PETROLEUM INDUSTRY EMPLOYEES CO-OPERATIVE CREDIT UNION LIMITED FINANCIAL STATEMENTS DECEMBER 31, 2013

Transcription

1 PETROLEUM INDUSTRY EMPLOYEES CO-OPERATIVE CREDIT UNION LIMITED FINANCIAL STATEMENTS

2 PETROLEUM INDUSTRY EMPLOYEES CO-OPERATIVE CREDIT UNION LIMITED FINANCIAL STATEMENTS C O N T E N T S PAGES Auditors Report Statement of financial position Statement of profit or loss & other comprehensive income... 5 Statement of changes in equity... 6 Statement of cash flows... 7 Notes to Financial Statements

3 Shop #16, Hagley Park Plaza Kingston 10 Jamaica W.1. Tel: (876) , Fax: (876) Website: BOGLE & COMPANY CHARTERED ACCOUNTANTS PAGE 1 AUDITORS' REPORT TO THE REGISTRAR OF THE CO-OPERATIVE SOCIETIES OF PETROLEUM INDUSTRY EMPLOYEES CO-OPERATIVE CREDIT UNION LIMITED We have audited the financial statements for Petroleum Industry Employees Credit Union Limited set out on the following pages 3-26 which comprise the statement of financial position as of December 31, 2013 and the statement of comprehensive income, statement of changes in stockholder's equity and statement of cash flow for the period then ended, and a summary of significant accounting policies and other explanatory notes. 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 with the requirements of the Co-operative Societies Act. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors' Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of 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. WORRICK BOGLE, FCCA FCA CPA info@bogleandcompany.com

4 PAGE 2 Opinion In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Credit Union as at December 31, 2013 and of the financial performance and cash flows of the Credit Union for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Cooperatives Societies Act. Report on Other Legal Regulatory Requirements As required by the Co-operative Societies Act, we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit. In our opinion, proper accounting records have been kept, so far as appears from our examination of those records, and the accompanying financial statements are in agreement therewith and give the information required by the Act, in the manner so required.

5 Page 3 STATEMENT OF FINANCIAL POSITION AS AT Assets Restated Notes $ $ Non-current assets Earning: Loans, after provision for loan impairment 6 140,735, ,302, ,735, ,302,261 Non-earning: Property, plant & equipment 7 312, ,202 Retirement benefit asset 1,899,851 1,346,190 2,212,848 1,742,392 Total non-current assets 142,948, ,044,653 Current assets Earning: Liquid assets 8 52,639,704 53,029,477 Financial investments 9 6,401,967 6,302,640 Loans, after provision for loan impairment 6 21,104,940 13,097,140 80,146,611 72,429,257 Non-earning: Cash & bank balances 10 2,443,968 1,436,085 Other assets , ,909 2,974,356 2,171,994 Total current assets 83,120,967 74,601,251 Total assets 226,069, ,645,904 Approved by the Board of Directors on April 28, 2014 and signed on its behalf by: \Directors \Directors The accompanying notes form an integral part of these financial statements.

6 Page 4 STATEMENT OF FINANCIAL POSITION AS AT Restated Notes $ $ Equity & Liabilities Equity Permanent shares 3(k) 1,299,200 1,218,600 Share transfer fund 3(l) 117, ,600 Institutional capital 25,753,537 17,516,043 Non-institutional capital 3,268,627 10,295,430 Undistributed surplus 5,495,766 3,893,543 35,934,630 33,063,216 Non-current liabilities: Interest bearing: Members' share capital (voluntary) ,203, ,778,989 External credits 13 7,992,103 6,843,828 Total non-current liabilities 155,195, ,622,817 Current liabilities Interest bearing: Savings deposits 14 29,364,471 25,658,878 Non-interest bearing: Payables & accruals 15 5,574,885 4,300,993 Total current liabilities 34,939,356 29,959,871 Total capital and liabilities 226,069, ,645,904 The accompanying notes form an integral part of these financial statements.

7 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Page 5 Interest income $ $ Loans to members 18,602,729 16,861,304 Liquid asset 2,431,668 2,948,379 21,034,397 19,809,683 Interest expense Savings deposits 2,678,060 3,183,079 Loan interest 332, ,115 3,010,106 3,498,194 Net interest income 18,024,292 16,311,489 Non-interest income Other income 3,487,972 2,516,180 Dividends income 272, ,042 21,784,411 19,113,712 Other financial costs (125,827) (124,831) Provision for loan loss (511,299) (62,503) Gross margin 21,147,286 18,926,378 Less operating expenses (Page 26) 16,506,089 14,327,255 Profit for the year 4,641,197 4,599,122 Other comprehensive income: Pension income (345,000) (214,000) Total comprehensive income 4,296,197 4,385,122 The accompanying notes form an integral part of these financial statements.

8 STATEMENT OF CHANGES IN EQUITY Page 6 Non-Institutional Capital Institutional Capital Retirement Share Other General Benefit Revaluation Permanent transfer Statutory qualifying Undistributed reserve reserves reserve shares fund reserve reserve surplus Totals $ $ $ $ $ $ $ $ $ January 1, ,515,037 1,748, ,212 1,010, ,800 14,607,264 2,023,455 2,988,574 29,239,978 Permanent shares 155,400 6, ,000 Share fund transfer 52,800 (52,800) Entrance fees 8,300 8,300 6,515,037 1,748, ,212 1,218, ,600 14,615,564 2,023,455 2,988,574 29,410,278 Net Income ,385,122 4,385,122 Retirement benefit reserve 125,954 (125,954) - General reserves 2,290,291 (2,327,175) (36,884) Loan loss reserve 450, ,540 Statutory reserve 877,024 (877,024) Restatement 2011 (528,000) (528,000) Honoraria 150,000 (150,000) Payments (617,840) (617,840) December 31, ,788,028 1,346, ,212 1,218, ,600 15,492,588 2,023,455 3,893,543 33,063,216 January 1, ,788,028 1,346, ,212 1,218, ,600 15,492,588 2,023,455 3,893,543 33,063,216 Permanent shares 80,600 80,600 Share transfer fund - Entrance fees 8,400 8,400 8,788,028 1,346, ,212 1,299, ,600 15,500,988 2,023,455 3,893,543 33,152,216 Total comprehensive income - 4,296,197 4,296,197 Statutory reserve 928,239 (928,239) Retirement benefit reserve 553,661 (553,661) Appropriation 1,329,505 (1,329,505) - Transfers/payments (7,419,252) (161,212) (22,100) 5,971, ,432 (1,513,783) December 31, ,368,776 1,899,851-1,299, ,500 16,429,227 9,324,310 5,495,766 35,934,630

9 STATEMENT OF CASH FLOWS Page 7 Restated $ $ Cash flows from operating activities Net Income 4,296,197 4,385,122 Adjustment to reconcile profit for the year to Net cash provided by operating activities add depreciation 109, ,076 4,406,095 4,529,198 Net change on current assets & liabilities Receivables 205,521 1,462,231 Retirement benefit asset (553,661) (125,953) Members' deposits 3,705,593 (6,441,324) External credit 1,148, ,337 Payables & accrual 1,273, ,888 Net cash flows from operating activities 10,185, ,377 Cash flows from investing activities Purchase of fixed assets (26,695) - Financial investments (99,327) (95,707) Loans to members (21,441,350) (4,973,773) Net cash used in investing activities (21,567,372) (5,069,480) Cash flows from financing activities Entrance fees 8,400 8,300 Shares subscription net 13,505,148 7,051,442 General reserves (1,578,067) (42,185) Net cash from financing activities 11,935,481 7,017,557 Net increase /(decrease) in cash & cash equivalent 553,820 2,207,453 Cash and cash equivalents at beginning of year 54,465,562 52,258,109 Cash and cash equivalents at end of year 55,019,381 54,465,562 Represented by: Cash & bank balances 2,443,968 1,436,085 Liquid assets 52,639,704 53,029,477 55,083,672 54,465,562

10 Page 8 1 Identification & principal activities Petroleum Industry Employees Co-operative Credit Union Ltd is incorporated under the laws of Jamaica and is registered under the Co-operative Societies Act. The Credit Union's registered office is located at 236 Windward Road, Kingston 2. The main activities of the Credit Union are to promote thrift among its members by affording them an opportunity to accumulate their savings and to create for them a source of credit for provident or productive purposes at reasonable rates of interest. 2 Currency The amounts stated in these Financial Statements are in Jamaican dollars. 3 Principal accounting principles & convention and basis of preparation (a) Basis of preparation These Financial Statements have been prepared in accordance with and comply with International Financial Reporting Standards (IFRS) and have been prepared under the historical cost convention as modified by the revaluations of available-for-sale investment securities, investments securities through profit and loss and investment property. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Credit Union's accounting policies. New, revised or amended standards that became effective during the year our earlier IAS 36 (Amendment) 'Impairment of assets' This amendment clarifies that the largest cash generating unit ( or group of units) to which goodwill should be allocated for the purpose of impairment testing is an operating segment, as defined by paragraph 5 of IFRS 8, "Operating Segments' (i.e. before the aggregation of segments with similar economic characteristics). The Credit Union does not currently have goodwill on its Statement of Financial Position. IFRS 5 (Amendment), 'Non-Current assets held for sale and discontinued operations'. The amendment clarifies that IFRS 5 specifies the disclosures required in respect of non-current assets (or disposal groups) classified as held for sale or discontinued operations. It also clarifies that the general requirement of IAS 1 still apply, in particular paragraph 15 (to achieve a fair value presentation) and paragraph 125 ( source of estimation uncertainty) of IAS. The Credit Union does not have non-current assets held for sale or discontinued operations. IFRIC 19, 'Extinguishing financial liabilities with equity instruments '. The interpretation clarifies the accounting by an entity when the terms of a financial liability are renegotiated and result in the entity issuing equity instruments to a creditor of the entity to extinguish all or part of the financial liability (debt for equity swap). It requires a gain or loss to be recognised in profit or loss, which is measured in difference between the carrying amount of the financial liability and the fair value of the equity instruments issued. If the fair value of the equity instruments issued cannot be reliably measured, the equity instruments should be measured to reflect the fair value of the financial liability extinguished. The interpretation did not have an impact on the financial statements, as the entity has no debt for equity swap agreements.

11 Page 9 IAS 24 ( Revised), 'Related Party disclosures' (effective for annual periods beginning on or after January 2011). A related party is a person or entity that is related to the entity that is preparing its financial statements (referred to as the 'reporting entity'). (a) A person or a close member of that person's family is related to a reporting entity if that person: (i) has control or joint control over the reporting entity; (ii) has significant influence over the reporting entity; or (iii) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity. (b) An entity is related to a reporting entity if any of the following conditions applies: (i) The entity and the reporting entity are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others). (ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member). (iii) Both entities are joint ventures of the same third party. (iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity. (v) The entity is a post-employment defined benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to the reporting entity. (vi) The entity is controlled or jointly controlled by a person identified in (a). (vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity). IFRIC 14 (Amendments) 'Payments of a minimum funding requirement' (effective for annual periods beginning 1 January 2011). The amendments corrects an unintended consequence of IFRIC 14, IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction'. Without the amendments, entities are not permitted to recognise as an asset some voluntary prepayments for a minimum funding contributions. This was not intended when IFRIC 14 was issued, and the amendments corrected this. IAS 19 ( Amendment), Employee Benefits' ( effective for annual periods beginning on or after 1 January 2013). These amendments eliminate the corridor approach and calculate finance costs on a net funding basis. The significant changes affecting the Credit Union are that actuarial gains and losses are renamed 'remeasurements' and will be recognised immediately in other comprehensive income. Actuarial gains and losses will no longer be deferred using the corridor approach or recognised in the profit or loss. Remeasurements recognised in other comprehensive income will be recycled through profit or loss in subsequent periods. These annual income or expenses for funded benefit plans will include net interest expenses or income, calculated by applying the discounted rate to the net defined benefit asset or liability. This will replace the finance charge and expected return on plan assets. Additional disclosures are required to present the characteristics of benefit plans, the amounts recognised in the financial statements and the risks arising from defined benefit plans and multi-employer plans.

12 Page 10 IFRS 13, 'Fair Value Measurement' (effective for annual periods beginning on or after 1 January 2013). The standard explains how to measure fair value for financial reporting. It defines fair value; sets out in a single IRFS a framework for measuring fair value; and requires disclosures about fair value measurements. This standards applies to those standards that require or permits fair value measurements or disclosures about fair value measurements ( and measurements, such as fair value less costs to sell, based on fair value or disclosures about those measurements), except in specified circumstances. New, amended or revised standards not yet effective IAS 32, (Amendment)'Financial instruments: Presentation" (effective for annual reports beginning on or after January 1, 2014). This amendment updates the application guidance in IAS 32, 'Financial instruments: Presentation', to clarify some of the requirements for offsetting financial assets and financial liabilities on the statement of financial position. IFRS 9, 'Financial Instruments' ( effective for annual periods beginning on or after 1 January 2015). This standard on classification and measurement of financial assets and financial liabilities will replace IAS 39, 'Financial instruments: Recognition and measurement' IFRS 9 has two measurement categories: amortization cost and fair value. All equity instruments are measured at fair value. A debt instrument is measured at amortized cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest. For liabilities, the standard retains most of the IAS 39 requirements. These include amortized-cost accounting for most financial liabilities. The main change is that, in cases where the fair value option is taken for financial labialise, the part of a fair value change due to an entity's own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. IAS 16, Property, Plant and Equipment, has been amended to clarify that the definition of property, plant and equipment in IAS 16 is now considered in determining whether spare parts, standby equipment in determining whether spare parts, standby equipment and servicing equipment should be accounted for under the standard. If these items do not meet the definition, then they are accounted for using IAS 2, Inventories (b) Revenue recognition i. Interest income and expense Interest income and expense are recognised in the profit or loss account for all interest-bearing instruments on an accrual basis using the effective yield method based on the actual purchase price. Interest income includes coupons earned on fixed income investments and accrued discount on Treasury Bills and other discounted instruments. The regulations stipulate that where collection of interest income is considered doubtful or payment is outstanding for 90 days or more, interest should be accounted for on the cash basis. IFRS require that when loans become doubtful of collection, they are written down to their recoverable amounts and interest income is therefore recognised based on the rate of interest that was used to discount the future cash flow for the purpose of measuring the recoverable amount. ii Fee and commission Fee and commission income are generally recognised on an accrual basis when the service has been provided. iii. Dividend Income Dividend income is recognised when the right to receive payment is established.

13 Page 11 (c) Income tax The Credit Union is exempt from Income tax and stamp duty under Section 59 of the Co-operative Societies Act. (d) Depreciation Property, plant & equipment are depreciated under the straight line method at rates designed to write off their cost over their estimated useful lives. Depreciation is prorated on a monthly basis during the year of purchase. Property, plant and equipment are reviewed periodically for impairment. Where the carrying amount of an asset is greater than the estimated recoverable amount it is written down immediately to its recoverable amount. The rates used for depreciation are as follows: Equipment 10% Computer software 20% Computer & printer 33.3% Furniture 10% (e) Investments Management determines the classification of investments at times of purchase into held to maturity and available for sale. Loans and advances which are provided directly to borrowers are classified as originated debts. They are initially recorded at cost which is the cash given to originate the debt including any transaction costs and are subsequently measured at amortised cost. Investments purchased on the secondary market which are intended to be held for an indefinite period of time and may be sold in response to liquidity needs or changes in interest rate are classified as available for sale. These investments are initially recognized at cost but are subsequently re-measured at fair value. Unrealised gains and losses arising from changes in fair values of securities classified as available for sale are recognized in equity. When securities are disposed of or impaired, the related accumulated fair value adjustments are included in the statement of profit or loss as gains and losses from investment securities. A financial asset is considered impaired if its carrying amount exceeds its recoverable amount. The amount of the impairment loss for assets carried at amortised cost is calculated as the difference between the asset's carrying amount and the present value of expected future cash flows discounted at the original effective rate. The recoverable amount of a financial asset is the present value of expected future cash flows discounted at the current market interest rate for a similar financial asset. All purchases and sales on investment securities are recognized at settlement date. (f) Foreign currency The credit union has no foreign currency account nor engages in foreign currency transactions. (g) Loans and allowance for impairment and losses Loans are recognized when cash is advanced to borrowers. They are initially recorded at cost, which is the cash given to originate the loan including the transaction costs, and are subsequently measured at amortised cost using the effective interest rate method. An allowance for loan impairment is established if there is objective evidence that the Credit Union will not be able to collect all amounts due according to the original contractual terms of the loans. The amount of the provision is the difference between the carrying amount and recoverable amount, being the present value of expected cash flows, including amounts from guarantees and collateral, discounted at the original effective interest rate of loans.

14 Page 12 (g) Loans and allowance for impairment and losses cont'd When a loan is classified as impaired, recognition of interest in accordance with the terms of the original loan ceases, and interest is accounted for on the cash basis. The Credit Union also adheres to the Jamaica Co-operative Credit Union League provisioning policy of making full provision for loans in arrears for over one year and general provision of 10%-60% in in respect of loans in arrears 2-12 months. (h) Institutional capital Institutional Capital includes the Statutory Reserve fund as well as various other reserves established from time to time as is deemed necessary by the Directors to support the operation of the Credit Union and thereby protect the interest of the members. These reserves are not available for distribution. (i) Employee benefits Retirement benefit costs: The Credit Union participates in a defined benefit scheme. The Pension scheme is funded mainly from payments by the employees and company. The Credit Union League administers the scheme with the recommendations of qualified independent Actuaries. (j) Financial instruments Financial instruments carried on the statement of financial position include loans, liquid assets, cash and bank balances as well as interest and other receivables. Currently all financial instruments are carried at cost and it is the opinion of management that the costs approximately equates with the fair value of such instruments. (k) Permanent shares The account category 'Permanent Share' was established in the year Each member is required to subscribe at least One Thousand Three Hundred dollars ($1,300) to a permanent share account. Permanent shares represents cash invested as risk capital, which forms a permanent part of the capital of the credit union, and therefore not subject to withdrawal by members. (l) Share transfer fund The share transfer fund account was appropriated from surplus with the objective to redeem permanent shares of deceased or resigning members. The amount derived was based on a percentage of the permanent shares portfolio based on projections. 4 Insurance The Credit Union has in place the following insurance coverages which are deemed adequate: Fidelity Bond Life Savings & Loan Protection

15 Page 13 5 Statutory reserve Pursuant to the Co-operative Societies Act credit unions are required to transfer to a statutory reserve all entrance fees collected and a minimum of 20% of net surplus. 6 Loans Loans originated by the Credit Union Maturity schedule Within 3 3 to 12 1 to 5 Over 5 Carrying Carrying Months Months Years Years value value Loans to $ $ individuals 269,063 20,835, ,765,654 15,533, ,404, ,451,789 Less provision for loan loss (563,687) (52,388) 161,840, ,399,401 The number of accounts are 1, $ $ Allowance for loan loss at the beginning of year 52, ,736 Recovered during the year - (384,348) Provision for the year 511,299 - At end of year 563,687 52,388 Loans to members $ $ Balance at start of year 140,451, ,862,363 Loans granted 110,595,343 95,762, ,047, ,625,220 Less repayments and transfers (88,642,694) (91,173,431) Balance at end of year 162,404, ,451,789

16 Page 14 7 Property, plant & equipment Cost Computer & Furniture Printer Total $ $ $ At January 1, , ,926 1,394,591 Additions December 31, , ,926 1,394,591 At January 1, , ,926 1,394,591 Additions - 26,695 26,695 Disposal - (263,568) (263,568) At December 31, , ,053 1,157,718 Accumulated depreciation At January 1, , , ,315 Charge for the year ,367 89, ,075 December 31, , , ,391 At January 1, , , ,391 Charge for the year ,373 55, ,898 Disposal - (263,568) (263,568) At December 31, , , ,721 Net book value: December 31, ,320 20, ,997 December 31, ,693 49, ,202

17 Page 15 8 Liquid assets Securities available-for-sale Within 3 3 to 12 1 to 5 Over 5 Carrying Carrying Months Months Years Years value value Ja. Co-op Credit Union League Ltd $ $ - CuCash 12,253, ,253,584 6,769,846 - Fixed deposit 27,766, ,766,741 26,362,133 - Certificate of deposit 8,408, ,408,554 15,786,533 Victoria Mutual Building Society - savings accounts 4,210, ,210,825 4,110,965 52,639, ,639,704 53,029,477 9 Financial investments Maturity schedule Within 3 3 to 12 1 to 5 Over 5 Carrying Carrying Months Months Years Years value value $ $ Securities available-for-sale QNET Shares 182, , ,490 Ja. Co-op Credit Union League - Ordinary shares 1,174, ,174,452 1,174,452 - Permanent shares 2,007, ,007,555 2,007,555 - Mortgage fund 2,537, ,537,470 2,438,143 Ja. Co-op Ins. Agency - Shares 500, , ,000 6,401, ,401,967 6,302, Cash & bank balances $ $ Cash in hand 833,784 - National Commercial Bank (Ja) Limited - current account 1,610,184 1,436,085 2,443,968 1,436, Other assets $ $ Prepayments 52, ,614 Interest due on fixed deposits and loans 195, ,408 Withholding tax recoverable 164, ,887 Commission receivable 116, , ,909

18 Page Member share capital (voluntary) $ $ Balance at January 1 133,778, ,727,547 Add deposits/transfers 82,594,926 74,925, ,373, ,652,681 Less withdrawals/transfers (72,170,995) (69,894,804) 144,202, ,757,877 Add dividends 3,000,617 2,021,112 Balance at December ,203, ,778, Interest bearing liabilities External credit Maturity schedule Within 3 3 to 12 1 to 5 Over 5 Carrying Carrying months months years years value value $ $ RUBIS Energy Ja. Ltd 4,733,561 4,733,561 4,658,512 Industrial Gases Ltd 3,258,542 3,258,542 2,185,316 7,992, ,992,103 6,843, Deposits Maturity schedule Within 3 3 to 12 1 to 5 Over 5 Carrying Carrying months months years years value value $ $ Members deposits 29,364, ,364,471 25,658,878 29,364, ,364,471 25,658, Non-interest bearing liabilities Payables & accruals $ $ Salary payable 2,026,110 56,632 Audit fee 316, ,452 Statutory payable (4,566) - Interest payable 57,065 - Accruals 925,172 1,300,677 CUNA premium 136, ,511 Withholding tax 308,490 3,482 Honoraria payable 61, ,514 Dividends payable 1,748,555 2,201,377 Unallocated deposits - 44,348 5,574,885 4,300,993

19 Page Financial Risk Management (a) Fair value Fair value amounts represent estimates of the arm s length consideration that would be currently agreed upon between knowledgeable, willing parties who are under no compulsion to act. This is best evidenced by a quoted market price. Many of the credit union's financial instruments lack an available trading market. Therefore, these instruments have been valued using present value or other valuation techniques and may not necessarily be indicative of the amounts realisable in an immediate settlement of the instruments. The fair values of cash resources, securities purchased under resale agreements, other assets and other liabilities, are assumed to approximate their carrying values due to their short-term nature. The fair value of external credits, deposits payable on demand or after notice, and deposits with a variable or floating rate payable on a fixed date are assumed to be equal to their carrying values. The estimated fair values of fixed rate deposits payable within a year are assumed to approximate their carrying values, due to their short-term nature. The fair values of financial assets and liabilities, together with the carrying amounts shown in the statement of financial position, are as follows: Financial assets: Fair Carrying Fair Carrying Value Value Value Value $ $ $ $ Loans and advances 161,840, ,840, ,399, ,399,401 Liquid assets 52,639,704 52,639,704 53,029,477 53,029,477 Financial investments 6,401,967 6,401,967 6,302,640 6,302,640 Non-earning assets 5,187,204 5,187,204 4,442,386 4,442,386 Financial liabilities: Savings deposits 29,364,471 29,364,471 25,658,878 25,658,878 External credits 7,992,103 7,992,103 6,843,828 6,843,828 Other liabilities Non-interest liabilities 5,574,885 5,574,885 4,300,993 4,300,993

20 Page 18 (b) Credit risk Credit risk is the risk of financial loss to the Credit Union if a member or counterparty to a financial instrument fails to meet its contractual obligations, and arises primarily from the Credit Union s loans to members, deposits with other institutions and investment securities. There is also credit risk exposure in respect of instruments such as loan commitments, which may not be stated on the statement of financial position. They expose the Credit Union to similar risks as loans and are managed in similar manner. (i) Loans to members and guarantees The management of credit risk in respect of loans to members and guarantees is delegated to the Credit Committee. The Committee is responsible for oversight of the Credit Union s credit risk, including formulating credit policies, establishing the authorisation structure for the approval of credit facilities, reviewing and assessing credit risk, limiting concentration of exposure to counterparties and developing and maintaining the Society s risk grading. There is a documented credit policy in place which guides the Credit Union s credit review process. Collateral The Credit Union holds collateral against loans to members in the form of mortgage interests over property, lien over motor vehicles, other registered securities over assets, hypothecation of shares held in the Credit Union and guarantees. Estimates of fair values are based on value of collateral assessed at the time of borrowing and are generally updated annually, based on revaluations acquired from members. Collateral is not generally held against deposits and investment securities, except when securities are held as part of reverse repurchase agreements. The estimated fair value of collateral held against financial assets at the statement of financial position date is $105,300,000 (2012: $ 112,500,000). Impaired loans Impaired loans are loans for which the Credit Union determines that it is probable that it will be unable to collect all principal and interest due according to the contractual terms of the loan. Past due but not impaired loans These are loans where contractual interest or principal payments are past due but the Credit Union believes that impairment is not appropriate on the basis of the level of security available or the stage of collection of amounts owed to the Credit Union. Loans with renegotiated terms Loans with renegotiated terms are loans that have been restructured due to deterioration in the member s financial position and where the Credit Union has made concessions that it would not otherwise consider. Once the loan is restructured, it remains in this category independent of satisfactory performance after restructuring.

21 Page 19 Allowances for impairment The Credit Union established an allowance for impairment losses that represents its estimate of incurred losses in its loan portfolio. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loan loss allowance established on a group basis in respect of losses that have been incurred but have not been identified on loans subject to individual assessment for impairment. Write-off policy The Credit Union writes off a loan (and any related allowances for impairment losses) when the Credit Union determines that the loans are uncollectible. This determination is usually made after considering information such as changes in the borrower s status or financial position, or that proceeds from collateral will not be sufficient to pay back the entire exposure. (ii) Deposits and investment securities The Credit Union limits its exposure to credit risk by investing mainly in liquid assets and only with institutions that have a high credit quality and in Government of Jamaica securities. Therefore, management does not expect any of the parties to fail to meet its obligations. (iii) Exposure to credit risk The carrying amount of financial assets represents the maximum exposure to credit risk (before collateral held) which at the statement of financial position date was: $ $ Loans to members, net 161,840, ,399,401 Liquid assets earning 52,639,704 53,029,477 Financial investments 6,401,967 6,302,640 Liquid assets non-earning 2,974,356 2,171,994 Non-earning assets other 2,212,848 1,742, ,069, ,645,904 There has been no change to the Credit Union s exposure to credit risk or the manner in which it manages and measures the risk. (c) Liquidity risk Liquidity risk is the risk that the Credit Union will encounter difficulty in meeting obligations for its financial liabilities. The Credit Union s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due under both normal or stressed conditions. Prudent liquidity risk management which the Credit Union uses includes maintaining sufficient cash and marketable securities, monitoring future cash flows and liquidity on a daily basis.

22 Page 20 (c) Liquidity risk cont'd The Credit Union is subject to a liquidity limit imposed by the Credit Union League and compliance is regularly monitored. The key measure used by the Credit Union for managing liquidity risk is the ratio of liquid assets to total savings deposit. For this purpose, liquid assets include cash and bank balances, deposits held with JCCUL and highly liquid investments which are readily converted into cash within three months. The liquid asset ratio at the end of the year was 1:2.09 (2012: 1:2.37 ). There has been no change to the Credit Union s exposure to liquidity risk or the manner in which it manages and measures the risk. The following table presents the undiscounted contractual maturities of financial liabilities, including interest payments, on the basis of their earliest possible contractual maturity Within 1 1 to 3 3 to 12 1 to 5 Over 5 Carrying Month Months Months Years Years amount $ $ $ $ $ $ Savings deposits 29,364,471 29,364,471 Members share capital 147,203, ,203,537 External credit - 7,992,103 7,992,103 Accounts payable 5,574,885 5,574, ,568,008 5,574, ,992, ,134, Within 1 1 to 3 3 to 12 1 to 5 Over 5 Carrying Month Months Months Years Years amount $ $ $ $ $ $ Savings deposits 25,658,878 25,658,878 Members share capital 133,778, ,778,989 External credit 6,843,828 6,843,828 Accounts payable 4,300,993 4,300, ,437,867 4,300, ,843, ,582,688 While members share capital is classified as capital, these shares can be withdrawn at the option of the members, unless they are held as security for loans and or guarantees and will therefore affect the liquidity position of the Credit Union. These have no contractual maturity. The amounts included in the analysis are based on management s estimate of expected cash flows on these instruments as determined by retention history. These may vary significantly from actual cash flows which are generally expected to maintain a stable or increasing balance.

23 Page 21 (c) Liquidity risk cont'd Liquidity table 2013 Within 3 3 to 12 1 to 5 Over 5 Non-Rate Carrying Months Months Years Years Sensitive Amount $ $ $ $ $ $ Cash resources 55,083, ,083,672 Investments Available for sale 6,401, ,401,967 Loans 269,063 20,835, ,765,654 15,533, ,404,438 Other assets 2,430,239 2,430,239 Total 55,352,735 27,237, ,765,654 15,533,844 2,430, ,320,316 Deposits 29,364, ,364,471 Other 5,574,885 5,574,885 Members share capital 147,203, ,203,537 Total 176,568, ,574, ,142,893 Sensitivity Gap (121,215,272) 27,237, ,765,654 15,533,844 (3,144,646) 44,177,423 Cumulative Gap (121,215,272) (93,977,428) 31,788,226 47,322,070 44,177, Total assets 54,651,484 19,266, ,202,036 13,100,225 2,610, ,830,089 Total Liabilities 159,437, ,300, ,738,860 Sensitivity Gap (104,786,383) 19,266, ,202,036 13,100,225 (1,690,894) 40,091,229 Cumulative Gap (104,786,383) (85,520,138) 28,681,898 41,782,123 40,091,229 - (d) Market risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate as a result of changes in market prices.these arise mainly from changes in interest rate, foreign currency rate and equity prices and will affect the Credit Union s income or the value of its holdings of financial instruments.the objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk. Market risk exposures are measured using sensitivity analysis. There has been no change to the Credit Union s exposure to market risks or the manner in which it manages and measures the risk. (i) Currency risk Currency risk is the risk that the market value of, or the cash flows from, financial instruments will vary because of exchange rate fluctuations. The Credit Union does not deal in foreign currencies nor currently hold any securities denominated in foreign currencies. There is therefore no exposure to foreign currancy risk at this time.

24 Page 22 (ii) Interest rate risk Interest rate risk is the risk of loss from fluctuations in the future cash flows or fair values of financial instrument because of a change in market interest rates. It arises when there is a mismatch between interest-earning assets and interest-bearing liabilities which are subject to interest rate adjustments within a specified period. It can be reflected as a loss of future net interest income and/or a loss of current market values. Interest rate risk is managed by holding primarily fixed rate financial instruments. (iii) Equity price risk Equity price risk arises from available-for-sale equity securities held by the Credit Union as part of its investment portfolio. Management monitors the mix of debt and equity securities in its investment portfolio based on market expectations. The primary goal of the Credit Union s investment strategy is to maximise investment returns, while minimising risks. (e) Capital management The Credit Union s objectives when managing capital are to safeguard the Credit Union s ability to continue as a going concern, so that it can continue to provide returns to its members and benefits for other stakeholders and to maintain a strong capital base to support the development of its business. The Credit Union defines its capital as members share capital, institutional capital and non-institutional capital. Its dividend payout is made taken into account the maintenance of an adequate capital base. The Credit Union is required by the League to maintain its institutional capital at a minimum of 8% of total assets. At the statement of financial position date, this ratio was 11.4 % which is in compliance with the requirements. There were no changes in the Credit Union s approach to capital management during the year.

25 Page Delinquent loans: The following is a summary of delinquent loans at December 31, 2013 Loan loss Number Loans Rate provision Period overdue in arrears in arrears (%) required less than 2 months - 2 to 3 months 10-3 to 6 months 1 1,243, ,012 6 to 12 months 1 54, ,544 Over 12 months 1 158, , ,455, ,686 In respect of loans that are past due but not impaired, the fair value of collateral held by the Credit Union were $1,567,000. (2012: $8,267,000). Based on past experience, the Credit Union believes that no impairment allowance is necessary in respect of loans to members not past due or impaired as delinquency ratio has been historically low. Provision made in accordance with JCCUL provisioning requirements: Provision based on The Jamaica Co-Operative Credit Union League requirement December 31, 2013 Total Months No. of Delinquent Savings Required Arrears Accounts Loans Held Exposure Provision $ $ $ $ % Less than ,243, , , , ,240 89,408 (35,168) 32, > ,130 14, , , ,455, ,711 1,038, , Volunteers' balances/related parties At December 31, 2013, 21 members of the Credit Union, Board of Directors and committee members had savings of $7,061, and loans totalling $7,302, Loans due from members of staff totalled $2,364, During the year, no Director or Committee Member received any loan which necessitated waiver of the loan policy. At December 31, 2013 all loans owing by Directors, Committee Members and staff were being repaid in accordance with their loan agreements.

26 Page Staff complement Full time Comparison of ledger balances Shares Deposits Loans $ $ $ Balance as per general ledger 148,502,737 29,364, ,404,438 Balance as per members' ledger 148,502,737 29,364, ,404,438 Difference Subsequent events Based on a special resolution passed at the 31st Annual General Meeting of the Credit Union on November 15, The Petroleum Industry Employees Co-operative Credit Union Limited transferred its engagement to Palisadoes Co-operative Credit Union Limited with the effective date being December 31, 2013.

27 Page Retirement benefit asset The amounts recognised in the statement of financial position are determined as follows: Restated $'000 $'000 Present Value of obligations 1,511 2,656 Fair value of Plan Assets (3,412) (4,002) Asset recognised in the statement of financial position (1,900) (1,346) Changes in the Present Value of the obligation Present value of obligation at beginning of period 2,656 2,352 Employer's current service cost Employee's contributions Interest cost Benefit paid (434) (66) Curtailment/business combination (770) - Actuarial (gain)loss -experience adjustments (582) (115) Actuarial (gain)loss -changes in financial assumptions (37) (305) Present Value of the obligation at end of period 1,511 2,656 Changes in the Fair value of the Plan Asset Present value of Plan Asset at beginning of period 4,002 3,273 Employee's contributions Employer's contributions Interest income Benefit paid (434) (66) Administrative expenses (10) (18) Actuarial (gain)loss on Plan Asset (965) (157) Present value of the obligation at end of period 3,412 4,002 The principal actuarial assumptions were as follows Discount rate at beginning of period 10.5% 10.0% Discount rate at end of period 9.5% 10.5% The above figures are based on actuarial valuation.

28 OPERATING EXPENSES Page Administrative expenses: $ $ Personnel expenses: Salaries, allowances, contributions & H.E.A.R.T 8,862,826 6,588,194 Employee medical & group life insurance 320, ,553 9,183,491 6,938,747 General overheads Audit & professional fees 495, ,537 Audit fee over-provision (3,552) - Printing & stationery 232, ,573 Telecommunication 856, ,545 Internet website & charges 141, ,592 Depreciation 109, ,076 Repairs & maintenance 725, ,257 Insurance premiums 1,711,555 1,600,304 Staff welfare & benefit 371, ,882 Subscription 10,087 9,000 Courier service 271, ,788 Miscellaneous expenses 705, ,287 5,626,562 4,397,840 Marketing & promotions - 45,441 Affiliation & representation: League fees & stabilization dues 962, ,950 Seminars & meetings 160, ,291 Annual general meeting - 825,000 League meetings 316, ,609 Volunteer & staff training 256, ,376 1,696,036 2,945,226 Total operating expenses 16,506,089 14,327,255