Integris Credit Union

Transcription

1 Consolidated Financial statements of Integris Credit Union

2 Table of contents Independent Auditor s Report Consolidated Statement of Financial Position... 3 Consolidated Statement of Comprehensive Income... 4 Consolidated Statement of Changes in Members Equity... 5 Consolidated Statement of Cash Flows Consolidated Continuity of Property and Equipment... 54

3 Deloitte LLP Victoria Street Prince George BC V2L 5B8 Canada Tel: Fax: INDEPENDENT AUDITOR S REPORT To the Members of Integris Credit Union We have audited the accompanying consolidated financial statements of Integris Credit Union, which comprise the consolidated statement of financial position as at, and the consolidated statement of comprehensive income, consolidated statement of changes in members equity and consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated 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 consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 1

4 March 2, 2017 Page 2 Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Integris Credit Union as at, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. Chartered Professional Accountants Prince George, BC March 2,

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6 INTEGRIS CREDIT UNION CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME year ended FINANCIAL INCOME Interest income $ 23,438,027 $ 24,001,240 Investment income 1,725,562 1,673,240 Total financial income 25,163,589 25,674,480 FINANCIAL EXPENSES Interest expense deposits 8,627,909 8,496,377 Other interest expense 72, ,234 Total financial expenses 8,700,331 8,618,611 FINANCIAL MARGIN 16,463,258 17,055,869 Allowance for credit losses (Note 8) 2,067,567 3,447,016 Net interest margin 14,395,691 13,608,853 Other operating income (Note 19) 8,440,500 8,486,844 Operating margin 22,836,191 22,095,697 Operating expenses (Note 20) 22,264,318 21,483,905 Distributions to members (Note 16) 120, ,752 Income before income taxes 451, ,040 Income taxes (recovery) (Note 15) 77,118 (79,196) NET INCOME 374, ,236 Other comprehensive (loss) income 1 (434,697) 260,705 Income taxes relating to OCI 67,312 (50,541) Other comprehensive (loss) income 1 (367,385) 210,164 TOTAL COMPREHENSIVE INCOME $ 6,791 $ 757,400 The accompanying notes are an integral part of these consolidated financial statements. 1 Represents items that may be subsequently reclassified to profit or loss 4

7 INTEGRIS CREDIT UNION CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS' EQUITY year ended Accumulated other Contributed comprehensive Member Equity Retained income shares (Note 17) earnings (Note 18) Total As at December 31, 2014 $ 6,156,802 $ 6,953,743 $ 18,518,091 $ 588,499 $ 32,217,135 Total comprehensive income 547, , ,400 Issued membership shares 2,453,608 2,453,608 Redeemed membership shares (147,033) (147,033) Dividends on investment shares 290,603 (243,525) 47,078 As at December 31, 2015 $ 8,753,980 $ 6,953,743 $ 18,821,802 $ 798,663 $ 35,328,188 Total comprehensive income 374,176 (367,385) 6,791 Issued membership shares 1,409,305 1,409,305 Redeemed membership shares (215,063) (215,063) Dividends on investment shares 261,072 (217,050) 44,022 As at $ 10,209,294 $ 6,953,743 $ 18,978,928 $ 431,278 $ 36,573,243 The accompanying notes are an integral part of these consolidated financial statements. 5

8 INTEGRIS CREDIT UNION CONSOLIDATED STATEMENT OF CASH FLOWS year ended Operating activities Net income $ 374,176 $ 547,236 Adjustments for Allowance for credit losses 2,067,567 3,447,016 Interest income (24,562,332) (24,942,826) Interest expense 8,700,331 8,618,611 Depreciation 1,590,754 1,427,951 Net loss on financial assets designated at fair value through profit or loss 8,875 31,252 (Gain) loss on sale of property and equipment (204,564) Income tax (recovery) expense 77,118 (79,196) Interest received 24,506,599 24,539,050 Interest paid (8,657,743) (8,121,450) Income tax paid 193,976 (394,222) Non cash distributions to members 120, ,752 Net unrealized foreign exchange gain (7,093) (6,102) 4,412,807 5,006,508 Changes in operating assets/liabilities: Loans to members, net of repayments (9,694,310) (36,066,378) Deposits from members, net of withdrawals 28,873,775 55,373,787 Other operating assets (571,295) (520,617) Other operating liabilities 355,766 (359,745) 23,376,743 23,433,555 Investing activities Purchase of equity investments (309,973) (320,434) Purchase of term deposits (29,650,000) (4,850,000) Purchase of intangible assets (2,876,518) (1,377,613) Purchase of property and equipment (911,342) (5,039,745) Proceeds from sale of property and equipment 213,367 (33,747,833) (11,374,425) Financing activities Proceeds from issuance of membership share capital 2,482, ,106 Redemption of membership share capital (2,575,314) (588,241) Proceeds from issuance of investment shares 2,077,298 3,377,551 Redemption of investment shares (592,862) (494,333) Repayment of loan securitization borrowings (187,601) (1,014,792) Proceeds from credit facility borrowings 39,000,000 Repayment of credit facility borrowings (39,000,000) 1,204,007 1,778,291 Net change in cash and cash equivalents (9,167,083) 13,837,421 Cash and cash equivalents, beginning of year 26,727,022 12,314,809 Effects of exchange rate changes on the balance of cash held in foreign currencies (304,223) 574,792 Cash and cash equivalents, end of year $ 17,255,716 $ 26,727,022 The accompanying notes are an integral part of these consolidated financial statements. 6

9 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION Reporting entity Integris Credit Union (the Credit Union ) is incorporated under the Credit Union Incorporation Act of British Columbia and is a member of Central 1 Credit Union Limited ( Central 1 ). The Credit Union operates as one operating segment in the loans and deposit taking industry in British Columbia. Products and services offered to its members include mortgages, personal, and commercial loans, chequing and savings accounts, term deposits, RRSPs, RRIFs, TFSA s, mutual funds, automated banking machines, debit and credit cards and internet banking, financial planning services, and operates an insurance agency. The Credit Union head office is located at th Avenue, Prince George, British Columbia. These consolidated financial statements (the financial statements ) have been authorized for issue by the Board of Directors on March 2, Basis of presentation These financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board (the IASB ). These financial statements were prepared under the historical cost convention, as modified by the revaluation of available for sale financial assets and derivative financial instruments measured at fair value. The Credit Union s functional and presentation currency is the Canadian dollar. The preparation of financial statements, in compliance with IFRS, requires management to make certain critical accounting estimates. It also requires management to exercise judgment in applying the Credit Union s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Notes 2 and 3. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Credit Union and its wholly owned subsidiaries Integris Insurance Services Ltd., Integris Financial Planning Services Ltd. and BC Ltd., as well as its 20% interest in a joint operation in Northline Management Ltd. Control is achieved when the Credit Union: 7 has power over the investee; is exposed, or has rights, to variable returns from its involvement with the investee; and has the ability to use its power to affect its returns.

10 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION (continued) Basis of consolidation (continued) The Credit Union reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. When the Credit Union has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Credit Union considers all relevant facts and circumstances in assessing whether or not the Credit Union's voting rights in an investee are sufficient to give it power, including: the size of the Credit Union s holding of voting rights relative to the size and dispersion of holdings of the other vote holders; potential voting rights held by the Credit Union, other vote holders or other parties; rights arising from other contractual arrangements; and any additional facts and circumstances that indicate that the Credit Union has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders' meetings. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Credit Union's accounting policies. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between the Credit Union and its investees are eliminated in full on consolidation. Interests in joint operations A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. 8

11 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION (continued) Interests in joint operations (continued) When a group entity undertakes its activities under joint operations, the Credit Union as a joint operator recognizes in relation to its interest in a joint operation: its assets, including its share of any assets held jointly; its liabilities, including its share of any liabilities incurred jointly; its share of the revenue from the sale of the output by the joint operation; and its expenses, including its share of any expenses incurred jointly. The Credit Union accounts for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance with the IFRSs applicable to the particular assets, liabilities, revenues and expenses. When a group entity transacts with a joint operation in which a group entity is a joint operator (such as a sale or contribution of assets), the Credit Union is considered to be conducting the transaction with the other parties to the joint operation, and gains and losses resulting from the transactions are recognized in the Credit Union s financial statements only to the extent of other parties' interests in the joint operation. When a group entity transacts with a joint operation in which a group entity is a joint operator (such as a purchase of assets), the Credit Union does not recognize its share of the gains and losses until it resells those assets to a third party. 2. SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied consistently by the Credit Union to all periods presented in these financial statements. Business combinations The Credit Union accounts for acquisitions using the acquisition method as at the acquisition date, which is the date on which control is acquired by the Credit Union. Control is the power to govern, the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, the Credit Union takes into consideration potential voting rights that are currently exercisable or de facto control which is the ability to control because no other party has the power to govern. 9

12 2. SIGNIFICANT ACCOUNTING POLICIES (continued) Business combinations (continued) The Credit Union elects for each acquisition whether to measure non controlling interest at fair value or at its proportionate share of the recognized amount of the identifiable net assets at the acquisition date. Transaction costs incurred with the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred. Financial instruments Financial assets and financial liabilities are recognized when the Credit Union becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially recognized at fair value and their subsequent measurement is dependent on their classification as described below. Their classification depends on the purpose for which the financial instruments were acquired or issued, their characteristics and the Credit Union s designation of such instruments. Settlement date accounting is used. The Credit Union is required to classify all financial assets either as fair value through profit or loss, available for sale, held to maturity, or loans and receivables. Financial liabilities are classified as either fair value through profit or loss, or other liabilities. The standards require that all financial assets and financial liabilities, including all derivatives, be subsequently measured at fair value with the exception of loans and receivables, debt securities classified as held to maturity, available for sale financial assets that do not have quoted market prices in an active market and whose fair value cannot be reliably estimated, and other liabilities. a) Fair value through profit or loss ( FVTPL ) Financial assets and liabilities are classified as FVTPL when the financial asset or financial liability is either held for trading or it is designated as at FVTPL. A financial asset or financial liability is classified as held for trading if: it has been acquired principally for the purpose of selling it in the near term; or on initial recognition it is part of a portfolio of identified financial instruments that the Credit Union manages together and has a recent pattern of short term profit taking; or it is a derivative that is not designated and effective as a hedging instrument. 10

13 2. SIGNIFICANT ACCOUNTING POLICIES (continued) Financial instruments (continued) a) Fair value through profit or loss (continued) A financial asset and financial liability other than a financial asset or financial liability held for trading may be designated as at FVTPL upon initial recognition if: such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or the financial asset/liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Credit Union s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or it forms part of a contract containing one or more embedded derivatives, and IAS 39 permits the entire combined contract (asset or liability) to be designated as at FVTPL. Financial assets and financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on re measurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any dividend or interest earned/paid on the financial asset/liability and is included in other operating income. As at, the Credit Union s financial assets and financial liabilities classified as FVTPL include derivative instruments, unless they are designated and effective as hedging instruments in a hedge accounting relationship, and embedded derivatives. b) Held to maturity Held to maturity investments are non derivative financial assets with fixed or determinable payments and fixed maturity dates that the Credit Union has the positive intent and ability to hold to maturity, other than those that the entity upon initial recognition designates as fair value through profit or loss or as available for sale. Subsequent to initial recognition, held to maturity financial assets are measured at amortized cost using the effective interest method, net of impairment losses. As at, the Credit Union s held to maturity investments consist of liquidity deposits held with Central 1. c) Available for sale financial assets Available for sale financial assets are non derivative financial assets that are either designated as available for sale or are not classified as (a) loans and receivables, (b) held to maturity investments or (c) financial assets at fair value through profit or loss. Shares held by the Credit Union that are not traded in an active market are classified as available for sale. 11

14 2. SIGNIFICANT ACCOUNTING POLICIES (continued) Financial instruments (continued) c) Available for sale financial assets (continued) Available for sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost less any identified impairment losses at the end of each reporting period. Subsequent to initial recognition, available for sale financial assets that trade on an active market are measured at fair value, and the gains and losses on such assets are recorded in other comprehensive income until the investment is derecognized or until the investment is identified as being subject to impairment. As at, the Credit Union s available for sale financial assets consist of equity investments. d) Loans and receivables Loans and receivables are non derivative financial assets with fixed or determinable payments that are not quoted in an active market and which the Credit Union does not intend to sell immediately or in the near term. As at, the Credit Union s loans and receivables consist of loans to members, accrued interest on loans, accrued interest on investments, and accounts receivable, and are measured at amortized cost using the effective interest method, net of impairment losses. Interest income is recognized by applying the effective interest rate. e) Effective interest method The effective interest method is a method of calculating the amortized cost of a financial asset or financial liability and of allocating interest income/ expense over the relevant period. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability (or, where appropriate, a shorter period) to the carrying amount of the financial asset or liability. f) Impairment of financial assets Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at each period end date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the asset have been affected. For financial assets carried at amortized cost and available for sale debt securities, the amount of the impairment is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the financial asset s original effective interest rate. 12

15 2. SIGNIFICANT ACCOUNTING POLICIES (continued) Financial instruments (continued) f) Impairment of financial assets (continued) The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of loans to members, where the carrying amount is reduced through the use of an allowance account. When a loan to a member is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss. The impairment loss on financial assets is based on a review of all outstanding amounts at period end. The Credit Union has established percentages for the allowance for doubtful accounts which are based on historical collection trends for each payer type and age of the receivables. Accounts that are considered to be uncollectible are reserved for in the allowance until they are written off or collected. When an available for sale financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss in the period. For financial assets other than available for sale equity securities, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized. g) Derecognition of financial assets The Credit Union derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Credit Union neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Credit Union continues to recognize the transferred asset to the extent of the Credit Union s continuing involvement in that asset. If the Credit Union retains substantially all the risks and rewards of ownership of a transferred asset, the Credit Union continues to recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received. 13

16 2. SIGNIFICANT ACCOUNTING POLICIES (continued) Financial instruments (continued) g) Derecognition of financial assets (continued) On derecognition of a financial asset in its entirety, the difference between the asset s carrying value and the sum of the consideration received/ receivable and any cumulative gain or loss that had been recognized in other comprehensive income and accumulated comprehensive income is recognized in profit or loss. h) Other financial liabilities Other financial liabilities (including member deposits and borrowings) are subsequently measured at amortized cost using the effective interest method. i) Derecognition of financial liabilities The Credit Union derecognizes financial liabilities when, and only when, the Credit Union s obligations are discharged, cancelled or they expire. j) Transaction costs Transaction costs related to financial assets and liabilities at fair value through profit and loss are expensed as incurred. Transaction costs include fees and commissions paid to agents, advisors, broker and dealers related to available for sale financial assets, held to maturity financial assets, other liabilities and loans and receivables are included in the carrying value of the asset or liability and are amortized over the expected life of the instrument using the effective interest method. Transaction costs do not include debt premiums or discounts, financing costs or internal administrative costs. k) Derivative instruments The Credit Union enters into a variety of derivative financial instruments to manage its exposure to market risk, including interest rate, foreign currencies and equity indices. Further details of derivative financial instruments are disclosed in Note 6. Derivatives are initially recognized at fair value at the date the derivative contract is entered into and are subsequently re measured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately unless the derivative is designated and effective as a cash flow hedging instrument, in which event the effective portion of the gain or loss is recognized in other comprehensive income while the ineffective portion is recognized in profit or loss. A derivative with a positive fair value is recognized as a financial asset. A derivative with a negative fair value is recognized as a financial liability. 14

17 2. SIGNIFICANT ACCOUNTING POLICIES (continued) Financial instruments (continued) l) Embedded derivatives Derivatives embedded in non derivative host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at FVTPL. As at and December 31, 2015, the Credit Union has embedded derivatives as described in other non hedge derivatives on page 17. Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits with Central 1, other short term highly liquid investments with original maturities of three months or less; and for the purpose of the statement of cash flows, bank overdrafts that are repayable on demand. Cash and cash equivalents are classified as held for trading and are carried at fair value. Investments a) Central 1 deposits These deposit instruments are classified as held to maturity and are initially measured at fair value plus transaction costs that are directly attributable to their acquisition. Subsequently they are carried at amortized cost, which approximates fair value. b) Equity investments These investments, consisting primarily of shares held in Central 1, are classified as available forsale and are initially recognized at fair value plus transaction costs that are directly attributable to their acquisition. Subsequently they would be carried at fair value, except that they do not have a quoted market price in an active market and fair value is not reliably determinable therefore they are carried at cost. Changes in fair value are recognized as a separate component of other comprehensive income. Where there is a significant or prolonged decline in the fair value of an equity investment (which constitutes objective evidence of impairment), the full amount of the impairment, including any amount previously recognized in other comprehensive income, is recognized in profit or loss. Purchases and sales of equity investments are recognized on settlement date with any change in fair value between trade date and settlement date being recognized in accumulated other comprehensive income. 15

18 2. SIGNIFICANT ACCOUNTING POLICIES (continued) Investments (continued) b) Equity investments (continued) On sale, the amount held in accumulated other comprehensive income associated with that instrument is recognized in profit or loss. Derivative financial instruments and hedging a) Hedges The Credit Union, in accordance with its risk management strategies, enters into various derivative financial instruments to protect itself against the risk of fluctuations in interest rates. The Credit Union manages interest rate risk through interest rate swaps. Hedge accounting is applied to derivative financial instruments only where all of the following criteria are met: at the inception of the hedge there is formal designation and documentation of the hedging relationship and the Credit Union s risk management objective and strategy for undertaking the hedge; for cash flow hedges, the hedged item in a forecast transaction is highly probable and presents an exposure to variations in cash flows that could ultimately affect profit or loss; the effectiveness of the hedge can be reliably measured; and the hedge is expected to be highly effective at inception and remains highly effective on each date it is tested. The Credit Union has chosen to test the effectiveness of its hedge on a quarterly basis. The interest rate swap contracts can be designated as fair value hedge instruments or cash flow hedge instruments. The Credit Union has not entered into any fair value hedges at this time. Cash flow hedges modify exposure to variability in cash flows for variable rate interest bearing instruments or the forecasted issuance of fixed rate liabilities. The Credit Union s cash flow hedges are primarily hedges of floating rate commercial and personal loans. If the Credit Union closes out its hedge position early, the cumulative gains and losses recognized in other comprehensive income are reclassified to profit or loss over the remaining term of the original hedging relationship. 16

19 2. SIGNIFICANT ACCOUNTING POLICIES (continued) Derivative financial instruments and hedging (continued) b) Other non hedge derivatives The Credit Union designates certain financial assets upon initial recognition as at fair value through profit or loss (fair value option). Financial instruments included in this category are the embedded derivatives and derivatives related to index linked term deposits. These instruments are measured at fair value, both initially and subsequently. The related transaction costs are expensed. Gains and losses arising from changes in fair value of these instruments are recorded in profit or loss. Joint operation The Credit Union has a joint operation, Northline Management Ltd. The Credit Union has a 20% interest in the operation which is a credit union service organization that manages and maintains the banking software for its investees. The operation is based in Williams Lake, BC. Member loans All member loans are non derivative financial assets with fixed or determinable payments that are not quoted in an active market and have been classified as loans and receivables. Member loans are initially measured at fair value, net of loan origination fees and inclusive of transaction costs incurred. Member loans are subsequently measured at amortized cost, using the effective interest rate method, less any impairment losses. Loans to members are reported at their recoverable amount representing the aggregate amount of principal, less any allowance or provision for impaired loans plus accrued interest. Interest is accounted for on the accrual basis for all loans. If there is objective evidence that an impairment loss on member loans carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the loans carrying amount and the present value of expected cash flows discounted at the loans original effective interest rate. Short term balances are not discounted. The Credit Union first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant. 17

20 2. SIGNIFICANT ACCOUNTING POLICIES (continued) Member loans (continued) If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment. The expected future cash outflows for a group of financial assets with similar credit risk characteristics are estimated based on historical loss experience. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in profit or loss. Syndication The Credit Union syndicates groups of assets with various other financial institutions primarily to create liquidity and manage regulatory capital for the Credit Union. Syndicated loans transfer substantially all the risks and rewards related to the transferred financial assets and are derecognized from the Credit Union s Consolidated Statement of Financial Position. All loans syndicated by the Credit Union have been on a fully serviced basis. The Credit Union receives fee income for services provided in the servicing of the transferred financial assets. Fee income is recognized in other income on an accrual basis in relation to the reporting period in which the costs of providing the services are incurred. Bad debts written off Bad debts are written off from time to time as determined by management and approved by the Investment and Lending Committee when is it reasonable to expect that the recovery of the debt is unlikely. Bad debts are written off against the provisions for impairment, if a provision for impairment had previously been recognized. If no provision had been recognized, the write offs are recognized as expenses in profit or loss. 18

21 2. SIGNIFICANT ACCOUNTING POLICIES (continued) Property and equipment Property and equipment is initially recorded at cost and subsequently measured at cost less accumulated depreciation and any accumulated impairment losses, with the exception of land which is not depreciated. Depreciation is recognized in profit or loss and is provided on a straight line basis over the estimated useful life of the assets as follows: Buildings Furniture and equipment Computer software Leasehold improvements Vehicles Parking lots years 5 20 years 2 7 years Lease term plus one renewal period 5 years 12 years Depreciation methods, useful lives and residual values are reviewed annually and adjusted if necessary. Computer software which is not integral to the computer hardware owned by the Credit Union is separately classified in property and equipment. Software is initially recorded at cost and subsequently measured at cost less accumulated amortization and any accumulated impairment losses. Software is amortized on a straight line basis over its estimated useful life of 2 years. Major banking system software is amortized over a useful life of 7 years. Intangible assets Indefinite life intangible assets are carried at cost less accumulated impairment losses. Cost of intangible assets includes expenditures directly attributable to the acquisition of the asset and required to establish the asset in working condition given its intended use as well as borrowing costs. Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the asset. Goodwill Goodwill arising on acquisition of a subsidiary or jointly controlled entity represents the excess of the cost of acquisition over the Credit Union s interest in the fair value of net identifiable assets, liabilities and contingent liabilities of the subsidiary or jointly controlled entity recognized at the date of acquisition. Goodwill is initially recognized as an asset at cost, and is subsequently measured at cost less any accumulated impairment losses. 19

22 2. SIGNIFICANT ACCOUNTING POLICIES (continued) Goodwill (continued) For the purpose of impairment testing, goodwill is allocated to each of the Credit Union s cashgenerating units expected to benefit from the synergies of the acquisition. Cash generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognized for goodwill is not reversed in a subsequent period. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. Impairment of non financial assets (other than goodwill) Non financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Intangible assets with indefinite useful lives are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired. Where the carrying value of an asset exceeds its recoverable amount, which is the higher of value in use and fair value less costs to sell, the asset is written down accordingly. Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the asset s cash generating unit, which is the lowest group of assets in which the asset belongs for which there are separately identifiable cash flows. Income taxes Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income. Current income taxes are recognized for the estimated income taxes payable or receivable on taxable income or loss for the current year and any adjustment to income taxes payable in respect of previous years. Current income taxes are measured at the amount expected to be recovered from or paid to the taxation authorities. This amount is determined using tax laws that have been enacted or substantively enacted by the reporting date. 20

23 2. SIGNIFICANT ACCOUNTING POLICIES (continued) Income taxes (continued) Deferred tax assets and liabilities are recognized where the carrying amount of an asset or liability differs from its tax base, except for taxable temporary differences arising on the initial recognition of goodwill and temporary differences arising on the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit or loss. Recognition of deferred tax assets for unused tax losses, tax credits and deductible temporary differences is restricted to those instances where it is probable that future taxable profit will be available which allow the deferred tax asset to be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized. The amount of the deferred tax asset or liability is measured at the amount expected to be recovered from or paid to the taxation authorities. This amount is determined using tax rates and tax laws that have been enacted or substantively enacted by the reporting date and are expected to apply when the liabilities/ assets are settled/ recovered. Member deposits All member deposits are initially measured at fair value, net of any transaction costs directly attributable to the issuance of the instrument. Member deposits are subsequently measured at amortized cost, using the effective interest rate method. Employee benefits a) Pension Plan The Credit Union participates in a defined contribution pension plan. The amounts payable to the plan is in proportion to the services rendered to the Credit Union by the employees and are expensed in the year which they relate. Unpaid contributions are recorded as a liability. b) Termination benefits 21 Termination benefits are recognized as an expense when the Credit Union is committed without realistic probability of withdrawal to a formal detailed plan either to terminate employment before the normal retirement date or to provide termination benefits. If benefits are payable more than 12 months after the reporting period, they are recorded at their discounted present value.

24 2. SIGNIFICANT ACCOUNTING POLICIES (continued) Accounts payable and other payables Liabilities for trade creditors and other payables are classified as other financial liabilities and initially measured at fair value net of any transaction costs directly attributable to the issuance of the instrument and subsequently carried at amortized cost using the effective interest rate method. Provisions Provisions are recognized when the Credit Union has a present legal or constructive obligation as a result of a past event, it is probable that the Credit Union will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (when the effect of the time value of money is material). Members shares Members shares issued by the Credit Union are classified as equity only to the extent that they do not meet the definition of a financial liability. Shares that contain redemption features subject to the Credit Union maintaining adequate regulatory capital are accounted for using the partial treatment requirements of IFRIC 2 Members Shares in Cooperative Entities and Similar Instruments. Distribution to members Dividends on shares classified as liabilities are charged against earnings. Dividends on equity shares classified as equity, less related income tax reductions, are charged against retained earnings in the year in which they are declared. Dividends are recorded when declared by the Board of Directors. Revenue recognition 22 Revenue from the provision of services to members is recognized when earned, specifically when amounts are fixed or can be determined and the ability to collect is reasonably assured. Dividend income is recognized in profit or loss when the Credit Union s right to receive the dividends is established. Interest income is recognized in income using the effective interest method. Foreign exchange gains or losses on debt securities are recognized immediately in profit or loss and is included in other operating income.

25 2. SIGNIFICANT ACCOUNTING POLICIES (continued) Foreign currency translation Foreign currency accounts are translated into Canadian dollars as follows: At the transaction date, each asset, liability, revenue and expense denominated in a foreign currency is translated into Canadian dollars by the use of the exchange rate in effect at that date. At the yearend date, unsettled monetary assets and liabilities are translated into Canadian dollars by using the exchange rate in effect at the year end date and the related translation differences are recognized in profit or loss. Exchange gains and losses arising on the retranslation of monetary available for sale financial assets are treated as a separate component of the change in fair value and are recognized in profit or loss. Wealth management services The Credit Union offers members access to a wide variety of investments though Integris Financial Planning Ltd. Assets under administration are recorded separately from the Credit Union s assets and are not included in the Consolidated Statement of Financial Position. At assets under management totalled $166,028,377 (December 31, 2015 $180,846,817). New standards and interpretations not yet adopted At a number of standards and interpretations, and amendments thereto have been issued by the IASB, which are not effective for these consolidated financial statements, and have not been applied in preparing these financial statements. Those which could have an impact on Integris Credit Union s consolidated financial statements are discussed below. a) Acquisitions of interests in joint operations The amendments to IFRS 11, Joint Arrangements ( IFRS 11 ) provide guidance on how to account for the acquisition of a joint operation that constitutes a business as defined in IFRS 3, Business Combinations. The amendments to IFRS 11 are not effective until annual periods beginning on or after January 1, Integris Credit Union does not anticipate that the amendments to IFRS 11 would have significant impact to its consolidated financial statements. 23

26 2. SIGNIFICANT ACCOUNTING POLICIES (continued) New standards and interpretations not yet adopted (continued) b) Financial instruments On July 24, 2014 the IASB issued the final version of IFRS 9, Financial Instruments ( IFRS 9 ). IFRS 9 is effective for annual periods beginning on or after January 1, Key requirements of IFRS 9: All recognized financial assets that are within the scope of IAS 39 are to be subsequently measured at amortized cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortized cost at the end of subsequent accounting periods. Debt instruments that are held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets, and that have contractual terms that give rise on specified dates to cash flows that are solely of principal and interest on the principal amount outstanding, are generally measured at fair value through OCI (FVTOCI). All other debt investments and equity investments are measured at their fair value at the end of subsequent accounting periods. In addition, under IFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity instrument (that is not held for trading) in OCI, with only dividend income generally recognized in profit or loss. With regard to the measurement of financial liabilities designated as at FVTPL, IFRS 9 requires that the amount of change in the fair value of the financial liability, that is attributable to changes in the credit risk of that liability, is presented in OCI, unless the recognition of the effects of changes in the liability s credit risk in OCI would create or enlarge an accounting mis match in profit or loss. Changes in the fair value attributable to a financial liability s credit risk are not subsequently reclassified to profit or loss. Under IAS 39, the entire amount of the change in the fair value of the financial liability designated as FVTPL is presented in profit or loss. In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model, as opposed to an incurred credit loss model under IAS 39. The expected credit loss model requires an entity to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognized. 24

27 AS 17 was reissued in December 2003 and applies to annual periods beginning on or after 1 January IAS 17 will be superseded by IFRS 16 Leases as of 1 January 2019 Integris Credit Union 2. SIGNIFICANT ACCOUNTING POLICIES (continued) New standards and interpretations not yet adopted (continued) b) Financial instruments (continued) The Credit Union anticipates that the application of IFRS 9 in the future may have a significant impact on amounts reported in respect to the Credit Union s financial assets and financial liabilities. However, it is not practicable to provide a reasonable estimate of the effect of IFRS 9 until a detailed review has been completed. c) Revenue from contracts with customers IFRS 15, Revenue from Contracts with Customers (IFRS 15), specifies how an entity will recognize revenue from contracts with customers as well as additional disclosure requirements. It provides a five step process for revenue recognition and is effective for periods beginning on or after January 1, Early adoption of this standard is permitted but would be subject to regulatory approval by FICOM. The standard does not apply to financial instruments as these currently fall under IAS 39 and in the future under IFRS 9 above. Since the majority of the Credit Union s revenue is earned from financial instrument contracts, this standard is not expected to have a material impact on the consolidated financial statements. d) Leases IFRS 16, Leases, specifies how the entity will recognize, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases unless the term is twelve months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16 s approach to lessor accounting substantially unchanged from its predecessor IAS 17. IFRS 16 is effective for periods beginning on or after January 1, The Credit Union is currently evaluating the impact of the new standard on its consolidated financial statements.leases prescribes the accounting policies and disclosures applicable to leases, both for lessees and lessors. Leases are required to be classified as either finance leases (which transfer substantially all the risks and rewards of ownership, and give rise to asset and liability recognition by the lessee and a receivable by the lessor) and operating leases (which result in expense recognition by the lessee, with the asset remaining Integris Credit Union did not early adopt any new or amended standards in CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS 25 The Credit Union makes estimates and assumptions about the future that affect the reported amounts of assets, liabilities, revenues and expenses. Estimates and judgments are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experiences may differ from these estimates and assumptions. The effect of a change in an accounting estimate is recognized prospectively by including it in the financial statements in the period of the change, if the change affects that period only; or in the period of the change and future periods, if the changes affects both.