurement" establishes a fair value hierarchy that reflects the relative weight of the data used for valuation. The hierarchy consists of the following levels: Level 1 - Quoted prices in active markets for identical financial instruments. Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the financial instrument, either directly or indirectly. Level 3 - Inputs for the financial instrument that are not based on observable market data. The following table presents the measurement levels according to the fair value hierarchy:
2015 Level 1
Level 2
Level 3
Total
Financial instruments recorded at fair value Assets Securities Money market securities Bonds Asset-backed long-term notes Equities Investment funds and other Derivative instruments
$
-
$
96,285 423,141
$
-
$
96,285 423,141
11,802
1,024 45,350
-
1,024 57,152
-
17,494 32,543
-
17,494 32,543
-
3,540
-
3,540
-
$ 2,885,944
$ 2,885,944
2,998,127 517
-
2,998,127 517
Liabilities Derivative instruments
Financial instruments for which fair value is disclosed Assets Loans
$
-
$
Liabilities Deposits Promissory notes
-
- 43 -
Combined Financial Statements
91
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 24.
Fair value of financial instruments - continued
2014 Level 1
Level 2
Level 3
Total
Financial instruments recorded at fair value Assets Securities Money market securities Bonds Asset-backed long-term notes Equities Investment funds and other Derivative instruments
$
-
$
95,039 402,650
$
-
$
95,039 402,650
12,224
1,024 45,445
-
1,024 57,669
-
15,875 24,422
-
15,875 24,422
-
1,041
-
1,041
-
$ 2,803,749
$ 2,803,749
2,854,955 474
-
2,854,955 474
Liabilities Derivative instruments
Financial instruments for which fair value is disclosed Assets Loans
$
-
$
Liabilities Deposits Promissory notes
Note 25.
-
Commitments and contingencies Letters of credit and credit commitments The primary purpose of financial instruments that present a credit risk is to ensure that members and clients have funds available when necessary for variable terms and under specific conditions. The collateral security policy of the Mouvement with respect to these credit instruments is generally the same as that applied to loans. Letters of credit are irrevocable commitments by the Mouvement to make payments for members or clients who might not be able to meet their financial obligations to third parties and represent the same credit risk as loans. Credit commitments represent unused portions of authorizations to extend credit in the form of loans or letters of credit.
92
Annual Report 2015
- 44 -
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 25.
Commitments and contingencies - continued The total amount of credit instruments does not necessarily represent future cash requirements since many of these instruments will expire or terminate without being funded. The maximum amount of letters of credit and credit commitments is presented in note 27. Other commitments At year end, minimum future commitments relating to the purchases of services and sponsorship and donation agreements are as follows:
2016 2017 2018 2019
$
370 367 308 311
$
1,356
Contingencies The Mouvement is party to various business litigation matters, lawsuits and potential claims arising in the course of normal business activities. In management's opinion, the total amount of contingent liability resulting from these lawsuits will not have a material impact on the financial position of the Mouvement. Note 26.
Leases Lessee Operating lease At year end, the future minimum lease commitments under non-cancellable operating leases for premises and equipment are presented in the following table: 2015
Note 27.
2014
Under 1 year 1 to 5 years More than 5 years
$
609 1,682 640
$
536 1,603 974
Total
$
2,931
$
3,113
Financial instrument risk management The Mouvement is exposed to different types of risk in the normal course of operations, including credit risk, liquidity risk and market risk. The Mouvement's objective in risk management is to optimize the risk-return trade-off, within set limits, by applying integrated risk management and control strategies, policies and procedures throughout its activities. Under the Mouvement’s risk management approach, its entities and units are accountable for the combined results and the quality of risk management practices. The boards of directors of the Mouvement's components also play a pivotal role in monitoring the risks and results of those units and entities. Several committees support the boards of directors and management teams of each component in their efforts to fulfill their risk management responsibilities. - 45 -
Combined Financial Statements
93
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 27.
Financial instrument risk management - continued CREDIT RISK Credit risk is the risk of losses resulting from a borrower's or a counterparty's failure to honour its contractual obligations, whether or not these obligations appear on the combined statement of financial position. Most of the loans and deposits of the Mouvement are related to the New Brunswick market. Credit risk management The Mouvement upholds its goal of effectively serving all of its members. To this end, it has developed distribution channels specialized by product and member type. The units and components that make up these channels are considered centres of expertise and are accountable for their performance in their respective markets, including credit risk. In this regard, they have latitude regarding the framework they use and credit granting and are also equipped with the corresponding management and monitoring tools and structures. Framework A set of policies and standards govern all aspects of credit risk management for the Mouvement. These frameworks define: · ·
The minimal framework that governs risk management and control activities; The roles and responsibilities of the parties involved.
These frameworks are supplemented by the Fédération's credit practices. These practices are authorized by the Office de stabilisation and are applicable to the caisses populaires and their Business Centre. They define: · · ·
The guidelines relating to commitment, authorization, review and delegation limits; The policies regarding the management and control of credit activities; The financing terms and conditions applicable to borrowers.
Credit granting To assess the risk of credit activities with individuals and smaller businesses, credit rating systems, based on proven statistics, are generally used. These systems were developed using a history of borrower behaviour with a profile or characteristics similar to those of the applicant to determine the risk of a particular transaction. The performance of these systems is analyzed on an ongoing basis and adjustments are made regularly with a view to assessing transaction and borrower risk as accurately as possible. The granting of credit to businesses is based on an analysis of the various parameters of each file, where each borrower is assigned a risk rating. These ratings are assigned individually following a detailed examination of the financial, market and management characteristics of the business. The depth of the analysis and the approval level required depend on the product characteristics as well as the complexity and scope of the transaction risk. Larger loans are approved by the Fédération. File monitoring and management of more significant risks Portfolios are monitored by the Mouvement's business units using credit policies that set out the degree of depth and frequency of review based on the quality and extent of the risk related to the commitments. The management of higher-risk loans involves follow-up controls adapted to their particular circumstances.
94
Annual Report 2015
- 46 -
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 27.
Financial instrument risk management - continued Credit risk mitigation In its lending operations, the Mouvement obtains collateral if deemed necessary for a member’s loan facility following an assessment of their creditworthiness. Collateral normally comprises assets such as cash, government securities, stocks, receivables, inventory or capital assets. For some portfolios, programs offered by organizations such as the CMHC are used in addition to the customary collateral. At December 31, loans guaranteed by the CMHC represented 59% (2014 - 59%) of the residential mortgage portfolio. Maximum credit risk exposure
2015
2014
Recognized on the statement of financial position $
Cash Securities Loans Personal Business Collective allowance Reinsurance assets Other financial assets
78,593 520,450
$
1,967,385 912,282 (15,205) 6,978 23,242
33,024 498,713 1,921,371 883,272 (13,528) 6,719 24,184
$ 3,493,725
$ 3,353,755
$
11,243 656,304
$
13,520 618,238
$
667,547
$
631,758
Off-statement of financial position Letters of credit Credit commitments
- 47 -
Combined Financial Statements
95
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 27.
Financial instrument risk management - continued The following table presents the credit quality of the money market securities and bond portfolios, evaluated in accordance with external credit risk ratings. The other financial assets of the Mouvement are not rated.
2015 Money market securities R1-H R1-M R1-L
Bonds AAA AA A BBB
2014
$
51,122 45,163 -
$
62,387 19,266 13,386
$
96,285
$
95,039
$
71,002 90,636 237,290 24,213
$
71,963 139,759 174,585 16,343
$
423,141
$
402,650
LIQUIDITY RISK Liquidity risk refers to the Mouvement’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 combined statement of financial position, on the date it is due or otherwise. The Mouvement manages liquidity risk in order to ensure that it has access, on a timely basis and in a profitable manner, to the funds needed to meet its financial obligations as they become due, in both routine and crisis situations. Managing this risk involves maintaining a minimum level of liquid securities, stable and diversified sources of funding and an action plan to implement in extraordinary circumstances. Liquidity risk management is a key component in an overall risk management strategy because it is essential to preserving market and depositor confidence. Policies have been established describing the principles, limits and procedures that apply to liquidity risk management. The Mouvement also has a liquidity contingency plan to deal with a crisis situation. This plan also identifies sources of liquidities that are available in exceptional situations. This plan allows for effective intervention in order to minimize disruptions caused by sudden changes in member and client behaviour and potential disruptions in markets or economic conditions. The Credit Unions Act sets out the minimum level of liquidity that the Caisses populaires must maintain. This liquidity level is centrally managed by the Mouvement's treasury and is monitored on a monthly basis. Eligible securities must meet high security and negotiability standards. The securities portfolio in the liquidity fund comprises mostly securities issued by governments, public bodies and private companies with high credit ratings, i.e. R1-L or better.
96
Annual Report 2015
- 48 -
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 27.
Financial instrument risk management - continued The Mouvement's treasury ensures stable sources of funding by type, source and maturity. The following table presents certain financial instruments by remaining contractual maturity:
2015 Under 1 year Deposits Borrowings Other financial liabilities Credit commitments Letters of credit Derivative instruments with net settlement Derivative instruments with gross settlement
$ 2,170,178 8,248 40,083 656,304 11,243
1 to 5 years $
876,080 62,493 4 -
Over 5 years $
Total
-
$ 3,046,258 70,741 40,087 656,304 11,243
842
2,410
-
3,252
9,195
-
-
9,195
Over 5 years
Total
2014 Under 1 year Deposits Borrowings Bank overdraft Other financial liabilities Credit commitments Letters of credit Derivative instruments with net settlement Derivative instruments with gross settlement
$ 1,979,037 51,605 6,223 32,899 618,238 13,520
1 to 5 years $
940,288 22,201 24 -
731
412
2,344
-
$
6,404 -
$ 2,919,325 80,210 6,223 32,923 618,238 13,520
(1)
1,142
-
2,344
MARKET RISK Market risk refers to the risk of changes in the fair value of financial instruments as a result of changes in parameters affecting this value such as interest rates, exchange rates, credit spreads and their volatility. The Mouvement is mainly exposed to interest rate risk through positions related to its traditional financing and deposit-taking activities. Interest rate risk management The Mouvement is exposed to interest rate risk, which represents the potential impact of interest rate fluctuations on net financial income and the economic value of its equity.
- 49 -
Combined Financial Statements
97
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 27.
Financial instrument risk management - continued Dynamic and prudent management is applied to optimize net financial income while minimizing the negative impact of interest rate movements. Simulations are used to measure the impact of different variables on net financial income and the economic value of equity. The assumptions used in the simulations are based on an analysis of historical data and the impact of different interest rate conditions on the data, and concern changes in the structure of the statement of financial position, member behaviour and pricing. The Mouvement's investment committee is responsible for analyzing and adopting the global matching strategy to ensure sound management. The following table presents the potential impact, at year end, of a sudden and sustained 1% increase or decrease in interest rates (before income taxes) on the Mouvement's surplus earnings and equity:
2015 $
Impact of an increase Impact of a decrease
2014
(1,725) 3,485
$
565 (584)
The extent of the interest rate risk depends on the gap between assets, liabilities and offstatement of financial position instruments. The situation presented reflects the position as at that date, and may change depending on members’ behaviour, the interest rate environment and the strategies adopted by the Mouvement's investment committee. The tables below summarize the matching of the maturities of the Mouvement's assets and liabilities at year end.
2015 Net gap on the statement of financial position Non interest rate-sensitive items
$(1,143,455)
Interest rate-sensitive items Floating rate Fixed rate - 0 to 12 months Fixed rate - 1 to 5 years Fixed rate - over 5 years
98
Annual Report 2015
552,338 482,288 (107,895) 221,358
- 50 -
Impact of derivative instruments $
(755,535) 755,535 -
Total gap $(1,143,455) 552,338 (273,247) 647,640 221,358
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 27.
Financial instrument risk management - continued
2014 Net gap on the statement of financial position Non interest rate-sensitive items
$(1,315,469)
Interest rate-sensitive items Floating rate Fixed rate - 0 to 12 months Fixed rate - 1 to 5 years Fixed rate - over 5 years
456,840 460,328 151,720 239,273
Impact of derivative instruments $
(672,600) 673,100 (500)
Total gap $(1,315,469) 456,840 (212,272) 824,820 238,773
The net gap position on the statement of financial position is based on maturity dates or, if they are closer, the interest rate revision dates of fixed-rate assets and liabilities. This gap position represents the difference between the total assets and the total liabilities and equity for a given period. The above tables show year end balances, except in the case of certain non interest ratesensitive assets and liabilities for which the average monthly balance is provided as it is used for managing sharply fluctuating daily balances. The impact attributable to derivatives represents the cumulative net notional amount related to interest rate swaps used to control interest rate risks. At year end, the conditions for these swaps were such that they had offsetting impacts for some periods reported in the table. Swaps are transactions under which two parties exchange fixed and variable rate payments, based on a notional amount. A positive total gap for a given period indicates that a sustained rise in interest rates would have the effect of increasing the net financial income of the Mouvement, while a sustained decline in interest rates would decrease net financial income. The reverse occurs when the gap is negative. Foreign exchange risk management Foreign exchange risk arises when the actual or expected value of assets denominated in a foreign currency is higher or lower than that of liabilities denominated in the same currency. Certain components have adopted specific policies to manage foreign exchange risk, notably by limiting the gap between the assets and liabilities denominated in U.S. dollars. Certain components use foreign exchange contracts to help them match their assets and liabilities in U.S. dollars. However, the Mouvement’s exposure to this risk is limited because the majority of its transactions are conducted in Canadian dollars. At year end, the Mouvement has contracts to buy $0 million (2014 - $18.0 million) in U.S. dollars.
- 51 -
Combined Financial Statements
99
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 27.
Financial instrument risk management - continued The statement of financial position includes the following amounts in Canadian dollars with respect to financial assets and liabilities with cash flows denominated in U.S. dollars:
2015 $
Cash Securities Loans Other assets Deposits
20,368 11,085 42 6 20,474
2014 $
4,220 10,311 26 7 28,043
INSURANCE AND REINSURANCE RISK In the normal course of operations, the Mouvement is exposed to insurance risk. This risk represents the risk that the initial pricing is or will become insufficient; it arises from the selection of risks, from claims settlement and from contractual clause management. The Mouvement attempts to limit the risk of loss to which it is exposed with regards to a single insured or a catastrophic event affecting many insureds and to recover a portion of the claims paid by means of reinsurance agreements. In the event that the reinsurers are not able to honour their contractual obligations, the Mouvement is liable for contingent risks related to retrocession. Reinsurance is arranged primarily with a single reinsurer. This reinsurer is rated AA- by the credit-rating agency Standard & Poor's. Note 28.
Capital management The Mouvement's capital is composed of its equity and the collective allowance for credit losses. The capital management goal of the Mouvement is to ensure that a sufficient level of high-quality capital is maintained in order to preserve flexibility for its development, to maintain a favourable credit rating and to maintain the confidence of depositors and financial markets. Caisses populaires Capital management is the responsibility of the Caisse populaires' board of directors. In accordance with the Credit Unions Act, a Caisse populaire must maintain a minimum amount of capital corresponding to 5% of its total assets. The regulatory capital of the Caisses populaires, which is composed of equity and the collective allowance for credit losses, represents 8.3% of total assets (2014 - 8.7%). The stabilization preferred shares issued by certain Caisses populaires to the Office de stabilisation are not included in the regulatory capital because they are eliminated in the combined financial statements of the Mouvement. In addition to the regulatory capital maintained by the Caisses populaires, the Office de stabilisation maintains a stabilization fund in accordance with the Credit Unions Act in order to protect its member Caisses populaires against financial losses and insolvency and to provide them with the necessary financial assistance for the purposes of stabilization. At year end, the balance of this fund is $103.0 million (2014 - $98.7 million).
100 Annual Report 2015
- 52 -
Mouvement des caisses populaires acadiennes Notes to the Combined Financial Statements
For the year ended December 31, 2015 (in thousands of dollars) Note 28.
Capital management - continued Fédération The Fédération’s objective is to maintain a capitalization ratio of 5% of its assets. At year end, its capitalization ratio is 6.4% (2014 - 7.3%). One of the Fédération’s subsidiaries, Acadia Financial Services Inc., is subject to externally imposed capital requirements. It manages its capital in such a way as to comply with the regulatory requirements imposed by the Mutual Fund Dealers Association of Canada. Acadia Life Under the Insurance Companies Act (Act), federal life insurance companies are required to maintain sufficient capital. In addition, the Act requires that companies that operate branches in Canada maintain a sufficient excess of assets over liabilities. The professional standards of the CIA require that the designated actuary perform annually a dynamic review of capital sufficiency. This review highlights to management the evolution of the surplus and the risks to the company's solvency. This process requires the actuary to analyze and project, using scenarios, trends in the company's financial situation, considering the current circumstances, its recent past and its business plan. Within this process, regulatory formulas are used as standards for capital sufficiency. Currently, the required minimum continuing capital and surplus requirement (MCCSR) on available capital is 120%. However, the Office of the Superintendent of Financial Institutions Canada (OSFI) and the New Brunswick Superintendent of Insurance expect that each institution will establish and maintain a target MCCSR ratio of at least 150%. The minimum MCCSR threshold set by Acadia Life is 200%. However, in accordance with the strategic planning of the insurance company, the MCCSR target is 250% in order to take into consideration market volatility and economic conditions, innovations within the industry, trends in business combinations and changes occurring internationally. This target is revised every three years or as needed if changes occur in the market or in legislation. At year end, Acadia Life's MCCSR is 335.1% (2014 - 312.6 %). Mouvement At year end, the Mouvement's capitalization ratio is 10.2% (2014 - 10.5%).
- 53 -
Combined Financial Statements
101
102 Annual Report 2015
Board of Directors and Management Fédération des caisses populaires acadiennes From left to right
Robert Moreau,
Pierre-Marcel Desjardins,
Hermel Chiasson,
Allain Santerre,
Gilles Godin,
Philippe Ferguson,
Roland T. Cormier,
Camille H. Thériault,
Eric Aubé,
David Losier,
Denis Laverdière,
Vice-President Corporate Services Director Northwest Director Southeast
Chairman and Director Southeast Director Northeast President and CEO
Director Northeast Director Northeast
Vice-President, Strategy, Communication and Membership
Executive Vice-President, Distribution
Maurice Picard,
Elmo Caissie,
Simonne Godin,
André Chouinard,
Sylvain Fortier,
Euclide P. Chiasson,
Jean-François Saucier,
Guy J. Richard,
Executive Vice-President and CFO Director Southeast Vice-President and Chief Risk Officer Director Northwest
Corporate Secretary
Director Northwest Director Northwest (not pictured)
Director Northeast
Vice Chair and Director Southeast As of December 31, 2015
Board of Directors and Management
103
FĂŠdĂŠration des caisses populaires acadiennes Summary Consolidated Financial Statements As of December 31, 2015
INDEPENDENT STATEMENTS
AUDITORS'
REPORT
ON
THE
SUMMARY
CONSOLIDATED
FINANCIAL
To the directors of La Fédération des Caisses Populaires Acadiennes Limitée The accompanying summary consolidated financial statements, which comprise the consolidated statement of financial position as at December 31, 2015 and the consolidated statements of income, comprehensive income and changes in equity for the year then ended, are derived from the audited consolidated financial statements of LA FÉDÉRATION DES CAISSES POPULAIRES ACADIENNES LIMITÉE for the year ended December 31, 2015. We expressed an unmodified audit opinion on those consolidated financial statements in our auditors' report dated March 24, 2016. The summary consolidated financial statements do not contain all the disclosures required by International Financial Reporting Standards. Reading the summary consolidated financial statements, therefore, is not a substitute for reading the audited consolidated financial statements of LA FÉDÉRATION DES CAISSES POPULAIRES ACADIENNES LIMITÉE. Management's responsibility for the summary consolidated financial statements Management is responsible for the preparation of a summary of the audited consolidated financial statements. Auditors' responsibility Our responsibility is to express an opinion on the summary consolidated financial statements based on our procedures, which were conducted in accordance with Canadian Auditing Standard (CAS) 810, "Engagements to Report on Summary Financial Statements." Opinion In our opinion, the summary consolidated financial statements derived from the audited consolidated financial statements of LA FÉDÉRATION DES CAISSES POPULAIRES ACADIENNES LIMITÉE for the year ended December 31, 2015 are a fair summary of those financial statements, in accordance with International Financial Reporting Standards.
March 24, 2016 Dieppe, New Brunswick
Chartered Professional Accountants
Summary Consolidated Financial Statements
105
LA FÉDÉRATION DES CAISSES POPULAIRES ACADIENNES LIMITÉE CONSOLIDATED STATEMENT OF FINANCIAL POSITION December 31, ASSETS Cash and deposits with other financial institutions
2015 $
53,128,456
2014 $
13,152,431
Securities
290,880,567
279,371,721
Loans Affiliated caisses Residential mortgages Students Other related parties
10,730,542 282,884,957 929,486 5,073,736
18,163,548 282,704,432 1,171,394 -
299,618,721
302,039,374
26,910,186 4,193,669 6,332,779 5,080,971
14,509,439 3,356,086 6,702,816 2,055,742
42,517,605
26,624,083
$ 686,145,349
$ 621,187,609
$ 543,853,866
$ 466,661,970
62,493,481 26,663,781 516,599
6,222,678 71,867,241 21,977,150 474,202
89,673,861
100,541,271
8,868,941
8,716,488
642,396,668
575,919,729
22,540,708 21,207,973
21,788,325 23,479,555
43,748,681
45,267,880
$ 686,145,349
$ 621,187,609
Other assets Accrued interest, receivables and other assets Deferred income taxes Capital assets Intangible assets
LIABILITIES Deposits Other liabilities Bank overdraft Borrowings Accrued interest, payables and other liabilities Promissory notes
Employee benefit liability
EQUITY Share capital Undistributed surplus earnings
ON BEHALF OF THE BOARD
Pierre-Marcel Desjardins Chair 106 Annual Report 2015
Gilles Godin Chair, Audit Committee
LA FÉDÉRATION DES CAISSES POPULAIRES ACADIENNES LIMITÉE CONSOLIDATED STATEMENT OF INCOME Year ended December 31, FINANCIAL INCOME Cash Securities Loans - residential mortgages Loans - affiliated caisses Loans - students Loans - other
2015 $
FINANCIAL EXPENSES Deposits - affiliated caisses Deposits - other Borrowings and other financial expenses
2014
94,543 9,472,338 7,698,666 243,190 55,992 101,011
$
128,639 9,326,668 7,680,117 534,524 77,808 50,048
17,665,740
17,797,804
6,800,878 274,185 3,713,098
6,954,765 363,392 4,336,245
10,788,161
11,654,402
NET FINANCIAL INCOME RECOVERY ON IMPAIRED LOANS
6,877,579 (113,168)
6,143,402 (33,135)
NET FINANCIAL INCOME AFTER RECOVERY ON IMPAIRED LOANS
6,990,747
6,176,537
15,192,558 20,638,669
15,140,062 19,583,234
35,831,227
34,723,296
21,950,156 16,621,477 4,597,842
20,816,572 17,211,233 -
43,169,475
38,027,805
SURPLUS EARNINGS (LOSS) BEFORE OTHER ITEMS Other items
(347,501) (1,666,039)
2,872,028 884,556
SURPLUS EARNINGS (LOSS) BEFORE TAXES INCOME TAXES
(2,013,540) (491,962)
3,756,584 909,672
SURPLUS EARNINGS (LOSS) BEFORE MEMBER DIVIDENDS
(1,521,578)
2,846,912
OTHER INCOME Contributions from affiliated caisses Other
EXPENSES OTHER THAN FINANCIAL EXPENSES Wages and benefits Other Restructuring expenses
Member dividends Income taxes recovered on member dividends
SURPLUS EARNINGS (NET LOSS) FOR THE YEAR
$
-
868,064 (234,377)
-
633,687
(1,521,578) $
2,213,225
Summary Consolidated Financial Statements
107
LA FÉDÉRATION DES CAISSES POPULAIRES ACADIENNES LIMITÉE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Year ended December 31,
SURPLUS EARNINGS (NET LOSS) FOR THE YEAR
2015
$
(1,521,578) $
2014
2,213,225
OTHER COMPREHENSIVE INCOME Item that will not be reclassified to the consolidated statement of income Change in the employee benefit liability Change during the year Deferred taxes relating to temporary differences and deferrals Deferred taxes relating to the change in tax rate
(469,510) 126,768 -
361,817 (97,691) 206,300
Total of other comprehensive income, net of taxes
(342,742)
470,426
COMPREHENSIVE INCOME
108 Annual Report 2015
$
(1,864,320) $
2,683,651
LA FÉDÉRATION DES CAISSES POPULAIRES ACADIENNES LIMITÉE CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended December 31, 2015 Share capital Balance, beginning of year
$
21,788,325
Balance, end of year
$
$
23,479,555
Total equity $
45,267,880
-
(1,521,578) (342,742)
(1,521,578) (342,742)
752,383 -
(1,864,320) (549,407) 148,340 (6,195)
(1,864,320) 752,383 (549,407) 148,340 (6,195)
Net loss for the year Other comprehensive income Comprehensive income Share capital issued Dividends Income taxes recovered on dividends Refundable dividend tax on hand
Undistributed surplus earnings
22,540,708
$
21,207,973
$
43,748,681
Year ended December 31, 2014
Balance, beginning of year
$
Surplus earnings for the year Other comprehensive income
Undistributed surplus earnings
20,067,321
$
-
Comprehensive income Share capital issued Dividends Income taxes recovered on dividends Refundable dividend tax on hand Balance, end of year
Share capital
1,721,004 $
21,788,325
$
21,317,122
Total equity $
41,384,443
2,213,225 470,426
2,213,225 470,426
2,683,651 (702,356) 189,636 (8,498)
2,683,651 1,721,004 (702,356) 189,636 (8,498)
23,479,555
$
45,267,880
Summary Consolidated Financial Statements
109
Acadia Life Summary Consolidated Financial Statements As of December 31, 2015
INDEPENDENT STATEMENTS
AUDITORS'
REPORT
ON
THE
SUMMARY
CONSOLIDATED
FINANCIAL
To the directors of Acadia Life The accompanying summary consolidated financial statements, which comprise the consolidated statement of financial position as at December 31, 2015 and the consolidated statements of income, comprehensive income and changes in equity for the year then ended, are derived from the audited consolidated financial statements of Acadia Life for the year ended December 31, 2015. We expressed an unmodified audit opinion on those consolidated financial statements in our auditors' report dated March 16, 2016. The summary consolidated financial statements do not contain all the disclosures required by International Financial Reporting Standards. Reading the summary consolidated financial statements, therefore, is not a substitute for reading the audited consolidated financial statements of Acadia Life. Management's responsibility for the summary consolidated financial statements Management is responsible for the preparation of a summary of the audited consolidated financial statements. Auditors' responsiblity Our responsiblity is to express an opinion on the summary consolidated financial statements based on our procedures, which were conducted in accordance with Canadian Auditing Standards (CAS) 810, "Engagements to Report on Summary Financial Statements". Opinion In our opinion, the summary consolidated financial statements derived from the audited consolidated financial statements of Acadia Life for the year ended December 31, 2015 are a fair summary of those financial statements, in accordance with International Financial Reporting Standards.
March 24, 2016 Dieppe, New Brunswick
Chartered Professional Accountants
Summary Consolidated Financial Statements
111
ACTUARIAL OPINION I have valued the policy liabilities and reinsurance recoverables on the statement of financial position of Acadia Life as at December 31, 2015 and their change in the statement of income for the year then ended, in accordance with accepted actuarial practice in Canada, including selection of appropriate assumptions and methods. In my opinion, the amount of policy liabilities net of reinsurance recoverables makes appropriate provision for all policy obligations and the consolidated financial statements fairly present the result of the valuation.
Jacques Tremblay, FICA Toronto, Canada February 26, 2016
112 Annual Report 2015
ACADIA LIFE CONSOLIDATED STATEMENT OF FINANCIAL POSITION December 31,
2015
ASSETS Investments Money market securities Bonds Investment funds Equities Asset-backed long-term notes
$
Cash Receivables Reinsurance assets Intangible assets Deferred income tax asset LIABILITIES Insurance contract liabilities Actuarial liabilities Provision for claims under settlement and claims not received Investment contract liabilities Patronage allocations and bonuses payable Payables and accrued expenses Due to related entities, without interest Income taxes payable Employee benefit liability
493,985 169,892,177 17,190,391 11,801,924 31,049
2014
$
4,372,016 163,302,757 15,602,055 12,224,359 31,049
199,409,526 996,489 2,552,065 6,978,109 513,472 44,506
195,532,236 662,735 2,210,716 6,719,398 480,028 9,691
$ 210,494,167
$ 205,614,804
$ 157,157,922 716,552
$ 157,569,023 505,703
157,874,474 129,269 2,038,355 1,346,345 83,579 192,027 330,944
158,074,726 316,701 2,002,116 1,132,598 74,281 538,780 331,951
161,994,993
162,471,153
15,887,118 2,066,535 30,545,521
15,887,118 1,760,933 25,495,600
48,499,174
43,143,651
$ 210,494,167
$ 205,614,804
SHAREHOLDER'S EQUITY Capital stock Accumulated other comprehensive income Undistributed surplus
FOR THE BOARD OF DIRECTORS
Pierre-Marcel Desjardins Chair
Gilles Godin Chair, Audit Committee
Summary Consolidated Financial Statements
113
ACADIA LIFE CONSOLIDATED STATEMENT OF INCOME Year ended December 31,
REVENUE Gross insurance and annuity premiums Premiums ceded to reinsurers
2015
$
Net insurance and annuity premiums Net investment income Management fees Commission revenue
OPERATING EXPENSES Gross insurance benefits Insurance benefits ceded to reinsurers Annuity benefits Change in insurance contract liabilities Change in investment contract liabilities Change in reinsurance assets Wages and other operating expenses Restructuring expenses
2014
20,373,418 $ (1,914,775)
92,993,409 (1,909,453)
18,458,643 8,806,165 317,719 2,078,443
91,083,956 27,560,350 326,207 1,639,252
29,660,970
120,609,765
7,441,069 (1,021,173) 5,360,135 (411,101) (187,432) (258,711) 8,495,553 178,140
6,518,038 (997,980) 2,267,243 94,571,779 (29,323) (1,025,353) 8,253,413 -
19,596,480
109,557,817
10,064,490
11,051,948
2,038,355
2,002,116
INCOME BEFORE TAXES
8,026,135
9,049,832
INCOME TAXES Current income taxes Deferred taxes relating to temporary differences and deferrals
2,119,737 (19,919)
2,316,329 122,560
2,099,818
2,438,889
OPERATING INCOME BEFORE PATRONAGE ALLOCATIONS AND BONUSES Patronage allocations and bonuses to the caisses
NET INCOME
114 Annual Report 2015
$
5,926,317
$
6,610,943
ACADIA LIFE CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Year ended December 31,
NET INCOME
2015
$
OTHER COMPREHENSIVE INCOME Item that will not be reclassified to the consolidated statement of income Change in the employee benefit liability Change during the year Deferred taxes relating to temporary differences and deferrals Total of the item that will not be reclassified to the consolidated statement of income Items that will be reclassified to the consolidated statement of income Unrealized changes in fair value on available-for-sale securities Change during the year Income taxes
Reclassified to income Realized gains on available-for-sale securities Income taxes
Total items that will be reclassified to the consolidated statement of income Total other comprehensive income, net of taxes COMPREHENSIVE INCOME
$
5,926,317
2014
$
6,610,943
(34,798) 14,896
(45,511) 12,288
(19,902)
(33,223)
631,806 (170,588)
636,228 (171,781)
461,218
464,447
(213,173) 57,557
(1,817,562) 455,165
(155,616)
(1,362,397)
305,602
(897,950)
285,700
(931,173)
6,212,017
$
5,679,770
Summary Consolidated Financial Statements
115
ACADIA LIFE CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended December 31, 2015
Balance, beginning of the year
$
Capital stock
Accumulated other comprehensive income
15,887,118
$
1,760,933
Undistributed surplus
$
25,495,600
Total equity
$
43,143,651
Net income Other comprehensive income
-
305,602
5,926,317 (19,902)
5,926,317 285,700
Comprehensive income Dividends
-
305,602 -
5,906,415 (856,494)
6,212,017 (856,494)
Balance, end of the year
$
15,887,118
$
2,066,535
$
30,545,521
$
48,499,174
Year ended December 31, 2014 Accumulated other comprehensive income
Capital stock
Balance, beginning of the year
$
15,887,118
$
2,658,883
Undistributed surplus
$
19,962,384
Total equity
$
38,508,385
Net income Other comprehensive income
-
(897,950)
6,610,943 (33,223)
6,610,943 (931,173)
Comprehensive income Dividends
-
(897,950) -
6,577,720 (1,044,504)
5,679,770 (1,044,504)
Balance, end of the year
116 Annual Report 2015
$
15,887,118
$
1,760,933
$
25,495,600
$
43,143,651
Board of Directors and Management Office de stabilisation de la Fédération des caisses populaires acadiennes From left to right
Gary Donald Long,
Janice Lirette Evers,
Simonne Godin,
Camille H. Thériault,
Roger Lessard,
Micheline Doiron,
appointed by the Board of Fédération Corporate Secretary
Caisses populaires members’ representative
Marcel Lanteigne,
Caisses populaires members’ representative President and CEO
appointed by the Financial and Consumer Services Commission
Chairman and Caisses populaires members’ representative
Luc St-Jarre,
Gilles Haché,
Rolland LeBouthillier,
appointed by the Financial and Consumer Services Commission
appointed by the Board of Fédération Vice President and COO Office
As of December 31, 2015
Board of Directors and Management
117
Office de stabilisation de la FĂŠdĂŠration des caisses populaires acadiennes Summary Consolidated Financial Statements As of December 31, 2015
INDEPENDENT AUDITORS' REPORT ON THE SUMMARY FINANCIAL STATEMENTS To the Directors of l'Office de Stabilisation de la Fédération des Caisses populaires acadiennes limitée The accompanying summary financial statements, which comprise the statement of financial position as at December 31, 2015 and the statements of income, comprehensive income and changes in net assets for the year then ended, are derived from the audited financial statements of l'OFFICE DE STABILISATION DE LA FÉDÉRATION DES CAISSES POPULAIRES ACADIENNES LIMITÉE for the year ended December 31, 2015. We expressed an unmodified audit opinion on those financial statements in our auditors' report dated February 24, 2016. The summary financial statements do not contain all the disclosures required by International Financial Reporting Standards. Reading the summary financial statements, therefore, is not a substitute for reading the audited financial statements of l'OFFICE DE STABILISATION DE LA FÉDÉRATION DES CAISSES POPULAIRES ACADIENNES LIMITÉE. Management's responsibility for the summary financial statements Management is responsible for the preparation of a summary of the audited financial statements. Auditors' responsibility Our responsibility is to express an opinion on the summary financial statements based on our procedures, which were conducted in accordance with Canadian Auditing Standard (CAS) 810, "Engagements to Report on Summary Financial Statements." Opinion In our opinon, the summary financial statements derived from the audited financial statements of l'OFFICE DE STABILISATION DE LA FÉDÉRATION DES CAISSES POPULAIRES ACADIENNES LIMITÉE for the year ended December 31, 2015 are a fair summary of those financial statements, in accordance with International Financial Reporting Standards.
February 24, 2016 Dieppe, New Brunswick
Chartered Professional Accountants
Summary Consolidated Financial Statements
119
OFFICE DE STABILISATION DE LA FÉDÉRATION DES CAISSES POPULAIRES ACADIENNES LIMITÉE STATEMENT OF FINANCIAL POSITION December 31,
2015
2014
ASSETS $
Cash Other assets Accrued investment income Recoverable income taxes Other receivables Prepaid expenses
690,823
$
725,438
558,322 15,146 2,556
530,327 4,017 10,969 1,115
576,024
546,428
104,550,512
97,121,983
8,343,607
10,631,700
3,579
7,688
$ 114,164,545
$ 109,033,237
$
$
Securities Investment in stabilization preferred shares Capital assets
LIABILITIES Payables and accrued liabilities Deferred income taxes Long-term debt Employee benefit liability
1,078,732 994,286 8,248,257 831,735
715,148 910,919 5,433,514 519,940
11,153,010
7,579,521
99,555,315 3,456,220
2,731,875 95,179,756 3,542,085
103,011,535
101,453,716
$ 114,164,545
$ 109,033,237
NET ASSETS Appropriated net assets Unappropriated net assets Accumulated other comprehensive income
ON BEHALF OF THE BOARD
Marcel Lanteigne Chair
120 Annual Report 2015
Janice Lirette Evers Chair, Audit Committee
OFFICE DE STABILISATION DE LA FÉDÉRATION DES CAISSES POPULAIRES ACADIENNES LIMITÉE STATEMENT OF INCOME Year ended December 31,
REVENUE Investment income Contribution income
2015
$
EXPENSES Services purchased from the Fédération General and administration expenses Expense related to the fair value of the long-term debt Restructuring expenses
INCOME BEFORE TAXES INCOME TAXES Current Deferred taxes related to temporary differences and carryforwards Deferred related to the change in tax rate
NET INCOME
$
3,237,067 4,868,223
2014
$
3,239,049 4,713,292
8,105,290
7,952,341
1,396,173 1,982,679 2,731,875 270,715
1,293,713 2,034,143 216,427 -
6,381,442
3,544,283
1,723,848
4,408,058
(110,903) (6,581)
(4,017) (10,137) -
(117,484)
(14,154)
1,841,332
$
4,422,212
Summary Consolidated Financial Statements
121
OFFICE DE STABILISATION DE LA FÉDÉRATION DES CAISSES POPULAIRES ACADIENNES LIMITÉE STATEMENT OF COMPREHENSIVE INCOME Year ended December 31,
NET INCOME
2015
$
OTHER COMPREHENSIVE INCOME Item that will not be reclassified to the statement of income Changes in the employee benefit liability Change during the year Deferred taxes related to temporary differences and carryforwards Deferred taxes related to the change in tax rate
2014
1,841,332
$
4,422,212
(316,426) 90,181 28,597
160,104 (36,824) -
Total of the item that will not be reclassified to the statement of income
(197,648)
123,280
Items that will be reclassified to the statement of income Unrealized changes in fair value on available-for-sale securities Change during the period Deferred taxes related to temporary differences and carryforwards Deferred taxes related to the change in tax rate
234,670 (66,831) (253,006)
1,981,464 (455,737) -
(85,167)
1,525,727
Reclassified to income Realized gains on available-for-sale securities Income taxes
Total of items that will be reclassified to the statement of income Total of other comprehensive income, net of income taxes COMPREHENSIVE INCOME
122 Annual Report 2015
$
(906) 208
(1,029) 237
(698)
(792)
(85,865)
1,524,935
(283,513)
1,648,215
1,557,819
$
6,070,427
OFFICE DE STABILISATION DE LA FÉDÉRATION DES CAISSES POPULAIRES ACADIENNES LIMITÉE STATEMENT OF CHANGES IN NET ASSETS
Year ended December 31, 2015 Appropriated net assets
Balance at beginning of year
$
Unappropriated net assets
2,731,875
$
-
Net income Other comprehensive income
(2,731,875)
Comprehensive income Transfers
$
Balance at end of year
95,179,756
Accumulated other comprehensive income
$
3,542,085
Total net assets
$ 101,453,716
1,841,332 (197,648)
(85,865)
1,841,332 (283,513)
1,643,684 2,731,875
(85,865) -
1,557,819 -
99,555,315
$
3,456,220
$ 103,011,535
Year ended December 31, 2014 Appropriated net assets
Balance at beginning of year
$
Net income Other comprehensive income
2,948,302
$
-
Comprehensive income Transfers Balance at end of year
Unappropriated net assets
(216,427) $
2,731,875
$
90,417,837
Accumulated other comprehensive income
$
2,017,150
Total net assets
$
95,383,289
4,422,212 123,280
1,524,935
4,422,212 1,648,215
4,545,492 216,427
1,524,935 -
6,070,427 -
3,542,085
$ 101,453,716
95,179,756
$
Summary Consolidated Financial Statements
123
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