Glasgow Credit Union Ltd

Transcription

1 Registration number: 34CUS Glasgow Credit Union Ltd Annual Report and Financial Statements for the Year Ended 30 September

2 Contents Credit Union Information 1 Directors Report 2 to 4 Chairperson's Report 5 Governance Report 6 to 9 Attendance at Board Meetings 10 Audit & Compliance Committee Report 11 to 12 CEO Report 13 Independent Auditor's Report 14 to 15 Revenue Account 16 Balance Sheet 17 Statement of Changes in Equity 18 Statement of Cash Flows 19 Notes to the Financial Statements 20 to 46

3 Credit Union Information FCA Number Society Number Secretary 34CUS Kennedy Foster Registered office Solicitors Auditors 95 Morrison Street Glasgow G5 8BE Morton Fraser Quartermile Two 2 Lister Square Edinburgh EH3 9GL Alexander Sloan 38 Cadogan Street Glasgow G2 7HF Glasgow Credit Union Ltd is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Page 1

4 Directors Report for the Year Ended 30 September The Directors present their report and the financial statements for the year ended 30 September. Principal activity The principal activity of the Credit Union continues to be that defined in the Credit Union Act 1979.The Credit Union's common bond covers everyone living or working within a "G" postcode. The directors who served during the year were as follows: Archie Ferguson (Co-opted 1 February ) Iain Brown (Appointed 30 November ) Kennedy Foster (Appointed 30 November ) Robert Kerr (Co-opted 1 April ) Robert Taylor (Co-opted 1 March ) Alan Blakeley (Appointed 30 November ) Alison Dowling James Martin (Appointed 30 November ) Bobby Watson Ian Mowat (Appointed 30 November and resigned 31 December ) Robert Hynd (Appointed 30 November and resigned 31 December ) Stuart Yuill (Appointed 30 November and resigned 31 December ) Mary Henderson. (Resigned 30 November ) Robert Auld (Resigned 30 November ) David Halliday (Resigned 30 November ) Ian Wilson (Resigned 30 November ). Archie Ferguson, Robert Kerr and Robert Taylor were co-opted during the year. At the Annual General Meeting they will stand for appointment as members of the Board. Page 2

5 Directors Report for the Year Ended 30 September Fair review of the business The financial statements for the year have been prepared under Financial Reporting Standard 102 (FRS 102). The new accounting standard has meant changes to the presentation of the financial statements and the calculation of figures within the accounts in order to comply with the new standard. Further information on the changes are included within the notes to the financial statements. The surplus for the year, after taxation but before distributions, amounted to 3,773,858. The Directors will propose a dividend of 1% dividend at the Annual General Meeting. Membership was open to anyone living or working within the Glasgow post code area and as at 30th September stood at 39,399, a rise of 1768 from last year ( 37,631 members). The directors aim to encourage continual growth in membership whilst maintain the financial stability of the Credit Union Principal risks and uncertainties The main financial risks arising from the Credit Union's activities are credit risk, liquidity risk and interest rate risk. Credit Risk- The Credit Union is exposed to the risk of default on loans and bank balances. All loans are required by the Credit Union to be assessed against the Credit Union's lending policy. Liquidity Risk- The Credit Union's policy is to maintain sufficient funds in liquid forms at all times to be able to meet its liabilities as they fall due and to meet the regulator's liquidity requirements. Interest Rate Risk- The main interest rate risk arises from differences between interest rate exposures on assets and liabilities that form an integral part of the Credit Union's activities. The Credit Union considers interest rates when setting the level of proposed dividends each period. Disclosure of information to the auditors Each Director has taken steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Credit Union's auditors are aware of that information. The Directors confirm that there is no relevant information that they know of and of which they know the auditors are unaware. Statement of Directors Responsibilities The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Page 3

6 Directors Report for the Year Ended 30 September Credit Union legislation requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under Credit Union legislation the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Credit Union and of the surplus or deficit of the Credit Union for that period. In preparing these financial statements, the Directors are required to: select suitable accounting policies and apply them consistently; make judgements and accounting estimates that are reasonable and prudent; state whether applicable UK Accounting Standards has been followed, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Credit Union will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Credit Union's transactions and disclose with reasonable accuracy at any time the financial position of the Credit Union and enable them to ensure that the financial statements comply with the Credit Union Act 1979 and the Co-operative and Community Benefit Societies Act They are also responsible for safeguarding the assets of the Credit Union and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Reappointment of auditors A resolution for the re-appointment of Alexander Sloan as auditors of the Credit Union is to be proposed at the forthcoming Annual General Meeting. Approved by the Board on 17 November and signed on its behalf by:... Kennedy Foster Secretary Page 4

7 Chairperson's Report for the Year Ended 30 September I would like to begin by thanking all members for your ongoing commitment and involvement throughout the year, especially given the recent uncertainty in the political and economic landscape. We face challenges from economic volatility due to the uncertainty of Brexit, rising inflation, possible independence and uncertainty from the outcome of presidency in the USA. It has been an extremely tough year for many financial service providers, but through our robust planning and member- focus, we have had a very successful year, yet again, and it is imperative that we maintain the Credit Union in a strong financial position for the challenging times that will undoubtedly lie ahead. Throughout the year, we have advanced over 36m in new loans and mortgages to our members which equates to an amazing 4,189 for every hour of every day throughout the year! I would like to pass on the Board s thanks to all our employees who do a fantastic job to make this happen, whilst maintaining some of the best customer service in the industry. However, this year has not been without challenge and we continue to see a significant strain on our income due to unprecedented market turbulence and the corresponding low interest rates. With the recent decision by the Bank of England to cut interest rates to a record low of 0.25% and further rate reductions a possibility, we will continue to see a reduction on income we receive on our 54m bank deposits. We are also operating in an extremely aggressive and competitive lending market and we will continue to review our loan interest rates to ensure that they remain competitive. Although our costs are well controlled, the continuing reduction in our interest rate income will impact our surplus. Our aim is to be competitive in the market for both loans and savings and the Board will aim to present a market representative dividend to members at the AGM, always bearing in mind the need to strike a balance between savings and loans. Our regulators continue to implement a new regulatory regime for credit unions. Increasing regulation means that, as Directors, we have more responsibility and must undergo increased training to maintain our continued professional development as a Board. To address Board vacancies and to correct some skill gaps we co-opted a number of additional Directors this year, including myself as Chairperson. All three co-opted Directors will be presenting themselves for formal approval as Directors at this year s AGM. I have had an enjoyable start to my time as Chairperson and with a membership as strong as ours, I am confident that Glasgow Credit Union will continue to thrive in the coming year and beyond.... Archie Ferguson Chairperson Page 5

8 Governance Report for the Year Ended 30 September The Directors are committed to good practice in the Corporate Governance of the Credit Union. Directors adhere to the principles of the UK Corporate Governance Code and the Prudential Regulation Authority (PRA) guidelines as it applies to Credit Unions. The Board The principal function of the Board is to: ensure that the Credit Union complies with all statutory and regulatory requirements define and set the Credit Union s strategy and objectives establish a sustainable business model approve the Business Plan articulate and oversee clear risk appetite receive assurance that the necessary resources, finance and controls are in place to meet the Credit Union s objectives to review and monitor management performance The Board generally meets 12 times a year and additionally as required. The Board considers all matters relating to the overall control and monitoring of business performance against its Business Plan and objectives. The Board receives regular and timely information about the Credit Union prior to Board meetings and after each meeting, Board minutes are produced for review. The Board is also responsible for the succession planning of its own Directors. As part of its annual evaluation process, the Nominations and Remuneration Committee considers the balance of skills and experience the Board requires, the requirements of the business and recommends change to the Board of Directors where appropriate. There is a schedule of matters reserved for Board decision and the Board has delegated certain responsibilities to the Committees described below, all of which report to the Board. Minutes of each Committee meeting are distributed to all Board members and the Chairman of each Committee provides a report at the Board meeting following any meeting. The Chairperson leads the Board and the Chief Executive leads the management team and oversees the day to day running of the Credit Union. Page 6

9 Governance Report for the Year Ended 30 September Internal Control and Risk Management The Board has three specific Committees: Audit and Compliance Risk Nominations and Remuneration Each Committee meets regularly under terms of reference set by the Board. Audit and Compliance Committee The Committee is made up of independent Non-Executive Directors, none of whom sit on the Board of Directors. A cornerstone of best practice is for the Committee to be able to hold the Board and other Committees to account and to ensure they discharge their responsibilities properly. The Compliance Manager attends in an advisory capacity. The Committee considers regulatory compliance matters and the adequacy and effectiveness of the Credit Union s internal controls. These are designed to provide reasonable but not absolute assurance to the safeguarding of its assets and the reliability of financial information presented to the Board. Its role is also to review internal audit reports, monitors the effectiveness of the internal audit function and agrees the annual internal audit plan. The Committee also monitors the external auditors' independence, objectivity, competence and effectiveness. It also ensures that the systems of accounting, business control and management of information are adequate for the Credit Union s needs. Risk Committee The Credit Union has a structure and process to help identify, assess and manage risks. The Risk Committee consists of a Chair, appointed by the Board and members from the Board of Directors. The Committee is responsible for oversight and provision of advice to the Board on risk management and tolerance, including strategy for capital, liquidity and risk appetites. The Committee meets at least quarterly to review the corporate risk register and ensures that all new and emerging risks are appropriately evaluated and any further actions identified. Page 7

10 Governance Report for the Year Ended 30 September Nominations and Remuneration Committee This Committee is made up of members from the Board of Directors and its primary function is to review Board constitution, skills, performance, succession plans and Director elections. The Committee is also responsible for reviewing the remuneration policy for all Directors and for making recommendations for change to the Board of Directors prior to seeking members approval at the AGM. Other duties include agreeing the annual salary reviews of the CEO and her senior management team. Board Performance and Evaluation During the year, each Director underwent an individual skills audit and individual training needs analysis and training was completed as required. A Board Training and Competence Scheme has been introduced to ensure the skill gaps within the Board are addressed and monitored through the scheme. Annual Director appraisals have also been introduced to compliment the Training and Competency Scheme in- assessing Directors performance. Regulation and Compliance The continual change to the regulatory landscape within which the Credit Union operates has been mentioned in reports in previous years and the past year has been no exception. The four biggest regulatory projects during the past year have covered the following areas: Individual accountability: Both the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) made rules in July to implement a new Senior Managers and Certification Regime designed to strengthen the accountability of individuals at Board and senior management level within Banks, Building Societies and Credit Unions. These rules applied from 7 March and the Credit Union has taken the required actions to meet these requirements. Accounting requirements: The Credit Union s Financial Statements this year have been prepared under Financial Reporting Standard 102 (FRS 102) for the first time. This is explained more fully in the Credit Union s Accounts. Mortgage regulation: Implementation of the EU Mortgage Credit Directive (MCD) was managed throughout the year and the Credit Union was ready to apply the new rules when the Directive came fully into force from 21 March. Complaint handling: The FCA Complaint handling rules changed in June and the Credit Union has ensured that it is compliant with the new rules. Further regulatory changes have already been announced or are in the pipeline and these will be implemented during the coming year. Page 8

11 Governance Report for the Year Ended 30 September Statement of Compliance In early, the PRA published new Rules for Credit Unions. Part of these Rules state that the Board of Directors must report to the Members at the Annual General Meeting on certain areas of Compliance within the Credit Union. The Board of Directors of Glasgow Credit Union are therefore pleased to report that during the year ended 30 September, the Credit Union has been in full compliance with: Depositor Protection Rules 11, 49, 50 and 51 (marking and information requirements and Single Customer View requirements) PRA Credit Union Rule 2.10 (fidelity bond insurance requirements) and: The requirements of compliance under the PRA additional activities namely lending, mortgages, and investments. Approved by the Board on 17 November and signed on its behalf by:... Archie Ferguson Chairperson Page 9

12 Attendance at Board Meetings for the Year Ended 30 September Director Total Possible Alan Blakely 7 9 Iain Brown Alison Dowling Archie Ferguson Kennedy Foster Robert Kerr James Martin Robert Taylor Robert Watson Ian Mowat Robert Hynd Stuart Yuill Robert Auld David Halliday Mary Henderson Tom Lindsay Ian Wilson Page 10

13 Audit & Compliance Committee Report for the Year Ended 30 September The Audit & Compliance Committee was established in November 2011 with approved terms of reference. With the establishment of the Risk Committee in, the Audit Committee was redesignated the Audit & Compliance Committee with revised terms of reference approved by the Board of Directors. All members of the Committee are Non-Executive Directors with appropriate financial, audit and risk management experience. The Committee met on six occasions during the financial year to discharge its responsibilities for scrutinising the controls and rules which affect all aspects of Glasgow Credit Union s business. Work Programme The Committee s work continues to focus upon the framework of controls and related assurance that underpin the delivery of Glasgow Credit Union s objectives. The Committee ensures that any areas of particular concern are addressed and representation made to the Board where appropriate. Key activities for the year include: Consideration and approval of the Internal Audit Plan. Internal Audit Services are undertaken by Scott-Moncrieff to provide assurance over the adequacy of key financial and operational controls. It reviews the effectiveness of these controls undertaking an agreed schedule of internal audits each year and reporting its findings to executive management and the Audit & Compliance Committee. The schedule of internal audits form part of the annually approved audit plan; Assessment of the management assurance framework through reports submitted to the Committee and ensuring that any highlighted control weaknesses are mitigated through reviews of other work streams; Consideration of reports from the Internal Auditors detailing the results of internal audit reviews, significant findings, management responses and action plans, and timeliness of resolution. Activity this year focussed on Governance and Operational Controls. Page 11

14 Audit & Compliance Committee Report for the Year Ended 30 September Internal Control and Risk Management Assurance The Board has overall responsibility for maintaining Glasgow Credit Union s system of internal control and risk management and for reviewing its effectiveness. Key features of Glasgow Credit Union's (GCU) internal controls include: A framework of internal controls covering both financial and non-financial controls, the effectiveness of which are regularly reviewed by executive management and the Board; Financial controls including a system for budgeting with monitoring and reporting of GCU financial performance to the Board, the preparation of monthly management accounts and monthly Board reports of key regulatory checks and operational activity; A commitment by GCU to ensure that its staff meet high standards of integrity and competence, receive appropriate training and development and that policies and procedures are appropriately communicated throughout the organisation; Strict guidelines are in place for the use and retention of confidential customer data; and Business Continuity Plans are in place to enable GCU to continue with minimum disruption to customers in the event of a disaster. The Audit & Compliance Committee reviews the effectiveness of the system of internal controls through the work of Internal Audit, the operation of material controls (financial, operational and regulatory compliance). During the year, no high risk weaknesses were identified. Remedial action has been taken to fully address several weaknesses previously identified but there are a number where the remedial action is ongoing. Except for these matters, the Committee did not identify, nor was it advised of any failings or weaknesses which it determines to be significant. Craig Kennedy was appointed Chair of the Committee in April but, due to work commitments, he resigned in July. Jane English resigned from the Committee in July. Peter Fee, joined the Committee in May and 2 additional members have been approved and will commence in the new financial year. Approved by the Board on 17 November and signed on its behalf by:... Allan Geekie Acting Chair Audit & Compliance Committee Page 12

15 CEO Report for the Year Ended 30 September I am delighted to report that our Credit Union had another exceptional year despite the continued financial volatility in the economy. This year we have faced unprecedented low interest rates and after the announcement of Brexit, the Bank of England dropped interest rates even further to 0.25%. This has resulted in unusually low rates on lending and savings with many banks now charging to hold deposits. My highly experienced team will always look to ensure that we find the best returns on our deposits but to put this difficult challenge into perspective, in the past three years, we have seen average deposit rates fall from 2% to now less than half a per cent. During this financial year, we saw 1768 new members join our Credit Union, many of them coming to take advantage of our highly competitive and flexible loan products. This year saw some of our promotional loan rates at the lowest rate of interest this Credit Union has ever offered. My team distributed a staggering 37m in new loans, up 2m on last year. Our strength continues to be based upon our traditional approach to lending constructed around our individual members circumstances not built on computerised scorecards. Members savings grew to 127.4m, meaning our overall asset size also grew to 146.7m. These staggering figures mean that our Credit Union not only continues to be the largest in the UK, but it is now larger than some building societies and small banks. Whilst our Credit Union continues to be impacted by an unpredictable economy, our members can be reassured that we remain extremely well capitalised, currently 11.3%, (regulatory requirement 8%) and highly sustainable for the future. We fully appreciate that it remains difficult for savers to receive real returns on their investments during this sustained period of extremely low interest rates but my team work extremely hard to achieve a fair balance for savers and borrowers alike. The Credit Union continues to evolve offering new and innovative products to ensure our members enjoy a highly competitive and market leading return on their savings, and that our borrowers benefit from the most competitive rates possible. The year ahead promises to be a busy one delivering and adhering to the many new regulatory reforms that have impacted financial organisations, however our key focus as always is to provide our members with the best value possible throughout their relationship with the Credit Union.... June Walker Chief Executive Officer Page 13

16 Independent Auditor's Report to the members We have audited the financial statements of Glasgow Credit Union Ltd for the year ended 30 September, set out on pages 16 to 46. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the Credit Union s members, as a body, in accordance with the Co-operative and Community Benefit Society Act Our audit work has been undertaken so that we might state to the Credit Union s members those matters we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Credit Union and the Credit Union s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Directors and auditor As explained more fully in the Directors' Responsibility statement (set out on page 3), the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board s (APB s) Ethical Standards for Auditors to the financial statements. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Credit Union s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Directors' Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Page 14

17 Independent Auditor's Report to the members Opinion on the financial statements In our opinion the financial statements: give a true and fair view of the state of the Credit Union's affairs as at 30 September and of its profit for the year then ended; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and have been prepared in accordance with the requirements of the Credit Union Act 1979 and the Co-operative and Community Benefit Societies Act Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Co-operative and Community Benefit Societies Act 2014 requires us to report to you if, in our opinion: proper books of account have not been kept by the Credit Union in accordance with the requirements of the legislation; or a satisfactory system of control over transactions has not been maintained by the Credit Union in accordance with the requirements of the legislation; or the Revenue Account and Balance Sheet are not in agreement with the books of account of the Credit Union; or we have not received all the information and explanations we require for our audit... Alexander Sloan, Chartered Accountants and Statutory Auditors 38 Cadogan Street Glasgow G2 7HF 17 November Page 15

18 Revenue Account for the Year Ended 30 September Note Loan interest receivable and similar income 3 6,484,247 6,239,403 Interest payable and similar charges 4 (1,720,659) (1,683,948) Net interest income 4,763,588 4,555,455 Fees and commissions receivable 5 61,885 69,527 Fees and commissions payable 6 (59,512) (47,569) Net fees and commissions 2,373 21,958 Other operating income 7 88, ,750 Administrative expenses 8 (1,632,311) (1,501,998) Other operating expenses 9 (501,342) (583,362) Depreciation and amortisation (75,065) (78,144) Impairment on loans for bad and doubtful debts 17 (934,954) (1,151,059) Surplus before tax 1,710,769 1,365,600 Corporation Tax 14 (82,893) (79,387) Surplus for the financial year 1,627,876 1,286,213 Remeasurement gain/loss on defined benefit pension schemes (913,000) (127,000) Other comprehensive income - - (913,000) (127,000) Total comprehensive income for the year 714,876 1,159,213 The notes on pages 20 to 46 form an integral part of these financial statements. Page 16

19 Balance Sheet as at 30 September Note Assets Cash and balances at central banks ,538 Loans and advances to banks 15 53,965,109 49,949,481 Loans and advances to customers 16 92,517,934 88,978,246 Tangible fixed assets , ,457 Prepayments and accrued income 8,958 36,000 Total assets 146,677, ,224,722 Liabilities Customer accounts ,397, ,594,180 Other liabilities , ,630 Pension liabilities 21 1,057,000 95, ,953, ,215,810 Pension reserve 22 (1,057,000) (95,000) Other reserves , ,014 General reserve 22 18,623,479 16,946,898 Total reserves 17,723,788 17,008,912 Total liabilities 146,677, ,224,722 Approved and authorised by the Board on 17 November and signed on its behalf by: Kennedy Foster Secretary Archie Ferguson Director Robert Kerr Director The notes on pages 20 to 46 form an integral part of these financial statements. Page 17

20 Statement of Changes in Equity for the Year Ended 30 September Pension Growth fund General reserve reserve reserve Total At 1 October (95,000) 157,014 16,946,898 17,008,912 Surplus for the year - - 1,627,876 1,627,876 Other comprehensive income (913,000) - - (913,000) Total comprehensive income (913,000) - 1,627, ,876 Other reserve movements (49,000) ,705 - At 30 September (1,057,000) 157,309 18,623,479 17,723,788 Pension reserve Growth fund reserve General reserve Total At 1 October , ,721 15,653,978 15,849,699 Surplus for the year - - 1,286,213 1,286,213 Other comprehensive income (127,000) - - (127,000) Total comprehensive income (127,000) - 1,286,213 1,159,213 Other reserve movements (7,000) 293 6,707 - At 30 September (95,000) 157,014 16,946,898 17,008,912 The notes on pages 20 to 46 form an integral part of these financial statements. Page 18

21 Statement of Cash Flows for the Year Ended 30 September Note Cash flows from operating activities Surplus for the year 1,627,876 1,286,213 Depreciation and amortisation 10 75,065 78,144 Deficit on disposal of property plant and equipment - (7,800) Corporation tax expense 14 82,893 79,387 Provision movement 1,030,185 1,228,474 Interest income on loans (6,500,141) (6,234,278) Distribution on member shares 1,720,659 1,683,948 (1,963,463) (1,885,912) Decrease in other receivables and prepayments 27,042 50,883 (Decrease)/increase in trade and other payables (29,115) 85,727 Increase in pension obligation net of actuarial changes 49,000 7,000 46, ,610 Cash flows from changes in operating assets & liabilities Loan repayments less loans advanced 1,930, ,252 Customer balance cash movement 4,082,545 2,745,238 Movement on funds on deposit (4,601,937) 227,177 1,410,876 3,816,667 Income taxes paid (81,466) (92,223) Net cash flow from operating activities (587,126) 1,982,142 Cash flows from investing activities Acquisitions of property plant and equipment - (84,398) Proceeds from sale of property plant and equipment - 7,800 Net cash flows from investing activities - (76,598) Net (decrease)/increase in cash and cash equivalents (587,126) 1,905,544 Cash and cash equivalents at 1 October 18,820,105 16,914,561 Cash and cash equivalents at 30 September 15 18,232,979 18,820,105 The notes on pages 20 to 46 form an integral part of these financial statements. Page 19

22 Notes to the Financial Statements for the Year Ended 30 September 1 General information Glasgow Credit Union Ltd is registered in the UK as a society under the Co-operative and Community Benefit Societies Act 2014, whose principal activity is to operate as a Credit Union, within the meaning of the Credit Union Act The Credit Union is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The address of its registered office is: 95 Morrison Street Glasgow G5 8BE These financial statements were authorised for issue by the Board on 17 November. 2 Accounting policies Summary of significant accounting policies and key accounting estimates The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. Statement of compliance These financial statements were prepared in accordance with Financial Reporting Standard 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' (FRS 102). Basis of preparation These financial statements have been prepared using the historical cost convention except that as disclosed in the accounting policies certain items are shown at fair value. The accounts are presented in UK Sterling and rounded to the nearest pound. Page 20

23 Notes to the Financial Statements for the Year Ended 30 September 2 Accounting policies (continued) Judgements FRS 102 requires loans to be calculated on the amortised cost using the effective interest basis. In these calculations, the Credit Union has assumed members with fixed rate and discounted mortgages will remortgage after the introductory period of the mortgage where the standard variable rate is higher than the rate for the introductory period. Key sources of estimation uncertainty Impairment of Financial Assets: The Credit Union assesses at each reporting date, if there is objective evidence that any of its loans to customers are impaired. The loans are assessed collectively in groups that share similar credit-risk characteristics. In addition, if, during the course of the year, there is objective evidence that any individual loan is impaired, a specific loss will be recognised. Any impairment losses are recognised in the Revenue Account, as the difference between the carrying value of the loan and the net present value of the expected cash flows. Revenue recognition Fees and charges receivable either arise in connection with a specific transaction, or accrue evenly over the year. Income relating to individual transactions is recognised when the transaction is complete. The recognition of interest is covered in the Finance Income and Costs Policy. Grants Grants are credited to deferred income. Grants for capital expenditure are released to the Revenue Account over the expected useful life of the asset. Grants for revenue expenditure are released to the Revenue Account as the expenditure is incurred. Finance income and costs policy Interest receivable on loans to members and banks interest is recognised using the effective interest rate basis, and is calculated and accrued on a daily basis. Tax The tax expense for the period comprises current tax. Tax is recognised in profit or loss, except that a change attributable to an item of income or expense recognised as other comprehensive income is also recognised directly in other comprehensive income. The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the reporting date in the countries where the Credit Union operates and generates taxable income. Page 21

24 Notes to the Financial Statements for the Year Ended 30 September 2 Accounting policies (continued) Tangible fixed assets Tangible fixed assets is stated in the statement of financial position at cost, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. The cost of tangible fixed assets includes directly attributable incremental costs incurred in their acquisition and installation. Depreciation Depreciation is charged so as to write off the cost of assets, other than land and properties under construction over their estimated useful lives, as follows: Asset class Land and buildings Property improvements Office equipment Motor vehicles Depreciation method and rate 50 years straight line 25 years straight line 20%-50% straight line 25%-33% straight line Cash and cash equivalents Cash and cash equivalents comprise cash on hand and call deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value. Defined benefit pension obligation The Credit Union makes contributions into a defined benefit pension scheme. Further information about the pension scheme and the Credit Union's contributions are contained in the notes to the financial statements. Page 22

25 Notes to the Financial Statements for the Year Ended 30 September 2 Accounting policies (continued) Financial instruments Classification Loans to members are a debt instrument measured initially at the amount paid to the member and then subsequently measured at amortised cost using the effective interest rate. Shares are redeemable and therefore are classed as financial liabilities. They are initially recognised at the amount of cash deposited and subsequently at amortised cost. Recognition and measurement Loans to members are financial assets with fixed or determinable payments, and are not quoted in an active market. Loans are recognised when cash is advanced to members and measured at amortised cost using the effective interest rate method. Loans are derecognised when the rights to receive cash flows from the asset have expired, usually when all amounts outstanding have been repaid by the member. Impairment The Credit Union assesses, at each balance sheet date, if there is objective evidence that any of its loans to members are impaired. The loans are assessed collectively in groups that share similar credit risk characteristics, because no loans are individually significant. In addition, if, during the course of the year, there is objective evidence that any individual loan is impaired, a specific loss will be recognised. Any impairment losses are recognised in the revenue account, as the difference between the carrying value of the expected cash flows. 3 Interest receivable and similar income Interest and fees on loans 6,500,141 6,234,278 Interest rebate (425,323) (397,076) 6,074,818 5,837,202 Interest income on bank deposits 409, ,201 6,484,247 6,239,403 Page 23

26 Notes to the Financial Statements for the Year Ended 30 September 4 Interest payable and similar charges As non-deferred shares are classed as a liability the dividend on these shares is classed as interest for accounting purposes under FRS 102: Ordinary share dividend 1,534,809 1,444,134 Juvenile share distribution 17,269 15,533 ISA dividend 168, ,281 Total distributions to customers 1,720,659 1,683,948 The distributions on member's shares represents distributions paid in the year which were approved at the last Annual General Meeting. The dividend rates approved at the previous AGM were: % % Dividends paid during the period Juvenile dividend Ordinary member dividend Unsecured loans interest rebate Secured loans interest rebate At the forthcoming Annual General Meeting the Directors will propose the following dividends based on the results for the current year. If approved this dividend will be included in next year's financial accounts once it has been paid. % % Proposed distribution to members Proposed dividend on juvenile shares Proposed dividend on ordinary shares Unsecured loans interest rebate Secured loans interest rebate Page 24

27 Notes to the Financial Statements for the Year Ended 30 September 5 Fees and commissions receivable Insurance commission 3,555 3,895 Other fees and commissions 58,330 65,632 Fees and commissions receivable 61,885 69,527 6 Fees and commissions payable Bank charges 59,512 47,569 7 Other operating income Donations 88, ,750 88, ,750 Page 25

28 Notes to the Financial Statements for the Year Ended 30 September 8 Administrative expenses Employee benefits expense 1,080,809 1,062,017 (Profit)/loss on disposal of property, plant and equipment - (7,800) Auditors remuneration 14,961 11,646 Donations 3,902 28,271 Member communication and advertising 140, ,273 Legal, professional and credit costs 218, ,706 Computer costs 103,266 83,535 Other admin costs 70,657 48,350 Administrative expenses 1,632,311 1,501,998 9 Other operating expenses Regulatory costs 457, ,740 Office costs 43, ,622 Administrative expenses 501, , Operating surplus Arrived at after charging/(crediting) Depreciation expense 75,065 78,144 Surplus on disposal of property, plant and equipment - (7,800) Page 26

29 Notes to the Financial Statements for the Year Ended 30 September 11 Growth Fund Income Bank and loan interest Growth Fund Surplus/(Deficit) Staff costs The aggregate remuneration costs (including key management remuneration) were as follows: Wages and salaries 828, ,477 Social security costs 68,440 57,907 Pension costs 183, ,633 1,080,809 1,062,017 The average number of persons employed by the Credit Union (including key management) during the year and the number of Directors, analysed by category was as follows: No. No. Directors 7 13 Administration and support Auditors' remuneration Audit of the financial statements 14,961 11,646 Page 27

30 Notes to the Financial Statements for the Year Ended 30 September 13 Auditors' remuneration (continued) 14 Corporation tax Tax charged/(credited) in the revenue account Current taxation UK corporation tax 82,231 80,400 UK corporation tax adjustment to prior periods 662 (1,013) 82,893 79,387 The tax on profit before tax for the year is lower than the standard rate of corporation tax in the UK ( - lower than the standard rate of corporation tax in the UK) of 20% ( - 21%). The differences are reconciled below: Surplus before tax 1,710,769 1,365,600 Corporation tax at standard rate 342, ,776 Increase (decrease) from effect of different UK tax rates on some earnings - (1,369) Effect of revenues exempt from taxation (259,923) (205,007) Increase (decrease) in UK and foreign current tax from adjustment for prior periods 662 (1,013) Total tax charge 82,893 79,387 Page 28

31 Notes to the Financial Statements for the Year Ended 30 September 15 Loans and advances to banks Cash at bank 18,232,258 18,818,567 Short-term deposits 35,732,851 31,130,914 Loans and advances to banks 53,965,109 49,949,481 Cash balances 721 1,538 Total cash and bank balances and deposits 53,965,830 49,951,019 Less amounts maturing more than 8 days (35,732,851) (31,130,914) Cash and cash equivalents in statement of cash flows 18,232,979 18,820, Loans and advances to customers Note Loan movement in the period Opening balance 91,494,703 86,560,108 Interest accrued on loans during period 6,500,141 6,234,278 Loans advanced during the period 36,796,683 34,856,112 Repayments received during period (38,726,951) (35,700,364) Loans derecognised (353,657) (455,431) 95,710,919 91,494,703 Loan impairment 17 (3,192,985) (2,516,457) 92,517,934 88,978,246 Loan repayments Loans due within one year 19,585,736 17,931,565 Due after one year 76,125,183 73,563,138 Loan impairment (3,192,985) (2,516,457) Page 29

32 Notes to the Financial Statements for the Year Ended 30 September 16 Loans and advances to customers (continued) Note 92,517,934 88,978,246 Classification of loans Loans to individual members 49,980,536 46,430,102 Mortgages to members 45,730,383 45,064,601 Loan impairment (3,192,985) (2,516,457) 92,517,934 88,978, Loan Impairment Provision for written off Doubtful debt Total provision debts provision Opening impairment 874,973 1,641,484 2,516,457 Charge to Revenue Account 598, , ,954 Derecognised (353,657) - (353,657) Bad debt recovered 95,231-95,231 Closing provision 1,215,252 1,977,733 3,192,985 Under Financial Reporting Standard 102 (FRS 102), the criteria for writing off a loan is different from the Board writing off the loan for internal purposes. As a result for the financial statements loans written off by the Board that do not meet the criteria in FRS 102 for being written off are moved into the Provision for Written Off Debts. There is no net effect on the surplus or net assets of the Credit Union from this reallocation. Page 30

33 Notes to the Financial Statements for the Year Ended 30 September 18 Tangible fixed assets Furniture, Land and fittings and Motor buildings equipment vehicles Total Cost or valuation At 1 October 746, ,420 19, ,178 At 30 September 746, ,420 19, ,178 Depreciation At 1 October 551, ,555 4, ,721 Charge for the year 22,501 47,656 4,908 75,065 At 30 September 573, ,211 9, ,786 Carrying amount At 30 September 172,222 2,209 9, ,392 At 30 September 194,723 49,865 14, ,457 Page 31

34 Notes to the Financial Statements for the Year Ended 30 September 19 Customer accounts Customer balance movement in the period Opening balance 121,594, ,164,994 Deposited during the period 61,346,617 58,349,088 Withdrawn during the period (55,543,413) (53,919,902) 127,397, ,594,180 Classification of Customer balances Individual member shares 125,931, ,318,254 Juvenile deposits 1,465,642 1,275, ,397, ,594, Other liabilities Note Due within one year Trade creditors 37,394 44,805 Other payables 252, ,623 Accrued expenses 126, ,802 Corporation tax liability 14 81,827 80, , ,630 Page 32

35 Notes to the Financial Statements for the Year Ended 30 September 21 Pension and other schemes Defined benefit pension schemes Strathclyde Pension Fund The Credit Union participates in the Strathclyde Pension Fund which is a statutory multi-employer defined benefit scheme. It is administered by Glasgow City Council in accordance with the Local Government Pension Scheme (Scotland) Regulations 1998, as amended. On 17 July 2009, the employees of the Credit Union who were previously employed directly by Glasgow City Council were transferred under a TUPE arrangement to Glasgow Credit Union. As part of this transfer an admission agreement was drawn up between Glasgow Credit Union and the Strathclyde Pension Fund to transfer the twenty three employees of the Credit Union who were members of the Strathclyde Pension Fund at that date from the Glasgow City Council section of the fund to a new Glasgow Credit Union section. In accordance with a written undertaking given by Glasgow City Council dated 29 May 2009, Glasgow City Council guarantees that it shall accept liability for any unfunded costs which might arise with regard to Glasgow Credit Union relating to the Credit Union's admission to the scheme should the Credit Union cease to exist, withdraw from the Scheme or otherwise become unable to continue covering any unfunded liabilities with regard to either the Administration Regulations on the Local Government (Discretionary Payments and Injury Benefits) (Scotland) Regulations The date of the most recent comprehensive actuarial valuation was 30 September. The total cost relating to defined benefit schemes for the year recognised in profit or loss as an expense was 180,000 ( - 144,000). The total cost relating to defined benefit schemes for the year included in the cost of an asset was Nil ( - -). Reconciliation of scheme assets and liabilities to assets and liabilities recognised The amounts recognised in the statement of financial position are as follows: Page 33

36 Notes to the Financial Statements for the Year Ended 30 September 21 Pension and other schemes (continued) Fair value of scheme assets 4,021,000 3,134,000 Present value of defined benefit obligation (5,078,000) (3,229,000) Defined benefit pension scheme deficit (1,057,000) (95,000) Defined benefit obligation Changes in the defined benefit obligation are as follows: Present value at start of period 3,229,000 Current service cost 175,000 Interest cost 123,000 Actuarial gains and losses 1,556,000 Benefits paid (50,000) Contributions by scheme participants 45,000 Present value at end of year 5,078,000 Fair value of scheme assets Changes in the fair value of scheme assets are as follows: Fair value at start of period 3,134,000 Interest income 118,000 Return on plan assets, excluding amounts included in interest income/(expense) 643,000 Employer contributions 126,000 Contributions by scheme participants 50,000 Benefits paid (50,000) Fair value at end of year 4,021,000 Page 34

37 Notes to the Financial Statements for the Year Ended 30 September 21 Pension and other schemes (continued) Analysis of assets The major categories of scheme assets are as follows: % % Cash and cash equivalents - 1 Equity instruments Debt instruments Property Return on scheme assets Return on scheme assets 643,000 (82,000) The pension scheme has not invested in any of the company's own financial instruments or in properties or other assets used by the company. Principal actuarial assumptions The principal actuarial assumptions at the statement of financial position date are as follows: % % Discount rate Future salary increases Future pension increases Page 35

38 Notes to the Financial Statements for the Year Ended 30 September 21 Pension and other schemes (continued) Post retirement mortality assumptions Years Years Current UK pensioners at retirement age - male Current UK pensioners at retirement age - female Future UK pensioners at retirement age - male Future UK pensioners at retirement age - female Reserves General Reserve The general reserve represents the base capital of the Credit Union and is the retained surpluses and deficits which have not been allocated to another specific reserve. Pension Reserve The pension reserve represents the surplus or deficit on the defined benefit pension scheme. The pension reserve is part of the overall reserve balance of the Credit Union. Growth Fund Reserve The growth fund reserve represents surpluses and deficits on growth fund activities, including unused growth fund funding, which must be used for future growth fund activities. Reserve Movements The changes to each component of equity resulting from items of other comprehensive income for the current year were as follows: Pension reserve Total Remeasurement gain/loss on defined benefit pension schemes (913,000) (913,000) The changes to each component of equity resulting from items of other comprehensive income for the prior year were as follows: Page 36