Consolidated Financial Statements
March 29, 2012 Independent Auditor s Report To the Members of Assiniboine Credit Union Limited We have audited the accompanying consolidated financial statements of Assiniboine Credit Union Limited and its subsidiaries, which comprise the consolidated statement of financial position as at, December 31, 2010 and January 1, 2010 and the consolidated statements of net income and comprehensive income, changes in members equity and cash flows for the years ended and December 31, 2010, and the related notes, which comprise 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 audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audits 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 in our audits is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Assiniboine Credit Union Limited and its subsidiaries as at, December 31, 2010 and January 1, 2010 and their financial performance and cash flows for the years ended and December 31, 2010 in accordance with International Financial Reporting Standards. Chartered Accountants PricewaterhouseCoopers LLP, Chartered Accountants One PwC Lombard refers to PricewaterhouseCoopers Place, Suite 2300, LLP, an Winnipeg, Ontario limited liability Manitoba, partnership. Canada R3B 0X6 T: +1 (204) 926 2400, F: +1 (204) 944 1020 PwC refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
Consolidated Statement of Financial Position December 31, 2011 December 31, 2010 January 1, 2010 Assets Cash on hand and on deposit 221,796 81,697 40,748 Investments (note 6) 214,247 200,735 192,374 Loans to members (note 7) 2,650,618 2,524,519 2,360,955 Property, equipment and intangible assets (note 8) 20,510 19,809 18,137 Other assets (note 9) 9,592 8,228 9,201 Total assets 3,116,763 2,834,988 2,621,415 Liabilities Members deposits (note 10) 2,928,163 2,659,246 2,465,813 Accounts payable (note 11) 12,714 13,805 11,059 Members shares (note 14) 13,221 13,511 13,738 Shares to be issued (note 15) 245 250 285 Total liabilities 2,954,343 2,686,812 2,490,895 Members Equity Members shares (note 14) 17,199 17,091 16,903 Shares to be issued (note 15) 774 769 761 Contributed surplus 35,633 35,633 35,633 Retained surplus 108,814 94,450 76,990 Non-controlling interest - 233 233 Total equity 162,420 148,176 130,520 Total liabilities and equity 3,116,763 2,834,988 2,621,415 Approved by the Board of Directors Director Director
Consolidated Statement of Net Income and Comprehensive Income For the year ended 2011 2010 Revenues Interest from loans to members 117,746 114,137 Investment income 6,956 6,639 124,702 120,776 Cost of funds Interest paid to members 64,855 61,306 Interest paid on line of credit - 99 64,855 61,405 Financial margin 59,847 59,371 Other income 28,255 28,046 Financial margin and other income 88,102 87,417 Operating expenses Personnel 32,896 32,296 Administrative 18,461 18,804 Occupancy 8,735 7,718 Member security 2,657 2,682 Organizational 1,834 1,797 64,583 63,297 Gross operating margin 23,519 24,120 Allowance for loss (note 7) (3,325) (2,889) Dividends on surplus shares (245) (250) Income before income taxes (note 12) 19,949 20,981 Provision for income taxes Current 2,757 2,533 Deferred (227) 60 2,530 2,593 Net income and comprehensive income for the year 17,419 18,388 Net income and comprehensive income attributable to Assiniboine Credit Union Limited 17,231 18,137 Non-controlling interest 188 251
Consolidated Statement of Changes in Members Equity For the year ended Shares to be issued Members shares Contributed surplus Retained surplus Noncontrolling interest Total members equity Balance at January 1, 2011 769 17,091 35,633 94,450 233 148,176 Net income and comprehensive income for the year - - - 17,231 188 17,419 Dividends paid to non-controlling interest - - - - (325) (325) Dividends on preference shares - net of taxes 774 - - (681) - 93 Members shares Issued (769) 769 - - - - Redeemed - (661) - - - (661) Purchase of non-controlling interest - - - (2,186) (96) (2,282) Balance at 774 17,199 35,633 108,814-162,420 Balance at January 1, 2010 761 16,903 35,633 76,990 233 130,520 Net income and comprehensive income for the year - - - 18,137 251 18,388 Dividends paid to non-controlling interest - - - - (251) (251) Dividends on preference shares - net of taxes 769 - - (677) - 92 Members shares Issued (761) 761 - - - - Redeemed - (573) - - - (573) Balance at December 31, 2010 769 17,091 35,633 94,450 233 148,176
Consolidated Statement of Cash Flows For the year ended 2011 2010 Cash provided by (used in) Operating activities Net income and comprehensive income for the year 17,419 18,388 Items not affecting cash Depreciation 3,526 3,090 Allowance for loss 3,325 2,889 (Gain) loss on disposal of property and equipment (154) 147 Deferred income taxes (227) 60 Dividends on surplus shares 245 250 24,134 24,824 Net change in non-cash working capital items Investments - accrued interest 314 278 Loans to members - accrued interest (72) 708 Other assets (429) 913 Members deposits - accrued interest (337) (2,049) Accounts payable (54) 1,709 (578) 1,559 Loans to members - net of repayments (129,352) (167,161) Members deposits - net of withdrawals 269,254 195,482 139,902 28,321 163,458 54,704 Investing activities Net increase in investments (13,826) (8,639) Purchase of property and equipment and intangibles (5,818) (3,872) Purchase of non-controlling interest (2,282) - (21,926) (12,511) Financing activities Net increase in common shares 13 7 Net decrease in surplus shares (553) (519) Net decrease in preference shares (568) (481) Dividends paid to non-controlling interest (325) (251) (1,433) (1,244) Net increase in cash on hand and on deposit 140,099 40,949 Cash on hand and on deposit - Beginning of year 81,697 40,748 Cash on hand and on deposit - End of year 221,796 81,697
1 General information Assiniboine Credit United Limited (the Credit Union ) is incorporated under the Credit Union Incorporation Act of Manitoba and its operations are subject to the Credit Unions and Caisses Populaires Act (Manitoba) (the Act ). The Credit Union serves members principally in Manitoba. Its wholly-owned subsidiaries include Assiniboine Credit Union Limited Holdings ( ACULH ), 6173927 Manitoba Ltd. and 6169385 Manitoba Ltd. The Credit Union previously acquired 50% of Winnipeg Insurance Brokers ( WIB ) and purchased the remaining 50% interest in WIB during the current year. The Credit Union s registered office is 200 Main Street, Winnipeg, Manitoba, Canada, R3C 2G1. These consolidated financial statements have been approved for issue by the Board of Directors (the Board ) on March 29, 2012. 2 Basis of presentation and adoption of IFRS These consolidated financial statements have been prepared in accordance with generally accepted accounting principles in Canada ( GAAP ) as set out in the Handbook of the Canadian Institute of Chartered Accountants - Part 1 ( CICA Handbook ). The CICA Handbook was revised to incorporate International Financial Reporting Standards as issued by the International Accounting Standards Board ( IFRS ), and requires publicly accountable enterprises to apply IFRS effective for years beginning on or after January 1, 2011. Accordingly, the Credit Union has commenced reporting on this basis in these consolidated financial statements. In these consolidated financial statements, the term Canadian GAAP refers to Canadian GAAP before the adoption of IFRS and the term GAAP refers to generally accepted accounting principles in Canada after the adoption of IFRS. These consolidated financial statements have been prepared in compliance with IFRS, including IFRS 1 First-time Adoption of International Financial Reporting Standards. Subject to certain transition elections disclosed in note 22, the Credit Union has consistently applied the same accounting policies in its opening IFRS statement of financial position at January 1, 2010 and throughout all periods presented, as if these policies had always been in effect. Note 22 discloses the impact of the transition to IFRS from Canadian GAAP on the Credit Union s reported financial position, statements of income and cash flows, including the nature and effects of significant changes in accounting policies from those used in the Credit Union s consolidated financial statements as at January 1, 2010 and for the year ended December 31, 2010. The consolidated financial statements have been prepared under the historical cost convention except for the revaluation of financial assets and liabilities (including derivative instruments) at fair value through profit or loss and amortized cost. The consolidated financial statements are presented in Canadian dollars which is the functional and presentation currency of the Credit Union. The Credit Union presents its consolidated statement of financial position on a non-classified basis in order of liquidity, with a distinction based on expectations regarding recovery or settlement within twelve months after the year end date (current) and more than twelve months after the year end date (non-current), presented in the notes. The Credit Union classifies its expenses by the nature of expenses method. (1)
The following balances are generally current: cash on hand and on deposit, investments, loans to members due within one year, other assets due within one year, members deposits due within one year and accounts payable due within one year. The following balances are generally non-current: long-term portion of loans to members, long-term portion of other assets, property, equipment and intangible assets, long-term portion of accounts payable, members shares and members deposits due beyond one year. The preparation of consolidated 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. Changes in assumptions may have a significant impact on the financial statements in the period the assumptions changed. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are the allowance for loss and the fair value of financial instruments, and are disclosed in note 4. 3 Significant accounting policies Principles of consolidation The consolidated financial statements include the accounts of the Credit Union and its wholly-owned and controlled subsidiaries. All intercompany transactions and balances have been eliminated. Cash on hand and on deposit Cash consists of cash on hand and deposits with other financial institutions. Cash is classified as held for trading and is carried at fair value. Financial instruments Financial assets The Credit Union designates financial assets as follows: loans and receivables, fair value through profit or loss ( FVTPL ), held-to-maturity investments and available for sale financial assets. Management determines the classification of its financial instruments at initial recognition. The Credit Union uses trade date accounting for regular way contracts when recording financial asset transactions. The Credit Union currently does not have any financial assets designated as held-to-maturity investments. (2)
Loans and receivables Loans to members, accounts receivable and contract deposits with Credit Union Central of Manitoba ( Central ) are designated as loans and receivables unless part of a hedging relationship. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are initially recognized at fair value - which is the cash consideration to originate or purchase the loan including any transaction costs - and measured subsequently at amortized cost using the effective interest rate method. Interest on loans is included in the consolidated statement of net income and comprehensive income and is reported as interest from loans to members. In the case of impairment, the impairment loss is reported as a deduction from the carrying value of the loan and recognized in the consolidated statement of net income and comprehensive income as allowance for loan loss. Fair value through profit or loss Cash on hand and on deposit, and loans designated as part of a hedging relationship are classified as FVTPL. Available for sale financial assets Shares in Central are classified as available for sale ( AFS ). AFS investments are financial assets that are intended to be held for an indefinite period of time and are not classified as loans and receivables. AFS financial assets are initially recognized at fair value, which is the cash consideration including any transaction costs, and measured subsequently at fair value with gains and losses being recognized in consolidated other comprehensive income. If an AFS financial asset is determined to be impaired, the cumulative gain or loss previously recognized in consolidated other comprehensive income is reclassified to consolidated net income. Impairment in excess of previously recognized gains or losses is recognized in consolidated net income. Interest is calculated using the effective interest method, and dividends on AFS equity instruments are recognized in the consolidated statement of net income and comprehensive income in investment income when the right to receive payment is established. Financial liabilities The Credit Union designates members deposits, accounts payable, members shares and shares to be issued as other financial liabilities. Other financial liabilities are initially recognized at fair value and subsequently measured at amortized cost using the effective interest rate method. (3)
Derivatives Interest rate swap derivative instruments are used to hedge exposure to interest rate risk. Under interest rate swap contracts, the Credit Union agrees to exchange the difference between fixed and floating rate interest amounts calculated on the agreed notional principal amounts. Such contacts enable the Credit Union to mitigate the risk of changing interest rates. To the extent that the hedging relationship is effective, a gain or loss arising from the hedged item in a fair value hedge adjusts the carrying value of the hedged item and is reported in earnings, offset by the change in fair value of the underlying derivative. Any changes in the fair value of derivatives that do not qualify for hedge accounting are reported in the consolidated statement of net income and comprehensive income. Loans to members Loans are initially recognized at fair value and are subsequently recorded at amortized cost using the effective interest rate method. Loans are stated net of an allowance for loss established to recognize estimated probable losses. In the case of impairment, the impairment loss is reported as a deduction from the carrying value of the loan and recognized in the consolidated statement of net income and comprehensive income as an allowance for loss. Property held for resale is valued at the lower of cost and estimated net realizable value. Loans are written off when there is no realistic prospect of recovering the loan in full. Recoveries on loans previously written off are taken into income. Allowance for loss The Credit Union maintains allowances for loss that reduce the carrying value of loans identified as impaired to their estimated realizable amounts. A loan is considered impaired if the Credit Union no longer has reasonable assurance that the full amount of the principal and interest will be collected in accordance with the terms of the loan agreement. Estimated realizable amounts are determined by estimating the fair value of security underlying the loans and deducting costs of realization, and by discounting the expected future cash flows at the financial asset s original effective interest rate. For the purposes of a collective evaluation of impairment, loans are grouped on the basis of similar credit risk characteristics (on the basis of the Credit Union s grading process that considers characteristics of each loan portfolio, industry, past-due status, historical write-off experience and other relevant factors). These characteristics are relevant to the estimation of future cash flows for groups of such loans by being indicative of the member s ability to pay all amounts due according to the contractual terms of the loans being evaluated. Future cash flows in a group of loans that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the loans in the Credit Union and historical loss experience for loans with credit risk characteristics similar to those in the Credit Union. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist. (4)
The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Credit Union to reduce any differences between loss estimates and actual loss experience. When a loan is uncollectible, it is written off against the related allowance for loss. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. 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 by adjusting the allowance account. The amount of the reversal is recognized in the consolidated statement of net income and comprehensive income in the allowance for loss. Property and equipment Property and equipment are carried at acquisition cost, less accumulated depreciation and accumulated impairment losses, if any. Depreciation is provided on a straight-line basis over the estimated useful life of the assets as follows: Buildings 5% Furniture and equipment 20% Computers 20% and 33% Signs 20% Parking lots 5% and 7% Shorter of the remaining term of Leasehold improvements the lease or estimated useful life Land is not subject to depreciation and is carried at cost. Assets within construction in progress ( CIP ) are not depreciated until available for use and at which time become subject to depreciation. The residual value, method of depreciation and useful lives of the assets are reviewed annually and adjusted if appropriate. Impairment reviews are performed when there are indicators that the recoverable amount of an asset may be less than the carrying value. The recoverable amount is determined as the higher of an asset s fair value less cost to sell and value in use. Impairment is recognized in the consolidated statement of net income and comprehensive income, when there is an indication that an asset may be impaired. In the event that the value of previously impaired assets recovers, the previously recognized impairment loss is recovered in the consolidated statement of net income and comprehensive income at that time. An item of property and equipment is derecognized upon disposal or when no further economic benefits are expected from its use. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated statement of net income and comprehensive income in the period the asset is derecognized. (5)
Intangible assets Intangible assets consist of certain acquired and internally developed computer systems and software. Intangible assets are carried at cost, less accumulated depreciation and accumulated impairment losses, if any. Input costs directly attributable to the development or implementation of the asset are capitalized if it is probable that future economic benefits associated with the expenditure will flow to the Credit Union and the cost can be measured reliably. Finite life intangible assets are tested for impairment when events or circumstances indicate that the carrying value may not be recoverable. When the recoverable amount is less than the net carrying value an impairment loss is recognized. Intangible assets available for use are amortized over their useful lives on a straight line basis at a rate of 10% - 33%. The method of amortization and useful lives of the assets are reviewed annually and adjusted if appropriate. There are no indefinite life intangible assets. Goodwill Goodwill represents the excess of the purchase price of an acquired business unit over the amount allocated to assets acquired less liabilities assumed, based on their fair values. Goodwill is tested annually for impairment at a business reporting unit level. Goodwill is determined to be impaired when the fair value of a reporting unit is less than its carrying amount. If impaired, the Credit Union would recognize an impairment loss in the statement of operations. 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 an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The expense of any provision is recognized in the consolidated statement of net income and comprehensive income. If the effect of the time value of money is material, provisions are discounted using a current pre-tax discount rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a borrowing cost. 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. Members shares are accounted for in accordance with IFRIC 2 Members Shares in Co-operative Entities and Similar Instruments ( IFRIC 2 ). In accordance with IFRIC 2, dividends to holders of equity instruments are recognized directly in equity, net of income tax benefits. Interest, dividends and other returns relating to financial instruments classified as financial liabilities are expenses, regardless of whether those amounts paid are legally characterized as dividends, interest or otherwise. (6)
Dividends Dividends are accounted for when they have been approved by the Board. Interest income and expense Interest income and expense for all interest-bearing financial instruments is recognized using the effective interest rate method. Once a financial asset or a group of similar financial assets have been written down as a result of an impairment loss, interest income is recognized using the rate of interest used to discount the future cash flows for the purposes of measuring the impairment loss. Other income Fees and commissions are recognized when earned, specifically when amounts are fixed or can be determined and the ability to collect is reasonably assured. Income taxes Tax expense for the period comprises current and deferred income tax. Current income tax expense is calculated on the basis of the Canadian tax laws enacted or substantively enacted as at the date of the consolidated statement of financial position. Deferred income taxes are provided for using the liability method. Under this method, temporary differences are recorded using tax rates that have been enacted or substantively enacted as at the date of the consolidated statement of financial position and are expected to apply when the corresponding taxes will be paid or refunded. Temporary differences are comprised primarily of differences between the carrying amounts and the income tax bases of the Credit Union s loans outstanding and property, equipment and intangibles. Deferred income tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Translation of foreign currencies All balances denominated in foreign currencies are translated into Canadian dollars at the rates prevailing on the statement of financial position date. Foreign exchange gains and losses are recorded in other income at the rates prevailing at the time of the transaction. (7)
4 Critical accounting estimates and judgments The preparation of consolidated financial statements in conformity with GAAP 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. Changes in assumptions may have a significant impact on the financial statements in the period the assumptions changed. Management believes that the underlying assumptions are appropriate and that the Credit Union s consolidated financial statements therefore present the financial position and results fairly. Significant estimates made in the preparation of these consolidated financial statements include, but are not limited to the following areas, with further information contained in the applicable accounting policy note: a) Allowance for loss The Credit Union reviews its loan portfolios to assess impairment at least on a quarterly basis. In determining whether an allowance for loss should be recorded in the consolidated statement of net income and comprehensive income, the Credit Union makes judgments as to whether there is any observable data indicating an impairment trigger followed by measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in the group, or national or local economic conditions that correlate with defaults on assets of the Credit Union. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience b) Fair value of financial instruments The fair value of financial instruments where no active market exists or where quoted prices are not otherwise available are determined by using a model based on observable data however, areas such as credit risk, volatilities and correlations require management to make estimates. Changes in assumptions about these factors could affect the disclosed fair value of financial instruments. The fair value of financial instruments is disclosed in note 17. (8)
5 Standards and interpretations issued but not yet effective The following is an overview of accounting standard changes that the Credit Union will be required to adopt in future years: IFRS 9 Financial Instruments introduces new requirements for the classification and measurement of financial assets. IFRS 9 requires all recognized financial assets that are within the scope of IAS 39 Financial Instruments: Recognition and Measurement 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. All other debt investments and equity investments are measured at their fair values at the end of subsequent accounting periods. Requirements for financial liabilities were added to IFRS 9 in October 2010 and they largely carried forward existing requirements in IAS 39, Financial Instruments - Recognition and Measurement, except that fair value changes due to credit risk for liabilities designated at fair value through profit and loss are generally recorded in other comprehensive income. This standard is effective for annual periods beginning on or after January 1, 2015, with earlier application permitted. The Credit Union is in the process of evaluating the impact of this standard on its consolidated financial statements. IFRS 10 Consolidation requires an entity to consolidate an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Under existing IFRS, consolidation is required when an entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. IFRS 10 replaces SIC-12 Consolidation - Special Purpose Entities and parts of IAS 27 Consolidated and Separate Financial Statements. This standard is required to be applied for annual periods beginning on or after January 1, 2013, with earlier adoption permitted. The Credit Union is in the process of evaluating the impact of this standard on its consolidated financial statements. IFRS 13 Fair Value Measurement is a comprehensive standard for fair value measurement and disclosure requirements for use across all IFRS standards. The new standard clarifies that fair value is the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction between market participants, at the measurement date. It also establishes disclosures about fair value measurement. Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among the specific standards requiring fair value measurements and in many cases does not reflect a clear measurement basis or consistent disclosures. This standard is required to be applied for annual periods beginning on or after January 1, 2013, with earlier adoption permitted. The Credit Union is in the process of evaluating the impact of this standard on its consolidated financial statements. (9)
IFRS 7, Financial Instruments: Disclosures, has been amended to include additional disclosure requirements in the reporting of transfer transactions and risk exposures relating to transfers of financial assets and the effect of those risks on an entity s financial position, particularly those involving securitization of financial assets. The amendment is applicable for annual periods beginning on or after July 1, 2011. The Credit Union has not yet assessed the impact of this standard on its consolidated financial statements. 6 Investments AFS Loans and receivables Total Credit Union Central of Manitoba Shares 16,816-16,816 Contract deposits - 196,600 196,600 Credential Securities Inc. debenture, non-interest bearing, maturing October 2020-250 250 16,816 196,850 213,666 Accrued interest receivable - 581 581 16,816 197,431 214,247 The above contract deposits bear interest at rates ranging from 1.09% to 3.41% with maturity dates ranging from January 2012 to August 2016. (10)
December 31, 2010 AFS Loans and receivables Total Credit Union Central of Manitoba Shares 17,090-17,090 Contract deposits - 182,500 182,500 Credential Securities Inc. debenture, non-interest bearing, maturing October 2020-250 250 17,090 182,750 199,840 Accrued interest receivable - 895 895 17,090 183,645 200,735 The above contract deposits bear interest at rates ranging from 1.07% to 3.41% with maturity dates ranging from January 2011 to November 2014. January 1, 2010 AFS Loans and receivables Total Credit Union Central of Manitoba Shares 17,095-17,095 Contract deposits - 173,656 173,656 Credential Securities Inc. debenture, non-interest bearing, maturing October 2020-250 250 Manitoba Builder Bonds, bearing interest at 3.7%, maturing June 2010-200 200 17,095 174,106 191,201 Accrued interest receivable - 1,173 1,173 17,095 175,279 192,374 The above contract deposits bear interest at rates ranging from 0.27% to 4.63% with maturity dates ranging from January 2010 to November 2014. (11)
7 Loans to members Loans to members are presented net of allowances for loss totalling 7,564,000 (2010-7,119,000), consisting of individually significant allowances of 5,098,000 (2010-5,132,000) for loans considered impaired and 2,466,000 (2010-1,987,000) of collective allowances, as follows: Gross loan balance Individually significant allowances Collective allowances Net loan balance Consumer Loans 288,259 (1,874) (658) 285,727 Mortgages 1,699,028 (331) (210) 1,698,487 Lines of credit 204,322 (918) (782) 202,622 Commercial Loans 50,195 (444) (615) 49,136 Mortgages 369,552 - (27) 369,525 Lines of credit 42,479 (1,531) (174) 40,774 2,653,835 (5,098) (2,466) 2,646,271 Accrued interest 4,347 - - 4,347 2,658,182 (5,098) (2,466) 2,650,618 Current 768,198 Non-current 1,882,420 December 31, 2010 Gross loan balance Individually significant allowances Collective allowances Net loan balance Consumer Loans 307,045 (2,002) (726) 304,317 Mortgages 1,593,868 (227) (136) 1,593,505 Lines of credit 197,176 (738) (750) 195,688 Commercial Loans 52,099 (260) (69) 51,770 Mortgages 333,573 (374) (126) 333,073 Lines of credit 43,602 (1,531) (180) 41,891 2,527,363 (5,132) (1,987) 2,520,244 Accrued interest 4,275 - - 4,275 2,531,638 (5,132) (1,987) 2,524,519 Current 728,807 Non-current 1,795,712 (12)
January 1, 2010 Gross loan balance Individually significant allowances Collective allowances Net loan balance Consumer Loans 315,860 (2,164) (1,386) 312,310 Mortgages 1,486,936 (61) (63) 1,486,812 Lines of credit 178,764 (472) (450) 177,842 Commercial Loans 57,410 (334) (134) 56,942 Mortgages 289,476 (363) (33) 289,080 Lines of credit 34,134 (1,038) (110) 32,986 2,362,580 (4,432) (2,176) 2,355,972 Accrued interest 4,983 - - 4,983 2,367,563 (4,432) (2,176) 2,360,955 Current 665,513 Non-current 1,695,442 The following schedule provides the amount of impaired loans in each of the major loan categories together with the individually significant loan allowances relating to these loans: Impaired loan balance Individually significant allowances Net impaired loan balance Consumer Loans 2,726 (1,780) 946 Mortgages 908 (266) 642 Lines of credit 918 (918) - Commercial Loans 658 (431) 227 Mortgages - - - Lines of credit 1,617 (1,531) 86 6,827 (4,926) 1,901 Accrued interest 172 (172) - 6,999 (5,098) 1,901 (13)
December 31, 2010 Impaired loan balance Individually significant allowances Net impaired loan balance Consumer Loans 2,804 (1,904) 900 Mortgages 555 (196) 359 Lines of credit 745 (738) 7 Commercial Loans 513 (236) 277 Mortgages 366 (366) - Lines of credit 2,197 (1,531) 666 7,180 (4,971) 2,209 Accrued interest 161 (161) - 7,341 (5,132) 2,209 January 1, 2010 Impaired loan balance Individually significant allowances Net impaired loan balance Consumer Loans 2,705 (2,068) 637 Mortgages 406 (35) 371 Lines of credit 468 (468) - Commercial Loans 965 (276) 689 Mortgages 995 (281) 714 Lines of credit 1,888 (1,026) 862 7,427 (4,154) 3,273 Accrued interest 278 (278) - 7,705 (4,432) 3,273 (14)
The change in the allowance for loss is as follows: Consumer Commercial Individually significant allowances Collective allowances Individually significant allowances Collective allowances Total Balance - beginning of year 2,967 1,612 2,165 375 7,119 Increase in impairment provision 2,180 37 667 441 3,325 Loans written off in the year (2,024) - (856) - (2,880) Balance - end of year 3,123 1,649 1,976 816 7,564 December 31, 2010 Consumer Commercial Individually significant allowances Collective allowances Individually significant allowances Collective allowances Total Balance - beginning of year 2,697 1,899 1,735 277 6,608 Increase (decrease) in impairment provision 2,354 (287) 724 98 2,889 Loans written off in the year (2,084) - (294) - (2,378) Balance - end of year 2,967 1,612 2,165 375 7,119 (15)
Loans past due but not impaired A loan is considered past due when a counterparty has not made a payment by the contractual due date. The following table presents the carrying value of loans that are past due one day and greater but not classified as impaired because they are either fully secured or collection efforts are reasonably expected to result in repayment. 1-30 days 31-60 days 61-89 days 90 days and greater Total Consumer 57,365 7,199 1,566 4,454 70,584 Commercial 4,839 659 113 2,257 7,868 62,204 7,858 1,679 6,711 78,452 1-30 days 31-60 days 61-89 days 90 days and greater December 31, 2010 Total Consumer 59,612 10,896 1,534 3,536 75,578 Commercial 6,611 748 17 293 7,669 66,223 11,644 1,551 3,829 83,247 1-30 days 31-60 days 61-89 days 90 days and greater January 1, 2010 Total Consumer 41,957 10,471 3,188 6,269 61,885 Commercial 9,259 527 145 764 10,695 51,216 10,998 3,333 7,033 72,580 The principal collateral and other credit enhancements the Credit Union holds as security for loans include (i) insurance, mortgages over residential lots and properties, (ii) recourse to business assets such as real estate, equipment, inventory and accounts receivable, (iii) recourse to the commercial real estate properties being financed, and (iv) recourse to liquid assets, guarantees and securities. Valuations of collateral are updated periodically depending on the nature of the collateral. The Credit Union has policies in place to monitor the degree of concentration in the collateral supporting its credit exposure. During the year ended, the Credit Union did not acquire any assets in respect of delinquent loans. (16)
8 Property, equipment and intangible assets Property and equipment Intangible assets Total (in thousands of dollars) Land Building Furniture and equipment Computers Signs Parking lot Leaseholds Software Total January 1, 2010 Cost 2,268 7,301 6,042 2,893 1,030 469 4,123 5,936 30,062 Accumulated depreciation - (2,517) (3,119) (1,986) (575) (178) (2,330) (1,220) (11,925) Net book value 2,268 4,784 2,923 907 455 291 1,793 4,716 18,137 December 31, 2010 Opening net book value 2,268 4,784 2,923 907 455 291 1,793 4,716 18,137 Additions 878 61 1,805 128 3-1,952 91 4,918 Disposals - - (39) (1) - - (116) - (156) Depreciation - (354) (1,042) (389) (195) (31) (369) (710) (3,090) Net book value 3,146 4,491 3,647 645 263 260 3,260 4,097 19,809 December 31, 2010 Cost 3,146 7,362 7,694 2,842 1,033 469 5,469 6,026 34,041 Accumulated depreciation - (2,871) (4,047) (2,197) (770) (209) (2,209) (1,929) (14,232) Net book value 3,146 4,491 3,647 645 263 260 3,260 4,097 19,809 Opening net book value 3,146 4,491 3,647 645 263 260 3,260 4,097 19,809 Additions 85 681 1,266 279 58-2,781 224 5,374 Disposals (414) - (25) - - - - - (439) Transfer to property held for resale (173) (535) - - - - - - (708) Depreciation - (351) (1,251) (367) (201) (29) (600) (727) (3,526) Net book value 2,644 4,286 3,637 557 120 231 5,441 3,594 20,510 Cost 2,644 7,341 8,153 2,713 1,035 469 8,235 6,134 36,724 Accumulated depreciation - (3,055) (4,516) (2,156) (915) (238) (2,794) (2,540) (16,214) Net book value 2,644 4,286 3,637 557 120 231 5,441 3,594 20,510 During the year, fully depreciated furniture and equipment, computer, signs, leaseholds and software assets with an initial cost of 630,000, 408,000, 56,000, 15,000 and 116,000 respectively (2010-4,000, 195,000, nil, 270,000 and 1,000) were disposed of for no consideration. (17)
9 Other assets December 31, 2011 December 31, 2010 January 1, 2010 Accounts receivable 5,475 5,586 5,963 Prepaid expenses 1,190 979 1,148 Income taxes recoverable 329-367 Property held for resale 708 - - Deferred income tax asset 317 90 150 Goodwill 1,573 1,573 1,573 9,592 8,228 9,201 Current 5,946 5,562 5,983 Non-current 3,646 2,666 3,218 10 Members deposits December 31, 2011 December 31, 2010 January 1, 2010 Savings 731,962 613,466 541,545 Chequing 470,809 438,187 416,154 Term deposits 998,761 917,037 844,300 Registered deposits 696,710 660,297 631,497 Inactive accounts 183 184 193 Accrued interest payable 29,738 30,075 32,124 2,928,163 2,659,246 2,465,813 Current 1,980,422 1,796,669 1,646,542 Non-current 947,741 862,577 819,271 (18)
11 Accounts payable December 31, 2011 December 31, 2010 January 1, 2010 Accounts payable and accrued liabilities 12,714 13,075 11,059 Income taxes payable - 730-12,714 13,805 11,059 Current 11,226 12,268 9,734 Non-current 1,488 1,537 1,325 12 Income taxes The significant components of the provision for income taxes included in the consolidated statement of net income and comprehensive income are composed of: 2011 2010 Current income taxes Based on current year taxable income 2,757 2,533 2011 2010 Deferred income taxes Origination and reversal of temporary differences (227) (25) Adjustment recognized for deferred taxes of prior periods - 85 (227) 60 (19)
The Credit Union provides for income taxes at statutory rates as determined below: 2011 % 2010 % Federal base rate 38.00 38.00 Federal abatement (10.00) (10.00) Additional deduction for credit unions (17.00) (17.00) Net federal tax rate 11.00 11.00 Provincial tax rate* 1.00 0.92 12.00 11.92 * The provincial tax rate increase is the result of the additional tax imposed on credit unions in accordance with the 2010 Province of Manitoba budget. Reasons for the difference between tax expense for the year and the expected income taxes based on the statutory rate of 12.00% (2010-11.92%) are as follows: 2011 2010 Net income for the year 19,949 20,981 Expected provision for income taxes at statutory rates 2,394 2,501 Higher tax rate applicable to subsidiary 176 132 Non-deductible portion of expenses 17 16 Change in tax rates - (13) Adjustment recognized for tax of prior periods - (35) Other (57) (8) Total provision for income taxes 2,530 2,593 Per the Income Tax Act, credit unions are entitled to a deduction from taxable income related to payments in respect of shares and therefore any dividends paid or payable by the Credit Union would result in tax savings of 12.00% (2010-11.92%). As a result, dividends charged against reserves are net of the foregoing related income tax savings of 93,000 (2010-92,000). (20)
Components of the deferred tax assets and liabilities are as follows: December 31, 2011 December 31, 2010 January 1, 2010 Deferred tax assets Loans outstanding 357 317 328 Provisions for expenditure currently not deductible for income tax purposes 62 68 129 419 385 457 Deferred tax liabilities Capital cost allowance in excess of depreciation 102 295 307 Total deferred taxes 317 90 150 December 31, 2011 December 31, 2010 January 1, 2010 Deferred tax assets Deferred tax assets to be recovered within 12 months 49 6 44 Deferred tax assets to be recovered after more than 12 months 370 379 413 419 385 457 Deferred tax liabilities Deferred tax liabilities to be paid within 12 months 102 189 63 Deferred tax liabilities to be paid after more than 12 months - 106 244 102 295 307 Net deferred tax assets 317 90 150 (21)
13 Regulatory requirements Capital is managed in accordance with policies established by the Board. Management regards a strong capital base as an integral part of the Credit Union s strategy. The Credit Union has a capital plan to provide a longterm forecast of capital requirements. Capital is defined within the Act as members equity which includes members shares, the provision for the issuance of preference shares and surplus shares, contributed surplus and retained surplus. All of the elements of capital are monitored throughout the year, and modifications of capital management strategies are made as appropriate. The Board determines annually the extent of any dividend payments on eligible member shares, within the context of its overall capital management plan. Regulations to the Act establish the following requirements with respect to capital and liquidity reserves: Capital requirements For regulatory purposes, members equity is defined as: all issued capital of the Credit Union regardless of classification on the consolidated statement of financial position; contributed surplus and retained surplus. The Credit Union shall maintain a level of capital as follows: a) members equity not less than 5% of assets; b) surplus not less than 3% of assets; and c) capital as defined in the Regulations not less than 8% of the risk-weighted value of assets as defined in the Regulations. The Credit Union has met these requirements as at. Liquidity reserve The Credit Union shall maintain in cash on hand and on deposit and investments offered by Central not less than 8% of its total members deposits. The Credit Union has met this requirement as at. (22)
14 Members shares Each member must purchase one common share. No member may hold more than 10% of the issued shares of any class. Each member of the Credit Union has one vote, regardless of the number of shares that a member holds. Authorized shares Common shares Authorized common share capital consists of an unlimited number of common shares, issued and redeemable at 5 each. The total amount of common shares purchased or redeemed by the Credit Union in a fiscal year shall not exceed the total amount of common shares issued in that year if the Credit Union s equity is, or would by such purchase or redemption be, less than the level of capital as prescribed by the Act as defined in note 13. Common shares are redeemable at the request of the member upon closing their accounts. All common shares are classified as a liability. Surplus shares Authorized surplus share capital consists of an unlimited number of surplus shares, issued and redeemable at 1 each. Dividends are payable at the discretion of the Board. The total amount of surplus shares purchased or redeemed by the Credit Union in a fiscal year shall not exceed 5% of the amount of surplus shares outstanding at the last fiscal year end of the Credit Union if the Credit Union s equity is, or would by such purchase or redemption be, less than the level of capital as prescribed by the Act as defined in note 13. Surplus shares are redeemable at the request of the member upon closing their account. All surplus shares are classified as a liability. Preference shares Authorized Class Assiniboine preference share capital consists of 3,000,000 non-voting Class Assiniboine preference shares, having a cumulative dividend rate, when declared, of not less than the first year rate of the latest issue of Canada Savings Bonds, issued and redeemable at 10 each. Authorized Class Astra preference share capital consists of 1,000,000 non-voting Class Astra preference shares, having a cumulative dividend rate, when declared, of not less than the annual dividend rate of a one-year guaranteed investment certificate as offered by the five largest Canadian banks, issued and redeemable at 5 each. Dividends are payable at the discretion of the Board. The total amount of preference shares purchased or redeemed by the Credit Union in a fiscal year shall not exceed 20% of the amount of preference shares outstanding at the last fiscal year end of the Credit Union if the Credit Union s equity is, or by such purchase or redemption would be, less than the level of capital as prescribed by the Act as defined in note 13. Preference shares are redeemable at the discretion of the Board. Therefore, all preference shares are classified as equity. (23)
Members shares - classified as liabilities 2011 2010 Surplus shares Beginning of year 12,972 13,206 Issued during the year from dividends 250 254 Redemption of surplus shares (553) (488) End of year 12,669 12,972 Common shares Beginning of year 539 532 Issued on application for membership 33 31 Redemption of common shares (20) (24) End of year 552 539 Total members shares - classified as liabilities 13,221 13,511 Members shares - classified as equity 2011 2010 Class Assiniboine Class Astra Total Class Assiniboine Class Astra Total Preference share capital Beginning of year 14,382 2,709 17,091 14,131 2,772 16,903 Issued during the year from dividends 647 122 769 636 125 761 Redemption of preference shares (467) (194) (661) (385) (188) (573) Total members shares - classified as equity 14,562 2,637 17,199 14,382 2,709 17,091 (24)