Consolidated Financial Statements

Transcription

1 Consolidated Financial Statements Valley First Credit Union

2 Consolidated Financial Statements, Table of Contents 2 Management s Responsibility 3 Auditors Report 4 Consolidated Balance Sheet 5 Consolidated Statements of Earnings & Retained Earnings 6 Consolidated Statement of Cash Flows 7 to 18

3 Management s Responsibility These financial statements have been prepared by the management of Valley First Credit Union, which is responsible for their reliability, completeness and integrity. They were developed in accordance with the requirements of the Financial Institutions Act and conform in all material aspects with Canadian generally accepted accounting principles. The financial information presented in the Annual Report is consistent with the financial statement. Systems of internal control and reporting procedures are designed to provide reasonable assurance that the financial records are complete and accurate so as to safeguard the assets of the organization. These systems include establishment and communication of standards of business conduct throughout all levels of the organization to prevent conflicts of interest and unauthorized disclosure and to provide assurance that all transactions are authorized and proper records are maintained. Further, they are reviewed by the Credit Union s external auditors and the Credit Union is subject to periodic examination by the Financial Institutions Commission. The Board of Directors has approved the financial statements. The Audit Committee of the Board, comprised of three directors, has reviewed the statements with external auditors in detail and received regular reports on internal control findings. Grant Thornton, the external independent auditor appointed by the membership, examined the financial statements of the Credit Union in accordance with the generally accepted auditing standards. They have had full and free access to the Director, Audit & Security and the Audit Committee of the Board. Their report follows. Harley Biddlecombe President & Chief Executive Officer Robert G. Mowat, B.Comm, CGA Vice President & Chief Financial Officer Page 2 / Valley Page First 3 Credit / Valley Union First Credit Consolidated Union Financial Consolidated Statements Finan-

4 Grant Thornton LLP Chartered Accountants Management Consultants Auditors Report To the Members of Valley First Credit Union We have audited the consolidated balance sheet of Valley First Credit Union as at and the consolidated statements of earnings and retained earnings and cash flows for the year then ended. These financial statements are the responsibility of the Credit Union s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Credit Union as at and the results of its operations and cash flows for the year then ended in accordance with Canadian generally accepted accounting principles. Vancouver, Canada February 16, 2007 Chartered Accountants Grant Thornton Place Suite Seymour Street Vancouver, British Columbia V6B 0A4 T (604) F (604) E Vancouver@GrantThornton.ca W Canadian Member of Grant Thornton International Page 3 / Valley First Credit Union Consolidated Financial Statements

5 Consolidated Balance Sheet December 31 Assets Cash Resources (Note 3) $ 109,535,286 $ 103,600,132 Loans (Note 4) 942,402, ,404,335 Investments and other (Note 5) 36,685,702 23,588,897 Capital assets (Note 6) 13,542,940 13,927,378 Goodwill 173, ,303 $ 1,102,340,215 $ 970,694,045 Liabilities Deposits (Note 7) $ 992,804,805 $ 901,098,954 Payables and accruals 6,974,630 5,476,053 Borrowings (Note 8) 41,405,665 - Members Equity 1,041,185, ,575,007 Equity Shares (Note 9) 26,912,583 35,055,431 Contributed surplus 3,836,405 3,836,405 Retained earnings 30,406,127 25,227,202 61,155,115 64,119,038 $ 1,102,340,215 $ 970,694,045 Commitments and contingencies (Note 18) On behalf of the Board Chair of the Board Audit Committee Member See accompanying notes to the consolidated financial statements. Page 4 / Valley Page First 5 Credit / Valley Union First Credit Consolidated Union Financial Consolidated Statements Finan-

6 Consolidated Statements of Earnings & Retained Earnings Year Ended December Financial income Loans $ 52,461,464 $ 42,948,650 Investments and other 4,123,061 7,267,373 56,584,525 50,216,023 Financial expense Deposits 27,656,777 22,993,437 Borrowings 1,121,087 1,408,176 28,777,864 24,401,613 Financial margin 27,806,661 25,814,410 Provision for loan losses (Note 4) 639, ,824 27,167,114 25,230,586 Other income (Note 11) 11,520,377 11,395,624 Operating margin 38,687,491 36,626,210 Operating expenses (Note 12) 31,387,286 29,876,072 Earnings from operations 7,300,205 6,750,138 Unusual item Deposit insurance adjustment (Note 13) - 19,084 Earnings before income taxes 7,300,205 6,731,054 Income taxes (Note 14) Current 1,519,940 1,126,560 Future (recovery) (154,453) (93,000) 1,365,487 1,033,560 Net earnings $ 5,934,718 $ 5,697,494 Retained earnings, beginning of year $ 25,227,202 $ 20,295,786 Net earnings 5,934,718 5,697,494 Dividends on equity shares, net of tax ($161,600: 2005: $163,900) (755,793) (766,078) Retained earnings, end of year $ 30,406,127 $ 25,227,202 See accompanying notes to the consolidated financial statements. Page 5 / Valley First Credit Union Consolidated Financial Statements

7 Consolidated Statement of Cash Flows Year Ended December 31 Increase (decrease) in cash resources Operating activities Net earnings $ 5,934,718 $ 5,697,494 Adjustments to determine cash flows Provision for loan losses 639, ,824 Amortization 1,578,427 1,673,643 Change in interest accruals 1,016,973 (408,950) Future income taxes (154,453) (93,000) Other 1,450,190 (844,664) 10,465,402 6,608,347 Financing activities Deposits, net of withdrawals 90,342,795 74,768,293 Borrowings 41,405,665 (29,910,800) Change in equity shares (8,142,848) 7,260,317 Dividends on equity shares, net (755,793) (766,078) 122,849,819 51,351,732 Investing activities Loans, net of repayments (113,237,789) (52,211,589) Investments and other (12,942,352 ) (6,834,294) Proceeds on sale of subsidiary - 3,100,000 Purchase of capital assets (1,199,926) (842,570) (127,380,067) (56,788,453) Net increase in cash resources 5,935,154 1,171,626 Cash resources, beginning of year 103,600, ,428,506 Cash resources, end of year 109,535, ,600,132 Supplementary cash flow information Interest paid $ 26,616,802 $ 23,941,195 Income taxes paid 976, ,958 See accompanying notes to the consolidated financial statements. Page 6 / Valley Page First 7 Credit / Valley Union First Credit Consolidated Union Financial Consolidated Statements Finan-

8 1. Governing legislation and operations The Credit Union is incorporated under the Credit Union Incorporation Act of British Columbia; the operation of the Credit Union is subject to the Financial Institutions Act of British Columbia. The Credit Union serves members principally in the interior of British Columbia. 2. Summary of significant accounting policies Basis of presentation These financial statements have been prepared in accordance with Canadian generally accepted accounting principles. In preparing these financial statements management has made estimates and assumptions that could affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Actual results could differ from those reported. Principles of consolidation The consolidated financial statements include the accounts of the Credit Union and its wholly-owned subsidiaries, Valley First Financial Services Ltd., Western Interior Financial Ltd. and B.C. Ltd. All significant intercompany transactions and accounts have been eliminated. The Credit Union owns a 50% equity interest in Valley First Insurance Services Ltd. This investment is accounted for using the equity method. Loans Loans are carried at the unpaid principal plus accrued interest less an allowance established to provide against probable losses on ultimate realization of the loan portfolio. Loans considered uncollectable are written off. Loan interest Interest income from loans is recorded on the accrual method, except where a loan is impaired. Interest received on an impaired loan is recognized in earnings only if there is no doubt as to the collectibility of the carrying value of the loan. Loan fees Net fees earned and costs incurred in connection with lending activity are deferred and amortized over the term of the underlying loans. Mortgage prepayment fees are recognized in other income when received, unless they relate to a minor modification to the terms of the mortgage, in which case the fees are deferred and amortized over the average remaining term of the original mortgage. Page 7 / Valley First Credit Union Consolidated Financial Statements

9 2. Summary of significant accounting policies (Continued) Loans (Continued) Allowance for loan losses The allowance for impairment is maintained at a level considered adequate to absorb anticipated credit losses. Specific allowances are provided for specifically identified loans that have become impaired. A loan is classified as impaired generally at the earlier of when, in the opinion of management, there is reasonable doubt as to the collectibility of principal and interest, when interest is 90 days past due, or financial reporting is significantly in arrears. Specific allowances are supplemented by general allowances. The general allowance represents the best estimate of probable losses within the portion of the portfolio that has not been specifically identified as impaired. The amount is established through the application of expected loss factors to outstanding balances. Transfers of loans The Credit Union periodically sells loans to special purpose entities or other unrelated third parties. These transactions are accounted for as sales and the related loans are removed from the balance sheet when control over the loans is surrendered and consideration other than beneficial interests in the transferred loans is received in exchange. The fair values of loans sold and retained interests are determined using pricing models based on key assumptions such as expected losses, prepayments, and discount rates commensurate with the risks involved. Gains or losses on these transactions are recorded in other interest income and are based on the carrying value of the loans transferred allocated between the assets sold and the retained interests in proportion to their fair values at the date of transfer. The carrying value of retained interests are reviewed annually for impairment and adjusted as required. The Credit Union often retains interests in the transferred loans, such as servicing rights and cash reserve accounts. Investments Portfolio investments are recorded at the lower of cost and market. Shares Shares are classified as liabilities or as member equity according to their terms. Where shares are redeemable at the option of the member, either on demand or on withdrawal from membership, the shares are classified as liabilities. Where shares are redeemable at the discretion of the Credit Union board of directors, the shares are classified as equity. Dividends on equity shares less related income tax reductions are charged against retained earnings in the year they are declared. Capital assets Capital assets are stated at cost. Amortization is computed on the straight line method at rates varying between 2% and 50%. Leasehold improvements are written off over the term of the lease and the first renewal period or ten years whichever is the lesser. Page 8 / Valley First Credit Union Consolidated Financial Statements

10 2. Summary of significant accounting policies (Continued) Goodwill Goodwill represents the excess purchase price of acquired businesses over the fair value of the net assets acquired. Goodwill is reviewed by management on at least an annual basis to determine whether there is an impairment in value. Goodwill is tested between annual tests when an event or circumstance occurs that more likely than not reduces the fair value of the goodwill below its carrying value. An impairment in value is calculated based on the fair value of estimated recoverability through projected cash flows, earnings and fair value of the Credit Union s assets compared to the carrying value of the goodwill. Any loss on impairment during the year will be charged to earnings. Income taxes The Credit Union follows the asset and liability method of accounting for income taxes, whereby future tax assets and liabilities are recognized for the expected future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Future tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Net future income tax assets and liabilities are included in payables and accruals. Derivative financial instruments Derivative financial instruments are financial contracts that require or provide an option to exchange cash flows or payments determined by applying certain rates, indices or changes therein to notional contract amounts. The notional contract amounts related to derivatives are not included in the balance sheet. Derivatives are utilized to manage financial risks such as changes in interest rates. A derivative qualifies for hedge accounting if the hedging relationship is designated and formally documented at inception. The documentation involves outlining the particular risk management objective and strategy for the hedging relationship, the specific asset, liability or cash flow being hedged, and how effectiveness is assessed. Hedging relationships, between the hedged and hedging items, are designated as a fair value hedge or a cash flow hedge. This process includes linking all derivatives to specific assets and liabilities on the balance sheet or to specific firm commitments or anticipated transactions. Effectiveness is assessed by determining whether derivatives used in hedging relationships are highly effective in offsetting changes in fair values or cash flows attributable to the risk being hedged. This assessment is performed both at inception and over the term of the hedging relationship. Derivatives that qualify for hedge accounting are accounted for on the accrual basis, with interest income and expense for these contracts recognized over the term of the hedging relationship. Derivatives that do not qualify for hedge accounting, or those hedges which have become ineffective, are carried at fair value, and the full amount of gains and losses on disposal and adjustments to fair value are recognized in income in the period in which they occur. Page 9 / Valley First Credit Union Consolidated Financial Statements

11 2. Summary of significant accounting policies (Continued) Future accounting changes The following summarizes future accounting policy changes that will be relevant to the Credit Union s consolidated financial statements subsequent to. Financial instruments The CICA has issued three new standards: Financial Instruments Recognition and Measurement, Hedges and Comprehensive Income. These will be effective for the Credit Union on January 1, 2007, and require the following: Financial Instruments Recognition and Measurement All financial assets and liabilities will be carried at fair value in the consolidated balance sheet, except the following, which will be carried at amortized cost unless designated as held for trading upon initial recognition: loans and receivables, certain investments and non-trading financial liabilities. Realized and unrealized gains and losses on financial assets and liabilities that are held for trading will continue to be recorded in the consolidated statement of earnings. Unrealized gains and losses on financial assets that are held as available for sale will be recorded in other comprehensive income until realized, when they will be recorded in the consolidated statement of earnings. All derivatives, including embedded derivatives that must be accounted for separately, will be recorded at fair value in the consolidated balance sheet. Hedges In a fair value hedge, the change in fair value of the hedging derivative will be offset in the consolidated statement of earnings against the change in the fair value of the hedge item relating to the hedged risk. In a cash flow hedge, the change in fair value of the derivative, to the extent effective, will be recorded in other comprehensive income until the asset or liability being hedged affects the consolidated statement of earnings, at which time the related change in fair value of the derivative will also be recorded in the consolidated statement of earnings. Any hedge ineffectiveness will be recorded in the consolidated statement of earnings. Comprehensive income Unrealized gains and losses on financial assets that will be held as available for sale and changes in the fair value of cash flow hedging instruments will be recorded in a statement of other comprehensive income until recognized in the consolidated statement of earnings. Other comprehensive income will form part of shareholders equity. Transitional impact The transitional impact of these new standards is still being evaluated, particularly with respect to hedging derivatives where transitional guidance was still being developed late in the year. Examples of items that will give rise to these adjustments are as follows: financial instruments that are being classified as held for trading and were not previously recorded at fair value; the ineffective portion of cash flow hedges; and deferred gains and losses on discontinued hedging relationships that do not qualify for hedge accounting under the new standards. Transition adjustments arising due to revaluing financial assets classified as available for sale and the effective portion of hedging instruments designated as cash flow hedges will be recognized in the opening balance of accumulated other comprehensive income as at January 1, Page 10 / Valley First Credit Union Consolidated Financial Statements

12 3. Cash resources Cash and current accounts $ 23,493,010 $ 17,476,165 Term deposits and accrued interest callable or maturing in three months or less 10,655,463 13,734,692 greater than three months 75,386,813 72,389,275 $ 109,535,286 $ 103,600,132 Provincial legislation requires the Credit Union to maintain, for liquidity purposes, deposits with Credit Union Central of British Columbia of at least 8% of deposits and borrowings. At, the Credit Union liquidity deposits exceeded the minimum requirement. 4. Loans Personal loans $ 633,500,952 $ 562,579,076 Commercial loans 309,177, ,861,728 Accrued interest 2,619,727 2,273, ,298, ,714,448 Allowance for loan losses Specific 127,838 12,615 General 2,767,498 2,297,498 2,895,336 2,310,113 $ 942,402,984 $ 829,404,335 Allowance for loan losses Balance Balance December 31 December Provision Write-offs 2006 Personal loans $ 1,182,170 $ 341,188 $ 54,324 $ 1,469,034 Commercial loans 1,127, ,359-1,426,302 $ 2,310,113 $ 639,547 $ 54,324 $ 2,895,336 Impaired loans and related allowances Loan Specific Carrying Carrying Balance Allowance Amount Amount Personal loans $ 187,243 $ 24,479 $ 162,764 $ 439,075 Commercial loans 5,245, ,359 5,142,583 12,645,443 $ 5,433,185 $ 127,838 $ 5,305,347 $ 13,084,518 Page 11 / Valley First Credit Union Consolidated Financial Statements

13 5. Investments and other Shares Credit Union Central of British Columbia $ 3,057,187 $ 3,213,787 50% interest in Valley First Insurance Services Ltd. (Note 2) 1,133,660 1,036,411 Other 224, ,073 Accrued dividends on CUCBC shares 251, ,847 Accrued interest on investments 109, ,656 Receivables and prepaids 8,074,827 4,407,205 Bonds and mortgage securities 19,708,393 14,016,918 Land held for development 4,126,300 - $ 36,685,702 $ 23,588,897 Investment in the shares of Credit Union Central of British Columbia is required by governing legislation and as a condition of membership in Credit Union Central of British Columbia. 6. Capital assets Accumulated Net Net Cost Amortization Book Value Book Value Land $ 1,623,952 $ - $ 1,623,952 $ 1,623,952 Buildings 9,240,066 2,145,066 7,095,000 6,909,701 Equipment 14,465,727 9,641,739 4,823,988 5,393,725 $ 25,329,745 $ 11,786,805 $ 13,542,940 $ 13,927, Deposits Demand $ 370,891,710 $ 315,849,636 Municipal deposits 23,578,886 16,109,359 Term 432,144, ,238,063 Registered savings plans 154,191, ,266,898 Accrued interest 11,998,054 10,634,998 $ 992,804,805 $ 901,098,954 Page 12 / Valley First Credit Union Consolidated Financial Statements

14 8. Borrowings Credit Union Central of British Columbia $ 29,500,000 $ - Canadian Imperial Bank of Commerce 9,957,737 - Bank of Montreal 1,947,928 - $ 41,405,665 $ - The Credit Union has available to it, through Credit Union Central of British Columbia, an operating line and term loan facility of $35 million secured by a general security agreement and the general assignment of book debts. The loans mature within six months and bear interest at an effective interest rate of 4.55%. The Credit Union maintains a $40 million credit facility with the Canadian Imperial Bank of Commerce. The advances are secured by a general security agreement over certain insured residential mortgages and a priority agreement from Credit Union Central of British Columbia recognizing Canadian Imperial Bank of Commerce s interests. The advances are due within 30 days and bear interest at an effective interest rate of 4.56%. 9. Equity shares Capital of the Credit Union is divided into three classes of equity shares, all having a par value of $1. Funds invested in these shares are not guaranteed by the Credit Union Deposit Insurance Corporation of British Columbia. Redemption of equity shares may be subject to certain restrictions Class A membership equity shares Under the credit union rules, members are required to hold at least 25 membership equity shares. Membership equity shares pay dividends at the discretion of the directors in the form of cash or additional shares. These shares are redeemable under certain conditions at the discretion of the directors to a maximum of 10% of the issued and outstanding shares in any one year $ 1,540,987 $ 1,612,560 Class B investment equity shares Investment equity shares pay dividends at the discretion of the directors in the form of cash or additional shares. These shares are redeemable under certain conditions at the discretion of the directors to a maximum of 10% of the issued and outstanding shares in one year 16,069,628 21,590,906 Class C retirement plan equity shares Retirement plan equity shares pay dividends in the form of additional shares or cash credited to an RRSP of the same class. These shares are redeemable, subject to the discretion of the board of directors. There is no limit on the number of shares which may be held by a member 9,199,427 11,753,925 Provision for dividends on equity shares 102,541 98,040 $ 26,912,583 $ 35,055,431 Page 13 / Valley First Credit Union Consolidated Financial Statements

15 10. Capital requirements The Credit Union is required under governing legislation to maintain a minimum level of certain types of investments. In addition, the Act prescribes minimum levels of capital based on prescribed risk weighted values being applied to certain Credit Union assets. At, the Credit Union exceeded the minimum required capital base. 11. Other income Chequing services and commissions $ 5,821,900 $ 5,528,313 Commissions 1,216,940 1,098,671 Income from equity investment 97, ,310 Gain on sale of 50% of Valley First Insurance Services Ltd ,945 Loan fees and other 4,384,288 4,486,385 $ 11,520,377 $ 11,395, Operating expenses Advertising and promotion $ 787,659 $ 655,843 Amortization 1,578,427 1,673,643 Capital taxes 629, ,200 Data processing 2,875,601 2,753,403 Office and operating expenses 7,726,943 7,105,955 Salaries and employee benefits 17,789,656 17,027,028 $ 31,387,286 $ 29,876, Unusual item Deposit insurance adjustment In 2005, Credit Union Deposit Insurance Corporation (CUDIC) assessed a special provision of $2.38 million and Stabilization Central Credit Union of British Columbia declared and paid a special dividend of $2.36 million. The net assessment was an expense of $19,084, which was recognized as an unusual item on the consolidated statements of earnings and retained earnings. There was no special provision or special dividend in Page 14 / Valley First Credit Union Consolidated Financial Statements

16 14. Income Taxes The total provision for income taxes in the consolidated statements of earnings and retained earnings is at a rate less than the combined federal and provincial statutory income tax rates of the applicable year for the following reasons: % % Combined federal and provincial statutory income tax rate Decrease in rate due to: Rate reduction application to credit unions (16.50) (17.25) Other, net 1.08 (2.28) Effective income tax rate The components of the future income tax balances included in payables and accruals are as follows: Future income tax assets (liabilities) Allowance for credit losses $ 489,881 $ 405,042 Deferred items 54,300 (12,730) Other (157,732) (150,573) Net future income tax assets $ 386,449 $ 241, Interest rate sensitivity The Credit Union is exposed to interest rate risk as a consequence of the mismatch, or gap between the assets, liabilities and off balance sheet instruments scheduled to reprice on particular dates. Maturity dates substantially coincide with interest adjustment dates. Amounts with floating interest rates, or due on demand, are classified as maturing within one year, regardless of maturity. Amounts that are not interest sensitive are grouped together, regardless of maturity. Page 15 / Valley First Credit Union Consolidated Financial Statements

17 15. Interest rate sensitivity (Continued) The table below does not incorporate management s expectation of future events where repricing or maturity dates of certain loans and deposits may differ significantly from the contractual dates. Interest Sensitive Balances Average Within 4 Months Greater than Non-Interest Rates 3 Months to 1 Year 1 Year Sensitive Total Total Assets Cash resources 4.12% $ 10,544,972 $ 18,806,000 $ 55,111,000 $ 25,073,314 $ 109,535,286 $ 103,600,132 Loans 6.04% 491,647,700 50,364, ,770,965 2,619, ,402, ,404,335 Other assets 4.05% ,708,394 30,693,551 50,401,945 37,689, ,192,672 69,170, ,590,359 58,386,592 1,102,340, ,694,045 Liabilities and member s equity Deposits 2.99% 314,197, ,019, ,141, ,446, ,804, ,098,954 Other 4.55% 19,457,737 20,000,000 1,947,928 68,129, ,535,410 69,595, ,645, ,019, ,089, ,576,031 1,102,340, ,694,045 Balance sheet mismatch 168,537,771 (208,848,848) 234,500,516 (194,189,439) - - Interest rate swaps, net (235,000,000) 70,000, ,000, Net mismatch 2006 $ (66,462,229) $ (138,848,848) $ 399,500,516 $ (194,189,439) $ - $ - Net mismatch 2005 $ (21,137,488) $ (70,869,190) $ 285,414,438 $ (193,407,760) $ - $ Fair values of financial instruments The estimated fair values of financial instruments are designed to approximate values at which these instruments could be exchanged in a current market. However, many of the financial instruments lack an available trading market and therefore fair values are based on estimates. No fair values have been determined for capital assets or any other asset or liability that is not a financial instrument. The fair values of cash resources, variable rate loans and deposits, other assets and liabilities are assumed to equal their book values. The fair values of fixed rate loans and deposits are determined by discounting the expected future cash flows at the estimated current market rates for loans and deposits with similar characteristics. Changes in interest rates are the main cause of changes in the fair value of the Credit Union s financial instruments. The Credit Union s financial instruments are carried at historical cost and are not adjusted to reflect increases or decreases in fair value due to interest rate changes. Page 16 / Valley First Credit Union Consolidated Financial Statements

18 16. Fair values of financial instruments (Continued) Estimated Favourable Favourable Book Value Fair Value (Unfavourable) (Unfavourable) Assets Cash resources $ 109,535,000 $ 109,535,000 $ - $ - Loans 942,403, ,227,000 1,824,000 (340,000) Investments and other 36,686,000 35,780,000 (906,000) (255,000) Liabilities Deposits 992,805,000 1,000,251,000 (7,446,000) (15,035,000) Payables and accruals 6,975,000 6,975, Equity shares 26,913,000 26,913, Derivatives - (1,567,000) (1,567,000) 1,687,000 $ (8,095,000) $ (13,943,000) 17. Off balance sheet Funds under administration Off balance sheet funds under administration by the Credit Union are comprised of loans that have been sold, securitized or syndicated and are administered in the capacity as an agent, and investment portfolios including mutual fund accounts managed on behalf of the members. Off balance sheet funds are not included in the consolidated balance sheet Sold loans $ 29,319,700 $ 35,643,763 Securitized loans 19,380,185 30,541,480 Syndicated loans 42,141,954 33,739,908 Mutual funds 192,383, ,341,599 Derivative financial instruments At, the Credit Union has outstanding interest rate swap contracts in the notional amount of $245,000,000 (2005: $246,000,000) maturing at varying dates to Letters of credit In the normal course of business, the Credit Union enters into various off balance sheet commitments such as letters of credit. Letters of credit are not reflected in the consolidated balance sheet. At, the Credit Union has outstanding letters of credit on behalf of members in the amount of $14,655,563 (2005: $15,167,039). Page 17 / Valley First Credit Union Consolidated Financial Statements

19 17. Off balance sheet (Continued) Transfers of loans There were no securitizations undertaken during 2006 (2005: $21,983,000), with no retained interests, net of servicing liabilities (2005: $876,000). There were no gains recognized in 2006 (2005: $630,280). The Credit Union does not receive an explicit servicing fee for its servicing responsibilities. The special purpose entities, as purchasers of the securitized mortgages, have recourse only to a cash collateral account and cash flow from the net present value of future interest earnings on the securitized mortgages. The special purpose entities have no recourse to the Credit Union s other assets for failure of debtors to pay when due. Loans As at the Credit Union had committed to certain loans which, if they had been fully advanced, would amount to $161,550,000 (2005: $122,330,000). 18. Commitments and contingencies Commitments Certain branch premises are leased for terms extending through Total rentals under these leases for the next five years are $4,579,008 (2005: $5,159,629). For banking system support and maintenance, the Credit Union is committed to system support fees of $699,282 (2005: $Nil) for the next five years. Contingencies In the ordinary course of business, the Credit Union has legal proceedings brought against it and provisions have been included in liabilities where appropriate. It is the opinion of management that final determination of these claims will not have a material adverse affect on the financial position or earnings of the Credit Union. 19. Related party transactions At, loans to directors, officers and related parties amounted to $11,442,655 (2005: $11,050,002). During the year, directors received in their capacity as directors remuneration totalling $73,650 in aggregate (2005: $63,450). Page 18 / Valley First Credit Union Consolidated Financial Statements

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