All Trans Financial Services

Transcription

1 All Trans Financial Services Annual Report 2013

2 Report of the Board Chair Dear fellow members, Thank you all for being a part of the Credit Union Movement in Ontario and recognizing the benefits of Membership and Ownership of All Trans. I do not have to tell you about the low interest rate environment but those decisions by the Bank of Canada to continue that low interest rate creates serious challenges of operating a financial institution in these times of lean interest rate profits. Although we have no control over the Bank of Canada as they set the interest rates, we do have the ability to offer our members first rate financial services at extremely competitive rates. The staff has seen to it that we continue to punch above our weight as we have more than held our own in today s market of get big, merge or fold. While regulation is accepted as the cause of success of our Canadian financial system it brings us challenges that have proven expensive and it offers rewards that can benefit us all. As you can see we did make a small profit this year but the costs of doing business thrust upon our ground-breaking endeavours cut deep into our financial bottom line was a building year for the Board of Directors as we created an evaluation regimen and grid to track results of the growth of our Directors. The corner of the market into which we have manoeuvred will force us to grow further and I think we have acquired the tools we will need to continue on this path of prosperity. Again your Board of Directors appreciate the trust, faith and support the membership has given us to carry on as we take the steps we see as necessary to thrive in this environment. Your Directors have gone to lengths to assure that the revenue generating ventures are not only safe but follow the directions that you should expect as owners of a socially responsible business operation. With our card partners we have been able to take part in several amazing operations, assisting flood victims in Alberta and help the City of Toronto deliver services with less cost and more convenience for some of their clients among others. As I reach the end of my second year as Chair of the Board, the challenges keep on coming and I would like to thank the other Directors as they have supported the decisions needed to advance All Trans into our successful future. Shortly, with the most capable CEO in the business, we will begin a process that will again put us in the lead in the financial institution field. In order to answer the confrontations of several other regional regulators, we expect to take a step no other Credit Union has taken advantage of. Since we are expending finances answering challenges to our ability to operate some of our business, it looks to us the next steps must be to fall under federal regulation. Your staff has continued to deliver services that no other Credit Union of any size could match and for that we all owe them a large measure of appreciation. As we enter 2014 get ready for Your Credit Union to operate as no other in the Country. Hold on to your hats and be proud of your part in our All Trans. Steve Holmes, Board Chair March 2014

3 ALL TRANS FINANCIAL SERVICES CREDIT UNION LIMITED CEO s REPORT 2013 I am pleased to report on the activities of the credit union in For yet another year the credit union experienced subdued loan demand, as consumer confidence remained low. For All Trans this meant that our lending volumes remained subdued, compared to past years. This environment, coupled with ongoing low interest rates on both loans and corporate investments, placed continuing pressure on our revenue stream. Despite these difficult conditions, the credit union remained profitable throughout the year. The situation could have been worse, as has been the case for other credit unions in Ontario, were it not for the fact that the credit union had the benefit of a strong flow of non interest income. This other income was earned from a variety of sources, including the corporate pre-paid debit card programme, the fees for our popular Christmas and Vacation loans and various commissions paid by the credit union s business partners. This strong stream of non interest income allowed the credit union to remain in profit for 2013 and even to build our reserves slightly higher in relation to the previous year. The credit union ended the year with a pre tax profit of $30,285, a slight decrease from the 2012 pre tax profit of $46,792 a reasonable performance however at a time when revenues have been reduced by the drop in both amounts borrowed and interest earned. The credit union is fortunate to have strong financial reserves in place as we enter The provincial government requires Class 2 credit unions, such as All Trans, to maintain cash reserves of at least 4.00% of assets. At the end of 2013 All Trans had reserves of 9.3%. These reserves provide strong support for our ongoing operations as we navigate the challenges of the upcoming year. I would like to thank our Board Chair and all Directors for their hard work and guidance in I would also like to commend our management and staff for their excellent work and dedication in the course of a difficult year. Finally, may I express appreciation to all our loyal members who are always very supportive of and enthusiastic about the credit union. Mike Alexander. Chief Executive Officer. March 2014.

4 AUDIT COMMITTEE ANNUAL REPORT Your Audit Committee for 2013 was comprised of directors Sam Lightowler, Ross Taylor, Egbert Balthazar and Tim Dollack. The committee met with the External Auditor on a regular basis to review the financial position and balance sheets of the Credit Union. It also met with the Internal Auditor to ensure that our policies and procedures are being adhered to in all aspects of our business. The committee is responsible to ensure that member s funds and investments are protected through a system of self-checks and periodic reviews. The External Auditor (MNP LLP) conducted a semi-annual review and a year-end audit of our financial position. The year-end audit is included in the annual report for your review. These audits are reviewed by the committee, both with management and in-camera, with the auditors. An examination of the credit union was conducted by the Deposit Insurance Corporation of Ontario in April The results were reviewed by the Audit Committee. The Internal Auditor (Rick Belsby and Associates) conducted audits of the Credit Union s internal operations and policy adherence. The auditor provides the findings and recommendations to the committee. The following audits were conducted in 2013: Personal Loans Audit Loans Allowance Audit Annual Interac Audit (conducted by A. Woda and Associates) Officer and Staff Loans Audit Investment Audit RRSP and RRIF Audit Payroll and Personnel Audit Anti Money Laundering Audit Accounts Payable Audit London Branch Audit GL Ratios and Financial Reporting Audit Bank Reconciliation Audit Mortgage Loan Audit The committee congratulates management and staff for their hard work and consistent results. Both internal and external auditors expressed commendations for the thoroughness and accuracy of their work. Thanks are extended to each committee member, management and staff for their input and cooperation throughout Committee Chair: Sam Lightowler.

5 Policy Committee Report Your Policy Committee was comprised of directors Brian Elcombe, Wes Thomas, Tim Dollack, and Ross Taylor. As Chair it was my pleasure to work with the individuals mentioned and I would like to thank them for their hard work on the Policy Committee. The Policy Committee is responsible for reviewing and recommending to the Board of Directors, new corporate Policies that are required or desirable for the efficient and safe conduct of the business of the credit union. The Policy Committee is also tasked with the periodic review and confirmation to the Board of the continuing appropriateness of existing corporate Policies. In accordance with the Credit Union Act and Regulations we reviewed all mandatory sections of the Corporate Policy Manual. For 2013 the Committee again reviewed and confirmed all non mandatory sections of the Manual. This means that all sections of the corporate Policy Manual have been reviewed and referred to the Board for confirmation during the course of A number of new or amended Policies were reviewed by the Committee in 2013, including amended Policies relating to the credit union Card Services Programme. This is an important aspect of the work of the Committee and allows a broad review of new and amended Policies prior to final approval by the Board. In closing I extend my thanks to each committee member, management and staff for their input and co-operation throughout Brian Elcombe, Committee Chair

6 Report of the Nomination Committee 2013 The By-Laws of All Trans Financial Services Credit Union Limited require the Nomination Committee to submit a slate of suitable candidates for election at the Annual General meeting (AGM). Each year a number of vacancies occur on the Board. The terms of office are organized in such a manner that one third (1/3) of all elected positions are open for consideration each year. This year there are three (3) open positions on the Board, due to regular rotation. The Nomination Committee is pleased to endorse the following slate of candidates for election at the Annual General Meeting on Wednesday, March 5 th, 2014: Tim Dollack Director 3 years Incumbent Wes Thomas Director 7 years Incumbent Errol Harrison TTC Collectors Mike Parkinson London Transit I would like to take this opportunity to thank my fellow members of the Nomination Committee, Diana Marcon and Ross Taylor for their contributions and support this year. Egbert Balthazar. Chair, Nomination Committee.

7 Financial Statements

8 Table of Contents Page Management s Responsibility 1 Independent Auditors Report 2 Financial Statements Statement of Financial Position 3 Statement of Comprehensive Income 4 Statement of Changes in Members Equity 5 Statement of Cash Flows Schedule of Administrative Expenses 29

9 Management s Responsibility To the Members of All Trans Financial Services Credit Union Limited: The accompanying financial statements of All Trans Financial Services Credit Union Limited are the responsibility of management and have been approved by the Board of Directors. Management is responsible for the preparation and presentation of the accompanying financial statements, including responsibility for significant accounting judgments and estimates in accordance with International Financial Reporting Standards. This responsibility includes selecting appropriate accounting policies and methods, and making decisions affecting the measurement of transactions in which objective judgment is required. In discharging its responsibilities for the integrity and fairness of the financial statements, management designs and maintains the necessary accounting systems and related internal controls to provide reasonable assurance that transactions are authorized, assets are safeguarded and financial records are properly maintained to provide reliable information for the preparation of financial statements. The Board of Directors are responsible for overseeing management in the performance of its financial reporting responsibilities, and for approving the financial statements. The Audit Committee has the responsibility of meeting with management and external auditors to discuss the internal controls over the financial reporting process, auditing matters and financial reporting issues. The Audit Committee is also responsible for recommending the appointment of the Credit Union s external auditors. MNP LLP, an independent firm of Chartered Professional Accountants, is appointed by the members to audit the financial statements and report directly to them; their report follows. The external auditors have full and free access to, and meet periodically and separately with, both the Audit Committee and management to discuss their audit findings. January 27, 2014 CEO 1

10 Independent Auditors Report To the Members of All Trans Financial Services Credit Union Limited: We have audited the accompanying financial statements of All Trans Financial Services Credit Union Limited, which comprise the statement of financial position as at December 31, 2013, the statements of comprehensive income, changes in members 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 Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility 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 comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the 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 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 financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements present fairly in all material respects, the financial position of All Trans Financial Services Credit Union Limited as at December 31, 2013, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. Markham, Ontario January 27, 2014 Chartered Professional Accountants Licensed Public Accountants 2 ACCOUNTING CONSULTING TAX STEELES AVE. E., MARKHAM, ON CANADA L3R 8T PH. (416) FAX (416) mnp.ca

11 Statement of Financial Position As at December 31, 2013 In $ Assets Cash 13,813,343 11,685,316 Investmen ts (Note 4) 6,204,046 6,094,694 Member loans (Note 5) 23,473,949 22,531,650 Other assets (Note 6) 350, ,940 Property and equipment (Note 7) 166, ,022 44,008,123 40,678,622 Liabilities Member deposits (Note 8) 40,116,784 36,829,366 Other liabilities (Note 9) 62,467 34,784 Member shares (Note 11) 565, ,573 40,744,807 37,440,723 Commitments (Notes 15 and 17) Members' Equity Retained earnings 3,263,316 3,237,899 44,008,123 40,678,622 Approved on behalf of the Board Director Director The accompanying notes form part of the financial statements 3

12 Statement of Comprehensive Income In $ Interest income Member loans 1,425,531 1,318,579 Investments 213, ,107 1,639,393 1,527,686 Interest expens e Member deposits 393, ,559 Net interest income 1,246,382 1,134,127 Recovery of impaired loans (Note 5) (8,947) (3,972) Net interest income after provision for impaired loans 1,255,329 1,138,099 Other income (Note 12) 1,413,263 1,377,279 Net interest and other income 2,668,592 2,515,378 Operating expense s Administrative expenses (Sch edule) 1,643,454 1,451,578 Salaries and bene fits 994,853 1,017,008 2,638,307 2,468,586 Income before income taxes 30,285 46,792 Income taxes (Note 10) Current 4,868 7,312 Net income and comprehensive income 25,417 39,480 The accompanying notes form part o f the financial statements 4

13 Statement of Changes in Members' Equity In $ Retained earnings Total Balance, Decem ber 31, ,198,419 3,198,419 Net income for the year 39,480 39,480 Balance, Decem ber 31, ,237,899 3,237,899 Net income for the year 25,417 25,417 Balance, Decem ber 31, ,263,316 3,263,316 The accompanying notes form part o f the financial statements 5

14 Statement of Cash Flows In $ Cash provided by (used for) the following activities Operating activities Net income for the year 25,417 39,480 Adjustments for: Interest revenue (1,639,393) (1,328,126) Interest expense 393, ,559 Depreciation 61,890 67,842 Provision for impaired loans (8,947) (3,972) Income taxes expense 4,868 7,312 Interest received on member loans 1,407,827 1,110,374 Interest received on investments 212, ,814 Interest paid on member deposits (387,685) (381,879) Income taxes paid (8,673) (51,403) Net change in other assets (208,827) (18,093) Net change in other liabilites 31,488 (67,200) (116,826) (16,292) Investing activities Purchase of property and equipment (2,886) (28,669) Net change in member loans (915,648) 1,087,293 Net change in investments (107,688) (670,120) (1,026,222) 388,504 Financing activities Net change in member deposits 3,282,092 2,772,018 Net change in member shares (11,017) (25,189) 3,271,075 2,746,829 Net change in cash during the year 2,128,027 3,119,041 Cash, beginning of year 11,685,316 8,566,275 Cash, end of year 13,813,343 11,685,316 The accompanying notes form part of the financial statements 6

15 1. Reporting entity information Entity information All Trans Financial Services Credit Union Limited (the "Credit Union") is a financial institution incorporated in Ontario under the Credit Unions and Caisses Populaires Act, 1994 and operates in accordance with this statute and the accompanying regulations. The prescribed level of deposits are insured by the Deposit Insurance Corporation of Ontario ("DICO"). The Credit Union provides financial products and services to members throughout Ontario. The Credit Union's registered office and principal place of business is located at 3250 Bloor St. West, Toronto, Ontario. Statement of compliance The financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ), issued by the International Accounting Standards Board. The financial statements have been prepared in accordance with all IFRS issued and in effect as at December 31, These financial statements for the year ended December 31, 2013 were approved and authorized for issue by the Board of Directors on January 27, Basis of measurement The financial statements have been prepared using the historical basis except for the revaluation of certain financial instruments. The principal accounting policies are set out in Note 2. Functional and presentation currency These financial statements are presented in Canadian dollars, which is the Credit Union s functional currency. 2. Significant accounting policies The Credit Unions and Caisses Populaires Act, 1994 (the "Act") Regulations to the Act specify that certain items are required to be disclosed in the financial statements which are presented at annual meetings of members. It is management's opinion that the disclosures in these financial statements and notes comply, in all material respects, with the requirements of the Act. Where necessary, reasonable estimates and interpretations have been made in presenting this information. Cash Cash includes cash on hand and demand deposits. Investments Deposits Term deposits are accounted for as loans and receivables at amortized cost, adjusted to recognize other than a temporary impairment in the underlying value. Other investments Each investment is classified into one of the categories described under financial instruments. The classification dictates the accounting treatment for the carrying value and changes in that value. Member Loans Loans are recognized at their amortized cost. Amortized cost is calculated as the loan s principal amount, less any allowance for estimated losses, plus accrued interest, using the effective interest method. Under this method, loan administration fees are incorporated into the effective interest earned by being amortized over the term of the loan. 7

16 2. Significant accounting policies (continued) Impairment of financial assets For financial assets carried at amortized cost, the Credit Union first assesses individually whether objective evidence of impairment exists for financial assets that are significant, or collectively for financial assets that are not individually significant. If the Credit Union determines that no objective evidence of impairment exists for an individually assessed loan, then it includes that financial asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Financial assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment for impairment. If there is objective evidence that an impairment loss has occurred, the amount of the loss is measured as the difference between the loan s carrying amount and the present value of estimated future cash flows. Financial assets are considered impaired when contractual payments are in arrears in excess of 90 days, unless the loan is fully secured. Fully secured loans are classified as impaired after a delinquency period of greater than 180 days. The carrying amount of the financial asset is reduced through the use of the provision for impaired financial assets and the amount of the impairment loss is recognized in current period income. Financial assets, together with the associated provision for impairment are reported as an impairment loss when there is no expectation of future recovery. Interest income is accrued until the financial asset becomes a credit loss. The present value of the estimated future cash flows is discounted at the financial assets original effective interest rate. The calculation of the present value of estimated future cash flows reflects the projected cash flows, including prepayment losses, and costs to securitize and service financial assets. For the purpose of the collective evaluation of loan impairment, financial assets are grouped on the basis of the Credit Union s internal system that considers credit risk, characteristics such as asset type, industry, geographical location, collateral, delinquency status and other relevant economic factors. Future cash flows on the group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group. Historical credit loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions on which the historical credit loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. Estimates of changes in future cash flows reflect, and are directionally consistent with, changes in related observable data from year to year such as changes in unemployment rates, inflation, borrowing rates, property values or other factors that are indicative of incurred losses in the group and their magnitude. Property and equipment Items of property and equipment are stated at cost less accumulated depreciation and impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. When components of an item of property and equipment have different useful lives, they are accounted for as separate items. Depreciation is provided using the methods and rates intended to depreciate the cost of the assets over their estimated useful lives: Method Life/Rate Furniture and equipment declining balance 20% Computer equipment declining balance 20% Leasehold improvements straight-line Term of lease ATM equipment straight-line 5 years The useful lives of items of property and equipment are reviewed on an annual basis and altered if estimates have changed significantly. Gains or losses on the disposal of property and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the asset, and are recognized in current period income. 8

17 2. Significant accounting policies (continued) Computer software Computer software, an intangible asset, is carried at cost less accumulated amortization. Amortization of computer software is charged to the income statement on a straight-line basis over its expected useful life of 5 years. The expected useful life of computer software is reviewed on an annual basis and the useful life is altered if estimates have changed significantly. Gains or losses on the disposal of intangible assets are determined as the difference between the net disposal proceeds and the carrying amount of the asset, and are recognized in current period income. Impairment of non-financial assets At the end of each reporting period, the Credit Union reviews the carrying amounts of its tangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Credit Union estimates the recoverable amount of the cash-generating units ( CGU ) to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual CGU s, or otherwise they are allocated to the smallest group of CGU s for which a reasonable and consistent allocation basis can be identified. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset or CGU is estimated to be less than its carrying amount, the carrying amount of the asset or CGU is reduced to its recoverable amount. An impairment loss is recognized immediately in current period income. Where an impairment loss subsequently reverses, the carrying amount of the asset or CGU is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset or CGU in prior years. A reversal of an impairment loss is recognized immediately in current period income. Member deposits Member deposits are initially recognized at fair value and are subsequently measured at amortized cost using the effective interest method. Member shares Shares redeemable at the option of the member, either on demand or on withdrawal from membership, are classified as liabilities. Other liabilities Other liabilities include accounts payable and accrued liabilities which are stated at amortized cost, and approximate fair value due to the short term nature of these liabilities. Revenue recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Credit Union and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized. 9

18 2. Significant accounting policies (continued) Revenue recognition (continued) Interest income is recognized as interest accrues using the effective interest rate method. The effective interest rate is the rate that discounts the estimated future cash flows over the expected life of the financial instrument back to the net carrying amount of the financial asset. Other revenue and expenses that relate to the return on a loan or investment are incorporated into the effective interest rate and, thus, amortized to revenue over the life of the loan. Member fees are recognized as revenue when the services are provided to the members and the fees are received by the Credit Union. Revenue from the prepaid debit card program is recognized as amounts are received monthly in relation to carrying out the program. Income taxes Current and deferred taxes are recognized in net income, other comprehensive income or equity, depending on where the related income or expense is recorded. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities where the Credit Union operates and generates income. The calculation of current tax is based on the tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. Deferred tax assets and liabilities generally arise where the carrying amount of an asset or liability differs from its tax base. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the assets are realized or the liabilities are settled. The calculation of deferred tax is based on the tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Recognition of deferred tax assets for unused tax losses, tax credits and deductible temporary differences is restricted to those instances where it is probable that future taxable profit will be available which allow the deferred tax asset to be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. Foreign currency translation Transactions denominated in foreign currencies are translated into their Canadian dollar equivalent at exchange rates prevailing at the transaction dates. Monetary assets and liabilities are retranslated at the exchange rates at the balance sheet date. Exchange translation gains and losses are included in income. Non-monetary items that are measured at historical cost are translated using the exchange rates at the date of the transaction. Financial instruments All financial instruments are initially recognized on the balance sheet at fair value. Measurement in subsequent periods depends on whether the financial instrument has been classified as fair value through profit or loss, available for sale, held to maturity, loans and receivables, or other financial liabilities. For instruments classified as other than fair value through profit and loss, transaction costs related to the acquisition of the instrument are added to the fair value upon initial recognition. The financial instruments classified as fair value through profit or loss are measured at fair value with unrealized gains and losses recognized in net income. The Credit Union has cash, investment savings accounts and financial derivatives classified as fair value through profit or loss. 10

19 2. Significant accounting policies (continued) Financial instruments (continued) Available for sale financial assets are measured at fair value with unrealized gains and losses recognized in other comprehensive income. In the period in which the asset is sold, or otherwise derecognized, the cumulative gain or loss, previously recorded in other comprehensive income, is recognized in net income. The Credit Union has some equity investments that are not traded in an active market classified as available for sale. The financial assets classified as loans and receivables are initially measured at fair value plus transaction costs, then subsequently carried at amortized cost. The Credit Union's financial instruments classified as loans and receivables include term deposits and member loans. The financial assets classified as held to maturity are initially measured at fair value, then subsequently carried at amortized cost. The Credit Union does not have any financial instruments classified as held to maturity. Financial instruments classified as other financial liabilities include member deposits and accounts payable and accrued liabilities. Other financial liabilities are initially measured at fair value and then subsequently carried at amortized cost. De-recognition of financial assets De-recognition of a financial asset occurs when: i) The Credit Union does not have rights to receive cash flows from the asset; ii) The Credit Union has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a pass-through arrangement; and either: a. The Credit Union has transferred substantially all the risks and rewards of the asset; or b. The Credit Union has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Credit Union has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred or retained substantially all of the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Credit Union s continuing involvement in the asset. In that case, the Credit Union also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Credit Union has retained. A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of the existing liability are substantially modified, such an exchange or modification is treated as a de-recognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amount is recognized in income. Changes in accounting policies The following new or amended standards, and their resulting consequential amendments, were applied for the first time in the current year: IAS 1 Presentation of financial statements The amendments to IAS 1 introduced a grouping of items presented in other comprehensive income. Items that could be reclassified (or recycled) to profit or loss at a future point in time (e.g., net gain on hedge of net investment, exchange differences on translation of foreign operations, net movement on cash flow hedges and net loss or gain on available-forsale financial assets) now have to be presented separately from items that will never by reclassified (e.g., actuarial gains and losses on defined benefit plans and revaluation of land and buildings). The amendments affected presentation only and had no impact on the Credit Union s financial results. 11

20 2. Significant accounting policies (continued) Changes in accounting policies IAS 19 Employee benefits The amendments to IAS 19 significantly impacted the accounting for defined benefit plans. The Credit Union has no defined benefit plans; therefore, these amendments had no impact on the Credit Union s financial results. The amendments also revised the accounting for termination benefits and amended the definitions of short and long term which did not have a material impact on the Credit Union s financial results. IFRS 7 Financial instruments: disclosures The amendment to IFRS 7 introduced disclosure on financial assets that were offset in accordance with IAS 32 and master netting or similar arrangements. The revised IFRS 7 did not impact current year and prior year disclosures and had no impact on the Credit Union s financial results. IFRS 10 Consolidated financial statements As a result of adopting IFRS 10, the Credit Union has changed its accounting policies with respect to determining whether it has control over and consequently consolidates its investees. IFRS 10 changes the definition of control such that an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. In accordance with the transitional provisions of IFRS 10, the Credit Union has re-assessed the control conclusion for its investees at January 1, 2013 and concluded that the new standard does not change its previous conclusion. IFRS 11 Joint arrangements IFRS 11 revised the classification and accounting of joint arrangements i.e. arrangements over which one or more parties have joint control. The adoption of this standard had no impact on the Credit Union s financial statements because it has no interests in joint arrangements. IFRS 13 Fair value measurement IFRS 13 improves consistency and reduces complexity of fair value measurements by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRS. In accordance with the transitional provisions, IFRS 13 has been applied prospectively from January 1, The adoption of IFRS 13 did not have an impact on the measurement of the Credit Union s assets and liabilities but has resulted in additional disclosures. Standards issued but not yet effective The Credit Union has not yet applied the following new standards, interpretations or amendments to standards that have been issued as at December 31, 2013 but are not yet effective. Unless otherwise stated, the Credit Union does not plan to early adopt any of these new or amended standards and interpretations. IFRS 8 Operating segments The amendments to IFRS 8, issued in December 2013, require an entity to disclose the judgments made by management in applying the aggregation criteria for reportable segments. The amendments will only affect disclosure and are effective for annual periods beginning on or after July 1, The Credit Union does not expect these amendments to have a material impact on its financial statements. 12

21 2. Significant accounting policies (continued) Standards issued but not yet effective (continued) IFRS 9 Financial instruments IFRS 9 was issued in November 2009 and subsequently amended as part of an ongoing project to replace IAS 39 Financial instruments: Recognition and measurement. The standard requires the classification of financial assets into two measurement categories based on the entity s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. The two categories are those measured at fair value and those measured at amortized cost. The classification and measurement of financial liabilities is primarily unchanged from IAS 39. However, for financial liabilities measured at fair value, changes in the fair value attributable to changes in an entity s own credit risk is now recognized in other comprehensive income instead of in profit or loss. This new standard will also impact disclosures provided under IFRS 7 Financial instruments: disclosures. In November 2013, the IASB amended IFRS 9 for the significant changes to hedge accounting. In addition, an entity can now apply the own credit requirement in isolation without the need to change any other accounting for financial instruments. The mandatory effective date of January 1, 2015 has been removed to provide sufficient time for preparers of financial statements to make the transition to the new requirements. The Credit Union has not yet determined the impact of these amendments on its financial statements. IFRS 13 Fair value measurement The Credit Union applies the portfolio exception. Accordingly, it measures the fair value of financial assets and liabilities, with offsetting positions in market or counterparty credit risk, consistently with how market participants would price the net risk exposure. The amendments to IFRS 13, issued in December 2013, clarify that the portfolio exception applies to all contracts within the scope of IFRS 9 Financial instruments or IAS 39 Financial instruments: Recognition and measurement, regardless of whether they meet the definitions of financial assets or financial liabilities in IAS 32 Financial instruments: Presentation. The amendments are effective for annual periods beginning on or after July 1, The Credit Union does not expect these amendments to have a material impact on its financial statements. IAS 16 Property, plant and equipment and IAS 38 Intangible assets The amendments to IAS 16 and IAS 38 issued in December 2013, clarify how an entity calculates the gross carrying amount and accumulated depreciation when a revaluation is performed. The amendments are effective for annual periods on or after July 1, The Credit Union does not expect these amendments to have a material impact on its financial statements. IAS 24 Related party disclosures The amendments to IAS 24, issued in December 2013, clarify that a management entity, or any member of a group of which it is a part, that provides key management services to a reporting entity, or its parent, is a related party of the reporting entity. The amendments also require an entity to disclose amounts incurred for key management personnel services provided by a separate management entity. This replaces the more detailed disclosure by category required for other key management personnel compensation. The amendments will only affect disclosure and are effective for annual periods beginning on or after July 1, IAS 36 Impairment of assets The amendments to IAS 36, issued in May 2013, require: Disclosure of the recoverable amount of impaired assets; and Additional disclosures about the measurement of the recoverable amount when the recoverable amount is based on fair value less costs of disposal, including the discount rate when a present value technique is used to measure the recoverable amount. The amendments will only affect disclosure and are effective for annual periods beginning on or after January 1,

22 2. Significant accounting policies (continued) Standards issued but not yet effective (continued) IAS 39 Financial instruments: recognition and measurement The amendments to IAS 39, issued in June 2013, clarify that novation of a hedging derivative to a clearing counterparty as a consequence of laws or regulations or the introduction of laws or regulations, does not terminate hedge accounting. The amendments are effective for annual periods beginning on or after January 1, The Credit Union does not expect these amendments to have a material impact on its financial statements. IAS 40 Investment property The amendments to IAS 40, issued in December 2013, clarify that an entity applies judgement to determine whether the acquisition of investment property is the acquisition of an asset, a group of assets, or a business combination within the scope of IFRS 3. This judgement is based on the guidance in IFRS 3. The amendments are effective for annual periods beginning on or after July 1, The Credit Union does not expect these amendments to have a material impact on its financial statements. 3. Significant accounting judgements, estimates and assumptions Use of estimates and judgements As the precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of estimates and approximations which have been made using careful judgment. These estimates are based on management's best knowledge of current events and actions that the Credit Union may undertake in the future year. Allowance for impaired loans The Credit Union reviews its individually significant loans at each reporting date to assess whether an impairment loss should be recognized. In particular, judgment by management is required in the estimation of the amount and timing of future cash flows when determining the impairment loss. In estimating these cash flows, the Credit Union makes judgements about the borrower s financial situation and the net realizable value of collateral. These estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance. Member loans that have been assessed individually and found not to be impaired and all individually insignificant loans are then assessed collectively, in groups of assets with similar risk characteristics, to determine whether provision should be made due to incurred loss events for which there is objective evidence but whose effects are not yet evident. The general provision assessment takes account of data from the loan portfolio such as credit quality, delinquency, historical performance and industry economic outlook. Financial instruments not traded on active markets For financial instruments not traded in active markets, fair values are determined using valuation techniques such as the discounted cash flow model that rely on assumptions that are based on observable active markets or rates. Certain assumptions take into consideration liquidity risk, credit risk and volatility. 14

23 4. Investments In $ Loans and receivables Term deposits and corporate notes 2,798,569 2,890,804 Fair value through profit or loss Investment savings accounts 3,363,126 3,163,203 Accrued interest 35,535 33,871 3,398,661 3,197,074 Available for sale Investments in co-operatives 6,816 6,816 6,204,046 6,094, Member loans In $ Principal Performing Principal Impaired Allowance Specific Allowance Collective 2013 Mortgages 1 8,607,315 1,285, ,892,921 Personal 3,795,663 68,719 (49,069) (286,375) 3,528,938 Accrued interest 52, , ,455,068 1,354,325 (49,069) (286,375) 23,473,949 Principal Performing Principal Impaired Allowance Specific Allowance Collective 2012 Mortgages 1 8,447, , ,149,489 Personal 3,662,237 48,055 (48,055) (314,462) 3,347,775 Accrued interest 34, ,386 22,143, ,356 (48,055) (314,462) 22,531,650 The loan classifications set out above are as defined in the regulations to the Act. Mortgage loans are repayable in blended principal and interest instalments, over a maximum term of five years based on a maximum amortization period of thirty years. Mortgages are open to prepayments to a maximum of 10% of the original principal balance annually. Mortgage backed lines of credit are repayable on a revolving credit basis and require minimum monthly balances. Personal loans are repayable in blended principal and interest instalments, over a maximum amortization period of five years. Line of credit loans are repayable on a revolving credit basis and require minimum monthly payments. Personal loans are open and may be repaid at any time. 15

24 5. Member loans (continued) Loan Allowance details In $ Balance, beginning of year 362, ,638 Recovery of impaired loans (8,947) (3,972) 353, ,666 Less: accounts written off (27,073) (48,121) Add: loans recovered 8,947 3,972 Balance, end of year 335, ,517 Loans past due but not impaired A loan is considered past due when a counterparty has not made a payment by the contractual due date. The following table presents the carrying value of loans at year-end that are past due but not classified as impaired. In $ 1-30 days days days 91 days and greater 2013 Mortgages 199,063 78, ,936 Personal 70,750 8, , ,813 87, ,647 In $ 1-30 days days days 91 days and greater 2012 Mortgages 204, ,908 Personal 182,981 15, , ,889 15, ,362 The principal collateral and other credit enhancements the Credit Union holds as security for loans include (i) insurance, mortgages over residential lots and properties, and (ii) recourse to liquid assets, guarantees and securities. Valuations of collateral are updated periodically depending on the nature of the collateral. The Credit Union has policies in place to monitor the existence of undesirable concentration in the collateral supporting its credit exposure. 6. Other assets In $ Prepaid expenses 292,560 83,733 Index-linked derivative contracts 15,007 15,007 Deferred income taxes (Note 10) 43,200 43, , ,940 16

25 7. Property and equipment In $ Computer equipment ATM equipment Furniture & equipment Leasehold improvements 2013 Total Cost Opening balance 1,385, , , ,154 2,234,206 Additions ,886 2,886 1,385, , , ,040 2,237,092 Accumulated depreciation Opening balance (1,303,221) (73,414) (367,165) (265,384) (2,009,184) Depreciation (16,566) (38,174) (2,904) (4,246) (61,890) (1,319,787) (111,588) (370,069) (269,630) (2,071,074) Net book value at December 31, ,192 76,346 11,070 12, ,018 In $ Computer equipment ATM equipment Furniture & equipment Leasehold improvements 2012 Total Cost Opening balance 1,381, , , ,690 2,205,537 Additions 4,149 5,339 3,717 15,464 28,669 1,385, , , ,154 2,234,206 Accumulated depreciation Opening balance (1,277,239) (36,152) (364,261) (263,690) (1,941,342) Depreciation (25,982) (37,262) (2,904) (1,694) (67,842) (1,303,221) (73,414) (367,165) (265,384) (2,009,184) Net book value at December 31, , ,520 13,974 13, ,022 17