INSPIRE SUPPORT FINANCE - UNIexceed these expectations, we need to continue investing in new technologies and mobile experiences. It would be irresponsible in this context to continue

ANNUAL REPORT

INSPIRESUPPORTFINANCE

2 | Annual Report 2017 | UNI Financial Cooperation

Table of contentsMessage from the Chief Executive Officer ..........................................06

Management’s Discussion and Analysis ...............................................19

Caisse populaire acadienne

Consolidated financial statements ...........................................51

Table of contents | 3

The Annual Report was created byC.E. & Digital Channel & Finance:

HEAD OFFICE 295 Saint-Pierre Blvd. WestP.O. Box 5554Caraquet NB E1W 1B7

Graphic Design Mistral Communication


2017 HIGHLIGHTSAs of December 31, 2017

155,000MORE THAN

MEMBERS

3 REGIONAL COOPERATIVE COMMITTEES

MEMBERS

51BUSINESS

LOCATIONS

SURPLUS EARNINGS BEFORE OTHER ITEMS

IN ASSETS$2.3M$21.5M

$4B IN DONATIONS, SPONSORSHIP AND SCHOLARSHIPS

10812 COMMUNITY COOPERATIVE COMMITTEES

1,000EMPLOYEES

241REGIONAL OFFICES OF UNI INSURANCE

REGIONAL OFFICES OF UNI BUSINESS

CAISSE

| 5Business Locations | 5

BUSINESS LOCATIONSNorthwest areaBalmoral, Campbellton, Clair,

Edmundston (Canada Road

and Victoria Street), Eel River,

Grand-Sault, Kedgwick,

Sainte-Anne de Madawaska,

Saint-Basile, Saint-François,

Saint-Jacques, Saint-Léonard,

Saint-Quentin.

Northeast areaAllardville, Bas-Caraquet,

Bathurst, Beresford,

Caraquet, Grande-Anse,

Inkerman, Lamèque,

Néguac, Paquetville,

Petit-Rocher, Pokemouche,

Rivière du Portage-Brantville,

Robertville, Saint-Isidore,

Sheila, Shippagan,

Tracadie-Sheila.

Southeast areaBaie Sainte-Anne,

Bouctouche, Cap-Pelé,

Cocagne, Dieppe,

Fredericton, Grand-Barachois,

Grande-Digue, Moncton,

Memramcook, Richibucto,

Rogersville, Saint-Antoine,

Saint-Louis, Sainte-Marie,

Shediac.

REGIONAL OFFICES

Northwest Northeast

Southeast

UNI Insurance Dieppe and Shippagan

UNI Business

Bathurst, Dieppe, Edmundston and Tracadie


CELEBRATING COOPERATION AND MUTUAL ASSISTANCEThe year 2017 is already behind us. Early this

past year, an ice storm of unprecedented fury

struck New Brunswick, causing serious impact

to our distribution network. UNI was able to

support its clients throughout the storm’s

aftermath, and although several business

locations were disabled, our employees pulled

together to maintain continuity of service

while coping with the effects of this crisis on

their own lives. Seeing our employees’ level

of dedication and determination to continue

providing an outstanding client experience

even in these challenging conditions was a

source of immense pride for me.

The quality of our services has been a priority

during my term as your CEO, and I learned

from this event that I could depend on the

unwavering and generous support of our entire

team. We went far beyond simply a financial

relationship; we also offered our assistance

at warming centres in order to provide direct

help to those affected. This event reminded

us all just how strong, united and resilient

our communities are.

Robert Moreau, Chief Executive Officer

MESSAGE FROM THE CHIEF EXECUTIVE OFFICER

A STRONG AND VISIBLE BRANDThe UNI brand is a success. In addition

to business results, numerous indicators

have shown the positive impact of the

changes made in this regard.

Once again this year, our presence and

involvement in the heart of our communities

reinforced our leading collaborative role. UNI

also continues to maintain a strong presence

through its contributions in the form of

donations, sponsorships and scholarships,

which totalled more than $2 million once

again this past year and benefited more

than 1,000 organizations across the province.

I also could not be prouder of certain major

accomplishments in the areas of sustainable

development, contributing to the development

of our youth and promoting entrepreneurship.

Message from the Chief Executive Officer | 7

As our society becomes increasingly digitized and

automated, nearly everything is now available online.

However, computers will never take the place of

genuine human interaction. At UNI, our aim is to offer

guidance to our members at every stage of their lives

– inspiring, supporting, financing and insuring while

also upholding the sense of goodwill and altruism

that has made our great brand a success.

A BROADER DEMOCRACYIn 2017, we enhanced democratic participation

with the adoption of a new process for

electing members to our board of directors.

By extending the voting period and providing

easier access through online and telephone

voting, we tripled the number of participants

in this democratic process.

SURPASSING THE $4 BILLION THRESHOLDWe should be very proud of our major efforts

in relation to business development. The year

2017 was one of record growth, particularly in

terms of personal and business loans. While

certainly encouraging, these results also attest

first and foremost to the soundness of the

decisions we have made and the impact of

each individual’s contribution on UNI’s future.

It is also no coincidence that 2017 will go down

in history as the year in which we surpassed

$4 billion in assets. Now that we have broken

through this glass ceiling, there is nothing to

stop us from aiming even higher.

FINANCIAL PERFORMANCE IN 2017It is with evident satisfaction that we report

on UNI’s financial performance during the

past financial year. Our loan portfolio, net of

provisions, surpassed the $3 billion mark in 2017,

up $220 million over 2016. This corresponds to

a 7.4% increase, which represents the strongest

growth in the last five years.

UNI also recorded $21.5 million in surplus

earnings before other items in 2017, an

increase over the $15.1 million recorded in

2016. This improved result was due largely to

effective management of operating expenses

and the results for our Acadia Life subsidiary,

which exceeded expectations. Additionally,

there were no expenses in 2017 relating to the

merger since that project is now complete.

UNI’s administrators took a cautious approach

once again for the year ended December

31, 2017, and decided not to pay out individual

dividends to members. This decision was

made in response to the implementation of

more stringent capitalization requirements.

“


REVIEW OF OUR SERVICES UNDERWAYA major initiative targeting greater uniformity

of client services was recently launched

following the addition of new members to

our Executive Committee. I am witness on a

daily basis to their high level of expertise and

incredible commitment to their main objective

of continuing the transformation efforts

initiated several years ago in order to make the

Caisse more intergenerational, more versatile

and more efficient in its service to all members.

In 2017, the Executive Committee undertook a

reflection process leading to the development

of a three-year strategic plan serving as the

cornerstone of UNI’s ongoing transformation.

We are very proud of this plan, which will

serve as a beacon and guide our actions with

consistency and coherence. The main levers

of this plan are based on profitable growth,

optimized operational effectiveness and

employee mobilization around the needs of

our clients and their communities.

The plan also sets out a number of forward-

looking projects that I am confident will

maintain our institution’s development and

growth. Beyond this, however, this modern

and ambitious vision will also successfully

demonstrate to future generations that UNI is

much more than a financial institution. I believe

sincerely that UNI stands first and foremost for

hope, common sense, fairness and goodwill

for everyone who believes, as we do, that true

wealth comes from sharing.

NAVIGATING A RAPIDLY CHANGING FINANCIAL WORLDThe next 10 years will very likely be a time of

profound change for the financial sector. New

financial models are being developed almost

daily. Against this competitive backdrop, we

must remain both bold and vigilant in our

approach to business. Yes, we have already

dared to redefine our business model, but

we must now continue to show agility in

our decision-making processes and to seek

innovative, profitable and competitive solutions.

Management of our real estate holdings

will inevitably become a focus of particular

attention as our clients’ day-to-day needs

evolve along with technology. To meet and

exceed these expectations, we need to continue

investing in new technologies and mobile

experiences. It would be irresponsible in this

context to continue maintaining infrastructure

that is no longer being used enough to keep it

relevant and viable. We are seeking not simply

to keep up with the rest of our industry but

rather to do things better so that we can offer

clients the best possible service.

CLIENTS: OUR CENTRAL PRIORITYAs our society becomes increasingly digitized

and automated, nearly everything is now

available online. However, computers will never

take the place of genuine human interaction.

At UNI, our aim is to offer guidance to our

members at every stage of their lives – inspiring,

supporting, financing and insuring while also

upholding the sense of goodwill and altruism

that has made our great brand a success.

Our ambitions remain unchanged. We

continue to stand for humanity and

compassion, inspired by the same dream as

the founders who came before us: a dream

of building not only financial wealth but also

cultural, social and community wealth.

In closing, I extend my sincere thanks to

the members of our Board of Directors

for their dedication and vigilance and to

all of our employees for their enthusiasm

and commitment to making UNI a financial

institution that is unique, proud... incomparable.

Above all, I want to thank our clients for

their trust in us. We have come a very long

way in a short time. Be assured that with

your support, we intend to go further still.

Continue sharing your dreams, your hopes,

your plans and your concerns with us, for

they guide our daily efforts.

Whatever challenges lie ahead, nothing

can stop us if we face them together.

| 9OUR HUMAN CAPITAL | Focusing on Talent Development

Our 2017-2019 Strategic Plan was developed

taking into account the current reality of

profound transformation within UNI. This shift

was initiated subsequent to the collective

merger and took form with the arrival of our

new CEO and management team early in

2017. A new structure reflecting our strategic

priorities was also defined. These changes have

led to the development of rewarding career

paths for our employees and attracted talent

to key positions to support the successful

completion of our institution’s transformation.

The position of Vice-President, Talent

Management, was created in 2017 to focus

primarily on the human dimension. This person

is responsible for developing and leading

all human resources functions and activities

and assisting our institution in attracting,

developing and retaining employees while

also promoting improved organizational

performance. Our workforce remains the

heart of our business as we strive to meet our

organization’s current and emerging needs.

This emphasis on developing our managers

with a view to strengthening relationships

of trust with their teams and promoting

continuous dialogue is a cornerstone of both

the employee experience and UNI’s evolution.

We continue to invest in our employees while

seeking their contribution to, and involvement

in, our transformation efforts.

To support and achieve our strategic goals for

growth, performance and distinction, the Talent

component of the Strategic Plan aims to:

• make a success of the new integrated

organizational model adopted by head

office and our distribution network and

subsidiaries with a view to responding

seamlessly and effectively to the needs

of our internal and external clients

• promote the development of our talent by

improving the alignment of our employees’

profiles, behaviours and competencies to

our clients’ needs and expectations while

continuing to uphold our business objectives

• create an employee experience that facilitates

the attraction, retention and mobilization

of employees while focusing cohesion and

communication efforts among all managers.

OUR HUMAN CAPITAL Focusing on Talent Development


THE EMPLOYEE EXPERIENCE AND CLIENT EXPERIENCE: TWO CONVERGING APPROACHES

The client experience and employee

experience are part of the same continuum

of value. Moreover, we believe that in

addition to serving as our driving force,

our employees and the service they provide

to our clients make THE difference in terms

of standing out among our competitors. Our

employees’ dynamic approach, availability

and dedication to serving our clients are

directly related to client satisfaction and

loyalty. These assets are thus also directly

related to our institution’s performance.

Beyond offering employment, our organization

promises a rewarding professional and

personal experience. The basis of this

promise took shape in 2017 and will

continue to be defined over the coming years.

At UNI, we have embraced the

transformation of our approach,

products and services in order to continue

offering an outstanding client experience.

Our employees remain at the centre of our

evolution, growth, innovation and success.

EMPLOYEE-FOCUSED INITIATIVES AND OUTCOMES IN 2017:

• Launch of the performance management

tool Halogen in the form of a pilot project

involving 80 employees. The project

outcomes were positive, and we plan to

expand the use of this tool in 2018.

• UNI’s compensation philosophy is a

fundamental component of its overall

talent management strategy. A competitive

pay structure provides UNI access to the

expertise and experience required for

key positions to support it in achieving

targeted growth objectives. An initiative to

align incentive plans was undertaken with

an emphasis on growth and profitability

indicators. These indicators have been

incorporated into all employee plans for 2018.

• At 2017 year-end, we employed

932 people in New Brunswick.

• Our managers hired for a total of 207 new

positions. Of this number, 112 were filled

by employees internally, and 95 – mainly

entry-level and student positions – were

filled by new employees. Another 21

employees retired from the organization.

The new structure in place and large-scale

optimization projects have contributed

to this movement of staff.

• A new training strategy was developed in

2017 for deployment during 2018. Promoting

a learning culture constitutes the core of this

strategy, since learning contributes to more

effective employee performance, employee

commitment and retention, and professional

growth, all of which are essential ingredients

for UNI’s growth.

• A training program on combating money

laundering was made available to all

employees and is still offered each

month to new employees.

• Five IT training campaigns

were offered in 2017.

• Improvements were made to the annual

conflict of interest declaration process.

An electronic version was developed

and distributed to all employees. This

improvement led to wider understanding

of the code of ethics and greater

transparency in terms of the reporting

of potential conflicts.

• Staffing policies are constantly evolving.

These policies were reviewed and adopted

by our employees. A guide to social

media use was also developed to facilitate

interaction with our clients and the general

public on online social networks.

| 11Strategic Plan

STRATEGIC PLAN

A Client- Focused Strategy

INSPIRE, SUPPORT AND FINANCE value-creating projects for the exclusive

benefit of clients and their communities.

A DETAILED STRATEGIC PLANNING PROCESS

In 2017, an in-depth review and

planning exercise was carried out

resulting in the definition of a three-year

strategic plan to guide and direct our

actions in a consistent manner.

GROWTH

TALENT

EFFICIENCY

DISTINCTION

CLIENTS

This strategic plan for 2017-2019 sets out

a number of forward-looking projects to

maintain our institution’s development and

growth. Beyond this, however, this modern and

ambitious vision has also been developed to

demonstrate to future generations that UNI is

much more than a financial institution.

UNI is, first and foremost, a beacon of hope,

common sense, fairness and goodwill for

everyone who believes, as we do, that true

wealth comes from sharing.

EMBRACING A CULTURE WHERE, MORE THAN EVER, OUR CLIENTS ARE OUR CENTRAL PRIORITY

Because we are a cooperative financial

institution, our clients’ interests come first now

more than ever. Thorough strategic planning

equips us to develop and implement tangible

and competitive actions. We intend to move

forward with four main focuses: growth,

efficiency, distinction and, above all, talent.

In fact, our plan aims to offer guidance to our

members at every stage of their lives – inspiring,

supporting, financing and insuring while also

upholding the sense of goodwill and altruism

that have made our great brand a success.


RELYING ON EIGHT MAIN LEVERS

The main levers of this new strategic plan are based on profitable

growth, optimized operational effectiveness and employee mobilization

around the needs of our clients and their communities.

1. Maintaining profitable growth of conventional revenue sources

The growth of both

“conventional”

financial activities and

activities outside of

our traditional sphere

must necessarily be

ongoing if we are

to continue fulfilling

our original purpose

to contribute to the

well-being of our

clients and their

communities.

2. Diversifying revenue sources beyond our traditional sphere

The diversification

of revenue sources

beyond conventional

boundaries means,

among other things,

maintaining an

ongoing interest in

wealth management.

Seeking new

partnerships will

also assist in

broadening our

revenue sources.

GROWTH EFFICIENCY

Revenue growth

Operational efficiency

Revenue diversification

Information quality

1 32 4

3. Generating efficiency and optimization

Our capacity to

provide effective

service while also

improving profitability

and productivity

depends largely

on increasing the

efficiency of our

operations and

fine-tuning the

client experience. A

number of initiatives

will be implemented

to ensure that

the resources

and supports are

in place to drive

significant operational

improvements.

4. Adopting tools and systems providing access to quality information

We have also

launched an extensive

digital transformation

process targeting

greater system

integration and

optimization. As part

of this, we will develop

new approaches to

better understanding

our clients and their

needs while laying

a foundation for

the development of

business intelligence.

This core initiative will

assist us in refining

our product and

service offerings and

making decisions

with the goal of more

effectively meeting

the needs of both

our clients and our

markets.

GROWTH EFFICIENCY

| 13Strategic Plan

DISTINCTIONTALENT

Value for member/client

Alignment and performance of organizational model

Brand image enhancement

Talent development

75 86

5. Aligning our institution to its strategy and priorities

The implementation

in 2017 of our new

organizational

structure is proof

of UNI’s forward-

looking stance and

determination to

take all necessary

measures to ensure

the success of

our strategic plan.

In this regard,

pooling multiple

complementary

functions within

our institution will

support consistency

and alignment

to our strategic

intentions while also

placing emphasis on

breaking down silos

and adopting cross-

cutting, more agile

approaches.

6. Promoting talent development

Our institution’s

performance is

largely dependent on

our employees and

on their skills and

behaviours. Our client

focus will succeed

only if we cultivate

talent that is aligned

to their satisfaction

and to UNI’s main

priorities. This talent

is our employees, and

they are what will

make the difference in

the future far beyond

any technological

advances. Our

employees will support

these advances by

viewing themselves

as life and growth

partners.

7. Delivering real value and a quality experience to clients

Our client focus is

realized through the

value that clients

associate with UNI

and the experience

that our institution

provides to them.

Special attention to

client expectations

and the creation of

a memorable client

experience via all

contact points will be

critical in this regard.

8. Showcasing UNI’s brand identity and underlying values to the communities and markets served

The UNI brand is much

more than a reflection

of our business

activities. It illustrates

our involvement in our

communities and in

the lives of our clients.

Our distinction – what

makes us different –

must go far beyond

our distribution and

service network.

It must be found

in real action at

the community

level and in raising

awareness about our

achievements.

TALENT DISTINCTION


We are not a bank, but a cooperative financial

institution that aims to promote the economic

development of enterprises by providing the

best products and services.

We want to inspire, support and finance

companies that believe, as we do, that true

growth is when everyone grows together.

Shaun Maclsaac | Greenway Realty Inc., Charlottetown, P.E.I. Bob Lennon | ThermalWood Canada, Bathurst, N.-B. Gilbert Blanchard | Gestion Santé ltée/Douces Marées/Café Maris Stella, Bas-Caraquet, N.-B. Madeleine Levesque-Toner | Best Western Plus, Grand-Sault and Fredericton, N.-B. and St. John’s, N.L. Paul Farrah |Xtreme Cold Storage, Dieppe, N.-B.

We thank them for their valuable contribution to production of the various videos recorded in 2017.

UNI BUSINESSA growth partner for entrepreneurs from near and far

| 15

A YEAR IN TWO KEY WORDS The client experience has been made the

central focus of all business activities of

UNI Financial Cooperation, reflecting our

overriding commitment in this regard. Our

approach and actions are guided by two key

words: simplifying and enriching, by which

we mean providing a simplified experience in

the interest of optimizing the client journey,

enriched by a more human approach.

THE OFFERING OF UNI INSURANCE IS ALIGNED TO THIS STRATEGY In April 2017, our activities in the

insurance sector were reorganized to

more effectively meet the needs of clients:

• who place great importance on the

simplicity of their interactions with us

• seeking to build genuine

human relationships

• who equate choosing a

brand with taking a stance.

A SIMPLIFIED, UNIFIED EXPERIENCE Acadia Life, AVie and Acadia General Insurance

have been brought together under a single

name: UNI Insurance.

This ambitious decision makes it possible to

channel all business communications through

a single website, uniassurance.ca.

Our offering itself has also been simplified.

In the interest of clarity and highlighting the

simplicity of our products, we have opted not

to present the entire offerings of UNI Insurance

in full detail. This deliberate decision sets the

UNI Insurance website apart from the complex

sites of our competitors.

UNI INSURANCE

UNI INSURANCE

Insurance: let’s talk about it


LAUNCHED IN 2017, UNI COMMUNITY SEEKS TO INSPIRE, SUPPORT AND FINANCE PROJECTS With the profits generated from its business

operations, UNI gives back $2.3 million a year

to communities in an effort to inspire, support

and finance responsible and sustainable civic

activities and projects that contribute to the

attractiveness and well-being of the province.

PURPOSE OF THE UNI COMMUNITYUNI, its 1,000 employees and 150,000 client

owners firmly believe that one person’s

prosperity should contribute to that of others.

As a result, each day, the institution supports

and finance projects that contribute to the

well-being of New Brunswickers rather than

shareholder profits elsewhere.

To make this vision a reality, UNI established a

citizen cooperative consisting of representatives,

real agents of change, and a provincial youth

committee. They are the ones who set our

cooperative dis apart from other institutions

each and every day.

They are responsible for meeting the needs

of communities and rallying those who

create social, economic, environmental and

cultural value for the exclusive benefit of New

Brunswick’s citizens and business communities.

NOTABLE ACHIEVEMENTS 2017Our program aims to support projects

that create social, economic, environmental

and cultural value for the exclusive

benefit of New Brunswick’s citizens

and business communities.

Notable achievements in the area of

sustainable development in 2017 included:

• Association francophone des aînés du N.-B.

• Centre Jean-Daigle in Edmundston

• Place aux compétences

These rewarding initiatives provide us

opportunities to contribute to a thriving

Acadian and Francophone society.

| 17

Unlike banks, UNI shares its profits with

its customers and invests in communities.

Every week, we give $50,000 back to the

community in donations, sponsorships and

scholarships. We do so because we strongly

believe that the prosperity of one must

contribute to that of others.

For every $100 invested in the community in 2017

IT IS THE ONLY ORGANIZATION ENTIRELY DEVOTED TO ACADIAN PROSPERITY.

DONATIONS, SPONSORSHIPS AND SCHOLARSHIPSBecause true wealth comes from sharing, UNI

Financial Cooperation, naturally sensitive to the

needs of the communities she serves, has given,

in 2017, $2.3 million to local organizations.

The awarding of donations, sponsorships and

scholarships is one of the many ways for UNI

Financial Cooperation to inspiring, supporting and financing collaborative economy projects

which stimulate the growth of the province.

RETURNS TO THE COMMUNITY

TRUE WEALTH COMES FROM SHARING.

Over the last 5 years, UNI Financial Cooperation has paid out more than $15 million in individual and collective dividends to their members and communities.

EDUCATION AND YOUTH Contributing to the development of youth

SPORTS AND RECREATION Contributing to community vitality

ARTS AND CULTURE Promoting the fostering of new talent and boosting the cultural industry

MUTUAL AID AND SOLIDARITY Supporting community and social development projects

HEALTH Facilitating access to healthcare services and to research for a better quality of life

ECONOMIC DEVELOPMENT Creating synergy with the business community

2013 2014 2015 2016 2017

$3.7M $4.5M $2.5M $2.3M $2.3M

$27

$17 $20

$17

$11$8

True Wealth Comes from Sharing


Child

Teacher

FINANCIAL LITERACYPeople start learning about sound financial

management at a very young age. From

kindergarten right through grade 12, children

need to learn a variety of financial concepts in

order to become informed consumers.

SCHOOLS AND UNI HAVE A NATURAL PARTNERSHIP THAT GOES BACK MORE THAN 75 YEARS.What could be more natural than continuing

to use the school environment to educate

children about saving money and provide

them tools to inspire their interest in financial

topics? In updating the School Caisse, we want

to help set the next generation up for success

as it learns to build its future – knowing that

the future of our youth is also the future

of our communities.

THE SCHOOL CAISSE HAS A NEW LOOK!!

Facts about debt:

1. For every $1.00 in income, Canadian households have $1.68 in debt.*

2. Students in New Brunswick are the most indebted in Canada (average debt $35,200).*

*Statistics Canada

uni.ca/schoolcaisse

CHILDREN NOW MANAGE THEIR OWN ACCOUNTSWe have put technology to work in order

to more effectively meet the needs of

today’s young people by migrating the

former School Caisse account to an account

that better reflects their reality.

• 68 participating schools

• 5,680 members

CHILDREN CAN VIEW THEIR ACCOUNTS ONLINEAlthough we still use the little deposit envelopes,

children can now also manage their own

accounts online and have fun learning with

AccèsD School Caisse, which offers:

1 tips, advice and interactive videos

2 online access to view their account

balance and most recent transactions

3 view account statement online

And parents can now even

transfer money to their children!

1

3

2

Management’s Discussion and AnalysisYEAR ENDED DECEMBER 31, 2017


Table of contentsNote to the Reader ..................................................................................21

Profile and Structure ...............................................................................22

Organization Chart ..................................................................................23

Board of Directors ....................................................................................24

Financial Results .......................................................................................25

MANAGEMENT’S DISCUSSION AND ANALYSIS

Economic and Financial Forecast ..........................................................26Review of Financial Results

2017 Surplus Earnings ................................................................28 Net Interest Income ....................................................................29 Operating Expenses ...................................................................31 Analysis by Line of Business ......................................................33Balance Sheet Review

Summary Balance Sheet ............................................................34 Capital Management ..................................................................37 Balance Sheet Arrangements ....................................................38Risk Management .....................................................................................39


NOTE TO THE READER

This management report offers the reader a general overview of UNI Financial Cooperation. It is a complement and a supplement to the information provided in the combined financial statements of the Caisse populaire acadienne. It must therefore be read together with the combined financial statements, including the accompanying notes for the year ended December 31, 2017.

This report also presents the results analysis and main modifications made to Caisse populaire acadienne’s balance sheet during the fiscal year ended December 31, 2017. Other information concerning UNI Financial Cooperation can be obtained from the website uni.ca.


Profile and structure

WHAT WE AREWith $4 B in assets, UNI Financial Cooperation,

inalienable collective heritage, is the most

important Acadian financial institution. It

combines, among other bodies, 1 caisse,

51 business locations, 4 regional offices of

UNI Business and 2 regional offices of UNI

Insurance, spread across New Brunswick.

The personal, business, wealth management,

life insurance and general insurance areas

of activity offer clients a complete range of

financial products and services that meet

their needs. While playing a leadership role

on New Brunswick’s economic chessboard,

UNI Financial Cooperation is an important

provincial employer and capitalizes on the

skills of more than 1,000 employees and the

dedication of the 12 members elected to the

Board of Directors and 108 representatives

serving on cooperative committees.

PURPOSEInspiring, supporting, and financing collaborative economy projects which

stimulate the growth of the province. No

financial institution has more legitimacy to

give life to its purpose. It is the ONLY

organization entirely devoted to Acadian

prosperity! Vigorously determined, UNI has a spirit of adventure, and the courage to take on new projects but, not at any price.

If it sometimes shakes up some conventions,

it is always with a great respect for the rules,

and with the protection of present and

future generations’ well-being in mind.

OVERVIEWUNI Financial Cooperation differs from other

provincial financial institutions due to their

cooperative nature. The strong mission

and values which are a result of this nature

are adopted by its officers, managers and

employees; they are evident it their orientations

and enable the implementation of their

vision for a sustainable prosperity among the

communities they serve. Since 1936, when the

first caisse was founded in Petit-Rocher, UNI

Financial Cooperation have always played a

leading role at the education and sustainable

social development levels and they believe

that the cooperative business model is

more relevant than ever.

UNI Financial Cooperation’s will to be close to

its members and customers is at the heart of all

its actions. Thanks to its different distribution

channels and to employees who really want

to offer quality services, it can remain close

to its members and to the communities of

which they are a part. In this respect, always

wanting to meet the different needs of its

members, he pays particular attention to

the number of business locations and to the

various distribution methods of its services. This

approach is consistent with its desire to ensure

the vitality of the caisses’ cooperative life with

regards to democratic life, representativeness,

education and training, intercooperation and

social development support.

UNI Financial Cooperation is also

characterized by the active participation

of elected officials and in the decision-

making structure of the organization through

the board of directors, the 12 Community

Cooperative Committees, the 3 Regional

Cooperative Committees and various bodies.

Management’s Discussion and Analysis | 23

ORGANIZATION CHART

Chief Executive Office AssistantPaulette Thériault

Vice-President, Business Solutions & Partnerships

René Collette

Chief Executive OfficerRobert Moreau

Corporative SecretaryAnik Gagnon / Simonne Godin

Legal Affairs & Corporate Secretariat

DirectorMarc Roy

Internal Auditor Director

Michel Trahan

UNI Community Director

Hermel Chiasson

Assistant Vice-President, Business Solutions

& PartnershipsPierre S. Doiron

Corporate Development Manager & HR Partner

Pierre Giard

Regional Vice-President,Acadian Peninsula

Guy Godin

Regional Vice-President, Madawaska-Victoria

Annie Nadeau

Regional Vice-President, Restigouche-Chaleur

Conrad McLaughlin

Regional Vice-President, Kent-Westmorland

Luc Richard

Regional Vice-President,Kent-Westmorland

Eric Haché

Regional Vice-President,Madawaska-Victoria

Chantal Thériault

Regional Vice-President,Acadian Peninsula

Ghislain Desrosiers

Regional Vice-President, Restigouche-Chaleur

Chantal Mallet

Wealth Management Director

Daniel Bergeron

Sales Support Leader, Personal

Robin Richardson

Vice-President, Personal SolutionsMarc-André Comeau

C.E. and Digital Channel Director

Julie Francoeur

Marketing Partner, Personal BankingJean-Philippe LeBlanc

Marketing Partner, Commercial Banking

Rino Basque

Supply Management & Business Intelligence Leader

René Doiron

Vice-President, Marketing & Customer Experience

Martin Paré

Employee Experience Director

Claire Turbide-Albert

Chief Business Partner

Sophie Haché

Vice-President, Talent Management

Diane Allain

Compliance DirectorSébastien Poirier

Chief Credit DirectorPierre Cormier

Chief Risk OfficerSylvain Fortier

ControllerJocelyn Landry

Chief Treasury OfficerStéphane Breau

Vice-President, Finance

Éric St-Pierre

Assistant Vice-President, Customer Service &

Continuous ImprovementAnnie I. Cyr

Projects Management Office DirectorFlorence Caissie

Supply & Building Director

Conrad Blanchard

IT CoordinatorGérald Paulin

Vice-President, Operations & Optimization

Derrick Smith

Sales Support Leader, subsidiaries

Colette Vienneau

Assistant General Manager AVie

Yvon Godin

Assistant General Manager Assurances générales Acadie

Donald Hachey

Vice-President, Subsidiaries

& Executive Director Acadia Life

Gilles Lanteigne

As of April 1st, 2018

ACADIA SERVICE CORPORATION

ACADIA FINANCIAL HOLDINGS

UNI Financial Cooperation operated in 51 business locations

• Acadia Service Centre

UNI Assurance• Acadia Life• Acadia General Insurance• AVie

Acadia Financial Services

• Fondation des caisses populaires acadiennes

• Conseil acadien de la coopération

Support Institutions

UNI Business operated in 4 regional offices


BOARD OF DIRECTORS

ROLAND CORMIER, Director

SÉBASTIEN DESCHÊNES, DBA, CFA, CPA, CA, Director

LLOYD PLOURDE, Director

HUGUES THÉRIAULT, Director

PIERRE-MARCEL DESJARDINS, ICD.D, Chairman

ALLAIN SANTERRE, Director

DIANE PELLETIER, Director

GILLES GODIN, Director

WANITA MCGRAW, FCPA, ICD.D, Director

BRIAN L. COMEAU, Director

MAURICE PICARD, Director

GUY J. RICHARD, ICD.D, Vice Chair


Caisse populaire acadienne

2017 2016 Variance

Net interest income $113,508 $106,114 7.0%

Other income $55,789 $58,985 (5.4)%

Assets $4,000,078 $3,843,570 4.1%

Equity $398,527 $394,097 1.1%

FINANCIAL RESULTS AS OF DECEMBER 31, 2017FINANCIAL SITUATION ($ thousand and %)

2017 2016

Profitability and productivity

Total revenues $169,297 $165,099

Productivity index 81.0% 87.7%

Surplus earnings before other items $21,525 $15,149

Return of equity 1.1% 7.9%

Business Development

Business volume 7.0 B$ 6.6 B$

Business volume growth 6.5% 5.3%

Risk

Credit losses $6,515 $3,369

COMPARISON OF RESULTS OF 2017 WITH ESTABLISHED FINANCIAL TARGETS FOR THE YEAR($ thousand and %)


UNITED STATESThe United States’ GDP grew by 2.2% in 2017.

The Federal Reserve raised its federal funds rate

three different times in 2017 from 0.75% at the

start of the year to 1.50% by mid-December.

The new president-elect made good on

promises to strenghen his country’s borders

and renegotiate NAFTA. The forest industry

in New Brunswick and across Canada was

one of the first sectors affected by

increased U.S. protectionism.

CANADACanada’s GDP rose 1.3% over last year. The Bank

of Canada hiked its benchmark interest rate by

25 basis points twice in 2017, bringing it up to

1.25% in September 2017.

Graphic: Changes in Bank Rate, 2013-2018

ECONOMIC AND FINANCIAL OUTLOOK

After spending the first half of the year

sitting at around US$0.75, the Canadian

dollar averaged around US$0.79 during

the second half, peaking at US$0.8245

in mid-September 2017.

Graphic: Changes in Canadian dollar versus U.S. dollar, 2009-2017

2013 2014 2015 2016 2017 2018

1.50

1.25

1.00

0.75

0.50

0.25

Source: Bank of Canada

Bank Rate

Source: Bank of Canada

20092010

20112012

20132014

20152016

2017

1.101.051.000.950.900.850.800.750.700.650.60


NEW BRUNSWICKThe Energy East project fuelled significant

debate in 2017. Despite promising major

spin-off benefits for the province, the project

was ultimately suspended during the course

of the year. New Brunswick’s GDP grew by

an estimated 1.5% in 2017. Growth in the

retail trade sector kept pace with national

growth at approximately 7.0% (based on the

latest non-seasonally adjusted data) in 2017.

Inflation exceeded the national average,

while the consumer price index stood at

2.3% in New Brunswick versus 1.6% for

Canada as a whole. Housing starts rose

by 26.4% in comparison to a national rate

of 11%. Provincial exports grew by 19%.

The fishing industry posted a very good year.

Crab fishers in particular had an outstanding

season due to increased biomass combined

with higher global demand for their product.

Results in the lobster fishery were especially

strong in the province’s northeast in terms

of both catch size and prices. On the other

hand, catches and prices in southeastern

New Brunswick were disappointing. Although

demand for New Brunswick lobster has

continued to grow in the Asian and European

markets, the U.S. market still accounts for

the majority of exports of that product.

Employment posted a slight (0.4%) increase,

while the unemployment rate dropped from

9.5% to 8.1%. Northeastern New Brunswick

again had the highest unemployment rate,

at 13.6%, while the rate in the central part

of the province stood at 6.3%.

Unemployment (%) Jobs (000s)

2016 2017 2016 2017

Northwest 6.8 7.3 37.1 36.5

Northeast 15.8 13.6 58.5 60.8

Southeast 8.5 7.2 105.3 105.9

Southwest 8.4 6.7 83.0 84.2

Centre 8.2 6.3 67.5 65.4

New Brunswick 9.5 8.1 351.5 352.9

Source: Statistics Canada


SURPLUS EARNINGS IN 2017UNI recorded $21.5M in surplus earnings before

other items at December 31, 2017, an increase

over the $15.1M recorded in 2016. This improved

result was due mainly to management of

operating expenses and results for Acadia Life,

which exceeded expectations.

Specifically, excluding donations, sponsorships

and merged caisse expenses, the profitability

of Personal and Business sector operations

decreased by $4.9M to stand at $11.8M,

compared to $16.7M in 2016. In 2017, the life and

health insurance sector contributed $9.7M in

surplus earnings compared to $7.5M in 2016.

At December 31, 2017, surplus earnings of $4.3M

were recorded, while surplus earnings before

other items totalled $21.5M. This variation is

due to other items and 2017 taxes. Other items

consist of a variation in the market value of

our derivatives and in UNI’s bond investment

portfolio. These two items represented a

total impairment loss of $15.5M in 2017. This

impairment loss was attributable mainly

to higher interest rates in the market. This

REVIEW OF FINANCIAL RESULTSimpairment loss will reverse gradually as

these various instruments reach maturity.

In income tax accounting, a $1.8M expense

was recorded in 2017 versus a recovery of

$27.7M in 2016 coming principally from the

reversal of a provision for income tax coming

from the Office de stabilisation des caisses

populaires acadiennes fund following the

transfer to the federal charter on July 1, 2016.

UNI’s administrators took a cautious

approach for the year ended

December 31, 2017, due to strict capitalization

requirements and decided not to pay out

individual dividends to members this year.

2013 2014 2015 2016 2017

Life and Health Insurance Personal and Business

-$5,000

$10,000 $15,000 $20,000 $25,000 $30,000$35,000

$20,737

$11,052

$22,340

$6,152

$11,868

$10,242

$14,558 $11,826

$7,504 $9,700

CONTRIBUTION TO SURPLUS BY LINE OF BUSINESS EXCLUDING COLLECTIVE MERGER FEES($ thousand)

2017 2016 2015

Results before collective merger fees

Life and Health Insurance $9,700 $7,504 $10,242

Particular and Business 11,825 16,699 11,868

Donations, sponsorships and scholarships (included general expenses)

- (2,141) -

Expenses related to the collective merger - (6,913) (10,053)

Surplus earnings before other items $21,525 $15,149 $12,057

($ thousand)


NET FINANCIAL INCOMENet financial income corresponds to the

difference between the financial income earned

on assets, such as loans and securities, and

the financial expenses associated with liability

components, such as deposits and borrowings.

Net financial income totalled $113.5M in 2017

year-end, which represents a $7.4M increase

over 2016, when it stood at $106.1M.

To facilitate analysis, the table on the

next page sets out changes in net financial

income according to major asset and

liability categories. The net financial spread,

expressed as a percentage of average assets,

was 2.9% in 2017, slightly higher than the

corresponding spread of 2.8% in 2016.

FINANCIAL INCOMEFinancial income totalled $147.4M in 2017, up

$6.4M over the previous fiscal year. Financial

income is made up of $26.4M in revenue on

cash assets and investments and $121.0M in

revenue on the loan portfolio.

Income on cash assets and securities

increased by $5.6M over the previous year

or from $20.8M in 2016 to $26.4M in 2017.

Interest income from UNI’s loan portfolio

increased by $0.8M versus 2016. Interest

income from loans totalled $121M in 2017,

up from $120.2M in 2016. This performance

was due mainly to the significant growth

of UNI’s loan portfolio as well as the two

increases in the prime rate in 2017. Therefore,

this income growth was below our

expectations, and efforts will be increased

to enhance and diversify UNI’s income.

FINANCIAL EXPENSESFinancial expenses totalled $33.9M, a

decrease of $1.0M compared to 2016.

These expenses include interest charges of

$32.3M on the deposit portfolio and $1.6M on

money borrowed from other institutions.

The interest expense on member deposits

went from $33.5M in 2016 to $32.3M in 2017.

Although the deposit portfolio performed

well in 2017, UNI successfully brought down

interest expenses regardless. The decline in

the average deposit portfolio rate is due to the

renewal of term savings at lower rates as well

as the popularity of the “Enhanced Investment

Account” product which offers a lower rate

than conventional term savings.

Interest expenses associated with borrowed

monies rose by $0.2M from $1.4M in 2016 to

$1.6M in 2017. This increase is due simply to

the fact that UNI decided to take out additional

securitization loans in 2017 as part of its

cash management strategy.


2017 2016

Average balance

InterestAverage

rateAverage balance

InterestAverage

rate

Assets

Interest-bearing assets

Cash and securities $723,237 $26,473 3.7% $734,093 $20,847 2.8%

Loans 3,099,211 120,951 3.9% 2, 938,679 120,179 4.1%

Total interest-bearing assets 3,822,447 147,424 3.9% 3, 672,772 141,026 3.8%

Other assets 99,623 94,588

Total assets $3,922,070 $147,424 3.8% $3,767,360 $141,026 3.7%

Liabilities and equity

Interest-bearing liabilities

Deposits $3,195,425 $32,280 1.0% $3, 056,515 $33,460 1.1%

Borrowings 76,358 1,636 2.1% 68,571 1,452 2.1%

Total interest-bearing liabilities 3,271,782 33,916 1.0% 3, 125,086 34,912 1.1%

Other liabilities 253,977 262,955

Equity 396,312 379,320

Total liability and equity $3,922,070 $33,916 0.9% $3, 767,360 $34,912 0.9%

Net financial income $113,508 2.9% $106,114 2.8%

NET FINANCIAL INCOME ON AVERAGE ASSETS AND LIABILITY

($ thousand)

2017 2016 2015

Deposits and payment services charges $18,241 $19,873 $18,559

Net insurance and annuity premiums 18,990 18,503 17,843

Commissions 11,679 10,602 9,503

Lending fees 1,267 1,390 1,252

Foreign exchange income 830 1,052 945

Sales of related services 2,813 2,901 2,864

Other income 1,969 2,729 1,335

Other extraordinary income due to the collective merger

— 1,935 _

Total other operating income $55,789 $58,985 $52,300

OTHER INCOMEOther income came from multiple sources as shown in the following table.

($ thousand)


Income from service fees on deposits and

payments declined sharply in 2017. The main

reason for this decrease was changes made

to the timing of fee billing for items returned

non-sufficient funds. Effective mid-2017, this

fee was charged to clients only subsequent

to the clearing process. In addition, service

fees to members have changed little in recent

years whereas the volume of counter and

ATM transactions has continued to

decline year-over-year.

Commission income continues to increase.

UNI receives commission income on the sale

of Visa and MasterCard credit cards, mutual

investment funds and insurance products. This

increase in commission income is the result of

business volume growth of these products.

During the 2016 fiscal year, $1.9M in

deferred contribution income on the merger

of the caisses with their Fédération was

entirely recognized in the income statement.

Originally, the Fédération collected this

contribution from the caisses for various

information technology development projects.

PROVISION FOR CREDIT LOSSESThe provision for credit losses totalled

$6.5M, a $3.1M increase over 2016. It includes

two elements: the individual component and

the collective component. For the individual

component, losses totalled $7.9M in 2017 versus

$6.1M in 2016, which represents a significant

increase. The collective component recovered

$1.4M in 2017, while it recovered $2.8M in 2016.

More specifically, individual provisions

for business loans totalled $2.3M ($2.2M in

2016) while individual provisions for personal

loans totalled $5.9M ($3.9M in 2016). This

was due to an increased number of

bankruptcies and consumer loan

write-offs. The automotive financing

sector was particularly impacted in 2017.

The decrease in the collective provision is

due mainly to improvements to our provision

calculation models and the assumptions used.

UNI continues to present a quality loan

portfolio. On December 31, 2017, gross

outstanding debts on loans totalled

$33.1M, a slight increase of $1.3M over

December 31, 2016, while impaired loans

totalled $31.8M. The ratio of gross impaired

loans as a percentage of the total gross loan

portfolio was 1.03% in 2017 year-end, which

was slightly below the ratio of 1.06% recorded

at the end of the 2016 fiscal year.

OPERATING EXPENSES SALARIES AND EMPLOYEE BENEFITSSince it is a service-based corporation, UNI’s

payroll is its largest expense. Expenses related

to employee wages and benefits decreased by

$6M to $62.8M in 2017. This decline in salary

expenses is significant for UNI, particularly

since payroll would have increased by more

than $1.5M based solely on annual increases.

The savings is due mainly to changes made

to the organizational structure following the

transfer to federal charter on July 1, 2016. More

than 100 employees retired in 2016, and the

majority of the positions vacated were not

filled in the new organization.

The banking sector is changing rapidly, and

we are striving to remain competitive while

modernizing the range of products and

services we offer our members. To remain

relevant, UNI must progressively reduce its

cost structure while also continuing to offer

high-quality services.


OTHER OPERATING EXPENSESThe following table provides a breakdown of our operating expenses.

Total operating expenses remained relatively

stable in comparison to previous years.

However, detailed analysis reveals more

significant fluctuations in certain expenses.

First, advertising, sponsorships, donation

and scholarships donation and sponsorship

pledges were down by $4M from 2016. This

is due to changes in accounting operations

adopted in 2016 under which we recorded

a commitment of $2.1M for donations and

sponsorships payable in 2017 in addition to

$2.1M in donations and sponsorships already

paid in 2016. A $0.8M increase in governance

expenses is attributable to the adoption of

a new election process for directors and

community cooperative committees.

2017 2016

Employee travel, training and wellness $3,338 $ $3,691 $

Professional fees 4,915 4,256

IT costs and telecommunications 21,720 21,212

Building and equipment rental and maintenance 12,088 10,517

Cash management and compensation 2,010 1,849

Regulatory fees and membership fee 2,092 1,988

Advertising, sponsorships, donations and scholarships

2,608 6,678

Office expenses and postage 2,440 2,380

Governance 1,568 782

Insurance 1,249 1,627

Other 2,658 2,120

$56,687 $ $57,100 $

($ thousand)


ANALYSIS BY LINE OF BUSINESS

PERSONAL AND BUSINESSThe Personal and Business sectors include

activities related to regular and savings

transactions as well as lending activities

carried out by our 51 business locations

and the four offices of the Financial Business

Centre. The activities of UNI’s subsidiaries

not related to life and health insurance are

also included in these sectors.

These sectors contributed $11.8M to

surplus earnings before other items in

2017, which represents an increase of

$4.2M compared to the previous fiscal year.

Results in this line of business were improved

by reducing expenses. Payroll was $6M lower

in 2017 due to changes in our organizational

structure and a staffing management program

launched in 2015. Additionally, there were no

expenses in 2017 relating to the merger since

that project is now complete. These expenses

totalled $6.9M in 2016. However, the provision

for credit losses increased by $3.1M due in

large part to losses on personal loans, which

grew considerably. It is to be noted that other

income was also down from 2016. This decrease

was due to changes in fee billing for items

returned non-sufficient funds, resulting in an

approximately $1.4M decrease in this income

item, and the fact that $1.9M in exceptional

income was recognized in 2016 subsequent

to the collective merger.

In recent years, the profitability of these lines

of business was in a downward trend. Although

this trend stabilized in 2016, net financial

income remains subject to compression. UNI is

under immense pressure from its competitors in

these lines of business. This competition makes

it difficult to grow the savings and lending

portfolios. This competitive environment also

helps to maintain a favourable interest rate for

our members which, however, has negative

impact on UNI’s net financial income.

2013 $22,340

$20,7372014

2015 $1,993 $9,875

2016

2017

$7,645

$11,826

$6,913

Surplus earnings before other items Collective Merger Fees

OPERATING RESULTS FOR PERSONAL AND BUSINESS SECTORS ($ thousand)

NET EARNINGS BEFORE DISTRIBUTIONS, BONUSES AND TAXES ($ thousand)

LIFE AND HEALTH INSURANCEAcadia Life and AVie subsidiaries make

up this line of business.

The operating results of this business

sector were very positive in 2017, surpassing

budgeted net profit by approximately

$3.1M to reach $9.7M versus $7.5 M in 2016.

This is an increase of 29% or $2.2M.

The strong results in 2017 are attributable

to higher than anticipated total premiums

collected as well as lower total claims than

forecast. However, the largest component was

the revision of certain actuarial assumptions

resulting in the freeing of $1.8M in reserves

in 2017 versus a $0.2M increase in reserves

in 2016. Mortality and expense assumptions,

among other factors, improved in 2017.

For the year, total personal life insurance

premiums collected were $10.3M, an increase of

$0.5M compared to 2016. Group life insurance

premiums collected rose $0.1M to reach $8.7M.

Acadia Life continues to contribute significantly

to UNI’s overall results, as shown in the

following table setting out before-tax net

earnings for the past several years:

2013 $6,152

$7,474

$9,700

$10,064

$11,0522014

2015

2016

2017


BALANCE SHEET REVIEW

2017 2016

Asset

Cash $100,193 2.5% $99,857 2.6%

Securities 587,776 14.7% 658,647 17.1%

Loans 3,184,700 79.6% 2,965,182 77.1%

Other assets 127,409 3.2% 119,884 3.1%

Total assets $4,000,078 100.0% $3,843,570 100.0%

Liabilities and equity

Deposits $3,255,542 81.4% $3,135,307 81.6%

Borrowings 86,314 2.2% 66 401 1.7%

Other liabilities 259,695 6.5% 247 765 6.4%

Equity 398,527 10.0% 394 097 10.3%

Total liabilities and equity $4,000,078 100.0% $3,843,570 100.0%

SUMMARY BALANCE SHEET ($ thousand)

BALANCE SHEET EVOLUTION

2012 2013 2014 2015 2016 2017

($ bi

llion

s)

4.24.03.83.63.43.23.02.82.62.4

TOTAL ASSETSAt December 31, 2017, UNI’s total assets

were $4B, representing an increase of

$152M or 4% over 2016. This growth is

similar to that recorded last year. Both

Personal and Business loans and savings

performed well in 2017. The standardization

of our activities and branding and a

competitive rate structure helped UNI

to stand out in its market.

ASSETS DEPOSITS LOANS


LIQUIDITY MANAGEMENTThe objective of liquidity risk management

is to guarantee that the organization, in

a timely and profitable manner, will have

access to the funds necessary to fulfil

its financial commitments when they

become payable, both in normal and in

crisis situations. This management means

the maintenance of an acceptable level of

liquid securities, a three-year financing plan,

liquidity crisis simulation, real-time liquidity

position management and submission of

quarterly accountability reports to UNI’s

Board of Directors. This reporting process

is supported by a policy on liquidity risk

management and an investment policy, both

of which are reviewed annually by the Board.

UNI constantly monitors its liquidity

through multi-level management of its

liquidity position. Daily monitoring of this

liquidity position ensures that UNI maintains

adequate liquidity over the short term,

while adherence to a financing plan also

enables the organization to anticipate its

long-term liquidity requirements.

We follow a conservative approach with regard

to determination of minimum liquidity levels.

For example, our short-term liquidity ratio

stood at 178% on December 31, 2017, while the

minimum level prescribed by the Office of the

Superintendent of Financial Institutions (OSFI)

is 100%. A new investment policy was adopted

in 2017; this proved necessary following the

collective merger. This new policy also positions

UNI to generate additional income while

diversifying risk and its investment products.

During the 2017 fiscal year, UNI’s

liquidity increased slightly, or by

$0.3M. The principal variations are

explained in the following paragraphs.

UNI’s operational activities generated a net

cash outflow of $92M, attributable mainly to

the fact that loan portfolio growth exceeded

growth of the deposit portfolio. In 2017, new

member deposits generated a cash inflow of

$120.2M, while loan portfolio growth resulted

in a cash outflow of $226M.

During the fiscal year, UNI took out new

loans through a loan securitization program

in addition to repaying other securitization

loans. Overall, these transactions generated

a net cash inflow of $19.9M.

As part of daily liquidity management and to

support more rapid growth of its loan portfolio,

UNI divested itself of certain investments, which

generated a cash inflow of $7.7M. UNI also

invested $4.6M in capital assets, mainly for the

upgrade of its information technology platform.

LOANSThe loan portfolio, net of provisions,

surpassed the $3B mark in 2017, up by

$220M over 2016. This corresponds to a

7.4% increase which represents the strongest

growth in the last five years. While performance

in personal loans was solid in 2017, the business

lending sector was especially strong.

LOANS TO MEMBERS NET OF PROVISIONS ($ million)

2013

$2,864

$2,965

$3,185

$2,678

$2,7912014

2015

2016

2017


The following table presents the breakdown of the loan portfolio among the various lines of business.

2017 2016 2015

Personal

Residential mortgages $1,617,658 $1,540,181 $1,494,577

Consumer and other 526,132 492,095 473,981

Total personal 2,143,790 2,032,276 1,968,558

Business

Real estate 378,084 302,548 287,074

Health care and related services 140,702 160,284 149,230

Construction 82,232 92,106 89,910

Forestry 42,934 57,395 53,598

Fishing and trapping 61,617 53,103 47,760

Retail 54,186 50,630 45,682

Manufacturing 48,126 41,908 41,530

Accommodation and food 65,994 36,723 36,350

Transportation and warehousing 37,500 28,788 28,512

Other 154,065 133,430 139,964

Total business 1,065,440 956,915 919,609

3,209,230 2,989,191 2,888,167

Allowance by credit losses (24,530) (24,009) (23,705)

Total loans by category of borrowers $3,184,700 $2,965,182 $2,864,462

($ thousand)

RESIDENTIAL MORTGAGESUNI successfully expanded its

residential mortgage portfolio by

$77.5M in comparison to 2016. Its total

mortgage portfolio before provisions

stood at $1.618B at December 31, 2017,

versus $1.540B at December 31, 2016.

This corresponds to growth of 5%.

CONSUMER LOANS AND OTHER PERSONAL LOANSThis loan portfolio posted strong growth

once again in 2017, increasing by $34M during

the course of the year to reach $526M. In

2016, this portfolio stood at $492M. This

growth was fuelled by loans granted by our

financing centre directly to members and

non-members at car and recreational

vehicle dealerships as well as by loans

granted at our business locations.


BUSINESS LOANSThe business loan portfolio grew

dramatically in 2017. This portfolio

totalled $1.065B overall at

December 31, 2017, compared to

$957M in 2016. This represents

growth of 11%. The strongest growth

was noted in the real estate and the

accommodation and food services sectors.

DEPOSITSOur deposit portfolio posted significant

growth once again this year, increasing by

$121M or 3.8% over 2016 and bringing our total

deposit portfolio to $3.3B. The fishery sector

generated a considerable volume of new

deposits in 2017, particularly the crab

and lobster fisheries.

MEMBER DEPOSITS ($ million)

2013

2017

$2,742

$3,256

$3,135

$2,978

$2,8362014

2015

2016

CAPITAL MANAGEMENT

GOVERNANCEUNI recognizes the importance of

capital management. A series of

components are in place for a healthy

management process, including:

• annual review of the policy on

capital risk management by

the Board of Directors

• production of annual internal controls

to assess the adequacy of capital

• submission of quarterly accountability

reports to the Board of Directors on

capital risk management

• monthly monitoring of

various capital indicators

• annual three-year capitalization

plan, updated quarterly, to ensure

the long-term adequacy of capital.

UNI uses two ratios to ensure the

sufficiency of its threshold:

Capital to at-risk assets ratio

This ratio assesses capital adequacy, adjusted

according to risk. Additionally, the Capital

Adequacy Requirements guideline of OSFI

prescribes a minimum ratio in this regard

for financial institutions. UNI easily achieves

this minimum and, furthermore, compares

favourably to other large Canadian banks. Our

capital is also entirely made up of shares and

retained earnings, which are considered the

highest quality of capital there is.


Leverage ratio

OSFI’s Leverage Requirements guideline

requires compliance with a second capital

ratio, i.e. the leverage ratio. Capital must

represent at least 3% of non-risk-adjusted

assets. Once again, UNI complies with

OSFI’s requirements, with a ratio of 9.8%.

OFF-BALANCE SHEET ARRANGEMENTSIn the normal course of its business, UNI

manages investment portfolios for many of

its members. Through its business locations,

members can deposit their savings in

investment funds. This savings portfolio

represents off-balance sheet arrangements.

The total value of our portfolio of

investment funds under management

was $520M at December 31, 2017,

up $86M from $434M in 2016.

UNI reached a major milestone in 2017

by crossing the threshold of $500M in

investment funds. Thanks to major growth

potential in the management of investment

funds in New Brunswick, this line of business

has been growing significantly over the past

few years. This is part of the diversification of

our product offerings to members.

UNI also offers members a range of credit

instruments to satisfy their financing needs.

These instruments include credit commitments

and letters of guarantee. At December 31, 2017,

these off-balance sheet credit instruments

totalled $740M, an increase of $47M over

2016, when they stood at $693M.

2017 2016

Regulatory Capital $382,052 $362,757

Assets used to calculate the leverage ratio

$3,895,478 $3,743,977

Leverage Ratio 9.8% 9.7%

2017 2016

Regulatory Capital

CET1 $382,052 $362,757

Risk-adjusted assets* $2,098,009 $1,909,646

Capital to at-risk assets ratio 18.2% 19.0%

* Calculated according to criteria defined in the OSFI’s Capital Adequacy Requirements guideline.

$


DIR

ECTI

ON

S

ACC

OU

NTA

BILI

TY

RISK MANAGEMENT CYCLE

IDENTIFY EVALUATE AND MEASURE MANAGE CONTROL FOLLOW

RISK IDENTIFICATION AND TAXONOMY

COMMON RISK INFRASTRUCTURE

PEOPLE • PROCESS • TOOLS

EXECUTIVE COMMITTEE AND OVERSIGHT FUNCTIONS

THREE LINES OF DEFENCE

BOARD OF DIRECTORS AND COMMITTEES

• Policies and mandates of committees and oversight functions

• Risk Management Committee

• Risk appetite and tolerance

• Risk culture and general guidelines

• Guidelines

• Accountability

• Risk management process

• Procedures

• Expertise and training

• Communication

• Internal controls

• Data and tool availability

UNI has a risk management oversight

function which reports to the chief risk

officer. The CRO oversees the implementation

of a risk management framework for UNI

and its subsidiaries to ensure compliance

with requirements established by OSFI

and other regulatory authorities.

RISK MANAGEMENTRISK MANAGEMENT FRAMEWORKThe risk management framework is

conservative, complete, efficient and

consistent throughout the organization. It

covers all UNI and subsidiary activities by

establishing a global and coordinated approach

to managing risks in an integrated fashion.

The compliance management framework

is part of the risk management framework.

This framework is based on a strict, formal

and dynamic governance structure and on

a transparent risk culture aimed at guiding

business development and supervising and

controlling risks throughout the organization.

In addition to governance and culture, risk

management includes a series of processes.


GOVERNANCEUNI’s risk management framework is

supported by a governance structure aligned

with its organizational context. The Board of

Directors has a risk management committee

in place along with a number of other

committees to oversee the organization’s

specific activities and the associated risks.

It also makes use of oversight functions such

as risk management, compliance, finances,

internal audit and credit in the day-to-day

monitoring of the organization’s risks.

The Board of Directors expresses its risk

orientations through the Risk-Taking

Propensity Framework (RTPF). UNI manages

risk by adopting three lines of defence to

provide the Board of Directors and the

Executive Committee assurance that all

risks remain within the tolerance levels set

out in the RTPF. This framework determines

the appetite, tolerance and nature of risks

that UNI is willing to accept in targeting

its strategic and business objectives. Risk

appetite and tolerance must be determined

within UNI’s capacity for risks. The risk

management oversight function is responsible

for day-to-day coordination of the framework

in accordance with the orientations of the

Board of Directors. UNI continues to improve

the efficiency of its three lines of defence

in order to guarantee a truly efficient risk

governance system tailored to the needs

of the organization and the strict

requirements of the industry.

RISK CULTURE: “RISK IS EVERYBODY’S BUSINESS”The Board of Directors promotes a balanced

risk-taking approach offering adequate return

on equity to maintain a high level of capital

while remaining competitive and not coming

at the expense of the collective objectives of

its client members or communities. The spirit

of its risk culture is based on the following

characteristics:

• rigorous, formal, proactive, dynamic and

comprehensive risk management

• transparent communication

• empowerment of one and all,

and clear accountability

• common language

• a clear vision of risk appetite

and risk tolerance

• risk management as an integral

part of strategies

• a Board of Directors that is

actively committed to risk

governance and sets the pace

• an Executive Committee that implements the

policies approved by the Board of Directors

and leads by example

• an appropriate structure and

allocation of the necessary resources

to daily risk management

• proper division of labour within a rigorous

process based on use of

the three lines of defence

• a compensation system that

promotes sound risk management.


Globally, UNI takes and assumes risks in a way that supports sustainable financial performance that reflects its cooperative nature while maintaining its position as one of the best-capitalized financial institutions in Canada.

RISK-TAKING PROPENSITY FRAMEWORK

A successful and rigorous risk culture

can be defined by the use of a common

language. Being able to categorize risks

and consistently and cohesively define

them across the organization significantly

contributes to daily risk management.

UNI classifies its risks under 10 categories.

Operational risk, due to its disparate nature,

has 10 additional subcategories.

RISK TAXONOMY

RISK APPETITE (OBJECTIVES): Corresponds to UNI’s target level or the

level it wishes to maintain in order to

achieve its strategic and business goals.

RISK TOLERANCE (THRESHOLD AND LIMIT): Corresponds to the threshold and limit

established and defined by taking into

consideration risk-taking ability. UNI

does not want to be in this zone.

CAPACITY: Corresponds to equity, forecast and

actual profits, tools, experts, knowledge

and UNI personnel needed to manage a

risk. In terms of risk level, regulatory

thresholds also limit UNI’s capacity.

Operational

Reputation Strategic

Internal

fraud

External

fraud

Information

security

Project

management

Products,

services and

commercial

practices

Human

resources

Process

implementation,

delivery and

management

IT system

interruptions

malfunctions

Damage to

assets and

limited building

access

Financial and

management

information

integrity

Credit

Capital Liquidity Non-compliance

Market Insurance Outsourcing


STRATEGIC RISKThe material gap between the financial results of UNI and its subsidiaries and the anticipated results set out in its strategic plan. This financial gap may be linked to:

• inappropriate choices of strategies, business models, strategic partners or operation plans depending on its financial situation, operational capacity, expertise, competitive positioning, or business or economic environment

• adequacy of the allocation of human, financial and material resources to realize its strategy

• misalignment of sectorial plans with UNI’s strategic plan

• voluntary or involuntary inaction in response to a significant change in the economy or in the competitive or business environment.

Each year, the Board of Directors adopts a

strategic plan which contains both quantitative

targets (e.g. portfolio growth, financial

performance) and organizational targets (e.g.

establishment of a risk management structure,

strategic projects). The Board of Directors

conducts a quarterly review of the status of this

strategic plan in conjunction with the members

of the Executive Committee. The Executive

Committee implements action plans to ensure

that strategic objectives will be reached.

REPUTATIONAL RISKRevenue losses due to activities, actions or practices undertaken by UNI that are significantly below the expectations of members, clients, employees or the general public. This risk often arises due to ineffective management of one or more other risk categories, which causes a loss of confidence or negative conversation in traditional or social media.

UNI takes its reputation very seriously. It

continuously ensures that these actions,

methods and behaviours are aligned with its

cooperative values. The Executive Committee

closely oversees the marketing of new

products and services as well as changes to

our existing products and services.

UNI’s client satisfaction rate is a key indicator

of its reputation risk. UNI has been monitoring

this rate closely for many years. To ensure

that it is positioned to react promptly to

fluctuations in customer satisfaction levels, UNI

surveys individuals and businesses on a regular

basis. The client satisfaction rates of these two

groups of clients present a positive portrait.

CAPITAL RISKProbable financial losses (or shortfalls) or losses of business opportunities resulting from the lack of necessary equity to fully implement the strategy or the retention of a commercial activity, business unit or subsidiary or of UNI in general due to a shortfall or improper allocation of capital. This risk also covers situations in which UNI may not have enough equity to maintain activity comprehensiveness due to erosion of its capital under regulatory ratios.

UNI has one of the highest capital levels in

Canada for a financial institution. It is proud of

the financial soundness it offers its members

and it takes the appropriate actions to maintain

a level of comfort exceeding regulatory ratios.

Every year, UNI carries out stress tests to

determine the organization’s resistance

level in the event it had to manage a

crisis situation. UNI successfully remains

above regulatory ratios in all scenarios,

including a severe real estate crisis.


LIQUIDITY RISKPossible losses resulting from UNI’s resorting to expensive and unplanned sources of funding in order to continue honouring its financial obligations in a timely manner. Financial obligations include commitments to depositors, borrowers (disbursement of approved loans), suppliers and members. This risk is due primarily to asymmetry between the cash flows related to assets and those related to liabilities, including the payment of monies owed to suppliers and dividends to members.

UNI presents a favourable liquidity level on

the Canadian financial institution market. The

main source remains Personal and Business

member deposits. However, it also uses

mortgage securitization channels guaranteed

by CMHC to diversify its sources. UNI also has

lines of credit with other Canadian financial

institutions. It has established risk indicators,

alerts, thresholds and limits to ensure that its

liquidity level is always at a comfortable level

and always exceeds regulatory requirements.

The specific purpose of alerts is to detect a

potential liquidity crisis.

COMPLIANCE RISKLosses that may or may not result from litigation, penalties, fines or financial or other sanctions (increased surveillance by regulatory organizations) linked to inappropriate practices that do not comply with applicable regulations. This risk is due to the possibility of UNI’s straying from the expectations provided in laws, rules, regulations, standards or other regulatory requirements. This risk also includes significant unplanned charges incurred to remain in compliance with current regulation or regulatory modifications.

UNI has a regulatory monitoring process

which allows the identification of

amendments to laws, rules and other

regulatory requirements. When applicable,

UNI adjusts its policies and procedures as

promptly as possible to remain compliant.

PCMLTFA

UNI has a mechanism in place to combat money laundering and terrorist financing in compliance with the governing legislation (PCMLTFA) as well as OSFI requirements.

CREDIT RISKUnplanned financial losses due to the inability or refusal of a borrower, endorser, guarantor or counterparty to fulfil its entire contractual obligations to repay a loan or to meet any other pre-existing financial obligation.

Credit risk includes the risks of default, concentration and exposure to major commitments with a single counterparty.

Concentration risk: Concentration risk is a risk resulting from major exposure to a single factor (industrial activity sector).

Credit risk is among the most significant

risks for UNI. Our credit portfolio is made

up of residential mortgage loans, personal

loans and business credit. There are two

distribution channels for personal loans,

the first being loans offered directly

through our business locations and the

other products offered through retailers.

UNI’s Board of Directors establishes the

policy on credit risk management, which

is implemented by the representatives

responsible for granting loans and

managing credit products.

UNI uses rating systems supporting the

quantitative assessment of borrowers’

credit risk level. These systems are

used for credit granting, review and

management. At December 31, 2017, the

credit portfolio totalled $3.2B, including

$1.6B in residential mortgage loans.


CREDIT GRANTINGFirst, UNI’s Board of Directors establishes

approval limits for the credit committee and

chief credit officer. This officer then establishes

approval limits for the various staff members

responsible for approving credit applications.

Loans to retail clients – Personal

Our personal loan portfolio is composed of

residential mortgages, loans and personal lines

of credit as well as business location financing.

Generally, decisions concerning credit granting

to personal clients are based on risk ratings

generated using credit risk predictive models.

The goal of credit approval and portfolio

management methods is to standardize the

credit granting process and rapidly detect

problem loans. The automated risk rating

system assesses the solvency of each member

and client periodically. This process allows us to

promptly track risk trends both on a client-to-

client basis and collectively for entire portfolios.

Business loans

The business loan category is made

up of the portfolios of loans to small

businesses (retail business) and

mid-sized and large businesses.

For this main portfolios, the ratings

process includes 17 ratings consolidated

into 10 categories.

The following table compares our internal

ratings with external agency ratings.

The following table shows the credit

quality of the business loan portfolio

(amounts shown were calculated before

the impact of provisions for credit losses).

($ thousand and %)

Ratings Moody's S&P Description

1 to 2 Aaa to Aa3 AAA to AA-

Prime quality

2,5 A1 to A3 A+ to A-

3 to 4Baa1 to Baa3

BBB+ to BBB-

4,5 to 5,5 Ba1 to Ba3 BB+ to BB- Satisfactory quality6 to 7 B1 to B3 B+ to B-

7,5 to 9 Caa1 to C CCC+ to C Under supervision

10 D DImpaired and defaulted loans

2017 2016

Business loans

Prime quality $389,952 37% $303,333 32%

Satisfactory quality 588,255 55% 542,346 57%

Under supervision 59,223 6% 81,290 8%

Impaired and defaulted loans

28,010 2% 29,946 3%

Total $1,065,440 100% $956,915 100 %


Retail clients – Businesses

Rating systems based on validated statistics

are used to assess the credit risk associated

with small business loans.

These systems use historical data on the

behaviour of borrowers with characteristics or

profiles similar to those of the applicant and

compare the products used to estimate the risk

associated with each transaction.

These systems are used at the initial approval

stage and then on an ongoing basis to assess

portfolio risk. Periodic updating of borrowers’

level of risk allows us to proactively manage

the credit risk of our portfolios.

Mid-sized and large businesses

Credit is granted to mid-sized and large

businesses based on a detailed analysis of the

file. The financial, market and management

characteristics of each borrower are analyzed

using tools such as credit risk assessment

models. Quantitative analysis using financial

data is supplemented by professional

assessment of the file’s other characteristics.

On completion of this analysis, each borrower

is assigned a rating corresponding to its level of

risk. Regardless of the rating assigned, the final

decision is made by the hierarchic level with the

required approval limit.

Mitigation of credit risk

When a loan is granted to a client, UNI secures

collateral for certain products in order to

mitigate the borrower’s credit risk. This

collateral typically takes the form of assets,

such as capital, accounts receivable, stocks,

investments, government securities or shares.

As needed, UNI uses available risk-sharing

mechanisms with other financial institutions.

UNI’s loan portfolio continues to be

very sound. At December 31, 2017,

total impaired loans were valued at

$33.1M, increase $1.3M from December 31, 2016.

51%

33%

16%

BREAKDOWN OF LOANS BY BORROWER CATEGORYAt December 31, 2017

LOAN PORTFOLIO QUALITYAt December 31, 2017

($ thousand and %)

2014 2015 2016 2017

-$10,000$20,000 $30,000 $40,000 $50,000 $60,000 1.50%

1.00%

0.50%

0.98%1.13%

0.00%$31,829 $33,128$32,683

$27,713

1.06% 1.03%

Mortgages Personal Consumer and other individuals loans Business

Ratio of gross outstanding debts on loans Gross outstanding debts on loans


MARKET RISKPossible losses resulting from potential changes to the interest or exchange rate, the market prices of shares, credit gaps, or desynchronization of market indexes or liquidity. Exposure to this risk arises from negotiations or investments creating positions included or not on balance sheets.

Interest rate risk

UNI has adopted a strategy through

which it takes on a very low level of risk

associated with interest rate fluctuations.

This strategy uses interest rate swaps to

reduce the duration gap between assets and

liabilities. It maintains a duration gap between

assets and liabilities within the parameters

established by the Board of Directors.

For the Acadia Life subsidiary, interest rate risk

is managed using stochastic scenarios that

determine the potential impact of interest rate

fluctuations on the company’s capital. Risk

limits have been established to ensure that the

company’s risk profile corresponds to the risk

appetite determined by the Board of Directors.

Foreign exchange risk

UNI does not maintain any significant positions

on exchange markets. It holds only the foreign

currencies (mainly U.S. dollars) required to

meet the anticipated needs of its members.

Acadia Life holds a limited volume of

American shares in U.S. dollars, on which

there is no protection against the risks

associated with fluctuations in the

exchange rate. This represents less than

5% of Acadia Life’s investments.

Investment management

An investment policy covers the composition

and quality of securities in a portfolio as well as

the various portfolio management parameters

for all funds under management associated

with liquidity risk management.

INSURANCE RISKPossible losses incurred when paid compensation differs in practice from estimated assumptions (mortality, lapse, etc.) incorporated into the planning and pricing of insurance products.

UNI assumes life insurance risks (mortality,

lapse) only for life insurance and annuity

products offered by Acadia Life. This subsidiary

does not offer complex insurance products.

Acadia Life maintains a capital level significantly

exceeding regulatory requirements.

OUTSOURCING RISKPossible losses (financial or other) due to failure of a supplier (including outsourcers and partners) to fulfil all or part of its non-financial contractual obligations (contractual misunderstanding). In such a case, potential costs associated with the implementation of an alternative solution to the services of the supplier in question could be incurred.

Although this is typically classified as falling

under operational risk, UNI deems prudent to

treat it as a separate risk category given the

significance of this risk for the organization.

In order to achieve its strategic and business


goals, UNI uses the services of various

external suppliers. Among them, there are four

agreements classified as major contracting

agreements in terms of its outsourcing

policy, the most significant being the

agreement with the Fédération des

caisses populaires Desjardins du Québec.

UNI makes use of the information technology

services offered by Desjardins in accordance

with the same standards that Desjardins offers

to its own caisses. This strategy allows UNI to

take advantage of the reliability of the systems

maintained by a large financial institution that

is highly regarded across Canada. UNI also

benefits from the improvements made by

Desjardins to its systems, procedures, rules,

products and services. However, UNI must

regularly adapt new features launched by

Desjardins to the Acadian reality and monitor

for any anticipated changes at Desjardins with

a view to adapting certain solutions or internal

communications. UNI and its key suppliers

maintain excellent business relationships

supported by management processes that

provide for adequate risk management

among other considerations.

OPERATIONAL RISKLosses resulting from shortcomings or failures related to procedures, employees, internal systems or external events. Outsourcing risk is treated separately due to its significance for UNI. Because of its heterogeneous nature, this risk is divided into 10 distinct components.

UNI has established policies, guidelines,

procedures, computer systems, rules,

standards, business continuity plans and

internal controls to mitigate any losses

that might arise from various sources

associated with its operations, such as:

• Internal fraud

• External fraud

• Damage to assets and

limited building access

• IT system interruptions

and malfunctions

• Information security

• Project management

• Process implementation,

delivery and management

• Products, services and

commercial practices

• Human resources

• Financial and management

information integrity

Additionally, UNI has insurance in place

to cover any significant financial losses.

OFFICE OF DISPUTE MANAGEMENTThe Office of Dispute Management processed

a total of 110 complaints during the past year.

Key statistics are as follows:

• Average processing time: 1 day

• Client satisfaction rate: 57%

Consolidated Financial Statements

Caisse populaire acadienne ltéeAS AT DECEMBER 31, 2017


Table of contents


Management’s Responsibility for Financial Information ...................52

Independent Auditor’s Report ................................................................53

Consolidated statement of financial position .....................................55

Consolidated statement of income ......................................................56

Consolidated statement of comprehensive income ..........................57

Consolidated statement of changes in equity ....................................58

Consolidated statement of cash flows ................................................59

Notes to the consolidated financial statements ................................60


Management's Responsibility for Financial Information

The consolidated financial statements of Caisse populaire acadienne ltée and all the information contained in this annual report are the responsibility of its management, whose duty is to ensure their integrity and fairness.

The consolidated financial statements were prepared in accordance with International Financial Reporting Standards. The consolidated financial statements necessarily contain amounts established by management according to estimates that it deems to be fair and reasonable. These estimates include, among other things, valuations of actuarial liabilities performed by the valuation actuaries of Caisse populaire acadienne ltée, the valuation of the employee benefit liability and the measurement of the fair values of Caisse populaire acadienne ltée's financial instruments. Ali financial information presented in the annual report is consistent with the audited consolidated financial statements.

The Board of Directors of Caisse populaire acadienne ltée ensures that management fulfils its responsibilities with regard to the presentation of financial information and the approval of the consolidated financial statements of Caisse populaire acadienne ltée. The Board of Directors exercises this role mainly through the audit committees that meet with the auditors, in accordance with their mandate.

The consolidated financial statements were audited by the independent auditors appointed by the Board of Directors, Deloitte LLP, whose report follows. The auditors may meet with the audit committees at any time to discuss their audit and any questions related thereto, notably the integrity of the financial information provided.

Robert Moreau, CPA, CGA, IAS, AChief Executive Officer

Éric St-Pierre, CPA, CMAVice-President, Finance

Caraquet, Canada March 28, 2018

Management’s Discussion and Analysis | 53Member of Deloitte Touche Tohmatsu Limited

Independent Auditors’ Report

To the members ofCaisse populaire acadienne ltée

We have audited the accompanying consolidated financial statements of Caisse populaire acadienne ltée, which comprise the consolidated statement of financial position as at December 31, 2017, and the consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial StatementsManagement is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ ResponsibilityOur responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to fraud or error.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Deloitte LLP816, Main StreetMoncton (New-Brunswick) E1C 1E6 Canada

Tel : 506-389-8073Fax : 506-632-1210 www.deloitte.ca


Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Caisse populaire acadienne ltée as at December 31, 2017 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

Other matterThe consolidated financial statements of Caisse populaire acadienne ltée for the year ended December 31, 2016 were audited by another auditor who expressed an unmodified opinion on those consolidated financial statements on March 23, 2017.

Chartered Professional Accountants

March 28, 2018


Caisse populaire acadienne ltée Consolidated statement of financial position As at December 31, 2017 (In thousands of dollars)

Assets Cash Securities

Loans Persona! Business

Allowance for credit losses

Other assets Accrued interest, receivables and other assets Income taxes receivable Derivative financial instruments Reinsurance assets Deferred taxes Property and equipment Intangible assets

Liabilities Deposits

Payable on demand Payable on a fixed date

Other liabilities Borrowings Accrued interest, payables and other liabilities Income taxes payable Actuarial liabilities Derivative financial instruments

Commitments and contingencies Equity Share capital Accumulated other comprehensive income General reserve

Notes

5

6

7

10

20

8

9

11

12

10

24

14

15

2017 2016

$ $

100,193 99,857 587,776 658,647

2,143,790 2,032,276 1,065,440 956,915 3,209,230 2,989,191

(24,530) (24,009) 3,184,700 2,965,182

25,646 24,681 1,532

30,459 24,664 8,455 7,234

18,386 16,699 34,616 35,853 9,847 9,221

127,409 119,884 4,000,078 3,843,570

1,718,316 1,60p,815 1,537,226 1,534,492 3,255,542 3,135,307

86,314 66,401 73,443 83,996

440 170,427 158,741 15,385 5,028

346,009 314,166 3,601,551 3,449,473

4,426 4,432 3,757 3,859

390,344 385,806 398,527 394,097

4,000,078 3,843,570 The accompanying notes are an integral part of the consolidated financial statements. On behalf of th Board of Directors

Pierre-Marcel Desjardins, ICD.D Chair of the Board

Wanita McGraw, FCPA, CA, ICD.D Chair of the Audit committee

Page 4


Caisse populaire acadienne ltéeConsolidated statement of incomeYear ended December 31, 2017(In thousands of dollars)

Page 5

Notes 2017 2016

$ $

Net financial incomeFinancial income 147,424 141,026Financial expense 33,916 34,912Net financial income 113,508 106,114

Provision for credit losses 6 6,515 3,369Net financial income after provision for credit losses 106,993 102,745

Other incomeMainly related to the administration of deposits 18,241 19,873Related to the administration of other services 18,558 20,609Net insurance and annuity premiums 16 18,990 18,503

55,789 58,985

Other expensesSalaries and employee benefits 62,750 68,720General and other expenses 56,687 57,100Net insurance and annuity benefits 17 21,820 13,848Expenses related to the amalgamation process 18 — 6,913

141,257 146,581

Net income before other items 21,525 15,149Other items 19 (15,468) (11,545)

Net income before income taxes 6,057 3,604Income taxes 20 1,790 (27,710)

Net income for the year 4,267 31,314

The accompanying notes are an integral part of the consolidated financial statements.


Caisse populaire acadienne ltéeConsolidated statement of comprehensive incomeYear ended December 31, 2017(In thousands of dollars)

Page 6

Notes 2017 2016

$ $

Net income for the year 4,267 31,314

Other comprehensive incomeItem that will not be reclassified to the

consolidated statement of incomeChange in the employee benefit liability

Change during the year 13 382 (299)Related income taxes 20 (111) 100

Total of item that will not be reclassified to the consolidated statement of income 271 (199)

Items that will be reclassified to the consolidated statement of incomeUnrealized changes in fair value on available-for-sale

securitiesChange during the year 1,538 6Related income taxes 20 (446) —

1,092 6

Reclassified to net incomeRealized gains on available-for-sale securities (1,679) (2,277)Related income taxes 20 485 607

(1,194) (1,670)

Total of items that will be reclassified to the consolidated statement of income (102) (1,664)

Total other comprehensive income, net of income taxes 169 (1,863)Comprehensive income for the year 4,436 29,451



Caisse populaire acadienne ltéeConsolidated statement of changes in equityYear ended December 31, 2017(In thousands of dollars)

Page 7

2017

NotesShare

capital

Accumulated other

comprehensive income

Distributable net income

General reserve

Total equity

$ $ $ $ $

Beginning balance 4,432 3,859 — 385,806 394,097Net income for the

year — — 4,267 — 4,267Other comprehensive

income — (102) — 271 169Comprehensive

income — (102) 4,267 271 4,436Net transfer to the

general reserve 21 — — (4,267) 4,267 —Net change in share

capital (6) — — — (6)Ending balance 4,426 3,757 — 390,344 398,527

2016

NotesShare

capital

Accumulated other

comprehensive income

Distributable net income

General reserve

Total equity

$ $ $ $ $

Beginning balance 4,328 5,523 2,310 352,381 364,542Distribution by the

membersGeneral reserve — — (2,310) 2,310 —

Balance after distribution 4,328 5,523 — 354,691 364,542

Net income for the year — — 31,314 — 31,314Other comprehensive

income — (1,664) — (199) (1,863)Comprehensive

income — (1,664) — (199) 29,451Net transfer to the

general reserve 21 — — (31,314) 31,314 —Net change in share

capital 104 — — — 104Ending balance 4,432 3,859 — 385,806 394,097



Caisse populaire acadienne ltéeConsolidated statement of cash flowsYear ended December 31, 2017(In thousands of dollars)

Page 8

2017 2016$ $

Operating activitiesNet income before income taxes 6,057 3,604Adjustments to determine cash flows

Depreciation of property and equipment and amortization of intangible assets 4,965 4,269

Loss on disposal of property and equipment and intangible assets 288 56

Amortization of premiums and discounts on securities 1,683 62Net change in actuarial liabilities 11,686 1,583Change in investment contract liabilities (52) (31)Provision for credit losses 6,515 3,369Gain on securities (12,220) (4,015)Other items at fair value 15,468 11,545Change in the employee benefit liability (2,223) (1,901)Change in reinsurance assets (1,221) (256)

Net change in interest receivable and payable (2,002) 1,959Net change in loans (226,033) (104,089)Net change in deposits 120,235 157,584Net change in derivative financial instruments (6,706) (1,190)Net change in others assets and liabilities (6,859) (7,153)Income taxes paid during the year (1,577) (5,780)Member dividends paid — (200)

(91,996) 59,416Investing activities

Acquisitions of securities (765,446) (968,954)Proceeds from disposal of securities 842,513 906,097Acquisitions of property, plant and equipment and

intangible assets (4,955) (7,153)Proceeds from disposal of property, plant and

equipment, and intangible assets 313 10172,425 (69,909)

Financing activitiesIncrease of borrowings 19,913 3,908Reimbursement of borrowings — (8,248)Net change in share capital (6) 104

19,907 (4,236)Increase (decrease) in cash 336 (14,729)Cash, beginning of year 99,857 114,586Cash, end of year 100,193 99,857Other cash flow information relating to operating

activitiesInterest received 135,783 146,134Interest paid 33,442 38,061Dividends received 1,047 1,147



Caisse populaire acadienne ltéeNotes to the consolidated financial statementsDecember 31, 2017(In thousands of dollars)

Page 9

1. Basis of presentation and general information

General information

Caisse populaire acadienne ltée (Caisse), operating under UNI Financial Cooperation, is aco-operative chartered under the Bank Act and its activities are governed, in particular, by theOffice of the Superintendent of Financial Institutions Canada (OSFI) and the Financial ConsumerAgency of Canada. The Caisse is also a member of the Canada Deposit Insurance Corporation.The Caisse provides a complete range of financial products and services including banking servicesto individuals and businesses, asset management, personal insurance and damage insurance.

The Caisse was formed through the amalgamation on July 1, 2016, of certain entities of theMouvement des caisses populaires acadiennes (Mouvement), specifically the Caisses populaires,the Office de Stabilisation de la Fédération des Caisses populaires acadiennes limitée (Office destabilisation) and La Fédération des Caisses Populaires Acadiennes Limitée (Fédération). Uponamalgamation, the net assets of the Commercial Loan Fund of the Caisses Populaires Acadiennes(Commercial Loan Fund) were distributed to the Caisse and the Commercial Loan Fund wassubsequently dissolved. This amalgamation is described in Note 2.

The headquarters of the Caisse are located at 295 St-Pierre Boulevard West, Caraquet(New Brunswick), Canada.

The Board of Directors approved these consolidated financial statements and notes on March 28,2018.

International financial reporting standards

These consolidated financial statements have been prepared by management of the Caisse inaccordance with International Financial Reporting Standards (IFRS), as issued by the InternationalAccounting Standards Board (IASB).

These consolidated financial statements have been prepared on the basis of historical cost, exceptfor the remeasurement of certain financial assets and liabilities at fair value, including securitiesat fair value through profit or loss, available-for-sale securities and derivative financialinstruments.

The items included in the consolidated financial position are based on liquidity. And each itemincludes both short-term balances and long-term balances, if applicable.

Certain comparative amounts were reclassified to be consistent with the presentation of theconsolidated financial statements of the current year. These reclassifications did not affect theCaisse’s results or total assets and liabilities.

Functional currency and presentation currency

These consolidated financial statements are presented in Canadian dollars, the Caisse’s functional currency.

Statement of compliance

The Caisse’s consolidated financial statements are established according to IFRS effective on December 31, 2017.



Page 10

2. Significant accounting policiesBasis of consolidation and amalgamation

These consolidated financial statements include the financial statements of the Caisse and itswholly owned subsidiaries, Financière Acadie Inc. and Société de Services Acadie Inc. Theconsolidated financial statements also include the financial statements of Conseil Acadien de laCoopération Ltée, an entity that the Caisse controls by way of control of its Board of Directors.

The amalgamation that gave rise to the Caisse was accounted for using the pooling of interestmethod, as the consolidated financial statements of the Caisse are the continuance of theconsolidated financial statements of the Mouvement, which are presented here as comparativeamounts. The consolidated financial statements of the Mouvement were derived from the financialstatements of the Caisse, the Office de stabilisation, the Commercial Loan Fund and theconsolidated financial statements of the Fédération and Acadia Life. These last three entities wereincluded as they were directly owned by the Caisses populaires; the Office de stabilisation wasincluded since the majority of its Board of Directors represented the Caisses populaires and theFédération.

The financial statements of all entities of the Caisse have been prepared for the same referenceperiod using consistent accounting policies. All intra-group balances, income and expenses as wellas gains and losses on internal transactions have been eliminated.

Use of estimates and judgment

The preparation of financial consolidated statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the presentation of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the fiscal year. The actual results could differ from these estimates.

The main items for which management had to make these estimates and assumptions include insurance contract liabilities and reinsurance assets, the allowance for credit losses, the measurement of financial instruments at fair value, income taxes and the measurement of the employee benefit liability. The estimates and assumptions with respect to these items are presented below.

Insurance contract liabilities and reinsurance assets

Actuarial liabilities are determined using the Canadian Asset Liability Method (CALM), inaccordance with accepted actuarial practice in Canada. Under CALM, the calculation of the actuarial liabilities, net of the reinsurance assets, is based on an explicit projection of cash flows using the current best estimate assumptions for each cash flow component and each significant contingency. Investment returns are based on projected investment income using the current asset portfolio and projected reinvestment strategies. Each non-economic assumption is adjusted by a margin for adverse deviation. With respect to investment returns, the provision for adverse deviation is established using yield scenarios. These scenarios are determined using a deterministic model that includes testing prescribed by Canadian actuarial standards. The period used for the cash flow projection is the policy lifetime for most insurance contracts. For certain types of contracts, a shorter projection period may be used. However, this period is limited to the term of the liability over which the Caisse is exposed to significant risk without the ability to adjust policy premiums or charges related to the contract. Additional information is disclosed in Note 10.



Page 11

2. Significant accounting policies (continued)

Use of estimates and judgment (continued)


The Caisse establishes separately, loan by loan, individual allowances for each loan that is considered impaired. To determine the estimated recoverable amount, the Caisse discounts expected future cash flows at the effective interest rate inherent in the loan. When the amounts and timing of future cash flows cannot be estimated with reasonable reliability, the estimated recoverable amount is determined using the fair value of the collateral underlying the loan. The model for determining the collective allowance takes into account certain factors, including the probabilities of default and rates of historical losses. Model results are then reviewed, taking into account the level of the existing collective allowance as well as management’s judgment as to the quality of the portfolio, economic conditions and credit market conditions. Given the significance of the amounts and their inherent uncertainty, a change in the estimates and judgments could materially affect the amounts of theallowances.

Measurement of financial instruments at fair value

The fair value of financial instruments is measured using a fair value hierarchy depending on whether the inputs used for measurement are observable or not. Note 23 shows how fair value measurements are allocated to the three levels of the hierarchy. Given the role of judgment in the application of a large number of acceptable valuation techniques and estimates for the calculation of fair values, they are not necessarily comparable among financial institutions. Fair value reflects market conditions at a given date and, therefore, may not be representative of future fair value. It also cannot be interpreted as a realizable amount in the event of immediate settlement.

Income taxes

Judgment is involved in determining the provision for income taxes. The calculation of income taxes is based on the tax treatment of the transactions recorded in the consolidated financial statements. The Caisse recognizes a liability for anticipated tax adjustments based on an estimate of the additional taxes payable. When the amount payable is different from that originally recorded, the difference affects income tax expense, and the provision for income taxes could increase or decrease in subsequent years.

Deferred tax assets and liabilities reflect management’s estimate of the value of loss carryforwards and other temporary differences. Deferred tax asset values are determined using assumptions regarding the results of operations of future fiscal years, timing of reversal of temporary differences and tax rates in effect on the date of reversals, which may change depending on government fiscal policies. Management must also assess whether it is morelikely than not that deferred income tax assets will be realized before they expire and, according to all available evidence, whether a valuation allowance is required on all or portion of deferred tax assets. Moreover, in determining income taxes recorded on the consolidated statement of income, management interprets tax legislation in various jurisdictions. Using other assumptions or interpretations could lead to significantly different income tax expense.



Page 12


Use of estimates and judgment (continued)

Valuation of the employee benefit liability

The present value of the defined benefit pension plan obligation is calculated on an actuarial basis using a number of assumptions. Any change in these assumptions would have an impact on the carrying amount of the employee benefit liability. The assumptions used and additional information can be found in Note 13.

Financial instruments

All financial assets must be recognized at fair value upon initial recognition and classified as atfair value through profit or loss, available-for-sale, held-to-maturity or loans and receivables, based on the purpose for which the instrument was acquired and its characteristics. Financial liabilities must be measured at amortized cost or classified as at fair value through profit or loss. Purchases and sales of financial assets are recorded using the trade date.

Financial instruments at fair value through profit or loss

Financial instruments at fair value through profit or loss are measured at fair value and any change in fair value is recorded in profit or loss in the year in which these changes occur. Financial instruments can be classified in this category either because they are classified as held for trading or because, upon initial recognition, they were designated as at fair value through profit or loss. This designation may be made if it eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities or recognizing the gains or losses on them on different bases or if a group of financial assets, financial liabilities or both is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy and information about the group is provided internally on that basis to key management personnel. With the exception of the derivative financial instruments that are classified as held for trading, financial instruments at fair value through profit or loss are classified in this category through initial designation. Interest income earned, amortization of premiums and discounts, and dividends received are included in financial income using the accrual method.

Instrument assets classified as available-for-sale

Financial instruments classified as available-for-sale (AFS) are measured at fair value and any unrealized gains or losses are recorded in other comprehensive income until the financial assets are sold or depreciated. Equity instruments that do not have quoted prices in an active market and for which a reliable valuation cannot be obtained are recorded at cost. AFS financial instruments are non-derivative financial assets that are designated as AFS or that are not classified as loans and receivables, held-to-maturity financial instruments or asfinancial assets at fair value through profit or loss.

Interest revenue earned, amortization of premiums and discounts and dividends received are included in financial income, using the accrual method. When a decline in the fair value of a security is significant or prolonged, the resulting loss is immediately recognized in profit or loss. At each financial statements date, the debt securities are subject to impairment tests. The Caisse takes into account an impairment loss if it considers that it will probably not be able to recover all amounts due according to the contractual terms of the obligation due to an objective indication of impairment such as financial hardship of the issuer, bankruptcy or non-payment of principal or interest.



Page 13


Financial instruments (continued)

Instruments assets classified as available-for-sale (continued)

For available-for-sale debt securities, the impairment loss represents the cumulative loss measured as the difference between the amortized cost and the current fair value, less any previously recognized impairment losses. Future interest income is calculated on the reduced carrying amount at the same interest rate used to discount future cash flows to measure the impairment loss. A subsequent decrease in the fair value of the instrument is also recognized in the consolidated statement of income. If the fair value of a debt security increases in a subsequent period, the increase is recognized in other comprehensive income. However, if the increase can be objectively related to an event occurring after the impairment was recognized, the impairment loss is reversed through the consolidated statement of income. An increase in fair value in excess of the impairment loss previously recognized in the consolidated statement of income is recognized in other comprehensive income.

For available-for-sale equity securities, the impairment loss, represented by the cumulative loss measured as the difference between the acquisition cost (net of repayments of capital and amortization) and the current fair value, less any previously recognized impairment losses, is deducted from other comprehensive income and recognized in investment income in the consolidated statement of income. Impairment losses on equity securities are not reversed through the consolidated statement of income. Subsequent increases in the fair value of available-for-sale equity securities are recognized in other comprehensive income while subsequent decreases in fair value are recognized in the consolidated statement of income.

Financial assets classified as held-to-maturity, loans and receivables and other assets and liabilities

Financial assets classified as held-to-maturity (HTM), loans and receivables and other financial liabilities are carried at amortized cost using the effective interest method. The effective interest rate is the rate that exactly discounts future cash outflows or receipts over the expected life of the financial instrument or, as the case may be, over a shorter period of time to obtain the net carrying amount of the financial asset or liability.

Interest or dividends arising from these financial instruments are included in financial income and expense. A financial asset held-to-maturity is impaired and impairment losses are incurred if there is objective evidence of impairment that can be reliably estimated. The impairment loss amount is the difference between the book value of the asset, including accrued interest, and the present value of estimated future cash flows, discounted at the original effective interest rate of the asset.



Page 14



Transaction costs

Transaction costs relating to the acquisition of AFS investments are capitalized and then amortized over the term of the investment using the effective interest method. Those arising from the disposition of investments are deducted from the proceeds of disposition. Investment management fees are charged to net income as incurred. Transaction costs attributable to financial instruments classified as loans and receivables are capitalized and amortized using the effective interest method.

Classification and recognition of financial assets and liabilities

Financial assets and liabilities are classified based on their characteristics and the intention of management at the time of acquisition.

Cash

Cash is classified as loans and receivables and includes cash on hand and current accounts.

Securities

Debt securities include money market securities, bonds, asset-backed term notes and term deposits. Income from securities is accounted for on an accrual basis.

Money market securities of the former Fédération and Acadia Life are classified as designated as at fair value through profit or loss. Money market securities are classified as available-for-sale.

Bonds matched with actuarial liabilities of Acadia Life and bonds of the former Fédération are classified as at fair value through profit or loss. Bonds not matched with actuarial liabilities are classified as available-for-sale.

Asset-backed term notes are classified as at fair value through profit or loss. Term deposits are classified as loans and receivables.

Equity securities include equities, investment funds and other investments.

Equities are classified as available-for-sale.

Investment funds that are not matched to actuarial liabilities are classified as available-for-sale; those that are matched are classified as at fair value through profit or loss.

Other investments mainly consist of equity securities in unrelated entities and are classified as available-for-sale.

For items designated at fair value through profit or loss, with actuarial liabilities being determined according to CALM, the carrying value of the assets matching those liabilities is reflected in the calculation basis. As a result, any change in the fair value of the portion of money market securities, bonds, asset-backed term notes and investment funds matched to actuarial liabilities is included in the measurement of actuarial liabilities.



Page 15



Classification and recognition of financial assets and liabilities (continued)

Loans

Loans are classified as loans and receivables and recognized at amortized cost usingthe effective interest method, net of the allowance for credit losses. The allowance for credit losses on impaired loans is charged immediately to net income.

Other assets

With the exception of the derivative instruments, financial assets included in other assets are classified as loans and receivables.

Derivative instruments

Derivative financial instruments are financial contracts whose value depends on assets, interest rates, foreign exchange rates and other financial indices. Derivative financial instruments are negotiated by mutual agreement between the Caisse and the counterparty and include interest rate swaps, foreign exchange contracts and stock index options.

The Caisse recognizes derivative instruments at fair value, whether they are stand-alone or embedded. Stand-alone derivative instruments are recognized in the statement of financial position in other assets and liabilities, while embedded derivative instruments are reported in accordance with their characteristics with their host contract, under deposits payable on a fixed date. Changes in the fair value ofstand-alone derivative instruments are recognized in the statement of income in other items, except for changes in market-linked term deposits, which are recognized as a financial expense. Changes in the fair value of embedded derivative instruments arerecorded as a financial expense adjustment.

The Caisse uses derivative financial instruments primarily for asset-liability management.

Derivative financial instruments are mainly used to manage the interest rate risk exposure of the assets and liabilities in the statement of financial position, firm commitments and forecasted transactions.

Interest rate swaps are transactions in which two parties exchange interest flows on a specified notional amount for a predetermined period based on agreed-upon fixed and floating rates. Principal amounts are not exchanged.

The foreign exchange contracts to which the Caisse is party consist of forward contracts. Forward contracts are commitments to exchange, at a future date, twocurrencies based on a rate agreed upon by both parties at the inception of the contract.

The Caisse has opted not to apply hedge accounting for these derivative financial instruments.

Deposits

Deposits are classified as other financial liabilities and are carried at amortized cost using the effective interest method.

Demand deposits are interest-bearing or non-interest-bearing deposits typically held in chequing accounts and savings accounts. Deposits payable on a fixed date are interest-bearing deposits usually held in fixed-term deposit accounts, guaranteed investment certificates or other similar instruments, with terms generally varying from one day to five years and maturing on a predetermined date.



Page 16



Classification and recognition of financial assets and liabilities (continued)

Other liabilities

Borrowings and financial liabilities included in other liabilities, excluding derivative instruments, are classified as other financial liabilities and are carried at amortized cost using the effective interest method.

Loans

The Caisse assesses at each reporting date whether there is objective evidence that financialasset or a group of financial assets is impaired. A loan is considered to be impaired if such evidence exists, specifically when one of the following conditions is met: (a) there is reason to believe that a portion of the principal or interest cannot be collected; (b) the interest or principal repayment is contractually 90 days or more past due, unless the loan is fully secured and in the process of collection; or (c) the interest or principal is more than 180 days in arrears. A loan is not classified as impaired when it is fully secured or insured by a Canadian government (federal or provincial) or a Canadian government agency. A loan is considered to be past due when a borrower has failed to make a payment when contractually due. When a loan becomes impaired, the interest previously accrued but not collected is capitalized to the loan. Payments subsequently received are recorded as a reduction of the principal. A loan ceases to be considered impaired when principal and interest payments are up to date and there is no longer any doubt as to the collection of the loan, or when it is restructured, in which case it is treated as a new loan, and there is no longer any doubt as to the collection of the principal and interest. A loan is written off when all attempts at restructuring or collection have been made and the likelihood of future recovery is remote. When a loan is written off completely, any subsequent payments are recorded in net income.

Collateral is obtained if deemed necessary for a member’s loan facility, after an assessment of their creditworthiness. Collateral usually takes the form of an asset such as cash, government securities, stocks, receivables, inventories or property and equipment.

Assets foreclosed to settle impaired loans are recognized on the date of foreclosure at their fair value less costs of disposal. The fair value of foreclosed assets is determined by using a comparative market analysis, based on the optimal use of the assets, and considering the characteristics, location and market of each foreclosed asset. Transaction prices for similar assets are used, but certain adjustments are made to take into account the differences between assets on the market and the foreclosed assets being evaluated. Any subsequent change in fair value is recorded on the statement of income.


Objective evidence of impairment results from a loss event that occurred after the loan was granted but before the reporting date and which has an impact on the estimated future cash flowsof loans. The impairment of a loan or group of loans is determined by estimating the recoverable amounts of these financial assets. The allowance is equal to the difference between this value and the carrying amount. To determine the estimated recoverable amount of a loan, the Caisse uses the value of the estimated future cash flows discounted at the loan’s effective interest rate. When the amounts and timing of future cash flows cannot be estimated with reasonable reliability, the estimated recoverable amount is determined using the fair value of any security underlying the loan, net of expected costs of realization.



Page 17


Allowance for credit losses (continued)

The allowance for credit losses is management’s best estimate regarding impaired loans at thereporting date. In measuring the allowance for credit losses, management must exercisejudgment in order to determine the inputs, assumptions and estimates to be used, including thetiming of when a loan is considered impaired and the recoverable amount. A change in theseestimates and assumptions would affect the allowance for credit losses, as well as the provisionfor credit losses for the year.

The allowance for credit losses on impaired loans is established on an individual basis while theallowance on unimpaired loans is established on a collective basis.

Individual allowances

The Caisse reviews its loan portfolios on a loan-by-loan basis to assess credit risk anddetermine if there is any objective evidence of impairment for which a loss should be recognized in the statement of income.

Changes in individual allowances for credit losses due to the passage of time are recognized in financial income, while those resulting from a revision of expected receipts are recognized in the provision for credit losses.

Collective allowance

Loan portfolios for which an individual allowance has not been established are included in groups of financial assets having similar credit characteristics and are subject to a collective allowance.

The method used by the Caisse to measure the collective allowance takes into account the risk parameters of the various loan portfolios. The models that determine the collective allowance take into account certain factors such as probabilities of default (loss frequency), loss given default (extent of losses) and gross exposure to default. These parameters, which are based on historical losses, are determined according to the category of each loan for the personal loans portfolio and according to the risk rating of each loan for the business loans portfolio. The measurement of the collective allowance requires significant management judgment and assessment of current credit quality trends with respect to business sectors, the impact of changes in its credit policies as well as economic conditions.

Lastly, the allowance related to off-statement of financial position exposures, such as letters of credit and certain unrecognized credit commitments, is recorded in the other liabilities.

Reinsurance assets

In the normal course of business, the Caisse uses reinsurance to limit its exposure to risk. The reinsurance assets represent amounts owed to the Caisse by reinsurance companies for ceded insurance contract liabilities. These amounts are calculated in a manner similar to the actuarial liabilities for future benefits under insurance contracts, in accordance with the reinsurance agreements. The reinsurance assets are tested for impairment annually. When there is objective evidence that a reinsurance asset is impaired, the carrying value of that asset is written down to its recoverable value and the resulting loss is recognized in profit or loss.



Page 18


Property and equipment

Land is recorded at cost. Buildings and equipment and other are recorded at cost less accumulateddepreciation and are depreciated over their estimated useful lives on a straight-line basis. Gainsand losses from disposal are included in net income in the year in which they occur and areincluded in other income. Property and equipment are tested for impairment whenever events orchanges in circumstances indicate that their carrying amount may not be recoverable. When thecarrying value exceeds the fair value, the carrying value is adjusted and an impairment loss isrecognized in profit or loss.

Buildings 5 to 60 yearsEquipment and other 1 to 30 years

Intangible assets

Intangible assets include software, acquired or internally generated, and are recorded at cost. They are amortized over their useful lives on a straight-line basis and using terms of 1-15 years. Intangible assets are tested for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. When the carrying value exceeds the recoverable amount, the carrying value is adjusted and an impairment loss is recognized in profit or loss.

Assets held for sale

An asset is classified as held for sale if its carrying amount is expected to be recovered principally through a sale transaction rather than through continuing use and such a sale transaction is highly probable. An asset held for sale is measured at the lower of its carrying amount and its fair value less costs to sell.

The fair value of assets held for sale is determined by using a comparative market analysis, based on the optimal use of the assets, as well as the characteristics, location and market of each asset. Transaction prices for similar assets are used and certain adjustments are made to take into account the differences between assets on the market and assets held for sale.

Impairment of non-financial assets

The Caisse assesses at the reporting date whether there is evidence that an asset may be impaired. An impairment loss is recognized when the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is the higher of its fair value less costs of disposal and its value in use. Fair value is the best estimate of the amount that can be obtained from a sale during an arm’s length transaction between knowledgeable, willing parties, less costs of disposal. Value in use is calculated using the most appropriate method, generally by discounting recoverable future cash flows. Impairment losses on that asset may be subsequently reversed and are recognized in the statement of income in the year in which they occur.

Estimating the recoverable amount of a non-financial asset to determine if it is impaired also requires that management make estimates and assumptions, and any change in these estimates and assumptions could impact the determination of the recoverable amount of non-financial assets and, therefore, the outcome of the impairment test.



Page 19


Insurance and investment contract liabilities

i. Classification of contracts

Insurance contracts are contracts that transfer a significant insurance risk at the time ofissue of the contract. Insurance risk is transferred when the Caisse agrees to compensatethe policyholder if an uncertain future event specified in the contract adversely affects thepolicyholder. Insurance contracts may also include the transfer of an immaterial financialrisk. Contracts that do not meet the definition of an insurance contract in accordance withIFRS are classified either as investment contracts or service contracts. Investment contractsare contracts that involve financial risk without significant insurance risk.

Contracts issued by the Caisse that transfer a significant insurance risk are classified asinsurance contracts in accordance with IFRS 4, Insurance Contracts. Contracts issued by theCaisse that do not meet the definition of an insurance contract are classified as investmentcontracts, in accordance with IAS 39, Financial Instruments: Recognition and Measurement.

When a contract has been classified as an insurance contract, it remains an insurancecontract for the rest of its term, even if the insurance risk decreases significantly during thisperiod, until its expiry or the expiration of all rights and obligations. However, an investmentcontract may be reclassified as an insurance policy after its issue if the insurance riskbecomes significant.

ii. Insurance contract liabilities

Actuarial liabilities represent the amounts which, together with estimated future premiumsand net investment income, will allow the Caisse to meet all of its obligations regardingestimated future benefits, taxes other than income taxes and related estimated futureexpenses. The appointed actuary of the Caisse is required to determine the actuarial liabilitiesneeded to meet its future commitments.

Actuarial liabilities are determined using the CALM, in accordance with Canadian acceptedactuarial practice.

The reinsurers’ share of the actuarial liabilities is recognized as an asset in the statement offinancial position as “Reinsurance assets.”

iii. Liability adequacy test

The Caisse meets the minimum requirements of the liability adequacy test given that it takesinto consideration, when determining the actuarial liabilities, current estimates of allcontractual and related cash flows, such as the costs of processing claims and cash flowsresulting from embedded options and guarantees. Moreover, if the liability is inadequate, theentire deficiency is recognized in net income.



Page 20


Insurance and investment contract liabilities (continued)

iv. Investment contract liabilities

Investment contracts of the Caisse mainly comprise annuity certain contracts. Investmentcontract liabilities are classified as other financial liabilities and are carried at amortized cost.Amounts received as premiums are initially recognized in the statement of financial positionas deposits. Subsequently, deposits and withdrawals are recorded directly as an adjustmentto the liability in the statement of financial position.

v. Reinsurance

The Caisse uses reinsurance treaties for contracts with coverage in excess of certainmaximum amounts that vary based on the nature of the activities. In addition, it purchasesadditional reinsurance protection against large-scale catastrophic events.

Liabilities for pending and unreported claims

These liabilities represent life insurance claims known at year-end that have not yet been settled as well as an estimate of the insurance claims for which death has occurred but no claim has yet been received by the Caisse.

Currency translation

Monetary assets and liabilities in foreign currency are translated at the exchange rate in effect at year-end. Other assets and liabilities are translated at historical exchange rates. Statement of income items are translated at the average exchange rate for the year. Exchange gains and losses are recognized in the statement of income for the year.

Member dividends

Member dividends are a distribution of net income for the year based on the volume of activity of each member. As such, they are recognized on the statement of income.

Income taxes

The Caisse uses the tax asset and liability method of accounting for income taxes. Under this method, income taxes include both current taxes and deferred taxes. Current taxes represent the taxes on the year’s taxable income. Current tax assets and liabilities for the current and prior years are measured at the amount expected to be paid to or recovered from the tax authorities, using the tax rates that were enacted or substantively enacted at the reporting date. Deferred taxes are recognized based on the expected tax consequences of the differences between the carrying value of items in the statement of financial position and their tax basis, using the tax rates that are enacted or substantively enacted for the years in which the differences are expected to reverse. A deferred tax asset is recognized to the extent that future realization of the tax benefit is more likely than not.



Page 21


Pension plans

Until December 31, 2013, the Caisse participated in the Mouvement des caisses populairesacadiennes employee pension plan, as part of a multi-employer defined benefit plan thatguaranteed the payment of pension benefits. Since January 1, 2014, the Caisse participates inthe Régime de pension à risques partagés des employés d’UNI Coopération financière. Due to theconversion to the shared risk pension plan, the Caisse has committed to paying temporarycontributions under certain conditions. The liability for these payments is determined through ananalysis of probabilities and is discounted using a yield curve that takes into consideration theexpected schedule of payments. The liability’s annual interest expense is recorded in net income.Actuarial gains and losses are recognized in other comprehensive income in the period in whichthey arise. These gains and losses are also recognized immediately in the general reserve andare not reclassified to net income in a subsequent period.

Under the shared risk pension plan, the actuarial and investment risks are assumed by employees.As a result, the pension plan is recorded as if it were a defined contribution pension plan.

The Caisse also participates in two other defined benefit pension plans. Pension plan benefits arecalculated similarly to those in the shared risk plan. The Caisse accounts for these plans as definedbenefit plans. The cost of the benefits is determined using the Projected Unit Credit Method. Theemployee benefit liability is measured using an actuarial valuation in accordance with IFRS.Actuarial gains and losses are recognized in other comprehensive income in the period in whichthey arise. These gains and losses are also recognized immediately in the general reserve andare not reclassified to net income in a subsequent period.

The Caisse also offers employees a retirement benefit by way of a lump sum payment. This benefitis based on the employee’s salary and the number of years worked within the Caisse.

Revenue recognition

Financial income is recognized using the accrual basis of accounting. Revenues related to the administration of deposits consist primarily of fees relating to payment orders issued without sufficient funds and of service fees. These revenues are recognized when the transaction occurs in accordance with the prevailing fee agreement with the member.

Gross premiums for all types of insurance contracts are recognized as revenue when due and the amount can be determined objectively. Net premiums represent gross premiums, net of the portion ceded to reinsurers. As soon as these premiums are recognized, the related actuarial liabilities are calculated so that benefits and expenses of these products are recorded.

Other income is recognized when a good is transferred or a service rendered and the transaction is measurable.



Page 22

3. Changes in accounting policies

These standards or amendments apply to financial statements beginning on or afterJanuary 1, 2017.

IAS 12, Incomes taxes

The IASB published an amendment to IAS 12, Incomes Taxes. The amendment “Recognition ofDeferred Tax Assets for Unrealized Losses” clarifies how to account for deferred tax assets relatedto debt instruments measured at fair value. The provisions of this amendment appliedretrospectively. The amendments to this standard did not have any impact on the results orfinancial position of the Caisse.

IAS 7, Statement of cash flows

The IASB published an amendment to IAS 7, Statement of Cash Flows. The amendment“Disclosure Initiative” clarifies that changes in liabilities arising from financing activities, including cash and noncash changes, shall be disclosed in the Statement of Cash Flows.The amendments to this standard did not have any impact on the results or financial position of the Caisse.

Annual improvements to 2014-2016 IFRSs cycle

The IASB published the “Annual Improvements to 2014-2016 IFRSs Cycle”. The Annual Improvements clarify situations specific to IFRS 12, Disclosure of Interests in Other Entitiesrelated to the scope of the standard which applied retrospectively to financial statements. The amendments to this standard did not have any impact on the results or financial position of the Caisse.

4. Future accounting changes

Accounting standards and amendments issued by the IASB but not yet effective as atDecember 31, 2017 are presented below. Standards or amendments are presented on the basisof their publication date unless a more relevant approach allows for better information.

IFRS 15, Revenue from Contracts with Customers

IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to revenue arising from contracts with customers other than those that are within the scope of other standards, such as financial instruments, insurance contracts and leases. IFRS 15 supersedes IAS 18, Revenue, and related interpretations. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured approach to measuring and recognizing revenue. The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under IFRS.

The provisions of this new standard were expected to apply to financial statements beginning on or after January 1, 2018. On April 12, 2016, the IASB published an amendment to IFRS 15 in order to clarify some requirements and provide additional transitional relief. The provisions of this amendment will apply retrospectively or on a modified retrospective basis to financial statements beginning on or after January 1, 2018. Early adoption is permitted.



Page 23

4. Future accounting changes (continued)

IFRS 15, Revenue from Contracts with Customers (continued)

The Caisse plans to adopt the new standard on the mandatory effective date. However, therestatement of comparative periods is not mandatory, as the standard includes an exemptionunder which comparative periods may be presented using the previous accounting framework incertain conditions. In such case, any adjustment resulting from the application of IFRS 15 will berecognized in the opening consolidated statement of financial position.

The Caisse has decided not to restate the comparative periods when adopting the provisions ofIFRS 15. As a result, the retrospective impact of the application of IFRS 15 will be recognized inthe consolidated statement of financial position as at January 1, 2018, the effective date of thenew standard. The Caisse is currently evaluating the impact of this standard on its consolidatedfinancial statements relating to the presentation, disclosure and measurement of revenue.

IFRS 9, Financial Instruments

In July 2014, the IASB issued the final version of IFRS 9, Financial instruments, which reflects all phases of the financial instruments project and replaces IAS 39, Financial instruments: recognition and measurement, and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment and hedge accounting.

The standard IFRS 9:• requires financial assets to be measured at amortized cost or at fair value on the basis of

the entity’s business model for managing assets;• changes the accounting for financial liabilities measured using the fair value option;• proposes a new accounting model related to the recognition of expected credit losses,

requiring the entity to recognize expected credit losses on financial assets using currentestimates of expected shortfalls in cash flows on those instruments as at the reportingdate;

• modifies the hedge accounting model, which aims to present in the financial statementsthe effect of risk management activities.

IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early application permitted. Retrospective application is required, but comparative information need not be restated. Further details on the Company’s application of IFRS 9, Financial instruments are provided under the IFRS 4, Insurance contract amendment.

The Caisse plans to adopt the new standard on the mandatory effective date retrospectively. However, the Caisse has decided not to restate the comparative periods when adopting the provisions of IFRS 9.

The Caisse is currently evaluating the impact of this standard on its consolidated financial statements relating to the presentation, disclosure and measurement of financial instruments.



Page 24

4. Future accounting changes (continued)IFRS 4, Insurance contracts

On September 12, 2016, the IASB published an amendment to IFRS 4, Insurance contract. Thisamendment, “Applying IFRS 9, Financial instruments with IFRS 4, Insurance contract”, providestwo options to entities applying IFRS 4:

• the deferral approach is an optional temporary exemption from applying IFRS 9 untilJanuary 1, 2021 for entities whose predominant activity is issuing contracts within thescope of IFRS 4;

• the overlay approach permits entities to adopt IFRS 9 but adjust some of the impactsarising from designated financial assets, those being assets related to the insurancecontract liabilities.

The provisions of this amendment will apply to financial statements beginning on or after January 1, 2018.

The Caisse has analyzed this amendment and is not eligible for the deferral approach for its financial statements. The Caisse will therefore not be able to use the deferral approach and will apply IFRS 9 as of January 1, 2018.

IFRS 17, Insurance contracts

On May 18, 2017, the IASB published the standard IFRS 17, Insurance contracts, which replaces the provisions of the standard IFRS 4, Insurance contracts. The standard IFRS 17:

• has an objective to ensure that an entity provides relevant information that faithfullyrepresents those contracts and gives a basis for users of financial statements to assessthe effect that insurance contracts have on the financial position, income statement andcash flows statement;

• establishes the principles for recognition, measurement, presentation and disclosure;• defines a general model and a variable fee approach applicable to all insurance contracts

and reinsurance contracts to measure the insurance contract liabilities;• defines a specific model for contracts of one year or less.

The provisions of this new standard will apply retrospectively to each group of insurance contracts and if, and only if, impracticable, an entity shall apply the modified retrospective or fair value approach to financial statements beginning on or after January 1, 2021. Early adoption is permitted if IFRS 9, Financial Instruments and IFRS 15, Revenue from contracts with customersare previously applied.

The Caisse is evaluating the impact on presentation, disclosure and measurement of the insurance contract liabilities that this standard will have on its consolidated financial statements.

IFRS 10, Consolidated financial statements and IAS 28, Investments in associates and joint ventures

On September 16, 2014, the IASB published an amendment to IFRS 10, consolidated financial statements and to IAS 28, Investments in associates and joint ventures. This amendment, “Sale or contribution of assets between an investor and its associate or joint venture”, clarifies the accounting for the gain or loss resulting from loss of control or from transfer of assets following a transaction with an associate or joint venture.



Page 25

4. Future accounting changes (continued)

IFRS 10, Consolidated financial statements and IAS 28, Investments in associates and jointventures (continued)

The provisions of this amendment will apply prospectively to the consolidated financial statementsbeginning on or after January 1, 2016. In December 2015, the IASB published an amendmentwhich defers the application to consolidated financial statements beginning on or after a date yetto be determined. Early adoption is permitted.

The Caisse has completed the analysis of this amendment and concluded that it will not have animpact on its consolidated financial statements.

IFRS 16, Leases

In January 2016, the IASB published IFRS 16, Leases, that requires that companies record most lease contracts in their statement of financial position. Under this new standard, lessees will record assets and liabilities for the majority of their lease contracts. Lessor accounting however remains largely unchanged. The provisions of this new standard will apply retrospectively or on a modified retrospective basis to financial statements beginning on or after January 1, 2019. Early adoption is permitted if IFRS 15, Revenue from Contracts with Customers is previously applied.

The Caisse is currently evaluating the impact of this standard and plans to adopt the new standard on the mandatory effective date.

IFRIC 22, Foreign currency transactions and advance consideration

On december 8, 2016, the IASB published Interpretation IFRIC 22, Foreign currency transactionsand advance consideration. This interpretation provides guidance on the exchange rate to use in transactions that involve advance consideration paid or received in a foreign currency. Theprovisions of this interpretation will apply to consolidated financial statements beginning on or after January 1, 2018. Early adoption is permitted.

The Caisse is currently evaluating the impact of this interpretation on its consolidated financial statements.

IFRIC 23, Uncertainty over income tax treatments

On June 7, 2017, the IASB published Interpretation IFRIC 23, Uncertainty over income taxtreatments. This interpretation clarifies how to apply the recognition and measurement requirement in IAS 12, Income taxes when there is uncertainty over income tax treatments. An entity shall recognize and measure its current or deferred tax asset or liability applying the requirement of IAS 12 based on taxable profit (taxable loss), tax bases, unused tax losses, unused tax credits and tax rates determined applying this interpretation. The provisions of this interpretation will apply retrospectively or on a modified retrospective basis to financial statements beginning on or after January 1, 2019. Early adoption is permitted.

The Caisse is currently evaluating the impact of this interpretation on its consolidated financial statements.



Page 26

5. Securities2017

Within 1 year

1 year to 3

years3 to 5 years

5 to 10 years

Over 10 years

Without maturity Total

$ $ $ $ $ $ $

At fair value through profit or loss

Canadian federal government debt 30,071 68,599 29,511 6,725 — — 134,906

Canadian provincial and municipal government debt 21,865 32,769 18,871 7,710 115,927 — 197,142

Financial institution debt — 5,391 2,472 966 805 — 9,634Debt of other issuers 170 14,844 22,026 18,132 26,876 — 82,048Equity securities — — — — — 54,445 54,445

52,106 121,603 72,880 33,533 143,608 54,445 478,175

Available-for-saleCanadian federal government

debt 8,591 7,671 2,271 996 2,135 — 21,664Canadian provincial and

municipal government debt 4,554 10,878 3,597 150 11,507 — 30,686

Financial institution debt 1,002 9,485 — — — — 10,487

Debt of other issuers — — — 219 7,166 — 7,385

Equity securities — — — — — 19,880 19,88014,147 28,034 5,868 1,365 20,808 19,880 90,102

Loans and receivablesFinancial institution debt 19,499 — — — — — 19,499

85,752 149,637 78,748 34,898 164,416 74,325 587,776



Page 27

5. Securities (continued)2016

Within 1 year

1 year to 3 years

3 to 5 years

5 to 10 years

Over 10 years

Without maturity Total

$ $ $ $ $ $ $


Canadian federal government debt 96,988 40,748 37,836 5,333 — — 180,905

Canadian provincial and municipal government debt 51,547 55,138 36,312 3,142 116,540 — 262,679

Canadian school or public corporation debt — — — — 5,462 — 5,462

Financial institution debt 22,538 — 8,976 565 2,982 — 35,061Debt of other issuers 171 1,893 4,667 7,686 17,585 — 32,002Equity securities — — — — — 12,511 12,511

171,244 97,779 87,791 16,726 142,569 12,511 528,620

Available-for-saleCanadian federal government

debt 5,985 6,742 8,895 515 1,609 — 23,746Canadian provincial and

municipal government debt 4,341 11,323 8,915 200 9,515 — 34,294Canadian school or public

corporation debt — — 1,266 425 3,241 — 4,932Financial institution debt 3,894 9,159 7,629 — 448 — 21,130Debt of other issuers 30 — — 220 4,422 — 4,672Equity securities — — — — — 21,253 21,253

14,250 27,224 26,705 1,360 19,235 21,253 110,027

Loans and receivablesFinancial institution debt 20,000 — — — — — 20,000

205,494 125,003 114,496 18,086 161,804 33,764 658,647



Page 28

6. Loans and allowance for credit losses

Loans by category of borrowers

2017 2016$ $

PersonalResidential mortgages 1,617,658 1,540,181Consumer and other 526,132 492,095

Business 1,065,440 956,9153,209,230 2,989,191

Loans, impaired loans and allowance for credit losses

2017Personal

Residential mortgages

Consumer and other Business Total

$ $ $ $

Loans, neither past due nor impaired, gross 1,583,557 514,532 1,034,961 3,133,050

Loans, past due but not impaired, gross 30,040 7,501 5,511 43,052

Gross impaired loans 4,061 4,099 24,968 33,128Total gross loans 1,617,658 526,132 1,065,440 3,209,230

Individual allowances (1,292) (3,245) (8,254) (12,791)Collective allowance (383) (3,288) (8,068) (11,739)Total net loans 1,615,983 519,599 1,049,118 3,184,700

2016Personal

Residential mortgages

Consumer and other Business Total

$ $ $ $

Loans, neither past due nor impaired, gross 1,505,991 480,483 920,056 2,906,530

Loans, past due but not impaired, gross 32,696 7,303 10,833 50,832

Gross impaired loans 1,494 4,309 26,026 31,829Total gross loans 1,540,181 492,095 956,915 2,989,191

Individual allowances (381) (2,937) (7,930) (11,248)Collective allowance (103) (2,714) (9,944) (12,761)Total net loans 1,539,697 486,444 939,041 2,965,182



Page 29

6. Loans and allowance for credit losses (continued)

Loans, impaired loans and allowance for credit losses (continued)

Past due loans are loans for which the counterparty has failed to make a payment whencontractually due. Past due loans presented in the table below are not classified as impaired sincethey are past due for less than 90 days or are secured so that it is reasonable to expect a fullrecovery.

Gross loans, past due but not impaired

2017

From 1 to 29 days

From 30 to 59 days

From 60 to 89 days

90 days and

greater Total$ $ $ $ $

PersonalResidential

mortgages 19,793 3,722 2,151 4,374 30,040Consumer and

other 5,931 1,156 403 11 7,501Business 4,290 1,092 129 — 5,511

30,014 5,970 2,683 4,385 43,052

2016From 1 to

29 daysFrom 30 to

59 daysFrom 60 to

89 days90 days and

greater Total$ $ $ $ $

PersonalResidential

mortgages 24,584 3,134 1,233 3,745 32,696Consumer and

other 5,971 883 286 163 7,303Business 6,072 524 317 3,920 10,833

36,627 4,541 1,836 7,828 50,832

Impaired loans and individual allowances

2017

GrossIndividual

allowances Net$ $ $

PersonalResidential mortgages 4,061 (1,292) 2,769Consumer and other 4,099 (3,245) 854

Business 24,968 (8,254) 16,71433,128 (12,791) 20,337



Page 30


Impaired loans and individual allowances (continued)

2016

GrossIndividual

allowances Net$ $ $

PersonalResidential mortgages 1,494 (381) 1,113Consumer and other 4,309 (2,937) 1,372

Business 26,026 (7,930) 18,09631,829 (11,248) 20,581

Change in the allowance for credit losses

2017Personal Business Total

$ $ $

Individual allowances, beginning of year 3,318 7,930 11,248Provision for credit losses 5,659 2,289 7,948Write-offs and other (4,440) (1,965) (6,405)Individual allowances, end of year 4,537 8,254 12,791

Collective allowance, beginning of year 12,761Provision for credit losses (1,433)Other 411Collective allowance, end of year 11,739

24,530

2016Personal Business Total

$ $ $

Individual allowances, beginning of year 1,173 7,327 8,500Provision for credit losses 3,921 2,217 6,138Write-offs and other (1,776) (1,614) (3,390)Individual allowances, end of year 3,318 7,930 11,248

Collective allowance, beginning of year 15,205Provision for credit losses (2,769)Other 325Collective allowance, end of year 12,761

24,009



Page 31


Loans securitization

As part of its liquidity and capital management strategy, the Caisse participates in theNational Housing Act Mortgage-Backed Securities Program. Under this program, the Caissebundles residential mortgage loans guaranteed by the Canada Mortgage and Housing Corporation(CMHC) into mortgage-backed securities (NHA MBS) and transfers them to the Canada HousingTrust (CHT). The Caisse may not subsequently transfer or sell these assets or pledge them ascollateral, since they have been sold to the CHT, and it may not repurchase them before maturity.The Caisse treats these transfers as collateralized financing transactions and recognizes a liabilityin that respect because it substantially retains certain prepayment and interest risks. This liabilityis equal to the consideration received from the CMHC for the loans that do not meet thederecognition criteria. For its part, the CHT funds these purchases by issuing Canada MortgageBonds (CMB) to investors. The legal guarantee of third parties holding CMB is limited to thetransferred assets.

The following table presents the securitized loans as well as the related liabilities:

2017 2016$ $

Securitized mortgage loans 103,081 70,772Related liabilities (Note 11) 86,314 66,401

7. Accrued interest, receivables and other assets

2017 2016$ $

Accrued interest 9,986 9,500Prepaid expenses 9,690 9,539Receivables 4,805 4,023Foreclosed assets 733 1,083Other 432 536

25,646 24,681



Page 32

8. Property and equipment

Land BuildingsEquipment and other Total

CostDecember 31, 2015 7,652 49,762 34,606 92,020

Acquisitions — 440 2,061 2,501Dispositions and write-offs (31) (120) (356) (507)

December 31, 2016 7,621 50,082 36,311 94,014Acquisitions — 237 2,209 2,446Dispositions and write-offs (182) (835) (270) (1,287)

December 31, 2017 7,439 49,484 38,250 95,173

Accumulated depreciationDecember 31, 2015 — 27,705 27,563 55,268

Depreciation — 1,406 1,847 3,253Dispositions and write-offs — — (360) (360)

December 31, 2016 — 29,111 29,050 58,161Depreciation — 1,441 1,883 3,324Dispositions and write-offs — (713) (215) (928)

December 31, 2017 — 29,839 30,718 60,557

Net book valueDecember 31, 2017 7,439 19,645 7,532 34,616December 31, 2016 7,621 20,971 7,261 35,853



Page 33

9. Intangible assets

Acquired software

Internally generated

software Total$ $ $

CostDecember 31, 2015 7,341 1,725 9,066

Acquisitions 4,533 119 4,652Dispositions and write-offs (170) — (170)

December 31, 2016 11,704 1,844 13,548Acquisitions 1,869 640 2,509Dispositions and write-offs (200) (298) (498)

December 31, 2017 13,373 2,186 15,559

Accumulated amortizationDecember 31, 2015 2,584 887 3,471

Amortization 914 102 1,016Dispositions and write-offs (160) — (160)

December 31, 2016 3,338 989 4,327Amortization 1,111 530 1,641Dispositions and write-offs — (256) (256)

December 31, 2017 4,449 1,263 5,712

Net book valueDecember 31, 2017 8,924 923 9,847December 31, 2016 8,366 855 9,221

Acquired software includes an amount of $934 (2016 —$639) for software that was not amortized since it was not in use at December 31. Internally generated software includes an amount of $114(2016 — $135) for software that was not amortized since it was in development at December 31.



Page 34

10. Actuarial liabilities

a) Nature

Actuarial liabilities represent the estimated amount that, together with future premiums andnet investment income, will be adequate to cover future benefits and expenses related toexisting insurance contracts. Actuarial liabilities are determined using the CALM, inaccordance with Canadian accepted actuarial practice, as set out by the Canadian Instituteof Actuaries (CIA).

The calculation of the actuarial liabilities necessarily includes the risk that actual results coulddeviate from the best estimates. This risk varies in proportion to the length of the estimationperiod and the possible instability of the factors used for calculating the liability. Theappointed actuary is required to add to each assumption a margin to reflect the uncertaintyof the determination of the best estimates and the risk of deteriorating results.

The CIA prescribes the range of acceptable margins. The appointed actuary must evaluatevarious scenarios using a cash flow projection method to establish a margin for adversedeviation that adequately covers the risks, including interest rate risk. This provision isrecorded in future income when it is no longer required to cover estimation error. If theestimates of future conditions change during the term of a contract, the present value of thechanges is recognized immediately in the statement of income.

b) Composition

The composition of the actuarial liabilities of the policies is as follows:

2017Actuarial liabilities

Reinsurance assets Net amount

$ $ $

Personal life insurance 93,777 7,715 86,062Group and health insurance (2,264) 740 (3,004)Annuities 78,914 — 78,914

170,427 8,455 161,972

2016Actuarialliabilities

Reinsuranceassets Net amount

$ $ $

Personal life insurance 83,067 6,476 76,591Group and health insurance (1,519) 758 (2,277)Annuities 77,193 — 77,193

158,741 7,234 151,507



Page 35

10. Actuarial liabilities (continued)

b) Composition (continued)

The assets covering the actuarial liabilities include in the following

2017Life insurance Annuities Total

$ $ $

Bonds and short-term securities 69,274 78,914 148,188Investment funds 13,784 — 13,784Reinsurance assets 8,455 — 8,455

91,513 78,914 170,427

2016Life insurance Annuities Total

$ $ $

Bonds and short-term securities 61,803 77,193 138,996Investment funds 12,511 — 12,511Reinsurance assets 7,234 — 7,234

81,548 77,193 158,741

c) Actuarial assumptions

The nature and method of determining the most significant assumptions used in thecomputation of the actuarial liabilities comply with industry practice. Actuarial assumptionspertain to mortality and morbidity, policy lapse rates, investment income and operatingexpenses.

Mortality

The mortality assumption is based on a combination of the Caisse’s most recent experience and the industry’s recent experience as published by the CIA.

An increase (a decrease for annuities) of 1% in the most likely assumption would result in an increase of approximately $650 in the actuarial liabilities (2016 — $400).

Morbidity

The morbidity assumption is based on the Caisse’s experience and industry results over long periods of time. The majority of products for which a morbidity assumption is significant consists of products whose premiums can be adjusted to reflect the Caisse’s actual experience.

In the case of products for which morbidity has a significant effect, a deterioration of 1% in the most likely assumption would not have a significant impact on the actuarial liabilities.



Page 36


c) Actuarial assumptions (continued)

Investment income

The calculation of the actuarial liabilities reflects the projected net investment income from the assets covering the liabilities. It also takes into account the income that the Caisse expects to earn on reinvestment or forego to finance the mismatch in the timing of cash flows. Interest rate and credit risk projections include some uncertainty. The Caisse considers this uncertainty by including margins for credit risk in its projections of investment income and by evaluating future interest rate scenarios. Projected investment returns are reduced in anticipation of future credit losses on assets.

One way to measure the interest rate risk associated with these assumptions is to determine the effect of an immediate increase or decrease of 1% of interest rates on the present value of net projected cash flows of the assets and liabilities related to the Caisse’s personal insurance activities. These changes in interest rates would impact the projected cash flows. An immediate increase of 1% in interest rates would result in a decrease in the fair value of the assets matched to the liabilities of approximately $21,800 (2016 — $23,000) and a decrease in the corresponding liabilities of $23,800 (2016 —$25,200), resulting in a net positive impact of $2,000 (2016 — $2,200) on income before taxes for the year. An immediate decrease of 1% in interest rates would result in an increase in the fair value of the assets matched to the liabilities of approximately $26,100 (2016 — $27,900) and an increase in the corresponding liabilities of $28,600 (2016 — $29,700), resulting in a net negative impact of $2,500 (2016 — $1,800) on income before taxes for the year.

Expenses

Amounts are included in the actuarial liabilities for the costs of administering the existing contracts, including the cost of premium collection, the granting and processing of benefits, periodic actuarial calculations, preparation and sending of statements, related indirect expenses, renewal commissions and general expenses.

The projections of expenses consider estimates of variables such as inflation, productivity and indirect tax rates. An increase of 1% in the most likely assumption of policy management expenses would increase the actuarial liabilities by approximately $268 (2016 — $256).

Policy lapse or cancellation rates

Policyholders can choose to allow their policy to lapse by ceasing to pay their premiums. The Caisse bases its estimate of policy lapse rates on the past performance of each of its business lines. A business line is considered to be based on policy lapses if an increase in the policy lapse rate is accompanied by an increase in profitability. However, if a decrease in the policy lapse rate is accompanied by an increase in profitability, the business line is not considered to be based on policy lapses.

The lapse assumptions reflect the Caisse’s experience and the industry.

d) Uncertainty of measurement (margins for adverse deviations)

The basic assumptions used in establishing actuarial liabilities represent best estimates ofthe range of possible outcomes. Actuaries must include in each assumption a margin torecognize the uncertainty surrounding the establishment of best estimates, to take intoaccount a possible deterioration in experience and to provide better assurance that theactuarial liabilities will be sufficient to pay future benefits. The CIA prescribes a range ofallowable margins. The margins used are at least in the middle of the suggested range.



Page 37


e) Change in actuarial liabilities

The following table shows the changes in actuarial liabilities over the last two fiscal years:

2017 2016Actuarial liabilities

Reinsurance assets

Actuarial liabilities

Reinsurance assets

$ $ $ $

Balance, beginning of year 158,741 7,234 157,158 6,978Normal increase (decrease) for

Existing contracts 15,929 1,431 5,011 412New contracts (1,917) (95) (2,257) (103)

Changes in assumptions (2,326) (115) (1,171) (53)11,686 1,221 1,583 256

Balance, end of year 170,427 8,455 158,741 7,234

f) Changes in actuarial assumptions

The economic and non-economic assumptions taken into account in the computation ofactuarial liabilities are periodically updated to reflect the actual or projected underwritingexperience associated with each of them. The following table presents the impact of changesmade to assumptions for the years ended December 31:

2017 2016$ $

Mortality (1,103) (2,254)Transformation costs (726) —Contract cancellation rates 793 754Operating expenses (741) 891Methods and other (434) (509)

(2,211) (1,118)

Regarding the actuarial assumptions used in the establishment of actuarial liabilities, various studies are made annually to reflect the most up-to-date data possible. At the end of 2017, some assumptions were thus updated, in addition to some improvements to the valuation model. We note among others:

Mortality

Two years of improved mortality were applied to the assumptions used to reflect mortality improvement of 2017 and 2016.

Contract cancellation rates

Lapse or cancellation rates for term life insurance products have been updated following an internal study.



Page 38


f) Changes in actuarial assumptions (continued)

Operating expenses

Expenses in 2017 were lower than in the past and this trend is expected to continue in the future with the reallocation of some expenses to the Caisse and more realistic service offerings. The assumption for future expenses has therefore been revised downward to reflect this new context.

Methods and other

The transformation assumption for temporary products has been updated to be more comparable to the industry. Also, a modification was made to the valuation model in order to simplify the process of calculating annuitants.

11. Borrowings

2017 2016$ $

Securitization loans, guaranteed by mortgage loans as described in Note 6, repayable at maturity, interest payable semi-annually at rates of 1.20% to 2.40%, maturities from December 2019 to December 2022. 83,314 66,401

83,314 66,401

The projected loan principal repayments for the next five years are as follows:

$

2018 —2019 21,7412020 40,8592021 3,9582022 19,756

The Caisse also has an operating credit facility with an authorized amount of $12,500 bearing interest at the prime rate plus 0.75% and renewable annually, an operating credit facility with an authorized amount of $50,000, bearing interest at the cost of funds plus 0.45% and renewable in December 2018, a revolving term loan with an authorized amount of $100,000, bearing interest at the cost of funds plus 0.80% and renewable in December 2020, and a revolving term loan with an authorized amount of $100,000, bearing interest at the cost of funds plus 0.95% and renewable in December 2022. As at December 31, 2017 and 2016, these facilities were undrawn.



Page 39

12. Accrued interest, payables and other liabilities

2017 2016$ $

Accrued interest 17,702 19,218Payables 30,886 36,372Deferred revenue 171 753Employee benefit liability (Note 13) 23,402 26,007Liabilities for pending and unreported claims 733 608Investment contract liabilities 46 98Other 503 940

73,443 83,996

13. Employee benefit liability

Until December 31, 2013, the Caisse participated in a funded defined benefit pension plan throughthe Mouvement des caisses populaires acadiennes employee pension plan, date at which the planwas converted to a shared risk pension plan for the active employees. For those already retired,annuities were purchased in 2014 by the pension plan from an insurance company and the planwas thus wound up.

In addition, the Caisse participates in two other unfunded defined benefit pension plans.Therefore, the Caisse records, on the consolidated statement of financial position, the liability forthese supplementary plans. Benefits under these other two plans were modified and are calculatedsimilarly to those in the shared risk plan.

Principal actuarial assumptions

The principal actuarial assumptions used in measuring the defined benefit obligation are as follows:

2017 2016$ $

Discount rate 3.40% 3.85%Expected rate of salary increases 3.50% 3.50%Mortality CPM- CPM-

2014-B 2014-BPublic Public



Page 40

13. Employee benefit liability (continued)

Defined benefit pension plans

The following tables show the liabilities and costs recognized in respect of the defined benefitpension plans for the Caisse.

2017 2016$ $

Change in the defined benefit plan obligationDefined benefit plan obligation at beginning of year 4,781 4,031Current service cost 338 277Interest expense 187 165Benefits paid (204) (68)Actuarial losses (gains) arising from

Plan experience (20) 280Changes in financial assumptions 217 86

Past service costs — 10

Defined benefit plan obligation at end of year, accounting deficit and defined benefit plan liability 5,299 4,781

Expense recognized for defined benefit plans

The amounts recognized in the statement of income under “Salaries and employee benefits” for the year ended December 31 are as follows:

2017 2016$ $

Current service cost 338 277Interest expense 187 165Past service cost — 10Expense recognized in the statement of income 525 452

The amounts recognized in other comprehensive income for the year ended December 31 are asfollows:

2017 2016$ $

Losses for the year 197 366



Page 41


Sensitivity of key assumptions

Due to the long-term nature of employee benefits, there are significant uncertainties inrecognizing balances related to the assumptions made.

The following table shows the impact of a one percentage point change in the discount rate onthe defined benefit plan obligation at December 31:

2017 2016$ $

Discount rateIncrease of 1% (501) (531)Decrease of 1% 575 623

Expected rate of salary increasesIncrease of 1% 37 62

Mortality rateDecrease of 1% 53 96

The above sensitivity analysis was developed using a method that extrapolates the impact on the defined benefit plan obligation of reasonable changes in the significant assumptions at the closing date.

Expected contributions for 2018

The Caisse expects to contribute $207 to the defined benefit pension plans in the next year.

Other employee benefit liability

Due to the conversion to the shared risk pension plan, the Caisse has committed to paying temporary contributions of $3,000 per year for 10 years starting in 2014, or until the funding ratio reaches 140%. A liability for these payments has been determined through an analysis of probabilities that considers multiple scenarios and has been discounted using a yield curve that takes into consideration the expected schedule of payments. Since it is only an estimate, the amount of the liability could change in the future.

The following table shows the recorded liability and costs of this commitment.

2017 2016$ $

Liability at the beginning of the year 18,300 20,632Interest expense recorded in the statement of income 571 737Actuarial losses (gains) recorded in other comprehensive

income (579) (69)Contributions paid (3,000) (3,000)Liability at the end of the year 15,292 18,300



Page 42


Other retirement benefits

The Caisse also offers to some of its employees a benefit in the form of a one-time paymentupon retirement. This benefit is based on the salary and the number of years worked for theCaisse at the time of retirement. The liability recorded for these benefits amounts to $2,811(2016 — $2,926).

Amount recognized under “Employee benefit liability”

The “Employee benefit liability” in Note 12 consists of the following:

2017 2016$ $

Liability for pension plans 5,299 4,781Liability for temporary contributions 15,292 18,300Liability for other retirement benefits 2,811 2,926

23,402 26,007

Shared risk pension plan

During the year, the Caisse contributed $5,200 (2016 — $5,166) to the shared risk pension plan.

14. Share capital

Authorized

The share capital is made up of membership shares.

The Caisse may issue an unlimited number of membership shares, redeemable under certainconditions stipulated in the Bank Act, in the By-laws and in the articles of incorporation of theCaisse. Members have only one vote regardless of the number of membership shares they mustbuy and hold according to the requirements set out in the By-laws of the Caisse.

The shares issued and paid are distributed as follows:

2017 2016$ $

Membership shares 4,426 4,432



Page 43

15. Accumulated other comprehensive income

Accumulated other comprehensive income includes unrealized gains of $5,256 (2016 — $5,397)on available-for-sale instruments less income taxes of $1,499 (2016 — $1,538)

16. Net insurance and annuity premiums

2017 2016$ $

Gross insurance and annuity premiums 20,838 20,341Premiums ceded to reinsurers (1,848) (1,838)

18,990 18,503

17. Net insurance and annuity benefits

2017 2016$ $

Gross insurance benefits 7,377 6,790Benefits ceded to reinsurers (956) (1,133)Annuity benefits 4,934 6,864Change in insurance contract liabilities 11,686 1,583Change in reinsurance assets (1,221) (256)

21,820 13,848

18. Expenses related to the amalgamation process

Expenses related to the amalgamation comprise salaries and employee benefits, and general andother expenses. These expenses were incurred under the amalgamation process which took placein 2016.

19. Other items

2017 2016$ $

Revenues (losses) arising from the recognition of the following items at fair valueDerivative instruments (11,268) (10,557)Bonds (4,200) (988)

(15,468) (11,545)

The change in fair value of the matched bonds of Acadia Life is not included in other items because the bonds are matched with actuarial liabilities and are therefore presented in financial income.



Page 44

20. Income taxes

Income taxes for the years presented in the consolidated statement of income are composed ofthe following elements:

2017 2016$ $

Consolidated statement of incomeCurrentIncome tax expense for the year 3,084 4,471

3,084 4,471Deferred income taxesCreation and reversal of temporary differences (1,294) (31,684)Change in tax rate on the beginning balance — (497)

(1,294) (32,181)Total income tax expense 1,790 (27,710)

Other comprehensive incomeCurrent 465 (553)Deferred (393) (154)Total income taxes included in other comprehensive

income 72 (707)

The provision for income taxes in the consolidated statement of income differs from that established by application of the Canadian statutory tax rate for the following reasons:

2017 2016$ % $ %

Income taxes at the statutory rate 1,757 29.0 1,027 28.5Small business deduction, used by

some entities of the Caisse (73) (1.2) (403) (11.2)Non-deductible expenses 134 2.2 1 —Non-taxable revenues (45) (0.7) (170) (4.7)Change in tax rate on the beginning

balance of the deferred income taxes — — (497) (13.8)Other 17 0.3 145 4.0

1,790 29.6 103 2.8Reversal of deferred income taxes as a

result of legislative amendments — — (27,813) (771.7)1,790 29.6 (27,710) (768.9)

The change in the applicable tax rate compared with the previous period results from an increase in the provincial tax rate.



Page 45

20. Income taxes (continued)

The deferred tax liability (asset) by type of temporary difference and carryforward is as follows:

2017Deferred tax

asset (liability) as

at January 1st

Changes through

equity

Changes through net

income

Deferred tax asset (liability)

as at December 31

$ $ $ $Net deferred tax asset

(liability)Property and equipment

and intangible assets (1,077) — (397) (1,474)Securities and derivative

financial instruments (1,281) 504 2,796 2,019Allowance for credit losses 4,370 — (464) 3,906Employee benefit liability 8,753 (111) (1,239) 7,403Non-capital losses 5,701 — 2,679 8,380Actuarial liabilities 13 — 6 19Other 220 — (2,087) (1,867)

16,699 393 1,294 18,3862016


as at January 1st

Changes through

equity

Changes through net

income


as at December 31

$ $ $ $Net deferred tax asset

(liability)Property and equipment

and intangible assets 1,565 — (2,642) (1,077)Securities and derivative

financial instruments (5,481) 54 4,146 (1,281)Allowance for credit losses 4,026 — 344 4,370Employee benefit liability 8,185 100 468 8,753Non-capital losses 2,679 — 3,022 5,701Actuarial liabilities 16 — (3) 13Stabilization fund (27,813) — 27,813 —Other 1,187 — (967) 220

(15,636) 154 32,181 16,699



Page 46

21. Transfer to general reservePursuant to the Bank Act, the distribution of surplus earnings is the responsibility of the Caisse’sdirectors. Accordingly, the net income for the year have been transferred to the general reserve.

22. Related party transactions

In the normal course of business, the Caisse enters into financial transactions with its memberofficers and their related parties. The Caisse’s interest rate policy is to offer the same interestrates to member officers who are employees as the rates offered to preferred members.

At year-end, loans and deposits to member officers who are employees and their related partieswith the Caisse are as follows:

2017 2016$ $

Loans 890 274Deposits 597 875

No individual allowance was deemed necessary on these loans.

Key management personnel compensation

The key management personnel of the Caisse are the members of the Board of Directors and senior management who have the authority and responsibility for planning, directing and controlling the activities of the Caisse.

For the year ended December 31, the compensation of the key management personnel of the Caisse is as follows:

2017 2016$ $

Short-term benefits 3,775 3,725Post-employment benefits 405 542Termination benefits — 1,656

4,180 5,923



Page 47

23. Fair value of financial instrumentsFair value is the consideration that would be received to sell an asset or paid to transfer a liabilityin an orderly transaction between market participants at the measurement date. The followingmethods and assumptions have been used to estimate the fair value of the financial instruments:

Short-term financial instruments

The fair value of cash, accrued interest receivable, receivables, accrued interest payable and payables approximates their carrying value due to their short-term nature.

Securities

The estimated fair value of securities is based on quoted market prices, when available. Fair values are based on closing bid prices.

Fair values of securities are determined as follows:

• The fair value of money market securities is equal to the sum of the purchase price andaccumulated interest;

• The fair value of equities is based on their daily quotations on the stock exchange or in themarket where they are primarily traded;

• The fair value of non-publicly traded fixed income securities is determined daily based on pricesobtained from market participants or investment dealers;

• The fair value of the commercial mortgage fund is equal to the discounted value of future cashflows of commercial mortgages, established monthly based on current market rates;

• The fair value of mutual fund units is the net asset value per unit on each valuation date.

Derivative financial instruments

Fair values of derivative financial intruments are determined as follows:

• The fair value of interest rate swaps is determined by discounting the remaining contractualcash flows until maturity of the contract;

• The fair value of call options is determined by various assumptions that consider the underlyingasset, the remaining term and the market volatility;

• The fair value of forward contracts is determined based on the spot rate adjusted for theforward rate between the current date and the settlement date of the contract.

Loans

For certain variable rate loans, whose rates are revised frequently, the estimated fair value is assumed to be equal to the carrying value. The fair value of the other loans is estimated using a discounted cash flow calculation method that uses market interest rates currently charged for similar new loans as of December 31, applied to expected maturity amounts. Changes in interest rates as well as in borrowers’ creditworthiness are the main reasons for fluctuations in the fair value of the loans. For impaired loans, fair value is equal to carrying value in accordance with the valuation techniques described in Note 2.



Page 48

23. Fair value of financial instruments (continued)

Deposits

The fair value of deposits with no stated maturity is assumed to be equal to the carrying value.The fair value of fixed rate deposits is determined by discounting contractual cash flows usingmarket interest rates currently offered for deposits with relatively similar terms remaining tomaturity.

Reinsurance assets and insurance contract liabilities

The fair value of the reinsurance assets and the insurance contract liabilities has not been established. However, the Caisse annually segments the assets that cover the actuarial liabilities or the liabilities for the different business lines. It attempts, within reasonable limits, to match the assets’ cash flows with those of the liabilities. In this way, changes in the realizable values of assets should generally be offset by changes in the realizable values of the items associated with the actuarial liabilities.

Borrowings

For the operating credit facilities and the securitization loans, fair value equals the book value because they bear interest either at a variable rate or at rates that approximate the market rate.

Investment contract liabilities

The fair value of the investment contract liabilities is assumed to be equal to the carrying value.

The following tables present the carrying amount and fair value of all financial assets and liabilities and the related items of income, expense and net gain, according to their classification determined by the financial instruments standards.



Page 49


2017At fair value through profit

or loss

Designated at fair value

Held for trading

Available-for-sale

Loans and receivables

and financial

liabilities at amortized

cost Total Fair value$ $ $ $ $ $

Financial assetsCash — — — 100,193 100,193 100,193Securities

Money market securities 19,689 — 3,792 — 23,481 23,481

Bonds 403,870 — 66,430 — 470,300 470,300Asset-backed term

notes 171 — — — 171 171Term deposits — — — 19,499 19,499 19,499Equities 20,494 — 12,192 — 32,686 32,686Investment funds

and other 33,951 — 7,688 — 41,639 41,639Loans — — — 3,184,700 3,184,700 3,169,972Derivative financial instruments

Foreign exchange contracts — 147 — — 147 147

Interest rate swaps — 8,167 — — 8,167 8,167Other — 22,145 — — 22,145 22,145

Other assets — — — 14,791 14,791 14,791Total financial assets 478,175 30,459 90,102 3,319,183 3,917,919 3,903,191

Financial liabilitiesDeposits — — — 3,255,542 3,255,542 3,272,315Loans — — — 86,314 86,314 86,314Derivative financial

instrumentsForeign exchange

contracts — 147 — — 147 147Interest rate swaps — 15,238 — — 15,238 15,238Accrued interest,

payables and other liabilities — — — 49,870 49,870 49,870

Total financial liabilities — 15,385 — 3,391,726 3,407,111 3,423,884

Net gains 6,342 — 1,538 — 7,880 N/AFinancial income 10,613 4,055 2,209 116,822 133,699 N/AFinancial expenses — — — (33,916) (33,916) N/ADividends 476 — 554 — 1,030 N/A



Page 50

23. Fair value of financial instruments (continued)2016


Designatedat fair value

Held for trading

Available-for-sale

Loans and receivables

and financial liabilities at amortized

cost Total Fair value$ $ $ $ $ $

Financial assetsCash — — — 99,857 99,857 99,857Securities

Money market securities 137,082 — 4,210 — 141,292 141,292Bonds 378,856 — 84,564 — 463,420 463,420Asset-backed term

notes 171 — — — 171 171Term deposits — — — 20,000 20,000 20,000Equities — — 13,412 — 13,412 13,412Investment funds and

other 12,511 — 7,841 — 20,352 20,352Loans — — — 2,965,182 2,965,182 2,980,675Derivative financial


contracts — 123 — — 123 123Interest rate swaps — 9,322 — — 9,322 9,322Other — 15,219 — — 15,219 15,219

Other assets — — — 13,523 13,523 13,523Total financial assets 528,620 24,664 110,027 3,098,562 3,761,873 3,777,366

Financial liabilitiesDeposits — — — 3,135,307 3,135,307 3,154,823Loans — — — 66,401 66,401 66,401Derivative financial


contracts — 123 — — 123 123Interest rate swaps — 4,905 — — 4,905 4,905Accrued interest,

payables and other liabilities — — — 57,236 57,236 57,236

Total financial liabilities — 5,028 — 3,258,944 3,263,972 3,283,488

Net gains 602 — 6 — 608 N/AFinancial income 8,989 6,995 6,586 113,442 136,012 N/AFinancial expenses — — — (34,912) (34,912) N/ADividends 280 — 867 — 1 147 N/A



Page 51


Classification of fair value measurements in the fair value hierarchy

IFRS 13, Fair value measurement, establishes a fair value hierarchy that reflects the relativeweight of the data used for valuation. The hierarchy consists of the following levels:

Level 1 – Quoted prices in active markets for identical financial instruments.

Level 2 – Inputs other than quoted prices included in Level 1 that are observable for the financial instrument, either directly or indirectly.

Level 3 – Inputs for the financial instrument that are not based on observable market data.

Measurement process of financial instruments for each level

Securities

Exchange-traded equity securities are classified at Level 1. For marketable bonds, the Caissedetermines fair value through, where available, quoted prices related to recent trading activities on identical assets or with characteristics similar to those of the bond assessed. Securities measured using these methods are usually classified at Level 2.

Derivative financial instruments

Usually, prices obtain from models should be used at a lower level, in the hierarchy of price sources, than prices that can be observed directly. Where they exist, industry standard models should be used whenever possible and observable market inputs are therefore classified at level 2.

Loans

There is no quoted price in an active market for these financial instruments; they are therefore classified at level 3.

Deposits

Cash flows are discounted using market interest rates for deposits with substantially the same terms and conditions to measure the fair value of deposits; it is therefore classified at level 2.



Page 52


Measurement process of financial instruments for each level (continued)

The following table presents the measurement levels according to the fair value hierarchy:

2017Level 1 Level 2 Level 3 Total

$ $ $ $

Financial instruments recorded at fair value

AssetsSecurities

Money market securities — 23,481 — 23,481Bonds 41,264 429,036 — 470,300Asset-backed long-term notes — 171 — 171Equities 30,735 — 1 951 32,686Investment funds and other — 41,599 40 41,639

Derivative instrumentsForeign exchange contracts — 147 — 147Interest rate swaps — 8,167 — 8,167Options — 22,145 — 22,145

LiabilitiesDerivative instruments

Foreign exchange contracts — 147 — 147Interest rate swaps — 15,238 — 15,238

Financial instruments for which fair value is disclosed

AssetsLoans — — 3,169,972 3,169,972

LiabilitiesDeposits — 3,272,315 — 3,272,315



Page 53


Measurement process of financial instruments for each level (continued)

2016Level 1 Level 2 Level 3 Total

$ $ $ $

Financial instruments recorded at fair value

AssetsSecurities

Money market securities — 141,292 — 141,292Bonds 40,168 423,252 — 463,420Asset-backed long-term notes — 171 — 171Equities 12,444 — 968 13,412Investment funds and other — 20,352 — 20,352

Derivative instrumentsForeign exchange contracts — 123 — 123Interest rate swaps — 9,322 — 9,322Options — 15,219 — 15,219

LiabilitiesDerivative instruments

Foreign exchange contracts — 123 — 123Interest rate swaps — 4,905 — 4,905

Financial instruments for which fair value is disclosed

AssetsLoans — — 2,980,675 2,980,675

LiabilitiesDeposits — 3,154,823 — 3,154,823



Page 54

24. Commitments and contingenciesStandby letters of credit and credit commitments

The primary purpose of financial instruments that present a credit risk is to ensure that membersand clients have funds available when necessary for variable terms and under specific conditions.The collateral security policy of the Caisse with respect to these credit instruments is generallythe same as that applied to loans.

Standby letters of credit are irrevocable commitments by the Caisse to make payments formembers or clients who might not be able to meet their financial obligations to third parties andrepresent the same credit risk as loans.

Credit commitments represent unused portions of authorizations to extend credit in the form ofloans or letters of credit.

The total amount of credit instruments does not necessarily represent future cash requirementssince many of these instruments will expire or terminate without being funded. The maximumamount of letters of credit and credit commitments is presented in Note 26.

Other commitments

At year-end, minimum future commitments relating to the purchases of services and sponsorship and donation agreements are as follows:

2018 $3002019 $303

Contingencies

The Caisse is party to various business litigation matters, lawsuits and potential claims arising in the course of normal business activities. In management’s opinion, the total amount of contingent liability resulting from these lawsuits will not have a material impact on the financial position of the Caisse.

25. Leases

Lessee

Operating lease

At year-end, the future minimum lease commitments under non-cancellable operating leases for premises and equipment are presented in the following table:

2017 2016$ $

Under 1 year 533 5031 to 5 years 1,167 1,008More than 5 years — 139

1,700 1,650Lease payments recognized as expenses for the year ended December 31, 2017 totalled $606 (2016 — $449).



Page 55

26. Financial instrument risk managementThe Caisse is exposed to different types of risk in the normal course of operations, including creditrisk, liquidity risk and market risk. The Caisse’s objective in risk management is to optimize therisk-return trade-off, within set limits, by applying integrated risk management and controlstrategies, policies and procedures throughout its activities.

Under the Caisse’s risk management approach, its entities and units are accountable for theconsolidated results and the quality of risk management practices. The boards of directors of theCaisse’s components also play a pivotal role in monitoring the risks and results of those units andentities. Several committees support the boards of directors and management teams of eachcomponent in their efforts to fulfil their risk management responsibilities.

Credit risk

Credit risk is the risk of losses resulting from a borrower’s or a counterparty’s failure to honour its contractual obligations, whether or not these obligations appear on the consolidated statement of financial position.

Most of the loans and deposits of the Caisse are related to the New Brunswick market.

Credit risk management

The Caisse upholds its goal of effectively serving all of its members. To this end, it has developed distribution channels specialized by product and member type. The units and components that make up these channels are considered centres of expertise and are accountable for their performance in their respective markets, including credit risk. In this regard, they have latitude regarding the framework they use and credit granting and are also equipped with the corresponding management and monitoring tools and structures.

Framework

A set of policies and standards govern all aspects of credit risk management for the Caisse. These frameworks define:

● the minimal framework that governs risk management and control activities;

● the roles and responsibilities of the parties involved.

These frameworks are supplemented by the Caisse’s credit practices. They define:

● the guidelines relating to commitment, authorization, review and delegation limits;

● the policies regarding the management and control of credit activities;

● the financing terms and conditions applicable to borrowers.

Credit granting

To assess the risk of credit activities with individuals and smaller businesses, credit rating systems, based on proven statistics, are generally used. These systems were developed using a history of borrower behaviour with a profile or characteristics similar to those of the applicant to determine the risk of a particular transaction. The performance of these systems is analyzed on an ongoing basis and adjustments are made regularly with a view to assessing transaction and borrower risk as accurately as possible.

The granting of credit to businesses is based on an analysis of the various parameters of each file, where each borrower is assigned a risk rating. These ratings are assigned individually following a detailed examination of the financial, market and management characteristics of the business.



Page 56

26. Financial instrument risk management (continued)Credit granting (continued)

The depth of the analysis and the approval level required depend on the product characteristicsas well as the complexity and scope of the transaction risk. Riskier loans are approved by thecredit risk manager in Caisse’s head office.

File monitoring and management of more significant risks

Portfolios are monitored by the Caisse’s head office using credit policies that set out the degree of depth and frequency of review based on the quality and extent of the risk related to the commitments.

The management of higher-risk loans involves follow-up controls adapted to their particular circumstances.

Credit risk mitigation

In its lending operations, the Caisse obtains collateral if deemed necessary for a member’s loan facility following an assessment of their creditworthiness. Collateral normally comprises assets such as cash, government securities, stocks, receivables, inventory or property and equipment. For some portfolios, programs offered by organizations such as the CMHC are used in addition to the customary collateral.

As at December 31, loans guaranteed by the CMHC represented 48% (2016 — 53%) of the residential mortgage portfolio.

Maximum credit risk exposure

2017 2016$ $

Recognized on the consolidated statement of financial position

Cash 62,439 63,668Securities 513,451 624,883Loans

Personal 2,139,253 2,028,958Business 1,057,186 948,985Collective allowance (11,739) (12,761)

Derivative financial instruments 30,459 24,664Other financial assets 14,791 13,523

3,805,840 3,691,650

Off-statement of financial positionLetters of credit 7,400 4,690Credit commitments 739,609 688,545

747,009 693,235



Page 57

26. Financial instrument risk management (continued)

Credit quality

The following table presents the credit quality of the money market securities and bond portfolios,evaluated in accordance with external credit risk ratings. The other financial assets of the Caisseare not rated.

2017 2016$ $

Money market securitiesR1-H 23,481 141,292

23,481 141,292

BondsAAA 136,294 125,201AA 68,629 36,620A 218,977 278,877BBB 39,220 22,722BB 7,180 —

470,300 463,420

Liquidity risk

Liquidity risk refers to the Caisse’s capacity to raise the necessary funds (by increasing liabilities or converting assets) to meet a financial obligation, whether or not it appears on the consolidated statement of financial position, on the date it is due or otherwise.

The Caisse manages liquidity risk in order to ensure that it has access, on a timely basis and in a profitable manner, to the funds needed to meet its financial obligations as they become due, in both normal and stressed conditions. Managing this risk involves maintaining a minimum level of liquid securities, stable and diversified sources of funding and an action plan to implement in extraordinary circumstances. Liquidity risk management is a key component in an overall risk management strategy because it is essential to preserving market and depositor confidence.

Policies setting out the principles, limits and procedures that apply to liquidity risk management have been established. The Caisse also has a liquidity contingency plan including an action plan for a stress-case scenario. This plan also identifies sources of liquidities that are available in extraordinary situations. This plan allows for effective intervention in order to minimize disruptions caused by sudden changes in member and client behaviour and potential disruptions in markets or economic conditions.

The minimum level of liquidity that the Caisse must maintain is prescribed by the OSFI guideline titled “Liquidity Adequacy Requirements”. This liquidity level is centrally managed by the Caisse’s Treasury function and is monitored on a daily basis. Eligible securities must meet high security and negotiability standards. The securities portfolio comprises mostly securities issued by governments, public bodies and private companies with high credit ratings, i.e. R1-L or better.

The Caisse’s Treasury function ensures stable sources of funding by type, source and maturity.



Page 58


Liquidity risk (continued)

The following table presents certain financial instruments by remaining contractual maturity:

2017Under 1

year1 to 5 years

Over 5 years Total

$ $ $ $

Deposits 1,654,798 1,600,713 31 3,255,542Borrowings — 86,314 — 86,314Other financial liabilities 49,870 — — 49,870Credit commitments 739,609 — — 739,609Standby letters of credit 7,400 — — 7,400Derivative instruments with net settlement 140 15,245 — 15,385

2016Under 1

year1 to 5 years

Over 5 years Total

$ $ $ $

Deposits 2,072,778 1,062,529 — 3,135,307Borrowings — 66,401 — 66,401Other financial liabilities 57,236 — — 57,236Credit commitments 688,545 — — 688,545Standby letters of credit 4,690 — — 4,690Derivative instruments with net settlement 479 4,549 — 5,028

Market risk

Market risk refers to the potential losses resulting from changes in interest rates, exchange rates, stock prices, credit spreads, decoupling of indices or liquidity in the markets. The exposure to that risk results from trading and investment activities that may or may not be reflected in the statement of financial position.

The Caisse is mainly exposed to interest rate risk through positions related to its traditional financing and deposit-taking activities.

Interest rate risk management

The Caisse is exposed to interest rate risk, which represents the potential impact of interest rate fluctuations on net financial income and the economic value of its equity.

Dynamic and prudent management is applied to optimize net financial income while minimizing the negative impact of interest rate movements. Simulations are used to measure the impact of different variables on net financial income and the economic value of equity. The assumptions used in the simulations are based on an analysis of historical data and the impact of different interest rate conditions on the data, and concern changes in the structure of the statement of financial position, member behaviour and pricing. The Caisse’s Risk Managementcommittee is responsible for analyzing and adopting the global matching strategy to ensure sound management.



Page 59


Market risk (continued)

Interest rate risk management (continued)

The following table presents the potential impact, before income taxes, of a sudden and sustained 100-basis-point increase or decrease in interest rates on the economic value of the Caisse’s equity:

2017 2016$ $

Impact of an increase 1,031 35Impact of a decrease (603) 2,381

The extent of the interest rate risk depends on the gap between assets, liabilities and off-statement of financial position instruments. The situation presented reflects the position as at that date, and may change depending on members’ behaviour, the interest rate environment and the strategies adopted by the Caisse’s Risk Management Committee.

The following table summarizes the matching of the maturities of the Caisse’s assets and liabilities at year-end.

2017

Term to maturity or rate changeFloating

rate0 to 3

months3 to 12 months

1 to 5 years

Over 5 years

Non sensitive Total

$ $ $ $ $ $ $

AssetsCash and securities 20,573 22,523 66,276 237,777 200,635 140,185 687,969Loans 683,880 398,520 820,277 1,293,194 13,359 (24,530)3,184,700Other assets — — — — 8,455 118,954 127,409

704,453 421,043 886,553 1,530,971 222,449 234,609 4,000,078

Liabilities and equityDeposits 450,981 500,607 711,551 1,592,371 32 — 3,255,542Actuarial liabilities — (166) (471) 1,658 169,406 — 170,427Borrowings — — — 86,314 — — 86,314Other liabilities — — — — — 89,268 89,268Equity — — — — — 398,527 398,527

450,981 500,441 711,080 1,680,343 169,438 487,795 4,000,078

Sensitivity gap in items recognized in the consolidated statement of financial position 253,472 (79,398) 175,473 (149,372) 53,011 (253,186) —

Sensitivity gap in derivative instruments by notional amounts — (477,760) 137,800 338,560 1,400 — —

Total sensitivity gap 253,472 (557,158) 313,273 189,188 54,411 (253,186) —



Page 60


Market risk (continued)

Interest rate risk management (continued)

2016

Term to maturity or rate change

Floating rate

0 to 3 months

3 to 12 months

1 to 5 months

Over 5 years

Non sensitive Total

$ $ $ $ $ $ $

AssetsCash and securities 28,470 116,020 108,983 241,408 178,755 84,868 758,504Loans 773,760 410,933 832,079 965,673 6,746 (24,009) 2,965,182Other assets — — — — 7,234 112,650 119,884

802,230 526,953 941,062 1,207,081 192,735 173,509 3,843,570

Liabilities and equityDeposits 468,106 369,064 596,720 1,701,417 — — 3,135,307Actuarial liabilities — — 1,343 2,686 152,113 2,599 158,741Borrowings — — — 66,401 — — 66,401Other liabilities — — — — — 89,024 89,024Equity — — — — — 394,097 394,097

468,106 369,064 598,063 1,770,504 152,113 485,720 3,843,570

Sensitivity gap in items recognized in the consolidated statement of financial position 334,124 157,889 342,999 (563,423 ) 40,622 (312,211) —

Sensitivity gap in derivative instruments by notional amounts — (436,700) (355,060) 818,760 (27,000) — —

Total sensitivity gap 334,124 (278,811) (12,061) 255,337 13,622 (312,211) —

The net gap position on the consolidated statement of financial position is based on maturity dates or, if they are closer, the interest rate revision dates of fixed-rate assets and liabilities. This gap position represents the difference between the total assets and the total liabilities and equity for a given period.

The above tables show year-end balances, except in the case of certain non interest rate-sensitive assets and liabilities for which the average monthly balance is provided as it is used for managing sharply fluctuating daily balances.

The impact attributable to derivatives represents the cumulative net notional amount related to interest rate swaps used to control interest rate risks. At year-end, the conditions for these swaps were such that they had offsetting impacts for some periods reported in the table. Swaps are transactions under which two parties exchange fixed and variable rate payments, based on a notional amount. At year-end, this notional amount was $1,708,110 (2016 — $1,465,535).

A positive total gap for a given period indicates that a sustained rise in interest rates would have the effect of increasing the net financial income of the Caisse, while a sustained decline in interest rates would decrease net financial income. The reverse occurs when the gap is negative.



Page 61


Foreign exchange risk management

Foreign exchange risk arises when the actual or expected value of assets denominated in a foreigncurrency is higher or lower than that of liabilities denominated in the same currency.

Certain components have adopted specific policies to manage foreign exchange risk. The Caisse,except for Acadia Life, limits the gap between the assets and liabilities denominated in U.S. dollarsby validating its position on a daily basis and by purchasing/selling U.S. dollars as needed.Exposure of Acadia Life to this risk is limited, since the majority of transactions are conducted inCanadian dollars. However, the global Caisse’s exposure to this risk is limited because the majorityof its transactions are conducted in Canadian dollars.

The statement of financial position includes the following amounts in Canadian dollars with respectto financial assets and liabilities with cash flows denominated in U.S. dollars:

2017 2016$ $

Cash 17,130 17,619Securities 10,074 11,087Loans 154 —Other assets 22 74Deposits (17,200) (17,245)Other liabilities (20) (71)

The following table presents the potential pre-tax impact on net income of an immediate and sustained $0.01 increase and decrease of the US dollar on the Caisse's capital:

20172016

$ $

Increase of $0.01 of the US dollar 102 115Decrease of $0.01 of the US dollar (102) (115)

The change in the exchange rate would have no impact on the comprehensive income.



Page 62

27. Insurance and reinsurance risk managementIn the normal course of business, the Caisse is exposed to insurance risk. It is defined as the riskthat initial pricing is inadequate or becoming so; it results from the risk’s selection, the settlementof claims and the management of contractual clauses.

The insurance risk categories to which the Caisse is exposed are:

Mortality risk

Risk of loss due to the fact that the policyholder dies earlier than expected

Morbidity risk

Risk of loss due to the fact that the health of the policyholder differs from the forecasts

Longevity risk

Risk of loss due to the fact that an annuitant lives longer than expected

Investment return risk

Risk of loss due to current yields being lower than expected

Expense risk

Risk of loss due to higher expenses than expected

Risk of policyholder’s decisions

Risk of loss due to the fact that the policyholder's decisions (lapse and redemption) differ from the forecasts

In order to properly manage these risks, the Caisse conducts regular experience studies to be as up-to-date as possible with the industry’s data and the Caisse’s internal data.

The Caisse has also put in place a pricing guidance to prudently manage and control the risks associated with the design and pricing of its products. This guidance allows the Internal Risk Management Committee, through its mandate, to provide uniform oversight in setting pricing for insurance products.

The Caisse also has reinsurance agreements with two main objectives:

1) the sharing of financial risk with a reinsurer, and

2) to benefit from the expertise of these reinsurers in the design of insurance products.

Reinsurance is mainly carried out to a single reinsurer. This reinsurer has a credit rating of AA- according to the rating agency Standard & Poor's.

The Caisse attempts to limit the risk of loss to a single insured or a catastrophic event affecting multiple policyholders and to recover a portion of benefits paid through reinsurance arrangements.

In the event that reinsurers are unable to meet their contractual obligations, the life and health insurance company is liable for any potential risks associated with the retrocession.



Page 63

28. Capital management

The objective of the Caisse’s capital risk management is to ensure that the level and mix of capitalof the Caisse and its subsidiaries are adequate when compared to the risks taken by theorganization, the profitability and growth goals and the requirements of the regulators.Furthermore, the Caisse must optimize the capital allocation and the internal circulationmechanisms while supporting the growth, development and risk management of its assets.

The minimum capital requirements that the Caisse must comply with are defined in the OSFIguidelines titled “Capital Adequacy Requirements” and “Leverage Requirements Guideline”. TheCaisse met its regulatory requirements throughout the year. The summary of the ratios ispresented below.

2017 2016$ $

Accounting capitalCET1 398,524 394,097Déductions (16,472) (31,337)Regulatory capital 382,052 362,760

Risk-weighted assets 2,098,009 1,909,646

Capital ratio on risk-weighted assets 18.2 % 19.0 %

Assets used in the calculation of leverage ratio 3,895,478 3,743,977

Leverage ratio 9.8 % 9.7 %

Services Financiers Acadie Inc.

The company manages its capital to meet regulatory requirements imposed by the Mutual Fund Dealers Association of Canada. Under the rules prescribed by the Mutual Fund Dealers Association of Canada, the company must maintain a minimum amount of risk-adjusted capital, based on the nature of the company's assets and operations.Risk adjusted capital is a measure of working capital and liquidity of the company.

2017 2016$ $

Total allowable assets 3,150 1,274Less: Total current liabilities 2,156 242

Minimum capital required 75 7510 % of long term liabilities 9 11Securities owned and sold short 48 49Financial institution bond deductible

(greatest under any clause) 5 5Risk adjusted capital 857 892

The Company met its regulatory requirements as at December 31, 2017 and 2016.



Page 64

28. Capital management (continued)

Acadia Life

Under the Insurance Companies Act (Act), federal life insurance companies are required toprepare a report on the financial position of the company, including its capital ratio.

The professional standards of the CIA require that the designated actuary perform annually adynamic review of capital adequacy each year. This review serves to show management thechanges in the surplus and the threats to the company’s solvency. This process requires theactuary to analyze and project, using scenarios, trends in the company’s financial situation,considering the current circumstances, its recent past and its business plan.

Within this process, regulatory formulas are used as standards for capital adequacy. Currently,the required minimum continuing capital and surplus requirement (MCCSR) on available capitalis 120%. However, OSFI and the New Brunswick Superintendent of Insurance expect eachinstitution to establish and maintain a target MCCSR ratio of at least 150%.

However, in accordance with the strategic planning of the company, the MCCSR target is higherin order to take into consideration market volatility and economic conditions, innovations withinthe industry, trends in business combinations and changes occurring internationally. This targetis revised every three years or as needed if changes occur in the market or in legislation.

Total available capital is divided into two categories. Tier 1 capital includes the highest qualitycapital items which is based on three essential elements: its permanence, the absence of fixedcosts attributable to net income and their subordination. Tier 2 capital items do not meet eitherof the first two characteristics of Tier 1 capital but contribute to the overall strength of aprosperous company.

As of the end of the year, Acadia Life presents an MCCSR that meets both the requirements andthe target it has set itself.

2017 2016$ $

Tier 1 capital 35,995 46,959Tier 2 capital 8,238 7,067Total 44,233 54,026Required capital 16,343 15,546

270.7 % 347.5 %

uni.ca

Documents

INSPIRE SUPPORT FINANCE - UNIexceed these expectations, we need to continue investing in new technologies and mobile experiences. It would be irresponsible in this context to continue