INSPIRE SUPPORT FINANCE
ANNUAL REPORT
2 | Annual Report 2017 | UNI Financial Cooperation
Table of contents Message from the Chief Executive Officer........................................... 06 Management’s Discussion and Analysis................................................ 19 Caisse populaire acadienne
Consolidated financial statements............................................ 51
The Annual Report was created by C.E. & Digital Channel & Finance: HEAD OFFICE 295 Saint-Pierre Blvd. West P.O. Box 5554 Caraquet NB E1W 1B7 Graphic Design Mistral Communication
Table of contents | 3
2017 HIGHLIGHTS As of December 31, 2017
MORE THAN
155,000 MEMBERS
3
REGIONAL COOPERATIVE COMMITTEES
12
108
COMMUNITY COOPERATIVE COMMITTEES
MEMBERS
1,000 EMPLOYEES
$4B $21.5M
$2.3M
IN ASSETS
IN DONATIONS, SPONSORSHIP AND SCHOLARSHIPS
1
CAISSE
51
BUSINESS LOCATIONS
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4
REGIONAL OFFICES OF UNI BUSINESS
SURPLUS EARNINGS BEFORE OTHER ITEMS
2
REGIONAL OFFICES OF UNI INSURANCE
BUSINESS LOCATIONS Northwest area
Northeast area
Southeast area
Balmoral, Campbellton, Clair, Edmundston (Canada Road and Victoria Street), Eel River, Grand-Sault, Kedgwick, Sainte-Anne de Madawaska, Saint-Basile, Saint-François, Saint-Jacques, Saint-Léonard, Saint-Quentin.
Allardville, Bas-Caraquet, Bathurst, Beresford, Caraquet, Grande-Anse, Inkerman, Lamèque, Néguac, Paquetville, Petit-Rocher, Pokemouche, Rivière du Portage-Brantville, Robertville, Saint-Isidore, Sheila, Shippagan, Tracadie-Sheila.
Baie Sainte-Anne, Bouctouche, Cap-Pelé, Cocagne, Dieppe, Fredericton, Grand-Barachois, Grande-Digue, Moncton, Memramcook, Richibucto, Rogersville, Saint-Antoine, Saint-Louis, Sainte-Marie, Shediac.
REGIONAL OFFICES U NI Insurance Dieppe and Shippagan U NI Business Bathurst, Dieppe, Edmundston and Tracadie
Northwest
Northeast
Southeast
Business Locations | 5
MESSAGE FROM THE CHIEF EXECUTIVE OFFICER
Robert Moreau, Chief Executive Officer
CELEBRATING COOPERATION AND MUTUAL ASSISTANCE The year 2017 is already behind us. Early this past year, an ice storm of unprecedented fury struck New Brunswick, causing serious impact to our distribution network. UNI was able to support its clients throughout the storm’s aftermath, and although several business locations were disabled, our employees pulled together to maintain continuity of service while coping with the effects of this crisis on their own lives. Seeing our employees’ level of dedication and determination to continue providing an outstanding client experience even in these challenging conditions was a source of immense pride for me. The quality of our services has been a priority during my term as your CEO, and I learned from this event that I could depend on the unwavering and generous support of our entire team. We went far beyond simply a financial relationship; we also offered our assistance at warming centres in order to provide direct help to those affected. This event reminded us all just how strong, united and resilient our communities are.
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A STRONG AND VISIBLE BRAND The UNI brand is a success. In addition to business results, numerous indicators have shown the positive impact of the changes made in this regard. Once again this year, our presence and involvement in the heart of our communities reinforced our leading collaborative role. UNI also continues to maintain a strong presence through its contributions in the form of donations, sponsorships and scholarships, which totalled more than $2 million once again this past year and benefited more than 1,000 organizations across the province. I also could not be prouder of certain major accomplishments in the areas of sustainable development, contributing to the development of our youth and promoting entrepreneurship.
A BROADER DEMOCRACY
FINANCIAL PERFORMANCE IN 2017
In 2017, we enhanced democratic participation with the adoption of a new process for electing members to our board of directors. By extending the voting period and providing easier access through online and telephone voting, we tripled the number of participants in this democratic process.
It is with evident satisfaction that we report on UNI’s financial performance during the past financial year. Our loan portfolio, net of provisions, surpassed the $3 billion mark in 2017, up $220 million over 2016. This corresponds to a 7.4% increase, which represents the strongest growth in the last five years.
SURPASSING THE $4 BILLION THRESHOLD We should be very proud of our major efforts in relation to business development. The year 2017 was one of record growth, particularly in terms of personal and business loans. While certainly encouraging, these results also attest first and foremost to the soundness of the decisions we have made and the impact of each individual’s contribution on UNI’s future. It is also no coincidence that 2017 will go down in history as the year in which we surpassed $4 billion in assets. Now that we have broken through this glass ceiling, there is nothing to stop us from aiming even higher.
“
UNI also recorded $21.5 million in surplus earnings before other items in 2017, an increase over the $15.1 million recorded in 2016. This improved result was due largely to effective management of operating expenses and the results for our Acadia Life subsidiary, which exceeded expectations. Additionally, there were no expenses in 2017 relating to the merger since that project is now complete. UNI’s administrators took a cautious approach once again for the year ended December 31, 2017, and decided not to pay out individual dividends to members. This decision was made in response to the implementation of more stringent capitalization requirements.
As our society becomes increasingly digitized and automated, nearly everything is now available online. However, computers will never take the place of genuine human interaction. At UNI, our aim is to offer guidance to our members at every stage of their lives – inspiring, supporting, financing and insuring while also upholding the sense of goodwill and altruism that has made our great brand a success.
Message from the Chief Executive Officer | 7
REVIEW OF OUR SERVICES UNDERWAY A major initiative targeting greater uniformity of client services was recently launched following the addition of new members to our Executive Committee. I am witness on a daily basis to their high level of expertise and incredible commitment to their main objective of continuing the transformation efforts initiated several years ago in order to make the Caisse more intergenerational, more versatile and more efficient in its service to all members. In 2017, the Executive Committee undertook a reflection process leading to the development of a three-year strategic plan serving as the cornerstone of UNI’s ongoing transformation. We are very proud of this plan, which will serve as a beacon and guide our actions with consistency and coherence. The main levers of this plan are based on profitable growth, optimized operational effectiveness and employee mobilization around the needs of our clients and their communities. The plan also sets out a number of forwardlooking projects that I am confident will maintain our institution’s development and growth. Beyond this, however, this modern and ambitious vision will also successfully demonstrate to future generations that UNI is much more than a financial institution. I believe sincerely that UNI stands first and foremost for hope, common sense, fairness and goodwill for everyone who believes, as we do, that true wealth comes from sharing.
NAVIGATING A RAPIDLY CHANGING FINANCIAL WORLD The next 10 years will very likely be a time of profound change for the financial sector. New financial models are being developed almost daily. Against this competitive backdrop, we must remain both bold and vigilant in our approach to business. Yes, we have already dared to redefine our business model, but we must now continue to show agility in our decision-making processes and to seek innovative, profitable and competitive solutions.
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Management of our real estate holdings will inevitably become a focus of particular attention as our clients’ day-to-day needs evolve along with technology. To meet and exceed these expectations, we need to continue investing in new technologies and mobile experiences. It would be irresponsible in this context to continue maintaining infrastructure that is no longer being used enough to keep it relevant and viable. We are seeking not simply to keep up with the rest of our industry but rather to do things better so that we can offer clients the best possible service.
CLIENTS: OUR CENTRAL PRIORITY As our society becomes increasingly digitized and automated, nearly everything is now available online. However, computers will never take the place of genuine human interaction. At UNI, our aim is to offer guidance to our members at every stage of their lives – inspiring, supporting, financing and insuring while also upholding the sense of goodwill and altruism that has made our great brand a success. Our ambitions remain unchanged. We continue to stand for humanity and compassion, inspired by the same dream as the founders who came before us: a dream of building not only financial wealth but also cultural, social and community wealth. In closing, I extend my sincere thanks to the members of our Board of Directors for their dedication and vigilance and to all of our employees for their enthusiasm and commitment to making UNI a financial institution that is unique, proud... incomparable. Above all, I want to thank our clients for their trust in us. We have come a very long way in a short time. Be assured that with your support, we intend to go further still. Continue sharing your dreams, your hopes, your plans and your concerns with us, for they guide our daily efforts. Whatever challenges lie ahead, nothing can stop us if we face them together.
OUR HUMAN CAPITAL Focusing on Talent Development
Our 2017-2019 Strategic Plan was developed taking into account the current reality of profound transformation within UNI. This shift was initiated subsequent to the collective merger and took form with the arrival of our new CEO and management team early in 2017. A new structure reflecting our strategic priorities was also defined. These changes have led to the development of rewarding career paths for our employees and attracted talent to key positions to support the successful completion of our institution’s transformation. The position of Vice-President, Talent Management, was created in 2017 to focus primarily on the human dimension. This person is responsible for developing and leading all human resources functions and activities and assisting our institution in attracting, developing and retaining employees while also promoting improved organizational performance. Our workforce remains the heart of our business as we strive to meet our organization’s current and emerging needs. This emphasis on developing our managers with a view to strengthening relationships of trust with their teams and promoting continuous dialogue is a cornerstone of both the employee experience and UNI’s evolution.
We continue to invest in our employees while seeking their contribution to, and involvement in, our transformation efforts. To support and achieve our strategic goals for growth, performance and distinction, the Talent component of the Strategic Plan aims to: • make a success of the new integrated organizational model adopted by head office and our distribution network and subsidiaries with a view to responding seamlessly and effectively to the needs of our internal and external clients • promote the development of our talent by improving the alignment of our employees’ profiles, behaviours and competencies to our clients’ needs and expectations while continuing to uphold our business objectives • create an employee experience that facilitates the attraction, retention and mobilization of employees while focusing cohesion and communication efforts among all managers.
OUR HUMAN CAPITAL | Focusing on Talent Development | 9
THE EMPLOYEE EXPERIENCE AND CLIENT EXPERIENCE: TWO CONVERGING APPROACHES The client experience and employee experience are part of the same continuum of value. Moreover, we believe that in addition to serving as our driving force, our employees and the service they provide to our clients make THE difference in terms of standing out among our competitors. Our employees’ dynamic approach, availability and dedication to serving our clients are directly related to client satisfaction and loyalty. These assets are thus also directly related to our institution’s performance. Beyond offering employment, our organization promises a rewarding professional and personal experience. The basis of this promise took shape in 2017 and will continue to be defined over the coming years. At UNI, we have embraced the transformation of our approach, products and services in order to continue offering an outstanding client experience. Our employees remain at the centre of our evolution, growth, innovation and success.
EMPLOYEE-FOCUSED INITIATIVES AND OUTCOMES IN 2017: • Launch of the performance management tool Halogen in the form of a pilot project involving 80 employees. The project outcomes were positive, and we plan to expand the use of this tool in 2018. • UNI’s compensation philosophy is a fundamental component of its overall talent management strategy. A competitive pay structure provides UNI access to the expertise and experience required for key positions to support it in achieving targeted growth objectives. An initiative to align incentive plans was undertaken with an emphasis on growth and profitability indicators. These indicators have been incorporated into all employee plans for 2018.
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• At 2017 year-end, we employed 932 people in New Brunswick. • Our managers hired for a total of 207 new positions. Of this number, 112 were filled by employees internally, and 95 – mainly entry-level and student positions – were filled by new employees. Another 21 employees retired from the organization. The new structure in place and large-scale optimization projects have contributed to this movement of staff. • A new training strategy was developed in 2017 for deployment during 2018. Promoting a learning culture constitutes the core of this strategy, since learning contributes to more effective employee performance, employee commitment and retention, and professional growth, all of which are essential ingredients for UNI’s growth. • A training program on combating money laundering was made available to all employees and is still offered each month to new employees. • Five IT training campaigns were offered in 2017. • Improvements were made to the annual conflict of interest declaration process. An electronic version was developed and distributed to all employees. This improvement led to wider understanding of the code of ethics and greater transparency in terms of the reporting of potential conflicts. • Staffing policies are constantly evolving. These policies were reviewed and adopted by our employees. A guide to social media use was also developed to facilitate interaction with our clients and the general public on online social networks.
STRATEGIC PLAN A ClientFocused Strategy INSPIRE, SUPPORT AND FINANCE value-creating projects for the exclusive benefit of clients and their communities.
A DETAILED STRATEGIC PLANNING PROCESS In 2017, an in-depth review and planning exercise was carried out resulting in the definition of a three-year strategic plan to guide and direct our actions in a consistent manner.
This strategic plan for 2017-2019 sets out a number of forward-looking projects to maintain our institution’s development and growth. Beyond this, however, this modern and ambitious vision has also been developed to demonstrate to future generations that UNI is much more than a financial institution. UNI is, first and foremost, a beacon of hope, common sense, fairness and goodwill for everyone who believes, as we do, that true wealth comes from sharing.
EMBRACING A CULTURE WHERE, MORE THAN EVER, OUR CLIENTS ARE OUR CENTRAL PRIORITY GROWTH
TALENT CLIENTS
EFFICIENCY
DISTINCTION
Because we are a cooperative financial institution, our clients’ interests come first now more than ever. Thorough strategic planning equips us to develop and implement tangible and competitive actions. We intend to move forward with four main focuses: growth, efficiency, distinction and, above all, talent. In fact, our plan aims to offer guidance to our members at every stage of their lives – inspiring, supporting, financing and insuring while also upholding the sense of goodwill and altruism that have made our great brand a success.
Strategic Plan | 11
RELYING ON EIGHT MAIN LEVERS The main levers of this new strategic plan are based on profitable growth, optimized operational effectiveness and employee mobilization around the needs of our clients and their communities.
GROWTH 1
Revenue growth
2
Revenue diversification
EFFICIENCY 3 Operational efficiency
GROWTH 1. Maintaining profitable growth of conventional revenue sources
2. Diversifying revenue sources beyond our traditional sphere
The growth of both “conventional� financial activities and activities outside of our traditional sphere must necessarily be ongoing if we are to continue fulfilling our original purpose to contribute to the well-being of our clients and their communities.
The diversification of revenue sources beyond conventional boundaries means, among other things, maintaining an ongoing interest in wealth management. Seeking new partnerships will also assist in broadening our revenue sources.
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4
Information quality
EFFICIENCY 3. Generating efficiency and optimization Our capacity to provide effective service while also improving profitability and productivity depends largely on increasing the efficiency of our operations and fine-tuning the client experience. A number of initiatives will be implemented to ensure that the resources and supports are in place to drive significant operational improvements.
4. Adopting tools and systems providing access to quality information We have also launched an extensive digital transformation process targeting greater system integration and optimization. As part of this, we will develop new approaches to better understanding our clients and their needs while laying a foundation for the development of business intelligence. This core initiative will assist us in refining our product and service offerings and making decisions with the goal of more effectively meeting the needs of both our clients and our markets.
TALENT 5 Alignment and performance of organizational model
6
DISTINCTION Talent development
TALENT 5. Aligning our institution to its strategy and priorities The implementation in 2017 of our new organizational structure is proof of UNI’s forwardlooking stance and determination to take all necessary measures to ensure the success of our strategic plan. In this regard, pooling multiple complementary functions within our institution will support consistency and alignment to our strategic intentions while also placing emphasis on breaking down silos and adopting crosscutting, more agile approaches.
6. Promoting talent development Our institution’s performance is largely dependent on our employees and on their skills and behaviours. Our client focus will succeed only if we cultivate talent that is aligned to their satisfaction and to UNI’s main priorities. This talent is our employees, and they are what will make the difference in the future far beyond any technological advances. Our employees will support these advances by viewing themselves as life and growth partners.
7 Value for member/client
8
Brand image enhancement
DISTINCTION 7. Delivering real value and a quality experience to clients Our client focus is realized through the value that clients associate with UNI and the experience that our institution provides to them. Special attention to client expectations and the creation of a memorable client experience via all contact points will be critical in this regard.
8. Showcasing UNI’s brand identity and underlying values to the communities and markets served The UNI brand is much more than a reflection of our business activities. It illustrates our involvement in our communities and in the lives of our clients. Our distinction – what makes us different – must go far beyond our distribution and service network. It must be found in real action at the community level and in raising awareness about our achievements.
Strategic Plan | 13
UNI BUSINESS A growth partner for entrepreneurs from near and far We are not a bank, but a cooperative financial institution that aims to promote the economic development of enterprises by providing the best products and services. We want to inspire, support and finance companies that believe, as we do, that true growth is when everyone grows together.
Shaun Maclsaac | Greenway Realty Inc., Charlottetown, P.E.I. Bob Lennon | ThermalWood Canada, Bathurst, N.-B. Gilbert Blanchard | Gestion Santé ltée/Douces Marées/Café Maris Stella, Bas-Caraquet, N.-B. Madeleine Levesque-Toner | Best Western Plus, Grand-Sault and Fredericton, N.-B. and St. John’s, N.L. Paul Farrah |Xtreme Cold Storage, Dieppe, N.-B. We thank them for their valuable contribution to production of the various videos recorded in 2017.
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UNI INSURANCE Insurance: let’s talk about it
A YEAR IN TWO KEY WORDS
A SIMPLIFIED, UNIFIED EXPERIENCE
The client experience has been made the central focus of all business activities of UNI Financial Cooperation, reflecting our overriding commitment in this regard. Our approach and actions are guided by two key words: simplifying and enriching, by which we mean providing a simplified experience in the interest of optimizing the client journey, enriched by a more human approach.
Acadia Life, AVie and Acadia General Insurance have been brought together under a single name: UNI Insurance.
THE OFFERING OF UNI INSURANCE IS ALIGNED TO THIS STRATEGY
This ambitious decision makes it possible to channel all business communications through a single website, uniassurance.ca. Our offering itself has also been simplified. In the interest of clarity and highlighting the simplicity of our products, we have opted not to present the entire offerings of UNI Insurance in full detail. This deliberate decision sets the UNI Insurance website apart from the complex sites of our competitors.
In April 2017, our activities in the insurance sector were reorganized to more effectively meet the needs of clients: • who place great importance on the simplicity of their interactions with us • seeking to build genuine human relationships • who equate choosing a brand with taking a stance.
UNI INSURANCE | 15
LAUNCHED IN 2017, UNI COMMUNITY SEEKS TO INSPIRE, SUPPORT AND FINANCE PROJECTS With the profits generated from its business operations, UNI gives back $2.3 million a year to communities in an effort to inspire, support and finance responsible and sustainable civic activities and projects that contribute to the attractiveness and well-being of the province.
PURPOSE OF THE UNI COMMUNITY UNI, its 1,000 employees and 150,000 client owners firmly believe that one person’s prosperity should contribute to that of others. As a result, each day, the institution supports and finance projects that contribute to the well-being of New Brunswickers rather than shareholder profits elsewhere. To make this vision a reality, UNI established a citizen cooperative consisting of representatives, real agents of change, and a provincial youth committee. They are the ones who set our cooperative dis apart from other institutions each and every day.
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They are responsible for meeting the needs of communities and rallying those who create social, economic, environmental and cultural value for the exclusive benefit of New Brunswick’s citizens and business communities.
NOTABLE ACHIEVEMENTS 2017 Our program aims to support projects that create social, economic, environmental and cultural value for the exclusive benefit of New Brunswick’s citizens and business communities. Notable achievements in the area of sustainable development in 2017 included: • Association francophone des aînés du N.-B. • Centre Jean-Daigle in Edmundston • Place aux compétences These rewarding initiatives provide us opportunities to contribute to a thriving Acadian and Francophone society.
TRUE WEALTH COMES FROM SHARING. Unlike banks, UNI shares its profits with its customers and invests in communities. Every week, we give $50,000 back to the community in donations, sponsorships and scholarships. We do so because we strongly believe that the prosperity of one must contribute to that of others.
IT IS THE ONLY ORGANIZATION ENTIRELY DEVOTED TO ACADIAN PROSPERITY.
For every $100 invested in the community in 2017
DONATIONS, SPONSORSHIPS AND SCHOLARSHIPS
$8
$11
$27
Because true wealth comes from sharing, UNI Financial Cooperation, naturally sensitive to the needs of the communities she serves, has given, in 2017, $2.3 million to local organizations. The awarding of donations, sponsorships and scholarships is one of the many ways for UNI Financial Cooperation to inspiring, supporting and financing collaborative economy projects which stimulate the growth of the province.
$17
$17
$20
EDUCATION AND YOUTH Contributing to the development of youth
RETURNS TO THE COMMUNITY 2013
2014
2015
2016
2017
$3.7M
$4.5M
$2.5M
$2.3M
$2.3M
SPORTS AND RECREATION Contributing to community vitality ARTS AND CULTURE Promoting the fostering of new talent and boosting the cultural industry MUTUAL AID AND SOLIDARITY Supporting community and social development projects
Over the last 5 years, UNI Financial Cooperation has paid out more than $15 million in individual and collective dividends to their members and communities.
HEALTH Facilitating access to healthcare services and to research for a better quality of life E CONOMIC DEVELOPMENT Creating synergy with the business community
True Wealth Comes from Sharing | 17
Child
Teacher
THE SCHOOL CAISSE HAS A NEW LOOK!! FINANCIAL LITERACY People start learning about sound financial management at a very young age. From kindergarten right through grade 12, children need to learn a variety of financial concepts in order to become informed consumers.
SCHOOLS AND UNI HAVE A NATURAL PARTNERSHIP THAT GOES BACK MORE THAN 75 YEARS. What could be more natural than continuing to use the school environment to educate children about saving money and provide them tools to inspire their interest in financial topics? In updating the School Caisse, we want to help set the next generation up for success as it learns to build its future – knowing that the future of our youth is also the future of our communities.
CHILDREN NOW MANAGE THEIR OWN ACCOUNTS We have put technology to work in order to more effectively meet the needs of today’s young people by migrating the former School Caisse account to an account that better reflects their reality. • 68 participating schools • 5,680 members
CHILDREN CAN VIEW THEIR ACCOUNTS ONLINE Although we still use the little deposit envelopes, children can now also manage their own accounts online and have fun learning with AccèsD School Caisse, which offers: 1 tips, advice and interactive videos 2 online access to view their account balance and most recent transactions 3 view account statement online And parents can now even transfer money to their children!
Facts about debt: 1. For every $1.00 in income, Canadian households have $1.68 in debt.* 2. Students in New Brunswick are the most indebted in Canada (average debt $35,200).*
1
2
*Statistics Canada
uni.ca/schoolcaisse
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Management’s Discussion and Analysis YEAR ENDED DECEMBER 31, 2017
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Table of contents Note to the Reader................................................................................... 21 Profile and Structure................................................................................ 22 Organization Chart................................................................................... 23 Board of Directors..................................................................................... 24 Financial Results........................................................................................ 25
MANAGEMENT’S DISCUSSION AND ANALYSIS Economic and Financial Forecast........................................................... 26 Review of Financial Results
2017 Surplus Earnings................................................................. 28
Net Interest Income..................................................................... 29
Operating Expenses .................................................................... 31
Analysis by Line of Business....................................................... 33
Balance Sheet Review
Summary Balance Sheet............................................................. 34
Capital Management................................................................... 37
Balance Sheet Arrangements..................................................... 38
Risk Management...................................................................................... 39
NOTE TO THE READER This management report offers the reader a general overview of UNI Financial Cooperation. It is a complement and a supplement to the information provided in the combined financial statements of the Caisse populaire acadienne. It must therefore be read together with the combined financial statements, including the accompanying notes for the year ended December 31, 2017. This report also presents the results analysis and main modifications made to Caisse populaire acadienne’s balance sheet during the fiscal year ended December 31, 2017. Other information concerning UNI Financial Cooperation can be obtained from the website uni.ca.
Table of contents | 21
Profile and structure WHAT WE ARE With $4 B in assets, UNI Financial Cooperation, inalienable collective heritage, is the most important Acadian financial institution. It combines, among other bodies, 1 caisse, 51 business locations, 4 regional offices of UNI Business and 2 regional offices of UNI Insurance, spread across New Brunswick. The personal, business, wealth management, life insurance and general insurance areas of activity offer clients a complete range of financial products and services that meet their needs. While playing a leadership role on New Brunswick’s economic chessboard, UNI Financial Cooperation is an important provincial employer and capitalizes on the skills of more than 1,000 employees and the dedication of the 12 members elected to the Board of Directors and 108 representatives serving on cooperative committees.
PURPOSE Inspiring, supporting, and financing collaborative economy projects which stimulate the growth of the province. No financial institution has more legitimacy to give life to its purpose. It is the ONLY organization entirely devoted to Acadian prosperity! Vigorously determined, UNI has a spirit of adventure, and the courage to take on new projects but, not at any price. If it sometimes shakes up some conventions, it is always with a great respect for the rules, and with the protection of present and future generations’ well-being in mind.
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OVERVIEW UNI Financial Cooperation differs 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, UNI Financial Cooperation 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. UNI Financial Cooperation’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, he pays particular attention to the number of business locations 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. UNI Financial Cooperation is also characterized by the active participation of elected officials and in the decisionmaking structure of the organization through the board of directors, the 12 Community Cooperative Committees, the 3 Regional Cooperative Committees and various bodies.
ORGANIZATION CHART UNI Financial Cooperation operated in 51 business locations
UNI Business
ACADIA SERVICE CORPORATION
operated in 4 regional offices
• Acadia Service Centre
ACADIA FINANCIAL HOLDINGS UNI Assurance
Support Institutions • Fondation des caisses populaires acadiennes
• Acadia Life • Acadia General Insurance • AVie
• Conseil acadien de la coopération
Acadia Financial Services
Chief Executive Office Assistant
Chief Executive Officer Robert Moreau
Paulette Thériault
Marc Roy
Donald Hachey
Vice-President, Subsidiaries & Executive Director Acadia Life
Yvon Godin
Anik Gagnon / Simonne Godin
Legal Affairs & Corporate Secretariat Director
Assistant General Manager Assurances générales Acadie
Assistant General Manager AVie
Corporative Secretary
Internal Auditor Director Michel Trahan
Gilles Lanteigne
Sales Support Leader, subsidiaries
UNI Community Director
Colette Vienneau
Vice-President, Business Solutions & Partnerships René Collette
Assistant Vice-President, Business Solutions & Partnerships
Vice-President, Personal Solutions Marc-André Comeau
Regional Vice-President, Kent-Westmorland Eric Haché
Pierre S. Doiron
Corporate Development Manager & HR Partner Pierre Giard
Regional Vice-President, Acadian Peninsula Guy Godin
Regional Vice-President, Madawaska-Victoria Annie Nadeau
Regional Vice-President, Restigouche-Chaleur Conrad McLaughlin
Regional Vice-President, Kent-Westmorland Luc Richard
Hermel Chiasson
Vice-President, Marketing & Customer Experience Martin Paré
C.E. and Digital Channel Director Julie Francoeur
Regional Vice-President, Madawaska-Victoria
Marketing Partner, Personal Banking
Regional Vice-President, Acadian Peninsula
Marketing Partner, Commercial Banking
Regional Vice-President, Restigouche-Chaleur
Supply Management & Business Intelligence Leader
Chantal Thériault
Ghislain Desrosiers
Chantal Mallet
Jean-Philippe LeBlanc
Rino Basque
René Doiron
Vice-President, Talent Management Diane Allain
Chief Risk Officer Sylvain Fortier
Vice-President, Finance
Vice-President, Operations & Optimization
Éric St-Pierre
Derrick Smith
Employee Experience Director
Compliance Director
Controller
Sébastien Poirier
Jocelyn Landry
Assistant Vice-President, Customer Service & Continuous Improvement
Chief Business Partner
Chief Credit Director
Chief Treasury Officer
Projects Management Office Director
Claire Turbide-Albert
Annie I. Cyr
Sophie Haché
Pierre Cormier
Stéphane Breau
Florence Caissie
Supply & Building Director Conrad Blanchard
IT Coordinator Gérald Paulin
Wealth Management Director Daniel Bergeron
Sales Support Leader, Personal Robin Richardson
As of April 1st, 2018
Management’s Discussion and Analysis | 23
BOARD OF DIRECTORS
PIERRE-MARCEL DESJARDINS, ICD.D, Chairman
DIANE PELLETIER, Director
MAURICE PICARD, Director
GUY J. RICHARD, ICD.D, Vice Chair
ALLAIN SANTERRE, Director
GILLES GODIN, Director
HUGUES THÉRIAULT, Director
ROLAND CORMIER, Director
SÉBASTIEN DESCHÊNES, DBA, CFA, CPA, CA, Director
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BRIAN L. COMEAU, Director
LLOYD PLOURDE, Director
WANITA MCGRAW, FCPA, ICD.D, Director
FINANCIAL RESULTS AS OF DECEMBER 31, 2017 FINANCIAL SITUATION ($ thousand and %)
Caisse populaire acadienne 2017
2016
Variance
$113,508
$106,114
7.0%
$55,789
$58,985
(5.4)%
Assets
$4,000,078
$3,843,570
4.1%
Equity
$398,527
$394,097
1.1%
2017
2016
$169,297
$165,099
81.0%
87.7%
$21,525
$15,149
1.1%
7.9%
7.0 B$
6.6 B$
6.5%
5.3%
$6,515
$3,369
Net interest income Other income
COMPARISON OF RESULTS OF 2017 WITH ESTABLISHED FINANCIAL TARGETS FOR THE YEAR ($ thousand and %)
Profitability and productivity Total revenues Productivity index Surplus earnings before other items Return of equity
Business Development Business volume
Business volume growth Risk Credit losses
Management’s Discussion and Analysis | 25
ECONOMIC AND FINANCIAL OUTLOOK
Graphic: Changes in Bank Rate, 2013-2018
Bank Rate
1.50 1.25 1.00 0.75 0.50 0.25 2013
2014
2015
2016
2017
2018
Source: Bank of Canada
26 | Annual Report 2017 | UNI Financial Cooperation
17 20
16 20
15 20
14 20
13 20
12 20
11 20
Canada’s GDP rose 1.3% over last year. The Bank of Canada hiked its benchmark interest rate by 25 basis points twice in 2017, bringing it up to 1.25% in September 2017.
1.10 1.05 1.00 0.95 0.90 0.85 0.80 0.75 0.70 0.65 0.60
10
CANADA
Graphic: Changes in Canadian dollar versus U.S. dollar, 2009-2017
20
The new president-elect made good on promises to strenghen his country’s borders and renegotiate NAFTA. The forest industry in New Brunswick and across Canada was one of the first sectors affected by increased U.S. protectionism.
09
The United States’ GDP grew by 2.2% in 2017. The Federal Reserve raised its federal funds rate three different times in 2017 from 0.75% at the start of the year to 1.50% by mid-December.
After spending the first half of the year sitting at around US$0.75, the Canadian dollar averaged around US$0.79 during the second half, peaking at US$0.8245 in mid-September 2017.
20
UNITED STATES
Source: Bank of Canada
The fishing industry posted a very good year. Crab fishers in particular had an outstanding season due to increased biomass combined with higher global demand for their product. Results in the lobster fishery were especially strong in the province’s northeast in terms of both catch size and prices. On the other hand, catches and prices in southeastern New Brunswick were disappointing. Although demand for New Brunswick lobster has continued to grow in the Asian and European markets, the U.S. market still accounts for the majority of exports of that product.
NEW BRUNSWICK The Energy East project fuelled significant debate in 2017. Despite promising major spin-off benefits for the province, the project was ultimately suspended during the course of the year. New Brunswick’s GDP grew by an estimated 1.5% in 2017. Growth in the retail trade sector kept pace with national growth at approximately 7.0% (based on the latest non-seasonally adjusted data) in 2017. Inflation exceeded the national average, while the consumer price index stood at 2.3% in New Brunswick versus 1.6% for Canada as a whole. Housing starts rose by 26.4% in comparison to a national rate of 11%. Provincial exports grew by 19%.
Employment posted a slight (0.4%) increase, while the unemployment rate dropped from 9.5% to 8.1%. Northeastern New Brunswick again had the highest unemployment rate, at 13.6%, while the rate in the central part of the province stood at 6.3%.
Unemployment (%)
Jobs (000s)
2016
2017
2016
2017
Northwest
6.8
7.3
37.1
36.5
Northeast
15.8
13.6
58.5
60.8
Southeast
8.5
7.2
105.3
105.9
Southwest
8.4
6.7
83.0
84.2
Centre
8.2
6.3
67.5
65.4
New Brunswick
9.5
8.1
351.5
352.9 Source: Statistics Canada
Management’s Discussion and Analysis | 27
REVIEW OF FINANCIAL RESULTS SURPLUS EARNINGS IN 2017 UNI recorded $21.5M in surplus earnings before other items at December 31, 2017, an increase over the $15.1M recorded in 2016. This improved result was due mainly to management of operating expenses and results for Acadia Life, which exceeded expectations. Specifically, excluding donations, sponsorships and merged caisse expenses, the profitability of Personal and Business sector operations decreased by $4.9M to stand at $11.8M, compared to $16.7M in 2016. In 2017, the life and health insurance sector contributed $9.7M in surplus earnings compared to $7.5M in 2016. At December 31, 2017, surplus earnings of $4.3M were recorded, while surplus earnings before other items totalled $21.5M. This variation is due to other items and 2017 taxes. Other items consist of a variation in the market value of our derivatives and in UNI’s bond investment portfolio. These two items represented a total impairment loss of $15.5M in 2017. This impairment loss was attributable mainly to higher interest rates in the market. This
($ thousand)
impairment loss will reverse gradually as these various instruments reach maturity. In income tax accounting, a $1.8M expense was recorded in 2017 versus a recovery of $27.7M in 2016 coming principally from the reversal of a provision for income tax coming from the Office de stabilisation des caisses populaires acadiennes fund following the transfer to the federal charter on July 1, 2016. UNI’s administrators took a cautious approach for the year ended December 31, 2017, due to strict capitalization requirements and decided not to pay out individual dividends to members this year. CONTRIBUTION TO SURPLUS BY LINE OF BUSINESS EXCLUDING COLLECTIVE MERGER FEES ($ thousand) Life and Health Insurance Personal and Business $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 -
$22,340 $6,152 2013
$20,737
$11,868
$14,558
$11,052
$10,242
$7,504
$9,700
2014
2015
2016
2017
$11,826
2017
2016
2015
Life and Health Insurance
$9,700
$7,504
$10,242
Particular and Business
11,825
16,699
11,868
Results before collective merger fees
Donations, sponsorships and scholarships (included general expenses)
-
(2,141)
Expenses related to the collective merger
-
(6,913)
Surplus earnings before other items
28 | Annual Report 2017 | UNI Financial Cooperation
$21,525
$15,149
(10,053) $12,057
NET FINANCIAL INCOME
FINANCIAL EXPENSES
Net financial income corresponds to the difference between the financial income earned on assets, such as loans and securities, and the financial expenses associated with liability components, such as deposits and borrowings.
Financial expenses totalled $33.9M, a decrease of $1.0M compared to 2016. These expenses include interest charges of $32.3M on the deposit portfolio and $1.6M on money borrowed from other institutions.
Net financial income totalled $113.5M in 2017 year-end, which represents a $7.4M increase over 2016, when it stood at $106.1M.
The interest expense on member deposits went from $33.5M in 2016 to $32.3M in 2017. Although the deposit portfolio performed well in 2017, UNI successfully brought down interest expenses regardless. The decline in the average deposit portfolio rate is due to the renewal of term savings at lower rates as well as the popularity of the “Enhanced Investment Account” product which offers a lower rate than conventional term savings.
To facilitate analysis, the table on the next page sets out changes in net financial income according to major asset and liability categories. The net financial spread, expressed as a percentage of average assets, was 2.9% in 2017, slightly higher than the corresponding spread of 2.8% in 2016.
FINANCIAL INCOME Financial income totalled $147.4M in 2017, up $6.4M over the previous fiscal year. Financial income is made up of $26.4M in revenue on cash assets and investments and $121.0M in revenue on the loan portfolio.
Interest expenses associated with borrowed monies rose by $0.2M from $1.4M in 2016 to $1.6M in 2017. This increase is due simply to the fact that UNI decided to take out additional securitization loans in 2017 as part of its cash management strategy.
Income on cash assets and securities increased by $5.6M over the previous year or from $20.8M in 2016 to $26.4M in 2017. Interest income from UNI’s loan portfolio increased by $0.8M versus 2016. Interest income from loans totalled $121M in 2017, up from $120.2M in 2016. This performance was due mainly to the significant growth of UNI’s loan portfolio as well as the two increases in the prime rate in 2017. Therefore, this income growth was below our expectations, and efforts will be increased to enhance and diversify UNI’s income.
Management’s Discussion and Analysis | 29
NET FINANCIAL INCOME ON AVERAGE ASSETS AND LIABILITY ($ thousand)
2017 Average balance
2016 Average rate
Interest
Average balance
Average rate
Interest
Assets Interest-bearing assets Cash and securities
$723,237
$26,473
3.7%
$734,093
$20,847
2.8%
Loans
3,099,211
120,951
3.9%
2, 938,679
120,179
4.1%
3,822,447
147,424
3.9%
3, 672,772
141,026
3.8%
Total interest-bearing assets Other assets Total assets
99,623
94,588
$3,922,070
$147,424
3.8%
$3,767,360
$141,026
3.7%
$3,195,425
$32,280
1.0%
$3, 056,515
$33,460
1.1%
76,358
1,636
2.1%
68,571
1,452
2.1%
3,271,782
33,916
1.0%
3, 125,086
34,912
1.1%
$34,912
0.9%
$106,114
2.8%
Liabilities and equity Interest-bearing liabilities Deposits Borrowings Total interest-bearing liabilities Other liabilities
253,977
262,955
Equity
396,312
379,320
Total liability and equity
$3,922,070
Net financial income
$33,916
0.9%
$113,508
2.9%
$3, 767,360
OTHER INCOME Other income came from multiple sources as shown in the following table. ($ thousand)
2017
2016
2015
$18,241
$19,873
$18,559
Net insurance and annuity premiums
18,990
18,503
17,843
Commissions
11,679
10,602
9,503
Lending fees
1,267
1,390
1,252
830
1,052
945
Sales of related services
2,813
2,901
2,864
Other income
1,969
2,729
1,335
—
1,935
_
$55,789
$58,985
$52,300
Deposits and payment services charges
Foreign exchange income
Other extraordinary income due to the collective merger Total other operating income
30 | Annual Report 2017 | UNI Financial Cooperation
Income from service fees on deposits and payments declined sharply in 2017. The main reason for this decrease was changes made to the timing of fee billing for items returned non-sufficient funds. Effective mid-2017, this fee was charged to clients only subsequent to the clearing process. In addition, service fees to members have changed little in recent years whereas the volume of counter and ATM transactions has continued to decline year-over-year. Commission income continues to increase. UNI receives commission income on the sale of Visa and MasterCard credit cards, mutual investment funds and insurance products. This increase in commission income is the result of business volume growth of these products. During the 2016 fiscal year, $1.9M in deferred contribution income on the merger of the caisses with their Fédération was entirely recognized in the income statement. Originally, the Fédération collected this contribution from the caisses for various information technology development projects.
PROVISION FOR CREDIT LOSSES The provision for credit losses totalled $6.5M, a $3.1M increase over 2016. It includes two elements: the individual component and the collective component. For the individual component, losses totalled $7.9M in 2017 versus $6.1M in 2016, which represents a significant increase. The collective component recovered $1.4M in 2017, while it recovered $2.8M in 2016. More specifically, individual provisions for business loans totalled $2.3M ($2.2M in 2016) while individual provisions for personal loans totalled $5.9M ($3.9M in 2016). This was due to an increased number of bankruptcies and consumer loan write-offs. The automotive financing sector was particularly impacted in 2017.
UNI continues to present a quality loan portfolio. On December 31, 2017, gross outstanding debts on loans totalled $33.1M, a slight increase of $1.3M over December 31, 2016, while impaired loans totalled $31.8M. The ratio of gross impaired loans as a percentage of the total gross loan portfolio was 1.03% in 2017 year-end, which was slightly below the ratio of 1.06% recorded at the end of the 2016 fiscal year.
OPERATING EXPENSES SALARIES AND EMPLOYEE BENEFITS Since it is a service-based corporation, UNI’s payroll is its largest expense. Expenses related to employee wages and benefits decreased by $6M to $62.8M in 2017. This decline in salary expenses is significant for UNI, particularly since payroll would have increased by more than $1.5M based solely on annual increases. The savings is due mainly to changes made to the organizational structure following the transfer to federal charter on July 1, 2016. More than 100 employees retired in 2016, and the majority of the positions vacated were not filled in the new organization. The banking sector is changing rapidly, and we are striving to remain competitive while modernizing the range of products and services we offer our members. To remain relevant, UNI must progressively reduce its cost structure while also continuing to offer high-quality services.
The decrease in the collective provision is due mainly to improvements to our provision calculation models and the assumptions used.
Management’s Discussion and Analysis | 31
OTHER OPERATING EXPENSES The following table provides a breakdown of our operating expenses.
2017
2016
$3,338 $
$3,691 $
4,915
4,256 
IT costs and telecommunications
21,720
21,212
Building and equipment rental and maintenance
12,088
10,517
Cash management and compensation
2,010
1,849
Regulatory fees and membership fee
2,092
1,988
Advertising, sponsorships, donations and scholarships
2,608
6,678
Office expenses and postage
2,440
2,380
Governance
1,568
782
Insurance
1,249
1,627
Other
2,658
2,120
$56,687 $
$57,100 $
($ thousand)
Employee travel, training and wellness Professional fees
Total operating expenses remained relatively stable in comparison to previous years. However, detailed analysis reveals more significant fluctuations in certain expenses. First, advertising, sponsorships, donation and scholarships donation and sponsorship pledges were down by $4M from 2016. This is due to changes in accounting operations
32 | Annual Report 2017 | UNI Financial Cooperation
adopted in 2016 under which we recorded a commitment of $2.1M for donations and sponsorships payable in 2017 in addition to $2.1M in donations and sponsorships already paid in 2016. A $0.8M increase in governance expenses is attributable to the adoption of a new election process for directors and community cooperative committees.
ANALYSIS BY LINE OF BUSINESS PERSONAL AND BUSINESS
OPERATING RESULTS FOR PERSONAL AND BUSINESS SECTORS ($ thousand) Surplus earnings before other items
Collective Merger Fees
The Personal and Business sectors include activities related to regular and savings transactions as well as lending activities carried out by our 51 business locations and the four offices of the Financial Business Centre. The activities of UNI’s subsidiaries not related to life and health insurance are also included in these sectors.
2013
These sectors contributed $11.8M to surplus earnings before other items in 2017, which represents an increase of $4.2M compared to the previous fiscal year.
LIFE AND HEALTH INSURANCE
Results in this line of business were improved by reducing expenses. Payroll was $6M lower in 2017 due to changes in our organizational structure and a staffing management program launched in 2015. Additionally, there were no expenses in 2017 relating to the merger since that project is now complete. These expenses totalled $6.9M in 2016. However, the provision for credit losses increased by $3.1M due in large part to losses on personal loans, which grew considerably. It is to be noted that other income was also down from 2016. This decrease was due to changes in fee billing for items returned non-sufficient funds, resulting in an approximately $1.4M decrease in this income item, and the fact that $1.9M in exceptional income was recognized in 2016 subsequent to the collective merger.
The operating results of this business sector were very positive in 2017, surpassing budgeted net profit by approximately $3.1M to reach $9.7M versus $7.5 M in 2016. This is an increase of 29% or $2.2M.
In recent years, the profitability of these lines of business was in a downward trend. Although this trend stabilized in 2016, net financial income remains subject to compression. UNI is under immense pressure from its competitors in these lines of business. This competition makes it difficult to grow the savings and lending portfolios. This competitive environment also helps to maintain a favourable interest rate for our members which, however, has negative impact on UNI’s net financial income.
$22,340
2014
$20,737
2015 $1,993 2016
$9,875 $7,645
2017
$6,913
$11,826
Acadia Life and AVie subsidiaries make up this line of business.
The strong results in 2017 are attributable to higher than anticipated total premiums collected as well as lower total claims than forecast. However, the largest component was the revision of certain actuarial assumptions resulting in the freeing of $1.8M in reserves in 2017 versus a $0.2M increase in reserves in 2016. Mortality and expense assumptions, among other factors, improved in 2017. For the year, total personal life insurance premiums collected were $10.3M, an increase of $0.5M compared to 2016. Group life insurance premiums collected rose $0.1M to reach $8.7M. Acadia Life continues to contribute significantly to UNI’s overall results, as shown in the following table setting out before-tax net earnings for the past several years:
NET EARNINGS BEFORE DISTRIBUTIONS, BONUSES AND TAXES ($ thousand) 2013
$6,152
2014
$11,052
2015 2016 2017
$10,064 $7,474 $9,700
Management’s Discussion and Analysis | 33
BALANCE SHEET REVIEW SUMMARY BALANCE SHEET ($ thousand)
2017
2016
Asset Cash
$100,193
2.5%
$99,857
2.6%
587,776
14.7%
658,647
17.1%
3,184,700
79.6%
2,965,182
77.1%
127,409
3.2%
119,884
3.1%
$4,000,078
100.0%
$3,843,570
100.0%
$3,255,542
81.4%
$3,135,307
81.6%
86,314
2.2%
66 401
1.7%
Other liabilities
259,695
6.5%
247 765
6.4%
Equity
398,527
10.0%
394 097
10.3%
$4,000,078
100.0%
$3,843,570
100.0%
Securities Loans Other assets Total assets Liabilities and equity Deposits Borrowings
Total liabilities and equity
TOTAL ASSETS
($ billions)
BALANCE SHEET EVOLUTION 4.2 4.0 3.8 3.6 3.4 3.2 3.0 2.8 2.6 2.4
At December 31, 2017, UNI’s total assets were $4B, representing an increase of $152M or 4% over 2016. This growth is similar to that recorded last year. Both Personal and Business loans and savings performed well in 2017. The standardization of our activities and branding and a competitive rate structure helped UNI to stand out in its market. 2012
2013 ASSETS
2014
2015
DEPOSITS
2016 LOANS
34 | Annual Report 2017 | UNI Financial Cooperation
2017
LIQUIDITY MANAGEMENT The objective of liquidity risk management is to guarantee that the organization, in a timely and profitable manner, will have access to the funds necessary to fulfil its financial commitments when they become payable, both in normal and in crisis situations. This management means the maintenance of an acceptable level of liquid securities, a three-year financing plan, liquidity crisis simulation, real-time liquidity position management and submission of quarterly accountability reports to UNI’s Board of Directors. This reporting process is supported by a policy on liquidity risk management and an investment policy, both of which are reviewed annually by the Board. UNI constantly monitors its liquidity through multi-level management of its liquidity position. Daily monitoring of this liquidity position ensures that UNI maintains adequate liquidity over the short term, while adherence to a financing plan also enables the organization to anticipate its long-term liquidity requirements. We follow a conservative approach with regard to determination of minimum liquidity levels. For example, our short-term liquidity ratio stood at 178% on December 31, 2017, while the minimum level prescribed by the Office of the Superintendent of Financial Institutions (OSFI) is 100%. A new investment policy was adopted in 2017; this proved necessary following the collective merger. This new policy also positions UNI to generate additional income while diversifying risk and its investment products. During the 2017 fiscal year, UNI’s liquidity increased slightly, or by $0.3M. The principal variations are explained in the following paragraphs.
UNI’s operational activities generated a net cash outflow of $92M, attributable mainly to the fact that loan portfolio growth exceeded growth of the deposit portfolio. In 2017, new member deposits generated a cash inflow of $120.2M, while loan portfolio growth resulted in a cash outflow of $226M. During the fiscal year, UNI took out new loans through a loan securitization program in addition to repaying other securitization loans. Overall, these transactions generated a net cash inflow of $19.9M. As part of daily liquidity management and to support more rapid growth of its loan portfolio, UNI divested itself of certain investments, which generated a cash inflow of $7.7M. UNI also invested $4.6M in capital assets, mainly for the upgrade of its information technology platform.
LOANS The loan portfolio, net of provisions, surpassed the $3B mark in 2017, up by $220M over 2016. This corresponds to a 7.4% increase which represents the strongest growth in the last five years. While performance in personal loans was solid in 2017, the business lending sector was especially strong.
LOANS TO MEMBERS NET OF PROVISIONS ($ million) 2013 2014 2015 2016 2017
$2,678 $2,791 $2,864 $2,965 $3,185
Management’s Discussion and Analysis | 35
The following table presents the breakdown of the loan portfolio among the various lines of business. ($ thousand)
2017
2016
2015
Personal Residential mortgages
$1,617,658
$1,540,181
$1,494,577
526,132
492,095
473,981
2,143,790
2,032,276
1,968,558
Real estate
378,084
302,548
287,074
Health care and related services
140,702
160,284
149,230
Construction
82,232
92,106
89,910
Forestry
42,934
57,395
53,598
Fishing and trapping
61,617
53,103
47,760
Retail
54,186
50,630
45,682
Manufacturing
48,126
41,908
41,530
Accommodation and food
65,994
36,723
36,350
Transportation and warehousing
37,500
28,788
28,512
154,065
133,430
139,964
1,065,440
956,915
919,609
3,209,230
2,989,191
2,888,167
Consumer and other Total personal Business
Other Total business Allowance by credit losses Total loans by category of borrowers
RESIDENTIAL MORTGAGES UNI successfully expanded its residential mortgage portfolio by $77.5M in comparison to 2016. Its total mortgage portfolio before provisions stood at $1.618B at December 31, 2017, versus $1.540B at December 31, 2016. This corresponds to growth of 5%.
36 | Annual Report 2017 | UNI Financial Cooperation
(24,530) $3,184,700
(24,009) $2,965,182
(23,705) $2,864,462
CONSUMER LOANS AND OTHER PERSONAL LOANS This loan portfolio posted strong growth once again in 2017, increasing by $34M during the course of the year to reach $526M. In 2016, this portfolio stood at $492M. This growth was fuelled by loans granted by our financing centre directly to members and non-members at car and recreational vehicle dealerships as well as by loans granted at our business locations.
BUSINESS LOANS
CAPITAL MANAGEMENT
The business loan portfolio grew dramatically in 2017. This portfolio totalled $1.065B overall at December 31, 2017, compared to $957M in 2016. This represents growth of 11%. The strongest growth was noted in the real estate and the accommodation and food services sectors.
DEPOSITS Our deposit portfolio posted significant growth once again this year, increasing by $121M or 3.8% over 2016 and bringing our total deposit portfolio to $3.3B. The fishery sector generated a considerable volume of new deposits in 2017, particularly the crab and lobster fisheries.
MEMBER DEPOSITS ($ million) 2013 2014 2015 2016 2017
GOVERNANCE UNI recognizes the importance of capital management. A series of components are in place for a healthy management process, including: • annual review of the policy on capital risk management by the Board of Directors • production of annual internal controls to assess the adequacy of capital • submission of quarterly accountability reports to the Board of Directors on capital risk management • monthly monitoring of various capital indicators • annual three-year capitalization plan, updated quarterly, to ensure the long-term adequacy of capital. UNI uses two ratios to ensure the sufficiency of its threshold:
$2,742 $2,836 $2,978
Capital to at-risk assets ratio
$3,135 $3,256
This ratio assesses capital adequacy, adjusted according to risk. Additionally, the Capital Adequacy Requirements guideline of OSFI prescribes a minimum ratio in this regard for financial institutions. UNI easily achieves this minimum and, furthermore, compares favourably to other large Canadian banks. Our capital is also entirely made up of shares and retained earnings, which are considered the highest quality of capital there is.
Management’s Discussion and Analysis | 37
$
2017
OFF-BALANCE SHEET ARRANGEMENTS
2016
Regulatory Capital CET1 Risk-adjusted assets*
$382,052
$362,757
$2,098,009
$1,909,646
18.2%
19.0%
Capital to at-risk assets ratio
In the normal course of its business, UNI manages investment portfolios for many of its members. Through its business locations, members can deposit their savings in investment funds. This savings portfolio represents off-balance sheet arrangements. The total value of our portfolio of investment funds under management was $520M at December 31, 2017, up $86M from $434M in 2016.
* Calculated according to criteria defined in the OSFI’s Capital Adequacy Requirements guideline.
UNI reached a major milestone in 2017 by crossing the threshold of $500M in investment funds. Thanks to major growth potential in the management of investment funds in New Brunswick, this line of business has been growing significantly over the past few years. This is part of the diversification of our product offerings to members.
Leverage ratio OSFI’s Leverage Requirements guideline requires compliance with a second capital ratio, i.e. the leverage ratio. Capital must represent at least 3% of non-risk-adjusted assets. Once again, UNI complies with OSFI’s requirements, with a ratio of 9.8%.
Regulatory Capital Assets used to calculate the leverage ratio Leverage Ratio
2017
2016
$382,052
$362,757
$3,895,478
$3,743,977
9.8%
9.7%
38 | Annual Report 2017 | UNI Financial Cooperation
UNI also offers members a range of credit instruments to satisfy their financing needs. These instruments include credit commitments and letters of guarantee. At December 31, 2017, these off-balance sheet credit instruments totalled $740M, an increase of $47M over 2016, when they stood at $693M.
RISK MANAGEMENT UNI has a risk management oversight function which reports to the chief risk officer. The CRO oversees the implementation of a risk management framework for UNI and its subsidiaries to ensure compliance with requirements established by OSFI and other regulatory authorities.
RISK MANAGEMENT FRAMEWORK The risk management framework is conservative, complete, efficient and consistent throughout the organization. It covers all UNI and subsidiary activities by establishing a global and coordinated approach to managing risks in an integrated fashion. The compliance management framework is part of the risk management framework. This 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 throughout the organization. In addition to governance and culture, risk management includes a series of processes.
BOARD OF DIRECTORS AND COMMITTEES
• Policies and mandates of committees and oversight functions • Risk Management Committee • Risk appetite and tolerance • Risk culture and general guidelines
• Guidelines
ION
S
• Accountability
THREE LINES OF DEFENCE
EC T
DIR
ACC OUN
TAB I
LIT Y
EXECUTIVE COMMITTEE AND OVERSIGHT FUNCTIONS
• Risk management process • Procedures
COMMON RISK INFRASTRUCTURE
PEOPLE • PROCESS • TOOLS
• 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 UNI’s risk management framework is supported by a governance structure aligned with its organizational context. The Board of Directors has a risk management committee in place along with a number of other committees to oversee the organization’s specific activities and the associated risks. It also makes use of oversight functions such as risk management, compliance, finances, internal audit and credit in the day-to-day monitoring of the organization’s risks. The Board of Directors expresses its risk orientations through the Risk-Taking Propensity Framework (RTPF). UNI manages risk by adopting three lines of defence to provide the Board of Directors and the Executive Committee assurance that all risks remain within the tolerance levels set out in the RTPF. This framework determines the appetite, tolerance and nature of risks that UNI is willing to accept in targeting its strategic and business objectives. Risk appetite and tolerance must be determined within UNI’s capacity for risks. The risk management oversight function is responsible for day-to-day coordination of the framework in accordance with the orientations of the Board of Directors. UNI continues to improve the efficiency of its three lines of defence in order to guarantee a truly efficient risk governance system tailored to the needs of the organization and the strict requirements of the industry.
RISK CULTURE: “RISK IS EVERYBODY’S BUSINESS” The Board of Directors promotes a balanced risk-taking approach offering adequate return on equity to maintain a high level of capital while remaining competitive and not coming at the expense of the collective objectives of its client members or communities. The spirit of its risk culture is based on the following characteristics: • rigorous, formal, proactive, dynamic and comprehensive risk management • transparent communication • empowerment of one and all, and clear accountability • common language • a clear vision of risk appetite and risk tolerance • risk management as an integral part of strategies • a Board of Directors that is actively committed to risk governance and sets the pace • an Executive Committee that implements the policies approved by the Board of Directors and leads by example • an appropriate structure and allocation of the necessary resources to daily risk management • proper division of labour within a rigorous process based on use of the three lines of defence • a compensation system that promotes sound risk management.
40 | Annual Report 2017 | UNI Financial Cooperation
RISK APPETITE (OBJECTIVES): Corresponds to UNI’s target level or the level it wishes to maintain in order to achieve its strategic and business goals.
RISK TOLERANCE (THRESHOLD AND LIMIT):
RISK-TAKING PROPENSITY FRAMEWORK
Corresponds to the threshold and limit established and defined by taking into consideration risk-taking ability. UNI does not want to be in this zone.
CAPACITY: Corresponds to equity, forecast and actual profits, tools, experts, knowledge and UNI personnel needed to manage a risk. In terms of risk level, regulatory thresholds also limit UNI’s capacity. A successful and rigorous risk culture can be defined by the use of a common language. Being able to categorize risks and consistently and cohesively define them across the organization significantly contributes to daily risk management. UNI classifies its risks under 10 categories. Operational risk, due to its disparate nature, has 10 additional subcategories.
Globally, UNI takes and assumes risks in a way that supports sustainable financial performance that reflects its cooperative nature while maintaining its position as one of the best-capitalized financial institutions in Canada.
RISK TAXONOMY Reputation Capital Credit
Strategic Liquidity
Market
Non-compliance Insurance
Outsourcing
Operational Internal fraud
External fraud
Process implementation, delivery and management
Information security
IT system interruptions malfunctions
Project management
Products, services and commercial practices
Damage to assets and limited building access
Human resources
Financial and management information integrity
Management’s Discussion and Analysis | 41
STRATEGIC RISK The material gap between the financial results of UNI and its subsidiaries and the anticipated results set out in its strategic plan. This financial gap may be linked to: • inappropriate choices of 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 UNI’s strategic plan • voluntary or involuntary inaction in response to a significant change in the economy or in the competitive or business environment. Each year, the Board of Directors adopts a strategic plan which contains both quantitative targets (e.g. portfolio growth, financial performance) and organizational targets (e.g. establishment of a risk management structure, strategic projects). The Board of Directors conducts a quarterly review of the status of this strategic plan in conjunction with the members of the Executive Committee. The Executive Committee implements action plans to ensure that strategic objectives will be reached.
REPUTATIONAL RISK Revenue losses due to activities, actions or practices undertaken by UNI that are significantly below the expectations of members, clients, employees or the general public. This risk often arises due to ineffective management of one or more other risk categories, which causes a loss of confidence or negative conversation in traditional or social media. UNI takes its reputation very seriously. It continuously ensures that these actions,
42 | Annual Report 2017 | UNI Financial Cooperation
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. UNI’s client satisfaction rate is a key indicator of its reputation risk. UNI has been monitoring this rate closely for many years. To ensure that it is positioned to react promptly to fluctuations in customer satisfaction levels, UNI surveys individuals and businesses on a regular basis. The client satisfaction rates of these two groups of clients present a positive portrait.
CAPITAL RISK 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 or subsidiary or of UNI in general due to a shortfall or improper allocation of capital. This risk also covers situations in which UNI may not have enough equity to maintain activity comprehensiveness due to erosion of its capital under regulatory ratios. UNI has one of the highest capital levels in Canada for a financial institution. It is proud of the financial soundness it offers its members and it takes the appropriate actions to maintain a level of comfort exceeding regulatory ratios. Every year, UNI carries out stress tests to determine the organization’s resistance level in the event it had to manage a crisis situation. UNI successfully remains above regulatory ratios in all scenarios, including a severe real estate crisis.
LIQUIDITY RISK Possible losses resulting from UNI’s resorting to expensive and unplanned sources of funding in order to continue honouring its financial obligations in a timely manner. Financial obligations include commitments to depositors, borrowers (disbursement of approved loans), suppliers and members. This risk is due primarily to asymmetry between the cash flows related to assets and those related to liabilities, including the payment of monies owed to suppliers and dividends to members. UNI presents a favourable liquidity level on the Canadian financial institution market. The main source remains Personal and Business member deposits. However, it also uses mortgage securitization channels guaranteed by CMHC to diversify its sources. UNI also has lines of credit with other Canadian financial institutions. It has established risk indicators, alerts, thresholds and limits to ensure that its liquidity level is always at a comfortable level and always exceeds regulatory requirements. The specific purpose of alerts is to detect a potential liquidity crisis.
COMPLIANCE RISK Losses that may or may not result from litigation, penalties, fines or financial or other sanctions (increased surveillance by regulatory organizations) linked to inappropriate practices that do not comply with applicable regulations. This risk is due to the possibility of UNI’s straying from the expectations provided in laws, rules, regulations, standards or other regulatory requirements. This risk also includes significant unplanned charges incurred to remain in compliance with current regulation or regulatory modifications. UNI has a regulatory monitoring process which allows the identification of amendments to laws, rules and other regulatory requirements. When applicable, UNI adjusts its policies and procedures as promptly as possible to remain compliant.
PCMLTFA UNI has a mechanism in place to combat money laundering and terrorist financing in compliance with the governing legislation (PCMLTFA) as well as OSFI requirements.
CREDIT RISK Unplanned financial losses due to the inability or refusal of a borrower, endorser, guarantor or counterparty to fulfil its entire contractual obligations to repay a loan or to meet any other pre-existing financial obligation. Credit risk includes the risks of default, concentration and exposure to major commitments with a single counterparty. Concentration risk: Concentration risk is a risk resulting from major exposure to a single factor (industrial activity sector). Credit risk is among the most significant risks for UNI. Our credit portfolio is made up of residential mortgage loans, personal loans and business credit. There are two distribution channels for personal loans, the first being loans offered directly through our business locations and the other products offered through retailers. UNI’s Board of Directors establishes the policy on credit risk management, which is implemented by the representatives responsible for granting loans and managing credit products. UNI uses rating systems supporting the quantitative assessment of borrowers’ credit risk level. These systems are used for credit granting, review and management. At December 31, 2017, the credit portfolio totalled $3.2B, including $1.6B in residential mortgage loans.
Management’s Discussion and Analysis | 43
CREDIT GRANTING First, UNI’s Board of Directors establishes approval limits for the credit committee and chief credit officer. This officer then establishes approval limits for the various staff members responsible for approving credit applications.
Loans to retail clients – Personal Our personal loan portfolio is composed of residential mortgages, loans and personal lines of credit as well as business location financing. Generally, decisions concerning credit granting to personal clients are based on risk ratings generated using credit risk predictive models. The goal of credit approval and portfolio management methods is to standardize the credit granting process and rapidly detect problem loans. The automated risk rating system assesses the solvency of each member and client periodically. This process allows us to promptly track risk trends both on a client-toclient basis and collectively for entire portfolios.
Business loans The business loan category is made up of the portfolios of loans to small businesses (retail business) and mid-sized and large businesses. For this main portfolios, the ratings process includes 17 ratings consolidated into 10 categories. The following table compares our internal ratings with external agency ratings.
Ratings
Moody's
S&P
Description
1 to 2
Aaa to Aa3
AAA to AA-
2,5
A1 to A3
A+ to A-
3 to 4
Baa1 to Baa3
BBB+ to BBB-
4,5 to 5,5
Ba1 to Ba3
BB+ to BB-
6 to 7
B1 to B3
B+ to B-
Satisfactory quality
7,5 to 9
Caa1 to C
CCC+ to C
Under supervision
10
D
D
Impaired and defaulted loans
Prime quality
The following table shows the credit quality of the business loan portfolio (amounts shown were calculated before the impact of provisions for credit losses). ($ thousand and %)
2017
2016
Business loans Prime quality
$389,952
37%
$303,333
32%
Satisfactory quality
588,255
55%
542,346
57%
Under supervision
59,223
6%
81,290
8%
Impaired and defaulted loans
28,010
2%
29,946
3%
$1,065,440
100%
$956,915
100%
Total
44 | Annual Report 2017 | UNI Financial Cooperation
Retail clients – Businesses Rating systems based on validated statistics are used to assess the credit risk associated with small business loans.
BREAKDOWN OF LOANS BY BORROWER CATEGORY At December 31, 2017
These systems use historical data on the behaviour of borrowers with characteristics or profiles similar to those of the applicant and compare the products used to estimate the risk associated with each transaction.
33% 16%
These systems are used at the initial approval stage and then on an ongoing basis to assess portfolio risk. Periodic updating of borrowers’ level of risk allows us to proactively manage the credit risk of our portfolios.
Mortgages Personal Consumer and other individuals loans Business
Mid-sized and large businesses Credit is granted to mid-sized and large businesses based on a detailed analysis of the file. The financial, market and management characteristics of each borrower are analyzed using tools such as credit risk assessment models. Quantitative analysis using financial data is supplemented by professional assessment of the file’s other characteristics. On completion of this analysis, each borrower is assigned a rating corresponding to its level of risk. Regardless of the rating assigned, the final decision is made by the hierarchic level with the required approval limit.
Mitigation of credit risk When a loan is granted to a client, UNI secures collateral for certain products in order to mitigate the borrower’s credit risk. This collateral typically takes the form of assets, such as capital, accounts receivable, stocks, investments, government securities or shares. As needed, UNI uses available risk-sharing mechanisms with other financial institutions.
51%
LOAN PORTFOLIO QUALITY At December 31, 2017 ($ thousand and %)
$60,000 $50,000 $40,000 $30,000 $20,000 $10,000 -
1.50%
1.13%
1.06%
1.03%
$32,683
$31,829
$33,128
2015
2016
2017
0.98%
$27,713 2014
1.00% 0.50% 0.00%
Ratio of gross outstanding debts on loans Gross outstanding debts on loans
UNI’s loan portfolio continues to be very sound. At December 31, 2017, total impaired loans were valued at $33.1M, increase $1.3M from December 31, 2016.
Management’s Discussion and Analysis | 45
MARKET RISK Possible losses resulting from potential changes to the interest or exchange rate, the market prices of shares, credit gaps, or desynchronization of market indexes or liquidity. Exposure to this risk arises from negotiations or investments creating positions included or not on balance sheets.
Interest rate risk UNI has adopted a strategy through which it takes on a very low level of risk associated with interest rate fluctuations. This strategy uses interest rate swaps to reduce the duration gap between assets and liabilities. It maintains a duration gap between assets and liabilities within the parameters established by the Board of Directors. For the Acadia Life subsidiary, interest rate risk is managed using stochastic scenarios that determine the potential impact of interest rate fluctuations on the company’s capital. Risk limits have been established to ensure that the company’s risk profile corresponds to the risk appetite determined by the Board of Directors.
Foreign exchange risk UNI does not maintain any significant positions on exchange markets. It holds only the foreign currencies (mainly U.S. dollars) required to meet the anticipated needs of its members. Acadia Life holds a limited volume of American shares in U.S. dollars, on which there is no protection against the risks associated with fluctuations in the exchange rate. This represents less than 5% of Acadia Life’s investments.
46 | Annual Report 2017 | UNI Financial Cooperation
Investment management An investment policy covers the composition and quality of securities in a portfolio as well as the various portfolio management parameters for all funds under management associated with liquidity risk management.
INSURANCE RISK Possible losses incurred when paid compensation differs in practice from estimated assumptions (mortality, lapse, etc.) incorporated into the planning and pricing of insurance products. UNI assumes life insurance risks (mortality, lapse) only for life insurance and annuity products offered by Acadia Life. This subsidiary does not offer complex insurance products. Acadia Life maintains a capital level significantly exceeding regulatory requirements.
OUTSOURCING RISK Possible losses (financial or other) due to failure of a supplier (including outsourcers and partners) to fulfil all or part of its nonfinancial contractual obligations (contractual misunderstanding). In such a case, potential costs associated with the implementation of an alternative solution to the services of the supplier in question could be incurred. Although this is typically classified as falling under operational risk, UNI deems prudent to treat it as a separate risk category given the significance of this risk for the organization. In order to achieve its strategic and business
goals, UNI uses the services of various external suppliers. Among them, there are four agreements classified as major contracting agreements in terms of its outsourcing policy, the most significant being the agreement with the Fédération des caisses populaires Desjardins du Québec. UNI makes use of the information technology services offered by Desjardins in accordance with the same standards that Desjardins offers to its own caisses. This strategy allows UNI to take advantage of the reliability of the systems maintained by a large financial institution that is highly regarded across Canada. UNI also benefits from the improvements made by Desjardins to its systems, procedures, rules, products and services. However, UNI must regularly adapt new features launched by Desjardins to the Acadian reality and monitor for any anticipated changes at Desjardins with a view to adapting certain solutions or internal communications. UNI and its key suppliers maintain excellent business relationships supported by management processes that provide for adequate risk management among other considerations.
OPERATIONAL RISK Losses resulting from shortcomings or failures related to procedures, employees, internal systems or external events. Outsourcing risk is treated separately due to its significance for UNI. Because of its heterogeneous nature, this risk is divided into 10 distinct components. UNI has established policies, guidelines,
procedures, computer systems, rules, standards, business continuity plans and internal controls to mitigate any losses that might arise from various sources associated with its operations, such as: • Internal fraud • External fraud • Damage to assets and limited building access • IT system interruptions and malfunctions • Information security • Project management • Process implementation, delivery and management • Products, services and commercial practices • Human resources • Financial and management information integrity Additionally, UNI has insurance in place to cover any significant financial losses.
OFFICE OF DISPUTE MANAGEMENT The Office of Dispute Management processed a total of 110 complaints during the past year. Key statistics are as follows: • Average processing time: 1 day • Client satisfaction rate: 57%
Management’s Discussion and Analysis | 47
Consolidated Financial Statements
Caisse populaire acadienne ltĂŠe
AS AT DECEMBER 31, 2017
50 | Annual Report 2017 | UNI Financial Cooperation
Table of contents Management’s Responsibility for Financial Information....................52 Independent Auditor’s Report.................................................................53 Consolidated statement of financial position......................................55 Consolidated statement of income .......................................................56 Consolidated statement of comprehensive income ..........................57 Consolidated statement of changes in equity.....................................58 Consolidated statement of cash flows .................................................59 Notes to the consolidated financial statements.................................60
Table of contents | 51
Management's Responsibility for Financial Information The consolidated financial statements of Caisse populaire acadienne ltée and all the information contained in this annual report are the responsibility of its management, whose duty is to ensure their integrity and fairness. The consolidated financial statements were prepared in accordance with International Financial Reporting Standards. The consolidated 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, valuations of actuarial liabilities performed by the valuation actuaries of Caisse populaire acadienne ltée, the valuation of the employee benefit liability and the measurement of the fair values of Caisse populaire acadienne ltée's financial instruments. Ali financial information presented in the annual report is consistent with the audited consolidated financial statements. The Board of Directors of Caisse populaire acadienne ltée ensures that management fulfils its responsibilities with regard to the presentation of financial information and the approval of the consolidated financial statements of Caisse populaire acadienne ltée. The Board of Directors exercises this role mainly through the audit committees that meet with the auditors, in accordance with their mandate. The consolidated financial statements were audited by the independent auditors appointed by the Board of Directors, Deloitte 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.
Robert Moreau, CPA, CGA, IAS, A Chief Executive Officer
Éric St-Pierre, CPA, CMA Vice-President, Finance
Caraquet, Canada March 28, 2018
52 | Annual Report 2017 | UNI Financial Cooperation
Deloitte LLP 816, Main Street Moncton (New-Brunswick) E1C 1E6 Canada Tel : 506-389-8073
Fax : 506-632-1210 www.deloitte.ca
Independent Auditors’ Report
To the members of Caisse populaire acadienne ltée We have audited the accompanying consolidated financial statements of Caisse populaire acadienne ltée, which comprise the consolidated statement of financial position as at December 31, 2017, and the consolidated 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 Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated 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 consolidated 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 consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Management’s Discussion and Analysis | 53 Member of Deloitte Touche Tohmatsu Limited
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Caisse populaire acadienne ltĂŠe as at December 31, 2017 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.
Other matter
The consolidated financial statements of Caisse populaire acadienne ltĂŠe for the year ended December 31, 2016 were audited by another auditor who expressed an unmodified opinion on those consolidated financial statements on March 23, 2017.
Chartered Professional Accountants
March 28, 2018
54 | Annual Report 2017 | UNI Financial Cooperation
Caisse populaire acadienne ltĂŠe Consolidated statement of financial position As at December 31, 2017 (In thousands of dollars)
Notes
Assets Cash Securities Loans Persona! Business
5
7
10 20 8 9
Liabilities Deposits Payable on demand Payable on a fixed date Other liabilities Borrowings Accrued interest, payables and other liabilities Income taxes payable Actuarial liabilities Derivative financial instruments
Commitments and contingencies Equity Share capital Accumulated other comprehensive income General reserve
2016
$
$
100,193 587,776
99,857 658,647
2,143,790 1,065,440 3,209,230 (24,530) 3,184,700
2,032,276 956,915 2,989,191 (24,009) 2,965,182
6
Allowance for credit losses Other assets Accrued interest, receivables and other assets Income taxes receivable Derivative financial instruments Reinsurance assets Deferred taxes Property and equipment Intangible assets
2017
11 12 10
25,646 30,459 8,455 18,386 34,616 9,847 127,409 4,000,078
24,681 1,532 24,664 7,234 16,699 35,853 9,221 119,884 3,843,570
1,718,316 1,537,226 3,255,542
1,60p,815 1,534,492 3,135,307
86,314 73,443 440 170,427 15,385 346,009 3,601,551
66,401 83,996 158,741 5,028 314,166 3,449,473
4,426 3,757 390,344 398,527 4,000,078
4,432 3,859 385,806 394,097 3,843,570
24 14 15
The accompanying notes are an integral part of the consolidated financial statements. On behalf of th Board of Directors
Pierre-Marcel Desjardins, ICD.D Chair of the Board
Wanita McGraw, FCPA, CA, ICD.D Chair of the Audit committee Page 4
Management’s Discussion and Analysis | 55
Caisse populaire acadienne ltĂŠe Consolidated statement of income Year ended December 31, 2017 (In thousands of dollars)
Notes
Net financial income Financial income Financial expense Net financial income
2017
2016
$
$
147,424
141,026
33,916
34,912
113,508
106,114
6,515
3,369
106,993
102,745
Mainly related to the administration of deposits
18,241
19,873
Related to the administration of other services
18,558
20,609
18,990
18,503
55,789
58,985
Salaries and employee benefits
62,750
68,720
General and other expenses
56,687
57,100
21,820 —
13,848
141,257
146,581
Provision for credit losses
6
Net financial income after provision for credit losses Other income
Net insurance and annuity premiums
16
Other expenses
Net insurance and annuity benefits
17
Expenses related to the amalgamation process
18
Net income before other items Other items
19
Net income before income taxes Income taxes Net income for the year
20
6,913
21,525
15,149
(15,468)
(11,545)
6,057
3,604
1,790
(27,710)
4,267
31,314
The accompanying notes are an integral part of the consolidated financial statements.
Page 5
56 | Annual Report 2017 | UNI Financial Cooperation
Caisse populaire acadienne ltĂŠe Consolidated statement of comprehensive income Year ended December 31, 2017 (In thousands of dollars)
Notes
Net income for the year
2017
2016
$
$
4,267
31,314
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 Related income taxes Total of item that will not be reclassified to the consolidated statement of income
13
382
(299)
20
(111)
100
271
(199)
Items that will be reclassified to the consolidated statement of income Unrealized changes in fair value on available-for-sale securities 1,538
Change during the year Related income taxes
20
(446) 1,092
6 — 6
Reclassified to net income (1,679)
Realized gains on available-for-sale securities Related income taxes
Total of items that will be reclassified to the consolidated statement of income Total other comprehensive income, net of income taxes Comprehensive income for the year
20
485
(2,277) 607
(1,194)
(1,670)
(102)
(1,664)
169 4,436
(1,863) 29,451
The accompanying notes are an integral part of the consolidated financial statements.
Page 6
Management’s Discussion and Analysis | 57
Caisse populaire acadienne ltée Consolidated statement of changes in equity Year ended December 31, 2017 (In thousands of dollars)
2017
Notes
Beginning balance Net income for the year Other comprehensive income Comprehensive income Net transfer to the general reserve Net change in share capital
21
Share capital
Accumulated other comprehensive income
Distributable net income
General reserve
Total equity
$
$
$
$
$
4,432
3,859
—
385,806
394,097
—
—
4,267
—
4,267
—
(102)
—
271
169
—
(102)
4,267
271
4,436
4,267
—
— (6)
Ending balance
—
(4,267 )
—
—
—
4,426
3,757
—
390,344
(6)
Share capital
Accumulated other comprehensive income
Distributable net income
General reserve
Total equity
$
$
$
$
$
4,328
5,523
2,310
352,381
364,542
—
—
2,310
—
4,328
5,523
—
354,691
364,542
—
—
31,314
—
31,314
398,527 2016
Notes
Beginning balance Distribution by the members General reserve Balance after distribution Net income for the year Other comprehensive income Comprehensive income Net transfer to the general reserve Net change in share capital Ending balance
21
(2,310)
—
(1,664)
—
(199)
(1,863)
—
(1,664)
—
(199)
29,451
—
—
(31,314)
31,314
—
104
—
—
—
104
4,432
3,859
—
385,806
394,097
The accompanying notes are an integral part of the consolidated financial statements.
Page 7
58 | Annual Report 2017 | UNI Financial Cooperation
Caisse populaire acadienne ltée Consolidated statement of cash flows Year ended December 31, 2017 (In thousands of dollars)
Operating activities Net income before income taxes Adjustments to determine cash flows Depreciation of property and equipment and amortization of intangible assets Loss on disposal of property and equipment and intangible assets Amortization of premiums and discounts on securities Net change in actuarial liabilities Change in investment contract liabilities Provision for credit losses Gain on securities Other items at fair value Change in the employee benefit liability Change in reinsurance assets Net change in interest receivable and payable Net change in loans Net change in deposits Net change in derivative financial instruments Net change in others assets and liabilities Income taxes paid during the year Member dividends paid
2017
2016
$
$
6,057
3,604
4,965
4,269
288 1,683 11,686 (52) 6,515 (12,220) 15,468 (2,223) (1,221) (2,002) (226,033) 120,235 (6,706) (6,859) (1,577) — (91,996)
Investing activities Acquisitions of securities Proceeds from disposal of securities Acquisitions of property, plant and equipment and intangible assets Proceeds from disposal of property, plant and equipment, and intangible assets
Increase (decrease) in cash Cash, beginning of year
59,416
(765,446) 842,513
(968,954) 906,097
(4,955)
(7,153)
313 72,425
Financing activities Increase of borrowings Reimbursement of borrowings Net change in share capital
56 62 1,583 (31) 3,369 (4,015) 11,545 (1,901) (256) 1,959 (104,089) 157,584 (1,190) (7,153) (5,780) (200)
19,913 — (6)
101 (69,909) 3,908 (8,248) 104
19,907
(4,236)
336 99,857
(14,729) 114,586
Cash, end of year
100,193
99,857
Other cash flow information relating to operating activities Interest received Interest paid Dividends received
135,783 33,442 1,047
146,134 38,061 1,147
The accompanying notes are an integral part of the consolidated financial statements. Page 8
Management’s Discussion and Analysis | 59
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
1.
Basis of presentation and general information General information Caisse populaire acadienne ltée (Caisse), operating under UNI Financial Cooperation, is a co-operative chartered under the Bank Act and its activities are governed, in particular, by the Office of the Superintendent of Financial Institutions Canada (OSFI) and the Financial Consumer Agency of Canada. The Caisse is also a member of the Canada Deposit Insurance Corporation. The Caisse provides a complete range of financial products and services including banking services to individuals and businesses, asset management, personal insurance and damage insurance. The Caisse was formed through the amalgamation on July 1, 2016, of certain entities of the Mouvement des caisses populaires acadiennes (Mouvement), specifically the Caisses populaires, the Office de Stabilisation de la Fédération des Caisses populaires acadiennes limitée (Office de stabilisation) and La Fédération des Caisses Populaires Acadiennes Limitée (Fédération). Upon amalgamation, the net assets of the Commercial Loan Fund of the Caisses Populaires Acadiennes (Commercial Loan Fund) were distributed to the Caisse and the Commercial Loan Fund was subsequently dissolved. This amalgamation is described in Note 2. The headquarters of the Caisse are located at 295 St-Pierre Boulevard West, Caraquet (New Brunswick), Canada. The Board of Directors approved these consolidated financial statements and notes on March 28, 2018. International financial reporting standards These consolidated financial statements have been prepared by management of the Caisse in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB). These consolidated financial statements have been prepared on the basis of historical cost, except for the remeasurement 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. The items included in the consolidated financial position are based on liquidity. And each item includes both short-term balances and long-term balances, if applicable. Certain comparative amounts were reclassified to be consistent with the presentation of the consolidated financial statements of the current year. These reclassifications did not affect the Caisse’s results or total assets and liabilities. Functional currency and presentation currency These consolidated financial statements are presented in Canadian dollars, the Caisse’s functional currency. Statement of compliance The Caisse’s consolidated financial statements are established according to IFRS effective on December 31, 2017.
Page 9
60 | Annual Report 2017 | UNI Financial Cooperation
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
2.
Significant accounting policies Basis of consolidation and amalgamation These consolidated financial statements include the financial statements of the Caisse and its wholly owned subsidiaries, Financière Acadie Inc. and Société de Services Acadie Inc. The consolidated financial statements also include the financial statements of Conseil Acadien de la Coopération Ltée, an entity that the Caisse controls by way of control of its Board of Directors. The amalgamation that gave rise to the Caisse was accounted for using the pooling of interest method, as the consolidated financial statements of the Caisse are the continuance of the consolidated financial statements of the Mouvement, which are presented here as comparative amounts. The consolidated financial statements of the Mouvement were derived from the financial statements of the Caisse, the Office de stabilisation, the Commercial Loan Fund and the consolidated financial statements of the Fédération and Acadia Life. These last three entities were included as they were directly owned by the Caisses populaires; the Office de stabilisation was included since the majority of its Board of Directors represented the Caisses populaires and the Fédération. The financial statements of all entities of the Caisse 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 consolidated statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities 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 fiscal year. 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, the measurement of financial instruments at fair value, income taxes and the measurement of the employee benefit liability. The estimates and assumptions with respect to these items 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 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 using yield scenarios. These scenarios are determined using a deterministic model that includes testing prescribed by Canadian actuarial standards. The period used for the cash flow 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 Caisse is exposed to significant risk without the ability to adjust policy premiums or charges related to the contract. Additional information is disclosed in Note 10.
Page 10
Management’s Discussion and Analysis | 61
Caisse populaire acadienne ltĂŠe Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
2.
Significant accounting policies (continued) Use of estimates and judgment (continued) Allowance for credit losses The Caisse establishes separately, loan by loan, individual allowances for each loan that is considered impaired. To determine the estimated recoverable amount, the Caisse discounts expected future cash flows at the effective interest rate inherent in 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 reviewed, taking into account the level of the existing collective allowance as well as management’s judgment as to 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. Measurement of financial instruments at fair value The fair value of financial instruments is measured using a fair value hierarchy depending on whether the inputs used for measurement are observable or not. Note 23 shows how fair value measurements are allocated to the three levels of the hierarchy. 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. Fair value reflects market conditions at a given date and, therefore, may not be representative of future fair value. It also cannot be interpreted as a realizable amount in the event of immediate settlement. Income taxes Judgment is involved in determining the provision for income taxes. The calculation of income taxes is based on the tax treatment of the transactions recorded in the consolidated financial statements. The Caisse 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 income tax 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. Deferred tax asset values are determined using assumptions regarding the results of operations of future fiscal years, timing of reversal of temporary differences and tax rates in effect on the date of reversals, which may change depending on government fiscal policies. Management must also assess whether it is more likely than not that deferred income tax assets will be realized before they expire and, according to all available evidence, whether a valuation allowance is required on all or portion of deferred tax assets. Moreover, in determining income taxes recorded on the consolidated statement of income, management interprets tax legislation in various jurisdictions. Using other assumptions or interpretations could lead to significantly different income tax expense.
Page 11
62 | Annual Report 2017 | UNI Financial Cooperation
Caisse populaire acadienne ltĂŠe Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
2.
Significant accounting policies (continued) Use of estimates and judgment (continued) Valuation of the employee benefit liability The present value of the defined benefit pension plan obligation 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 employee benefit liability. The assumptions used and additional information can be found in Note 13. Financial instruments All financial assets must be recognized at fair value upon initial recognition and classified as at fair value through profit or loss, available-for-sale, held-to-maturity or loans and receivables, based on the purpose for which the instrument was acquired and its characteristics. 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. Financial instruments at fair value through profit or loss 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, financial instruments at fair value through profit or loss are classified in this category through initial designation. Interest income earned, amortization of premiums and discounts, and dividends received are included in financial income using the accrual method. Instrument assets classified as available-for-sale 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 until the financial assets are sold or depreciated. Equity instruments that do not have quoted prices in an active market and for which a reliable valuation cannot be obtained are recorded at cost. 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. At each financial statements date, the debt securities are subject to impairment tests. The Caisse takes into account an impairment loss if it considers that it will probably not be able to recover all amounts due according to the contractual terms of the obligation due to an objective indication of impairment such as financial hardship of the issuer, bankruptcy or non-payment of principal or interest.
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Management’s Discussion and Analysis | 63
Caisse populaire acadienne ltĂŠe Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
2.
Significant accounting policies (continued) Financial instruments (continued) Instruments assets classified as available-for-sale (continued) For available-for-sale debt securities, the impairment loss represents the cumulative loss measured as the difference between the amortized cost and the current fair value, less any previously recognized impairment losses. Future interest income is calculated on the reduced carrying amount at the same interest rate used to discount future cash flows to measure the impairment loss. A subsequent decrease in the fair value of the instrument is also recognized in the consolidated statement of income. If the fair value of a debt security increases in a subsequent period, the increase is recognized in other comprehensive income. However, if the increase can be objectively related to an event occurring after the impairment was recognized, the impairment loss is reversed through the consolidated statement of income. An increase in fair value in excess of the impairment loss previously recognized in the consolidated statement of income is recognized in other comprehensive income. For available-for-sale equity securities, the impairment loss, represented by the cumulative loss measured as the difference between the acquisition cost (net of repayments of capital and amortization) and the current fair value, less any previously recognized impairment losses, is deducted from other comprehensive income and recognized in investment income in the consolidated statement of income. Impairment losses on equity securities are not reversed through the consolidated statement of income. Subsequent increases in the fair value of available-for-sale equity securities are recognized in other comprehensive income while subsequent decreases in fair value are recognized in the consolidated statement of income. Financial assets classified as held-to-maturity, loans and receivables and other assets and liabilities Financial assets classified as held-to-maturity (HTM), loans and receivables and other financial liabilities are carried at amortized cost using the effective interest method. The effective interest rate is the rate that exactly discounts future cash outflows or receipts over the expected life of the financial instrument or, as the case may be, over a shorter period of time to obtain the net carrying amount of the financial asset or liability. Interest or dividends arising from these financial instruments are included in financial income and expense. A financial asset held-to-maturity is impaired and impairment losses are incurred if there is objective evidence of impairment that can be reliably estimated. The impairment loss amount is the difference between the book value of the asset, including accrued interest, and the present value of estimated future cash flows, discounted at the original effective interest rate of the asset.
Page 13
64 | Annual Report 2017 | UNI Financial Cooperation
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
2.
Significant accounting policies (continued) Financial instruments (continued) Transaction costs Transaction costs relating to the acquisition of AFS investments are capitalized and then amortized over the term of the investment using the effective interest method. Those arising from the disposition of investments are deducted from the proceeds of disposition. Investment management fees are charged to net income as incurred. Transaction costs attributable to financial instruments classified as loans and receivables are capitalized and amortized using the effective interest method. Classification and recognition of financial assets and liabilities Financial assets and liabilities are classified based on their characteristics and the intention of management at the time of acquisition. Cash Cash is classified as loans and receivables and includes cash on hand and current accounts. Securities Debt securities include money market securities, bonds, asset-backed term notes and term deposits. Income from securities is accounted for on an accrual basis. Money market securities of the former Fédération and Acadia Life are classified as designated as at fair value through profit or loss. Money market securities are classified as available-for-sale. Bonds matched with actuarial liabilities of Acadia Life and bonds of the former Fédération are classified as at fair value through profit or loss. Bonds not matched with actuarial liabilities are classified as available-for-sale. Asset-backed term notes are classified as at fair value through profit or loss. Term deposits are classified as loans and receivables. Equity securities include equities, investment funds and other investments. Equities are classified as available-for-sale. Investment funds that are not matched to actuarial liabilities are classified as available-for-sale; those that are matched are classified as at fair value through profit or loss. Other investments mainly consist of equity securities in unrelated entities and are classified as available-for-sale. For items designated at fair value through profit or loss, with actuarial liabilities being determined according to CALM, the carrying value of the assets matching those liabilities is reflected in the calculation basis. As a result, any change in the fair value of the portion of money market securities, bonds, asset-backed term notes and investment funds matched to actuarial liabilities is included in the measurement of actuarial liabilities.
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Management’s Discussion and Analysis | 65
Caisse populaire acadienne ltĂŠe Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
2.
Significant accounting policies (continued) Financial instruments (continued) Classification and recognition of financial assets and liabilities (continued) Loans Loans are classified as loans and receivables and recognized at amortized cost using the effective interest method, net of the allowance for credit losses. The allowance for credit losses on impaired loans is charged immediately to net income. Other assets With the exception of the derivative instruments, financial assets included in other assets are classified as loans and receivables. 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 Caisse and the counterparty and include interest rate swaps, foreign exchange contracts and stock index options. The Caisse recognizes derivative instruments at fair value, whether they are standalone or embedded. Stand-alone derivative instruments are recognized in the statement of financial position in other assets and liabilities, while embedded derivative instruments are reported 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 recognized in the statement of income in other items, except for changes in market-linked term deposits, which are recognized as a financial expense. Changes in the fair value of embedded derivative instruments are recorded as a financial expense adjustment. The Caisse uses management.
derivative
financial
instruments
primarily
for
asset-liability
Derivative financial instruments are mainly used to manage the interest rate risk exposure of the assets and liabilities in 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. The foreign exchange contracts to which the Caisse is party consist of forward contracts. Forward 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 Caisse has opted not to apply hedge accounting for these derivative financial instruments. Deposits Deposits are classified as other financial liabilities and are carried at amortized cost using the effective interest method. Demand deposits are interest-bearing or non-interest-bearing deposits typically 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. Page 15
66 | Annual Report 2017 | UNI Financial Cooperation
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
2.
Significant accounting policies (continued) Financial instruments (continued) Classification and recognition of financial assets and liabilities (continued) Other liabilities Borrowings and financial liabilities included in other liabilities, excluding derivative instruments, are classified as other financial liabilities and are carried at amortized cost using the effective interest method. Loans The Caisse assesses at each reporting date whether there is objective evidence that financial asset or a group of financial assets is impaired. A loan is considered to be impaired if such evidence exists, 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 secured 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 net 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, inventories or property and equipment. 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 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 Caisse uses the value of the estimated 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.
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Management’s Discussion and Analysis | 67
Caisse populaire acadienne ltĂŠe Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
2.
Significant accounting policies (continued) Allowance for credit losses (continued) 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 Caisse 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. 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. 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 Caisse to measure the collective allowance takes into account the risk parameters of the various loan portfolios. The models that determine the collective allowance take 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 requires significant management judgment and assessment of current credit quality trends with respect to business sectors, the impact of changes in its credit policies as well as economic conditions. Lastly, 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. Reinsurance assets In the normal course of business, the Caisse uses reinsurance to limit its exposure to risk. The reinsurance assets represent amounts owed to the Caisse 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.
Page 17
68 | Annual Report 2017 | UNI Financial Cooperation
Caisse populaire acadienne ltĂŠe Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
2.
Significant accounting policies (continued) Property and equipment Land is recorded at cost. Buildings and equipment and other are recorded at cost less accumulated depreciation and are depreciated over their estimated useful lives on a straight-line basis. Gains and losses from disposal are included in net income in the year in which they occur and are included in other income. Property and equipment 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. Buildings Equipment and other
5 to 60 years 1 to 30 years
Intangible assets Intangible assets include software, acquired or internally generated, and are recorded at cost. They are amortized over their useful lives on a straight-line basis and using terms of 1-15 years. 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 Caisse 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 is 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. Value in use is calculated using 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 non-financial assets and, therefore, the outcome of the impairment test.
Page 18
Management’s Discussion and Analysis | 69
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
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 Caisse 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 an immaterial financial risk. Contracts that do not meet the definition of an insurance contract in accordance with IFRS are classified either as investment contracts or service contracts. Investment contracts are contracts that involve financial risk without significant insurance risk. Contracts issued by the Caisse that transfer a significant insurance risk are classified as insurance contracts in accordance with IFRS 4, Insurance Contracts. Contracts issued by the Caisse that do not meet the definition of an insurance contract are classified as investment contracts, in accordance with IAS 39, Financial Instruments: Recognition and Measurement. 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 Caisse 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 Caisse 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 in the statement of financial position as “Reinsurance assets.”
iii.
Liability adequacy test The Caisse meets the minimum requirements of the liability adequacy 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 inadequate, the entire deficiency is recognized in net income.
70 | Annual Report 2017 | UNI Financial Cooperation
Page 19
Caisse populaire acadienne ltĂŠe Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
2.
Significant accounting policies (continued) Insurance and investment contract liabilities (continued) iv.
Investment contract liabilities Investment contracts of the Caisse mainly comprise annuity certain contracts. Investment contract liabilities are classified as other financial liabilities and are carried at amortized cost. Amounts received as premiums are initially recognized in the statement of financial position as deposits. Subsequently, deposits and withdrawals are recorded directly as an adjustment to the liability in the statement of financial position.
v.
Reinsurance The Caisse 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 pending and unreported claims 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 Caisse. Currency translation Monetary assets and liabilities in foreign currency are translated at the exchange rate in effect at year-end. Other assets and liabilities are translated at historical exchange rates. Statement of income items are translated at the average exchange rate for the year. Exchange gains and losses are recognized in the statement of income for the year. Member dividends Member dividends are a distribution of net income 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 Caisse uses the tax asset and liability method of accounting for income taxes. Under this method, income taxes 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 tax 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 in the statement of financial position and their tax basis, using the tax rates that are enacted or substantively enacted for the years in which the differences are expected to reverse. A deferred tax asset is recognized to the extent that future realization of the tax benefit is more likely than not.
Page 20
Management’s Discussion and Analysis | 71
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
2.
Significant accounting policies (continued) Pension plans Until December 31, 2013, the Caisse 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 1, 2014, the Caisse participates in the Régime de pension à risques partagés des employés d’UNI Coopération financière. Due to the conversion to the shared risk pension plan, the Caisse 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 liability’s annual interest expense is 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 employees. As a result, the pension plan is recorded as if it were a defined contribution pension plan. The Caisse also participates in two other defined benefit pension plans. Pension plan benefits are calculated similarly to those in the shared risk plan. The Caisse accounts for these plans as defined benefit plans. The cost of the benefits is determined using the Projected Unit Credit Method. The 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 Caisse also offers employees a retirement benefit by way of a lump sum payment. This benefit is based on the employee’s salary and the number of years worked within the Caisse. 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. Other income is recognized when a good is transferred or a service rendered and the transaction is measurable.
Page 21
72 | Annual Report 2017 | UNI Financial Cooperation
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
3.
Changes in accounting policies These standards or amendments apply to financial statements beginning on or after January 1, 2017. IAS 12, Incomes taxes The IASB published an amendment to IAS 12, Incomes Taxes. The amendment “Recognition of Deferred Tax Assets for Unrealized Losses” clarifies how to account for deferred tax assets related to debt instruments measured at fair value. The provisions of this amendment applied retrospectively. The amendments to this standard did not have any impact on the results or financial position of the Caisse. IAS 7, Statement of cash flows The IASB published an amendment to IAS 7, Statement of Cash Flows. The amendment “Disclosure Initiative” clarifies that changes in liabilities arising from financing activities, including cash and noncash changes, shall be disclosed in the Statement of Cash Flows. The amendments to this standard did not have any impact on the results or financial position of the Caisse. Annual improvements to 2014-2016 IFRSs cycle The IASB published the “Annual Improvements to 2014-2016 IFRSs Cycle”. The Annual Improvements clarify situations specific to IFRS 12, Disclosure of Interests in Other Entities related to the scope of the standard which applied retrospectively to financial statements. The amendments to this standard did not have any impact on the results or financial position of the Caisse.
4.
Future accounting changes Accounting standards and amendments issued by the IASB but not yet effective as at December 31, 2017 are presented below. Standards or amendments are presented on the basis of their publication date unless a more relevant approach allows for better information. 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 other than those that are within the scope of other standards, such as financial instruments, insurance contracts and leases. IFRS 15 supersedes IAS 18, Revenue, and related interpretations. 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. The provisions of this new standard were expected to apply to financial statements beginning on or after January 1, 2018. On April 12, 2016, the IASB published an amendment to IFRS 15 in order to clarify some requirements and provide additional transitional relief. The provisions of this amendment will apply retrospectively or on a modified retrospective basis to financial statements beginning on or after January 1, 2018. Early adoption is permitted.
Page 22
Management’s Discussion and Analysis | 73
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
4.
Future accounting changes (continued) IFRS 15, Revenue from Contracts with Customers (continued) The Caisse plans to adopt the new standard on the mandatory effective date. However, the restatement of comparative periods is not mandatory, as the standard includes an exemption under which comparative periods may be presented using the previous accounting framework in certain conditions. In such case, any adjustment resulting from the application of IFRS 15 will be recognized in the opening consolidated statement of financial position. The Caisse has decided not to restate the comparative periods when adopting the provisions of IFRS 15. As a result, the retrospective impact of the application of IFRS 15 will be recognized in the consolidated statement of financial position as at January 1, 2018, the effective date of the new standard. The Caisse is currently evaluating the impact of this standard on its consolidated financial statements relating to the presentation, disclosure and measurement of revenue. 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. The standard IFRS 9: • requires financial assets to be measured at amortized cost or at fair value on the basis of the entity’s business model for managing assets; • changes the accounting for financial liabilities measured using the fair value option; • proposes a new accounting model related to the recognition of expected credit losses, requiring the entity to recognize expected credit losses on financial assets using current estimates of expected shortfalls in cash flows on those instruments as at the reporting date; • modifies the hedge accounting model, which aims to present in the financial statements the effect of risk management activities. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early application permitted. Retrospective application is required, but comparative information need not be restated. Further details on the Company’s application of IFRS 9, Financial instruments are provided under the IFRS 4, Insurance contract amendment. The Caisse plans to adopt the new standard on the mandatory effective date retrospectively. However, the Caisse has decided not to restate the comparative periods when adopting the provisions of IFRS 9. The Caisse is currently evaluating the impact of this standard on its consolidated financial statements relating to the presentation, disclosure and measurement of financial instruments.
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74 | Annual Report 2017 | UNI Financial Cooperation
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
4.
Future accounting changes (continued) IFRS 4, Insurance contracts On September 12, 2016, the IASB published an amendment to IFRS 4, Insurance contract. This amendment, “Applying IFRS 9, Financial instruments with IFRS 4, Insurance contract”, provides two options to entities applying IFRS 4: • •
the deferral approach is an optional temporary exemption from applying IFRS 9 until January 1, 2021 for entities whose predominant activity is issuing contracts within the scope of IFRS 4; the overlay approach permits entities to adopt IFRS 9 but adjust some of the impacts arising from designated financial assets, those being assets related to the insurance contract liabilities.
The provisions of this amendment will apply to financial statements beginning on or after January 1, 2018. The Caisse has analyzed this amendment and is not eligible for the deferral approach for its financial statements. The Caisse will therefore not be able to use the deferral approach and will apply IFRS 9 as of January 1, 2018. IFRS 17, Insurance contracts On May 18, 2017, the IASB published the standard IFRS 17, Insurance contracts, which replaces the provisions of the standard IFRS 4, Insurance contracts. The standard IFRS 17: •
• • •
has an objective to ensure that an entity provides relevant information that faithfully represents those contracts and gives a basis for users of financial statements to assess the effect that insurance contracts have on the financial position, income statement and cash flows statement; establishes the principles for recognition, measurement, presentation and disclosure; defines a general model and a variable fee approach applicable to all insurance contracts and reinsurance contracts to measure the insurance contract liabilities; defines a specific model for contracts of one year or less.
The provisions of this new standard will apply retrospectively to each group of insurance contracts and if, and only if, impracticable, an entity shall apply the modified retrospective or fair value approach to financial statements beginning on or after January 1, 2021. Early adoption is permitted if IFRS 9, Financial Instruments and IFRS 15, Revenue from contracts with customers are previously applied. The Caisse is evaluating the impact on presentation, disclosure and measurement of the insurance contract liabilities that this standard will have on its consolidated financial statements. IFRS 10, Consolidated financial statements and IAS 28, Investments in associates and joint ventures On September 16, 2014, the IASB published an amendment to IFRS 10, consolidated financial statements and to IAS 28, Investments in associates and joint ventures. This amendment, “Sale or contribution of assets between an investor and its associate or joint venture”, clarifies the accounting for the gain or loss resulting from loss of control or from transfer of assets following a transaction with an associate or joint venture.
Page 24
Management’s Discussion and Analysis | 75
Caisse populaire acadienne ltĂŠe Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
4.
Future accounting changes (continued) IFRS 10, Consolidated financial statements and IAS 28, Investments in associates and joint ventures (continued) The provisions of this amendment will apply prospectively to the consolidated financial statements beginning on or after January 1, 2016. In December 2015, the IASB published an amendment which defers the application to consolidated financial statements beginning on or after a date yet to be determined. Early adoption is permitted. The Caisse has completed the analysis of this amendment and concluded that it will not have an impact on its consolidated financial statements. IFRS 16, Leases In January 2016, the IASB published IFRS 16, Leases, that requires that companies record most lease contracts in their statement of financial position. Under this new standard, lessees will record assets and liabilities for the majority of their lease contracts. Lessor accounting however remains largely unchanged. The provisions of this new standard will apply retrospectively or on a modified retrospective basis to financial statements beginning on or after January 1, 2019. Early adoption is permitted if IFRS 15, Revenue from Contracts with Customers is previously applied. The Caisse is currently evaluating the impact of this standard and plans to adopt the new standard on the mandatory effective date. IFRIC 22, Foreign currency transactions and advance consideration On december 8, 2016, the IASB published Interpretation IFRIC 22, Foreign currency transactions and advance consideration. This interpretation provides guidance on the exchange rate to use in transactions that involve advance consideration paid or received in a foreign currency. The provisions of this interpretation will apply to consolidated financial statements beginning on or after January 1, 2018. Early adoption is permitted. The Caisse is currently evaluating the impact of this interpretation on its consolidated financial statements. IFRIC 23, Uncertainty over income tax treatments On June 7, 2017, the IASB published Interpretation IFRIC 23, Uncertainty over income tax treatments. This interpretation clarifies how to apply the recognition and measurement requirement in IAS 12, Income taxes when there is uncertainty over income tax treatments. An entity shall recognize and measure its current or deferred tax asset or liability applying the requirement of IAS 12 based on taxable profit (taxable loss), tax bases, unused tax losses, unused tax credits and tax rates determined applying this interpretation. The provisions of this interpretation will apply retrospectively or on a modified retrospective basis to financial statements beginning on or after January 1, 2019. Early adoption is permitted. The Caisse is currently evaluating the impact of this interpretation on its consolidated financial statements.
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76 | Annual Report 2017 | UNI Financial Cooperation
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
5.
Securities 2017
At fair value through profit or loss Canadian federal government debt Canadian provincial and municipal government debt Financial institution debt Debt of other issuers Equity securities
Available-for-sale Canadian federal government debt Canadian provincial and municipal government debt Financial institution debt Debt of other issuers Equity securities
Loans and receivables Financial institution debt
Within 1 year
1 year to 3 years
3 to 5 years
5 to 10 years
Over 10 years
Without maturity
Total
$
$
$
$
$
$
$
30,071
68,599
29,511
6,725
—
— 134,906
21,865 — 170 —
32,769 5,391 14,844 —
18,871 2,472 22,026 —
7,710 966 18,132 —
115,927 805 26,876 —
— 197,142 — 9,634 — 82,048 54,445 54,445
52,106
121,603
72,880
33,533
143,608
54,445 478,175
8,591
7,671
2,271
996
2,135
—
21,664
4,554
10,878
3,597
150
11,507
—
30,686
1,002
9,485
—
—
—
—
10,487
—
—
—
219
7,166
—
7,385
—
—
—
—
—
19,880
19,880
14,147
28,034
5,868
1,365
20,808
19,880
90,102
—
19,499
19,499
—
—
—
—
85,752
149,637
78,748
34,898
164,416
74,325 587,776
Page 26
Management’s Discussion and Analysis | 77
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
5.
Securities (continued) 2016 Within 1 year
1 year to 3 years
3 to 5 years
5 to 10 years
Over 10 years
Without maturity
Total
$
$
$
$
$
$
$
96,988
40,748
37,836
5,333
—
—
180,905
51,547
55,138
36,312
3,142
116,540
—
262,679
— 22,538 171 —
— — 1,893 —
— 8,976 4,667 —
— 565 7,686 —
5,462 2,982 17,585 —
— — — 12,511
5,462 35,061 32,002 12,511
171,244
97,779
87,791
16,726
142,569
12,511
528,620
5,985
6,742
8,895
515
1,609
—
23,746
4,341
11,323
8,915
200
9,515
—
34,294
— 3,894 30 —
— 9,159 — —
1,266 7,629 — —
425 — 220 —
3,241 448 4,422 —
— — — 21,253
4,932 21,130 4,672 21,253
14,250
27,224
26,705
1,360
19,235
21,253
110,027
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
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
Loans and receivables Financial institution debt
20,000
—
—
—
—
—
20,000
205,494
125,003
114,496
18,086
161,804
33,764
658,647
Page 27
78 | Annual Report 2017 | UNI Financial Cooperation
Caisse populaire acadienne ltĂŠe Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
6.
Loans and allowance for credit losses Loans by category of borrowers
Personal Residential mortgages Consumer and other Business
2017
2016
$
$
1,617,658 526,132 1,065,440 3,209,230
1,540,181 492,095 956,915 2,989,191
Loans, impaired loans and allowance for credit losses 2017 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
Business
Total
$
$
$
$
1,583,557
514,532
1,034,961
3,133,050
30,040 4,061 1,617,658
7,501 4,099 526,132
5,511 24,968 1,065,440
43,052 33,128 3,209,230
(1,292) (383) 1,615,983
(3,245) (3,288) 519,599
(8,254) (8,068) 1,049,118
(12,791) (11,739) 3,184,700 2016
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
Business
Total
$
$
$
$
1,505,991
480,483
920,056
2,906,530
32,696 1,494 1,540,181
7,303 4,309 492,095
10,833 26,026 956,915
50,832 31,829 2,989,191
(381) (103) 1,539,697
(2,937) (2,714) 486,444
(7,930) (9,944) 939,041
(11,248) (12,761) 2,965,182
Page 28
Management’s Discussion and Analysis | 79
Caisse populaire acadienne ltĂŠe Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
6.
Loans and allowance for credit losses (continued) Loans, impaired loans and allowance for credit losses (continued) Past due loans are loans for which the counterparty has failed to make a payment when contractually due. Past due loans presented in the table below are not classified as impaired since they are past due for less than 90 days or are secured so that it is reasonable to expect a full recovery. Gross loans, past due but not impaired 2017 From 1 to 29 days
From 30 to 59 days
From 60 to 89 days
90 days and greater
$
$
$
$
$
19,793
3,722
2,151
4,374
30,040
5,931 4,290 30,014
1,156 1,092 5,970
403 129 2,683
11 — 4,385
7,501 5,511 43,052
From 1 to 29 days
From 30 to 59 days
From 60 to 89 days
90 days and greater
Total
$
$
$
$
$
24,584
3,134
1,233
3,745
32,696
5,971 6,072 36,627
883 524 4,541
286 317 1,836
163 3,920 7,828
7,303 10,833 50,832
Personal Residential mortgages Consumer and other Business
Total
2016
Personal Residential mortgages Consumer and other Business
Impaired loans and individual allowances 2017
Personal Residential mortgages Consumer and other Business
80 | Annual Report 2017 | UNI Financial Cooperation
Gross
Individual allowances
Net
$
$
$
4,061 4,099 24,968 33,128
(1,292) (3,245) (8,254) (12,791)
2,769 854 16,714 20,337
Page 29
Caisse populaire acadienne ltĂŠe Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
6.
Loans and allowance for credit losses (continued) Impaired loans and individual allowances (continued) 2016
Personal Residential mortgages Consumer and other Business
Gross
Individual allowances
Net
$
$
$
1,494 4,309 26,026 31,829
(381) (2,937) (7,930) (11,248)
1,113 1,372 18,096 20,581
Change in the allowance for credit losses 2017
Individual allowances, beginning of year Provision for credit losses Write-offs and other Individual allowances, end of year
Personal
Business
Total
$
$
$
3,318 5,659 (4,440 ) 4,537
7,930 2,289 (1,965) 8,254
11,248 7,948 (6,405) 12,791 12,761 (1,433) 411 11,739 24,530
Collective allowance, beginning of year Provision for credit losses Other Collective allowance, end of year
2016
Individual allowances, beginning of year Provision for credit losses Write-offs and other Individual allowances, end of year Collective allowance, beginning of year Provision for credit losses Other Collective allowance, end of year
Personal
Business
Total
$
$
$
1,173 3,921 (1,776) 3,318
7,327 2,217 (1,614) 7,930
8,500 6,138 (3,390) 11,248 15,205 (2,769) 325 12,761 24,009
Page 30
Management’s Discussion and Analysis | 81
Caisse populaire acadienne ltĂŠe Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
6.
Loans and allowance for credit losses (continued) Loans securitization As part of its liquidity and capital management strategy, the Caisse participates in the National Housing Act Mortgage-Backed Securities Program. Under this program, the Caisse 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 Caisse 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 Caisse 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. The following table presents the securitized loans as well as the related liabilities:
Securitized mortgage loans Related liabilities (Note 11)
7.
2017
2016
$
$
103,081 86,314
70,772 66,401
2017
2016
$
$
9,986 9,690 4,805 733 432 25,646
9,500 9,539 4,023 1,083 536 24,681
Accrued interest, receivables and other assets
Accrued interest Prepaid expenses Receivables Foreclosed assets Other
82 | Annual Report 2017 | UNI Financial Cooperation
Page 31
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
8.
Property and equipment Land
Cost December 31, 2015 Acquisitions Dispositions and write-offs December 31, 2016 Acquisitions Dispositions and write-offs December 31, 2017 Accumulated depreciation December 31, 2015 Depreciation Dispositions and write-offs December 31, 2016 Depreciation Dispositions and write-offs
7,652 — (31) 7,621 — (182) 7,439
— — — — — —
Buildings
49,762 440 (120) 50,082 237 (835) 49,484
27,705 1,406 — 29,111 1,441 (713)
Equipment and other
34,606 2,061 (356) 36,311 2,209 (270) 38,250
27,563 1,847 (360) 29,050 1,883 (215)
Total
92,020 2,501 (507) 94,014 2,446 (1,287) 95,173
55,268 3,253 (360) 58,161 3,324 (928)
December 31, 2017
—
29,839
30,718
60,557
Net book value December 31, 2017 December 31, 2016
7,439 7,621
19,645 20,971
7,532 7,261
34,616 35,853
Page 32
Management’s Discussion and Analysis | 83
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
9.
Intangible assets
Cost December 31, 2015 Acquisitions Dispositions and write-offs December 31, 2016 Acquisitions Dispositions and write-offs December 31, 2017 Accumulated amortization December 31, 2015 Amortization Dispositions and write-offs December 31, 2016 Amortization Dispositions and write-offs
Acquired software
Internally generated software
Total
$
$
$
7,341 4,533 (170) 11,704 1,869 (200) 13,373
2,584 914 (160) 3,338 1,111 —
1,725 119 — 1,844 640 (298) 2,186
887 102 — 989 530 (256)
9,066 4,652 (170) 13,548 2,509 (498) 15,559
3,471 1,016 (160) 4,327 1,641 (256)
December 31, 2017
4,449
1,263
5,712
Net book value December 31, 2017 December 31, 2016
8,924 8,366
923 855
9,847 9,221
Acquired software includes an amount of $934 (2016 —$639) for software that was not amortized since it was not in use at December 31. Internally generated software includes an amount of $114 (2016 — $135) for software that was not amortized since it was in development at December 31.
Page 33
84 | Annual Report 2017 | UNI Financial Cooperation
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
10.
Actuarial liabilities a)
Nature Actuarial liabilities represent the estimated amount that, together with future premiums and net investment income, will be adequate 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 immediately in the statement of income.
b)
Composition The composition of the actuarial liabilities of the policies is as follows: 2017
Personal life insurance Group and health insurance Annuities
Actuarial liabilities
Reinsurance assets
Net amount
$
$
$
93,777 (2,264) 78,914
7,715 740 —
86,062 (3,004) 78,914
170,427
8,455
161,972
Actuarial liabilities
Reinsurance assets
Net amount
$
$
$
2016
Personal life insurance Group and health insurance Annuities
83,067 (1,519) 77,193 158,741
6,476 758 — 7,234
76,591 (2,277) 77,193 151,507
Page 34
Management’s Discussion and Analysis | 85
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
10.
Actuarial liabilities (continued) b)
Composition (continued) The assets covering the actuarial liabilities include in the following 2017
Bonds and short-term securities Investment funds Reinsurance assets
Life insurance
Annuities
Total
$
$
$
69,274 13,784 8,455 91,513
78,914 — — 78,914
148,188 13,784 8,455 170,427
Life insurance
Annuities
Total
$
$
$
61,803 12,511 7,234 81,548
77,193 — — 77,193
138,996 12,511 7,234 158,741
2016
Bonds and short-term securities Investment funds Reinsurance assets
c)
Actuarial assumptions The nature and method of determining the most significant assumptions used in the computation of the actuarial liabilities comply with industry practice. Actuarial assumptions pertain to mortality and morbidity, policy lapse rates, investment income and operating expenses. Mortality The mortality assumption is based on a combination of the Caisse’s most recent experience and the industry’s recent experience as published by the CIA. An increase (a decrease for annuities) of 1% in the most likely assumption would result in an increase of approximately $650 in the actuarial liabilities (2016 — $400). Morbidity The morbidity assumption is based on the Caisse’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 Caisse’s actual experience. In the case of products for which morbidity has a significant effect, a deterioration of 1% in the most likely assumption would not have a significant impact on the actuarial liabilities.
Page 35
86 | Annual Report 2017 | UNI Financial Cooperation
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
10.
Actuarial liabilities (continued) c)
Actuarial assumptions (continued) Investment income The calculation of the actuarial liabilities reflects the projected net investment income from the assets covering the liabilities. It also takes into account the income that the Caisse expects to earn on reinvestment or forego to finance the mismatch in the timing of cash flows. Interest rate and credit risk projections include some uncertainty. The Caisse 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 Caisse’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 $21,800 (2016 — $23,000) and a decrease in the corresponding liabilities of $23,800 (2016 —$25,200), resulting in a net positive impact of $2,000 (2016 — $2,200) 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 $26,100 (2016 — $27,900) and an increase in the corresponding liabilities of $28,600 (2016 — $29,700), resulting in a net negative impact of $2,500 (2016 — $1,800) 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% in the most likely assumption of policy management expenses would increase the actuarial liabilities by approximately $268 (2016 — $256). Policy lapse or cancellation rates Policyholders can choose to allow their policy to lapse by ceasing to pay their premiums. The Caisse 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. The lapse assumptions reflect the Caisse’s experience and the industry.
d)
Uncertainty of measurement (margins for adverse deviations) The basic assumptions used in establishing actuarial liabilities represent best estimates of the range of possible outcomes. Actuaries must include in each assumption a margin to recognize the uncertainty surrounding the establishment of best estimates, to take into account a possible deterioration in experience and to provide better assurance that the actuarial liabilities will be sufficient to pay future benefits. The CIA prescribes a range of allowable margins. The margins used are at least in the middle of the suggested range.
Page 36
Management’s Discussion and Analysis | 87
Caisse populaire acadienne ltĂŠe Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
10.
Actuarial liabilities (continued) e)
Change in actuarial liabilities The following table shows the changes in actuarial liabilities over the last two fiscal years: 2017
Balance, beginning of year Normal increase (decrease) for Existing contracts New contracts Changes in assumptions Balance, end of year f)
2016
Actuarial liabilities
Reinsurance assets
Actuarial liabilities
Reinsurance assets
$
$
$
$
158,741
7,234
157,158
6,978
15,929 (1,917) (2,326) 11,686 170,427
1,431 (95) (115) 1,221 8,455
5,011 (2,257) (1,171) 1,583 158,741
412 (103) (53) 256 7,234
Changes in actuarial assumptions The economic and non-economic assumptions taken into account in the computation of actuarial liabilities are periodically updated to reflect the actual or projected underwriting experience associated with each of them. The following table presents the impact of changes made to assumptions for the years ended December 31:
Mortality Transformation costs Contract cancellation rates Operating expenses Methods and other
2017
2016
$
$
(1,103) (726) 793 (741) (434) (2,211)
(2,254) — 754 891 (509) (1,118)
Regarding the actuarial assumptions used in the establishment of actuarial liabilities, various studies are made annually to reflect the most up-to-date data possible. At the end of 2017, some assumptions were thus updated, in addition to some improvements to the valuation model. We note among others: Mortality Two years of improved mortality were applied to the assumptions used to reflect mortality improvement of 2017 and 2016. Contract cancellation rates Lapse or cancellation rates for term life insurance products have been updated following an internal study.
Page 37
88 | Annual Report 2017 | UNI Financial Cooperation
Caisse populaire acadienne ltĂŠe Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
10.
Actuarial liabilities (continued) f)
Changes in actuarial assumptions (continued) Operating expenses Expenses in 2017 were lower than in the past and this trend is expected to continue in the future with the reallocation of some expenses to the Caisse and more realistic service offerings. The assumption for future expenses has therefore been revised downward to reflect this new context. Methods and other The transformation assumption for temporary products has been updated to be more comparable to the industry. Also, a modification was made to the valuation model in order to simplify the process of calculating annuitants.
11.
Borrowings
Securitization loans, guaranteed by mortgage loans as described in Note 6, repayable at maturity, interest payable semi-annually at rates of 1.20% to 2.40%, maturities from December 2019 to December 2022.
2017
2016
$
$
83,314 83,314
66,401 66,401
The projected loan principal repayments for the next five years are as follows: $ 2018 2019 2020 2021 2022
— 21,741 40,859 3,958 19,756
The Caisse also has an operating credit facility with an authorized amount of $12,500 bearing interest at the prime rate plus 0.75% and renewable annually, an operating credit facility with an authorized amount of $50,000, bearing interest at the cost of funds plus 0.45% and renewable in December 2018, a revolving term loan with an authorized amount of $100,000, bearing interest at the cost of funds plus 0.80% and renewable in December 2020, and a revolving term loan with an authorized amount of $100,000, bearing interest at the cost of funds plus 0.95% and renewable in December 2022. As at December 31, 2017 and 2016, these facilities were undrawn.
Page 38
Management’s Discussion and Analysis | 89
Caisse populaire acadienne ltĂŠe Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
12.
Accrued interest, payables and other liabilities
Accrued interest Payables Deferred revenue Employee benefit liability (Note 13) Liabilities for pending and unreported claims Investment contract liabilities Other
13.
2017
2016
$
$
17,702 30,886 171 23,402 733 46 503 73,443
19,218 36,372 753 26,007 608 98 940 83,996
Employee benefit liability Until December 31, 2013, the Caisse 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 wound up. In addition, the Caisse participates in two other unfunded defined benefit pension plans. Therefore, the Caisse records, on the consolidated statement of financial position, the liability for these supplementary plans. 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
90 | Annual Report 2017 | UNI Financial Cooperation
2017
2016
$
$
3.40% 3.50% CPM2014-B Public
3.85% 3.50% CPM2014-B Public
Page 39
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
13.
Employee benefit liability (continued) Defined benefit pension plans The following tables show the liabilities and costs recognized in respect of the defined benefit pension plans for the Caisse.
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 Past service costs Defined benefit plan obligation at end of year, accounting deficit and defined benefit plan liability
2017
2016
$
$
4,781 338 187 (204) (20) 217 —
5,299
4,031 277 165 (68) 280 86 10
4,781
Expense recognized for defined benefit plans The amounts recognized in the statement of income under “Salaries and employee benefits” for the year ended December 31 are as follows:
Current service cost Interest expense Past service cost Expense recognized in the statement of income
2017
2016
$
$
338 187 — 525
277 165 10 452
The amounts recognized in other comprehensive income for the year ended December 31 are as follows:
Losses for the year
2017
2016
$
$
197
366
Page 40
Management’s Discussion and Analysis | 91
Caisse populaire acadienne ltĂŠe Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
13.
Employee benefit liability (continued) Sensitivity of key assumptions Due to the long-term nature of employee benefits, there are significant uncertainties in recognizing balances related to the assumptions made. 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:
Discount rate Increase of 1% Decrease of 1%
2017
2016
$
$
(501) 575
(531) 623
Expected rate of salary increases Increase of 1%
37
62
Mortality rate Decrease of 1%
53
96
The above sensitivity analysis was developed 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 2018 The Caisse expects to contribute $207 to the defined benefit pension plans in the next year. Other employee benefit liability Due to the conversion to the shared risk pension plan, the Caisse has committed to paying temporary contributions of $3,000 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.
Liability at the beginning of the year Interest expense recorded in the statement of income Actuarial losses (gains) recorded in other comprehensive income Contributions paid Liability at the end of the year
2017
2016
$
$
18,300 571
20,632 737
(579) (3,000) 15,292
(69) (3,000) 18,300
Page 41
92 | Annual Report 2017 | UNI Financial Cooperation
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
13.
Employee benefit liability (continued) Other retirement benefits The Caisse 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 Caisse at the time of retirement. The liability recorded for these benefits amounts to $2,811 (2016 — $2,926). Amount recognized under “Employee benefit liability” The “Employee benefit liability” in Note 12 consists of the following:
Liability for pension plans Liability for temporary contributions Liability for other retirement benefits
2017
2016
$
$
5,299 15,292 2,811 23,402
4,781 18,300 2,926 26,007
Shared risk pension plan During the year, the Caisse contributed $5,200 (2016 — $5,166) to the shared risk pension plan.
14.
Share capital Authorized The share capital is made up of membership shares. The Caisse may issue an unlimited number of membership shares, redeemable under certain conditions stipulated in the Bank Act, in the By-laws and in the articles of incorporation of the Caisse. 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 Caisse. The shares issued and paid are distributed as follows:
Membership shares
2017
2016
$
$
4,426
4,432
Page 42
Management’s Discussion and Analysis | 93
Caisse populaire acadienne ltĂŠe Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
15.
Accumulated other comprehensive income Accumulated other comprehensive income includes unrealized gains of $5,256 (2016 — $5,397) on available-for-sale instruments less income taxes of $1,499 (2016 — $1,538)
16.
Net insurance and annuity premiums
Gross insurance and annuity premiums Premiums ceded to reinsurers
17.
2016
$
$
20,838 (1,848) 18,990
20,341 (1,838) 18,503
2017
2016
$
$
Net insurance and annuity benefits
Gross insurance benefits Benefits ceded to reinsurers Annuity benefits Change in insurance contract liabilities Change in reinsurance assets
18.
2017
7,377 (956) 4,934 11,686 (1,221) 21,820
6,790 (1,133) 6,864 1,583 (256) 13,848
Expenses related to the amalgamation process Expenses related to the amalgamation comprise salaries and employee benefits, and general and other expenses. These expenses were incurred under the amalgamation process which took place in 2016.
19.
Other items
Revenues (losses) arising from the recognition of the following items at fair value Derivative instruments Bonds
2017
2016
$
$
(11,268) (4,200) (15,468)
(10,557) (988) (11,545)
The change in fair value of the matched bonds of Acadia Life is not included in other items because the bonds are matched with actuarial liabilities and are therefore presented in financial income.
Page 43
94 | Annual Report 2017 | UNI Financial Cooperation
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
20.
Income taxes Income taxes for the years presented in the consolidated statement of income are composed of the following elements:
Consolidated statement of income Current Income tax expense for the year Deferred income taxes Creation and reversal of temporary differences Change in tax rate on the beginning balance Total income tax expense Other comprehensive income Current Deferred Total income taxes included in other comprehensive income
2017
2016
$
$
3,084 3,084
4,471 4,471
(1,294) — (1,294) 1,790
(31,684) (497) (32,181) (27,710)
465 (393)
(553) (154)
72
(707)
The provision for income taxes in the consolidated statement of income differs from that established by application of the Canadian statutory tax rate for the following reasons: 2017
Income taxes at the statutory rate Small business deduction, used by some entities of the Caisse Non-deductible expenses Non-taxable revenues Change in tax rate on the beginning balance of the deferred income taxes Other Reversal of deferred income taxes as a result of legislative amendments
2016
$
%
$
%
1,757
29.0
1,027
28.5
(73) 134 (45)
(1.2) 2.2 (0.7)
(403) 1 (170)
(11.2) — (4.7)
— 17
— 0.3
(497) 145
(13.8) 4.0
1,790
29.6
103
2.8
— 1,790
— 29.6
(27,813) (27,710)
(771.7) (768.9)
The change in the applicable tax rate compared with the previous period results from an increase in the provincial tax rate.
Page 44
Management’s Discussion and Analysis | 95
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
20.
Income taxes (continued) The deferred tax liability (asset) by type of temporary difference and carryforward is as follows: 2017 Deferred tax asset (liability) as at January 1st
Changes through equity
Changes through net income
Deferred tax asset (liability) as at December 31
$
$
$
$
Net deferred tax asset (liability) Property and equipment and intangible assets Securities and derivative financial instruments Allowance for credit losses Employee benefit liability Non-capital losses Actuarial liabilities Other
(1,077) (1,281) 4,370 8,753 5,701 13 220 16,699
— 504 — (111) — — — 393
(397)
(1,474)
2,796 (464) (1,239) 2,679 6 (2,087) 1,294
2,019 3,906 7,403 8,380 19 (1,867) 18,386 2016
Deferred tax asset (liability) as at January 1st
Changes through equity
Changes through net income
Deferred tax asset (liability) as at December 31
$
$
$
$
1,565
—
(2,642)
(1,077)
54 — 100 — — — — 154
4,146 344 468 3,022 (3) 27,813 (967) 32,181
(1,281) 4,370 8,753 5,701 13 — 220 16,699
Net deferred tax asset (liability) Property and equipment and intangible assets Securities and derivative financial instruments Allowance for credit losses Employee benefit liability Non-capital losses Actuarial liabilities Stabilization fund Other
(5,481) 4,026 8,185 2,679 16 (27,813) 1,187 (15,636)
Page 45
96 | Annual Report 2017 | UNI Financial Cooperation
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
21.
Transfer to general reserve Pursuant to the Bank Act, the distribution of surplus earnings is the responsibility of the Caisse’s directors. Accordingly, the net income for the year have been transferred to the general reserve.
22.
Related party transactions In the normal course of business, the Caisse enters into financial transactions with its member officers and their related parties. The Caisse’s interest rate policy is to offer the same interest rates to member officers who are employees as the rates offered to preferred members. At year-end, loans and deposits to member officers who are employees and their related parties with the Caisse are as follows:
Loans Deposits
2017
2016
$
$
890 597
274 875
No individual allowance was deemed necessary on these loans. Key management personnel compensation The key management personnel of the Caisse 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 Caisse. For the year ended December 31, the compensation of the key management personnel of the Caisse is as follows:
Short-term benefits Post-employment benefits Termination benefits
2017
2016
$
$
3,775 405 — 4,180
3,725 542 1,656 5,923
Page 46
Management’s Discussion and Analysis | 97
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
23.
Fair value of financial instruments Fair value is the consideration that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following methods and assumptions have been used to estimate the fair value of the financial instruments: Short-term financial instruments The fair value of cash, accrued interest receivable, receivables, accrued interest payable and payables approximates their carrying value due to their short-term nature. Securities The estimated fair value of securities is based on quoted market prices, when available. Fair values are based on closing bid prices. Fair values of securities are determined as follows: • The fair value of money market securities is equal to the sum of the purchase price and accumulated interest; • The fair value of equities is based on their daily quotations on the stock exchange or in the market where they are primarily traded; • The fair value of non-publicly traded fixed income securities is determined daily based on prices obtained from market participants or investment dealers; • The fair value of the commercial mortgage fund is equal to the discounted value of future cash flows of commercial mortgages, established monthly based on current market rates; • The fair value of mutual fund units is the net asset value per unit on each valuation date. Derivative financial instruments Fair values of derivative financial intruments are determined as follows: •
The fair value of interest rate swaps is determined by discounting the remaining contractual cash flows until maturity of the contract;
•
The fair value of call options is determined by various assumptions that consider the underlying asset, the remaining term and the market volatility;
•
The fair value of forward contracts is determined based on the spot rate adjusted for the forward rate between the current date and the settlement date of the contract.
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.
Page 47
98 | Annual Report 2017 | UNI Financial Cooperation
Caisse populaire acadienne ltĂŠe Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
23.
Fair value of financial instruments (continued) Deposits 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 is determined by discounting contractual cash flows using market interest rates currently offered for deposits 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 Caisse 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. Investment contract liabilities The fair value of the investment contract liabilities is assumed to be equal to the carrying value. The following tables present the carrying amount and fair value of all financial assets and liabilities and the related items of income, expense and net gain, according to their classification determined by the financial instruments standards.
Page 48
Management’s Discussion and Analysis | 99
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
23.
Fair value of financial instruments (continued) 2017 At fair value through profit or loss
Financial assets Cash Securities Money market securities Bonds Asset-backed term notes Term deposits Equities Investment funds and other Loans Derivative financial instruments Foreign exchange contracts Interest rate swaps Other Other assets Total financial assets Financial liabilities Deposits Loans Derivative financial instruments Foreign exchange contracts Interest rate swaps Accrued interest, payables and other liabilities Total financial liabilities Net gains Financial income Financial expenses Dividends
Loans and receivables and financial liabilities at Available- amortized for-sale cost
Designated at fair value
Held for trading
Total
Fair value
$
$
$
$
$
$
—
—
—
100,193
100,193
100,193
19,689 403,870
— —
3,792 66,430
— —
23,481 470,300
23,481 470,300
171 — 20,494
— — —
— — 12,192
— 19,499 —
171 19,499 32,686
171 19,499 32,686
33,951 —
— —
7,688 —
— 41,639 3,184,700 3,184,700
41,639 3,169,972
— — — —
147 8,167 22,145 —
— — — —
478,175
30,459
— —
— — — 14,791
147 8,167 22,145 14,791
147 8,167 22,145 14,791
90,102
3,319,183 3,917,919
3,903,191
— —
— —
3,255,542 3,255,542 86,314 86,314
3,272,315 86,314
— —
147 15,238
— —
— —
147 15,238
147 15,238
—
—
—
49,870
49,870
49,870
—
15,385
—
3,391,726 3,407,111
3,423,884
6,342 10,613 — 476
— 4,055 — —
1,538 2,209 — 554
— 116,822 (33,916) —
7,880 133,699 (33,916) 1,030
N/A N/A N/A N/A
Page 49
100 | Annual Report 2017 | UNI Financial Cooperation
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
23.
Fair value of financial instruments (continued) 2016 At fair value through profit or loss
Designated at fair value
Financial assets Cash Securities Money market securities Bonds Asset-backed term notes Term deposits Equities Investment funds and other Loans Derivative financial instruments Foreign exchange contracts Interest rate swaps Other Other assets Total financial assets Financial liabilities Deposits Loans Derivative financial instruments Foreign exchange contracts Interest rate swaps Accrued interest, payables and other liabilities Total financial liabilities Net gains Financial income Financial expenses Dividends
Loans and receivables and financial liabilities at Held for Available-foramortized trading sale cost
Total
Fair value
$
$
$
$
$
$
—
—
—
99,857
99,857
99,857
137,082 378,856
— —
4,210 84,564
— —
141,292 463,420
141,292 463,420
171 — —
— — —
— — 13,412
— 20,000 —
171 20,000 13,412
171 20,000 13,412
12,511 —
— —
7,841 —
— 2,965,182
20,352 2,965,182
20,352 2,980,675
— — — —
123 9,322 15,219 —
— — — —
— — — 13,523
123 9,322 15,219 13,523
123 9,322 15,219 13,523
528,620
24,664
110,027
3,098,562
3,761,873
3,777,366
— —
— —
— —
3,135,307 66,401
3,135,307 66,401
3,154,823 66,401
— —
123 4,905
— —
— —
123 4,905
123 4,905
—
—
—
57,236
57,236
57,236
—
5,028
—
3,258,944
3,263,972
3,283,488
602 8,989 — 280
— 6,995 — —
6 6,586 — 867
— 113,442 (34,912) —
608 136,012 (34,912) 1 147
N/A N/A N/A N/A
Page 50
Management’s Discussion and Analysis | 101
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
23.
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. Measurement process of financial instruments for each level Securities Exchange-traded equity securities are classified at Level 1. For marketable bonds, the Caisse determines fair value through, where available, quoted prices related to recent trading activities on identical assets or with characteristics similar to those of the bond assessed. Securities measured using these methods are usually classified at Level 2. Derivative financial instruments Usually, prices obtain from models should be used at a lower level, in the hierarchy of price sources, than prices that can be observed directly. Where they exist, industry standard models should be used whenever possible and observable market inputs are therefore classified at level 2. Loans There is no quoted price in an active market for these financial instruments; they are therefore classified at level 3. Deposits Cash flows are discounted using market interest rates for deposits with substantially the same terms and conditions to measure the fair value of deposits; it is therefore classified at level 2.
Page 51
102 | Annual Report 2017 | UNI Financial Cooperation
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
23.
Fair value of financial instruments (continued) Measurement process of financial instruments for each level (continued) The following table presents the measurement levels according to the fair value hierarchy: 2017 Level 1
Level 2
Level 3
Total
$
$
$
$
— 41,264 — 30,735 —
23,481 429,036 171 — 41,599
— — — 1 951 40
23,481 470,300 171 32,686 41,639
— — —
147 8,167 22,145
— — —
147 8,167 22,145
Liabilities Derivative instruments Foreign exchange contracts Interest rate swaps
— —
147 15,238
— —
147 15,238
Financial instruments for which fair value is disclosed Assets Loans
—
—
3,169,972
3,169,972
—
3,272,315
—
3,272,315
Financial instruments recorded at fair value Assets Securities Money market securities Bonds Asset-backed long-term notes Equities Investment funds and other Derivative instruments Foreign exchange contracts Interest rate swaps Options
Liabilities Deposits
Page 52
Management’s Discussion and Analysis | 103
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
23.
Fair value of financial instruments (continued) Measurement process of financial instruments for each level (continued)
2016 Level 1
Level 2
Level 3
Total
$
$
$
$
— 40,168 — 12,444 —
141,292 423,252 171 — 20,352
— — — 968 —
141,292 463,420 171 13,412 20,352
— — —
123 9,322 15,219
— — —
123 9,322 15,219
Liabilities Derivative instruments Foreign exchange contracts Interest rate swaps
— —
123 4,905
— —
123 4,905
Financial instruments for which fair value is disclosed Assets Loans
—
—
2,980,675
2,980,675
—
3,154,823
—
3,154,823
Financial instruments recorded at fair value Assets Securities Money market securities Bonds Asset-backed long-term notes Equities Investment funds and other Derivative instruments Foreign exchange contracts Interest rate swaps Options
Liabilities Deposits
Page 53
104 | Annual Report 2017 | UNI Financial Cooperation
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
24.
Commitments and contingencies Standby 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 Caisse with respect to these credit instruments is generally the same as that applied to loans. Standby letters of credit are irrevocable commitments by the Caisse 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. 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 26. Other commitments At year-end, minimum future commitments relating to the purchases of services and sponsorship and donation agreements are as follows: 2018 2019
$300 $303
Contingencies The Caisse 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 Caisse.
25.
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:
Under 1 year 1 to 5 years More than 5 years
2017
2016
$
$
533 1,167 — 1,700
503 1,008 139 1,650
Lease payments recognized as expenses for the year ended December 31, 2017 totalled $606 (2016 — $449).
Page 54
Management’s Discussion and Analysis | 105
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
26.
Financial instrument risk management The Caisse is exposed to different types of risk in the normal course of operations, including credit risk, liquidity risk and market risk. The Caisse’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 Caisse’s risk management approach, its entities and units are accountable for the consolidated results and the quality of risk management practices. The boards of directors of the Caisse’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 fulfil their risk management responsibilities. 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 consolidated statement of financial position. Most of the loans and deposits of the Caisse are related to the New Brunswick market. Credit risk management The Caisse 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 Caisse. 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 Caisse’s credit practices. 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.
Page 55
106 | Annual Report 2017 | UNI Financial Cooperation
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
26.
Financial instrument risk management (continued) Credit granting (continued) 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. Riskier loans are approved by the credit risk manager in Caisse’s head office. File monitoring and management of more significant risks Portfolios are monitored by the Caisse’s head office 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. Credit risk mitigation In its lending operations, the Caisse 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 property and equipment. For some portfolios, programs offered by organizations such as the CMHC are used in addition to the customary collateral. As at December 31, loans guaranteed by the CMHC represented 48% (2016 — 53%) of the residential mortgage portfolio. Maximum credit risk exposure
Recognized on the consolidated statement of financial position Cash Securities Loans Personal Business Collective allowance Derivative financial instruments Other financial assets
Off-statement of financial position Letters of credit Credit commitments
2017
2016
$
$
62,439 513,451
63,668 624,883
2,139,253 1,057,186 (11,739) 30,459 14,791 3,805,840
2,028,958 948,985 (12,761) 24,664 13,523 3,691,650
7,400 739,609 747,009
4,690 688,545 693,235
Page 56
Management’s Discussion and Analysis | 107
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
26.
Financial instrument risk management (continued) Credit quality 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 Caisse are not rated.
Money market securities R1-H
Bonds AAA AA A BBB BB
2017
2016
$
$
23,481 23,481
141,292 141,292
136,294 68,629 218,977 39,220 7,180 470,300
125,201 36,620 278,877 22,722 — 463,420
Liquidity risk Liquidity risk refers to the Caisse’s capacity to raise the necessary funds (by increasing liabilities or converting assets) to meet a financial obligation, whether or not it appears on the consolidated statement of financial position, on the date it is due or otherwise. The Caisse 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 normal and stressed conditions. 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 setting out the principles, limits and procedures that apply to liquidity risk management have been established. The Caisse also has a liquidity contingency plan including an action plan for a stress-case scenario. This plan also identifies sources of liquidities that are available in extraordinary 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 minimum level of liquidity that the Caisse must maintain is prescribed by the OSFI guideline titled “Liquidity Adequacy Requirements”. This liquidity level is centrally managed by the Caisse’s Treasury function and is monitored on a daily basis. Eligible securities must meet high security and negotiability standards. The securities portfolio comprises mostly securities issued by governments, public bodies and private companies with high credit ratings, i.e. R1-L or better. The Caisse’s Treasury function ensures stable sources of funding by type, source and maturity.
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108 | Annual Report 2017 | UNI Financial Cooperation
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
26.
Financial instrument risk management (continued) Liquidity risk (continued) The following table presents certain financial instruments by remaining contractual maturity: 2017 Under 1 year
1 to 5 years
Over 5 years
Total
$
$
$
$
Deposits 1,654,798 1,600,713 Borrowings — 86,314 Other financial liabilities 49,870 — Credit commitments 739,609 — Standby letters of credit 7,400 — Derivative instruments with net settlement 140 15,245
31 3,255,542 — 86,314 — 49,870 — 739,609 — 7,400 — 15,385 2016
Deposits Borrowings Other financial liabilities Credit commitments Standby letters of credit Derivative instruments with net settlement
Under 1 year
1 to 5 years
Over 5 years
Total
$
$
$
$
2,072,778 — 57,236 688,545 4,690
1,062,529 66,401 — — —
— — — — —
3,135,307 66,401 57,236 688,545
479
4,549
—
5,028
4,690
Market risk Market risk refers to the potential losses resulting from changes in interest rates, exchange rates, stock prices, credit spreads, decoupling of indices or liquidity in the markets. The exposure to that risk results from trading and investment activities that may or may not be reflected in the statement of financial position. The Caisse is mainly exposed to interest rate risk through positions related to its traditional financing and deposit-taking activities. Interest rate risk management The Caisse 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. 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 Caisse’s Risk Management committee is responsible for analyzing and adopting the global matching strategy to ensure sound management.
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Management’s Discussion and Analysis | 109
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
26.
Financial instrument risk management (continued) Market risk (continued) Interest rate risk management (continued) The following table presents the potential impact, before income taxes, of a sudden and sustained 100-basis-point increase or decrease in interest rates on the economic value of the Caisse’s equity: 2017
2016
$
$
1,031 (603)
Impact of an increase Impact of a decrease The extent of the interest rate risk depends off-statement of financial position instruments. as at that date, and may change depending environment and the strategies adopted by the
35 2,381
on the gap between assets, liabilities and The situation presented reflects the position on members’ behaviour, the interest rate Caisse’s Risk Management Committee.
The following table summarizes the matching of the maturities of the Caisse’s assets and liabilities at year-end. 2017 Term to maturity or rate change Floating rate
0 to 3 months
3 to 12 months
1 to 5 years
Over 5 years
Non sensitive
Total
$
$
$
$
$
$
$
20,573 683,880 —
22,523 398,520 —
66,276 237,777 820,277 1,293,194 — —
200,635 13,359 8,455
140,185 687,969 (24,530)3,184,700 118,954 127,409
704,453
421,043
886,553 1,530,971
222,449
234,609 4,000,078
450,981 — — — —
500,607 711,551 1,592,371 (166) (471) 1,658 — — 86,314 — — — — — —
32 169,406 — — —
— 3,255,542 — 170,427 — 86,314 89,268 89,268 398,527 398,527
450,981
500,441
169,438
487,795 4,000,078
Sensitivity gap in items recognized in the consolidated statement of financial position Sensitivity gap in derivative instruments by notional amounts
253,472
(79,398) 175,473
— (477,760) 137,800
338,560
Total sensitivity gap
253,472 (557,158 ) 313,273
189,188
Assets Cash and securities Loans Other assets
Liabilities and equity Deposits Actuarial liabilities Borrowings Other liabilities Equity
711,080 1,680,343
(149,372)
53,011 (253,186) 1,400
—
54,411 (253,186)
— — —
Page 59
110 | Annual Report 2017 | UNI Financial Cooperation
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
26.
Financial instrument risk management (continued) Market risk (continued) Interest rate risk management (continued) 2016 Term to maturity or rate change Floating rate
0 to 3 months
3 to 12 months
1 to 5 months
Over 5 years
Non sensitive
Total
$
$
$
$
$
$
$
84,868
758,504
Assets Cash and securities Loans Other assets
Liabilities and equity Deposits
28,470
116,020
108,983
241,408
178,755
773,760 —
410,933 —
832,079 —
965,673 —
6,746 7,234
802,230
526,953
941,062
1,207,081
192,735
(24,009 ) 2,965,182 112,650 119,884 173,509
3,843,570
468,106
369,064
596,720
1,701,417
—
—
3,135,307
Actuarial liabilities Borrowings
— —
— —
1,343 —
2,686 66,401
152,113 —
2,599 —
158,741 66,401
Other liabilities
—
—
—
—
—
89,024
89,024
Equity
—
—
—
—
—
394,097
394,097
468,106
369,064
598,063
1,770,504
152,113
485,720
3,843,570
334,124
157,889
342,999
(563,423 )
40,622
(312,211)
—
— (436,700)
(355,060)
818,760
(27,000 )
—
—
334,124 (278,811)
(12,061)
255,337
13,622
(312,211)
—
Sensitivity gap in items recognized in the consolidated statement of financial position Sensitivity gap in derivative instruments by notional amounts Total sensitivity gap
The net gap position on the consolidated 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 rate-sensitive 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. At year-end, this notional amount was $1,708,110 (2016 — $1,465,535). 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 Caisse, while a sustained decline in interest rates would decrease net financial income. The reverse occurs when the gap is negative.
Page 60
Management’s Discussion and Analysis | 111
Caisse populaire acadienne ltĂŠe Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
26.
Financial instrument risk management (continued) 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. The Caisse, except for Acadia Life, limits the gap between the assets and liabilities denominated in U.S. dollars by validating its position on a daily basis and by purchasing/selling U.S. dollars as needed. Exposure of Acadia Life to this risk is limited, since the majority of transactions are conducted in Canadian dollars. However, the global Caisse’s exposure to this risk is limited because the majority of its transactions are conducted in Canadian dollars. 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:
Cash Securities Loans Other assets Deposits Other liabilities
2017
2016
$
$
17,130 10,074 154 22 (17,200) (20)
17,619 11,087 — 74 (17,245) (71)
The following table presents the potential pre-tax impact on net income of an immediate and sustained $0.01 increase and decrease of the US dollar on the Caisse's capital: 2017 $ Increase of $0.01 of the US dollar Decrease of $0.01 of the US dollar
102 (102)
2016 $ 115 (115)
The change in the exchange rate would have no impact on the comprehensive income.
Page 61
112 | Annual Report 2017 | UNI Financial Cooperation
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
27.
Insurance and reinsurance risk management In the normal course of business, the Caisse is exposed to insurance risk. It is defined as the risk that initial pricing is inadequate or becoming so; it results from the risk’s selection, the settlement of claims and the management of contractual clauses. The insurance risk categories to which the Caisse is exposed are: Mortality risk Risk of loss due to the fact that the policyholder dies earlier than expected Morbidity risk Risk of loss due to the fact that the health of the policyholder differs from the forecasts Longevity risk Risk of loss due to the fact that an annuitant lives longer than expected Investment return risk Risk of loss due to current yields being lower than expected Expense risk Risk of loss due to higher expenses than expected Risk of policyholder’s decisions Risk of loss due to the fact that the policyholder's decisions (lapse and redemption) differ from the forecasts In order to properly manage these risks, the Caisse conducts regular experience studies to be as up-to-date as possible with the industry’s data and the Caisse’s internal data. The Caisse has also put in place a pricing guidance to prudently manage and control the risks associated with the design and pricing of its products. This guidance allows the Internal Risk Management Committee, through its mandate, to provide uniform oversight in setting pricing for insurance products. The Caisse also has reinsurance agreements with two main objectives: 1) the sharing of financial risk with a reinsurer, and 2) to benefit from the expertise of these reinsurers in the design of insurance products. Reinsurance is mainly carried out to a single reinsurer. This reinsurer has a credit rating of AAaccording to the rating agency Standard & Poor's. The Caisse attempts to limit the risk of loss to a single insured or a catastrophic event affecting multiple policyholders and to recover a portion of benefits paid through reinsurance arrangements. In the event that reinsurers are unable to meet their contractual obligations, the life and health insurance company is liable for any potential risks associated with the retrocession.
Page 62
Management’s Discussion and Analysis | 113
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
28.
Capital management The objective of the Caisse’s capital risk management is to ensure that the level and mix of capital of the Caisse and its subsidiaries are adequate when compared to the risks taken by the organization, the profitability and growth goals and the requirements of the regulators. Furthermore, the Caisse must optimize the capital allocation and the internal circulation mechanisms while supporting the growth, development and risk management of its assets. The minimum capital requirements that the Caisse must comply with are defined in the OSFI guidelines titled “Capital Adequacy Requirements” and “Leverage Requirements Guideline”. The Caisse met its regulatory requirements throughout the year. The summary of the ratios is presented below.
Accounting capital CET1 Déductions Regulatory capital Risk-weighted assets Capital ratio on risk-weighted assets Assets used in the calculation of leverage ratio Leverage ratio
2017
2016
$
$
398,524 (16,472) 382,052
394,097 (31,337) 362,760
2,098,009
1,909,646
18.2 %
19.0 %
3,895,478
3,743,977
9.8 %
9.7 %
Services Financiers Acadie Inc. The company manages its capital to meet regulatory requirements imposed by the Mutual Fund Dealers Association of Canada. Under the rules prescribed by the Mutual Fund Dealers Association of Canada, the company must maintain a minimum amount of risk-adjusted capital, based on the nature of the company's assets and operations. Risk adjusted capital is a measure of working capital and liquidity of the company.
Total allowable assets Less: Total current liabilities Minimum capital required 10 % of long term liabilities Securities owned and sold short Financial institution bond deductible (greatest under any clause) Risk adjusted capital
2017
2016
$
$
3,150 2,156 75 9 48
1,274 242 75 11 49
5
5
857
892
The Company met its regulatory requirements as at December 31, 2017 and 2016.
Page 63
114 | Annual Report 2017 | UNI Financial Cooperation
Caisse populaire acadienne ltée Notes to the consolidated financial statements December 31, 2017
(In thousands of dollars)
28.
Capital management (continued) Acadia Life Under the Insurance Companies Act (Act), federal life insurance companies are required to prepare a report on the financial position of the company, including its capital ratio. The professional standards of the CIA require that the designated actuary perform annually a dynamic review of capital adequacy each year. This review serves to show management the changes in the surplus and the threats 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 adequacy. Currently, the required minimum continuing capital and surplus requirement (MCCSR) on available capital is 120%. However, OSFI and the New Brunswick Superintendent of Insurance expect each institution to establish and maintain a target MCCSR ratio of at least 150%. However, in accordance with the strategic planning of the company, the MCCSR target is higher 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. Total available capital is divided into two categories. Tier 1 capital includes the highest quality capital items which is based on three essential elements: its permanence, the absence of fixed costs attributable to net income and their subordination. Tier 2 capital items do not meet either of the first two characteristics of Tier 1 capital but contribute to the overall strength of a prosperous company. As of the end of the year, Acadia Life presents an MCCSR that meets both the requirements and the target it has set itself.
Tier 1 capital Tier 2 capital Total Required capital
2017
2016
$
$
35,995 8,238 44,233 16,343 270.7 %
46,959 7,067 54,026 15,546 347.5 %
Page 64
Management’s Discussion and Analysis | 115
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