B u i l d i n g S u c c e s s To g e t h e rMomentum

Annual Report 2013

Atlantic Central serving:New Brunswick

Newfoundland and LabradorNova Scotia

Prince Edward Island

www.atlanticcreditunions.ca

B u i l d i n g S u c c e s s To g e t h e rMomentum…

The singular word momentum implies a drive, an energy, a force to get things moving. And moving implies direction; going toward something. We’re moving toward change: consumer behaviour

is changing; our members’ needs are changing; technology is changing; the market place is changing and therefore so must we. Change doesn’t imply abandonment of the co-

operative principles that guided our predecessors and continue to guide us; that make us stand apart from other financial institutions. It implies we are evolving

to better serve our members. It means ensuring a healthy future where the Atlantic credit union system is thriving. Together we

will continue to build strong communities and dedicate ourselves to the people who live in them.

Table Contentsof

Highlights .............................................................. 2-3

Vision, Mission and Values ................................... 4

Message from the Board of Directors .................. 5

Message from the President and CEO .................. 6-7

Co-operative Social Responsibility ........................ 8-9

Executive Management Team .............................. 10

Management Discussion and Analysis .................. 11-13

Financial Statements ............................................ 14-52

Corporate Governance ......................................... 53-55

Affiliate Boards ..................................................... 56

Layout, Printing and Assembly: Atlantic Central Printing and SuppliesBoard and Management Photos: Precision Photographic Services

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2013 Home Financing and Mortgage Rate ProgramIn 2013 League Savings and Mortgage Company (LSM) in collaboration with Atlantic Central and with the

support of Atlantic credit unions launched the Mortgage Rate Program

promoting a 2.99% rate to supplement the existing

regional Home Financing Campaign. This marked the

first time a consistent rate was advertised by participating credit

unions across the Atlantic Region. Aside from measuring mortgage business and creating awareness

that credit unions offer competitive mortgage rates we wanted to get an indication of the ability to attract ancillary business within credit unions, create new member relationships and expand existing member relationships. This program was a significant undertaking and a massive accomplishment for the Atlantic credit union system.

In total, $152m in mortgage business was booked: $26.5m on LSM’s books with mortgages being booked for 33 credit unions. In addition, Atlantic Central helped credit unions promote their financial advice services and awareness around convenient access to credit union products and services with the introduction of two new campaigns.

The Atlantic credit union system includes 56 credit unions across the four Atlantic Provinces; Atlantic Central, the trade association that provides leadership, advocacy and liquidity management for the system; Atlantic Central’s subsidiary, League Savings and Mortgage Company, which provides mortgage and financial services to credit unions and their members; and an affiliated banking and electronic information services provider, League Data Limited. Rooted in the communities they serve, credit unions are an integral part of community life and play a significant role in the economic fabric of Atlantic Canada.

Syndication LoansA number of the recommendations in the Role and Relationship Committee Report focus on how to improve our competitive position. In response to this Atlantic Central and League Savings and Mortgage Company are committed to providing competitive rates on deposits and continue to actively seek out options for credit unions to help manage excess liquidity. In 2013 the Lending Services team grew the syndicated mortgage portfolio for the benefit of Atlantic credit unions from $18m to $47m.

There were a number of factors in play that contributed to the success of the Syndication Program in 2013: sharing application fees with the referring credit union; reduction of the administration fee; and a larger number of referrals from credit unions that were able to be acted upon.

A great deal of work is required to achieve growth when considering a syndication loan. In 2013 consideration was given to requests totalling $134m.

We are committed to continued growth in this area in 2014 and will proactively seek syndication options for Atlantic credit unions.

Highlights

$18m to $47m

from

$152min mortgages booked

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New Atlantic System Vision and Model RecommendationThe new vision and model recommendation for the Atlantic credit union system is the result of work that began with the Role and Relationship Committee Report released in 2011. The Committee identified the urgent need for significant structural change in the Atlantic credit union system. At the 2013 Annual General Meeting, Atlantic Central committed to bringing a new system vision and operating model recommendation to credit unions at the Fall Conference in October.

The recommendation starts with a ten-year system vision of a relevant and thriving Atlantic credit union system. “Vision 2023” provides a glimpse into the Atlantic credit union system as it could be ten years from now if we commit to making

transformational changes. Trends in consumer behaviour and needs, the fast pace of changing technology, and changes in both the credit union system and the financial services industry, all indicate that the credit union system will look vastly different than it does today. We envision significant consolidation both in the Atlantic region and nationally. It is anticipated that branches will also undergo major changes: modern branches in key locations combined with alternative service delivery channels will enable credit unions to maintain a meaningful presence in their communities and meet members’ needs how and when they want to be served.

The new operating model recommendation, called the Linked Hub, was chosen for its potential to increase scale, capabilities and create efficiencies within our system as well as providing a platform for credit unions to thrive in the future. Underpinning the decision process was the commitment to stay true to the democratic process and the co-operative principles that have guided us. One key factor of the model

recommendation is that it positions us well to deliver on a unique value proposition that is relevant in our market while enabling credit unions to retain their local identity and close community connections.

The system vision and Linked Hub model is the subject of ongoing consultation and collaboration with credit unions in meetings and discussions across the region. Those discussions will continue at our Annual General Meeting in April, 2014.

56 Credit Unions

$4.35 Billion in Assets

320,400 Members

with

serving

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Vision, Missionand Values

VisionTo be an innovative leader contributing to a strong and effective network of credit unions.

MissionThrough our leadership and the excellence of our people, products and services, we support credit unions in becoming the financial institution of choice.

ValuesStewardshipWe accept the roles of support and leadership defined for us by the credit unions of Atlantic Canada, and with them, support the well-being of the credit union network and the communities it serves. We will operate in a socially responsible and profitable manner for the common good of our stakeholders.

ServiceWe are committed to providingprofessional service to our stakeholders, who include credit unions and their employees, to our affiliates and their employees, and to each other.

RespectWe will conduct ourselves respectfully – respectful of diversity, respectful of ourselves and respectful of others in order to build and sustain a productive workplace.

AccountabilityWe choose to be accountable for our actions and the results we deliver to our stakeholders. We share responsibility for the well-being and success of Atlantic Central and the credit unions it serves.

Continuous Growth and DevelopmentWe commit to continually strengthening our organization and services. We will initiate learning and improve personally,departmentally and corporately to enhance our contributions for the well-being of our stakeholders and the communities we serve.

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Change. It’s one word, but one that evokes strong emotion and holds different meaning for every person touched by it. But it also implies possibility. The changing needs of consumers, increasing reliance on technology and fast pace of change in the financial services sector has been reviewed and discussed at length, and the Board acknowledges these challenges affect Atlantic Central and our member credit unions. The credit union system must evolve as consumer needs evolve. This does not imply a move away from our co-operative values. We are still firmly rooted in the beliefs that gave birth to the credit union movement in Canada more than 100 years ago. Dedication and commitment to the people and communities credit unions serve will be a guiding and unchanging principle as we navigate change to ensure a successful future.

The journey from the AGM in 2013, and the promise from Atlantic Central to present a new system vision and operating model recommendation to credit unions at the Fall Conference, to where we are today has been one of hard work and determination. The Atlantic Central Board was actively engaged in conversations with management in 2013 to explore ways to ensure a healthy future that sees the Atlantic credit union system not only growing, but thriving. Collaboration with system partners and the National Chairs and CEOs as well as Deloitte has seen Atlantic Central proactively engaging partners across Canada and internationally.

After months of in-depth research and discussions, the Linked Hub model was recommended as the most viable option for developing a more effective, efficient and competitive Atlantic credit union system. Consultation sessions with credit unions in Atlantic Canada began in Q4 2013 and will carry into 2014. An analysis of credit union responses and next steps will be assessed by the Board in March and brought to our AGM in 2014 for further discussion.

“The only way to make sense out of change is to plunge into it, move with it, and join the dance.”

- British Philosopher Allan Watts

Atlantic Central experienced success in 2013 with financial results exceeding budget expectations. The Board approved a 2.3% dividend on common shares which was distributed to credit unions. Central’s rebate in 2013 was $2.2 million and represented 50% of Central’s 2013 Operating Income. The rebates were distributed as at January 31, 2014. As was the practice in 2012, funds were retained in a Special Reserve to be used for system development and initiatives as Atlantic Central and its member credit unions move toward transformational system change. Atlantic Central is very pleased to be able to share our financial success with our member credit unions and we thank you for your continued support.

The Board of Directors would like to congratulate Michael Leonard on his appointment as President and CEO of Atlantic Central. He has demonstrated strong leadership and a commitment to the success of Atlantic credit unions in delivering the new vision and model recommendation as promised at the AGM in 2013. His exhaustive work with credit unions and system partners nationally and internationally to inform the decision-making process in choosing the best model option for the Atlantic system shows a clear desire to guide Atlantic Central and member credit unions to a successful, healthy future of increasing growth.

The Board would also like to recognize the legacy of former Atlantic Central President and CEO, Bernie O’Neil, in laying the foundation and leading the way to the successful formation of Atlantic Central. His lifelong commitment to the credit union and co-operative movement is to be commended. Through his foresight into the required evolution of the credit union system he positioned Atlantic Central to lead the change that is so urgently required now.

On behalf of the Board of Directors, I would like to thank the management team and staff of Atlantic Central for their continued commitment to credit union success as we gain momentum and work toward a new vision full of possibilities and opportunities.

Dave MacLeanChair

Message Board Directors

from the

of

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Message from the President and CEO

“The first step in the being of anything is the theoretic or the vision of possibilities of things that might be.”

- Rev. Dr. Moses Coady

2013 was a year of change, an opportunity to reflect on our successes of the past, and contemplate new directions. It is clear that our industry and consumers in general are changing. Now it is up to us to determine how we will change to meet this new future; one where financial products and services are more accessible and more competitively priced than ever. How we address this new future is the puzzle that your Atlantic Central has committed to solve. 2013 was committed to exploring options and developing a new vision, model and strategic plan for your Atlantic Central and our system.

We continue to be committed to the recommendations from the Role and Relationship Committee. Chief among them was their guidance on leadership and the need to lead through collaboration, not consensus, and to seek a new vision and model for the system. We also committed to continuous two-way communication and invested significant time and energy in seeking your input and feedback every step of the way. We know the only way to build greater success for our system is to work collaboratively as a system and that means building our future together. We commit to continuing the momentum that has begun with you as we move through our system change process.

In addition to the new vision and model work, our strategic plan calls for a significant focus on developing effective partnerships with other organizations. We invested significant time and effort in building new relationships in 2013. At our Fall Conference we outlined our work with other provincial centrals in Project Jigsaw, a collaboration with Manitoba and Saskatchewan Centrals aimed at developing new system and central models. We expect to see significant change at the Central level

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in the next several years and your Central will push hard for this change. In addition, we continue to develop our relationship with Desjardins. In our view the national system must come together in the best interests of all of our members, whether they belong to a credit union or caisse populaire. 2013 was also an opportunity to develop relationships internationally, and I would like to thank the World Council of Credit Unions as well as the Customer Owned Banking Association in Australia and the Credit Union National Association in the United States for their interest in our work and their offers to share their own experiences as we build our new future. Leveraging these relationships will be an important part of our work in the coming years, and I am always impressed with the co-operative approach we all take to sharing information. Finally, and perhaps most importantly, we have invested significant time and effort in building our relationship with our partner, League Data Limited. We know that by working more closely together we can deliver greater value to you and your members. In 2013 we implemented new structures to improve communications and alignment of our business plans and you should expect to see more joint efforts between our companies in the future.

We also recognize that as we evolve to meet our members’ needs in the future we will require changes to our legislative and regulatory frameworks, as well as continuing to develop effective relationships with federal and provincial regulators. We have worked well with the regulators in all four provinces as well as their federal counterparts. I would like to take this opportunity to thank them for their engagement in 2013 and we look forward to continuing our dialogue in the future.

We worked hard to provide you with new and better products and services. In 2013 we announced a new partnership with Concentra Financial to bring greater returns on your investments with Atlantic Central and made significant changes to our line of credit structure. In response to your requests for additional investment opportunities, we increased our syndication portfolio from $18 million to $47 million during the year. In collaboration with League Savings and Mortgage Company

we also co-ordinated the first regional mortgage campaign with an advertised interest rate, which resulted in $152 million in mortgage business advanced throughout the region. Finally, we worked with two credit unions to pilot Intelliresponse, an online member engagement program designed to provide 24/7 access for members to ask questions and receive answers immediately. This is just the beginning of our efforts to provide better products and services and we expect even greater results in 2014 and beyond.

I would like to take this opportunity to thank our Board of Directors for their vision and leadership throughout the year. You as the members of Atlantic Central have been well served by their dedication to improving our regional system. I would also like to thank the employees of Atlantic Central and League Savings and Mortgage Company. Transitioning to a new President and CEO can be challenging and they have responded well in this environment of constant change. Finally, I would like to thank you, the leaders of our credit union system, for your support in my first year as President and CEO, and for your engagement and open, honest debate as we consider how to move our regional system forward.

So, as we close the book on 2013 we remain focused on our future; a future focused on our members and prospective members. Just as credit unions were originally created to serve our communities and the people who live in them, we will remain focused on that same objective; serving and building stronger communities in Atlantic Canada remains our highest priority.

Michael LeonardPresident and CEO

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Co-operative Social ResponsibilityThe Board of Directors of Atlantic Central takes co-operative social responsibility (CSR) seriously as part of Atlantic Central’s commitment to pursuing socially and environmentally responsible business practices. This commitment is reflected in Atlantic Central’s charitable giving, awards and recognition programs and the management of our facilities and operations.

A formal CSR Committee was created in 2012 with the mandate to create a CSR strategy and review and approve the distribution of funds to various organizations and events that meet the criteria including a focus on the following areas:

• education;• health care;• community and social well-being;• environment;• arts and culture; and• co-operative development.

2013 marked a change in how the Committee measures CSR efforts. The use of the 3P’s approach (people, planet, profit), also known as the triple bottom line, was

adopted. It measures a focus on people – a company’s social responsibility;

planet – a company’s enviromental responsibility; and profit – a

company’s economic value. This is a widely held philosophy among

credit union and co-operative organizations world-wide.

The CSR Committee also oversees the nomination and selection process for the Coady Award which is presented at the Atlantic Central Annual General Meeting to an Atlantic credit union that demonstrates strong and meaningful support to its community. In 2013 Tignish Credit Union was the recipient of the Coady Award for their support of financial literacy and education around the history of co-operatives, breakfast programs, significant monetary donations to community needs, support for the IWK and Relay for Life, numerous staff volunteer hours as well as their commitment to reducing their environmental footprint by implementing “green” strategies at their branches.

Regional Charitable Giving and Sponsorships

Bursary ProgramAtlantic Central administers a bursary program throughout the region on behalf of Atlantic credit unions. This year 44 bursaries valued at $500 each were disbursed through the community colleges in each of the four provinces.

Canadian Blood Services: Partners for Life Atlantic Central, League Savings and Mortgage Company, League Data Limited and Atlantic credit union staff are Partners for Life with Canadian Blood Services. In 2013, 207 life-saving units of blood were donated.

Red Cross Atlantic Central is proud to support the Red Cross in both their international and local disaster relief efforts. To that end, we provided a $5,000 donation that supplemented

the significant in-kind support that participating credit unions offered by collecting donations on behalf of the Red Cross’s campaign for Typhoon Haiyan.

Atlantic Central and League Savings and Mortgage Company have also supported staff volunteering for the “Ready When the Time Comes” (RWTC) local disaster relief volunteer program. Our RWTC volunteers were active for a number of days in response to the Alberta flood disaster.

Supporting Co-operative PartnersA total of $20,000 has been provided in support of provincial co-operative councils in New Brunswick, Nova Scotia and Prince Edward Island.

Regional Food DriveAtlantic Central organized a regional food drive for International Credit Union Day, and donations from Atlantic credit unions to local food banks exceeded 12,000 pounds of food and cash donations in excess of $8,800.

Alberta Flood, Typhoon Haiyan relief efforts.

$24,141 for Red Cross

12,000 lbs12,000 lbs$8,800$8,800

People Planet Profit

StrongMeaningful

Support

Photo courtesy of Nourish Nova Scotia

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Provincial Charitable Giving and Sponsorships

Kids Eat Smart Program Atlantic Central provided $5,000 to the Kids Eat Smart Program in Newfoundland and Labrador. This is a registered charity

run by volunteers dedicated to educating and providing school children with quality nutrition programs at schools and community centres throughout the province.

Nourish Nova ScotiaNourish Nova Scotia is a province-wide, non-profit organization that supports nourishment and food literacy programs in

Nova Scotia school communities. Sydney Credit Union has been an active supporter of the Nourish Program in Cape Breton for several years. In 2013 Atlantic Central became the first corporate sponsor of the program with a donation of $5,000. The CSR Committee is currently investigating similar opportunities in New Brunswick and Prince Edward Island.

Junior Achievement PEI Business Hall of FameAtlantic Central committed $2,500 to this annual event which is a major fundraiser for Junior Achievement and a highlight for Prince Edward Island businesses.

Relay for Life (PEI) Relay for Life is an inspirational, non-competitive, 12-hour overnight fundraising event that brings people and communities together to celebrate life and fight cancer. 2013 was the seventh year that the PEI Credit Unions served as Provincial Event Sponsor for the Canadian Cancer Society’s Relay for Life events across PEI and the second year that Atlantic Central committed to support them in their marketing efforts for the event.

United Way Employees of Atlantic Central, League Savings and Mortgage Company, and League Data Limited did a fantastic job in their fundraising efforts for the 2013 United Way Campaign; their contribution for 2013 was an impressive $16,346!

Young Adults with Cancer Canada (YACC) YACC’s mission is to “build a community of young adults diagnosed with cancer that provides information, support, skills and opportunity”. Support was approved for YACC in the amount of $7,000.

International SponsorshipsThe CSR Committee made a motion to support two projects in Cuba. A $10,000 commitment focuses on credit union development and $5,000 will provide support to Cuban Farmers Agricultural Co-operative development work.

Other$10,000 was given to St. Mary’s University in support of the Co-operative and Credit Union Management Education Program.

$5,000 was given in support of the QEII Health Sciences Centre in Halifax, Nova Scotia.

The CSR Committee set aside a budget of $10,000 for other philanthropic opportunities.

Support for local communities and co-operative initiatives.

$111,988

Photo courtesy of Nourish Nova Scotia

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Our Executive Management Team is comprised of:(L-R): Kim Walker, Michael Leonard, Sharon Arnold, Paul Paruch and Victoria Mainprize

Executive Management Team

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Management

Risk ManagementRisk management is one of the most important responsibilities of Atlantic Central (the “Central”). The Central’s risk management strategies and policies are governed by the principle of optimizing risk for the protection and creation of shareholder value, and are designed to ensure that the Central’s risk-taking is consistent with its business objectives and risk tolerance. Optimizing risk means striking a balance between risk and reward, ensuring that the Central’s risk-taking is consistent with its Risk Appetite Statement. The Risk Appetite Statement reflects the aggregate level and type of risks that the Central is willing to accept in order to achieve its business objectives.

The Central uses an enterprise-wide approach to identify, measure, monitor and manage risk. Authority for all risk-taking activities rests with the Board of Directors, which approves the Risk Appetite Statement and risk management policies, delegates limits and regularly reviews management’s risk assessments and compliance with approved policies. The Risk Committee of the Board of Directors is responsible for ensuring that management has developed and maintained an effective Enterprise Risk Management Framework for evaluating the business strategies being used for allocation of human, capital and other resources.

The Management Finance Committee (MFC) is responsible for the review and evaluation of financial risks and performance. The MFC reviews financial risk management policies, recommends changes to policies and procedures as appropriate, and monitors compliance with financial policies. The Asset/Liability Management Committee (ALCO) is responsible for ensuring the effective and prudent management of the Central’s financial assets and liabilities. ALCO achieves this by developing and implementing financial strategies and related processes consistent with the short and long-term goals set by the Board.

Qualified professionals throughout the Central manage these risks through comprehensive and integrated control processes and models, including regular review

and assessment of risk measurement and reporting processes. The various processes within the Central’s risk management framework are designed to ensure that risks in the various business activities are properly identified, measured, assessed and controlled. Stress testing is an important tool used by Management in making business and risk management decisions.

Internal Audit reports independently to the Audit Committee of the Board on the effectiveness of the risk management policies and the extent to which internal controls are in place and operating effectively.

The risks are summarized into the following categories: capital adequacy, governance, credit, legal and regulatory, liquidity, market, operational, and strategic.

Capital Adequacy RiskCapital adequacy risk is the risk of financial loss or regulatory intervention due to the failure of the Central to maintain the necessary capital to meet regulatory requirements and/or support its business plans.

The Central has established capital management policies, which govern the quantity and quality of capital the Central will maintain. In addition, a capital plan is prepared annually which forecasts the amount of capital required and the sources that will be used to fund those requirements. The capital policies and plans are reviewed and approved annually by the Board of Directors.

Management regularly monitors the Central’s capital position and reports to the Board of Directors on a quarterly basis.

Governance RiskGovernance risk is the risk of financial and/or reputational impairment caused by a lack of effectiveness of the Board of Directors and senior management.

Governance risk is mitigated through qualification criteria, Director orientation, and ongoing development and training, regular Board and committee meetings, the annual strategic planning process and an annual evaluation process.

Discussion and Analysis

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legislation and regulation where applicable to its operations in those respective provinces. OSFI regularly reviews the activities of the Central and periodically carries out on-site examinations. All correspondence to and from OSFI is reported to the Board of Directors by management.

The Central maintains a legislative and policy compliance management system in which all legislative and policy requirements are regularly reviewed and reported on. New policies and procedures are developed to address legislative requirements as appropriate.

The Board of Directors receives a quarterly compliance report in which any deficiencies and corresponding action plans are identified.

Liquidity RiskLiquidity risk is the risk of being unable to obtain funds at a reasonable price or within a reasonable time period to meet obligations as they come due.

The Central has established policies to ensure it is able to generate sufficient funds to meet all of its financial commitments in a timely and cost-effective manner. These policies require a liquidity management plan that establishes the following:

• the appropriate level of liquidity for the organization;• a minimum liquidity target; • standards for qualifying liquidity assets;• a process for monitoring liquidity and forecasting

future cash requirements; • a process for conducting stress testing and scenario

testing; and• a contingency funding plan.

The policies and liquidity management plan are annually reviewed and approved by the Board of Directors.

Management carries out the monitoring, forecasting and reporting functions associated with liquidity management, and reports to the Board on a quarterly basis.

Market RiskMarket risk is the risk of loss that results from changes in interest rates, foreign exchange rates, equity prices and commodity prices.

Credit RiskCredit risk is the potential for loss due to the failure of a borrower or counterparty to meet its financial or contractual obligation.

To ensure effective credit risk management, the Central has established policies and procedures for credit risk. Credit policies are reviewed and approved annually by the Board of Directors. Management regularly reviews its credit procedures to ensure they provide extensive, up-to-date guidance for the underwriting and administration of all types of loans.

Procedures are in place governing credit activities including:

• application of stringent underwriting criteria;• the use of qualified personnel and the clear

delegation of decision-making authority;• portfolio diversification to mitigate credit exposure

by establishing concentration limits; and• oversight by the Board and management committees

before funding is permitted, and once approved, ongoing credit risk evaluation and assessment.

The Central maintains both specific and collective allowances for credit losses. Specific allowances are established based on management’s knowledge of the property and prevailing conditions. Collective allowances are maintained to cover any impairment in the loan portfolio that cannot yet be associated with specific loans. The collective allowance is determined based on the Central’s risk weighted portfolio and other factors including an assessment of market risk.

Management regularly monitors the Central’s credit risk and reports to the Board of Directors on a quarterly basis.

Legal and Regulatory RiskLegal and regulatory risk is the risk of loss due to the failure to adhere to legal and regulatory standards.The Central is governed by the Co-operative Credit Associations Act (Canada) and the Credit Union Act (Nova Scotia). The Central is regulated federally by the Office of the Superintendent of Financial Institutions (OSFI) and provincially by the Nova Scotia Superintendent of Credit Unions. The Central also complies with New Brunswick, Newfoundland and Labrador, and Prince Edward Island

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Market risk exposures are managed through policies, standards and limits established by the Board of Directors, which are formally reviewed and approved annually. The Central uses a variety of techniques to identify, measure and control market risk. Derivatives may be used only to offset clearly identified risks. The Central has developed standards regarding the use of derivative products.

Interest rate risk is the potential impact on the Central’s earnings due to changes in interest rates. This risk comes mainly from differences in the maturities or re-pricing dates of assets and liabilities. The Central has developed standards with respect to the matching of assets and liabilities. In addition, the Central uses a combination of static gap and income simulation models to measure and monitor interest rate risk exposure under various interest rate scenarios and utilizes interest rate swaps to assist in managing its interest rate risk.

Sensitivity analysis of an interest rate increase and decrease of 100 basis points is illustrated in the table below.

Earnings at risk over the next 12 months as at December 31:

(Dollars) 2013 2012100 basis point increase (461,048) (864,700) 100 basis point decrease 603,707 861,200

Foreign exchange risk is the potential impact on the Central’s earnings due to currency movements. The Central’s foreign exchange policies and procedures outline permissible types of transactions, authorizations, limits, and monitoring and reporting requirements. The Central is authorized to hold up to $250,000 CAD in excess of, or short of its foreign currency liabilities. The Central’s exposure to foreign exchange fluctuations is monitored on a daily basis.

Equity and commodity risk is the potential impact on the Central’s earnings due to movements in equity and commodity prices. The Central does not have significant business activities in equities or commodities and, as such, is not exposed to material risk in these areas.

Management provides quarterly reports to the Board of Directors on market risk.

Operational RiskOperational risk is the risk of direct or indirect loss resulting from inadequate or failed processes, technology or human performance, or from external events.

While operational risk can never be fully eliminated, the Central manages this type of risk through implementation of a comprehensive set of procedures and policies. Elements include:

• developing and maintaining a comprehensive system of internal controls, encompassing segregation of functional activities, managerial reporting and delegation of authority;

• striving to maintain industry best practices in the area of operational risk management through continued monitoring and evaluation of our practices;

• selection and training of highly qualified staff, supported by policies that provide for skills upgrading, clear authorization levels and adherence to an employee code of conduct; and

• maintaining adequate insurance to reduce the impact of any potential losses, supported by a detailed business continuity plan.

Strategic RiskStrategic risk is the risk of loss due to failure to create, implement and monitor an effective strategic plan, including procedures for the development and review of new business initiatives and changing business circumstances.

Strategic priorities for the next three years are established during the Annual Board and Management Planning Session. Management then develops the annual business plan for approval by the Board of Directors. Management reports to the Board of Directors on the progress towards achieving the annual business plan at each regular Board meeting. Credit unions are also provided with regular progress reports.

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Management’s Responsibility For Financial Statements

 

 

Management  has  the  responsibility  of  preparing  the  accompanying  consolidated  financial  statements  and ensuring that all information in the annual report is consistent with the consolidated financial statements. This responsibility  includes  selecting  appropriate  accounting  principles  and  making  objective  judgments  and estimates in accordance with International Financial Reporting Standards. 

In  discharging  its  responsibility  for  the  integrity  and  fairness  of  the  consolidated  financial  statements, management designs and maintains the necessary accounting systems and related internal controls to provide reasonable assurance  that  transactions are authorized, assets  safeguarded and proper  records maintained. The Board of Directors has  appointed  an Audit Committee  to  review  the  annual  financial  statements with management and auditors before final approval by the Board.  

Both the federal and provincial regulators of financial  institutions may conduct examinations and make such enquiries into the affairs of Atlantic Central and its subsidiary as they deem necessary to ensure the safety of depositors and members of Atlantic Central and to ensure that Atlantic Central is in sound financial condition. Their findings are reported directly to management.  

Grant  Thornton  LLP,  the  independent  auditors,  have  examined  the  consolidated  financial  statements  of Atlantic Central in accordance with Canadian generally accepted auditing standards and have expressed their opinion in the following report to members. 

 

 

 

 

 

Michael Leonard President and CEO 

Sharon Arnold, CA Senior Vice President, Finance 

 

 

Atlantic CentralConsolidated Financial Statements

December 31, 2013

Management’s Responsibility For Financial Statements

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Independent Auditors’ Report

 

To the members of Atlantic Central 

We  have  audited  the  accompanying  consolidated  financial  statements  of  Atlantic  Central  (the  “Central”), which comprise the consolidated balance sheet as at December 31, 2013, and the consolidated statements of income, comprehensive income, changes  in members’ 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 is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. 

Auditor’s 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 from material misstatement.  

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 auditor’s  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  auditor  considers  internal  control  relevant  to  the Central’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  Central’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. 

Opinion  

In  our  opinion,  the  consolidated  financial  statements  present  fairly,  in  all material  respects,  the  financial position of Atlantic Central as at December 31, 2013, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. 

 

   

Grant Thornton LLP Chartered Accountants  

February 19, 2014 Halifax, Canada  

Independent Auditors’ Report

16

Consolidated Balance Sheet

 

December 31(Cdn Dollars) Note 2013 2012AssetsCash and cash equivalents $ 39,589,724          $ 16,056,354       Investments 5 544,089,435       575,506,944     Loans and mortgages 6 470,697,269       461,754,968     Accrued interest 4,509,711            5,186,492         Income tax receivable ‐                             554,162             Fixed assets 7 4,152,016            4,249,844         Deferred tax assets 11 804,620                716,004             Other assets 3,782,336            3,462,558         

$ 1,067,625,111    $ 1,067,487,326 LiabilitiesDeposits 15 $ 940,743,834       $ 960,037,444     Accrued interest  4,845,404            4,727,707         Accounts payable and accrued liabilities 6,807,562            7,049,120         Mortgage backed securities 19 22,379,569          5,460,960         Income tax payable 173,057                ‐                           Subordinated debtentures 17 6,381,000            6,390,000         

981,330,426       983,665,231     Members' equityCapital stock 8 41,468,182          40,193,432       Contributed surplus 6,018,056            6,018,056         Special reserve 8 2,293,741            600,000             Retained earnings 20,795,058          19,998,062       Accumulated other comprehensive income 1,732,908            3,025,805         

72,307,945          69,835,355       Minority interest in subsidiary 21 13,986,740          13,986,740       

86,294,685          83,822,095       $ 1,067,625,111    $ 1,067,487,326 

Commitments and contractual obligations 10 

Approved: On Behalf of the Board:     Michael Leonard President and CEO 

Dave MacLean Chair 

Doug Dewling Director 

See accompanying notes to the financial statements 

Consolidated Balance Sheet

17

Consolidated Statement of Income

 

Year Ended December 31(Cdn Dollars) Note 2013 2012

Financial income

Interest on investments $ 11,360,951     $ 10,930,609    

Interest on loans and mortgages 19,891,457     21,710,359    

31,252,408     32,640,968    

Financial expense 15,492,030     15,657,026    

Gross financial margin 15,760,378     16,983,942    

Provision for losses (recovery)  180,441           (352,645)        

Net financial margin 15,579,937     17,336,587    

Other financial income 417,332           621,120          

Net financial income 15,997,269     17,957,707    

Non‐interest income 18 9,657,227       9,493,826      

25,654,496     27,451,533    

Operating expenses

Salaries and staff related 10,370,175     10,764,728    

Office expense 2,727,062       2,815,913      

Marketing and business development 1,206,242       1,042,589      

Democracy 1,527,258       1,453,383      

Professional Fees 545,448           438,999          

Other expenses 856,337           1,110,684      

17,232,522     17,626,296    

Operating income 8,421,974       9,825,237      

Special Projects 3 288,676           ‐                        

Distributions 3,092,037       5,103,470      

Income before taxes 5,041,261       4,721,767      

Income taxes 11 1,527,997       1,493,320      

Net income $ 3,513,264       $ 3,228,447       

 

 

See accompanying notes to the financial statements 

 

Consolidated Statement of Income

18

Consolidated

 Statemen

t of C

ompreh

ensive

 Income

 Year End

ed Decem

ber 31

(Cdn

 Dollars)

Note

2013

2012

Net income

$3,513,264

      

$3,228,447

      

Other co

mpreh

ensive

 income (OCI)

Items that w

ill be reclassifie

d subseq

uently to

 income:

Net ch

ange

 in unrealized

 gains (losses) on available for sale investmen

ts:

    Net unrealized

 gains (losses) on available for sale investmen

ts(1,498,180)

     

78,964

            

    Re

classification of net re

alized

 gains to

 net income 

(242,042)

        

(67,126)

           

Income tax expe

nse:

11    On un

realized

 losses (gains) o

n available for sale investmen

ts385,822

          

48,724

            

    On reclassification of net re

alized

 gains to

 net income 

61,503

            

14,909

            

Other co

mpreh

ensive

 income

(1,292,897)

     

75,471

            

Compreh

ensive

 income 

$2,220,367

      

$3,303,918

      

Net income attributable to

:

Minority

 interest ‐ Preferred shareh

olde

rs of sub

sidary

321,695

          

419,602

          

Shareh

olde

rs3,191,569

      

2,808,845

      

$3,513,264

      

$3,228,447

      

Compreh

ensive

 income attributable to

:

Minority

 interest ‐ Preferred shareh

olde

rs of sub

sidary

321,695

          

419,602

          

Shareh

olde

rs1,898,672

      

2,884,316

      

$2,220,367

      

$3,303,918

      

 

See accompanying no

tes to the fin

ancial statem

ents 

 Cons

olid

ated

Sta

tem

ent o

f Com

preh

ensi

ve In

com

e

19

Consolidated

 Statemen

t of C

hanges in

 Mem

bers’ Equ

ity

 Year End

ed Decem

ber 31, 2013 (Cdn

 Dollars)

Capital

Stock

(Note 8)

Contrib

uted

 Surplus

Special 

Reserve

Retained

 Earnings

Accumulated

 Other 

Compreh

ensive

 Income

Total

Mem

bers

Equity 

Minority

Interest 

Total

Equity

Balance at beginning

 of year

$40,193,432

 $

6,018,056

   $

600,000

       

$19,998,062

 $

3,025,805

           

$69,835,355

 $

13,986,740

 $

83,822,095

 

Net income

‐                     

‐                     

‐                    

3,191,569

   ‐

                             

3,191,569

    321,695

       

3,513,264

    

Other co

mpreh

ensive

 income

‐                     

‐                     

‐                    

‐                    

(1,292,897)

          

(1,292,897)

  ‐

                     

(1,292,897)

  

Compreh

ensive

 income

‐                     

‐                     

‐                    

3,191,569

   (1,292,897)

          

1,898,672

    321,695

       

2,220,367

    

Transfer to

 special reserve

‐                     

‐                     

1,693,741

   (1,693,741)

 ‐

                             

‐                     

‐                     

‐                     

Issued

 in equ

ity re

balancing

1,388,510

   ‐

                     

‐                    

‐                    

‐                             

1,388,510

    ‐

                     

1,388,510

    

Rede

emed

 in equ

ity re

balancing

(113,760)

     

‐                     

‐                    

‐                    

‐                             

(113,760)

      

‐                     

(113,760)

      

Cash dividen

d paid on shares

‐                     

‐                     

‐                    

(939,558)

     

‐                             

(939,558)

      

(321,695)

     

(1,261,253)

  

Income tax recovery on cash dividen

d‐

                     

‐                     

‐                    

238,726

       

‐                             

238,726

       

‐                     

238,726

       

Balance at end

 of year

$41,468,182

 $

6,018,056

   $

2,293,741

   $

20,795,058

 $

1,732,908

           

$72,307,945

 $

13,986,740

 $

86,294,685

 

Year End

ed Decem

ber 31, 2012 (Cdn

 Dollars)

Capital

Stock

(Note 8)

Contrib

uted

 Surplus

Special 

Reserve

Retained

 Earnings

Accumulated

 Other 

Compreh

ensive

 Income

Total

Mem

bers

Equity 

Minority

Interest 

Total

Equity

Balance at beginning

 of year

$40,213,482

 $

6,018,056

   $

‐                    

$18,728,304

 $

2,950,334

           

$67,910,176

 $

13,986,740

 $

81,896,916

 

Net income

‐                     

‐                     

‐                    

2,808,845

   ‐

                             

2,808,845

    419,602

       

3,228,447

    

Other co

mpreh

ensive

 income 

‐                     

‐                     

‐                    

‐                    

75,471

                 

75,471

          

‐                     

75,471

          

Compreh

ensive

 income

‐                     

‐                     

‐                    

2,808,845

   75,471

                 

2,884,316

    419,602

       

3,303,918

    

Transfer to

 special reserve

‐                     

‐                     

600,000

       

(600,000)

     

‐                             

‐                     

‐                     

‐                     

Rede

emed

(20,050)

        

‐                     

‐                    

(7,000)

          

‐                             

(27,050)

        

‐                     

(27,050)

        

Cash dividen

d paid on shares

‐                     

‐                     

‐                    

(1,200,262)

 ‐

                             

(1,200,262)

  (419,602)

     

(1,619,864)

  

Income tax recovery on cash dividen

d‐

                     

‐                     

‐                    

268,175

       

‐                             

268,175

       

‐                     

268,175

       

Balance at end

 of year

$40,193,432

 $

6,018,056

   $

600,000

       

$19,998,062

 $

3,025,805

           

$69,835,355

 $

13,986,740

 $

83,822,095

  

  See accompanying no

tes to the fin

ancial statem

ents 

Cons

olid

ated

Sta

tem

ent o

f Cha

nges

in M

embe

rs’ E

quit

y

20

Consolidated Statement of Cash Flows

 

Year Ended December 31(Cdn Dollars) 2013 2012

Increase (decrease) in cash and cash equivalentsOperating activities

Income before taxes $ 5,041,261               $ 4,721,767              Adjustments:Loans and mortgages, net (8,942,301)             (4,460,894)             Deposits, net (19,293,610)           38,265,776            Mortgage backed securities, net 16,918,609            5,460,960              Depreciation 505,245                  581,121                 Interest receivable/payable, net 794,478                  (520,931)                Taxes paid, net of refunds (461,071)                 (1,462,821)             Other items, net (542,335)                 1,353,802              

(5,979,724)             43,938,780            Financing activities

Net proceeds from (redemptions) issuance of capital 1,274,750               (27,050)                  Subordinated debentures (9,000)                     ‐                               Dividends paid to minority interest (321,695)                 (419,602)                Dividends, net of income tax recovery (700,832)                 (932,087)                

243,223                  (1,378,739)             Investing activities

Investments, net 23,700,835            (63,238,238)          Fixed assets, net (407,417)                 (210,874)                

23,293,418            (63,449,112)          

Net increase (decrease) in cash and cash equivalents 17,556,917            (20,889,071)          

Cash and cash equivalents (net)Beginning of year 22,033,773            42,922,844            End of year $ 39,590,690            $ 22,033,773            

Includes:      Cash and balances with financial institutions $ 39,589,724            $ 16,056,354            

Cash included in investments 966                          5,977,419              $ 39,590,690            $ 22,033,773            

Supplemental disclosure of cash flow information      Interest received $ 32,498,568            $ 32,965,491            

Dividends received 174,566                  132,552                 Interest paid 16,074,946            16,627,552              

See accompanying notes to the financial statements 

Consolidated Statement of Cash Flows

21

Notes to Financial Statements – December 31, 2013

 

 

1. Reporting entity 

Atlantic Central (“the Company” or “the Central”)  is  incorporated  in Nova Scotia under the Credit Union Act.   The Company  is  regulated  federally by  the Office of  the Superintendent of Financial  Institutions  (OSFI) and provincially by the Office of the Superintendent of Credit Unions.   On January 1, 2011, pursuant to a Definitive Combination Agreement dated June 30, 2010, the Company purchased the assets and assumed the liabilities of  Credit  Union  Central  of  New  Brunswick  and  Credit  Union  Central  of  Prince  Edward  Island.   With  the proclamation of amended credit union  legislation  in each of Nova Scotia, New Brunswick and Prince Edward Island, the three Centrals completed a business combination to form Atlantic Central on that date.   

Atlantic Central is the continuance of Credit Union Central of Nova Scotia and is owned by credit unions in the Atlantic Provinces.    Its head office  is  located at 6074 Lady Hammond Road  in Halifax, Nova Scotia, and  the Company also operates out of offices  in Sydney, Nova Scotia, Riverview, New Brunswick and Charlottetown, Prince  Edward  Island.    The  Company’s  key  financial  role  is  the management  of  the  Atlantic  credit  union system’s liquidity reserve requirements.  Additionally, Central provides financial, trade association, and other support services to Atlantic credit unions, their members, and others.  

 

2. Basis of presentation 

The  consolidated  financial  statements  are  presented  in  Canadian  dollars  and  have  been  prepared  in accordance with  International Financial Reporting Standards (IFRS) as  issued by the  International Accounting Standards  Board  (IASB).    The  principal  accounting  policies  applied  in  the  preparation  of  the  consolidated financial statements are set out in Note 3.   

The consolidated  financial statements  include  the accounts of  the subsidiary, League Savings and Mortgage Company (League Savings).  Subsidiaries are defined as entities controlled by the Company.  Control is defined as the power to govern the financial and operating policies so as to obtain benefits from the entity’s activities.  Subsidiaries  are  consolidated  from  the date  control  is  transferred,  and  consolidation  ceases on  the  loss of control. 

Significant  inter‐company  transactions  and  account  balances  have  been  eliminated  from  the  consolidated accounts.   The consolidated  financial statements have been prepared on  the historical cost basis except  for certain financial instruments as indicated in Note 3. 

 

Use of estimates and assumptions 

In preparing the Company’s financial statements, management is required to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the period.    Actual  results  could  differ  from  those  estimates.  The  estimates  and  underlying  assumptions  are reviewed  on  an  ongoing  basis. Revisions  to  accounting  estimates  are  recorded  in  the  period  in which  the estimate reversed if the revision affects only that period or in the period of revision and in future periods if the revision affects both the current and future periods.  

Notes to Financial Statements – December 31, 2013

22

Notes to Financial Statements – December 31, 2013

 

The judgments and estimates that have the most significant effect on the amounts recognized in the financial statements are decisions with respect to the fair value of financial instruments, the allowance for loan losses, the derecognition of loans and mortgages, and income taxes.  

 

Fair value of financial instruments 

The  determination  of  the  fair  value  of  financial  instruments  requires  the  exercise  of  judgement  by management.   The  fair value of  financial  instruments  traded  in active markets at  the balance  sheet date  is based on their quoted market prices.   Where  independent quoted market prices do not exist, fair value may be based on other observable current market transactions or based on a valuation technique which maximizes the use of observable market inputs.  

For certain types of equity instruments fair value is assumed to approximate carrying value where the range of reasonable valuation techniques is significant and the probabilities of such valuation techniques cannot be reasonably assessed. In such instances fair value may not be reliably measured due to the equity instruments’ unique characteristics, including trading restrictions or that quoted market prices for similar securities are not available.  

Allowance for credit losses 

Judgements about the  impairment of  loans and mortgages, and the related allowances for credit  losses, are based on management’s best estimate of the present value of the cash flows that are expected to be received.  This includes estimates about the borrower’s financial situation and the net realizable value of any underlying collateral.   Collectively assessed allowances  cover  credit  losses  in portfolios of  loans and mortgages having similar  credit  characteristics,  and  include  judgements  regarding  factors  such  as  portfolio  credit  quality, concentrations of credit, and economic factors.    In order to estimate collective allowances, assumptions are made in determining modelling parameters based on historical experience and current economic conditions. 

 

Derecognition of loans and mortgages 

In determining whether to derecognize loans and mortgages, judgement is applied in determining whether we have transferred substantially all of the risks and rewards of ownership  in transferring the assets to another entity, and the degree of control exercised by the Company over the other entity.   

 

Income taxes 

The determination of deferred tax assets or liabilities requires judgement as the recognition is dependent on projections of future taxable profits and tax rates that are expected to be  in effect  in the period the asset  is realized or the liability is settled.   

 

The  consolidated  financial  statements were authorized  for  issue by  the Board of Directors on February 19, 2014. 

Notes to Financial Statements – December 31, 2013

23

Notes to Financial Statements – December 31, 2013

 

The judgments and estimates that have the most significant effect on the amounts recognized in the financial statements are decisions with respect to the fair value of financial instruments, the allowance for loan losses, the derecognition of loans and mortgages, and income taxes.  

 

Fair value of financial instruments 

The  determination  of  the  fair  value  of  financial  instruments  requires  the  exercise  of  judgement  by management.   The  fair value of  financial  instruments  traded  in active markets at  the balance  sheet date  is based on their quoted market prices.   Where  independent quoted market prices do not exist, fair value may be based on other observable current market transactions or based on a valuation technique which maximizes the use of observable market inputs.  

For certain types of equity instruments fair value is assumed to approximate carrying value where the range of reasonable valuation techniques is significant and the probabilities of such valuation techniques cannot be reasonably assessed. In such instances fair value may not be reliably measured due to the equity instruments’ unique characteristics, including trading restrictions or that quoted market prices for similar securities are not available.  

Allowance for credit losses 

Judgements about the  impairment of  loans and mortgages, and the related allowances for credit  losses, are based on management’s best estimate of the present value of the cash flows that are expected to be received.  This includes estimates about the borrower’s financial situation and the net realizable value of any underlying collateral.   Collectively assessed allowances  cover  credit  losses  in portfolios of  loans and mortgages having similar  credit  characteristics,  and  include  judgements  regarding  factors  such  as  portfolio  credit  quality, concentrations of credit, and economic factors.    In order to estimate collective allowances, assumptions are made in determining modelling parameters based on historical experience and current economic conditions. 

 

Derecognition of loans and mortgages 

In determining whether to derecognize loans and mortgages, judgement is applied in determining whether we have transferred substantially all of the risks and rewards of ownership  in transferring the assets to another entity, and the degree of control exercised by the Company over the other entity.   

 

Income taxes 

The determination of deferred tax assets or liabilities requires judgement as the recognition is dependent on projections of future taxable profits and tax rates that are expected to be  in effect  in the period the asset  is realized or the liability is settled.   

 

The  consolidated  financial  statements were authorized  for  issue by  the Board of Directors on February 19, 2014. 

Notes to Financial Statements – December 31, 2013

 

3. Summary of significant accounting policies 

 

Financial instruments  

Financial assets and  liabilities are  initially recognized at fair value and are subsequently accounted for based on their classification as described below.  

Financial assets must be classified as fair value through profit or loss (FVTPL), available for sale (AFS), held‐to‐maturity (HTM) or loans and receivables (L&R).  Financial liabilities are required to be classified as (FVTPL) or other financial  liabilities (OFL).   All financial  instruments,  including all derivatives, are measured at fair value on  the balance  sheet with  the exception of  loans  and  receivables, held‐to‐maturity  investments  and other financial liabilities which are measured at amortized cost. 

A financial asset is derecognized when the contractual rights to the cash flows from the asset have expired, or the Company  transfers  the  contractual  rights  to  receive  the  cash  flows  from  the asset, or has assumed an obligation  to pay  those cash  flows to a  third party and  the Company has  transferred substantially all of  the risks and  rewards of ownership of  that asset  to a  third party.   A  financial  liability  is derecognized when  the obligation under the liability is discharged or cancelled or expires. 

Changes  in  fair values of  financial assets and  financial  liabilities classified as FVTPL are reported  in earnings, while  the  changes  in  value  of  available  for  sale  financial  assets  are  reported within  other  comprehensive income (OCI) until the financial asset is disposed of, or becomes impaired.   

Accumulated OCI is reported on the balance sheet as a separate component of Members’ Equity.  It includes, on a net of taxes basis, the net unrealized gains and losses on available for sale financial assets.  The Company has classified its financial instruments as follows: 

FVTPL  Interest rate swaps 

AFS  Investments 

L&R  Loans and mortgages, accrued interest and other assets 

OFL  Borrowings,  deposits,  mortgage  backed  securities  (MBS),  accrued  interest, accounts payable and accrued liabilities and subordinated debentures 

 

Cash and cash equivalents  

Cash  and  cash  equivalents  include  cash  on  hand,  and  balances with  financial  institutions  that  are  utilized primarily  in  the  payments  function.    Certain  cash  accounts  that  are  utilized  in  the  Company’s  investment activities are reported in investments. 

 

Investments 

Investments  have  been  designated  as  available  for  sale.    Investments  are  initially  recorded  at  cost  with premiums and discounts amortized to maturity.  Except as noted below, investments are reported at market value with any unrealized gains or losses reported in OCI.   

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Certain investments in co‐operative partners are reported at cost, as fair value cannot be reliably measured. 

Investment  income  is recognized on an accrual basis.   Realized gains and  losses on the disposal of securities are included in investment income.  All securities are held for investment purposes. 

 

Loans and mortgages 

Loans  and mortgages  have  been  designated  as  loans  and  receivables.    Loans  and mortgages  are  net  of allowances established  to  recognize anticipated  losses.   The amount provided  for anticipated  loan  losses  is determined by reference to specific loans or mortgages in arrears and by the judgment of management. 

Loans  are  assessed  for  impairment  either  individually,  where  appropriate,  or  collectively.    A  collective allowance  has  been  established  to  provide  for  losses  on  loans  and mortgages where  past  experience  and existing economic and portfolio conditions  indicate that  losses have occurred, but where such  losses cannot be specifically identified on an account‐by‐account basis. 

Specific allowances are provided for individual loans that have experienced deterioration in credit quality such that  there  is no  longer a  reasonable assurance of  the  timely  collection of  the  full amount of principal and interest, and where the current carrying value of the loan is greater than the present value of the future cash flows.   The assessment of  individual  loans  includes monthly  reporting on delinquent accounts as well as an evaluation of other accounts where the possibility of loss exists, and includes an assessment of the security on the loan.   

The collective allowance is determined based on management’s judgment considering business and economic conditions, portfolio composition, historical credit performance and other relevant factors.  Pools of loans are assessed based on attributes specific to a defined group of borrowers, and considers other characteristics that directly affect the collectability of  loans that are unique to the defined group of borrowers (such as  inherent credit risk,  industry, and geography).   Each pool of  loans  is assigned a portfolio risk  factor, which  is used to determine a base amount required for the collective allowance.   This base amount  is adjusted to reflect the fluctuations in market conditions that most highly correlate with credit losses. 

Assets received from borrowers  in the event of borrower default are recorded as real estate held for resale (classified  under  loans  and  mortgages),  and  are  recorded  at  their  fair  value  less  costs  to  sell.    On  the acquisition  date  any  excess  of  the  carrying  value  of  the  loan  over  the  fair  value  of  the  assets  received  is recognized by a  charge  to  the provision  for  credit  losses.   Any  subsequent  change  in  the  fair  value of  real estate held for resale is recognized by a charge to lending services expenses. 

The subsidiary company periodically sells or purchases mortgages, primarily to or from credit unions.  In these transactions, the seller continues to administer the  loans sold, but the contractual right to receive payments on  the  loans  is offset by an obligation  to  transfer  these payments  to  the purchaser.   The  loans sold by  the subsidiary are derecognized, and the loans purchased are recognized, on the date of the transfer. 

 

Mortgage backed securities 

The Company  securitizes  insured  residential mortgages  through  the creation of mortgage backed  securities (MBS) under the National Housing Act Mortgage‐Backed Securities (NHA MBS) program sponsored by Canada 

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Mortgage  and Housing  Corporation  (CMHC).    The MBS  created  under  the  program  are  sold  to  third‐party investors.  Under the NHA MBS program, the Company continues to administer the  loans securitized, and  is entitled to the payments received on the mortgages.  At the same time, the Company is obligated to make the payments due  on  the  issued MBS,  including  the  investment  yield  due  to  the  investors  in  the  security,  regardless  of whether the Company has collected the funds from the mortgagor.  The sale of mortgages through the NHA MBS program does not meet the requirements for derecognition.  The Company has not transferred substantially all the risks and rewards of ownership of the underlying mortgages, as  the Company retains  the prepayment, credit and  interest rate risk associated with  the mortgages.     As a result, the Company continues to recognize the underlying mortgages in assets as secured loans and the cash proceeds from the securitization are recognized as liabilities.   

 

Fixed assets 

Land  is  carried  at  cost.    Buildings,  equipment  and  improvements  are  carried  at  cost  less  accumulated depreciation.  Depreciation is calculated using the straight‐line method over the estimated useful lives of the related assets.  The useful life and residual value of fixed assets are reviewed at least annually.  Depreciation rates are as follows: 

Buildings and improvements    2‐10% 

Furniture and equipment  20‐33% 

 

Impairment 

Investments are reviewed for impairment on at least an annual basis.  Changes in the fair value of available for sale  investments are reported  in other comprehensive  income.    If the  investment  is  impaired, however, any cumulative losses previously recognized in OCI are reclassified from equity to net income. 

Loans and mortgages are classified as impaired at the earlier of when, in the opinion of management, there is reasonable doubt as to the collectability of principal or interest, or when interest or principal is contractually past due 90 days, unless the loan or mortgage is both well secured and in the process of collection.  Interest on an  impaired  loan or mortgage continues to be recognized  in earnings on an accrual basis and  is provided for in the allowance for loan losses. 

Non‐financial assets are assessed for impairment at least annually and, where impairment exists, the carrying value is reduced to the recoverable amount, and any adjustment is recognized in earnings. 

 

Revenue and expense recognition 

Revenue  is recognized to the extent that  it  is probable that the economic benefits will flow to the Company and  the  revenue  can  readily be measured.    The principal  sources of  revenue  are  interest  and  fee  income. Operating expenses are recognized upon the utilization of the services or at the date of their origin.   

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Notes to Financial Statements – December 31, 2013

 

Interest on  loans and mortgages  is  recognized and  reported on an accrual basis using  the effective  interest method.  Expenses incurred directly in the origination of loans and mortgages are deferred and recognized in the income statement, as a reduction to income over the expected life of the relevant loans and mortgages. 

The Company periodically sells mortgages.  Gains or losses are recognized on transfers of mortgages to other parties  when  the  Company  has  transferred  the  significant  risks  and  rewards  of  ownership.    Where  the Company continues to service the mortgages, an administration fee is calculated on the outstanding balance of  the mortgages.    This  fee  is  recognized  as  the  services  are  provided  and  reported  in  earnings  as  other income. 

 

Leases 

A  lease transfers the economic ownership of a  leased asset  if the  lessee bears substantially all the risks and rewards related to the ownership of the leased asset. The related asset is then recognized at the inception of the  lease  at  the  fair  value  of  the  leased  asset  or,  if  lower,  the  present  value  of  the  lease  payments  plus incidental payments, if any. A corresponding amount is recognized as a finance leasing liability. 

All other leases are treated as operating leases. Payments on operating lease agreements are recognized as an expense on a straight‐line basis over the lease term. Associated costs, such as maintenance and insurance, are expensed as incurred. 

 

Income taxes 

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized  in net income except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income. 

Current income taxes are recognized for the estimated income taxes payable or receivable on taxable income or loss for the current year and any adjustment to income taxes payable in respect of previous years. Current income taxes are measured at the amount expected to be recovered from or paid to the taxation authorities. This amount  is determined using tax rates and tax  laws that have been enacted or substantively enacted by the year‐end date. 

Deferred tax assets and liabilities are recognized where the carrying amount of an asset or liability differs from its  tax  base,  except  for  taxable  temporary  differences  arising  on  the  initial  recognition  of  goodwill  and temporary differences arising on the  initial recognition of an asset or  liability  in a transaction which  is not a business combination and at the time of the transaction affects neither accounting or taxable profit or loss. 

Recognition of deferred tax assets for unused tax (losses), tax credits and deductible temporary differences is restricted to those  instances where  it  is probable that future taxable profit will be available which allow the deferred tax asset to be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. 

The amount of the deferred tax asset or liability is measured at the amount expected to be recovered from or paid  to  the  taxation  authorities.  This  amount  is  determined  using  tax  rates  and  tax  laws  that  have  been enacted or substantively enacted by the year‐end date and are expected to apply when the liabilities / (assets) are settled / (recovered). 

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Notes to Financial Statements – December 31, 2013

 

Deposits 

Deposits are measured at fair value on recognition net of transaction costs directly attributable to  issuance.  Subsequent measurement is at amortized cost using the effective interest method. 

 

Business combinations 

Business combinations are accounted for using the acquisition method.  The acquisition method involves the recognition of  the  acquiree’s  identifiable  assets  and  liabilities,  including  contingent  liabilities,  regardless of whether they were recorded in the financial statements prior to acquisition.  On initial recognition, the assets and liabilities of the acquired entity are included in the consolidated balance sheet at their fair values. 

 

Employee benefits  

Short‐term employee benefits  include salaries and wages, compensated absences, medical and dental plans, and variable compensation.   The Company also contributes on behalf of employees  to a Group Savings  for Retirement Program and  to  life and  long‐term disability  insurance plans.   Under  these defined contribution programs  the Company pays  fixed  contributions  to an  independent entity and has no  legal or  constructive obligation to pay further contributions.   These costs are expensed as the related service  is provided, and are reported in income as employee benefits.  

 

Special projects 

Expenses  that are not expected  to  recur  in normal operations,  including certain expenses  relating  to credit union system initiatives, are charged to special projects. 

 

Changes in accounting standards  

Effective  January  1,  2013  the  following  new  and  amended  accounting  standards  were  adopted  by  the Company;  IAS 1 – Presentation of Financial Statements  (Amended),  IFRS 10 – Consolidation,  IFRS 11 –  Joint Arrangements, IFRS 12 – Disclosure of Interests in Other Entities, and IFRS 13 – Fair Value Measurement. 

IAS  1  (Amended)  prescribes  the  basis  for  presentation  of  general  purpose  financial  statements  to  ensure comparability both with the entity's financial statements of previous periods and with the financial statements of other entities.  It sets out overall requirements for the presentation of financial statements, guidelines for their  structure and minimum  requirements  for  their content.   The amended  standard  requires an entity  to present the  items of other comprehensive  income that would be reclassified to profit or  loss  in the future  if certain conditions are met from those that would never be reclassified to profit or loss.  As a result of adopting this standard,  the Company has modified  the presentation of  its Consolidated Statement of Comprehensive Income. 

IFRS 10 requires a parent to present consolidated  financial statements as those of a single economic entity, replacing  the  requirements previously  contained  in  IAS 27 Consolidated and  Separate  Financial  Statements and  SIC‐12  Consolidation  –  Special  Purposes  Entities.    IFRS  10  establishes  the  principles  of  control  and introduces  a  new  approach  to  determining whether  an  investor  controls  an  investee  and  therefore must 

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consolidate  the  investee.    The  Standard  introduces  a  single  consolidation model  for  all  entities  based  on control, irrespective of the nature of the investee.  The Company has concluded that there were no entities to be consolidated or deconsolidated on adoption of this standard. 

IFRS 11 provides a  framework  for entities  to assess whether or not  they participate  in a  joint arrangement, joint venture or joint operations.   The Company has concluded that there were no activities of the Company which constituted a joint arrangement, joint venture or joint operations under IFRS 11. 

IFRS 12 requires an entity to disclose information that enables users of its financial statements to evaluate the nature of, and  risks associated with,  its  interests  in other entities; and  the effects of  those  interests on  its financial position, financial performance and cash flows.  The adoption of this standard did not have a material impact on the Consolidated Financial Statements. 

IFRS 13 replaces the guidance on fair value measurement  in existing  IFRS accounting  literature with a single standard.  The standard establishes a framework for measuring fair value including a revised definition of fair value and sets out disclosure requirements  for  fair value measurements.   The Company has concluded  that there were no significant changes in the fair value measurement of financial instruments required on adoption of this new standard although additional enhancements have been made to disclosures on fair value measures in the Consolidated Financial Statements (See Note 9). 

The adoption of  these new and amended  standards has not  resulted  in  changes  in  the  carrying amount of assets or liabilities as previously reported.   

 

A number of new standards, and amendments to standards and interpretations, are not yet effective for the year  ended  December  31,  2013  and  have  not  yet  been  adopted  by  the  Company  in  preparing  these consolidated financial statements.   Other than the  introduction of IFRS 9, these changes are not expected to have a material impact on the financial statements.   

 

IFRS 9 ‐ Financial Instruments 

In  November  2009,  the  IASB  issued  IFRS  9  –  Financial  Instruments,  introducing  new  requirements  for classifying and measuring financial assets. This new standard replaces the requirements  in IAS 39 – Financial Instruments: Recognition and Measurement for classification and measurement of financial assets.    IFRS 9  is the first part of a multi‐phase project to replace  IAS 39.   The main features of the  initial release of the new standard are:  

 

A financial asset will be classified as either fair value or amortized cost.  The available‐for‐sale, held‐to‐maturity, and loans and receivables categories will no longer exist. 

Classification of financial assets is based on the entity’s business model for managing the financial asset and their contractual cash flow characteristics. 

Changes  in  the  fair  value  of  financial  assets  classified  as  fair  value  are  recognized  in  profit  or  loss, except  for  equity  investments  not  held  for  trading, which may  be  held  at  fair  value  through  other comprehensive income. 

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In 2012 the  IASB proposed  limited amendments  in an exposure draft, which  introduced a fair value through OCI measurement category for qualifying debt instruments.  In 2013 the IASB issued additional amendments, including new hedge accounting  requirements, and  removed  the  January 1, 2015 effective date.   The new effective  date  has  not  yet  been  determined.    The  impact  of  IFRS  9  on  the  Company  has  not  yet  been determined. 

Other standards and amendments have been issued but are not yet effective and are not expected to have a material impact.  They include: 

 Standard 

  Effective Date (periods beginning on or after) 

IFRS 10 Consolidated Financial Statements – which amends the standard to require a parent that is an investment entity to measure its investments in subsidiaries at fair value through profit or loss, instead of consolidating subsidiaries in its consolidated financial statements 

  January 1, 2014 

IFRS 12 Disclosure of Interests in Other Entities – which adds disclosure requirement for investment entities. 

  January 1, 2014 

IAS 27 Separate Financial Statements – which is amended with respect to investment entities. 

  January 1, 2014 

IAS 32 – Financial Instruments: Presentation – which clarifies requirements for offsetting financial assets and financial liabilities. 

  January 1, 2014 

 

 

 

4.  Risk management 

The  Company  has  an  enterprise‐wide  approach  to  the  identification,  measurement,  monitoring  and management of  risks  faced across  the organization.   The Company manages  significant  risks efficiently and effectively  through  an  Enterprise  Risk  Management  Framework  (ERM)  which  includes  a  comprehensive infrastructure of policies, procedures, methods, oversight and  independent  review, designed  to  reduce  the significant risks and to manage those risks within appropriate tolerances for the Company. 

Authority for all risk‐taking activities rests with the Board of Directors (Board), which approves the Company’s Risk Appetite Statement and risk management policies, delegates limits and regularly reviews management’s risk assessments and  compliance with approved policies.   Qualified professionals  throughout  the Company manage  these  risks  through comprehensive and  integrated control processes and models,  including  regular review and assessment of risk measurement and reporting processes.   

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The various processes within the Company’s risk management framework are designed to ensure that risks in the  various  business  activities  are  properly  identified, measured,  stress  tested,  assessed  and  controlled.  Internal Audit  reports  independently  to  the Audit, Risk & Conduct Review Committees of  the Board on  the effectiveness  of  the  risk management  policies  and  the  extent  to which  internal  controls  are  in  place  and operating effectively. 

Stress testing is a risk measurement technique that examines the potential effects on the Company’s financial condition  resulting  from  adverse  economic,  liquidity,  credit,  and/or  financial  market  conditions.    The Company’s  risk management  processes  include  stress  testing  scenarios  including  exceptional  but  plausible adverse events that can impact the Company’s financial results and capital requirements, the results of which are  used  to  enhance  our  understanding  of  our  risk  profile,  and  to  support  our  strategic  decision making.  Stress testing results are also explicitly incorporated into the Company’s Internal Capital Adequacy Assessment Process (ICAAP) and Capital Plan. 

The Management Finance Committee (MFC) is responsible for the review and evaluation of the financial risks and performance of the Company, including the management of: 

 

Credit risk  Liquidity 

Interest rate risk   Foreign exchange 

Investment portfolio  Derivatives 

Large exposures  Capital 

 

The MFC  reviews  financial  risk management  policies,  recommends  changes  to  policies  and  procedures  as appropriate, and monitors compliance with financial policies.    

The Asset Liability Management Committee (ALCO) has been established to ensure the effective and prudent management  of  the  Company’s  financial  assets  and  liabilities.    ALCO will  achieve  this  by  developing  and implementing financial strategies and related processes consistent with the short and  long term goals set by the Board.   

 

The  Company’s  principal  business  activities  result  in  a  balance  sheet  that  consists  primarily  of  financial instruments.  The key risks related to our financial instruments are credit, liquidity and market risk. 

 

Credit risk 

Credit risk is the potential for loss due to the failure of a borrower, endorser or guarantor to fulfill its payment obligation to the Company.  Credit risk arises in the Company’s direct lending operations and in its funding and investing activities where counterparties have repayment or other obligations to the Company.  The Company 

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has established policies and procedures for credit risk management,  including counterparty  limits relating to investment activities.  

Management  of  credit  risk  requires  prudent  and  conservative  underwriting  criteria  administered  by well‐trained  and  experienced  personnel.    Credit  risk management  practices  also  include  consistent  and  timely collection procedures, conservative analysis of property appraisals, and a realistic  loan allowance process to provide a regular evaluation of the loan portfolio.  Credit policies are reviewed and approved annually by the Board.   Management  regularly  reviews  its  credit  procedures  to  ensure  they  provide  extensive,  up‐to‐date guidance for the underwriting and administration of all types of loans.   

All  loans are risk rated at the time of approval, and may be subject to subsequent risk assessment based on factors  such as  loan  type, amount, original  risk  rating and payment history.    Loans with higher  risk  require more  intensive analysis and higher  levels of approval.   The Credit Committee of the Board reviews all  loans above the lending limits of management.   

The  Company maintains  both  specific  and  collective  allowances  for  credit  losses.    Specific  allowances  are established  based  on  management’s  knowledge  of  the  property  and  prevailing  conditions.    Collective allowances are maintained to cover any  impairment  in the  loan portfolio that cannot yet be associated with specific  loans.   The collective allowance  is determined based on  the Company’s  risk weighted portfolio and other factors including an assessment of market risk. 

 

Management regularly monitors the Company’s credit risk and reports to the Board on a quarterly basis. 

 

Liquidity risk 

Liquidity refers to the capacity to generate or obtain sufficient cash or  its equivalent  in a timely manner at a reasonable  price  to  meet  the  Company’s  commitments  as  they  fall  due  and  to  fund  new  business opportunities.  Liquidity  risk  is  the  potential  for  losses  to  be  incurred  from  holding  insufficient  liquidity  to survive a contingent stress event. 

The Company’s primary role is to manage liquidity for the credit union systems in Nova Scotia, New Brunswick, Prince Edward  Island and Newfoundland and Labrador.    In  its role as a credit union service partner, League Savings’ primary  financial  role  is  to accept deposits  from  credit unions,  their members, and others, and  to employ those funds to advance loans and mortgages to credit union members and others. 

The Company has established policies to ensure that  it  is able to generate sufficient  funds to meet all of  its financial commitments  in a timely and cost‐effective manner.    In addition, a  liquidity plan  is prepared which forecasts  the  amount  of  liquidity  required  and  the  sources  that will  be  used  to  fund  those  requirements.  These policies and plans are annually reviewed and approved by the Board.   

The Company’s liquidity management practices include: 

Ensuring the quality of investments acquired for liquidity purposes meet very high standards  

Matching the maturities of assets and liabilities  

Diversifying funding sources  

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Establishing and maintaining minimum liquidity reserves  

Monitoring actual cash flows on a daily basis  

Forecasting future cash flow requirements 

Utilizing  lines of  credit  to  fund  temporary needs and  selling or  securitizing mortgage pools  to meet longer term requirements 

Scenario testing and contingency planning  

 

While operating under similar  liquidity management  frameworks, certain  liquidity management practices of the Central and the subsidiary, League Savings, differ due to the specific nature of each organization.   While the Central’s primary financial role is to manage the liquidity requirements of the Atlantic credit union system, League Savings acts primarily in the mortgage lending and deposit taking industry.  In particular, the potential liquidity stresses that are modelled in scenario testing are different.   

As the credit unions’ system liquidity provider, Central’s cash flows are impacted by the liquidity requirements of the individual Atlantic credit unions.  As a result, the Company’s liquidity stress testing assesses the impact of  increases  in  the drawdowns of credit union  lines of credit, and decreases  in credit union excess  liquidity deposits (deposits above the levels that credit unions are required to maintain with the Central).   

League Savings’ cash flows are most significantly impacted by its credit union corporate deposits.  As such, its scenario testing focuses on increases in the redemptions of these deposits. 

 

Management monitors the Company’s liquidity position daily and reports to the Board on a quarterly basis.   

 

Market risk 

Market risk is the risk of loss that results from changes in interest rates, foreign exchange rates, equity prices and commodity prices.  Market risk exposures are managed through policies, standards and limits established by the Board, which are formally reviewed and approved annually.   

The Company uses a variety of techniques to  identify, measure and control market risk.   Derivatives may be used  only  to  offset  clearly  identified  risks.    The  Company  has  developed  standards  regarding  the  use  of derivative products.   

Interest  rate  risk  is  the  risk  that  a movement  in  interest  rates will  have  on  the  financial  condition  of  the Company.   The Company’s  interest  rate  risk policies  include  limits on  the allowable variation  in  forecasted financial margin due to interest rate changes.  The Company manages and controls interest rate risk primarily by  managing  asset/liability  maturities;  however,  off‐balance  sheet  techniques  such  as  interest  rate  risk contracts may be used to hedge against specific interest rate exposures.   

The Company measures  interest rate risk through a combination of gap and  income simulation analysis on a quarterly  basis.    Gap  analysis  measures  the  difference  between  the  amount  of  assets  and  liabilities repricing  in  specific  time  periods.    Income  simulation models  are  used  to measure  interest  rate  exposure 

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Notes to Financial Statements – December 31, 2013

 

under  various  assumptions  about  interest  rates,  products,  volumes  and  pricing.    Sensitivity  analysis  of  an interest rate increase and decrease of 100 basis points is disclosed in the table below.   

 

Earnings at risk over the next 12 months as at December 31:  

 

2013  2012 

100 basis point increase $ (461,048)       $ (864,700)   

100 basis point decrease 603,707         861,200     

  

Management provides quarterly reports to the Board on interest rate risk.  The Board has established limits on the Company’s maximum exposure to  interest rate risk, and the Company’s earnings at risk were within this limit. 

 

 

5. Investments  

2013  2013  2012  2012 

Cost  Market Value  Cost  Market Value 

Banks (a) $ 233,845,586       $ 234,041,326       $ 239,763,938       $ 240,401,503      

Government debt 69,106,177          69,670,563          55,228,066          56,742,096         

Corporate debt 67,242,410          67,619,177          112,620,223       113,430,660      

Co‐operative deposits 166,318,013       166,373,864       158,524,881       158,619,877      

Co‐operative equities 4,851,915            4,883,065            4,904,281            4,931,128           

Corporate equities 112,461                1,501,440            112,461                1,381,680           

$ 541,476,562       $ 544,089,435       $ 571,153,850       $ 575,506,944      

 (a) Includes cash and cash equivalents utilized in the investments function  

 

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6.  Loans and mortgages 

Total  Impaired  Total  Specific  Net Loans  Loans  Allowance  Allowance  Loans 

2013  (included in  total allowance)

Insured residential mortgages $ 341,266,764   $ 24,734    $ 206,656         $ ‐                    $ 341,060,108Uninsured residential mortgages 96,416,644     38,654    474,365         35,641         95,942,279  Loans & non‐residential mortgages 101,304,456   34,825    975,131         ‐                    100,329,325Co‐operatives 18,368,544     ‐                ‐                       ‐                    18,368,544  Real estate held for sale 1,822,498       ‐                ‐                       ‐                    1,822,498    

559,178,906   98,213    1,656,152     35,641         557,522,754Less: under administration  Residential insured 79,149,992     ‐                ‐                       ‐                    79,149,992    Residential uninisured 7,675,493       ‐                ‐                       ‐                    7,675,493      Non‐residential ‐                        ‐                ‐                       ‐                    ‐                      

86,825,485     ‐                ‐                       ‐                    86,825,485  $ 472,353,421   $ 98,213    $ 1,656,152     $ 35,641         $ 470,697,269

2012 Insured residential mortgages $ 317,631,230   $ ‐                $ 192,986         $ ‐                    $ 317,438,244Uninsured residential mortgages 95,524,753     10,104    415,015         10,104         95,109,738  Loans & non‐residential mortgages 98,162,522     731,931  1,043,238     19,116         97,119,284  Co‐operatives 33,069,783     ‐                ‐                       ‐                    33,069,783  Real estate held for sale 1,117,699       ‐                ‐                       ‐                    1,117,699    

545,505,987   742,035  1,651,239     29,220         543,854,748Less: under administration  Residential insured 74,239,642     ‐                ‐                       ‐                    74,239,642    Residential uninsured 7,699,243       ‐                ‐                       ‐                    7,699,243      Non‐residential 160,895           ‐                ‐                       ‐                    160,895        

82,099,780     ‐                ‐                       ‐                    82,099,780  $ 463,406,207   $ 742,035  $ 1,651,239     $ 29,220         $ 461,754,968

Continuity of allowance for loan losses 2013  2012 Allowance, beginning of year $ 1,651,239       $ 2,004,420      Write‐offs (recoveries) 537                   (536)                 Loan loss provisions (recoveries) 4,376                (352,645)        Allowance, end of year $ 1,656,152     $ 1,651,239    

 

The following is an analysis of loans that are impaired or may become impaired based on the age of repayments outstanding: 

2013  2012 31 to 60 days $ 1,625,070 $ 1,922,128    61 to 90 days 190,764     438,651        91 to 180 days 191,754     737,346        over 180 days 124,366     ‐                      

$ 2,131,954   $ 3,098,125      

 

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7.  Fixed assets 

 

 

2013  Land  Total 

Gross carrying amount

Balance at January 1 $ 575,003      $ 6,128,092    5,926,129    $ 12,629,224 

Additions ‐                    97,894          347,459        445,353       

Disposals ‐                    ‐                     (54,194)        (54,194)        

Balance at December 31 575,003      6,225,986    6,219,394    13,020,383 

Accumulated depreciation

Balance at January 1 $ ‐                    $ (2,803,230)  $ (5,576,150)  $ (8,379,380)  

Disposals ‐                    ‐                     16,258          16,258          

Depreciation ‐                    (299,743)      (205,502)      (505,245)      

Balance at December 31 ‐                    (3,102,973)  (5,765,394)  (8,868,367)  

Carrying amount December 31 $ 575,003      $ 3,123,013    $ 454,000        $ 4,152,016    

2012 

Gross carrying amount

Balance at January 1 $ 575,003      $ 6,097,651    $ 5,853,377    $ 12,526,031 

Additions ‐                    44,406          166,468        210,874       

Disposals ‐                    ‐                     ‐                     ‐                     

Balance at December 31 $ 575,003      6,142,057    6,019,845    12,736,905 

Accumulated depreciation

Balance at January 1 ‐                    (2,490,738)  (5,415,202)  (7,905,940)  

Disposals ‐                    ‐                     ‐                     ‐                     

Depreciation ‐                    (326,457)      (254,664)      (581,121)      

Balance at December 31 ‐                    (2,817,195)  (5,669,866)  (8,487,061)  

Carrying amount December 31 $ 575,003      $ 3,324,862    $ 349,979        $ 4,249,844    

Buildings and improvements

Furniture and equipment

  

 

 

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8.  Capital stock 

 

Authorized capital stock, and the amounts outstanding, is as follows: 

 

Par Redemption Authorized Shares Amount  Shares Amount Value Price

Opening balance 4,019,331   $ 40,193,310  4,021,336  $ 40,213,360      Issued 138,851      1,388,510    67,511        675,110            Redeemed (11,376)       (113,760)      (69,516)       (695,160)     Common shares None None $ Unlimited 4,146,806   41,468,060  4,019,331  40,193,310 

Opening balance 31,991         $ 32                   31,991        $ 32                       Issued ‐                  ‐                     ‐                   ‐                        Redeemed ‐                  ‐                     ‐                   ‐                   Preferred Shares ‐ Class B $ 0.001  $ 100 $ 10,000,000 31,991       32                  31,991        32                

Opening balance 26,700         $ 27                   26,700        $ 27                       Issued ‐                  ‐                     ‐                   ‐                        Redeemed ‐                  ‐                     ‐                   ‐                   Preferred Shares ‐ Class NB $ 0.001  $ 100 $ 10,000,000 26,700       27                  26,700        27                

Opening balance 4,100           $ 4                     4,100           $ 4                         Issued ‐                  ‐                     ‐                   ‐                        Redeemed ‐                  ‐                     ‐                   ‐                   Preferred Shares ‐ Class NL $ 0.001  $ 100 $ 10,000,000 4,100         4                    4,100           4                  

Opening balance 59,290         $ 59                   59,360        $ 59                       Issued ‐                  ‐                     ‐                   ‐                        Redeemed ‐                  ‐                     (70)               ‐                   Preferred Shares ‐ Class NS $ 0.001  $ 100 $ 10,000,000 59,290       59                  59,290        59                

Opening balance 100               $ ‐                      100              $ ‐                          Issued ‐                  ‐                     ‐                   ‐                        Redeemed ‐                  ‐                     ‐                   ‐                   Preferred Shares ‐ Class PEI $ 0.001  $ 100 $ 10,000,000 100             ‐                     100              ‐                   

4,268,987 $ 41,468,182 4,141,512 $ 40,193,432

Outstanding2013  2012 

 

 

Shares are owned by member credit unions, who must maintain Common Shares in amounts proportionate to that member’s pro‐rata share of system assets.   Common Share ownership requirements are determined by the Board.  All classes of shares are non‐voting.  Members hold votes proportionate to their pro‐rata share of system assets.  

All  of  the  Class  B,  Class NB,  Class NL,  Class NS  and  Class  PEI  shares were  issued  as  part  of  the  business combination described in Note 1.  The Company may at any time, upon providing 30 days notice, and subject 

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Notes to Financial Statements – December 31, 2013

 

8.  Capital stock 

 

Authorized capital stock, and the amounts outstanding, is as follows: 

 

Par Redemption Authorized Shares Amount  Shares Amount Value Price

Opening balance 4,019,331   $ 40,193,310  4,021,336  $ 40,213,360      Issued 138,851      1,388,510    67,511        675,110            Redeemed (11,376)       (113,760)      (69,516)       (695,160)     Common shares None None $ Unlimited 4,146,806   41,468,060  4,019,331  40,193,310 

Opening balance 31,991         $ 32                   31,991        $ 32                       Issued ‐                  ‐                     ‐                   ‐                        Redeemed ‐                  ‐                     ‐                   ‐                   Preferred Shares ‐ Class B $ 0.001  $ 100 $ 10,000,000 31,991       32                  31,991        32                

Opening balance 26,700         $ 27                   26,700        $ 27                       Issued ‐                  ‐                     ‐                   ‐                        Redeemed ‐                  ‐                     ‐                   ‐                   Preferred Shares ‐ Class NB $ 0.001  $ 100 $ 10,000,000 26,700       27                  26,700        27                

Opening balance 4,100           $ 4                     4,100           $ 4                         Issued ‐                  ‐                     ‐                   ‐                        Redeemed ‐                  ‐                     ‐                   ‐                   Preferred Shares ‐ Class NL $ 0.001  $ 100 $ 10,000,000 4,100         4                    4,100           4                  

Opening balance 59,290         $ 59                   59,360        $ 59                       Issued ‐                  ‐                     ‐                   ‐                        Redeemed ‐                  ‐                     (70)               ‐                   Preferred Shares ‐ Class NS $ 0.001  $ 100 $ 10,000,000 59,290       59                  59,290        59                

Opening balance 100               $ ‐                      100              $ ‐                          Issued ‐                  ‐                     ‐                   ‐                        Redeemed ‐                  ‐                     ‐                   ‐                   Preferred Shares ‐ Class PEI $ 0.001  $ 100 $ 10,000,000 100             ‐                     100              ‐                   

4,268,987 $ 41,468,182 4,141,512 $ 40,193,432

Outstanding2013  2012 

 

 

Shares are owned by member credit unions, who must maintain Common Shares in amounts proportionate to that member’s pro‐rata share of system assets.   Common Share ownership requirements are determined by the Board.  All classes of shares are non‐voting.  Members hold votes proportionate to their pro‐rata share of system assets.  

All  of  the  Class  B,  Class NB,  Class NL,  Class NS  and  Class  PEI  shares were  issued  as  part  of  the  business combination described in Note 1.  The Company may at any time, upon providing 30 days notice, and subject 

Notes to Financial Statements – December 31, 2013

 

to any  limitations  set by applicable  legislation or  the Office of  the Superintendent of Financial  Institutions, redeem these shares for the redemption price.   

In 2012 Common Shares totalling $20,050 (2,005 shares), and 70 Class NS shares with a par value of $0.07 and a redemption value of $7,000, were redeemed as a result of the wind‐up of a credit union.   

Other than the redemption of shares as a result of the wind‐up of a credit union, the Company has no plans to redeem  any  of  the  remaining  Class  B,  Class NB,  Class NL,  Class NS  or  Class  PEI  shares  at  this  time.    The redemption value of the remaining shares is $12,218,100 (2012 ‐ $12,218,100).   

Common  shareholders  have  the  right  to  receive  any  dividends  that may  be  declared  out  of  the  ordinary income of  the Company.   Holders of the Class B, Class NB, Class NL, Class NS and Class PEI shares have the right to receive any dividends that may be declared out of the extraordinary income of the Company on that respective class of shares.  Ordinary income refers to income earned in the ordinary course of business after January 1, 2011.  Extraordinary income refers to income which does not typically result from normal business activities. 

In December 2013, the Company transferred $1,693,741 (2012  ‐ $600,000)  in Retained Earnings to a Special Reserve to be used to fund future Atlantic credit union initiatives. 

 

9.  Financial instruments 

 

a) Interest rate risk 

The Company earns and pays interest on certain assets and liabilities.  To the extent that the assets, liabilities and  financial  instruments mature or  reprice at different points  in  time,  the Company  is exposed  to  interest rate risk.   The  table below summarizes carrying amounts of balance sheet  instruments by  the earlier of the contractual repricing or maturity dates. 

An  estimate  of  prepayments  has  been  determined  by management  and  includes  the  estimated  principal portion  of  regular mortgage  payments  and  full  payouts  of mortgage  loans  during  their  term  based  upon historical trends for these types of payments. 

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(Reported in $000's) Within  3 Months  1 Year  Over 5  Non‐interest  Average3 Months  to 1 Year  to 5 Years  Years  Sensitive  Total  Rate

2013  %AssetsCash and investments $ 145,359   $ 153,775    $ 212,596  $ 23,933  $ 48,016      $ 583,679      1.86   Loans and mortgages 30,748      88,840      352,765  ‐             (1,656)       470,697      4.24   Other assets ‐                 ‐                  ‐               ‐             13,249      13,249       

$ 176,107   $ 242,615    $ 565,361  $ 23,933  $ 59,609      $ 1,067,625 Liabilities and equityDeposits $ 310,631   $ 385,027    $ 245,086  $ ‐             $ ‐                  $ 940,744      1.44   Other liabilities ‐                 ‐                  ‐               ‐             11,825      11,825       Mortgage backed securities ‐                 ‐                  22,380    ‐             ‐                  22,380        2.29   Equity and subordinated   debentures ‐                 ‐                  ‐               ‐             92,676      92,676       

$ 310,631   $ 385,027    $ 267,466  $ ‐             $ 104,501    $ 1,067,625 Subtotal $ (134,524)  $ (142,412)  $ 297,895  $ 23,933  $ (44,892)     $ ‐                  Derivatives 10,000      ‐                  (10,000)  ‐             ‐                  ‐                  Prepayment estimate 13,229      39,686      (52,915)  ‐             ‐                  ‐                  Excess (deficiency) $ (111,295)  $ (102,726)  $ 234,980  $ 23,933  $ (44,892)     $ ‐                  

2012 AssetsCash and investments $ 144,883   $ 182,297    $ 239,401  $ 15,015  $ 9,967         $ 591,563      1.94   Loans and mortgages 48,456      78,504      336,446  ‐             (1,651)       461,755      4.64   Other assets ‐                 ‐                  ‐               ‐             14,169      14,169       

$ 193,339   $ 260,801    $ 575,847  $ 15,015  $ 22,485      $ 1,067,487 Liabilities and equityDeposits $ 325,461   $ 353,252    $ 253,746  $ ‐             $ 27,578      $ 960,037      1.48   Other liabilities ‐                 ‐                  ‐               ‐             11,777      11,777       Mortgage backed securities ‐                 ‐                  5,461      ‐             ‐                  5,461          2.08   Equity and subordinated   debentures ‐                 ‐                  ‐               ‐             90,212      90,212       

$ 325,461   $ 353,252    $ 259,207  $ ‐             $ 129,567    $ 1,067,487 Subtotal $ (132,122)  $ (92,451)     $ 316,640  $ 15,015  $ (107,082)  $ ‐                  Derivatives 35,000      (25,000)     (10,000)  ‐             ‐                  ‐                  Prepayment estimate 12,617      37,850      (50,467)  ‐             ‐                  ‐                  Excess (deficiency) $ (84,505)    $ (79,601)     $ 256,173  $ 15,015  $ (107,082)  $ ‐                  

 

b) Interest rate swap agreements 

The Company may enter  into  interest rate swap agreements as a component of  its overall risk management strategy.  These agreements are contractual arrangements between two parties to exchange a series of cash flows.  In an interest rate swap agreement, counterparties generally exchange fixed and floating rate interest payments based on  a notional  value.   Typically,  the  floating  rate  is  reset periodically,  and  the net  interest amount is exchanged between the counterparties at scheduled dates.  The primary risks associated with these contracts are the exposure to movements  in  interest rates and the ability of the counterparties to meet the 

Notes to Financial Statements – December 31, 2013

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Notes to Financial Statements – December 31, 2013

 

terms of the contract.  Interest rate swap agreements are used to manage interest rate risk by modifying the repricing  or  maturities  of  assets  and  liabilities.    Interest  rate  swap  agreements  are  considered  financial derivatives and are recorded at fair value.   

Interest rate swap contracts outstanding at December 31 are as follows: 

 

Notional Value

RateMarket Value

Notional Value

RateMarket Value

Pay fixed swaps:Term to maturity

Within 1 year $ ‐                      ‐               $ ‐                    $ 25,000,000   1.31%     $ 12,969           

1 year to 5 years 10,000,000   1.45%     (17,971)       10,000,000   1.45%     8,979             

Over 5 years ‐                      ‐               ‐                    ‐                      ‐               ‐                      

$ 10,000,000   $ (17,971)       $ 35,000,000   $ 21,948           

2013  2012 

 

 

Rates represent the weighted average  interest rates the Company  is contractually committed to pay/receive until the swap matures. The floating side of all swaps are based on the three‐month Canadian Dealer Offered Rate (CDOR). Market value represents the mark to market value of outstanding contracts ‐ generally, the net amount  that would  be  payable  or  receivable  on  the  reporting  date  based  on  the  floating  rate  at  current market rates.  There were no “receive fixed” swaps outstanding at December 31. 

Income and expenses on  interest  rate  swap agreements are  recognized over  the  life of  the  contract as an adjustment to interest expense.  Accrued expenses are recorded in accrued interest payable.  Mark to market gains  (losses) on  swaps are  recorded  in other assets  (other  liabilities), while  the  change  in market  value  is recorded in Financial Expense.  

 

c) Index linked deposits 

The Company offers  index  linked term deposits, which are non‐redeemable 3‐ and 5‐year term deposits that pay, on maturity, a return to the depositor linked to the performance of a market index.  The interest paid to the depositor at maturity is based on the growth in the index over the term of the deposits.   

To offset the risk of this variable  interest rate, the Company enters  into agreements, whereby the Company pays a fixed rate of interest for the term of each index linked deposit based on the face value of the deposits sold.  At the end of the term, the Company receives an amount equal to the amount that will be paid to the depositors. At December 31, 2013  the balance of outstanding  index  linked deposits was $7,252,860  (2012  ‐ $7,625,303). 

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Notes to Financial Statements – December 31, 2013

 

d) Fair value 

The following table presents the fair value of on‐ and off‐balance sheet financial instruments of the Company based on the valuation methods and assumptions set out below.  Fair value represents the amount at which an orderly transaction to sell an asset or to transfer a liability would take place between market participants at the measurement date under current market conditions, and is measured using the assumptions that market participants would use when pricing the asset or liability, including assumptions about risk. 

Fair value is best evidenced by a quoted market price, if one exists.  Quoted market prices are not available for a significant portion of the Company’s financial instruments.  

The  fair  values  disclosed  exclude  the  values  of  assets  and  liabilities  that  are  not  considered  financial instruments such as  land, buildings and equipment.    In addition,  items such as the value of  intangible assets such as customer relationships which, in management’s opinion add significant value to the Company, are not included in the disclosures below.   

A  three‐tier hierarchy  is used  as  a  framework  for disclosing  fair  values based on  inputs used  to  value  the Company’s  financial  instruments  recorded  at  fair  value.    Valuation methods  used  in  this  framework  are categorized under the following fair value hierarchy: 

 

Level 1 – Quoted prices for active markets for identical financial instruments that the entity can access at the measurement date. 

Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar financial  instruments  in  markets  that  are  not  active;  and  model‐derived  valuations  in  which  all significant inputs are observable in active markets. 

Level 3 – Valuations derived from valuation techniques in which one or more significant inputs are not based on observable market data. 

 

The carrying value of cash and cash equivalents approximate their fair value as they are short term in nature or are receivable on demand.  For investments, corporate shares are valued using quoted market prices (Level 1); banks, bonds and some co‐operative deposit investments are valued using market prices provided by third‐party brokers (Level 2); and co‐operative securities are carried at cost.  There have been no transfers between Level 1 and 2 during the year. 

For variable rate  loans and deposits the carrying value  is also considered to be a reasonable estimate of fair value.   For  fixed rate  loans and mortgages, some co‐operative deposit  investments, deposits, and mortgage backed securities, the fair value is calculated using a discounted cash flow model, based on weighted average interest rates and the term to maturity of the instrument (Level 2).  The discount rates applied were based on the current market rate offered for the average remaining term to maturity.  

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Notes to Financial Statements – December 31, 2013

 

The calculation of estimated fair values is based on market conditions at a specific point in time and may not be reflective of future fair values. 

 

2013  2012 Estimated Estimated

Cost  Fair Value Cost  Fair ValueAssetsCash and cash equivalents $ 39,589,724           $ 39,589,724      $ 16,056,354        $ 16,056,354        Investments 541,476,562        544,089,435   571,153,850     575,506,944      Loans and mortgages 470,697,269        479,009,821   461,754,968     474,878,247      Accrued interest 4,509,711             4,509,711        5,186,492          5,186,492          

LiabilitiesDeposits $ 940,743,834        $ 943,054,258   $ 960,037,444     $ 962,360,501      Accrued interest 4,845,404             4,845,404        4,727,707          4,727,707          Mortgage backed securities 22,379,569           22,465,221      5,460,960          5,460,960          

Derivatives $ ‐                             $ (17,971)            $ ‐                            $ 21,948                 

 

10.  Commitments and contractual obligations 

 

a) Approved loans and mortgages 

At December  31,  2013  the Company  had  approved  lines  of  credit  in  the  amount  of  $100,474,723  (2012  ‐ $190,276,534) and approved mortgages in the amount of $7,333,521 (2012 ‐ $7,811,287) which have not been advanced. 

 

b) Clearing and settlement agreement 

The  Company  has  entered  into  a  contract  for  clearing,  settlement  and  US  Dollar  account  services.    The contract expires  in  July 2018. Pricing  is  subject  to annual adjustment effective  January 1st of each calendar year. 

 

c) Interest rate swap agreements 

The Company, as intermediary for certain credit unions, may enter into various interest rate swap agreements in order  that  the  credit unions may manage  their exposure  to  interest  rate  fluctuations.   The  terms of  the agreements provide that the Company pay a fixed interest rate on notional principal amounts due to mature in  the  future  in exchange  for variable or short  term  interest  rate  returns on  these same amounts.    In  turn, 

Notes to Financial Statements – December 31, 2013

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Notes to Financial Statements – December 31, 2013

 

reciprocal interest rate swap agreements would be entered into with the respective credit unions.  There were no such matching interest rate swap agreements outstanding at December 31, 2013. 

 

d) Foreign exchange forward agreements  

The Company, as intermediary for certain credit unions, may enter into various forward agreements in order that  the  credit  unions  may  manage  their  exposure  to  foreign  currency  fluctuations.    The  terms  of  the agreements provide that the Company buy or sell a fixed amount of foreign currency, at a fixed exchange rate, on a specified future date. In turn, a reciprocal agreement is entered into with the credit unions, to sell or buy the same amount of foreign currency on the same dates.  There were no forward rate agreements outstanding at December 31, 2013.  

 

e) Rental of premises 

The Company has entered into operating leases for the rental of premises in Charlottetown. The term of the lease is from January 1, 2011 to December 31, 2017, and there is an option to extend the lease for a further five‐year term.   

The Company has also entered into a sublease to rent a portion of the space to a third party.  The term of the sublease is from November 1, 2012 to October 30, 2017, and there is an option to extend the sublease for a further five‐year term.   

League Savings also had an operating lease for premises in Sydney which includes a requirement to pay basic rent of $25 per rentable square foot and additional rent of the Company’s proportionate share of all increases in operating costs over $9.50 per rentable square foot of the premises, determined at the commencement of each calendar year.  The original term of the lease is from August 1, 2007 to July 31, 2012, and there was an option to extend the lease for further consecutive five‐year terms, which was exercised in 2012.   

Lease  payments  of  $122,179 were  recognized  as  an  expense  during  the  period,  including minimum  lease payments of $109,500 and  contingent  costs of $12,679.   Sublease payments of $9,000 were  recognized as revenue during the period.   

The  Company  has  committed  to  pay  annual  lease  payments,  and  has  commitments  to  receive  sublease payments, as follows: 

 

After 2014 2015 2016 2017 2018 5 Years 

Lease payments $ 109,500  $ 109,500  $ 109,500  $ 87,365    $ ‐               $ ‐              Sublease payments 15,000    18,000    18,000    15,000    ‐               ‐              Net lease payments $ 94,500    $ 91,500    $ 91,500    $ 72,365    $ ‐               $ ‐              

  

   

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reciprocal interest rate swap agreements would be entered into with the respective credit unions.  There were no such matching interest rate swap agreements outstanding at December 31, 2013. 

 

d) Foreign exchange forward agreements  

The Company, as intermediary for certain credit unions, may enter into various forward agreements in order that  the  credit  unions  may  manage  their  exposure  to  foreign  currency  fluctuations.    The  terms  of  the agreements provide that the Company buy or sell a fixed amount of foreign currency, at a fixed exchange rate, on a specified future date. In turn, a reciprocal agreement is entered into with the credit unions, to sell or buy the same amount of foreign currency on the same dates.  There were no forward rate agreements outstanding at December 31, 2013.  

 

e) Rental of premises 

The Company has entered into operating leases for the rental of premises in Charlottetown. The term of the lease is from January 1, 2011 to December 31, 2017, and there is an option to extend the lease for a further five‐year term.   

The Company has also entered into a sublease to rent a portion of the space to a third party.  The term of the sublease is from November 1, 2012 to October 30, 2017, and there is an option to extend the sublease for a further five‐year term.   

League Savings also had an operating lease for premises in Sydney which includes a requirement to pay basic rent of $25 per rentable square foot and additional rent of the Company’s proportionate share of all increases in operating costs over $9.50 per rentable square foot of the premises, determined at the commencement of each calendar year.  The original term of the lease is from August 1, 2007 to July 31, 2012, and there was an option to extend the lease for further consecutive five‐year terms, which was exercised in 2012.   

Lease  payments  of  $122,179 were  recognized  as  an  expense  during  the  period,  including minimum  lease payments of $109,500 and  contingent  costs of $12,679.   Sublease payments of $9,000 were  recognized as revenue during the period.   

The  Company  has  committed  to  pay  annual  lease  payments,  and  has  commitments  to  receive  sublease payments, as follows: 

 

After 2014 2015 2016 2017 2018 5 Years 

Lease payments $ 109,500  $ 109,500  $ 109,500  $ 87,365    $ ‐               $ ‐              Sublease payments 15,000    18,000    18,000    15,000    ‐               ‐              Net lease payments $ 94,500    $ 91,500    $ 91,500    $ 72,365    $ ‐               $ ‐              

  

   

Notes to Financial Statements – December 31, 2013

 

11.  Income taxes 

 

The components of tax expense are as follows: 

2013  2012 

Current tax expense

Federal and provincial $ 1,279,012       869,409           

Capital and Large Corporate Tax 337,600          308,847           1,616,612       1,178,256        

Deferred tax expense

Origination and reversal of deductible temporary differences (11,820)           277,811           

Reduction in tax rate (76,795)           37,253              

(88,615)           315,064           Total tax expense $ 1,527,997       1,493,320        

  

The provision  for  income  taxes differs  from  the  result which would be obtained by applying  the  combined Canadian Federal and Provincial  statutory  income  tax  rates  to  income before  taxes.   This difference  results from the following: 

 

2013  2012 

Income before income taxes $ 5,041,263       4,721,767        

Statutory income tax rate 42.67%           41.28%            

Expected income tax 2,151,107       1,949,146        

Effect on income tax of:

Non‐taxable dividends (70,642)           (51,598)            

Permanent tax differences 38,519             34,428              

Capital and Large Corporate Tax 192,426          176,940           

Credit union deduction (432,046)         (351,867)          

General tax rate reduction (277,387)         (300,806)          

Future tax rate reduction (76,795)           37,253              

Other 2,815               (176)                  Total income tax expense $ 1,527,997       1,493,320        

  

Notes to Financial Statements – December 31, 2013

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Notes to Financial Statements – December 31, 2013

 

The components of the future income tax asset are as follows: 

Balance Balance BalanceDecember 

31 2011

NetIncome

OCIDecember 

312012

NetIncome

OCIDecember 

312013

Deferred tax assets

Property and equipment $ 87,840        $ 46,382      $ ‐       $ 134,222     $ 74,778    $ ‐         $ 209,000    

Allowance for impaired loans 516,704      (38,705)     ‐       477,999     10,924    ‐         488,923    

Losses carried forward 324,492      (293,408)  ‐       31,084       (30,936)  ‐         148            

Net donations carried forward 101,926      (64,066)     ‐       37,860       24,755    ‐         62,615      

Other  106              34,733      ‐       34,839       9,095      ‐         43,934      

1,031,068  (315,064)  ‐       716,004     88,616    ‐         804,620    

Recognized in: Recognized in:

 

 

12.  Capital requirements 

 

The Company manages its capital under guidelines established by the Office of the Superintendent of Financial Institutions (OSFI), which require the Central and League Savings to maintain capital ratios that are adequate in relation to their levels of business activity. For the Central, OSFI prescribes a liabilities to capital borrowing multiple not to exceed 20 times capital.    

League Savings is subject to guidelines OSFI has issued based on standards issued by the Bank for International Settlements, Basel Committee of Banking Supervisors  (BCBS).   OSFI has adopted capital guidelines based on the standards known as Basel  II, which became effective  for League Savings  in 2008.   Pillar 1 of the Basel  II framework defines minimum capital requirements, while Pillar 2 addresses standards for the management of capital requirements. 

Capital requirements are determined based on exposures to credit risk, operational risk, and for entities with significant trading activity, market risk.   The standards provide different methodologies for the calculation of risk exposures based on a company’s relative size and sophistication.   League Savings has  implemented  the Standardized  Approach  for  credit  risk,  and  the  Basic  Indicator  Approach  (BIA)  for  operational  risk.    The Company is not subject to the requirements for market risk. 

Pillar  2  of  the  Basel  II  framework  requires  that  institutions  have  a  process  in  place  to make  an  internal assessment of its overall capital position relative to its own unique circumstances and risk profile. This process, referred to as ICAAP, is approved by the League Savings Board.  The Company’s internal capital requirements have been calculated in accordance with the approved ICAAP.  In particular, the Company sets internal capital limits  that  are  adjusted  based  on  an  annual  assessment  of  the  Company’s  risk  profile  as  identified  in  an Enterprise  Risk Management  framework.    These  internal  limits  provide  for  capital  that  is  in  excess  of  the regulatory minimums. 

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Notes to Financial Statements – December 31, 2013

 

In December  2012, OSFI  issued  its  revised  guideline  for  Capital Adequacy  Requirements,  effective  January 2013, based on the Basel II and Basel III framework.  Under Basel III, there are three primary regulatory capital ratios  used  to  assess  capital  adequacy,  Common  Equity  Tier  1,  Tier  1  and  Total  Capital  ratios, which  are determined by dividing those capital components by risk‐weighted assets.  

Basel  III  introduced  a  new  category  of  capital,  Common  Equity  Tier  1  (CET1), which  consists  primarily  of common shareholders’ equity net of regulatory adjustments.  These regulatory adjustments include goodwill, intangible assets net of deferred  tax  liabilities, deferred  tax assets  that  rely on  future profitability, defined‐benefit  pension  fund  net  assets,  shortfall  of  credit  provision  to  expected  losses  and  investments  in  other financial institutions over certain thresholds.   

In addition, new or revised capital components included in common equity are unrealized losses on securities and reduced amounts for non‐controlling interests.  Transitional requirements result in a five‐year phase‐in of new deductions and additional capital components to common equity.   

OSFI’s Basel III capital requirements include rules to implement the BCBS guidance on non‐viability contingent capital  (NVCC).    The NVCC  rules  require  that  all  capital  instruments  include  loss  absorption  features.    The Subordinate Debentures and Preferred Shares issued by League Savings are considered non‐qualifying capital instruments under the Basel III NVCC rules and are therefore subject to a 10% phase‐out per year beginning in 2013. 

As of January 2019, under the BCBS rules League Savings will be required to meet new minimum requirements of: Common Equity Tier 1 ratio of 4.5% plus a capital conservation buffer of 2.5%, collectively 7%.   Including the  capital  conservation  buffer,  the minimum  Tier  1  ratio will  be  8.5%,  and  the  Total Capital  ratio will  be 10.5%.   

OSFI  required  Canadian  deposit‐taking  institutions  to  fully  implement  the  2019  Basel  III  reforms  in  2013, without  the  transitional  phase‐in  provisions  for  capital  deductions  (referred  to  as  ‘all‐in’),  and  achieve  a minimum 7% common equity target, by the first quarter of 2013. 

Capital  ratios are monitored  regularly and  reported  to  the Board quarterly.   The Capital Management Plan, which forecasts capital requirements and includes contingency plans in the event of unanticipated changes, is reviewed by the Board annually.   

Details of the Company’s regulatory capital at December 31 were as follows: 

 

 2013  2012 

Central:

Maximum borrowing multiple 20                    20                    

Actual borrowing multiple 11.6                12.5                 

 

Notes to Financial Statements – December 31, 2013

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Notes to Financial Statements – December 31, 2013

 

League Savings and Mortgage Company: 2013  2012 

Risk‐weighted assets for:Credit risk $  131,884,000  $   127,490,000 Operational risk     22,375,000       24,788,000 Total $  154,259,000  $   152,278,000 

Capital elements:Common shares $       2,110,000  $        2,110,000 Contributed surplus       1,786,000         1,786,000 Unrealized gain on AFS investments          233,000                          ‐ Retained earnings     15,127,000       14,329,000     Common Equity Tier 1     19,256,000       18,225,000 Preferred shares     12,588,000       13,987,000     Total Tier 1     31,844,000       32,212,000 Subordinated debentures       6,392,000         7,102,000 Unrealized gain on AFS investments                        ‐              75,000     Tier 2 capital       6,392,000         7,177,000     Total regulatory capital $     38,236,000  $      39,389,000 

  Ratios:Common Equity Tier 1 12.48% 11.97%Total Tier 1 20.64% 21.15%Total capital 24.79% 25.87%Assets to capital multiple 12.45 11.43

OSFI targets (a):Common Equity Tier 1  7.00% n/a      Total Tier 1 8.50% 7.00%Total capital 10.50% 10.00%Assets to capital multiple  20 20

 (a) New OSFI targets, including a new Common Equity Tier 1 target of 7%, were effective January 1, 2013. 

  The Company’s capital ratios have been in compliance with the regulatory requirements throughout the year.  

Notes to Financial Statements – December 31, 2013

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Notes to Financial Statements – December 31, 2013

 

13.  Related party transactions 

 

Key management personnel 

Key management personnel are those persons having the authority and responsibility for planning, directing and controlling the activities of the Company, and  include members of the Board of Directors, the President and CEO, and other senior officers of the Company.   

The President and CEO, and each of  the 4  (2012  ‐ 5) other  senior officers of  the Company earned variable compensation during  the  year.   The Company’s Total Compensation Program does not  include  guaranteed bonuses or deferred compensation payments.   Variable compensation  is earned during the year and paid  in cash in the following year.  

The components of  total compensation  received by key management personnel, and balances due  to/from key management personnel are as follows: 

2013  2012 

Short‐term employee benefits $ 905,430           $ 1,206,963      

Contributions to a group savings for retirement program 59,589             78,448            

Variable compensation 161,170           230,022          

Retirement allowance ‐                         154,000          

Mortgage balances due from key management 275,615           106,675          

Deposit balances due to key management 1,443,713       1,686,550       

Short‐term employee benefits include salaries, director remuneration and other benefits.  The mortgage and deposit  transactions were made  in  the  ordinary  course  of  business  and  on  substantially  the  same  terms, including  interest  rates  and  security,  as  for  comparable  transactions with persons of  a  similar  standing or, where  applicable,  with  other  employees.  The  transactions  did  not  involve more  than  the  normal  risk  of repayment or present other unfavourable features. 

 

Associates 

During  the  normal  course  of  operations  the  Company  and  the  subsidiary,  League  Savings  and Mortgage Company,  transact business with League Data Limited, a  related company by virtue of common ownership.  These transactions are measured at the exchange amount and are as follows: 

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Notes to Financial Statements – December 31, 2013

 

2013  2012 

Income and fees related to the management contract $ 60,000             $ 60,000            Rental and other income 111,148           107,167          

Services and equipment purchases from League Data Limited 504,529           395,879          

Deposits held by Central 6,494,322       6,194,305      

Amount receivable from (payable to) League Data Limited (22,295)            94,291             

 

14.  Credit facilities 

The Company has established an operating  line of credit of $4,000,000 with the Bank of Nova Scotia, and an operating  line of credit of $35,000,000 with Central 1.   Each  line of credit bears  interest at  the  institution’s prime  lending rate.   As security, the Company has provided an assignment of marketable securities having a carrying value of $39,000,000.   At December 31, 2013 and 2012  the amount outstanding on  these  facilities was nil.   

The Company has also established an additional $100,000,000 disruption event credit facility with Central 1, secured by a general assignment of assets, bearing interest at the greater of Central 1’s cost of funds plus 0.75 basis points, or 1‐month CDOR plus 0.75 basis points.   The facility provides  liquidity and working capital  in a disruption event that impacts the Company’s ability to function in the ordinary course of business to provide liquidity to its member credit unions. 

League  Savings  has  also  established  a  line  of  credit with  Central  1  secured  by  an  assignment  of  insured residential mortgages, bearing interest at prime, up to an amount of $25,000,000.  At December 31, 2013 and 2012 the amount outstanding on this facility was nil.    

 

15.  Deposits 

2013  2012 

Current accounts $ 39,466,523                 $ 27,578,142                

Cash management  159,392,497              206,475,749             

Segregated liquidity  272,802,604              263,375,465             

Registered 7,893,454                   7,512,180                  

Other demand 7,325,785                   6,839,482                  

Total demand deposits 486,880,863              511,781,018             

Registered 175,516,142              169,428,570             

Other term  278,346,829              278,827,856             

Total term deposits 453,862,971              448,256,426             

$ 940,743,834              $ 960,037,444              

Notes to Financial Statements – December 31, 2013

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Notes to Financial Statements – December 31, 2013

 

16.  Assets under administration 

 

(a)  Mortgages and mutual funds 

Assets  under  administration  include mortgages  under  administration,  which  are  not  the  property  of  the Company and are not reflected in the balance sheet. 

 

 (b)  Syndicated loans 

The  Company  provides  a  loan  syndication  program  for  credit  unions.    These  loans, which  are  under  the Company’s administration, are not the property of the Company and are not reflected on the balance sheet.  Although most of the loan syndications are purchased by credit unions, the Company can be a participant if a loan is not fully subscribed to by credit unions.  

When the Company participates in the loan syndication, the amount is included in loans and mortgages on the balance  sheet  as  “non‐residential”. Where  a  fully  subscribed  loan  syndication  has  not  been  distributed  to credit unions, the undistributed amount is also included in loans and mortgages as “non‐residential”. 

 

Assets under administration at December 31 were as follows: 

 

2013  2012 

Assets under administration $ 86,825,485     $ 82,099,780    

Syndicated loans 47,100,965     18,618,739    

Included in non‐residential 409,357           472,704           

 

17.  Subordinated debentures 

 

Subordinated debentures are issued by League Savings.  Series B debentures are unsecured and subordinated to all other indebtedness of the Company. The minimum interest rate is equal to 1.5 times the dividend rate on the Preferred A shares.   Series B debentures are convertible  into Preferred A shares at the option of the holder and redeemable at the option of the Company after the fifth anniversary of the date of issue, subject to the approval of the Office of the Superintendent of Financial Institutions. 

 

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Notes to Financial Statements – December 31, 2013

 

Maturity Earliest Date Redemption 2013  2012 

Series B December 31, 2024 December 31, 2009 $ 6,381,000          $ 6,390,000       

During the year there were no subordinated debentures issued or redeemed.  In 2013, $9,000 in subordinated debentures were purchased by Atlantic Central  from a credit union.   The  subordinated debentures held by Atlantic Central are eliminated on consolidation. 

 

18.  Non‐interest income 

 

Non‐interest income includes the following: 

 

2013  2012 

Banking services fees $ 5,524,041            $ 5,643,630           

Banking services expenses (3,552,319)          (3,736,066)         

Lending services fees 1,476,300            1,723,569           

Lending services expenses (1,021,955)          (1,094,984)         

Investment services fees 30,595                  26,995                 

Investment services expenses (560,758)              (530,977)             

Member assessments 6,049,898            5,879,550           

Management fees 60,000                  60,000                 

Fee for service 836,446                927,134               

Printing revenues 847,956                791,987               

Printing expenses (469,007)              (475,234)             

Rentals 120,000                108,534               

Other 316,030                169,688               

$ 9,657,227            $ 9,493,826            

 

The expenses detailed above  include direct expenses only.   Salary and staff related costs, and other  indirect costs required to provide these services, are reported in operating expenses. 

   

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Notes to Financial Statements – December 31, 2013

 

19.  Mortgage backed securities 

 

Balances relating to mortgage backed securities under the NHA MBS program are as follows:  

2013  2012 

Carrying value of NHA MBS assets $ 22,410,339       $ 5,491,326         

Carrying value of associated liabilities 22,379,569       5,460,960          

 

20.  Segmented information 

 

Atlantic Central provides financial and trade services to credit unions, while the subsidiary, League Savings and Mortgage Company, provides lending and investment services.  Results for the Company’s major segments are based on the Company’s internal financial reporting systems. 

 

2013  Central  LS&M  Total 

Net financial income $ 5,275,284          $ 10,721,985       $ 15,997,269      

Non‐interest income (expense) 10,067,741       (410,514)            9,657,227         

15,343,025       10,311,471       25,654,496      

Operating expenses 9,898,284          7,334,238          17,232,522      Special Projects 223,379             65,297                288,676            

Rebates /distributions 2,175,125          916,912             3,092,037         

12,296,788       8,316,447          20,613,235      

Income before taxes $ 3,046,237          $ 1,995,024          $ 5,041,261         

2012 

Net financial income $ 5,202,233          $ 12,755,474       $ 17,957,707      

Non‐interest income (expense) 9,798,739          (304,913)            9,493,826         

15,000,972       12,450,561       27,451,533      

Operating expenses 10,029,095       7,597,201          17,626,296      

Special Projects ‐                           ‐                           ‐                          

Rebates /distributions 2,867,960          2,235,510          5,103,470         

12,897,055       9,832,711          22,729,766      

Income before taxes $ 2,103,917          $ 2,617,850          $ 4,721,767          

Notes to Financial Statements – December 31, 2013

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Notes to Financial Statements – December 31, 2013

 

21.  Minority interest 

 

The minority interest represents the Preferred A shares of League Savings and Mortgage Company. 

 

22.  Compensation 

 

Compensation  is  a  key  factor  in  recruiting,  retaining, motivating  and  rewarding  a  talented  and  committed workforce.  Pay  determination  policies  and  guidelines  emphasize  continued  development  of  knowledge, expansion of skills, performance and the ability to be flexible and adaptable to change.  

The  goals  of  our  Total  Compensation  Program  are  to  provide  levels  of  compensation  that  are  internally equitable, externally competitive, financially feasible, and that will enable the Company to attract, retain and reward highly qualified  individuals.   Total Compensation  includes base pay, variable pay  (which must be re‐earned each year) and employee benefits. 

 The Executive/HR Committee of the Board is responsible for: 

Establishing  an  annual  performance  plan  with  specific  objectives  and  monitoring  and  conducting annual performance evaluations of the President & CEO against these objectives. 

Determining and  recommending  to  the Board an appropriate  total compensation package  (including variable compensation) for the President & CEO.   

Reviewing annually  the  terms  and  conditions of  the  variable  compensation plan  for employees  and recommending adoption by the Board. 

The Board has delegated to the President & CEO the responsibility for the implementation and administration of  all management  or  executive  policies,  including  the  Total  Compensation  Program  for  employees.    The variable compensation program is governed by the Performance Sharing Incentive Plan, which is based on the following principles: 

The President & CEO will have the ultimate discretion to determine whether payment occurs and what the payment will be for the year based on the annual performance of the Company.   

Company  performance  is  evaluated  based  on  financial,  customer  service,  and  balanced  scorecard results. 

The  plan  is  self‐funded  –  if  the  Company  does  not  achieve  the  designated  level  of  financial performance there will be no payout under the plan. 

Individual  performance  will  determine  participation  in,  and  individual  payments  under  the  plan.  Individual performance is measured against annual individual performance plans.  

Compensation  to members of  the Board of Directors  is  limited  to an annual honorarium.   Directors do not participate  in any variable  compensation programs.   Compensation paid  to Directors and key management personnel are detailed in Note 13 – related party transactions. 

 

Notes to Financial Statements – December 31, 2013

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Corporate GovernanceCorporate GovernanceSound governance and ethical behaviour begins with our Board of Directors, which is accountable to our shareholder members and assumes responsibility for the stewardship of Atlantic Central (the “Central”). The Board of Directors is responsible for overseeing the management of the business and affairs of the Central and for providing effective leadership to the Central and the credit union system, with an objective of enhancing stakeholder value. Among its many specific duties, the Board of Directors approves strategic goals and business plans; sets policy to direct the overall operations of the Central; provides advice, counsel and oversight to the President and CEO; oversees the ethical, legal and social conduct of the Central; oversees the risk management of the Central; and reviews the Central’s ongoing financial performance. The Board of Directors ensures that appropriate structures and procedures are in place to ensure its independence from management.

Board CompositionThe Board of Directors of the Central consists of twelve Directors as follows:

(i) Two Directors elected at large by delegates representing the Central’s member credit unions within the New Brunswick Regional Group;

(ii) Two Directors elected at large by delegates representing the Central’s member credit unions within the Newfoundland and Labrador Regional Group;

(iii) Six Directors elected by delegates representing the Central’s member credit unions within the Nova Scotia Regional Group, as follows:

a. One Director elected by delegates representing the Central’s member credit unions within NS Peer Group 1 (credit unions with total assets under $30,000,000);

b. Two Directors elected by delegates representing the Central’s member credit unions within NS Peer Group 2 (credit unions

with total assets between $30,000,000 and $100,000,000); and

c. Three Directors elected by delegates representing the Central’s member credit unions within NS Peer Group 3 (credit unions with total assets over $100,000,000); and

(iv) Two Directors elected at large by delegates representing the Central’s member credit unions within the Prince Edward Island Regional Group.

The following individuals currently serve as the Board of Directors:

- Dave MacLean, Chair- Paul Newman, Vice-Chair- Pat Duffield, Second Vice-Chair- Doug Dewling- Jim Kavanaugh- Bernard Keefe- Michael MacIsaac- Ron Marman- Kurt Peacock- Willy Robinson- Louis Shea- Raymond Surette

The Board and each committee meets at least once each fiscal quarter and holds an annual strategic planning session. The Board meets at other times when matters requiring its approval or consideration are raised and it is not possible or prudent to wait for the next regularly scheduled meeting. The Board of Directors met eight times in 2013.

Committees of the BoardThe Board has established the following standing committees: Executive/Human Resources; Audit; Risk; Conduct Review; Governance; Co-operative Social Responsibility; and System Credit.

Executive/Human Resources Committee: Its six members include the Board Chair, Past Chair (one year only), Vice-Chair and Second Vice-Chair and two members at large elected by the Board as a whole, one of whom shall concurrently be a member of the Board of the Central’s subsidiary, League Savings and Mortgage Company (LSM), serving as an appointee of the Central. This Committee is responsible for addressing matters in between scheduled Board meetings that require immediate attention, and acts as a Human Resources Committee. In this capacity, the Committee makes recommendations to the Board on the President and CEO’s compensation and performance evaluation.

Committee Members: Dave MacLean (Chair), Paul Newman, Pat Duffield, Kurt Peacock, Louis Shea and Raymond Surette.

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Audit, Risk and Conduct Review Committees: The Committees shall consist of at least three Directors, none of whom are employees or officers of the Central or LSM. The Audit Committee is responsible to ensure that management has designed and implemented an effective system of financial management and related internal controls. It reviews and reports on the audited financial statements and ensures compliance with certain regulatory and statutory requirements. It is also responsible to meet periodically with internal and external auditors. The Risk Committee is responsible for ensuring that management has developed and maintained an effective Enterprise Risk Management Framework for evaluating the business strategies being used for allocation of human, capital and other resources. The Conduct Review Committee is responsible to ensure that the Central has developed and adheres to ethical standards and sound business conduct in such areas as conflict of interest and related party procedures.

Committee Members: Doug Dewling (Chair), Jim Kavanaugh, Michael MacIsaac and Louis Shea.

Governance Committee: The Governance Committee is responsible for reviewing and recommending changes, as appropriate, to the governance structure of the Central and for ensuring that an effective governance system is in place, including a schedule for regular policy review and compliance. In addition, this Committee ensures Board decisions and positions are appropriately translated into documented policies. The Committee oversees the procedures for nominating and electing the Central Directors to ensure compliance with the Central’s By-laws and resolves any issues or questions related to this process. The Committee is responsible for overseeing the Director evaluation process, and for establishing and monitoring the orientation program for new Directors, as well as the monitoring of ongoing training and development of Board members.

Committee Members: Raymond Surette (Chair), Michael MacIsaac, Ron Marman and Willy Robinson.

Co-operative Social Responsibility Committee: The Committee is comprised of at least four Directors representing each Atlantic Province and is responsible for establishing and overseeing the terms of reference for

charitable giving, awards and recognition programs, and sustainability as set out and approved by the Board from time to time.

Committee Members: Pat Duffield (Chair), Doug Dewling, Bernard Keefe and Willy Robinson.

System Credit Committee: The Committee is comprised of no fewer than five Directors and is responsible for evaluating and approving or rejecting all loans above the lending limits for management; including syndicated loans.

Committee Members: Raymond Surette (Chair), Pat Duffield, Bernard Keefe, Paul Newman and Willy Robinson.

Mandate of the Board of DirectorsWhile the Board’s fundamental responsibility is to oversee the management of the business and affairs of the Central, any responsibility that is not specifically delegated to the President and CEO remains with the Board. In particular, the Board oversees the Central’s strategic direction to ensure it serves the organization, its member credit unions, employees and communities of New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The Board assumes overall stewardship with respect to the Central’s mission and values, its long-term objectives and the approval of corporate strategies. Specifically, the Board is responsible for the following:

• the selection, succession, evaluation, compensation and employment conditions of the President and CEO;

• establishing and approving Board policies;• overseeing the Central’s internal control framework;• developing and approving strategic goals and

business plans for the Central;• providing advice to the President and CEO;• evaluating the Board’s performance and overseeing

the ethical, legal and social conduct of the organization; and

• reviewing the financial performance and condition of the organization.

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Name Board and Planning Session

Audit, Risk & Conduct Review

Committees

Executive/HRCommittee

GovernanceCommittee

Co-operative Social Responsibility

Committee

*Dave MacLean 8/8 - 7/7 - -

*Paul Newman 8/8 - 7/7 - -

*Pat Duffield 7/8 - 6/7 - 2/4

Doug Dewling 8/8 6/6 - - 4/4

Jim Kavanaugh 8/8 6/6 - - -

Bernard Keefe 7/8 - - - 2/3

Michael MacIsaac 8/8 6/6 - 4/4 -

Ron Marman 7/7 - - 3/3 -

Kurt Peacock 7/8 - 6/7 - -

Willy Robinson 8/8 - - 4/4 4/4

Louis Shea 8/8 6/6 7/7 - -

Raymond Surette 8/8 - 5/5 4/4 -

* Table Officers

Attendance at Board and Committee MeetingsThe Board of Directors recognizes the importance of each individual Director’s participation at Board and committee meetings. Every Director is expected to attend all Board and committee meetings unless adequate cause is given for missing a meeting. The following table sets out the attendance of each Board member at Board and Committee meetings throughout 2013.

Board EvaluationsAs part of its commitment to ongoing development and improvement, the Board of Directors conducts an annual self-evaluation. This evaluates the Board’s effectiveness in the following governance areas: the Central’s Mission and Vision; strategic leadership; financial performance; internal controls and oversight, including financial oversight, risk oversight, and human resources oversight; co-operative social responsibility; compliance and accountability; stakeholder relations; Board functioning and Board and management relations; and learning and development. The results of the evaluation are used to guide the training and development agenda for the Board in the upcoming year.

Evolving Governance ProcessesAt the Central, we recognize that our governance standards must evolve to respond to changes in our organization, the credit union system, stakeholder expectations and regulatory requirements, and to ensure that the Central and its stakeholders receive the benefit of exceptional governance practices. The Board and management continually monitor developments in corporate governance practices and are committed to ongoing training and development to ensure that the Central continues to lead the credit union system with its governance practices.

Dave MacLean, Chair

Jim Kavanaugh

Kurt Peacock

Paul Newman, Vice-Chair

Bernard Keefe

Willy Robinson

Pat Duffield, 2nd Vice-Chair

Michael MacIsaac

Louis Shea

Doug Dewling

Ron Marman

Raymond Surette

Board of Directors

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Affiliate BoardsCanadian Co-operative Association (CCA)Atlantic Central (the “Central”) appoints three delegates to CCA. Delegates from shareholders/members in the Atlantic region elect two Directors. Raymond Surette from the Central is a Director on the CCA Board representing the Atlantic Provinces (term expires 2014).

League Savings and Mortgage Company (LSM)The Central is entitled to appoint six members to the Board of its subsidiary, LSM. Currently the Directors appointed by the Central to the Board of LSM are Ron Andrews, John Peach, Jim MacFarlane, Raymond Surette, Kevin MacAdam and Doug Dewling. The Directors serve at the pleasure of the Central.

Northwest & Ethical Investments Inc.(NEI)The Central owns one common voting share of NEI. Central is entitled to elect one Director to the Board. The current Director for the Atlantic Provinces is Bernie O’Neil (term expires 2015).

Concentra FinancialThe Atlantic Provinces fall under the “minority shareholders” category and are entitled to elect one Director to Concentra’s Board. The minority shareholders consist of the Central, Central 1, and La Federation des Caisses Populaires du Manitoba. This position is not currently filled by a nominee from the Central.

The Co-operatorsThe Central appoints two delegates, currently Michael MacIsaac and Kurt Peacock. The Atlantic regional delegates elect three Directors to The Co-operators’ Board to represent the Atlantic Region. The Central appointed Jim MacFarlane to serve in one of these positions (term expires 2014).

Credit Union Central of Canada (CUCC)Two positions on the CUCC Board are designated for the Central, representing the Atlantic Region. The current Directors are Dave MacLean from the Central (term expires 2015) and Paul MacNeill from Souris Credit Union (term expires 2016).

League Data LimitedThe President and CEO of the Central has a dedicated seat on the Board of League Data Limited.

Nova Scotia Co-operative CouncilA Director to the Nova Scotia Co-operative Council Board is appointed by the Board of the Central. Michael MacIsaac is the Central Director serving on the Nova Scotia Co-operative Council Board.

Prince Edward Island Co-operative CouncilThe Central has a designated seat on the Board of the Prince Edward Island Co-operative Council and the Director serves at the pleasure of the Central. The Central appointee is Jeanette Wakelin (term expires 2014).

Atlantic Central serving:New Brunswick

Newfoundland and LabradorNova Scotia

Prince Edward Island

www.atlanticcreditunions.ca

B u i l d i n g S u c c e s s To g e t h e rMomentum…

The singular word momentum implies a drive, an energy, a force to get things moving. And moving implies direction; going toward something. We’re moving toward change: consumer behaviour

is changing; our members’ needs are changing; technology is changing; the market place is changing and therefore so must we. Change doesn’t imply abandonment of the co-

operative principles that guided our predecessors and continue to guide us; that make us stand apart from other financial institutions. It implies we are evolving

to better serve our members. It means ensuring a healthy future where the Atlantic credit union system is thriving. Together we

will continue to build strong communities and dedicate ourselves to the people who live in them.

B u i l d i n g S u c c e s s To g e t h e rMomentum

Annual Report 2013