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2014 Annual Report - Advancing Growth and Profitability

Advancing Growth and Profitability

Financial discussion and analysis

The Canadian economy began slowly in 2014 but picked up momentum in the second quarter, underpinned by the growth surge in the U.S.

Initially driven by a strong rebound in the housing sector, the U.S. recovery became more broadly based during the year. In contrast, the Euro Zone and Japan continued to struggle and emerging markets slowed their pace of growth. Stimulatory monetary conditions remained in place in most advanced economies, and concerns about deflation in Europe resurfaced.

The second half plunge in the oil price, on top of falling commodity prices generally, caused a repointing of most economic growth forecasts for the year. While the oil price decline is expected to have a positive effect globally, for net oil exporters like Canada, the economic and exchange rate impact will be negative. Despite being stimulatory for exports, the weaker Canadian dollar is not expected to offset the negative impact of the oil price reduction. Economic growth in Canada was approximately 2.4% in 2014 (2.0% in 2013).

2014 Annual Report

BlueShore Financial is again budgeting for solid loan and deposit growth together with a market-leading wealth management performance.

Throughout 2014, interest rates remained at record low levels. The U.S. Federal Funds rate and the Bank of Canada rate continued unchanged. Mortgage rates, however, eased to the downside as competition for home loans intensified. As expected, the U.S. brought its quantitative easing program (QE III) to an end in October and began to signal a possible increase in rates, starting mid-2015. Any upward shift in rates for Canada is now looking more remote, after the recent cut by the Bank of Canada and with excess capacity in the Canadian economy likely to persist into 2016. Continued stimulatory conditions should be positive for housing and mortgage demand, although elevated household debt levels remain a curbing influence.

2014 financial performance

BlueShore Financial achieved excellent financial results in 2014. The Credit Union’s On Balance Sheet Assets increased $384 million (a gain of 16.3%) with Assets Under Administration totaling $3.5 billion ($3.1 billion in 2013). Total loans grew by $225 million (up 10.9%), while deposits increased by $376 million (up 17.8%).

Net Interest Margin was adversely impacted by the continued low interest rate environment and flat yield curve. Competition for mortgages remained intense but concentrated sales efforts achieved notable market share gains. Non-interest income was favourably affected by the gain on sale of the former head office and a market-leading wealth management performance. Offsetting this to some extent were the costs of moving to the new head office and a slightly lower level of other fee income.

Net Operating Income (NOI) of $14.2 million significantly exceeded the previous year’s $10.1 million. Return on Retained Earnings (RORE) was 11.6% (9.3% in 2013), and Return on Average Assets (ROAA) was 55 basis points (44 basis points in 2013).

2015 economic outlook

The robust U.S. recovery is likely to lead global economic growth in 2015. Although Canada is expected to benefit from this, the oil price decline will have a dampening effect. Interest rates are anticipated to stay low, as the Bank of Canada maintains its accommodatory monetary policy and the housing market continues its upward trajectory, albeit at a somewhat slower pace.

BlueShore Financial is again budgeting for solid loan and deposit growth together with a market leading wealth management performance. We are projecting a healthy capital base, strong liquidity and a continued moderate risk profile in 2015.

Bill Keen, Chief Financial Officer

* BlueShore Financial is the operating name of North Shore Credit Union.

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