Annual Report

Transcription

Annual Report

Annual Report
2013
Deposit Guarantee Corporation of Manitoba
DEPOSIT GUARANTEE CORPORATION OF MANITOBA
VISION
The Deposit Guarantee Corporation of Manitoba (DGCM) is respected as a
proactive and effective regulator and deposit guarantor.
MISSION
To maintain confidence in the strength and sustainability of the
Manitoba credit union and caisse Systems.
CORPORATE VALUES
We consider our staff our most important asset.
We employ best practices.
We communicate openly with our stakeholders.
We conduct our activities with a high level of integrity and accountability.
We treat everyone with respect and fairness.
We exercise sound judgment.
We adjust our regulatory approach in an evolving environment.
EMPLOYEE STATEMENT OF INTENT
We are a team of professionals that proactively and effectively oversees and assists
in the management of risk within the Manitoba credit union and caisse Systems.
1
ANNUAL REPORT 2013
TABLE OF CONTENTS
OPERATIONAL REPORT
Report from the Chair................................................................................................................................................................................................................... 2
Report from the Chief Executive Officer.............................................................................................................................................................................. 3
Corporate Governance................................................................................................................................................................................................................. 5
Board of Directors............................................................................................................................................................................................................. 5
Framework............................................................................................................................................................................................................................ 6
Committees.......................................................................................................................................................................................................................... 6
Management Discussion and Analysis................................................................................................................................................................................... 7
Mandate................................................................................................................................................................................................................................. 7
DGCM Financial Overview............................................................................................................................................................................................ 8
Systems’ Financial Overview....................................................................................................................................................................................... 11
Standards of Sound Business Practice.................................................................................................................................................................... 12
Managing Risk................................................................................................................................................................................................................... 13
Key Initiatives and Achievements.......................................................................................................................................................................................... 14
A Vibrant Network........................................................................................................................................................................................................................ 15
FINANCIAL STATEMENTS
Management’s Responsibility.................................................................................................................................................................................................. 16
Independent Auditor’s Report................................................................................................................................................................................................ 17
Consolidated Statement of Financial Position................................................................................................................................................................. 18
Consolidated Statement of Comprehensive Income.................................................................................................................................................... 19
Consolidated Statement of Changes in Equity................................................................................................................................................................ 20
Consilidated Statement of Cash Flows............................................................................................................................................................................... 21
Notes to Consolidated Financial Statements................................................................................................................................................................... 22
Schedule of Consolidated Operating Expenses............................................................................................................................................................. 48
THE PUBLIC INTEREST DISCLOSURE (WHISTLEBLOWER PROTECTION) ACT.............................................................................................. 49
2
REPORT FROM THE CHAIR
I am honoured to have been selected
to serve as Chair of the Board of the
Deposit Guarantee Corporation of
Manitoba (DGCM) in 2013 and to
have this opportunity to prepare my
first Annual Report message.
2013 was a year of change for the
DGCM Board. Because of the
provincial government’s decision to
limit service on government Boards
to a maximum of ten years, we saw
former Chair Jake Janzen and Board
members Ron Pozernick and Stephen
Roznowsky leave the Board. All
three made significant contributions
to this organization – they saw the
“big picture” (holistic), helped the
organization manage significant
changes such as the amalgamation of
the credit union and caisse System
guarantors (progressive) and always
asked good questions. They demanded solid rationale or
evidence from management when making decisions (vigilant).
We also welcomed Chuck Golfman, Monica Girouard, and
Bryan Rempel as new appointees to the Board. These new
Directors bring a variety of experiences and expertise to the
Board in terms of their professional designations, business, and
credit union backgrounds. Our continuing Board members
include John Klassen, Paul Gilmore, and Brian Mayes. They
offer considerable wisdom and insight from their leadership
roles and experience within the credit union System (John)
and the caisse System (Paul) while Brian Mayes gives us legal
and government perspectives.
Our new Board has the diversity, dedication, depth of
knowledge, and experience to continue to be holistic,
progressive, and vigilant.
Everyone on this Board is committed to providing and
developing excellence in our governance processes and
activities. We chose a governance review as our internal audit
project for 2013. This review was a very useful process and
encompassed:
•
•
•
•
responsibilities and mandate
structure and organization
processes and information needs
assessing performance and accountability
The review confirmed the relevance and effectiveness of many
of our current practices in each of these four areas. We are
adopting a number of the recommendations to assist us in
further developing our ERM (enterprise risk management)
program and developing a balanced scorecard approach to
assessing organizational effectiveness.
Setting the direction for DGCM is a primary Board
responsibility and the annual strategic planning session is a
major event in our Board calendar and work plan. In 2013, we
re-affirmed three strategic goals and identified ways to measure
success in each area:
•
•
•
ensuring DGCM operates effectively and efficiently
ensuring credit union and caisse Systems appropriately manage risk
ensuring the Deposit Guarantee Fund is strong and secure
The 2013 planning session included stakeholder consultation
through a panel discussion with three CEO’s from different
sized credit unions, presentations from Credit Union Central
of Manitoba (CUCM), and the Financial Institutions
Regulation Branch (FIRB). We also hosted a dinner meeting
with the Minister of Finance.
On behalf of the whole Board, I would like to express
sincere appreciation to our competent and committed
executive team and staff. Their efforts, engagement, and goal
accomplishments all complement our vision of being respected
as a proactive and effective regulator and deposit guarantor.
Sheryl Feller,
Chair of the Board of Directors
3
ANNUAL REPORT 2013
REPORT FROM THE CHIEF EXECUTIVE OFFICER
I am once again very pleased to report on the financial results
of DGCM for the year ending December 31, 2013. Manitoba
credit unions and the caisse have performed consistently well
and have experienced steady growth over the past year.
As the global economies continue to recover, the credit union
and caisse Systems in Manitoba have delivered strong results
and improved on most measures of sustainability. These strong
results and overall health of the Systems help ensure that any
claim against our Guarantee Fund is remote.
The Systems grew by 7% in 2013, one of the strongest growth
rates in the country. Although the growth moderated from
the double digits evidenced in previous years, new business
strongly contributed to the bottom line and net income, as
a percentage of assets, remained consistent at 54 basis points
(bps). The lower growth in assets, combined with excellent
net income, resulted in total regulatory capital increasing from
5.97% to 6.14%.
Each credit union and caisse now has the option to operate
outside provincial boundaries under recent changes to
The Bank Act. Although we may not see the first federally
regulated credit union or caisse for some time, these entities
now have the opportunity for geographic diversification,
access to new markets, and inter-provincial partnerships.
At year-end, our Guarantee Fund stood at $224 million or
100.8 bps of the Systems’ deposits. This is well within our
stated objective of maintaining the Guarantee Fund within
a range of 95 bps to 115 bps. The Guarantee Fund remains
invested in strong, conservative, and liquid investments
primarily consisting of federal and provincial bonds.
The investment mix of the portfolio is 44.4% Federal
government, 30.1% Provincial, 20.9% corporates, and
4.6% GICs (guaranteed investment certificates). We utilize a
passive investment approach with our target return being the
DEX Universe Bond Index. The passive approach allows for
savings on advisor fees while enjoying substantially the same
returns as an actively managed portfolio.
Revenue for the year was $26.1
million, consisting of assessment
revenue of $21.6 million and income
from investments. Investment
income was lower than in 2012 as we
transitioned to a passive investment
approach, recognizing gains on the
sale of investments in 2012 as our
portfolio was realigned. Assessments
were up in 2013 as we increased
the premium charged by 1 bps to
maintain our Guarantee Fund within
the range and keep pace with growth
in the Systems’ deposits.
Operating expenses were up by
$264,000 or 6.1% primarily due to
higher salaries and employee benefits.
At the end of 2012, the Board had
approved a new organizational chart
which included new positions in
the areas of regulatory practices and
strategic planning/ERM. These new
positions were the main reason for the 2013 increased salaries.
We also saw significant decreases in certain expense categories,
such as investment management fees down by $73,000, and
special projects that declined by $97,000. Board remuneration
and expenses remained virtually unchanged from the
prior year.
Net income for the year was $21.5 million, down from
$25.6 million in 2012 due to the reduced investment
income. International Financial Reporting Standards (IFRS)
accounting rules also required us to “mark to market” our
bond portfolio and, in a period of increasing interest rates,
we booked an unrealized loss of $7.2 million. As we do not
actively trade the bond portfolio, this loss will reduce as these
bonds move closer to their maturity date.
(continued on page 4)
4
(Report from the Chief Executive Officer continued from page 3)
In 2013, DGCM worked on a number of important
initiatives. We continue to refine our risk management
framework so that resources can be properly directed to
areas that expose DGCM to the greatest risk. Global capital
standards are increasing through the adoption of Basel III and
we have issued an exposure draft on what that would look like
for the Manitoba Systems as part of the consultation process.
Legislative changes will need to occur before it fully comes
into effect. We have also sent out an exposure draft on a new
intervention program and expect to have that process finalized
during 2014.
Internally, we have concentrated on improving our human
resource processes and have initiatives ongoing around
performance management, succession planning, and
compensation.
As a member of the Credit Union Prudential Supervisors
Association (CUPSA), DGCM participates in regular meetings
with our counterparts across Canada. CUPSA is collaborating
on developing best practices and conducting research on topics
of common issues such as capital standards, information
technology governance, and liquidity. Although each province
will establish its own regulatory framework, CUPSA has
helped to develop a set of principles and standards that
improve and strengthen the regulation of the credit unions and
caisses populaires in Canada.
As mentioned in the Chair’s report, we have seen a significant
turnover in our Board over the past three years. This has not
diminished the quality, decision making ability, or concern for
the well-being of every credit union and caisse in the province.
New members on the Board are all working diligently to
become familiar with our governance model and are providing
excellent leadership and direction to the Senior Management
Team. I would like to take this opportunity to express my
appreciation to our Board members for their dedication and
professionalism in working together in the best interests of all
stakeholders.
I would like to thank our Staff and the Board for all the
support I have received over the past year. DGCM has a team
of hardworking, dedicated, and professional employees who
are committed to working collaboratively with Manitoba’s
credit unions and the caisse in fulfilling our mandate.
Vernon MacNeill,
Chief Executive Officer
5
ANNUAL REPORT 2013
CORPORATE GOVERNANCE
BOARD OF DIRECTORS
DGCM is administered by a Board of seven directors, all of
whom are formally appointed by the Lieutenant Governor in
Council, Province of Manitoba. Four directors are nominated
by Government, two directors by CUCM, and one director by
the caisse System.
The Board governs the business affairs of DGCM and helps
set the strategic direction that oversees the safety and stability
of the Guarantee Fund as mandated by The Credit Union
and Caisses Populaires Act. The directors operate under formal
Board of Directors
Back row left to right: Paul Gilmore, John Klassen (Vice-chair)
Front seated: Chuck Golfman, Bryan Rempel, Sheryl Feller (Chair),
Monica Girouard, Brian Mayes (absent)
Terms of Reference for both the Board and its Committees.
A Code of Conduct is acknowledged annually by directors and
employees. The Board and Senior Management, as a team,
complement each other’s skills in effectively directing the use
of DGCM’s resources to accomplish its purposes.
It is the duty of the Board to establish strategic direction,
and to set the foundation for ongoing effective governance of
DGCM. The duty of the Chief Executive Officer (CEO) is to
plan, communicate, and set in motion the action undertaken
by the organization to meet the Board’s strategic direction.
6
(Corporate Governance continued from page 5)
FRAMEWORK
DGCM began operating in 1965 as The Credit Union
Stabilization Fund. Since 1968, legislation has required that
every Manitoba credit union and caisse be covered by a deposit
guarantee entity.
DGCM has established a governance framework that closely
follows best practices in the financial industry. Our framework
is based on the legal, regulatory, institutional, and ethical
environment that addresses the administration and controls in
our organization.
The Finance & Audit Committee is subject to the following
legislative requirements:
• review the annual audited financial statements
• review the changes in the accounting principles and practices
• recommend the appointment of an auditor
• review the scope, timing, and coordination of the external and internal audit plans
• review all significant recommendations made by the auditor
DGCM regularly reviews its objectives to ensure we remain
focused on our mandate to fully guarantee the safety of
member deposits. There are internal programs in place
to closely monitor the Manitoba credit union and caisse
environment and keep DGCM apprised of changes and
trends. Our proactive risk-based approach to regulation allows
us to become involved earlier to mitigate potential risks to the
Guarantee Fund. The Finance & Audit Committee is also responsible for
oversight of:
COMMITTEES
Governance & Human Resources Committee
Board Committees are designed to utilize directors’ strengths
to enhance our governance practices and address key
responsibilities and activities.
The Governance & Human Resources Committee reports
quarterly to the Board. The Committee oversees DGCM’s
corporate governance practices and confirms it operates
under a formal Terms of Reference, satisfactorily fulfilling its
functions during the year.
Finance & Audit Committee
The Finance & Audit Committee reports quarterly to the
Board and meets independently with the Auditors to verify
external and internal due diligence in DGCM’s controls and
financial reporting. This reporting includes confirming the
activities outlined in its Terms of Reference to ensure that the
fundamental activities are being conducted.
•
•
•
•
•
compliance and regulatory practices
financial performance
financial reporting and accounting practices
operational and internal control practices
investment policy reporting and compliance
The Governance & Human Resources Committee is
responsible for:
•
•
•
•
•
•
corporate governance
risk management
board orientation and education
succession planning
CEO performance and compensation
stakeholder communication
7
ANNUAL REPORT 2013
MANAGEMENT DISCUSSION AND ANALYSIS
MANDATE
Our mission and vision, coupled with our corporate values,
keeps us focused on fulfilling our mandate.
Manitoba legislation prescribes DGCM’s mandate to:
•
•
•
guarantee deposits in credit unions and the caisse
promote credit union and caisse development of sound business practices to protect them from financial losses
ensure that credit unions and the caisse operate under sound business practices
DGCM believes that efficient and effective operations
facilitate the execution of our mandate to maintain depositor
confidence in the guarantee. To maintain focus on the
mandate, a comprehensive strategic plan is in place and
refined on an annual basis to remain current. As well, the
accompanying employee statement of intent reflects a stafflevel commitment to fulfilling our mandate.
Senior Management Team
Back row left to right: Joe Nowicky (CFO), Zach Zahradnik (COO)
Front seated: Vernon MacNeill (CEO), Heather Shaw (Corporate Secretary), Ray Braun (CRO)
8
DGCM FINANCIAL OVERVIEW
COMPOSITON OF MARKETABLE SECURITIES
BY ISSUER TYPE
250
115
200
110
150
105
100
100
50
95
0
90
2009
2010
2011
2012
basis points
On December 31, 2013, our assets totaled $224.3 million,
an increase of $14.6 million, or 7% over 2012. The increase
was derived principally from comprehensive income of $15.4
million for the year, less an increase in deferred tax assets. Our
investment portfolio, which represents 96% of our assets, is
conservatively invested in government and corporate bonds,
and GICs. The majority of these securities are quality rated at
AA or higher.
TOTAL EQUITY POSITION
millions
Financial Position Highlights
2013
Retained Earnings AOCI bps of Deposits
The Guarantee Fund, DGCM’s equity totaling $223.7
million, is comprised of retained earnings and accumulated
other comprehensive income (AOCI). The Guarantee Fund
represents the current internal financial resources available to
protect Manitoba’s credit union and caisse Systems.
Government Bonds - 74.5%
Corporate Bonds - 20.9%
GICs - 4.6%
COMPOSITION OF MARKETABLE SECURITIES
BY CREDIT QUALITY
Retained earnings are DGCM’s cumulative net income
accumulated over time. At year-end, retained earnings totaled
$230.3 million, an increase of $21.6 million or 10% over
2012. This increase was due to annual net income from
regular operations, net of realized losses on the realignment
of the investment portfolio.
AOCI is accumulated unrealized gains and losses, driven by
fluctuations in the fair market value of the investment portfolio. At year-end, AOCI was in a temporary loss position of
$6.6 million.
When AOCI is combined with retained earnings, the total
equity position in absolute dollars, and relative to all credit
union and caisse deposits, reflects the fair market value of our
Guarantee Fund. At year-end, total equity was 100.8 bps of
Systems’ deposits.
AAA - 46.7%
AA - 25.9%
A - 22.7%
Unrated (CUCM) - 4.7%
9
ANNUAL REPORT 2013
Comprehensive Income Highlights
INVESTMENT REVENUE
25
12
20
10
15
8
10
6
5
4
0
2009
2010
2011
2012
millions
millions
COMPREHENSIVE INCOME
2013
Comprehensive income is the total DGCM income over the
course of the year from regular operations (net income), and
changes in the fair market value of its investment portfolio
(other comprehensive income). Comprehensive income for
the year totaled $15.4 million.
Revenue for the year totaled $26.1 million, offset by operating
expenses of $4.6 million. The result was a net income of
$21.5 million. Other comprehensive income for 2013 was an
unrealized temporary loss of $6.1 million due to fluctuations
in market values of investments.
25
11
20
10
15
9
10
8
5
7
0
6
2009
2010
2011
2012
basis points
millions
ASSESSMENTS
2013
Assessments Assessment Rate (bps of Average Systems’ Deposits)
DGCM charges quarterly assessments to every credit union
and caisse to maintain the Guarantee Fund. This Guarantee
Fund is available to offset credit union or caisse shortfalls to
reimburse depositors in the event of failure. In 2013, DGCM
charged an annualized rate of 10.0 bps of average Systems’
deposits, generating $21.6 million in revenue.
2
0
2009
2010
2011
2012
2013
Total Investment Revenue
Operating Expenses
DGCM earns revenue on its investments through interest
revenue and realized gains/losses on sales of investments.
Total investment revenue was $4.5 million, comprised of
$4.7 million of interest revenue, offset by $0.2 million in
losses on sales of investments due to realignment of the
portfolio. Total investment revenue is used to offset operating
expenses and provides some relief on the assessment rate
charged to maintain the Guarantee Fund.
10
OPERATING EXPENSE HIGHLIGHTS
DGCM incurs operating expenses in fulfilling its legislated mandate. The total operating expenses for 2013 were $4.6 million, an
increase of $264,000 or 6%. The material variances are detailed in the table below:
2013 EXPENSE VARIANCE AND ANALYSIS
Operating Expense Area
Variance over 2012
Explanation
Salaries, Other Personnel Costs, and Board
$193,500
Standard annual increases, additional personnel, and increased use of contractors
Professional Services and Investment Management Fees
(17,900)
Renegotiated investment manager fee structure, offset by increased internal audit work
CUCM Funding
Central Credit Committee funding increase
9,700
General Office*
(5,800)
Increases in office expense for additional equipment and furniture, offset by deferred or
cancelled projects and decreases in staff training and travel
Occupancy*
80,700
Standard increases in rent and maintenance, augmented by additional office space
Bonding Administration
Reduced residual recoveries in 2013
3,800
*Depreciation expense allocated to corresponding area
General Office - 14.5%
CUCM Funding - 5.4%
Professional Service Fees - 5.6%
Occupancy - 8.0%
6
3.0
5
2.5
4
2.0
3
1.5
2
1.0
1
0.5
0
0.0
2009
2010
2011
2012
2013
Operating Expenses bps of Sytems’ Assets
DGCM remains committed to managing expenses.
While expenses in absolute dollars have increased, costs have
remained controlled relative to the Systems’ assets.
basis points
Salaries, Other Personnel and Board costs - 66.5%
OPERATING EXPENSE TRENDS
millions
PROFILE OF OPERATING EXPENSES
11
ANNUAL REPORT 2013
SYSTEMS’ FINANCIAL OVERVIEW
GROWTH
REGULATORY CAPITAL
6
12
4
9
2
percent
15
percent
6
2009
3
2010
2011
2012
2011
2012
2013
Retained Earnings
2013
Asset Growth
Loan Growth
Deposit Growth
Retained earnings, as a percentage of total capital, continued
to increase as asset growth declined. Patronage allocations and
new share offerings remained relatively constant.
Asset and deposit growth declined in 2013, reversing an
increasing trend evident since 2010. Growth in loans was
similar to the previous year, resulting in a drop in Systems’
liquidity.
GFM, GOE, AND NET INCOME
2.50
2.25
2.00
ASSETS AND REGULATORY CAPITAL
1.75
25
6.5
20
6.3
15
6.1
1.00
10
5.9
0.75
5
5.7
0.50
0
5.5
2009
2010
2011
2012
2013
Systems’ Assets Regulatory Capital (% of Systems’ Assets)
Systems’ assets grew by $1.5 billion to $23.9 billion.
Regulatory capital, as a percent of assets, increased due to a
decline in asset growth rate.
1.50
percent
1.25
percent
billions
2010
Share Capital
0
2009
0
0.25
0.00
2009
2010
2011
2012
2013
Gross Financial Margin (GFM)
Gross Operating Expenses (GOE)
Net Income
Positive trends were evident in both GFM and GOE in 2013.
A corresponding improvement in net income did not occur.
This event was due to a drop in other revenue, combined with
small increases in provisions for impaired loans, income tax,
and patronage allocations.
LOAN SEGMENTATION
12
SYSTEMS’ PROFILE BY ASSET SIZE AND
NUMBER OF INSTITUTIONS
25
20
Residential Mortgage Loans - 51.7%
Commercial Loans - 30.0%
Agricultural Loans - 8.6%
Personal Loans - 9.7%
Loan segmentation remains virtually identical to the previous
year. Close to 80% of the loan portfolio is secured by real
estate. Delinquency has been low and stable at 0.5% over the
past three years.
billions
15
6
7
8
10
5
6
5
6
7
8
7
9
34
28
28
28
21
2009
2010
2011
2012
2013
0
> 1B
250M - 1B
< 250M
Following two mergers in 2013, there are now a total of 38
institutions. These mergers, combined with organic asset
growth, resulted in a significant reduction to the category of
institutions under $250 million. Another merger has been
announced in 2014.
STANDARDS OF SOUND BUSINESS PRACTICE
The Standards of Sound Business Practice (Standards) are a set of principles that assists DGCM to direct and manage itself in a
prudent, effective, and appropriate manner.
The prudence exhibited by DGCM’s Directors and Senior Management Team have critical influence on DGCM’s viability, safety,
and soundness, and its ability to achieve its mandated objectives.
DGCM’s four Standards are:
1. Corporate Governance - DGCM must effectively direct, oversee, and manage its business activities and ensure that performance, accountability, and integrity are achieved.
2. Strategic Management - DGCM must ensure that business operations are effectively planned, executed,
and monitored.
3. Risk Management - DGCM must have a comprehensive approach to identifying, managing, and controlling business and operating risks.
4. Internal Control Structure - DGCM must establish and maintain effective systems for internal control, and ensure these systems are reviewed and validated on a regular basis.
The credit union and caisse Systems also use the same four Standards to operate in a prudent, effective, and appropriate manner.
13
ANNUAL REPORT 2013
MANAGING RISK
DGCM utilizes a formal ERM framework for managing risks
present in our operating environment. As a key component
of the Standards, ERM is a tool to identify, evaluate, and
control risks in a comprehensive and systematic manner.
The framework is managed through a cross-functional
committee with representation from all departments.
ERM is broken down into the following distinct stages:
Risk Identification & Assessment – identifies
broad risk categories and principal inherent risks within
each category and assesses each on the basis of inherent
likelihood and impact
Current Mitigation Strategies – determines existing
risk management strategies and evaluates effectiveness
Residual Risk – defines residual risk, considering existing
risk management strategies, on the basis of likelihood and
impact
DGCM’s Risk Tolerance – establishes DGCM’s
comfort or acceptable level of risk
Risk
Identification
& Assessment
Risk
Management
& Monitoring
Current
Mitigation
Strategies
Comprehensive
Risk Profile
Residual
Risk
Comprehensive Risk Profile – consolidates all
principal residual risks relative to DGCM’s accepted risk
tolerance level in the form of a risk map
Risk Management & Monitoring – identifies and
implements risk management strategies to avoid, accept,
transfer, or mitigate principal residual risks approaching
or exceeding DGCM’s accepted risk tolerance level; also
reviews the effectiveness of risk management strategies in
controlling principal risks to DGCM
This framework is a key input into the annual Strategic
Planning process. Tactical plans are developed in response to
significant risks in the operating environment to ensure that
risks remain managed within DGCM’s tolerance level.
DGCM’s Risk
Tolerance
DGCM’S RISK ENVIRONMENT
Risk Category
Description
Deposit Guarantee/Solvency Risk
Risk to the strength and stability of every credit union and caisse, and the adequacy of the Guarantee Fund.
Strategic Risk
Risk that impairs the effectiveness of DGCM’s Board and Senior Management Team,
or can have a material effect on the reputation of the organization.
Regulatory Risk
Risk with a material effect on DGCM’s compliance with its legislated mandate, along with other applicable laws and regulations.
Financial Risk
Risk with a material effect on the Guarantee Fund’s value, liquidity,
and investment yields.
Operational Risk
Risk with a material effect on DGCM’s business operations and functional processes.
In 2014, DGCM is committed to further mature the ERM
framework by including more specific risks, risk appetites,
and risk tolerances in the model and by expanding reporting
capabilities to augment management’s decision making.
Additionally, the identified risks are integrated into the daily
operations of our ERM practices.
14
KEY INITIATIVES AND ACHIEVEMENTS
DGCM’s 2013 business plan identified three core strategies
to fulfill its mandate. To support these strategies, a number of
tactical initiatives were identified and scheduled for execution
Corporate Strategy #1
2013 Key Initiatives
Ensure the Guarantee Fund
is strong and secure
Too Big to Fail
We will build and maintain
a Guarantee Fund that is
sufficient in size and mix
to meet the anticipated
risk management needs of
the credit union and caisse
Systems. The Guarantee
Fund will provide a revenue
stream for our operations and
contribute to public confidence
in DGCM.
during the year. The tables below summarize the core
strategies, associated tactical initiatives, and current status.
Identify thresholds for when a credit union or caisse represents
excessive risk.
Status
Completed
Stress Testing – Scenario Planning Execution
Utilize plausible scenarios to undertake stress testing of DGCM’s
internal processes and adequacy of the Guarantee Fund.
Deferred to 2014
Guarantee Fund Confirmation
Obtain independent confirmation that the Guarantee Fund policy
and management is appropriate for DGCM given its mandate.
Actuarial Update – Fund Adequacy
Deferred to 2014
Refine actuarial modeling on stress-testing the Guarantee Fund to
harmonize variables used while respecting different risk profiles
among provinces.
On track
Status
Ensure the credit union and
caisse Systems appropriately
manage risk
Internal Risk Rating System
We will oversee the credit
union and caisse Systems,
ensuring that risks are managed
appropriately through active
monitoring programs and
appropriate intervention
measures that protect the
interest of depositors.
Enhanced Intervention Program
Develop a model to rate a credit union or caisse according to the
comprehensive risk it represents to DGCM.
Refine DGCM’s response to a credit union or caisse representing
increased levels of risk, incorporating the new internal risk rating
system.
Completed
On track
Stress Testing – Systems’ Liquidity
Develop modeling to stress the liquidity of the Systems’ virtual
deposits during triggering events.
Asset-Liability Management
Develop and communicate guidance on expectations of a credit
union or caisse for the governance and execution of asset-liability
management practices.
Basel III
On track
On track
Collaborate with stakeholders to develop capital adequacy
requirements consistent with Basel III for a credit union or caisse.
On track
Status
Ensure DGCM operates
effectively and efficiently
Internal Audit
We will fulfill our legislated
mandate through the
engagement of a dedicated
team of knowledgeable staff,
using an effective inventory of
tools to satisfy the needs of key
stakeholders, while aligning
operations to support our
strategic goals. These efforts
will be executed prudently to
achieve the required results.
Enhance the internal audit program for DGCM with a focus on
governance.
Completed
Enterprise Risk Management
Build on the current framework to advance the program along the
maturity scale.
On track
Compensation Review
Review methodology for progress within salary ranges, exploring
performance-based pay, and a refined annual appraisal tool.
On track
Insurance Review
Assess the adequacy and value of the bond, fidelity, and property
insurance.
Completed
15
ANNUAL REPORT 2013
A VIBRANT NETWORK
DGCM regulates and guarantees the deposits of Manitoba’s vibrant network of 37 credit unions and 1 caisse.
(Virtual deposit taking institutions are identified in italics.)
Access Credit Union
Minnedosa Credit Union
Amaranth Credit Union
Niverville Credit Union
Assiniboine Credit Union
(Outlook Financial)
North Winnipeg Credit Union
Austin Credit Union
Beautiful Plains Credit Union
Belgian-Alliance Credit Union
Caisse Financial Group
Noventis Credit Union
Oak Bank Credit Union
Portage Credit Union
Prairie Mountain Credit Union
Rorketon and District Credit Union
Cambrian Credit Union
(Achieva Financial)
Rosenort Credit Union
Carpathia Credit Union
Sandy Lake Credit Union
Casera Credit Union
Starbuck Credit Union
Catalyst Credit Union
Steinbach Credit Union
Crocus Credit Union
Strathclair Credit Union
Crosstown Civic Credit Union
(AcceleRate Financial)
Sunova Credit Union
(Hubert Financial)
Entegra Credit Union
(Implicity Financial)
Sunrise Credit Union
Erickson Credit Union
Vanguard Credit Union
Flin Flon Credit Union
Grandview Credit Union
Westoba Credit Union
(Maxa Financial)
La Salle Credit Union
Winnipeg Police Credit Union
Me-Dian Credit Union
Swan Valley Credit Union
MANAGEMENT’S RESPONSIBILITY
Management of the Deposit Guarantee Corporation of Manitoba (DGCM) is responsible for the integrity and
fair presentation of the consolidated financial statements included in the annual report. The consolidated
financial statements have been prepared in accordance with International Financial Reporting Standards.
In discharging its responsibility, management designs and maintains the necessary accounting systems and
related internal controls to provide reasonable assurance that transactions are authorized, proper records are
maintained and assets safeguarded.
The Board of Directors of DGCM oversees management’s responsibilities for the financial reporting procedures
and internal control systems. The Board reviews the consolidated financial statements in detail prior to
approving the statements for publication.
The Board’s Finance and Audit Committee recommends the appointment of the external auditor and reviews
the terms of the external audit engagement, annual fees, audit plans and scope, and management letter
recommendations.
Vernon MacNeill, MBA
Chief Executive Officer
S. Joe Nowicky, CMA
Chief Financial Officer
16
17
ANNUAL REPORT 2013
INDEPENDENT AUDITOR’S REPORT
To the Board of Directors of
Deposit Guarantee Corporation of Manitoba
Deloitte LLP
360 Main Street, Suite 2300
Winnipeg MB R3C 3Z3 Canada
Tel: (204) 942-0051 Fax: (204) 947-9390
www.deloitte.ca
We have audited the accompanying consolidated financial statements of the Deposit Guarantee Corporation
of Manitoba, which comprise the consolidated statement of financial position as at December 31, 2013, and
the consolidated statements of comprehensive income, changes in equity and cash flows for the year ended
December 31, 2013, and notes to the consolidated financial statements.
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 entity’s
preparation and fair presentation of the consolidated financial statements in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies
used and the reasonableness of accounting estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position
of the Deposit Guarantee Corporation of Manitoba as at December 31, 2013, and its financial performance and
its cash flows for the year ended December 31, 2013 in accordance with International Financial
Reporting Standards.
Chartered Accountants
February 28, 2014
Winnipeg, Manitoba DEPOSIT GUARANTEE CORPORATION OF MANITOBA
18
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(in Canadian dollars)
As at December 31
2013
2012
ASSETS
Cash (Note 5)
$
732,739
$
1,880,930
Marketable securities (Note 6) 216,382,357 201,834,794
Assessments receivable (Note 7)
5,546,307 5,196,701
Current tax receivable (Note 11)
84,975 -
Prepaid expenses and other assets (Note 8) 49,091 135,020
Other Investments (Note 9)
72,260 72,260
Property and equipment (Note 10)
540,625 458,615
Deferred tax assets (Note 11)
854,000 87,520
$224,262,354
$209,665,840
LIABILITIES
Accounts payable and accrued
liabilities (Note 12)
$
Defined benefit plan obligation (Note 13)
Current tax liability (Note 11)
287,623
$
321,020 - 322,922
298,220
755,859
Total liabilities
608,643 1,377,001
Contingent liabilities (Note 14)
CORPORATION EQUITY
Retained earnings 230,309,467 208,703,360
(6,655,756)
Accumulated other comprehensive loss
(414,521)
Total corporation equity 223,653,711 208,288,839
$224,262,354
Approved by the Board February 28, 2014
Sheryl Feller, Director
John Klassen, Director
$209,665,840
19
ANNUAL REPORT 2013
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year Ended December 31
REVENUES
Regular assessments (Note 15)
2013
$ 21,649,037
Investment revenue (Note 15)
2012
$
18,516,114
4,458,251 11,937,936
26,107,288 30,454,050
EXPENSES
Operating expense (Note 16) 4,586,072 4,322,119
Credit union merger expense (Note 16)
2,084 3,117
4,588,156 4,325,236
INCOME BEFORE INCOME TAXES 21,519,132 26,128,814
(86,975)
Income tax (recovery) expense (Note 11)
464,774
NET INCOME 21,606,107 25,664,040
OTHER COMPREHENSIVE INCOME (LOSS)
Items that may be reclassified subsequently to profit and loss
Unrealized gains (losses) on available-for-sale assets
(7,215,658)
Income tax benefit
787,574 67,007
Realized losses (gains) on available-for-sale assets
209,943
(8,119,753)
(23,094)
Income tax (expense) benefit
974,370
(6,241,235)
Total items that may be reclassified
(558,394)
(6,241,235)
OTHER COMPREHENSIVE INCOME (LOSS), NET OF INCOME TAX
COMPREHENSIVE INCOME
$ 15,364,872
(7,636,770)
(7,636,770)
$
18,027,270
20
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Retained Earnings
Accumulated Other
Comprehensive
Income (Loss)
Total
[Unrealized gains
(losses)
Available-For-Sale
Financial Assets]
Balance at January 1, 2012
7,222,249 $ 190,261,569
-
25,664,040
(7,636,770)
-
(7,636,770)
(7,636,770)
25,664,040 18,027,270
Balance at December 31, 2012
$
(414,521)
$ 208,703,360
$ 208,288,839
Balance at January 1, 2013
$ 208,703,360
$ 208,288,839
Net income
Other comprehensive loss
Total comprehensive income (loss)
Net income
Other comprehensive loss
Total comprehensive income (loss)
$ 183,039,320 $
25,664,040
21,606,107
$
(414,521) -
21,606,107
-
(6,241,235)
(6,241,235)
21,606,107
(6,241,235)
15,364,872
$ 230,309,467
$ (6,655,756)
$ 223,653,711
21
ANNUAL REPORT 2013
CONSOLIDATED STATEMENT OF CASH FLOWS
2013
2012
OPERATING ACTIVITIES
Net income
$ 21,606,107
$
25,664,040
(766,480)
Non-cash (recovery) expense – deferred income taxes
(44,520)
Non-cash expense – depreciation
190,533 114,123
(349,606)
Net increase in assessments receivable
(1,368,948)
Net decrease (increase) in prepaid expenses and other assets
85,929
(87,297)
Net increase (decrease) in taxes receivable and payable
(840,834)
810,209
(35,299)
Net (decrease) increase in accounts payable and accrued liabilities
64,557
Net increase in retirement benefit obligation
22,800 4,770
Cash flows generated by operating activities
19,913,150 25,156,934
(20,788,799)
Net increase in marketable securities, net of deferred tax liability
(23,254,113)
Purchase of property and equipment, net of disposal proceeds
(272,542)
(305,864)
Cash flows used in investing activities
(21,061,341)
(23,559,977)
INVESTING ACTIVITIES
(DECREASE) INCREASE IN CASH1,596,957
(1,148,191)
CASH, BEGINNING OF YEAR
CASH, END OF YEAR
1,880,930283,973
$
732,739
$
1,880,930
$
-
$
145,320
SUPPLEMENTARY CASH FLOW INFORMATION
Income taxes paid
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in Canadian dollars, unless otherwise noted)
1.0 NATURE OF ORGANIZATION
The Deposit Guarantee Corporation of Manitoba (DGCM) is a deposit guarantee corporation established under The
Credit Unions and Caisses Populaires Act of Manitoba. All of the operational activities of DGCM are focused on achieving
its legislated objectives:
•
Guarantee deposits in Manitoba credit unions and caisses populaires (thereafter “credit unions”);
•
Promote credit union development of sound business practices to protect them from financial losses; and
•
Ensure the credit unions operate under sound business practices.
Without limiting the generality of the foregoing, DGCM shall do such things as are necessary to enable a credit union
assigned to it to satisfy the claims of the members of the credit union for withdrawals of deposits. The registered address of
DGCM is 390-200 Graham Avenue, Winnipeg, Manitoba, Canada.
2.0 STATEMENT OF COMPLIANCE
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
(IFRS).
The consolidated financial statements were authorized for issue by the Board of Directors on February 28, 2014.
3.0 SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial
statements in accordance with IFRS.
3.1 Basis of consolidation
The consolidated financial statements include the accounts of T.S.F. Holdings Limited, a wholly-owned subsidiary,
which was incorporated for the purpose of purchasing and collecting loans guaranteed by DGCM under merger and
liquidation agreements.
3.2 Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis, except for available-for-sale
financial assets, which are measured at fair value in the statement of financial position.
3.3 Cash
Cash consists of cash on hand, and chequing and demand balances with Credit Union Central of Manitoba and
chartered banks.
3.4 Property and equipment
Property and equipment are stated in the statement of financial position at historical cost, less accumulated
depreciation and accumulated impairment losses.
Cost includes the expenditure that is directly attributable to the acquisition of the asset. When parts of an item
of property and equipment have materially different useful lives, they are accounted for as separate items (major
components) of property and equipment.
23
ANNUAL REPORT 2013
Depreciation and impairment are recognized in net income. Depreciation has been calculated on the following basis:
Automobiles - 30% declining-balance
Furniture and equipment - 20% declining-balance
Computer hardware - 2½ years straight-line
Leasehold improvements - Term of lease straight-line
Gains and losses on disposal of an item of property and equipment are determined by comparing the proceeds from
disposal with the carrying amount of the property and equipment, and are recognized net within depreciation of
operating expenses.
3.5 Regular assessments, special assessments, and financial assistance repayments
Regular assessments, special assessments, and financial assistance repayments are measured at the fair value of the
consideration received or receivable.
Credit union regular assessments, special assessments and financial assistance repayments are recognized as follows:
•
Credit union regular assessments are recognized when earned. Regular assessments are determined quarterly,
and accrued for monthly. Credit union payments are received quarterly.
•
Special assessments are recognized when earned. Special assessments are only charged if, in the opinion of
DGCM’s Board, the Guarantee Fund is, or is about to be, impaired.
•
Financial assistance repayments are recognized when received.
3.6 Financial assets
All financial assets are recognized and derecognized on trade date where the purchase or sale of a financial asset is
under a contract whose terms require delivery of the financial asset within the timeframe established by the market
concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as
at fair value through profit and loss (FVTPL), which are initially measured at fair value.
Financial assets are classified into the following specified categories: financial assets ‘at FVTPL’, ‘available-for-sale’
(AFS) financial assets and ‘loans and receivables’. The classification depends on the nature and purpose of the
financial assets and is determined at the time of initial recognition.
3.6.1 Classification
Cash Loans and receivables
Marketable securities Available-for-sale
Assessments receivable Loans and receivables
Prepaid expenses and other assets Loans and receivables
Other investments
Available-for-sale
24
3.6.2 Fair value through profit and loss (FVTPL)
FVTPL financial assets are those classified as held-for-trading or are designated as such upon initial
recognition. Held-for-trading financial assets are financial assets typically acquired for resale prior to maturity
or that are designated as held-for-trading. They are measured at fair value at the balance sheet date. Fair value
fluctuations including interest earned, interest accrued, gains and losses realized on disposal and unrealized
gains and losses are included in income. DGCM does not hold any financial assets classified as FVTPL.
3.6.3 Available-for-sale (AFS)
AFS financial assets are those non-derivative financial assets that are designated as available-for-sale, or
that are not classified as loans and receivables, held-to-maturity or held-for-trading investments. Except as
mentioned below, AFS financial assets are carried at fair value with unrealized gains and losses included in
accumulated other comprehensive income until realized when the cumulative gain or loss is transferred to
income.
AFS financial assets that do not have quoted market prices in an active market are recorded at cost.
Interest on interest-bearing available-for-sale financial assets is calculated using the effective interest method
and recorded in investment revenue.
3.6.4 Loans and receivables
Cash, prepaid expenses and other assets, and assessments receivables with fixed or determinable payments
are classified as ‘loans and receivables’. Loans and receivables are accounted for at amortized cost using the
effective interest method, less any impairment. Interest income is recognized by applying the effective interest
rate, except for short-term receivables when the recognition of interest would be immaterial.
3.6.5 Impairment of financial assets
Financial assets, other than those designated as FVTPL, are regularly assessed on an individual basis for
indicators of impairment at each balance sheet date. Financial assets are considered to be impaired when there
is objective evidence that, as a result of one or more events that occurred after the initial recognition of the
financial asset, the estimated future cash flows of the investment have been affected.
Objective evidence of impairment could include but is not limited to:
•
significant financial difficulty of the issuer or counterparty;
•
default or delinquency in interest or principal payments; or
•
it becoming probable that the borrower will enter bankruptcy or financial re-organization.
For financial assets carried at amortized cost, the amount of the impairment loss recognized is the difference
between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the
financial asset’s original effective interest rate.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets.
When an AFS financial asset is considered to be impaired, cumulative losses previously recognized in other
comprehensive income are reclassified to net income in the period. If, in a subsequent period, the amount
of the impairment loss decreases and the decrease can be related objectively to an event occurring after the
impairment was recognized, the previously recognized impairment loss is reversed through net income to
the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed
what the amortized cost would have been had the impairment not been recognized.
25
ANNUAL REPORT 2013
3.6.6 Derecognition of financial assets
DGCM derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire,
or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to
another entity. If DGCM neither transfers nor retains substantially all the risks and rewards of ownership
and continues to control the transferred asset, DGCM recognizes its retained interest in the asset and an
associated liability for amounts it may have to pay. If DGCM retains substantially all the risks and rewards
of ownership of a transferred financial asset, DGCM continues to recognize the financial asset and also
recognizes a collateralized borrowing for proceeds received.
3.7 Financial liabilities
Financial liabilities are classified as either financial liabilities ‘at FVTPL’ or ‘other financial liabilities’.
3.7.1Classification
Accounts payable and accrued liabilities
Other liabilities
3.7.2 Liabilities at FVTPL
Financial liabilities are classified as FVTPL when the financial liability is either held for trading or it is
designated as at FVTPL. DGCM has not designated any non-derivative financial liabilities as held for trading
or FVTPL.
Financial liabilities designated as held for trading are those non-derivative financial liabilities that DGCM
elects to designate on initial recognition as instruments that it will measure at fair value, netted against
interest on investments. Historically, these are short-term liabilities when the recognition of interest would be
immaterial. These are accounted for in the same manner as held for trading assets.
3.7.3 Other liabilities
Accounts payable and accrued liabilities are classified as ‘other liabilities’. Other liabilities are recorded at
amortized cost using the effective interest method and include all financial liabilities, other than derivative
instruments.
3.8 Effective interest method
DGCM uses the effective interest method to recognize interest income or expense which includes transaction costs
or fees, premiums or discounts earned or incurred for financial instruments.
The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating
interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future
cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate,
transaction costs and other premiums or discounts) through the expected life of the debt instrument, or (where
appropriate) a shorter period, to the net carrying amount on initial recognition.
3.9 Transaction Costs
Transaction costs are expensed as incurred for financial instruments classified as FVTPL. Transaction costs for
financial assets classified as available-for-sale, loans and receivables, and other liabilities are netted against the
carrying value of the asset or liability and are then recognized over the expected life of the instrument using the
effective interest method.
26
3.10 Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of
ownership to the lessee. All other leases are classified as operating leases. DGCM does not have finance leases.
Operating lease payments are recognized as an expense on a straight-line basis over the lease term.
3.11 Employee benefits
3.11.1 Defined contribution plan
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed
contributions into a separate entity and will have no legal or constructive obligation to pay further amounts.
Obligations for contributions to defined contribution plans are recognized as an employee benefit expense in
net income in the periods during which services are rendered by employees.
3.11.2 Defined benefit plan
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. DGCM’s
defined benefit plan is a retirement allowance, limited to a single future obligation, as a proportion of an
employee’s annual salary. DGCM’s net obligation is calculated by estimating the amount of future benefit
that employees have earned in return for their service in the current and prior periods; that benefit is
discounted to determine its present value. The rate used to discount post-employment benefit obligations is
determined by reference to market yields at the end of the reporting period on high-quality corporate bonds.
The calculation is performed annually by a qualified actuary using the projected unit credit method.
DGCM recognizes all actuarial gains and losses arising from the defined benefit plan immediately in other
comprehensive income, and reports them in accumulated other comprehensive income.
3.11.3 Termination benefits
Termination benefits are recognized as an expense at the earlier of the following dates:
•
When DGCM recognizes costs for a restructuring within the scope of IAS 37 that includes the
payment of termination benefits; or
•
When DGCM can no longer withdraw the offer of those benefits.
If benefits are payable more than 12 months after the reporting period, then they are discounted to their
present value.
3.11.4 Short-term employee benefits
Short-term employee benefits are obligations that are expected to be settled wholly within twelve months of
the end of the annual reporting period in which the employees render related services. These obligations are
measured on an undiscounted basis.
27
ANNUAL REPORT 2013
3.12 Provision for financial assistance to credit unions
The provision for financial assistance to credit unions is based on potential losses that may arise due to merger,
liquidation arrangements, or dissolution. The provision is established based on an individual credit union’s
probability of requirement for assistance and an assessment of the aggregate risk in the credit union systems.
3.13 Assets acquired from merger/dissolution of credit unions
Loans and real property acquired as a result of merger or dissolution proceedings are recorded at estimated net
realizable value.
3.14 Taxation
Income tax expense represents the sum of the current tax and deferred tax. Tax is recognized as an expense or
recovery in net income except to the extent that it relates to items that are recognized outside net income.
3.14.1 Current income tax
Current income tax is based on taxable income for the year. Taxable income differs from income as reported
in the consolidated statements of comprehensive income because of items of income or expense that are
taxable or deductible in other years and items that are never taxable or deductible. DGCM’s current tax
liabilities are measured at the amount expected to be paid to (recovered from) the taxation authorities using
the tax rates that have been enacted or substantively enacted at the balance sheet date.
3.14.2 Deferred Tax
Deferred tax is the tax expected to be payable or recoverable on temporary differences between the carrying
amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the
computation of taxable income. Deferred tax liabilities are generally recognized for all taxable temporary
differences. Deferred tax assets are generally recognized for all deductible temporary differences to the extent
that it is probable that taxable income will be available against which those deductible temporary differences
can be utilized.
Deferred tax liabilities are recognized for taxable temporary differences associated with investments in
its subsidiary except where it is probable that the temporary difference will not reverse in the foreseeable
future. Deferred tax assets arising from deductible temporary differences associated with such investments
and interests are only recognized to the extent that it is probable that there will be sufficient taxable income
against which to utilize the benefits of the temporary differences and they are expected to reverse in the
foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent
that it is no longer probable that sufficient taxable income will be available to allow all or part of the asset to
be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in
which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or
substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and
assets reflects the tax consequences that would follow from the manner in which DGCM expects, at each
balance sheet date, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets
against current tax liabilities and when they relate to income taxes levied by the same taxation authority and
DGCM intends to settle its current tax assets and liabilities on a net basis.
28
3.15 Changes in accounting policies
There a number of IFRS changes that impacted DGCM in 2013.
IAS 19R – Employee Benefits
Effective January 1, 2013, DGCM adopted revised IAS 19, Employee Benefits (IAS 19R). The amendments made to
IAS 19R include the elimination of the corridor approach for actuarial gains and losses which results in those gains
and losses being recognized immediately through other comprehensive income. As a result, the net pension liability
will reflect the unfunded status of the defined benefit plan in the Consolidated Statement of Financial Position. In
addition, all service costs including curtailments and settlements are recognized immediately in profit
or loss.
Additionally, the standard includes changes to how the defined benefit obligation and the components of the
expense would be presented and disclosed within the consolidated financial statements. These changes would
include the separation of the total amount of the defined benefit and other post-employment benefits expense
recognized in the Consolidated Statement of Comprehensive Income.
In accordance with the transitional provisions in IAS 19R, this change has been applied retrospectively. There was
no impact to the financial results of DGCM for the year ended December 31, 2012.
IAS 1 – Presentation of Financial Statements
DGCM has adopted the guidance of the amended IAS 1, Presentation of Financial Statements. Under the amended
standard, other comprehensive income is classified by nature and grouped between items that will be reclassified
subsequently to profit or loss (when specific conditions are met) and those that will not be reclassified. This revised
standard relates only to presentation and has not impacted the financial results of DGCM.
IFRS 10 – Consolidated Financial Statements
In accordance with IFRS 10, Consolidated Financial Statements, DGCM has evaluated whether or not to consolidate
an entity based on the definition of control within. The standard has defined control as dependent on the power of
the investor to direct activities of the investee, the ability of the investor to derive variable benefits from its holdings
in the investee, and the direct link between the power to direct activities and receive benefits. The adoption of this
standard has not impacted the consolidation of the entities, or the financial results of DGCM.
IFRS 12 – Disclosure of Interest in Other Entities
DGCM has adopted the guidance of IFRS 12, Disclosure of Interest in Other Entities. The standard requires enhanced
disclosure including how control was determined and any restrictions that might exist on consolidated assets and
liabilities presented from subsidiaries, joint arrangements, associates, and structured entities. The adoption of this
standard has not impacted the disclosure concerning T.S.F. Holdings Limited, or the financial results of DGCM.
IFRS 13 – Fair Value Measurement
DGCM has adopted the guidance of IFRS 13, Fair Value Measurement to increase consistency and comparability
of fair value measurements through the use of a “fair value hierarchy”. The inputs used in valuation techniques are
categorized into three levels giving the highest priority to (unadjusted) quoted prices in active markets for identical
assets or liabilities and the lowest priority to unobservable inputs. The adoption of this standard relates primarily to
disclosure and has not impacted the financial results of DGCM.
29
ANNUAL REPORT 2013
3.16 New standards and interpretations not yet adopted
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 been applied in preparing these consolidated financial statements.
IFRS 9 – Financial Instruments
In July 2013, the International Accounting Standards Board (IASB) tentatively decided to defer the mandatory
effective date of IFRS 9, which will not be set until the finalization of the impairment and classification and
measurement requirements phases of IFRS 9.
The new standard requires all financial assets to be classified on initial recognition at amortized cost or fair value
while eliminating the existing categories of available-for-sale, held to maturity, and loans and receivables. The IASB
released an additional limited amendment proposal to amend the classification and measurement provisions of IFRS
9, introducing a new category for classification of certain financial assets of fair value through other comprehensive
income. The IASB intends to release a final IFRS on this phase in the first half of 2014.
The new standard also requires:
•
embedded derivatives to be assessed for classification together with their financial asset host;
•
a single expected loss impairment method be used for financial assets; and
•
amendments to the criteria for hedge accounting and measuring effectiveness.
The full impact of IFRS 9 on DGCM will be evaluated after the remaining stages of the IASB’s project to replace
IAS 39, Financial Instruments – impairment methodology, hedge accounting, and classification and measurement –
are finalized. DGCM anticipates a notable effect on the consolidated financial statements and continues to actively
monitor developments in this area.
30
4.0 CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF
ESTIMATION UNCERTAINTY
In the application of DGCM’s accounting policies, which are described in Note 3, management is required to make
judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent
from other sources. The estimates and associated assumptions are based on historical experience and other factors that are
considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the
revision and future periods if the revision affects both current and future periods.
4.1 Critical judgments in applying accounting policies
There are no critical judgments, apart from those involving estimations, that management has made in the process
of applying DGCM’s accounting policies and that have the most significant effect on the amounts recognized in the
consolidated financial statements.
4.2 Key sources of estimation uncertainty
The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the
end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year.
4.2.1 Provision for financial assistance to credit unions
4.2.1.1 Individual provisions for credit union assistance
Individual provisions and contingencies for financial assistance are recognized in accordance with
IFRS. The process defined below will be applied quarterly at minimum, and more frequently if
required. Credit union analysis will consider:
•
an individual credit union’s risk rating as established by DGCM
•
an individual credit union’s financial strength, including capital strength to absorb potential
losses and earning trends
•
whether a credit union appears to have appropriately valued assets
•
whether levels of collective and individual allowances appear reasonable
•
provisions and contingencies related to assisted mergers and arrangements
DGCM has determined that there are no individual provisions for credit union assistance required.
4.2.1.2 Collective provision for credit union assistance
The collective accrual for financial assistance is based on five-year, ten-year, and twenty-year averages
of loss experience and other components that consider capital shortfalls and insufficient capital
levels. This will include management’s judgment based on historical information and other factors.
In addition, a collective provision may be deemed necessary based on DGCM’s best estimate of
current aggregate risk to DGCM as determined by evaluating the following conditions:
•
market and economic conditions
•
credit union analysis
•
historic loss experience
DGCM has determined that there is no collective provision for credit union assistance required.
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ANNUAL REPORT 2013
4.2.2 Estimates of fair values
Financial instrument carrying values reflect the prevailing market and the liquidity premiums embedded
within the market pricing methods DGCM relies upon.
Fair values of marketable securities and other investments classified as available-for-sale are determined with
reference to quoted market bid price primarily provided by third party independent pricing sources. Where
prices are not quoted in a normally active market, fair values are determined by valuation models. DGCM
maximizes the use of observable input and minimizes the use of unobservable inputs when measuring fair
value. DGCM obtains quoted prices in active markets, when available, for identical assets at the balance sheet
date to measure marketable securities and other investments at fair value.
5.0CASH
Cash includes cash on hand, and in current accounts with Credit Union Central of Manitoba, RBC Investor Services and
Scotiabank. Cash at the end of the reporting period as shown in the statement of cash flows can be reconciled to the related
items in the statement of financial position as follows:
As at December 31
2013
2012
500 250
556,196 1,780,491
218 569
RBC Investor Services
175,825 99,620
732,739 1,880,930
Cash on hand
Credit Union Central of Manitoba
Scotiabank
6.0 MARKETABLE SECURITIES
Marketable securities include term deposits, treasury bills, government bonds, and corporate bonds. A summary of
marketable securities as reflected in the consolidated statement of financial position is as follows:
As at December 31 Term deposits
Treasury bills
Government bonds
Corporate Bonds
2013 2012
10,059,048 6,224,373
-
474,299
160,998,986 148,442,872
45,324,323 46,693,250
216,382,357 201,834,794
6.1 Assets pledged as security
Term deposits with Credit Union Central of Manitoba with a carrying amount of $10,000,000 (2012: $5,000,000)
have been pledged to secure an operating line of credit for DGCM. The pledge agreement is renewed annually.
DGCM is not permitted to pledge these assets as security for other borrowings or to sell them to another entity.
32
7.0 ASSESSMENTS RECEIVABLE
Assessments receivable are classified as ‘loans and receivables’ and therefore measured at amortized cost.
Assessments receivable refer to the outstanding balance, owed by credit unions, for the fourth quarter assessment, or any
special assessment, charged by DGCM. Significantly all of the outstanding balances are collected within 31 days of
year-end.
As at December 31
Assessment receivable
2013 2012
5,546,307 5,196,701
8.0 PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets are classified as ‘loans and receivables’ and therefore measured at amortized cost.
As at December 31
2013 2012
Prepaid office expenses
16,492 20,106
Prepaid occupancy expenses
27,851 27,306
14 87,009
4,734 599
Accounts receivable
Employee loans
49,091135,020
9.0 OTHER INVESTMENTS
As at December 31
Credit Union Central of Manitoba shares, at cost
Concentra Trust shares, at cost
2013 2012
68,000 68,000
4,260 4,260
72,260 72,260
These shares are not readily marketable, and there are no contractual or guaranteed rates of return on these investments.
The yields earned on these shares have approximated rates earned by DGCM on other investments, and in management’s
opinion, fair value of the shares will not differ significantly from the above stated cost. The credit risk inherent in the shares
is considered to be insignificant. There are no intentions to dispose of these shares in the foreseeable future.
33
ANNUAL REPORT 2013
10.0PROPERTY AND EQUIPMENT
As at December 31
2013
2012
Net carrying amounts of:
Automobiles
2,896
8,465
Furniture and equipment
211,149 217,886
Computer hardware
150,586 135,207
Leasehold improvements
175,994 97,057
540,625458,615
Automobiles
Furniture
and
equipment
Computer
Leasehold
hardware improvements
Total
Cost
32,748
342,494
491,828
383,147
1,250,217
Additions
1,781 48,442 116,376 114,145 280,744
Retirements/Disposals
(30,377) (12,611) (76,228) (28,662) (147,878)
Balance at December 31, 2013 4,152
378,325
531,976
468,630
1,383,083
24,283
124,608
356,621
286,090
791,602
Accumulated depreciation
Retirements/Disposals
(23,631) (11,156) (76,228) (28,662)(139,677)
Depreciation expense
604
53,724
100,997
35,208
190,53
1,256
167,176
381,390
292,636
842,458
Net carrying amount
2,896
211,149
150,586
175,994
540,625
34
11.0 INCOME TAXES
11.1
Income tax recognized in net income
Year ended December 31
2013
2012
Current tax
(16,000)
Current tax (recovery) expense in respect of the current year
935,131
Adjustments recognized in the current year in relation
to the current tax of previous years
(68,975)
(318,983)
(84,975)
616,148
Deferred tax
(2,000)
Deferred tax recovery recognized in the current year
(151,374)
(2,000)
(151,374)
(86,975)
Total tax expense relating to continuing operations
464,774
The expense for the year can be reconciled to the accounting income as follows:
2013
2012
Income from continuing operations
21,519,132 26,128,814
Income tax expense at statutory rate
2,367,105
3,135,458
(2,381,394)
Non-taxable credit union assessments
(2,221,934)
Non-deductible operating expenses
1,589
808
(68,975)
Change in income tax rates
–
Adjustments recognized in the current year in
(2,850)
relation to the current tax of previous years
(318,983)
(84,525)
595,349
Adjustments recognized in the current year in
(2,450)
relation to the deferred tax of prior years
(130,575)
Income tax (recovery) expense recognized in net income
(86,975)
464,774
The tax rate used for the 2013 and 2012 reconciliations above is the corporate rate of 11% and 12% respectively
payable on taxable income under tax law in Manitoba.
11.2
Income tax recognized in other comprehensive income
2013
2012
Deferred tax
(787,574)
(67,007)
Fair value re-measurement of available-for-sale financial assets
Total income tax recognized in other comprehensive income
(787,574)
(67,007)
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ANNUAL REPORT 2013
11.3
Current tax assets and liabilities
As at December 31
2013
2012
84,975
-
-
(755,859)
Current tax assets
Tax refund receivable
Current tax liability
Income tax payable
84,975
(755,859)
11.4 Deferred tax balances
The following is the analysis of deferred tax assets/(liabilities) presented in the consolidated statement of financial
position:
As at December 31
Deferred tax assets
2012
Opening
Balance
Recognized
in net
income
2013
2012
854,000 87,520
Recognized
in OCI
Closing
balance
Deferred tax assets/(liabilities) in relation to:
Property and equipment
Retirement allowance
(14,493)
7,707
-
(6,786)
35,293
493
-
35,786
(1,150,664)
AFS financial assets
1,142,177
67,007
58,520
67,007
87,520
(1,107,664)
1,128,177
Tax losses
--- -
Other
--- -
1,128,177
(1,107,664)
2013
Opening
Balance
Recognized
in net
income
67,007
Recognized
in OCI
87,520
Closing
balance
Deferred tax assets/(liabilities) in relation to:
(6,786)
Property and equipment
2,486
-
(4,300)
Retirement allowance
(486)
35,786
-
35,300
AFS financial assets
(23,094)
58,520
787,574
823,000
(21,094)
87,520787,574
854,000
Tax losses
--- -
Other
--- -
87,520
(21,094)
787,574 854,000
36
12.0 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities are classified as ‘other liabilities’ and therefore measured at amortized cost.
Accounts payable refers to trades payable and insured savings accounts. Trades payable are outstanding invoices to vendors,
payable upon receipt. Insured savings accounts are deposits acquired through mergers of credit unions. Accrued liabilities
refer to obligations to vendors where no invoice has been received.
As at December 31
2013
2012
Accounts payable
55,823
84,033
Insured savings accounts
21,031
23,031
Accrued liabilities
210,769
215,858
287,623322,922
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ANNUAL REPORT 2013
13.0 POST EMPLOYMENT PLANS
13.1 Defined contribution plans
DGCM contributes to two defined contribution retirement benefit plans for all qualifying employees. The benefit
plans are operated by the Co-operative Superannuation Society and Great-West Life Assurance Company. DGCM
is required to match employee’s contributions of a specified percentage of payroll costs to the benefit plans. The only
obligation of DGCM with respect to the retirement benefit plan is to make specified contributions.
The total expense recognized in the income statement of $137,039 (2012: $126,493) represents contributions
payable to these plans by DGCM at rates specified in the rules of the plans. As at December 31, 2013, all
contributions due in respect of the 2013 (2012) reporting period had been paid over to the plans.
13.2 Defined benefit plan
DGCM operates an unfunded defined benefit plan, referred to as a retirement allowance, for qualifying employees.
Under the plan, employees are entitled to a one-time retirement benefit varying between 17% and 50% of the final
salary on attainment of a minimum retirement age of 55. No other post-retirement benefits are provided to these
employees.
This benefit is self-insured, with no plan texts between DGCM and any third-party. The benefit exists outside
the scope of provincial and federal legislation, and is not subject to any regulatory framework. DGCM is solely
responsible for the governance of the benefit.
The risks associated with the benefit are strictly financial in nature, primarily driven by any concentration in age
groups of employees. Current evaluations show no material concentration of age groupings at December 31, 2013.
The most recent actuarial valuation of the defined benefit obligation was carried out at December 31, 2013 by
Eckler Ltd., the actuary. The present value of the defined benefit obligation, and related current service cost and past
service cost, were measured using the projected unit credit method.
38
The principal assumptions used for the purposes of the actuarial valuations were as follows:
As at December 31
2013
2012
Discount rate(s)
4.40%
3.55%
Expected rate(s) of salary increase
4.50%
4.50%
62
62
Assumed retirement age
Amounts recognized in net income in respect to this defined benefit plan are as follows:
2013
2012
35,670
49,687
-
-
Interest costs
10,680
11,400
46,35061,087
Current service cost
Past service costs
Actuarial gains and losses are recognized immediately through other comprehensive income. Service costs, including
curtailments and settlements, are recognized immediately through net income, and recorded in salaries and employee
benefits in the schedule of consolidated operating expenses.
The amount included in the statement of financial position arising from DGCM’s obligation in respect of its defined
benefit plans is the present value of the unfunded defined benefit obligation.
Movements in the present value of the defined benefit obligation in the current period were as follows:
2013
2012
298,220
293,450
35,670
49,687
-
-
10,680
11,400
Benefits paid
(23,550)
(56,317)
Opening defined benefit obligation
Current service cost
Past service costs
Interest costs
Closing defined benefit obligation
321,020298,220
DGCM does not hold plan assets to offset the defined benefit obligation. Funding is provided from cash accounts to
pay benefits over a period of up to 24 months following employee retirement.
The maturity profile of the obligation is outlined as follows:
As at December 31
20132012
No later than one year
23,550
23,550
Later than one year and not later than five years
87,331
65,709
Later than five years
210,139
208,961
321,020298,220
39
ANNUAL REPORT 2013
14.0 CONTINGENT LIABILITIES
As at December 31, 2013, DGCM guaranteed $22.195 billion (2012: $20.852 billion) in credit union deposits. Based
on its ongoing monitoring procedures, DGCM has concluded that a provision for such contingencies does not need to be
established at this time.
As at December 31, 2013, DGCM has provided a loan indemnification with a maximum exposure of $729,564. DGCM
has concluded that a provision for loss does not need to be established at this time.
15.0 REVENUE
2013
2012
21,649,037
18,516,114
49,480
37,009
4,616,272
4,200,313
(209,943)
Realized gains and losses on disposal of marketable securities
7,697,862
Assessment revenue
Regular assessments
Investment revenue
Interest income – loans and receivables
Investment income – available-for-sale
Dividends received
2,442
2,752
4,458,25111,937,936
26,107,28830,454,050
16.0 EXPENSES
16.1 Operating expense
An analysis of DGCM’s operating expenses from continuing operations can be found on page 48 in the Schedule of
Consolidated Operating Expenses.
16.2 Credit union merger expense
This expense represents operating costs for T.S.F. Holdings Limited. The following is an analysis of the expense from
continuing operations.
2013
2012
358
1,061
Insured savings premiums
1,726
2,056
2,0843,117
Professional services
40
17.0 FINANCIAL INSTRUMENTS
17.1 Class disclosure
The following is the disclosure of financial assets by class.
As at December 31
2013
2012
Loans and receivables
Cash
Assessments receivable
Prepaid expenses and other assets
732,7391,880,930
5,546,307
5,196,701
49,091
135,020
6,328,1377,212,651
Available-for-sale
Marketable securities
Other investments
216,382,357
201,834,794
72,260
72,260
216,454,617201,907,054
222,782,754209,119,705
The following is the disclosure of financial liabilities by class.
As at December 31
2013
2012
Other liabilities
Accounts payable and accrued liabilities
287,623322,922
17.2 Capital risk management
DGCM manages its capital to maintain a capital structure that provides the flexibility to provide liquidity to support
its obligation to guarantee deposits in credit unions.
The capital structure consists of DGCM equity. In order to maintain or adjust its capital structure, DGCM has a
$10,000,000 line of credit agreement with Credit Union Central of Manitoba.
DGCM’s capital management objective is to maintain total equity (retained earnings and accumulated other
comprehensive income) within a range of 95 to 115 basis points of deposits in credit unions. This equity target
range has been approved by the Superintendent of the Financial Institutions of Manitoba. The Board of Directors
reviews DGCM’s equity position quarterly to ensure prudent positioning within the target range. Where the
aggregate shortfall of credit union capital exceeds one-sixteenth of one percent of total deposits and accrued interest,
DGCM shall net the shortfall against its equity for this calculation.
17.3 Financial risk management
DGCM is exposed to risks of varying degrees of significance which could affect its ability to support its obligation to
guarantee deposits at credit unions. The main objectives of DGCM’s risk management processes are to ensure that
risks are properly identified and that the capital base is adequate in relation to these risks. The principal financial
risks to which DGCM is exposed include interest rate risk, credit risk, and liquidity risk.
41
ANNUAL REPORT 2013
DGCM seeks to minimize the effects of these risks by utilizing a conservative investment policy. The investment
policy contains written principles, addressing interest rate risk, credit risk, and liquidity risk. Compliance with
policy is monitored by the external investment manager on a continuous basis.
The Finance department reports quarterly to the Board of Directors on policy compliance and risk exposures.
17.3.1 Interest rate risk management
DGCM is exposed to fluctuations in interest rates that could affect the cash flows from term deposits and
marketable securities at the time of maturity and reinvestment of individual instruments. These fluctuations
could affect the fair values of financial assets and liabilities, and DGCM’s ability to support its obligation to
guarantee deposits in credit unions.
To mitigate the interest rate risk, DGCM’s investment policy restricts the duration of the portfolio to within
plus or minus 1.5 years of the duration of the DEX Universe Bond Index. DGCM’s objective is to match
the duration of the portfolio with the DEX Universe Bond Index.
DGCM may use derivative financial instruments to manage interest rate risk. No derivative financial
instruments were used during the year.
17.3.1.1 Interest revenue on investments by classification
2013
2012
49,480
37,009
Financial assets
Loans and receivables
Available-for-sale
4,616,2724,200,313
4,665,7524,237,322
Financial liabilities
There are no interest costs on financial liabilities.
17.3.1.2 Interest rate sensitivity analysis
The sensitivity analyses below have been determined based on the exposure to interest rates for
financial instruments at the end of the reporting period. A 50 basis point increase or decrease is
used when reporting interest rate risk internally to key management personnel and represents
management’s assessment of the possible change in interest rates.
If interest rates had been 50 basis points higher/lower and all other variables were held constant,
DGCM’s:
•
net income for the year ended December 31, 2013, would increase/decrease by
$12,200/$11,323 (2012: increase/decrease by $21,562/$21,060). This is attributable to
DGCM’s exposure to interest rates on current accounts and maturing investments; and
•
other comprehensive income for the year would decrease/increase by $7,080,556 (2012:
decrease/increase by $6,819,974) mainly as a result of the changes in the fair value of
available-for-sale fixed rate instruments.
DGCM’s sensitivity to interest rates has increased during the current period, mainly due to the
increase in the size of the portfolio.
42
17.3.2 Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a
financial loss to DGCM. DGCM’s exposure to credit risk consists principally of:
•
fixed income securities with federal, provincial and municipal governments, and corporations;
•
term deposits placed with Credit Union Central of Manitoba; and
•
assessments receivable from credit unions.
Measures are taken to mitigate each exposure to credit risk.
•
DGCM’s investment policy only permits holding marketable securities of counterparties with
an investment grade rating of at least A(low), or its equivalent. This information is supplied by
independent rating agencies.
•
DGCM’s policy is to limit investments in Credit Union Central of Manitoba, to those, pledged as
security for the line of credit agreement ($10,000,000 as at December 31, 2013).
•
DGCM monitors the financial strength of individual credit unions on a monthly basis.
The table below shows the credit risk exposure, by credit rating, at the end of the reporting period using
DBRS’ credit rating symbols.
As at December 31
2013
2012
Credit rating
AAA
101,065,450106,464,830
AA
56,139,91244,204,224
A
49,117,94746,093,454
206,323,309196,762,508
Unrated
Credit Union Central of Manitoba
10,059,048
5,072,286
216,382,357201,834,794
Assessments receivable from credit unions are unrated. Significantly all of the outstanding balances are collected
within 31 days of year-end. Historically, DGCM has not experienced bad debts related to any of
these counterparties.
The table below shows the credit risk exposure, by issuer, at the end of the reporting period.
As at December 31
Government
Corporate
2013
2012
160,998,986148,917,171
55,383,37152,917,623
216,382,357201,834,794
43
ANNUAL REPORT 2013
17.3.3 Liquidity risk management
Liquidity risk is the risk of having insufficient financial resources to meet DGCM’s cash and funding
requirements in support of the guarantee of deposits at credit unions. DGCM’s approach to manage its
liquidity risk is to ensure, as far as possible, that it will have cash, demand and term deposits, and marketable
securities which meet its annual capital target.
•
Management expects that DGCM’s principal sources of funds will be cash generated from credit
union regular assessments and interest earned on its investments to support its financial obligation to
guarantee deposits at credit unions.
•
A $10,000,000 line of credit is secured with Credit Union Central of Manitoba to meet any short-term
shortfall in regular assessments and interest earned.
•
In the event that the investment portfolio must be drawn upon, DGCM policy is that all investments
are easily disposable in the secondary bond market.
The following table details DGCM’s expected maturity for its financial assets and financial liabilities.
The table has been drawn up based on the undiscounted contractual maturities of the financial assets and
financial liabilities including interest that will be earned on those assets and liabilities.
As at December 31
2013
2012
732,739
2,631,922
Three to six months
2,522,031
2,450,393
Six months to one year
1,005,106
456,115
One to five years
103,801,951
70,287,124
Over five years
109,053,269
127,890,170
217,115,096
203,715,724
Financial Assets
Less than three months
Total interest sensitive assets
Financial Liabilities
There are no interest sensitive liabilities.
44
17.3.4 Fair value of financial instruments
17.3.4.1 Fair value of financial instruments carried at amortized cost
DGCM considers that the carrying amounts of financial assets and financial liabilities recognized
at amortized cost in the financial statements approximate their fair values.
17.3.4.2 Valuation techniques and assumptions applied for the purposes of measuring fair value
DGCM has categorized its assets and liabilities that are carried at fair value on a recurring basis,
based on the priority of the inputs to the valuation techniques used to measure fair value, into a
three level fair value hierarchy. Financial assets and liabilities measured at fair value on a recurring
basis on the balance sheet are categorized as follows:
Level 1: Fair value measurements utilize observable, quoted prices (unadjusted) in active markets
for identical assets or liabilities that DGCM has the ability to access. Assets utilizing Level 1 inputs
include cash.
Level 2: Fair value measurements utilize inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly or indirectly. Level 2 assets include
government bonds and corporate bonds, which use quoted prices for similar assets and liabilities in
active markets as inputs for valuation. Level 2 assets also include guaranteed investment certificates,
which use interest rates and yield curves that are observed at commonly quoted intervals as inputs
for valuations.
Level 3: Fair value measurements utilize one or more significant inputs that are not based on
observable market inputs and include situations where there is little, if any, market activity for the
asset or liability. Assets utilizing Level 3 are limited to other investments and are held at cost, which
have been determined as representing fair value at the end of the reporting period.
45
ANNUAL REPORT 2013
The following table presents DGCM’s assets and liabilities that are carried at fair value on a recurring
basis. There were no transfers between Level 1, Level 2 and Level 3, nor were there changes to the
Level 3 assets in the current year; therefore a continuity schedule has not been provided.
As at December 31, 2012
Level 1
Level 2
Level 3
Total
Assets measured at fair value
Cash
1,880,930
-
-1,880,930
Government bonds
- 148,917,172
- 148,917,172
Corporate bonds
-
-
Guaranteed investment
certificates
-6,224,372
Other investments
-
Total assets measured at
fair value on a recurring basis
46,693,250
Level 1
- 6,224,372
-72,26072,260
1,880,930 201,834,794
As at December 31, 2013
46,693,250
Level 2
72,260 203,787,984
Level 3
Total
Assets measured at fair value
Cash
732,739
-
-732,739
Government bonds
- 160,998,986
- 160,998,986
Corporate bonds
-
-
Guaranteed investment
certificates
-10,059,048
Other investments
-
Total assets measured at
fair value on a recurring basis
45,324,323
There are no liabilities carried at fair value on a recurring basis.
-10,059,048
-72,26072,260
732,739 216,382,357
Liabilities measured at fair value
45,324,323
72,260 217,187,356
46
18.0 RELATED PARTY TRANSACTIONS
Balances and transactions between DGCM and its subsidiary, T.S.F. Holdings Limited, which is a related party of DGCM,
have been eliminated on consolidations and are not disclosed in this note.
18.1 Loans to related parties
Key management personnel are defined as the Chief Executive Officer, Chief Risk Officer, Chief Financial Officer,
and Chief Operations Officer.
DGCM provides interest free loans to employees for:
•
medical equipment not covered under the insured benefits package and necessary for effective performance of
their duties.
•
computer equipment for the employee’s own use and consistent with the technology utilized by DGCM.
The maximum loan size is $7,500, repayable by payroll deduction over a maximum period of three years.
Outstanding loans to key management personnel at the end of 2013 were $3,289 (2012: nil).
18.2 Compensation of key management personnel
The remuneration of key management personnel is determined by the Board of Directors. The aggregate
remuneration of key management personnel during the year was as follows:
Salaries
2013
2012
690,371636,670
Short term benefits
36,668
32,865
Post employment benefits
59,058
57,191
-
-
Other long term benefits
786,097726,726
18.3 Board members’ remuneration and expenses
The remuneration of the Board of Directors is determined by the Lieutenant Governor in Council. The
remuneration of board members during the year was as follows:
Board member remuneration
Expenses
2013
2012
128,926
137,148
85,93273,623
214,858210,771
47
ANNUAL REPORT 2013
19.0 OPERATING LEASE ARRANGEMENTS
19.1 Lease arrangements
DGCM is the lessee on an operating lease related to a six-year agreement for office space. This agreement expires on
December 31, 2018. DGCM has the option to renew the lease for one additional term of five years at the expiration
of the existing term.
DGCM is the lessee on operating leases related to four-year agreements for two corporate vehicles. The leases will
expire March 5, 2015 and February 23, 2017. DGCM has the option to purchase the leased vehicles.
19.2 Payments recognized as an expense
DGCM recognized $173,812 (2012: $134,833) in lease payments for the year.
19.3 Non-cancellable operating lease commitments
As at December 31
2013
2012
No later than one year
179,822
172,377
Later than one year and not later than five years
740,279
720,481
-
183,474
Later than five years
920,1011,076,332
No liabilities have been recognized in respect of non-cancellable operating lease commitments.
48
SCHEDULE OF CONSOLIDATED OPERATING EXPENSES
2013
2012
2,766,444
2,603,427
72,110
45,755
Credit Union Central of Manitoba – program funding
246,929
237,279
Staff travel
171,990
184,849
76,109
98,932
Salaries and employee benefits
Contract staff
Staff training
Occupancy
326,552263,120
Office
248,142180,642
Professional services
133,690
79,055
Investment management fees
121,989
194,532
23,563
120,243
Board members’ remuneration and expenses (Note 18)
214,858
210,771
Depreciation
190,533114,123
Special projects
4,592,9094,332,728
(6,837)
Bonding
administration recovery
(10,609)
4,586,0724,322,119
49
ANNUAL REPORT 2013
THE PUBLIC INTEREST DISCLOSURE
(WHISTLEBLOWER PROTECTION) ACT
The Deposit Guarantee Corporation of Manitoba (DGCM) is designated as a government body for purposes of the Public Interest
Disclosure (Whistleblower Protection) Act (the Act). The Act requires that government bodies disclose, in their annual reports, any
activities regulated by this legislation.
The Act came into effect in April 2007. This law gives employees a clear process for disclosing concerns about significant and
serious matters (wrongdoing) in the Manitoba public service sector, and strengthens protection from reprisal. The Act builds on
protections already in place under other statutes, as well as collective bargaining rights, policies, practices and processes in the
Manitoba public service.
Wrongdoing under the Act may be: contravention of federal or provincial legislation; an act or omission that endangers public
safety, public health or the environment; gross mismanagement; or, knowingly directing or counseling a person to commit a
wrongdoing. The Act is not intended to deal with routine operational or administrative matters.
A disclosure made by an employee in good faith, in accordance with the Act, and with a reasonable belief that wrongdoing has
been or is about to be committed is considered to be a disclosure under the Act, whether or not the subject matter constitutes
wrongdoing. All disclosures receive careful and thorough review to determine if action is required under the Act, and must be
reported in a department’s annual report in accordance with Section 18 of the Act.
The following is a summary of disclosures received by DGCM for the fiscal year ended December 31, 2013:
Information Required Annually
(per Section 18 of the Act)
Fiscal Year 2013
The number of disclosures received, and the number acted on and not acted on.
Subsection 18(2)(a)
Nil
The number of investigations commenced as a result of a disclosure.
Subsection 18(2)(b)
Nil
In the case of an investigation that results in a finding of wrongdoing, a description of the wrongdoing and
any recommendations or corrective actions taken in
relation to the wrongdoing, or the reasons why no
corrective action was taken.
Subsection 18(2)(c)
Nil
390 - 200 Graham Avenue
Winnipeg, Manitoba R3C 4L5
p. 204.942.8480 f. 204.947.1723
Toll Free 1.800.697.4447
www.depositguarantee.mb.ca

Annual Report

Transcription

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