Annual Report and Summary Consolidated Financial Statements

Annual Report and Summary
Consolidated Financial Statements
December 31, 2012
“Helping our members to
achieve their dreams.”
2
Affinity Credit Union
“We support our members
over the long term.”
Marianne Jurzyniec, Member Education Portfolio
Manager, presents a financial education seminar to
students from St. Dominic School in Saskatoon
Annual Report and Summary Consolidated Financial Statements
DeceMber 31, 2012
1
Contents
2 2012 Highlights
3 Who We Are
6 How We Serve Our Members Better
10 How We Are Governed
12 Board President’s Report
14 Board of Directors
15 District Council Delegates
16 Canadian Development Foundation
18 Senior Leadership
20 Chief Executive Officer’s Report
26International Year of Co-operatives
28 Environmental Innovations
at Affinity Campus
30 Management Discussion and Analysis
35 Management’s Responsibility
for Financial Reporting
36 Independent Auditor’s Report
37 Summary Consolidated Financial
Statements
38 Summary Consolidated Balance Sheet
39 Summary Consolidated Statement
of Changes in Equity
40 Summary Consolidated Statement
of Cash Flows
41 Note to the Summary Consolidated
Financial Statements
Front cover photo:
McDonald Family outside their new home.
2
Affinity Credit Union
100
%
of our profits stay in Saskatchewan
94
%
member satisfaction rate
1.5m
$
invested in our communities
2.9b
$
in assets under administration
Annual Report and Summary Consolidated Financial Statements
DeceMber 31, 2012
Who We Are
Affinity Credit Union is a financial co-operative responsible to our member-owners
and the communities in which they live. We manage assets of $2.9 billion, have 600
employees and offer a complete range of financial services including insurance and
wealth management products through a network of 44 branches in 36 communities
across Saskatchewan. We are committed to creating great opportunities for our
members, employees and our communities.
Our Mission
Our Values
We work together with commitment and enthusiasm to
be the financial services provider of choice. We understand
and respect individual needs and strive to enhance the
economic and social well-being of our members. We
recognize and respect the local heritage and diversity of
each branch and its members. We work in partnership with
members and communities to promote and enhance social
and economic development.
• Member service excellence
Our Vision
We aspire to be a credit union that partners with our
members and their communities to create growth and
enhance financial security.
• Employer of choice
• Sustainable value
• Communication
• Cultural connections
• Professional conduct
• Community
International Co-operative Principles
As a co-operative financial institution, we support the
principles of the international co-operative movement
which are:
• Voluntary and open membership
• Democratic member control
• Member economic participation
• Autonomy and independence
• Education, training and information
• Co-operation among co-operatives
• Concern for the community
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4
Affinity Credit Union
Annual Report and Summary Consolidated Financial Statements
DeceMber 31, 2012
5
“Our focus is on our
relationships and providing
excellent service. It’s all
about our members!”
Cindy Vanthuyne, Financial Planner, Watrous
6
Affinity Credit Union
How we serve our members Better
10
th
largest credit union
in Canada
24
communities where
Affinity is the only
financial institution
44
branches across
Saskatchewan – and
growing!
Affinity Credit Union helps our members achieve their financial goals by
providing excellent member-focused service and expertise – and we’re
getting better all the time.
Better for Account Holders
We make banking easy for our members: they
can choose from a variety of accounts and card
options to suit their individual needs, including
high-interest savings. They can access their
funds from anywhere in the world using an
automated teller machine, smartphones,
internet banking, and any one of our 44
branches. All their deposits in the credit union
are 100% guaranteed.
Better for Homebuyers
We offer our members fast and friendly
loans and credit services including online
applications. We are experts in providing
entry-level mortgages and in making homeownership dreams come true. Our employees
are dedicated to delivering the very best
financial advice for each and every member we
serve.
Better for Investors
Through our partnership with Credential Asset
Management Inc., and Credential Securities
Inc., we provide access to the top-performing
mutual funds, stocks and bonds. We are a fullservice investment provider, including socially
responsible investments.
Better for Financial Planning
and Estate Planning
We help to keep our members’ investments on
track, grow their net worth and ensure they
get even more from their everyday banking
and cash flow. It’s more than just parking their
money and reading their statement! We can
help members make their money work for
them and plan for success.
Better for Business Owners
We understand the value of business to
our communities. We offer a wide range of
commercial loans to finance just about any
business, large or small. Microloans are also
available to provide funds to those businesses
that would not qualify for traditional financing.
Better for Insurance
We specialize in SGI motor
licenses, all lines of home, auto,
tenant, small business, acreage,
Blue Cross Health, and travel
insurance. Affinity Insurance in comprised of
eight full-service broker locations, including
offices in Regina, Saskatoon, Meadow Lake and
Prince Albert.
Annual Report and Summary Consolidated Financial Statements
DeceMber 31, 2012
7
“We provide relevant products and services to
help our members succeed financially. “
Employees from District 7 (Langham)
From left: Leslie Epp, Charmaine Golding, Farady Dreger,
Linda Ens, Waneeta Peters and Rhoda Derksen.
8
Affinity Credit Union
Annual Report and Summary Consolidated Financial Statements
DeceMber 31, 2012
9
“We run our own business so we know
all about customer service. The service
and advice we get from Affinity Credit
Union is second to none.”
Anita Kunz, Financial Services Representative,
8th Street Branch, (centre) with Affinity members
Krista Neufeld and Lynnette Zacharias, Directors
of Farm in the Dell near Aberdeen. Their
business provides residential and vocational
opportunities for adults with developmental
disabilities in a rural farm-like setting.
10
Affinity Credit Union
How we are governed
15
Directors of
the Board
75
District Council
Delegates
86%
of all elected officials
participated in
continuing
education
83%
of Delegate attendance
at District Council
meetings
93.5
%
of Director attendance
at Board meetings
Affinity Credit Union is a financial co-operative governed by a Board of
Directors elected by, and accountable to, the member-owners of the credit
union. The Board acts to protect and enhance Affinity’s assets in the interest
of members and other stakeholders, to establish policies and to set the
direction of the credit union. The Board operates in accordance with
co-operative values and principles.
Democratic Structure
Members own the credit union and are the
people at the helm, guiding the business.
They do this in a number of ways – specifically
by electing members to serve on the District
Councils as District Council Delegates or
by becoming a District Council Delegate
themselves. Delegates are then entrusted to
elect the Affinity Board of Directors.
Assessing the Board’s Performance
Every two years, Affinity appoints an external
consultant to evaluate the effectiveness of
the Board of Directors and District Council
Delegates. A report and recommendations
are presented to the Board followed by
documented plans in each District Council and
Board Committee.
Nomination Process
In accordance with the bylaws, members can
nominate individuals to serve as a District
Council Delegate. Voting is by electronic and
paper ballot, with results announced at the
Annual General Meeting. District Council
Delegates elect Board Directors from each of
their Districts.
Continuing Education of Directors
Affinity provides an orientation program for
newly-elected Delegates and Directors that
includes written materials, oral presentations,
and meetings with senior members of
management. The orientation program is
designed to familiarize new Delegates and
Directors with the credit union’s business and
strategy.
The Board believes that ongoing education
is important for maintaining a current and
effective Board and Delegate structure.
Accordingly, the Board has established
education requirements and encourages
Directors and Delegates to participate in
ongoing education, as well as participation in
accredited Director education programs. The
Board will reimburse Directors for expenses
occurred in connection with these education
programs.
Mandate and Responsibilities of
Members of Board Committees
Directors and Delegates are expected
to prepare for, attend, and contribute
meaningfully in all Board and applicable
Committee meetings in order to discharge
their obligations. Consistent with their
fiduciary duties, Directors and Delegates are
expected to maintain the confidentiality of the
deliberations of the Board and its Committees.
Each Committee has a mandate outlining its
purpose and responsibilities. Committees meet
regularly throughout the year and provide
regular reports to the Board.
Affinity Credit Union has eight Standing
Committees. Members of all Standing
Committees are appointed by the Board.
Annual Report and Summary Consolidated Financial Statements
Election of Officers
President
Scott Flavel
1st Vice-President
Audrey Horkoff
2nd Vice-President
Dannie Wreford
he Audit and Risk Committee
T
is responsible for overseeing risk
management and financial reporting
integrity.
Mitchell Anderson
Ed Cechanowicz
Audrey Horkoff
Myrna Bentley
Kearney Healy
Bonnie Lavallee
he Conduct Review Committee
T
is responsible for overseeing
conduct and ethical business
standards.
Mitchell Anderson
Ed Cechanowicz
Audrey Horkoff
Myrna Bentley
Kearney Healy
Bonnie Lavallee
The Governance Committee
is responsible for overseeing
corporate governance, as well as
Delegate nominations and election
of Directors.
Lois Herback
Mike McLeod
Lise Gareau
Cathy Holtslander
Dannie Wreford
Doug Knowles
DeceMber 31, 2012
11
The CEO Liaison Committee is
responsible for providing advice to
the CEO on issues affecting the credit
union and agenda’s for the Board
meetings.
The Corporate Social Responsibility
Committee is responsible for
researching and recommending
corporate social responsibility policies
to the Board of Directors.
Scott Flavel
Myrna Bentley
Audrey Horkoff
Kearney Healy
Dannie Wreford
Ed Cechanowicz
Ruth Glatt
Henry Dyck
Lois Herback
Cecile Smith
Georgina Harambura
Brandi Tracksell
Evelyn Kasahoff
Grant Greenshields
Debbie Topping
Bryce Michael
The Subsidiary Operations
Committee is responsible for
reviewing management reports on the
operations of all subsidiary companies.
Gayl Basler
Cy Standing
Peter Block
Ruth Glatt
Vanda Wutzke
Larry Doetzel
The Board Policy Committee is
responsible for formulating and
recommending policy positions that
will ensure sound governance of the
organization.
Mitchell Anderson
Bonnie Lavallee
Richard Heroux
Gayl Basler
Cy Standing
Gary Gerein
The Co-op Principles and Traditions
Committee is responsible for ensuring
our co-operative values and traditions
remain healthy and robust.
Cathy Holtslander
Kearney Healy
Karl Baumgardner
Michelle Beveridge
Gord Lerat
Heather Ranger
Maxine Flotre
Marianne Jurzyniec
Remuneration and Meeting
Attendance
The Governance Committee is
responsible for reviewing elected
officials compensation and reporting
on meeting attendance. Per diems are:
Regular Board Meeting
$240.00
All Day Meeting
$360.00
Half Day Meeting
$240.00
Committee Meeting
$180.00
Committee Meeting Chair $205.00
Sub-Committee Meeting
$120.00
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Affinity Credit Union
Board President’s Report
As the saying goes “we live in interesting times” and 2012
has certainly been interesting. We began by celebrating
the International Year of the Co-operatives. Throughout
the year we partnered with organizations committed to
strengthening our communities over the long term, not
just for today.
As a co-operative business we do not measure our success
purely in financial terms, but across a broad range of
factors. As in previous years, the Board focused on five
core areas: members, employees, communities, financial
strength and innovation. The Board is responsible,
through its oversight and planning roles, to make sure that
Affinity is positioned to meet the needs of our members,
employees and communities now and into the future while
remaining financially sound.
We are concerned about the welfare of our members and
the economic health of their communities. Throughout
2012, we ensured financing was available to those
entrepreneurs and community organizations that were
overlooked by traditional financial institutions. We focused
on advancing programs that address important issues in
our communities including affordable housing, education,
economic development and community building. In
recognition of this focus we are honored to be the latest
financial institution in Canada to be accepted into the
Global Alliance for Banking on Values (www.gabv.org).
As a company driven by strong co-operative values, we
put our profits back into the communities we serve and, in
doing so, we try to make a difference. In 2012, we invested
$1.5 million in community development – and changed
lives forever.
We thank our employees, on behalf of the communities
and organizations they have supported this year, for their
volunteer efforts, fund raising for non-profit organizations,
payroll deductions, direct giving and special events. They
have achieved a great deal and we applaud them for their
commitment and concern for our communities.
Our unique governance model kept the credit union
connected to its co-operative roots and communities and
our District Council Delegates ensured the voice of the
members was heard and acted upon.
Affinity has had the opportunity to get to know many
new members and employees throughout the year in
partnership talks with several credit unions across the
province. The Board would like to take this opportunity
to welcome our new friends from Muenster, Colonsay,
Viscount, Meacham and Broadview who joined the Affinity
family on January 1, 2013. We are also working toward
a membership vote with Advantage and Spectra Credit
Unions in early 2013.
In September, we had the opportunity to wish George
Keter, our Chief Executive Officer for the past 13 years, all
the best in his retirement. We also welcomed a familiar face,
Mark Lane, our current Chief Operating Officer, as our new
CEO. Mark brings a wealth of experience to the role as he
was the CEO of Affinity prior to the merger with FirstSask in
2008.
In our on-going efforts to govern in a responsible and
prudent manner, our Board of Directors met regularly
and continually reviewed the suitability of our strategic
plan and constantly monitored it to ensure that our goals
were on track and that the credit union’s risks were being
effectively managed. As a complement to this, the Board
also completed training and development throughout the
year.
2012 was a great year and it was an incredible privilege
to be President of the Board of Directors of Affinity Credit
Union. I want to thank my fellow Board members and
District Council Delegates for entrusting me with this
responsibility and for the extraordinary amount of work
and support they provided this year.
Thanks also to our executive team who have implemented
our vision and strategic direction, to our employees for
their dedication to making our members financial dreams
possible and for serving them like the owners they are.
Most of all we thank our members for their loyalty and
continued patronage. We look forward to providing
exceptional financial services to you in the coming year.
Scott Flavel, Board President
Annual Report and Summary Consolidated Financial Statements
DeceMber 31, 2012
13
“As a co-operative, we work to achieve both
economic viability and social responsibility.“
Scott Flavel, Board President
14
Affinity Credit Union
Board of Directors
The Board (this page) is responsible for the strategic
oversight, business direction and supervision of
management of Affinity Credit Union. In acting in the best
interests of the credit union and its members, the Board’s
actions adhere to the standards set out in The Credit Union
Act 1998, the Standards of Sound Business Practice and
other applicable legislation.
Mitchell Anderson
Saskatoon
Gayl Basler
Saskatoon
Myrna Bentley
Saskatoon
Ed Cechanowicz
Saskatoon
Scott Flavel
Central
Ruth Glatt
Saskatoon
Kearney Healy
Saskatoon
Lois Herback
Regina
Cathy Holtslander
Saskatoon
Audrey Horkoff
East
Bonnie Lavallee
First Nations
Mike McLeod
Langham
Cy Standing
First Nations
Dannie Wreford
Shellbrook
Vanda Wutzke
North
The Board is comprised of 15 Directors based on a District
governance structure. Terms are three years in duration and
renewable. Collectively, the Board is capable of fulfilling its
role and represents a variety of experience, competence
and knowledge.
“The Board is at the
heart of our democratic
structure.”
District Council
Delegates
The local communities are represented by member-elected
District Councils (opposite). There are nine District Councils
representing the 36 communities we serve. Delegates
elect Directors to the Affinity Board of Directors from their
respective District Councils.
Delegates play a powerful role in the governance of
the credit union. They use their local knowledge and
established community relationships to provide strength
to our local communities ensuring that the voice of the
member-owner is heard. Delegates also provide leadership
on allocating community investment funds and attend
many of the credit union’s community events.
DeceMber 31, 2012
15
District 1
North
Annual Report and Summary Consolidated Financial Statements
Raquel Dyck
Lise Gareau
Katrina Regier
Leo Schulz
Vanda Wutzke
Karl Baumgardner Ed Cechanowicz
Adele Dupuis
Darren Hill
Doug Knowles
Randy Pshebylo
Cecile Smith
Mitchell Anderson Gayl Basler
Myrna Bentley
Charlie Clark
Ruth Glatt
Kearney Healy
Cathy Holtslander John Lagimodiere Brandi Tracksell-Sampson
Henry Dyck
District 2
Saskatoon
Jim Craik
District 4
Central
District 3
Saskatoon
John Waddington Lovie Wesolowski Spicer
Larry Doetzel
Don Ehmann
Scott Flavel
Grant
Greenshields
Wendy Gullacher
Brett Halstead
Lane Manson
Florent Bilodeau
Jean Dufreane
Lois Herback
Richard Heroux
Nancy Jones
Gordon Perkins
Tracy Selinger
Linda Bourque
Georgina
Harambura
Rebecca Lawless
Audrey Horkoff
James Nelson
Alvena Oryszczyn James Yakimoski
Peter Block
Donna Epp
Evelyn Kasahoff
Joe Kasahoff
Mike McLeod
Richard Mierau
Eric Pearce
Geraldine
Wainwright
Denis Bonin
Gary Gerein
Andy Larsen
Ian Lauder
Heather Ranger
Tina Stene
Debbie Topping
Dannie Wreford
Michael Bob
Alexander
Kennedy
Bonnie Lavallee
Paul Ledoux
Bryce Michael
Richard Okemow
Jacalyn Pilon
James Oxebin
District 7
Langham
District 6
East
District 5
South
Ivan Carpenter
Julie-Ann Wriston
Cy Standing
Delbert Wapass
District 9
First Nations
District 8
Shellbrook
Gerard Wild
16
Affinity Credit Union
Co-operative Development in canada and overseas
Supporting Economic Development
On Credit Union Day in October, Affinity’s Board of
Directors announced our expanded support for community
economic development through a donation of $80,000 to
the Co-operative Development Foundation’s Build a Better
World Campaign.
The Build a Better World Campaign aims to develop and
strengthen co-operatives and credit unions in marginalized
communities throughout the world empowering
thousands of co-op members and their families to lift
themselves out of a cycle of hardship and deprivation. Their
goal is to raise $12 million over the next four years.
Through this significant donation, Affinity will enhance
support to people who are working to improve their lives
and their communities through co-operatives and credit
unions.
In addition to the corporate donation, employees were
encouraged to offer their individual support and our Board
is leading the way. They agreed to donate one per diem per
year directly to the Campaign.
“Affinity believes in being a socially responsible corporate
citizen,” said Myrna Bentley, Affinity Board Director and CoChair of the Build a Better World Campaign. “We encourage
other credit unions to follow suit and make a significant
commitment to this campaign.”
Entry-Level Housing
Right here at home in
Saskatchewan, Affinity has
taken a leadership role
in community economic
development across the
province, focusing strongly on
entry-level housing.
Through a successful
partnership with key
Saskatchewan credit unions
and the City of Saskatoon,
Affinity launched the HeadStart
The Clarke family outside
their new home.
Equity Builder Program. The program provides down
payment assistance for people buying new homes
constructed by the HeadStart on a Home Program.
The availability of entry-level housing and the ability to
provide a down payment is one of the most significant
barriers to home ownership. That’s why Affinity is proud
to support this program and help to build stronger and
healthier communities over the long term.
International Aid
The Co-operative Development
Foundation’s Build a Better
World Campaign is supporting
international projects that are
changing the economic outlook
for many people in some of the
poorest communities in Africa.
One successful and ongoing
component of a project in
Malawi is the women’s economic
empowerment program called
Pamtondo. The program gives
financially disadvantaged
women access to credit by
mobilising them into small
groups in order to access group
loans aimed at enhancing
their opportunities in income
generation.
Chikopa has invested C$107 in her
business and sells tomatoes and
Sorghum in the local market. She shared
her loan with her husband, who is a
cabbage farmer and together they paid
back the loan. They can now cover school
fees for their three children.
Dorothy Hary, the chairperson
of a Pamtondo group that is
a member of the Bvumbwe
Community Savings and Credit Co-operative says that,
“Many of us knew we had some basic skills in small
business management but lacked capital.” By working
together to apply for a group micro-loan, women in
the group were able to find a pathway out of poverty
to economic stability. They were able to start different
businesses ranging from grocery shops to maize trading
and hair salons.
She reckons life without the loans would have been
especially difficult for the widowed and divorced women.
“This project has helped us to carry on with life without
indulging in self-pity,” she adds.
Annual Report and Summary Consolidated Financial Statements
DeceMber 31, 2012
17
“Being there when you need us is an
important part of our credit union culture.”
Warman and Martensville staff fundraise for the Friendship Inn.
18
Affinity Credit Union
Senior Leadership
Affinity Credit Union’s senior executive committee plays
Affinity Credit Union’s senior leaders develop and implement
a vital role in determining organizational strategy and in
operational strategies to meet the organizational goals of the
guiding the operations of the credit union.
credit union.
Hugh Balkwill
Vice President,
Credit Services
Glenn Brodt
Vice President, Risk
Myrna Hewitt
George Keter
Senior Vice President
Chief Executive Officer
Marketing & Community (to September 30)
Development
Myles Lariviere
Vice President, Advisory
& Insurance Services
Tanya Llewellyn
Vice President, Finance
& Accounting
Mark Lane
Chief Operating Officer
(to September 30)
Lise de Moissac
Senior Vice
President & Chief
Financial Officer
Shawna Miller
Vice President,
Marketing
Serese Selanders
Vice President,
Sales & Development
Atul Varde
Senior Vice President
& Chief Information
Officer
Mark St. Onge
Vice President,
Service Delivery
Pat Brothers
Senior Vice President
Human Resources
Chief Executive Officer
(from October 1)
Linda Moulin
Senior Vice President
& Chief Governance
Officer
Ken Harding
Senior Vice President
Risk Management
Annual Report and Summary Consolidated Financial Statements
DeceMber 31, 2012
$126m
Gross revenue
95,000
Member-owners
$85,760
To the United Way raised from employee payroll
deductions, matched at $1.05 by the credit union
19
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Affinity Credit Union
“Because of our members’ support, the commitment
of our staff, and the dedication of our elected
officials, 2012 was a very successful year.”
Mark Lane, Chief Executive Officer
Annual Report and Summary Consolidated Financial Statements
DeceMber 31, 2012
21
Chief Executive Officer’s Report
Mark Lane, Chief Executive Officer
With the support of our loyal members, we are pleased to report that Affinity Credit
Union experienced another successful year in 2012.
I thank our Board of Directors, District Council Delegates,
management teams and employees for their continued
support and dedication to making Affinity a sociallyresponsible leader and one of the most successful credit
unions in Canada.
Over the course of 2012, we moved ahead in many key
areas relating to member service, financial strength,
community building, employee growth and innovation.
Members
We officially welcomed Muenster, Colonsay and Broadview
Credit Unions to our organization effective January 1, 2013
following member votes in each of those organizations
in support of a merger with Affinity. We look forward to
providing an expanded service offering to these members,
as well as an ongoing commitment to community support
based on shared values as guided by co-operative
principles. We are presently working toward membership
votes with Advantage Credit Union and Spectra Credit
Union with a proposed merger date of July 1, 2013 if a
positive vote is achieved. More information on these
most recently proposed partnerships can be found on a
dedicated website: abettercuforyou.com.
Our leadership in corporate social responsibility was
acknowledged internationally in the spring of 2012 when
we were invited to join the Global Alliance for Banking on
Values (GABV). This network of the world’s leading financial
institutions on banking on values focuses on balancing
people, our planet and profit. Affinity is only the third
Canadian financial institution invited to join the alliance.
Joining GABV will provide us with an excellent opportunity
to contribute to the growth of the worldwide “banking on
values” movement. Affinity has always been committed to
delivering long-term social and economic benefits to our
members. We achieve this through shared social values,
a grass-roots governance structure, a concern for our
environment and strong economic performance. Working
with other GABV members will help us combine and share
strengths, capabilities and resources to enhance our efforts
and improve the lives of our members every day.
2012 was a year where we underlined our commitment
to listening to members regarding service enhancements
that were important to them. We focused on optimizing
our member experience by regularly seeking their
feedback and taking advantage of opportunities to exceed
expectations.
Affinity held member focus groups, carried out member
and non-member surveys, in person and online, in each
of our communities. Most significantly, we implemented
the Voice of Member project which provided a continuous
feedback loop, direct from members using our service
locations, regarding the quality of service received from
Affinity. This project provided our members with an
active voice in determining their product and service
expectations and provided our managers and staff the
opportunity to address issues raised by members on a daily
basis.
Affinity is continually looking for ways to improve our
member’s experience with us. As an example, from 2012,
we streamlined our in-branch process for opening new
memberships which can now be completed in about
20 minutes and without the need of a pre-arranged
appointment. Work has now commenced to apply the
same time-saving techniques to our loan and mortgage
processing experiences and we look forward to reporting
on these initiatives in due course.
In late 2012, we introduced new, in-branch, instantissuance MemberCard production and laid the foundation
for providing members with chip-enabled, customized
design, contactless, “tap and go” payment technology at
compatible point-of-sale terminals, which will be available
in 2013.
Good progress was made in upgrading our service
outlets. Our 8th Street branch in Saskatoon underwent a
major refurbishment and, further along the same street,
we completely re-built our Affinity Insurance office.
22
Affinity Credit Union
Renovations in both locations focused on
enhancing our member service experience.
Financial Strength
Jesse McCallum, Member
Service Representative,
issues a new MemberCard
produced in the branch.
Affinity Credit Union realized a positive and
profitable operating year in 2012. We remain
a stable and secure organization with high
quality assets, which were represented this
past year by historic lows for loan delinquency.
We also continue to benefit from a strong
capital base that has been achieved over many
years and through the efforts of many former
organizations that make up Affinity today. As
a key contributor to our financial strength,
we continue to focus on controlling expenses
and ended the year with operating costs that
were less than budget. Our complete financial
story accompanies this report in the form of
our 2012 Summary Consolidated Financial
Statements.
Following on from this history of success,
the Board has declared that all patronage
balances held from previous years be returned
to members in 2013. This is expected to be
welcome news to members who will receive
their share of the $10.1 million presently held
in prior years’ patronage allocations. The Board
also declared an interest payment be made to
members based on outstanding balances of
retained patronage at the end of 2012.
We are proud to remind our members that
all deposits held in Affinity Credit Union are
fully guaranteed by Credit Union Deposit
Guarantee Corporation. The Corporation was
the first deposit guarantor in Canada and
has successfully guaranteed deposits held
in Saskatchewan credit unions since 1953.
For more information about The Corporation
and the guarantee, talk to a representative at
Affinity Credit Union or visit www. cudgc.sk.ca.
Annual Report and Summary Consolidated Financial Statements
Community Building
Our commitment to giving back to the
communities we live and do business in
continues to set us apart from other financial
institutions.
Affinity invested $1.5 million in community
development in 2012 in providing support
to over 351 organizations and developing
strategic partnerships to help leverage our
benefits to our communities across the
province.
We continued to provide access to housing
for those challenged by affordability, location
and availability. Our focus on housing enabled
us to build on a number of existing and new
partnerships that made housing achievable
to many. In partnership with the City of
Saskatoon, we provided 20 mortgages and
$4.8 million in financing to low-to-moderate
income families who were able to fulfill their
dreams of moving from rental accommodation
to home ownership. We also provided 35
mortgages and $8.6 million in financing to
assist members taking advantage of an entrylevel condominium project.
2012 saw the launch of the ChangeIt® program
which provided members with the option
of rounding up their debit card transactions,
creating ‘virtual’ change that was directed
to their charity of choice. As at December
31, 2012, we enabled members to provide
additional support to 21 community projects.
We continued to provide meaningful member
education throughout the province focusing
on matters of real concern to members,
including first-time home-buying, financial
education and power of attorney abuse.
Education was delivered through school
and community presentations and through
in-branch seminars. 4175 members and
individuals benefitted from our expertise this
year. We also saw progress in the delivery of
Individual Achievement Accounts (IAA) in many
school districts in Saskatchewan, as facilitated
by Affinity’s leadership of this partnership with
the provincial government. The IAA program
teaches young people how to manage their
financial affairs, save money towards a goal,
gain employment skills or continuing their
education.
We saw the successful roll out of The Elwood
Harvey Co-operative Leadership Scholarships
made available to grade 11 students. The 14
students who received the $2,500 scholarships
were also given the opportunity to learn
more about the co-operative movement by
participating in our District Council meetings.
With former Federal Government microloan programs ending early in 2012, Affinity
proudly introduced our own BusinessCents
Micro Finance program which continued our
commitment to local entrepreneurship and
community economic development.
23
DeceMber 31, 2011
75
%
of employees working
in the communities
they reside in
89
%
overall employee
satisfaction rate
We thank our District Council Delegates for
their guidance and insight in supporting
the communities we serve and ensuring the
local member’s voice is heard. We thank also
our dedicated and engaged employees who
touch the lives of our members every day
through the service they provide and through
the wide variety of fundraising and volunteer
efforts supporting economic and community
development in their home communities. As an
example, employees raised a total of $85,760
for the United Way through payroll pledges and
fundraising events - an incredible achievement
and worthy of congratulations.
“Affinity offers a workplace that
enables you to grow professionally
and personally.”
Employee Growth
Success is never achieved without hard work
and our employees have once again risen to
the challenge. We thank them for their many
contributions in over the past year.
Affinity is committed to providing competitive
pay and benefits in a positive work
environment. In 2012, we revamped our
organizational structure to better address the
ongoing challenges in the financial service
industry from increased competition, tighter
margins and higher consumer expectations.
24
Affinity Credit Union
Professional development for employees
remains a key commitment and Affinity
provided $300,000 for employee training.
We ensured employees were given support
to obtain required qualifications for their
positions as well as financial support for those
who had career aspirations.
We saw a renewed focus on our sales and
service culture in order to enhance our
members’ experience. To equip our staff with
the appropriate skills and competencies, a
systemic program was introduced that focuses
on customer service, sales and enhancing the
coaching skills of our people leaders.
further increase network speed. All of this effort
is resulting in better, more timely member
service.
Internally, we completed a successful
pilot allowing geographically-dispersed
departments to communicate more naturally,
and thereby to cultivate better working
relationships, using high-definition desktop
video-conferencing. This service will be rolled
out to more areas in 2013 and will ultimately
improve both member service outcomes and
our operational efficiency.
As well, a thorough review of the credit
union’s recruitment processes and practices
was completed and now ensures alignment
with the credit union’s commitment to career
advancement opportunities for employees.
Progress on our new Affinity Campus
administration building in Saskatoon
continues. The open-concept working space,
incorporating many sustainable features,
has been created and will be ready for our
Saskatoon-based administrative teams to move
in beginning around August 2013.
Innovation
Future
We continued to look for innovation
opportunities in all aspects of our operations
in 2012.
Over the next 12 months, we should get
greater clarity on the direction of global
economic trends and their inherent or
underlying risks. This will help advance current
discussions on our risk appetite and growth
strategy.
We launched several projects to significantly
enhance our internet and mobile banking
platforms. We introduced the popular Interac
e-Transfer service which allows members to
send money to anyone with an email address
and a deposit-taking account with a Canadian
financial institution. Work commenced to add
the ability to specify a cell phone number,
instead of an email address, with delivery
scheduled for 2013. Member response to the
Interac e-Transfer service has been excellent.
We also began the development of mobile
banking apps for smart-phones operating on
the Apple and Google platforms.
A significant overhaul of our network
infrastructure was also undertaken, with
investments in new desktops, laptops, servers,
and network equipment resulting in more
bandwidth capacity and the introduction of
leading-edge “accelerator” technology to
Challenges to achievement of our planned
objectives may come from work on various
mergers, both those mentioned above and the
potential introduction to new opportunities.
Merger projects demand significant board and
management time, but offer growth to our
organization along with an affirmation that
Affinity continues to be on the right path as a
credible partner of choice for co-operatively
minded organizations. In many ways, Affinity
has come to represent the model for what true
partnerships can be.
Mark Lane, Chief Executive Officer
Annual Report and Summary Consolidated Financial Statements
DeceMber 31, 2012
25
Affinity employees:
Brent Zatrepalek, Support Services Analyst;
Marina Covey, Marketing Relationship Manager;
Jenny Zhang, Accounting Clerk.
“We strive to ensure that our organization is a place
where talented people want to work and have the
opportunity to thrive in their careers.”
Pat Brothers, SVP Human Resources
26
Affinity Credit Union
International Year of Co-operatives
As a financial co-operative, we are proud to be part of a broad network of
credit unions and other co-operatives working to make a difference locally,
nationally and internationally. In 2012, we celebrated the International Year
of the Co-operatives and took an active role in promoting the co-operative
difference throughout the province. Here are just some of our activities.
“At Affinity Credit
Union we’ll always
be true to our roots
and are proud
to be part of this
International Year
of Co-operatives.”
Working Together!
Affinity staff from Warman branch
partnered with The Co-operators and the
Co-op Gas Bar to host a barbecue to mark
the International Year of the Co-operatives
and to raise funds for the Warman
Community Association.
Myrna Hewitt,
Senior Vice President
Marketing &
Community Development.
Chili Fundraiser
Hague staff raised $407 by holding a chili fundraiser
for members. They donated the proceeds to
Hague Library. Four staff members made the chili:
Lorna Loewen, Barb Braun, Chaseity Rudolph, and
Cynthia Peters. Tammie Unger baked and
decorated the cake.
Annual Report and Summary Consolidated Financial Statements
DeceMber 31, 2012
Helping People Work Their Way Out of Poverty
To celebrate the International Year of Co-operatives and to
raise funds for the Co-operative Development Foundation
of Canada (CDF), our Board Director, Myrna Bentley, trained
hard, with other Canadian co-operators, to climb Mount
Kilimanjaro, the highest mountain in Africa. Although
when the time came, she was not able to take part in
the climb, she arranged to have Affinity toques sent to
the porters assisting the other climbers. Her team raised
$16,575. The CDF, in partnership with Canadian Cooperative Association, helps people work their way out
of poverty.
Feeding the Hungry
Staff from Saskatoon partnered with other
local co-operatives to plant, grow and harvest
a garden for the Saskatoon Food Bank. Their
collective efforts yielded 21,120lbs of fresh
produce of which Affinity grew nearly 2,200lbs.
Supporting Camp Easter Seal
CEO Mark Lane rappelled off Carlton Tower
in Saskatoon to raise money for Camp
Easter Seal. Through individual donations
and vacation day / Roughrider ticket draw
sales ($2,130 alone), he raised $7,745
for this great cause. The big winners are
Saskatchewan children with disabilities
who can now attend a summer camp
specially tailored to their needs.
27
28
Affinity Credit Union
Environmental Innovations at Affinity Campus
Affinity Campus, our new administration
building in Saskatoon is almost complete.
Renovation work carried out on the
former Wilson’s School building has
created an open-concept working space
and, in keeping with the credit union’s
environmental policy, incorporates many
green-building features.
The 69,000 square foot building aims to
reduce energy consumption, save money,
reduce the use of natural resources and
create a healthy, comfortable working
environment for employees.
Renovation work will continue throughout
the spring and summer but will be ready
for the Saskatoon-based administrative
teams to move in starting August 2013.
Green Features
Energy efficiency
• Energy efficient heating, ventilation
and air-conditioning system.
• Light harvesting system that will turn
off perimeter lights when sunshine and
daylight allows.
• Energy efficient LED, T5 and T8 florescent
light fixtures and lamps.
• Smart car plug power management
system.
Improved indoor air quality
• 100% fresh air systems year round.
Building amenities
• Fitness center and energy efficient
showers.
• Recycling options through Loraas.
Alternative
transportation access
• New bike promenade (along 33rd Street)
with secure bike racks.
• Connecting bike paths and routes to
walk, run or cycle to work.
• Non-toxic paints and finishes.
Recycled materials
Water efficiency
• Water filtration system reducing the need
for bottled water.
• Metal, glass, masonry were recycled;
concrete was crushed for re-use as road
base.
• Lumber, plywood and insulation were
re-used.
• Wood and organics were isolated for
disposal and recycling.
• 8 air conditioning condenser units were
recycled for re-commissioning.
• Tyndall Stone was selectively demolished
for preservation and re-use.
• On site soils were stockpiled and re-used.
• Concrete stairs and structural steel were
repaired and incorporated in the new
building.
• Interior door slabs were reused for work
table tops.
• Materials sent to Habitat for Humanity
include: 25 slate blackboards, 200
fluorescent light tubes, 6 bathroom
vanity sinks, 22 doors, 12 pallets of
masonry blocks, 24 radiant heaters.
Annual Report and Summary Consolidated Financial Statements
DeceMber 31, 2012
29
“ Financial strength is our cornerstone.
Being well prepared to meet the future
means a lot to our members.”
Lise de Moissac,
Senior Vice President and
Chief Financial Officer (right)
Tanya Llewellyn,
Vice President Finance
and Accounting (left)
30
Affinity Credit Union
Management Discussion and Analysis
This report provides Management’s overview of the consolidated financial performance of Affinity Credit Union for
2012. We have included a discussion of our key strategies and drivers, our 2012 results and outlook for the future, and a
discussion of capital adequacy and key risks.
Affinity Credit Union Consolidated Financial Highlights
For the year ended December 31,
(thousands of dollars)
ctual 2012
A
(IFRS)
Target 2012
(IFRS)
Actual 2011
(IFRS)
Actual 2010
(IFRS)
Actual
2010
Actual
2009
Assets
Cash and Financial Investments
Investment Properties
Loans
Other Assets
$ 363,009
17,205
2,023,979
69,729
$ 438,665
15,252
1,972,984
54,629
$ 425,066
15,229
1,838,328
55,350
$ 373,828
15,176
1,709,542
52,910
$ 373,858
1,705,208
65,142
$ 282,211
1,700,207
65,982
Total Assets
$2,473,922
$2,481,530
$2,333,973
$2,151,456
$2,144,208
$2,048,400
$1,901,760
Deposits
Loans Payable
Membership Equity
Other Liabilities
Equity
$2,229,796
4,370
10,624
24,239
204,893
$2,249,486
562
11,440
21,677
198,365
$2,116,050
713
11,270
24,163
181,777
$1,947,677
2,317
11,438
24,222
165,802
$1,949,506
2,317
11,438
22,270
158,677
$1,859,890
17,715
11,611
18,680
140,504
$1,702,334
38,355
11,852
20,891
128,328
Total Liabilities and Equity
$2,473,922
$2,481,530
$2,333,973
$2,151,456
$2,144,208
$2,048,400
$1,901,760
$ 70,018
(194)
29,926
$
$
$
$
$
$
95
210
65
99,845
96,841
93,056
Actual
2008
$ 245,495
1,592,510
63,755
Liabilities
Statement of Comprehensive Income
Net Interest
Provision for Credit Losses
Other Income
Share of profit of equity
accounted investees
Net Interest and Other Income
69,901
(2,479)
29,209
64,110
(1,608)
30,489
66,154
(1,189)
30,487
66,154
(1,376)
30,317
59,652
(4,653)
31,378
84
-
-
95,536
95,095
86,377
62,310
(2,398)
28,146
88,058
Operating Expenses
(73,168)
(74,699)
(70,851)
(69,312)
(70,342)
(71,186)
(71,616)
Earnings Before Tax and Distributions
26,677
22,142
22,205
26,224
24,753
15,191
16,442
Patronage
Employee recognition
Provision for Income Taxes
36
(685)
(3,312)
(5,264)
(2,245)
(630)
(3,355)
(2,237)
(640)
(3,977)
(660)
(2,355)
(2,237)
(640)
(3,703)
27
(3,603)
$ 22,716
$
16,878
$
15,975
$
19,370
$
18,173
$
12,176
$
12,866
$2,403,948
6.00%
10.10%
-14.60%
5.38%
0.25%
73.14%
11.12%
0.94%
2.91%
8.63%
$2,404,501
6.62%
7.67%
2.62%
6.75%
1.25%
75.37%
8.34%
0.70%
2.91%
8.38%
Net Income
Statistics
Average Assets
Asset Growth
Loan Growth
Cash and Financial Investment Growth
Deposit Growth
Delinquency as a % of Loans
Efficiency Ratio
Return on Equity*
Return on Average Assets
Net Interest Margin %
Tier 1 Capital as a % of Total Assets
* includes Membership Equity
$2,242,715
8.48%
7.53%
13.71%
8.64%
0.87%
74.84%
8.63%
0.71%
2.86%
8.16%
$2,099,928
5.03%
0.55%
32.46%
4.72%
1.00%
71.66%
11.76%
0.92%
3.15%
8.06%
$2,096,304
4.68%
0.29%
32.47%
4.82%
1.00%
72.92%
11.28%
0.87%
3.16%
7.89%
$1,975,080
7.71%
6.76%
14.96%
9.26%
0.75%
78.20%
8.33%
0.62%
3.02%
7.15%
$1,828,007
8.41%
9.73%
2.64%
9.73%
0.91%
79.19%
9.59%
0.70%
3.41%
7.05%
Annual Report and Summary Consolidated Financial Statements
DeceMber 31, 2012
31
Key Strategies and Drivers
Affinity Credit Union operates in locations throughout
Saskatchewan. Management continues to deliver on the
key Board strategy of increasing our market share in the
communities that we serve. 2012 represented a year where
we used our dialogue with members to critically evaluate
our delivery model and service standards. Our efforts were
aimed at continuous improvement in our product offering,
our technology channels, and our processes.
We planned 2012 to reflect virtually no relief from the
low interest rate environment. Balance sheet growth
continued to be the sensible focus given the relatively
strong Saskatchewan economy. The increase to our book
of business and our attention to cost control would result
in a more efficient Affinity and in turn, make any plans for
innovation very affordable.
In 2012, Business Development Managers had the benefit
of a second year of branch profitability information. This
detailed knowledge has allowed managers to assess all
aspects of what drives success for their locations. Over the
course of the year, we’ve seen marked improvements in the
results for many locations, contributing to the strength of
Affinity’s overall operating results.
Through past research, member engagement, and
product innovations, Affinity enjoyed another year of
overachieving on planned mortgage growth. In 2012,
these tactics allowed for the replacement of margin dollars
through mortgage growth and asset mix optimization.
These margin dollars would have been lost through the
continued low rate environment.
Results and Outlook
The financial results presented for 2012, 2011 and 2010
are in accordance with International Financial Reporting
Standards (IFRS). Other years’ audited results have been
presented based on generally accepted accounting
principles in effect for those years. The credit union
transitioned to IFRS effective January 1, 2010.
Affinity Credit Union’s consolidated results include
the operations of 44 branches in 36 Saskatchewan
communities, 2 commercial centres, 8 insurance agencies,
and several investment properties.
Growth
The ability to grow our business is contingent on strong
capital levels. Affinity Credit Union was in a strong capital
position at the end of 2011, and we forecasted that 2012
growth of 6.62% would be achievable given the impacts
of any economic recoveries, and the success of our new
product, technology, and analysis innovations.
The 2012 asset growth result did not meet expectations at
6.00%. Growth was slower during the first half of the year
and this was typical of our last several operating periods.
After the launch of our late spring campaigns, growth
accelerated through to year end and we ended 2012 very
close to our target. Our asset growth did not compare
favorably to the average of our credit union peer group of
7.37%.
At the same time, Affinity expanded its technology base
to offer a better experience in both mobile and internet
banking platforms. Our members enjoy a similar or better
technological experience than Canada’s largest banking
institutions can provide; another tactic for growth.
Our ability to grow is predicated on our ability to finance
growth. Ideally, we rely on member deposits and capital
to fully finance increases to the statement of financial
position. As a liquidity precaution, we have borrowing
arrangements in place with our credit union partner
companies. We planned to, and succeeded in placing little
reliance on these arrangements throughout 2012.
Business line diversification has been a successful business
maneuver. Our investments in real property, insurance and
financial advisory services improved our operating results.
In 2012, Affinity added to its diversification through an
investment in a seniors’ residence in Kamsack. We expect
that property will be completed and fully subscribed for in
2013.
Our budgeted deposit growth for 2012 was 6.75% and we
achieved 5.38%. During the year we experienced deposit
run off from several large depositors needing excess
liquidity for their own development needs. We were unable
to replace that run off with additional growth to meet
our plan. We far surpassed our expectations in demand
deposit categories but we fell short in fixed term deposits.
32
Affinity Credit Union
We continue to see a low appetite for long term deposit
contracts in a depressed interest rate environment. The use
of campaigns and specials allowed Affinity to grow long
term deposits in a limited way throughout the year. As a
credit union, Affinity was able to promote the 100% deposit
guarantee. Where members lost confidence in the financial
markets, Affinity was attractive as an alternative depository.
Loan growth was budgeted at 7.67% and we achieved
10.10%. Overall, we exceeded percentage growth
expectations for every loan category except for consumer
loans, a relatively small Affinity portfolio. Our success was
most notably seen in our mortgage business across all
Agricultural, Consumer, and Commercial business lines.
Much of the growth was achieved in the latter part of the
year after the late spring campaigns, where members had
the benefit of changes to our lending suite of products. At
the same time, the organizational aim was to affect a high
rate of mortgage retention and we were successful in this
tactic. We ended 2012 with a large loan pipeline that we
expect to fund in 2013.
The shortfall in deposit growth caused some of our excess
liquidity to be used to finance loan growth. As a result of
being more lent out, the investment portfolio contracted by
14.60% in 2012.
Return on Equity and Efficiency
The return on Affinity’s equity and the efficiency of the
credit union are based on our net income, reflected in
the Consolidated Statement of Comprehensive Income. A
strong net income will produce a healthy return on equity,
and efficiency is our ability to generate more dollars of
revenue with each dollar of cost.
Net Interest Income
Net interest income (or margin) represents the yield
from loans and investments netted against the cost of
deposits and other financing. The credit union margin
did not contract in 2012 and this was in line with
expectations. We exactly achieved 2.91% as budgeted.
However, Affinity planned for interest rate increases in
the latter part of the year and no increases materialized.
As well, the budget included a much stronger return
from our investment in SaskCentral than that which was
received.
There were several mitigating factors that caused us to
reach our target. From a revenue perspective we fully
recovered interest on a large previously delinquent
commercial loan and we enjoyed large returns on our
investment in venture capital. Our costs were not as
high as anticipated since much of our deposit growth
was through low cost demand deposits, and many of
our renewing longer term deposits did so at lower rates.
Provision for Credit Losses
The expense for credit losses represents changes to the
loan loss allowance (loan principal we do not expect to
recover). The current year provision was far below target.
The credit union recovered significant expense on a
previously impaired loan.
Other Income
Other income for 2012 exceeded budget. We were more
successful at generating revenues from both investment
properties and insurance agencies than expected. At the
same time, we were not as successful in generating fee
income related to our credit union business. As many
of these fees are variable in nature, a decrease in an
underlying volume impacted the resulting revenue. This
was particularly noticeable in mortgage prepayment
fees where our mortgage retention rates were much
higher than expected.
Operating Expenses
Operating costs were less than budget. General
business expenses provided the most variance to
budget. At the end of 2011, we had the unexpected
opportunity to purchase the source code to the Ovation
banking system from a supplier, thereby extending the
useful life of the system and causing a much smaller
annual depreciation cost than budgeted. Additional
savings in many of our technology costs added to this
positive general business variance as did lower than
expected consulting fees. All other expense categories
approximated budget.
Distribution of Profit
The credit union ended the year with sufficient pre-tax
income to consider a distribution of profit to members
and to staff. Effective December 31st, 2011, the Board
declared patronage to the membership in the amount
Annual Report and Summary Consolidated Financial Statements
of $116 thousand representing an interest payment on
year end outstanding balances. The Board also approved
an appreciation payment to staff in the amount of $685
thousand.
After distributions of profit and tax, Affinity Credit Union
achieved a 2012 return on equity of 11.12%, exceeding
the target of 8.34%. This is the measure of the current
year net income to members’ net worth (membership
equity and equity). The credit union exceeded targets
for net interest, provision for credit losses, and operating
expense. The budgeted return on equity did not
contemplate an allocation for patronage or profit share.
Without these allocations, Affinity’s return on equity
would have been 11.71%.
The efficiency of the credit union for 2012 was 73.14%,
exceeding the budgeted efficiency target of 75.37%. Affinity
was able to retain more of each dollar earned rather than
spending it. More is added to capital allowing for future
diversification and growth.
Outlook
The 2013 budget year calls for moderately aggressive
growth, a strategy that allows for an appropriate use of
Affinity’s strong capital position. We are expecting that
credit losses will return to normal levels, that costs will be
higher to finance a number of technological and member
acquisition innovations and tactics, that interest rates will
not recover, and that fee income will slightly exceed the
2012 result.
Capital and Risk
The capital position of Affinity has improved since the prior
year, and this is consistent with the constant improvement
for each comparative year shown. The year end Tier 1
Capital level was 8.63%, 25 basis points higher than the
annual operating plan target and higher than the Tier 1
Capital Plan target for Affinity of 8.0%. Our regulator, Credit
Union Deposit Guarantee Corporation recommends 7% Tier
1 Capital. Effective in July, 2013, our regulator will introduce
new capital standards for Saskatchewan Credit Unions.
Under the new standards, Affinity will reflect a stronger Tier
1 Capital level than the current year end measure.
DeceMber 31, 2012
33
The current Affinity Capital Plan includes a calculation of
the economic capital requirement for Affinity relative to
our most significant business risks: credit, market, liquidity,
strategic, business and operation. The economic capital
requirement includes stress testing and assumes that all
risks will present simultaneously. Affinity is expected to hold
book capital in excess of economic capital of 15%. The result
for 2012 was a capital surplus of 45.26%.
Adequate capital levels are required to protect the credit
union from risk exposure. Affinity’s most significant financial
risks are credit risk through lending, liquidity risk, and
market risk. Further capital management details can be
found in Note 28 to the Consolidated Financial Statements.
Credit Risk
The credit union faces credit risk for each loan
committed. The level of that risk is contingent upon
the likelihood that the borrower will default on that
loan and the level of security attached to that loan.
In the event of default, the credit union will reflect
an allowance against the loan to the extent of any
shortfalls in security. At the same time the allowance
is recognized, an offsetting expense is recorded
(provision for credit losses) and the full amount of the
principal is classified as doubtful. At the end of 2011,
Affinity maintained both a specific and a collective
impairment assessment. The collective impairment
assessment reflects the risk inherent in the portfolio
not specifically identified. The dollar amount is based
on historical losses and represents 37.76% of total
allowances.
At the end of 2012, loan delinquency as a percentage
of total loans was 0.25%, far below the credit
union target maximum of 1.25%. There have been
decreases in commercial, consumer and agricultural
loan categories in 2012. Often, a decrease in loan
delinquency can be achieved by the write off of
delinquent loans. Affinity was able to reduce year over
year delinquency, but incurred an increase in loans
written off. This increase would have caused a 2 basis
point increase in the delinquency level.
34
Affinity Credit Union
To properly determine the economic capital
requirement for credit risk, the credit union developed
an evaluation tool in 2010 that analyzed each loan
based on the probability of default (borrower’s ability
to pay), the loss given default (actual loss against
delinquent credit) and the exposure at default (effort
and cost associated with security collection). The tool
also includes several components of stress testing.
Liquidity Risk
Liquidity risk is the risk of the credit union not being
able to satisfy current and future expected demands on
cash. The Board and management have set targets of
necessary surplus liquidity over a one year time horizon
that leave a generous liquidity buffer to withstand
the stress of unusual events and contemplate current
expected cash flow. Intermediate targets have also
been established to force action long before any critical
shortfalls are experienced. Throughout 2012 and at
year end, liquidity has been managed well within
these parameters. The liquidity standards of the credit
union are in addition to statutory liquidity requirement
(10% of deposits and borrowings), maintained as an
investment at SaskCentral.
Market Risk
The market risk to Affinity is the risk of loss on the
value of a financial instrument or portfolios of financial
instruments from changes in interest rates, foreign
exchange rates, and credit spreads amongst other
factors. The Board and management have both long
and short term market risk metrics to manage the
impact of interest rate risk on operating results and
the market value of equity. The credit union employs a
statistical model that provides for a measure of stress
testing through multiple rate scenarios. During 2012
and at year end, Affinity continued to reflect very low
levels of market risk for both the near term (1 year) and
long term (5 years). Affinity also remained well within
its policy limit on foreign exchange exposure.
Financial risk management and associated metrics and
discussion are included in Note 27 to the Consolidated
Financial Statements. Affinity has an active Asset and
Liability Committee to review and develop strategies to
actively manage the financial risks to the credit union.
The committee meets at least bi-monthly and decisions
are then forwarded for review to the Audit and Risk
Committee of the Board.
Annual Report and Summary Consolidated Financial Statements
DeceMber 31, 2012
35
Management’s responsibility
for financial reporting
The accompanying consolidated financial statements
of Affinity Credit Union were prepared by management,
which is responsible for the integrity and fairness of the
information presented, including the many amounts that
must of necessity be based on estimates and judgments.
These consolidated financial statements were prepared
in accordance with financial reporting requirements
prescribed by the Credit Union Act, 1998 of the Province of
Saskatchewan, Credit Union Deposit Guarantee Corporation,
and by statute. The accounting policies followed in the
preparation of these financial statements conform to
Canadian generally accepted accounting principles (GAAP).
Financial and operating data elsewhere in the annual
report are consistent with the information contained in the
financial statements.
In discharging our responsibility for the integrity and
fairness of the consolidated financial statements and for
the accounting systems from which they are derived, we
maintain the necessary system of internal controls designed
to ensure that transactions are authorized, assets are
safeguarded, and proper records are maintained. These
controls include quality standards in hiring and training of
employees, policies and procedures manuals, a corporate
code of conduct and accountability for performance within
appropriate and well-defined areas of responsibility.
The system of internal controls is further supported by a
compliance function, which is designed to ensure that we
and our employees comply with appropriate legislation and
conflict of interest rules, and by an internal audit staff, which
conducts periodic audits of all aspects of our operations.
The Board of Directors oversees management’s
responsibilities for financial reporting through an Audit and
Risk Committee, which is composed entirely of independent
directors. This Committee reviews our consolidated financial
statements and recommends them to the Board for
approval. Other key responsibilities of the Audit and Risk
Committee include reviewing our existing internal control
procedures and planned revisions to those procedures, and
advising the directors on auditing matters and financial
reporting issues. Our Senior Compliance Manager and Chief
Internal Auditor have full and unrestricted access to the
Audit Committee.
Further monitoring of financial performance and reporting
is carried out by the Credit Union Deposit Guarantee
Corporation. It is given its responsibilities and powers
by provincial statute through the Credit Union Act. Its
purpose is to guarantee members’ funds on deposit with
Saskatchewan Credit Unions and provide preventative
services. Preventative services include ongoing financial
monitoring, regular reporting and consultation.
Deloitte LLP, Independent Registered Chartered
Accountants appointed by the members of Affinity Credit
Union upon the recommendation of the Audit and Risk
Committee and Board, have performed an independent
audit of the consolidated financial statements and their
report follows. The auditors have full and unrestricted access
to the Audit and Risk Committee to discuss their audit and
related findings.
Mark Lane
Chief Executive Officer
Saskatoon, Saskatchewan
February 25, 2013
Lise de Moissac
Senior Vice President and Chief Financial Officer
36
Affinity Credit Union
Annual Report and Summary Consolidated Financial Statements
37
DeceMber 31, 2012
AFFINITY CREDIT UNION
SUMMARY CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at December 31 (in thousands of dollars)
2012
(Note 1)
2011
(Note 1)
ASSETS
Cash
Financial investments
Investment properties
Loans
Current income tax asset
Other assets
Fair value of derivative assets
Investment in associates
Property and equipment
Intangible assets
Deferred income tax asset
$
14,004
349,005
17,205
2,023,979
324
9,502
1,643
101
40,298
16,456
1,405
$
25,692
399,374
15,229
1,838,328
208
5,845
1,348
65
31,263
15,304
1,317
$
2,473,922
$
2,333,973
$
2,229,796
4,370
21,101
1,615
1,282
241
10,624
$
2,116,050
713
21,764
1,242
882
275
11,270
LIABILITIES
Deposits
Loans and borrowings
Other liabilities
Fair value of derivative liabilities
Deferred income tax liability
Deferred income
Membership equity
2,269,029
EQUITY
Retained earnings
Accumulated other comprehensive (loss)
Equity attributable to owners
204,588
(94)
204,494
Non-controlling interest
..................................................... CFO
..................................................... Director
181,800
(23)
181,777
399
$
APPROVED BY THE BOARD
2,152,196
2,473,922
$
2,333,973
38
Affinity Credit Union
AFFINITY CREDIT UNION
SUMMARY CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended December 31 (in thousands of dollars)
2012
(Note 1)
PROFIT OR LOSS
INTEREST INCOME
Loans
Investments
$
INTEREST EXPENSE
Deposits
Borrowed money
2011
(Note 1)
89,506
8,609
98,115
$
86,088
8,773
94,861
27,995
102
28,097
30,645
106
30,751
NET INTEREST
PROVISION FOR CREDIT LOSSES
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES
70,018
194
69,824
64,110
1,608
62,502
OTHER INCOME
SHARE OF PROFIT OF EQUITY ACCOUNTED INVESTEES
29,926
95
30,021
30,489
65
30,554
NET INTEREST AND OTHER INCOME
99,845
93,056
40,431
23,795
4,244
2,523
2,104
73,097
37,882
24,512
4,220
2,242
1,972
70,828
OPERATING EXPENSES
Personnel
General business
Occupancy
Organizational
Security
ALLOCATIONS
Patronage allocation
Employee recognition
(36)
685
649
INCOME BEFORE INCOME TAX
PROVISION FOR INCOME TAXES (RECOVERY)
Current
Deferred
26,099
PROFIT
22,787
2,245
630
2,875
19,353
3,001
311
3,312
3,391
(36)
3,355
15,998
OTHER COMPREHENSIVE INCOME
ITEMS THAT WILL NOT BE CLASSIFIED TO PROFIT AND LOSS
Defined benefit plan actuarial gain or (loss), net of tax
(71)
ITEMS THAT MAY BE CLASSIFIED TO PROFIT AND LOSS
Unrealized gain/(loss) on fair value through OCI financial
instruments, net of tax
OTHER COMPREHENSIVE INCOME, NET OF TAX
TOTAL COMPREHENSIVE INCOME
Profit attributable to:
Affinity Credit Union
Non-controlling interests
Minority shareholders of 10118874 Saskatchewan Ltd.
Total Comprehensive income attributable to:
Affinity Credit Union
Non-controlling interests
Minority shareholders of 10118874 Saskatchewan Ltd.
(23)
-
-
(71)
(23)
$
22,716
$
15,975
$
22,788
$
15,998
$
(1)
22,787
$
15,998
$
22,717
$
15,975
$
(1)
22,716
$
15,975
Annual Report and Summary Consolidated Financial Statements
39
DeceMber 31, 2012
AFFINITY CREDIT UNION
SUMMARY CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended December 31 (in thousands of dollars)
$
Total profit or (loss)
181,800
$
22,788
Balance, end of year
204,588
(23) $
-
-
$
(Note 1)
(23)
-
Changes in other comprehensive income,
net of tax
(Note 1)
-
204,588
Non-controlling interest on acquisition of
subsidiary
2011
Accumulated
other
comprehensive
income
Retained
earnings
Balance, beginning of year
2012
(71)
$
(94) $
Equity
attributable to
owners
181,777
Non
controlling
interest
$
-
Total equity
$
181,777
$
165,802
22,788
(1)
22,787
15,998
204,565
(1)
204,564
181,800
400
-
-
400
(71)
204,494
-
$
399
(71)
$
204,893
(23)
$
181,777
40
Affinity Credit Union
AFFINITY CREDIT UNION
SUMMARY CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31 (in thousands of dollars)
2012
(Note 1)
CASH FLOWS FROM (USED IN) OPERATING
ACTIVITIES
Total Profit
Adjustments for
Provision for credit losses
Depreciation of property, plant and equipment
Amortization of intangible assets
Loss on disposal of property, plant and equipment
Loss on disposal of intangible assets
Impairment (reversal of impairment) of intangible assets
Share of profit from investment in associates
Realized (gain) on held-for-trading investments
Unrealized loss (gain) on held-for-trading investments
Amortization of premium/discount on held-to-maturity investments
Unrealized (gain) on investment property
Unrealized loss (gain) on held-for-trading derivatives
Purchases of held-for-trading investments
Loans
Proceeds from sale of held-for-trading investments
Proceeds from maturity of held-for-trading investments
Income tax expense
$
Changes in non-cash working capital
Net change in accrued interest receivable and payable
Other assets
Other liabilities
Deferred income
Cash interest received
Cash interest paid
Cash income taxes paid
CASH FLOWS FROM (USED IN) INVESTING
ACTIVITIES
Dividends received from associates
Net cash inflow on acquisition of subsidiary
Proceeds from maturity of liquidity and term investments
Purchases of liquidity and term investments
Proceeds from maturity of available-for-sale investments
Purchases of available-for-sale investments
Proceeds from maturity of held-to-maturity investments
Purchases of held-to-maturity investments
Purchase of investment property
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds from disposal of investment property
Proceeds from disposal of property, plant and equipment
CASH FLOWS FROM (USED IN) FINANCING
ACTIVITIES
Increase of deposits
Repayment of loans and borrowings
Issuance of new loans and borrowings
Repayment of membership equity
Sale of loans
NET INCREASE(DECREASE) IN CASH
$
1,608
2,157
1,374
98
(24)
39
(25)
(124)
54
(112)
(212)
(4,168)
(217,481)
942
3,250
3,355
(193,271)
2,039
(3,657)
(744)
(34)
(257,341)
(1,743)
296
486
(22)
(194,254)
98,445
(29,806)
(3,106)
94,513
(29,356)
(4,397)
(191,808)
(133,494)
59
400
168,334
(125,410)
1,321
(4,020)
1,771
(1,501)
(1,281)
(11,386)
(1,880)
117
62
202,034
(244,329)
158
(935)
1,220
(9,218)
(201)
(4,979)
(963)
260
208
26,524
(56,683)
141,741
(126)
3,885
(646)
8,742
199,018
(1,498)
(168)
681
153,596
198,033
7,856
25,692
$
15,998
194
2,223
738
11
4
(14)
(95)
249
74
(695)
78
(3,054)
(284,257)
3,500
3,312
(254,945)
(11,688)
CASH, BEGINNING OF YEAR
CASH, END OF YEAR
22,787
2011
(Note 1)
14,004
17,836
$
25,692
Annual Report and Summary Consolidated Financial Statements
DeceMber 31, 2012
AFFINITY CREDIT UNION
Note to the Summary Consolidated Financial Statements
December 31, 2012
1. Basis of the summary consolidated financial statements
The criteria applied by management in the preparation of these summary
consolidated financial statements are as follows:
a)
The information in the summary consolidated financial statements is in
agreement with the related information in the Credit Union’s December 31,
2012 audited consolidated financial statements (the “Audited Financial
Statements”); and
b)
The summary consolidated financial statements contain the information
necessary to avoid distorting or obscuring matters disclosed in the Audited
Financial Statements, including the notes thereto.
c)
The Audited Financial Statements can be obtained at any Affinity Credit Union
branch or on-line at www.affinitycu.ca/about-us/media-centre/index.html.
d)
The detailed notes included in the Audited Financial Statements are not
included in the summary consolidated financial statements as these notes are
available in the Audited Financial Statements which can be obtained as
described above.
41
FPO
Affinity Building
#205 – 128 4th Avenue South, Saskatoon, SK S7K 1M8
Tel: 306.934.4000 Toll-free: 1.866.863.6237 Fax: 306.934.4157