BAYVIEW CREDIT UNION LIMITED

Transcription

1 Financial Statements of BAYVIEW CREDIT UNION LIMITED

2 KPMG LLP Frederick Square One Factory Lane 133 Prince William Street 77 Westmorland Street Suite 700 PO Box 827 PO Box 2388 Stn Main Fredericton NB E3B 6Z3 Moncton NB E1C 8N6 Saint John NB E2L 3V6 Telephone (506) Telephone (506) Telephone (506) Fax (506) Fax (506) Fax (506) To the Members of Bayview Credit Union Limited INDEPENDENT AUDITORS' REPORT We have audited the accompanying financial statements of Bayview Credit Union Limited, which comprise the statement of financial position as at December 31, 2016, the statements of operations and comprehensive income, changes in members equity and cash flows for the year then ended, and notes, comprising 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 our 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, we 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 Bayview Credit Union Limited as at December 31, 2016, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. Chartered Professional Accountants February 27, 2017 Saint John, Canada KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. KPMG Canada provides services to KPMG LLP.

3 Table of Contents, with comparative information for 2015 Financial Statements Statement of Financial Position 1 Statement of Operations and Comprehensive Income 2 Statement of Changes in Members Equity 3 Statement of Cash Flows 4 Note to Financial Statements 5

4 Statement of Financial Position December 31, 2016, with comparative information for 2015 Assets Cash and cash equivalents (note 5) $ 8,005,638 $ 23,366,880 Investments (note 6) 35,269,262 36,800,402 Income taxes receivable 205,187 Loans (notes 7 and 8) 316,346, ,685,900 Foreclosed assets 678, ,212 Other assets (note 9) 2,101,730 2,035,820 Property and equipment (note 10) 7,973,535 7,857,730 Liabilities and Members Equity $ 370,375,124 $ 367,255,131 Liabilities to members: Member deposits (note 11) $ 339,047,764 $ 337,012,162 Accrued interest on deposits 1,448,819 1,657, ,496, ,669,433 Other liabilities: Payables and accruals 3,537,599 2,797,464 Post-employment benefits obligation (note 21) 817, ,800 Income taxes payable 228,275 Deferred income tax (note 12) 507, ,000 Accrued patronage rebate 86,000 72,600 Accrued dividends on shares 19,000 16,000 5,194,974 4,265,864 Liabilities qualifying as regulatory equity: Membership shares (note 13) 3,297,052 3,456,367 Surplus shares (note 13) 2,867,758 2,500,701 6,164,810 5,957, ,856, ,892,365 Members equity: Surplus shares (note 13) 2,359,515 3,057,010 Contributed surplus 45,688 45,688 Special reserve (note 20) 1,210,000 1,210,000 Retained earnings 14,711,054 13,857,768 Accumulated other comprehensive income 192, ,300 18,518,757 18,362,766 Commitments (note 22) $ 370,375,124 $ 367,255,131 See accompanying notes to financial statements. On behalf of the Board: Director Director 1

5 Statement of Operations and Comprehensive Income, with comparative information for 2015 Finance income: Interest on loans $ 12,235,233 $ 12,624,740 Interest on investments 322, ,987 12,557,597 13,008,727 Finance expense: Interest on member deposits 3,755,707 4,421,366 Impairment losses on loans 692, ,517 4,448,277 5,296,883 Financial margin 8,109,320 7,711,844 Other income (note 14) 3,405,609 3,801,313 11,514,929 11,513,157 Non-interest expenses: Personnel 5,505,619 5,623,256 Occupancy 597, ,776 Organization (note 15) 467, ,221 Member security 501, ,392 General business (note 16) 2,606,240 2,423,771 Amortization 450, ,459 Total non-interest expenses 10,128,600 10,525,875 Income before patronage rebate, post-employment benefits and income taxes 1,386, ,282 Post-employment benefits (note 21) 31,400 45,800 Patronage rebate and dividends 105,000 88, , ,400 Income before income taxes 1,249, ,882 Income taxes (note 12): Current tax expense 433,643 30,388 Deferred tax (recovery) expense (37,000) 203, , ,388 Net income 853, ,494 Other comprehensive income (loss) never to be reclassified to profit or loss: Actuarial (loss) income (15,800) 164,200 Deferred tax recovery (expense) 16,000 (44,000) Total other comprehensive income (loss) ,200 Comprehensive income $ 853,486 $ 739,694 See accompanying notes to financial statements. 2

6 Statement of Changes in Members Equity, with comparative information for 2015 Accumulated other Surplus Contributed Special Retained comprehensive shares surplus reserve earnings income Total Balance on January 1, 2016 $ 3,057,010 $ 45,688 $ 1,210,000 $ 13,857,768 $ 192,300 $ 18,362,766 Net income , ,286 Other comprehensive income Redemption of surplus shares, net of issuances and reclassification between liabilities and members equity (697,495) (697,495) Balance on December 31, 2016 $ 2,359,515 $ 45,688 $ 1,210,000 $ 14,711,054 $ 192,500 $ 18,518,757 Balance on December 31, 2015 $ 3,057,010 $ 45,688 $ 1,210,000 $ 13,857,768 $ 192,300 $ 18,362,766 See accompanying notes to financial statements. 3

7 Statement of Cash Flows, with comparative information for 2015 Cash provided by (used for): Operating: Net income $ 853,286 $ 619,494 Financial margin (8,109,320) (7,711,844) Amortization 450, ,459 Patronage rebate and dividends 105,000 88,600 Accrued post-employment benefit obligation (note 21) (18,500) 2,900 Income taxes 396, ,388 (6,322,576) (6,340,003) Changes in non-cash items: Other assets (65,910) (603,924) Foreclosed assets (374,793) 582,199 Payables and accruals 740, ,963 Interest received 12,584,413 13,018,342 Interest paid (3,964,159) (4,293,521) Income taxes paid (181) (312,507) 2,596,929 2,320,549 Financing: Increase in member deposits 2,035,602 17,643,162 Decrease in membership shares (159,315) (116,401) Redemption of surplus shares (419,038) (490,474) 1,457,249 17,036,287 Investing: Increase in loans receivable (20,380,440) (4,343,594) Purchase of property and equipment (566,120) (746,160) Net proceeds (purchases) from investments 1,531,140 (3,020,340) (19,415,420) (8,110,094) Increase (decrease) in cash and cash equivalents (15,361,242) 11,246,742 Cash and cash equivalents, beginning of year 23,366,880 12,120,138 Cash and cash equivalents, end of year $ 8,005,638 $ 23,366,880 See accompanying notes to financial statements. 4

8 Notes to Financial Statements 1. Governing legislation and nature of operations Bayview Credit Union Limited (Credit Union) is incorporated under the Credit Unions Act of New Brunswick and its principal activity is providing financial services to its members. For financial reporting and regulatory matters, the Credit Union is under the authority of the Superintendent of Credit Unions and Caisse Populaires. The Credit Union head office is located at 57 King Street, Saint John, New Brunswick. 2. Basis of presentation and statement of compliance: These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). These financial statements have been approved and authorized for issue by the Board of Directors on February 27, The Credit Union s functional and presentation currency is the Canadian dollar. The preparation of financial statements in compliance with IFRS requires management to make certain critical accounting estimates. It also requires management to exercise judgment in applying the Credit Union s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note Summary of significant accounting policies: These financial statements were prepared on a going concern basis under the historical cost convention. The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all of the years presented. (a) Cash and cash equivalents: Cash and cash equivalents includes cash on hand, deposits with banks, other short-term highly liquid investments with original maturities of three months or less. Liquidity deposits with the Atlantic Central are presented as investments. The Credit Union recognizes financial instruments at the trade date. (b) Financial instruments: Financial assets and financial liabilities are recognized when the Credit Union becomes a party to the contractual provisions of the financial instrument. A financial liability is derecognized when it is extinguished, discharged, cancelled or expires. Financial assets and financial liabilities are initially measured at fair value plus transaction costs, except for financial assets and financial liabilities carried at fair value through profit or loss, which are initially measured at fair value. Subsequent measurement of financial assets and financial liabilities is as described below. 5

9 3. Summary of significant accounting policies (continued): (c) Financial assets: For the purpose of subsequent measurement, financial assets other than those designated and effective as hedging instruments are classified into the following categories upon initial recognition: Loans and receivables Financial assets at fair value through profit or loss Held-to-maturity investments Available-for-sale financial assets The category determines subsequent measurement and whether any resulting income and expense is recognized in profit or loss or in other comprehensive income. At least at each reporting date, all financial assets except for those at fair value through profit or loss are subject to a review for impairment. Financial assets are impaired when there is any objective evidence that a financial asset or a group of financial assets is impaired. Different criteria to determine impairment are applied for each category of financial assets, which are described below. All income and expenses relating to financial assets that are recognized in profit or loss are presented within finance income or finance expense. (d) Loans and receivables: Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and have been classified as loans and receivables. The Credit Union also classifies cash and cash equivalents and loans in this category. Member loans and term deposit investments are initially measured at fair value, net of origination fees and inclusive of transaction costs incurred. Member loans are subsequently measured at amortized cost, using the effective interest rate method, less any impairment (losses). Loans to members are reported at their recoverable amount representing the aggregate amount of principal, less any allowance or provision for impaired loans, plus accrued interest. Interest for all loans is accounted for on the accrual basis. If there is objective evidence that an impairment loss on member loans carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the loans carrying amount and the present value of expected cash flows discounted at the loans original effective interest rate. Discounting is omitted where the effect of discounting is immaterial. The Credit Union first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant. 6

10 3. Summary of significant accounting policies (continued): (d) Loans and receivables (continued): If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. 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 of impairment. The expected future cash outflows for a group of financial assets with similar credit risk characteristics are estimated based on historical loss experience. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in net income. (e) Bad debts written-off: Bad debts are written-off from time to time as determined by management and approved by the Board of Directors when it is reasonable to expect that the recovery of the debt is unlikely. Bad debts are written-off against the provision for impairment, if a provision for impairment had previously been recognized. If no provision had been recognized, the write-offs are recognized as expenses in net income. (f) Held-to-maturity investments: Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity other than loans and receivables. Investments are classified as held-to-maturity if the Credit Union has the intention and ability to hold them until maturity. There were no assets classified as held-to-maturity. Held-to-maturity investments are measured subsequently at amortized cost using the effective interest method. If there is objective evidence that the investment is impaired, determined by reference to external credit ratings, the financial asset is measured at the present value of estimated future cash flows. Any changes to the carrying amount of the investment, including impairment losses, are recognized in profit or loss. (g) Fair value through profit and loss: A financial asset or liability is required to be classified as fair value through profit and loss ( FVTPL ) if it is acquired principally for the purpose of selling it in the near term or if it is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. 7

11 3. Summary of significant accounting policies (continued): (h) Available-for-sale financial assets: Available-for-sale financial assets are non-derivative financial assets that are either designated to this category or do not qualify for inclusion in any of the other categories of financial assets. The Credit Union's available-for-sale financial assets include the Credit Union s investments in Atlantic Central and League Savings and Mortgage. These investments are measured at cost less any impairment charges, as their fair value cannot currently be estimated reliably. Impairment charges are recognized in profit or loss. Reversals of impairment losses are recognized in profit or loss only if the reversal can be objectively related to an event occurring after the impairment loss was recognized. (i) Financial liabilities: The Credit Union s financial liabilities include member deposits, payables and accruals and member shares classified as liabilities. Financial liabilities are measured subsequently at amortized cost using the effective interest method, except for financial liabilities held-for-trading or designated at fair value through profit or loss, that are carried subsequently at fair value with gains or losses recognized in profit or loss. All interest related charges and, if applicable, changes in an instrument's fair value that are reported in profit or loss are included within finance revenue or finance expense. (j) Property and equipment: Property and equipment is initially recorded at cost and subsequently measured at cost less accumulated amortization and any accumulated impairment (losses), with the exception of land which is not amortized. Amortization is recognized in net income and is provided on a diminishing balance basis over the estimated useful life of the assets as follows: Buildings Furniture and fixtures Computer equipment Parking lot Leasehold improvements Intangible assets 2.5%, diminishing balance 5-10%, diminishing balance 30%, diminishing balance 5%, diminishing balance 20%, diminishing balance 10%, diminishing balance Amortization methods, useful lives and residual values are reviewed annually and adjusted if necessary. Gains or losses arising on the disposal of property and equipment are determined as the difference between the disposal proceeds and the carrying amount of the assets and are recognized in profit or loss within Other income. 8

12 3. Summary of significant accounting policies (continued): (k) Intangible assets: Intangible assets include acquired computer software used in administration that qualifies for recognition as an intangible asset and are presented as part of property and equipment. Software is initially accounted for using the cost model whereby capitalized costs are amortized on a diminishing balance basis of 10%. Residual values and useful lives are reviewed at each reporting date. Amortization has been included within amortization. Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and install the specific software. Costs associated with maintaining computer software are expensed as incurred. (l) Impairment of non-financial assets: For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash generating units). As a result, some assets are tested individually for impairment and some are tested at cash generating unit level. Individual assets or cash generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset's or cash generating unit's carrying amount exceeds its recoverable amount, which is the higher of fair value less costs to sell and value-in-use. To determine the value-in-use, management estimates expected future cash flows from each cash generating unit and determines a suitable interest rate in order to calculate the present value of those cash flows. The data used for impairment testing procedures are directly linked to the Credit Union's latest approved budget, adjusted as necessary to exclude the effects of future reorganizations and asset enhancements. Discount factors are determined individually for each cash generating unit and reflect their respective risk profiles as assessed by management. Impairment losses for cash generating units is charged pro-rata to the assets in the cash generating unit. All assets are subsequently reassessed for indications that an impairment loss previously recognized may no longer exist. An impairment charge is reversed if the cash generating unit s recoverable amount exceeds its carrying amount. 9

13 3. Summary of significant accounting policies (continued): (m) Income taxes: The Credit Union follows the asset and liability method of accounting for income taxes, whereby the Credit Union recognizes both current and future income tax consequences of all transactions that have been recognized in the financial statements. Current income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting periods, that are unpaid at the reporting date. Current tax is payable on taxable profit, which differs from profit or loss in the financial statements. Calculation of current tax is based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. Deferred taxes are calculated using the liability method on temporary differences between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on the initial recognition of an asset or liability unless the related transaction is a business combination or affects tax or accounting profit. Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to their respective period of realization, provided they are enacted or substantively enacted by the end of the reporting period. Deferred tax assets are recognized to the extent that it is probable that they will be able to be utilized against future taxable income, based on the Credit Union s forecast of future operating results which is adjusted for significant non-taxable income and expenses and specific limits to the use of any unused tax loss or credit. Deferred tax liabilities are always provided for in full. Deferred tax assets and liabilities are offset only when the Credit Union has a right and intention to set off current tax assets and liabilities from the same taxation authority. Changes in deferred tax assets or liabilities are recognized as a component of tax income or expense in profit or loss, except where they relate to items that are recognized in other income (such as the revaluation of land) or directly in equity, in which case the related deferred tax is also recognized in other income or equity, respectively. 10

14 3. Summary of significant accounting policies (continued): (n) Post-employment benefits: The Credit Union provides post-employment health and dental benefits. The accrued benefit obligation for post-employment benefits and the amount of related benefits cost that is charged to income depends on actuarial and economic assumptions. The Credit Union accrues its obligations and related costs under employee benefit plans and has adopted the following policies: The cost of the post-employment benefits earned by employees is actuarially determined using the projected benefit method. The objective under this method is to expense each member s benefits under the plan as they accrue, taking into consideration projections of benefit cost to and during retirement. The non-pension post-employment benefits are funded on a cash basis as benefits are paid. No assets have been segregated and restricted to provide post-employment benefits. Actuarial gains and losses are recognized in Other Comprehensive income. Actual results could differ materially from these estimates. (o) Membership shares: Membership shares, including members shares and surplus 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, as per IFRIC 2 - Members' Shares in Cooperative Entities and Similar Instruments. Under the Credit Unions Act of New Brunswick, the Credit Union is not permitted to make distributions on redemption by members if the distributions will cause the Credit Union to fall below legislated capital requirements (note 20). Membership shares are presented as equity to the extent they are required to meet the legislated capital requirements. (p) Patronage distributions: Patronage distributions are recognized in net income when circumstances indicate the Credit Union has a constructive obligation and it can make a reasonable estimate of the amount required to settle the obligation. Patronage distributions are deductible for income tax purposes. 11

15 3. Summary of significant accounting policies (continued): (q) Revenue recognition: Revenue from the provision of services to members is recognized when earned, specifically when amounts are fixed or can be determined and the ability to collect is reasonably assured. (r) Foreign currency translation: Foreign currency transactions are translated into the functional currency of the Credit Union using the exchange rates prevailing at the dates of the transactions (spot exchange rate). Foreign exchange gains and losses resulting from the settlement of such transactions are recognized in profit or loss. (s) Standards, amendments and interpretations not yet effective: Certain new standards, amendments and interpretations have been published that are mandatory for the Credit Union s accounting periods beginning on or after January 1, 2017 or later periods that the Credit Union has decided not to early adopt. The standards, amendments and interpretations that will be relevant to the Credit Union are: IFRS 9 Financial Instruments (2014) ( IFRS 9 (2014) ) IFRS 9 (2014) introduces new requirements for the classification and measurement of financial assets. Under IFRS 9 (2014), financial assets are classified and measured based on the business model in which they are held and the characteristics of their contractual cash flows. The standard introduces additional changes relating to financial liabilities. It also amends the impairment model by introducing a new expected credit loss model for calculating impairment. IFRS 9 (2014) also includes a new general hedge accounting standard which aligns hedge accounting more closely with risk management. This new standard does not fundamentally change the types of hedging relationships or the requirement to measure and recognize ineffectiveness, however it will provide more hedging strategies that are used for risk management to qualify for hedge accounting and introduce more judgment to assess the effectiveness of a hedging relationship. This standard is effective for annual periods beginning on or after January 1, The Credit Union is currently assessing the impact of adoption of this standard on its financial statements. 12

16 3. Summary of significant accounting policies (continued): (s) Standards, amendments and interpretations not yet effective (continued): IFRS 15 Revenue from contracts with customers ( IFRS 15 ) IFRS 15 replaces IAS 11, Construction contracts, IAS 18, Revenue and related interpretations. The core principal of IFRS 15 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. IFRS 15 also introduces a cohesive set of disclosure requirements that will result in an entity providing users of financial statements with comprehensive information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity s contracts with customers. The mandatory effective date of IFRS 15 is January 1, 2018 and is required to be applied retrospectively when initially applied. The Credit Union is currently assessing the impact of the adoption of this standard on its financial statements. Amendments to IAS 7 Statement of Cash Flows ( IAS 7 ) IAS 7 was amended by the IASB under the Disclosure Initiative on January 7, The amendments require disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flow and non-cash changes. One way to meet this new disclosure requirement is to provide reconciliation between the opening and closing balances for liabilities from financing activities. The amendments apply prospectively for annual periods beginning on or after January 1, 2017, earlier application is permitted. The Credit Union does not expect the amendments to have a material impact on the financial statements. 4. Significant management judgment in applying accounting policies and estimation uncertainty: When preparing the financial statements, management undertakes a number of judgments, estimates and assumptions about the recognition and measurement of assets, liabilities, income and expenses. The effect of a change in an accounting estimate is recognized prospectively by including it in income in the period of the change, if the change affects that period only; or in the period of the change and future periods, if the change affects both. Information about the significant judgments, estimates and assumptions that have the most significant effect on the recognition and measurement of assets, liabilities, income and expenses are discussed below. 13

17 4. Significant management judgment in applying accounting policies and estimation uncertainty (continued): Fair value of financial instruments Management uses valuation techniques in measuring the fair value of financial instruments, where active market quotes are not available. Details of the assumptions used are given in the notes regarding financial assets and liabilities. In applying the valuation techniques management makes maximum use of market inputs, and uses estimates and assumptions that are, as far as possible, consistent with observable data that market participants would use in pricing the instrument. Where applicable data is not observable, management uses its best estimate about the assumptions that market participants would make. These estimates may vary from the actual prices that would be achieved in an arm's length transaction at the reporting date. Member loan loss provision In determining whether an impairment loss should be recorded in the statement of operations and other comprehensive income the Credit Union makes judgment on whether objective evidence of impairment exists individually for financial assets that are individually significant. Where this does not exist the Credit Union uses its judgment to group member loans with similar credit risk characteristics to allow a collective assessment of the group to determine any impairment loss. In determining the collective loan loss provision management uses estimates based on historical loss experience for assets with similar credit risk characteristics and objective evidence of impairment. Further details on the estimates used to determine the allowance for impaired loans collective provision are provided in note 8. 14

18 5. Cash and cash equivalents: The Credit Union's cash and cash equivalents consist of cash and current accounts with Atlantic Central. The average yield for deposits with Atlantic Central for the year ended December 31, 2016 is 0.27% ( %). 6. Investments: The following table provides information on the investments by type of security and issuer. The maximum exposure to credit risk would be the fair value as detailed below: Loans and receivables Concentra USD term deposit $ 2,031,202 $ 3,439,752 Atlantic Central CAD term deposit 1,000,000 2,000,000 3,031,202 5,439,752 Available-for-sale Liquidity 27,355,148 26,945,568 Atlantic Central common shares 3,465,040 3,207,210 Atlantic Central Class NB shares 994, ,000 Atlantic Central Class LSM shares 213,862 League Data shares 210,000 League Savings and Mortgage shares 213,862 Concentra shares ,238,060 31,360,650 $ 35,269,262 $ 36,800,402 Concentra USD term deposit matures March 7, 2017 and bears interest at a rate of 1.02% Atlantic Central CAD term deposit matures February 21, 2017 and bears interest at a rate of 1.40%. Due to capital restructuring within League Savings and Mortgage Company in 2016, the Credit Union exchanged shares held in League Savings and Mortgage with an equal number and value of Class LSM shares in Atlantic Central. The Credit Union must maintain a minimum liquidity reserve with Atlantic Central at 8% of total liabilities at December 31 each year. The deposits can be withdrawn only if there is a sufficient reduction in the Credit Union's total assets or upon withdrawal of membership from Atlantic Central. The liquidity reserves are due within one year. At maturity, these deposits are reinvested at market rates for various terms. The market rate at year end is 0.82% ( %). 15

19 6. Investments (continued): Atlantic Central shares (common and class NB) are subject to an annual rebalancing mechanism and are issued and redeemable at par value. As there is no active market for these shares, fair value is not reliably determinable as future cash flows cannot be adequately predicted with a standard valuation technique. As a result, these shares are carried at cost. The Credit Union is not intending to dispose of any Atlantic Central shares as the services supplied by Atlantic Central are relevant to the day-to-day activities of the Credit Union. Dividends on these shares are at the discretion of the Board of Directors of Atlantic Central. The Credit Union recognized investment income of $64,301 ( $86,302) from dividends from Atlantic Central. Other equity investments have no active market and therefore their fair value is not reliably determinable as future cash flows cannot be adequately predicted with a standard valuation technique. As a result, these shares are carried at cost. The Credit Union s investments in term deposits and short-term notes have been classified as loans and receivables and are measured at amortized cost. 16

20 7. Loans: Personal loans: Other $ 59,639,557 $ 56,451,238 Residential mortgages 206,394, ,950,231 MCAP pooled mortgages 131, ,857 Commercial loans: Other 6,188,834 7,313,824 Mortgages 44,800,052 39,398, ,154, ,308,406 Accrued interest receivable 470, ,451 Allowance for impaired loans 1,278,437 1,119,957 Net loans to members $ 316,346,954 $ 296,685,900 Terms and conditions Member loans can have either a variable or fixed rate of interest with a maturity date of up to eight years. Included in net loans to members are transaction costs of $387,464 ( $320,839). Variable rate loans are based on a prime rate formula ranging from prime minus 1% to prime plus 6.00%. The Credit Union s prime rate at December 31, 2016 was 2.85%. The overall effective yield of the variable rate loan portfolio is 4.14% ( %). The interest rate offered on fixed rate loans being advanced at December 31, 2016 is 2.69% to 21.00%. The overall effective yield of the fixed rate loan portfolio is 3.69% ( %). Residential mortgages are loans and lines of credit secured by residential property and are generally repayable monthly with either blended payments of principal and interest or interest only. Personal loans consist of term loans and lines of credit that are non-real estate secured and have various repayment terms. Some of the personal loans are secured by personal property or investments. Commercial loans consist of term loans, operating lines of credit and mortgages to individuals, partnerships and corporations, and have various repayment terms. They are secured by various types of collateral, including mortgages on real property, general security agreements, and charges on specific equipment, investments, and personal guarantees. 17

21 7. Loans (continued): Terms and conditions (continued) It is not practical to value all collateral as at the statement of financial position date due to the variety of assets and conditions. A breakdown of the security held on a portfolio basis is as follows: Unsecured loans $ 21,494,287 $ 16,486,881 Loans secured by cash, member deposits 503, ,833 Loans guaranteed by the government 388, ,980 Loans secured by personal property, endorsers, other 43,572,962 46,400,226 Residential mortgages insured by the government 111,614, ,920,324 Mortgages secured by property 139,580, ,428,162 $ 317,154,756 $ 297,308,406 Fair value The fair value of member loans at December 31, 2016 was $315,891,664 ( $297,112,376). The estimated fair value of the variable rate loans is assumed to be equal to book value as the interest rates on these loans re-price to market on a periodic basis. The estimated fair value of fixed rate loans is determined by discounting the expected future cash flows at current market rates for products with similar terms and credit risks. Concentration of risk The Credit Union has an exposure to groupings of individual loans which concentrate risk and create exposure to particular segments as follows: At December 31, 2016 Bayview had three related groups of member loans whose balances individually represented 10% or more of the Credit Union s equity. Substantially all member loans are with members located in and around Southern New Brunswick. 18

22 8. Allowance for impaired loans: Collective provision $ 867,161 $ 545,701 Individual specific provision 411, ,256 Total provision $ 1,278,437 $ 1,119,957 Change in individual specific provision and collective provision for impairment: Beginning Provision/ Ending Ending balance recoveries Write-offs balance balance Personal loans: Consumer loans $ 746,399 $ 127,992 $ (308,608) $ 565,783 $ 746,399 Residential mortgages 72,078 85,512 (101,205) 56,385 72,078 Commercial loans: Business loans 34,126 82, ,434 34,126 Mortgages 267, , , ,354 $ 1,119,957 $ 568,293 $ (409,813) $ 1,278,437 $ 1,119,957 Percentage of total loans and accrued interest 0.40% 0.38% Loans and related allowances: Loan Specific Collective Carrying Carrying balance allowance allowance amount amount Personal loans: Consumer loans $ 59,639,557 $ 336,645 $ 229,138 $ 59,073,774 $ 55,704,839 Residential mortgages 206,394,804 56, ,338, ,878,153 MCAP pooled mortgages 131, , ,857 Commercial loans: Business loans 6,188,834 54,547 61,887 6,072,400 7,279,698 Mortgages 44,800,052 20, ,751 44,260,217 39,130,902 $ 317,154,756 $ 411,276 $ 867,161 $ 315,876,319 $ 296,188,449 A collective provision is established to cover estimated loan losses which have not yet been specifically identified as impaired. In determining the allowance for impaired loans, management considers factors such as the composition and credit quality of the portfolio, current economic conditions and trends and historical loss experience. For purposes of the collective provision, loans are classified into separate groups with similar risk characteristics, based on the type of product and type of security. 19

23 8. Allowance for impaired loans (continued): Impaired loans with specific allowances: Impaired Security Specific Specific loans value allowance allowance Personal loans $ 5,684,143 $ 5,347,498 $ 336,645 $ 554,256 Commercial loans 376, ,764 74,631 20,000 $ 6,060,538 $ 5,649,262 $ 411,276 $ 574,256 Loans past due but not impaired as at December 31, are as follows: 2016 < days days days days Total Personal loans $ 701,282 $ 82,999 $ 3,396 $ 32,913 $ 820,590 Commercial loans $ 701,282 $ 82,999 $ 3,396 $ 32,913 $ 820, < days days days days Total Personal loans $ 1,041,693 $ 212,436 $ 15,533 $ $ 1,269,662 Commercial loans 208, ,164 $ 1,249,857 $ 212,436 $ 15,533 $ $ 1,477,826 20

24 9. Other assets: Other receivables $ 1,439,945 $ 1,250,117 Prepaid expenses 603, ,392 Building held for sale 57, ,311 $ 2,101,730 $ 2,035, Property and equipment: Cost Leasehold Computer Furniture Intangible Land Buildings Parking lot improvements equipment and fixtures assets Total Balance as at January 1, 2016 $ 946,442 $ 6,692,192 $ 125,646 $ 259,949 $ 3,680,962 $ 4,866,416 $ 670,198 $ 17,241,806 Additions 22, , ,070 71, ,120 Disposals Balance as at December 31, 2016 $ 968,442 $ 6,972,040 $ 125,646 $ 259,949 $ 3,874,032 $ 4,937,619 $ 670,198 $ 17,807,926 Accumulated amortization Balance as at January 1, 2016 $ $ 2,298,360 $ 57,116 $ 210,710 $ 3,330,925 $ 3,422,616 $ 64,349 $ 9,384,076 Amortization expense 113,344 3,427 9, , ,139 60, ,315 Disposals Balance as at December 31, 2016 $ $ 2,411,704 $ 60,543 $ 220,558 $ 3,464,897 $ 3,551,755 $ 124,934 $ 9,834,391 Net book value December 31, 2016 $ 968,442 $ 4,560,336 $ 65,103 $ 39,391 $ 409,135 $ 1,385,864 $ 545,264 $ 7,973,535 December 31, 2015 $ 946,442 $ 4,393,833 $ 68,530 $ 49,239 $ 350,037 $ 1,443,800 $ 605,849 $ 7,857,730 21

25 11. Member deposits: Chequing $ 83,090,334 $ 79,150,017 Demand 52,425,636 56,059,465 GIC non-redeemable 31,995,432 38,921,202 Term 63,289,680 55,996,766 Index link - registered retirement savings plan 1,737,323 2,153,828 Index link/tfsa - term deposits 34,502,433 29,832,524 Registered retirement income funds 12,384,568 11,920,989 Registered retirement savings plans 59,622,358 62,977,371 $ 339,047,764 $ 337,012,162 Terms and conditions Chequing deposits are due on demand and bear interest at a variable rate up to 1% at December 31, 2016 depending on the balance in the account. Demand deposits are due on demand and bear interest at a variable rate up to 1.25% at December 31, 2016 depending on the balance in the account. Interest is calculated daily and paid on the accounts monthly. Term deposits bear fixed rates of interest for terms of up to five years. Interest can be paid annually, semi-annually, monthly or upon maturity. The interest rates offered on term deposits issued on December 31, 2016 range from 0.15% to 4.75%. The weighted average yield paid on deposits was 1.80% ( %). The registered retirement savings plans (RRSP) accounts can be fixed or variable rate. The fixed rate RRSPs have terms and rates similar to the term deposit accounts described above. The variable rate RRSPs bear interest at rates up to 0.40% at December 31, Registered retirement income funds (RRIFs) consist of both fixed and variable rate products with terms and conditions similar to those of the RRSPs described above. Members may make withdrawals from a RRIF account on a monthly, semi-annual, or annual basis. The regular withdrawal amounts vary according to individual needs and statutory requirements. The tax-free savings accounts can be fixed or variable rate with terms and conditions similar to those of the RRSPs described above. Included in chequing deposits are amounts of $1,834,038 ( $2,022,139) denominated in US dollars. Concentration of risk The Credit Union has an exposure to groupings of individual deposits which concentrate risk and create exposure to particular segments. No individual or related groups of member deposits exceed 10% of member deposits. Substantially all member deposits are with members located in and around Southern New Brunswick. 22

26 11. Member deposits (continued): Fair value The fair value of member deposits at December 31, 2016 was $340,541,819 ( $339,227,072). The estimated fair value of the variable rate deposits is assumed to be equal to book value as the interest rates on these deposits re-price to market on a periodic basis. The estimated fair value of fixed rate deposits is determined by discounting the expected future cash flows at current market rates for products with similar terms. 12. Income taxes: Reasons for the difference between tax expense for the year and the expected income taxes based on the statutory tax rate of 28.5% ( %) are as follows: Income before income taxes $ 1,249,929 $ 852,882 Other comprehensive income (15,800) 164,200 $ 1,234,129 $ 1,017,082 Income tax expense based on statutory tax rate of 28.5% ( %) in Canada $ 351,727 $ 274,612 Adjustments to income taxes resulting from: Tax effect on permanent differences 1,834 1,099 Impact of change in tax rates 27,082 (1,710) Prior year under-provision 3,387 Income tax expense $ 380,643 $ 277,388 The tax effected temporary differences, which result in deferred income tax assets and liabilities and the amount of deferred taxes recognized in the 2016 statement of income are as follows: Balance at Balance at December 31, Recognized in Recognized December 31, 2015 net income in OCI 2016 Accounts receivable and prepaid expenses $ 76,000 $ 75,000 $ $ 151,000 Investments (125,000) (10,000) (135,000) Capital losses 12,000 2,000 14,000 Property and equipment (744,000) (30,000) (774,000) Post-employment benefit obligation 221,000 16, ,000 $ (560,000) $ 37,000 $ 16,000 $ (507,000) Recognized as deferred income tax liability $ (560,000) $ 37,000 $ 16,000 $ (507,000) 23

27 13. Member shares: Equity shares are not guaranteed by the Credit Union Deposit Insurance Corporation of New Brunswick Equity Liability Total Equity Liability Total Membership shares $ $ 3,297,052 $ 3,297,052 $ $ 3,456,367 $ 3,456,367 Surplus shares 2,359,515 2,867,758 5,227,273 3,057,010 2,500,701 5,557,711 $ 2,359,515 $ 6,164,810 $ 8,524,325 $ 3,057,010 $ 5,957,068 $ 9,014,078 The Credit Union is authorized to issue an unlimited number of membership shares and surplus shares. Terms and conditions a) Membership shares Section 30-1 of the Credit Unions Act of New Brunswick describes shares as the capital of the Credit Union. Membership shares are a requirement for membership in the Credit Union and are redeemable on withdrawal from membership. Pursuant to the Credit Union by-laws, the value of each membership share is $5 and as a condition of membership each member must hold at least one share and is limited to a maximum of 400 shares. Members hold $506,994 ( $534,625) and $104 ( $104) of these shares in their RRSP and RRIF portfolios respectively. The authorized share capital is not covered by Credit Union deposit insurance. The number of membership shares issued and outstanding at December 31, 2016 is 659,410 ( ,273). b) Surplus shares Dividends and patronage rebates are distributed as surplus shares. The surplus shares have a par value of $1, do not receive any dividends, are non-voting, and are subject to restrictions on withdrawal. Members hold $1,904,272 ( $1,958,562) and $43,382 ( $45,229) of these shares in their RRSP and RRIF portfolios respectively. Surplus shares not subject to withdrawal restrictions, may be redeemed provided the Credit Union has sufficient capital as required under the Credit Union Act of New Brunswick and the amount of the redemption is greater than $25. Shares may be retracted by the Credit Union upon application by the member or through a general repurchase upon approval by the members. The surplus shares are not covered by Credit Union deposit insurance. The number of surplus shares issued and outstanding at December 31, 2016 is 5,227,273 (2015-5,557,711). 24

28 13. Member shares (continued): c) Dividends and patronage rebates The Board of Directors of the Credit Union will recommend a dividend of 0.60% on eligible member shares for the current fiscal year to be distributed to members as surplus shares. The Board of Directors of the Credit Union will recommend a patronage rebate of 0.60% for the current fiscal year to be distributed to members as surplus shares. Surplus shares, beginning of year $ 5,557,711 $ 5,631,385 Redemption/transfer during the year (417,625) (486,271) Patronage rebate and dividend distribution 87, ,597 $ 5,227,273 $ 5,557, Other income: Service charges $ 1,911,919 $ 1,974,668 Commissions 858, ,205 Rental income 87,424 86,268 Other 547, ,172 $ 3,405,609 $ 3,801, Organization expenses: Board expenses (including annual meeting) $ 57,496 $ 86,668 Membership and System Dues: Atlantic Central 349, ,322 Canadian Credit Union Association 60,007 73,231 $ 467,091 $ 515,221 25

29 16. General business expenses: Professional fees $ 62,586 $ 62,419 Advertising 186, ,537 Courier 8,964 51,209 Data services 539, ,758 HST expense 239, ,144 Legal 33,003 33,926 Miscellaneous 396, ,535 Impairment provision property for sale 50,000 Maintenance contracts 199, ,736 Office supplies 165, ,501 Registration fees 72,295 53,840 Cash handling services 46,756 50,871 Service charges/service charges credit cards 292, ,752 Telephone 189, ,249 Travel/training 124, ,294 $ 2,606,240 $ 2,423, Related party transactions: The Credit Union s related parties include key management, as those persons having authority and responsibility for planning, directing and controlling the activities of the Credit Union, including directors and management. Unless otherwise stated, none of the transactions incorporate special terms and conditions and no guarantees were given or received. Outstanding balances are usually settled in cash. The Credit Union entered into the following transactions with key management personnel, which are defined by IAS 24 - Related Party Disclosures. Board expenses (including annual meeting) $ 57,496 $ 86,668 Management compensation 742, ,996 Aggregate value of loans advanced 1,125, ,589 Aggregate value of lines of credit advanced 403, ,366 Interest received on loans and lines of credit 49,790 35,541 Unused value of lines of credit 378, ,604 Aggregate value of term and savings deposits $ 1,084,315 $ 1,598,370 Total interest paid on term and savings deposits 9,448 11,527 26