2014 Annual Report - Bow Valley Credit Union

Transcription

BANK LOCAL. FEEL GOOD.
Credit Union
2014 ANNUAL REPORT
Vision Statement:
To provide affordable, high quality financial
services where the people have a say.
Core values:
Accountability
We take responsibility for the financial, social, environmental, and economic
impacts of our decisions and actions, and disclose our performance in a
transparent manner.
Co-operation
We work together and partner with others for mutual benefit and the
common good.
Integrity
We are consistently honest, fair, and respectful in all our relations.
Service
We strive for excellence in all we do to provide the best service for our members.
Credit Union
BOW VALLEY CREDIT UNION LIMITED
2014 Annual Report
Table of Contents
Vision & Core Values............................................................................... inside front cover
Board of Directors’ Report................................................................................................ 2
Board of Directors............................................................................................................... 3
President & Chief Executive Officer Report..................................................................... 4
Three Pillars of Our Success................................................................................................ 6
Accomplishments 2014...................................................................................................... 8
2014 Financial Performance............................................................................................ 10
Management’s Responsibility for Financial Reporting................................................. 12
Independent Auditor’s Report........................................................................................ 13
2013 Financial Statements............................................................................................... 14
Locations............................................................................................................back cover
Board of Directors’ Report
As chairperson of your Board of Director’s I am
pleased to provide an overview of Bow Valley
Credit Union’s affairs for the fiscal year 2014.
The Credit Union continues to enjoy success
and experience financial strength and stability.
Your Board is committed to providing effective
governance, to protect the interest of its members,
and promote the stability of our Credit Union.
Your Board continues to improve its corporate
governance through adopting sound business
practices. Our major responsibility is to set the
strategic vision and direction of the Credit Union.
We continually monitor our capital
position by reviewing our annual
budget and monitoring the Credit
Union’s progress to achieve our
vision. We annually review the
performance of management
and have developed a Succession
Plan for both Board of Directors
and Chief Executive Officer. We
continually review changes in
the regulatory environment, both
provincially and federally imposed
upon the Credit Union, and ensure
these are met.
We have implemented a new
committee structure and meeting
schedule which provides your
Board of Directors the ability to
monitor the results of the Credit
Union while providing flexibility
for management to react to the
member’s needs. Our committees
are active and report regularly to
your Board of Directors, identifying
business activities which require the
Board’s attention. During 2014 your
Board of Directors met 8 times to
discuss the financial performance,
annual budget, corporate and
risk strategies, business plan and
significant operational matters
affecting
the
Credit
Union.
Important business matters for
the Credit Union this year was
2
the development of a Capital
Management Plan that will meet
the requirements of our regulatory
body, and provide our Credit Union
with a strong financial base into
the future. Receiving three director
resignations during late 2014
has resulted in the Governance
Committee
commencing
its
recruitment process to ensure that
the appropriate skill-set remains
intact on your Board of Directors.
I wish to express my appreciation
to the entire Board of Directors for
their commitment and leadership
throughout 2014. Furthermore, your
Board of Directors is pleased with
our Credit Union’s achievements
throughout the year. We wish
to thank its employees and
management for their continual
support, contributing to another
successful year for Bow Valley
Credit Union.
Respectfully submitted,
John Stutz
Board Chair
Board of Directors
John Stutz,
Board Chair, Banff
Brett Oland,
Board Vice Chair, Canmore
Kevin Karpovich,
Secretary, Calgary
Doug Cameron,
Director, Calgary
Pamela Hilstad,
Director, Canmore
Fraser Kulba,
Director, Cochrane
John Mulders,
Director, Airdrie
Art Nutt,
Director, Banff
Larry Wackershauser,
Director, Cochrane
Alan Warnock,
Director, Airdrie
(From September 2014)
(Until August 2014)
(Until September 2014)
3
(Until October 2014)
President & Chief Executive
Officer Report
The year 2014 was another successful year for
Bow Valley Credit Union. We saw our profit position
exceed 2013 and our 2014 budget expectations
while operating in a low interest environment. The
leadership of your Credit Union listened to you
the members, and is committed to meet your
needs and expectations for financial services.
We regularly review our products and services,
implement changes, and strive to provide
industry leading financial services to strengthen
our member relationship.
The assets of the Credit Union grew
by 5.0% and closed the year at
$305 million. Loans to members
increased by approximately 6.0%
during the year, while member
deposits also increased by 4.5%.
Adjusting for the one-time income
payment from Alberta Central
in 2013, our profit in 2014 grew by
20.0% prior to member profit sharing
payment and corporate tax.
The key to the Credit Union’s success
is building capital which exceeds
the legislative and regulatory
requirements, and allows the Credit
Union to offer competitive financial
services. At year-end 2014 your
Credit Union achieved a Capital to
Risk Weighted Asset Ratio of 13.55%
which compares to the requirement
of 12.50%.
Our employees are essential to the
success of our Credit Union. We
feel it is important to ensure our
employees have the necessary
knowledge to provide you, the
member, quality service. Therefore,
in 2014 we increased investment
in our employees by enhancing
training activities at all levels.
We are pleased to announce
that a profit share payment to
our members will occur in 2014.
Members will receive a rebate on
loan interest paid on residential
mortgages of 5.0% and an interest
4
bonus of 8.0% on Guaranteed
Investment
Certificates
(GICs)
interest received. We are pleased
to report that since the inception of
our Profit Share Program, the Bow
Valley Credit Union has paid back
to its membership over $2.7 million
in profit share.
In 2015 our strategies for your Credit
Union will be to review our products
offered
to
our
membership
ensuring they are competitive and
attractive to new members. We will
review our electronic products and
services, making further investment
in technology to ensure that these
services are market leading.
I would like to take this opportunity
to thank our employees and Board
of Directors who are committed
to the values and integrity of our
Credit Union.
Respectfully submitted,
Larry Bohn
President and
Chief Executive Officer
Grow
To Increase; to become larger and stronger
Innovate
To bring something new to an environment
Sustain
To prolong; to support the weight of
Change is constant and we continue to grow and change with our
membership and communities by redefining how we deliver financial
services to meet the needs of our membership, in a sustainable manner.
– Larry Bohn, President and Chief Executive Officer
5
Three Pillars
of Our Success
Our Members
From its small beginnings, Bow Valley Credit Union was and is a success
today because of you, its members. Those who desired a community
based financial institution that cares about its people, those who work and
live around it.
Our members are important and
valuable contributors to Bow Valley’s
success. Our employees are members
too, and they work with energy and
diligence to ensure all members are
treated respectfully, and provided
with products and services that suit
you, the individual. Bow Valley is not
just a business; it is an organization
that strives to assist you in building the
life you want to have.
Your support is fundamental
to our continued success. That
success revolves back to our
members by way of Profit Sharing.
Members receive a percentage of
interest earned on their qualifying
investments and paid on their
qualifying loans.
Through our Profit Share Program, Bow Valley Credit Union
has paid back to its members over
2.7 Million dollars.
Our Team
Our Credit Union is built on the
quality of our staff, who strive to
deliver satisfaction and excellent
service to our members each day.
Without the dedication, diligence,
and energy of our staff, Bow Valley
Credit Union would not be the
success it is today.
6
Thank you to each and every
person on our team that contributes
to the success of our Credit Union,
and ultimately the success of our
members.
Our Community
Our communities, a place of connection, of pride, and of belonging. Each
community that Bow Valley Credit Union operates in is important to our
team. We know the people who work there, we know the people who live
there. It consists of our family, our friends, and potential of new relationships
every day.
The Bow Valley team believes in each community, its potential, and its people.
That’s why it is so important that we give back each year to our communities.
Organizations and events proudly supported by Bow Valley Credit Union
in 2014:

2014 Maple Leaf Junior Golf
Tour, Banff

Cochrane and District
Agriculture Society Rodeo

Airdrie Atom Spartans - minor
hockey

Cochrane Jaguars Volleyball
Team

Airdrie Festival of Lights

Cochrane Lions Club

Airdrie Food Bank

Cochrane SPCA

AMPPE - The Association for
Mountain Parks Protection and
Enjoyment

Cochrane Summerfest

Cochrane Youth Festival

Elks & Royal Purple, Airdrie

Festival of Trees, Canmore

Glenbow Ranch, Children’s
Race

Lindsay Kimmett Memorial
Tournament, Cochrane

Anti-Bullying Day, Cochrane

ARTember Festival, Airdrie

Banff Community Foundation

Banff Minor Hockey

Banff Public Library Fundraiser

Bow Valley College,
Scholarships

Ride of the Mustangs
(Children’s Hospital of Alberta)

Bow Valley High School
Cochrane, Scholarships

Calgary Boobyball – supporting
Breast Cancer survivors and
research
Rolling Sculpture Car Show support the “Food for Learning”
program in the Canmore
Schools

Sponsor a Firefighter, Airdrie

Canmore Coho Swim Club

Canmore Golf and Curling
Club
Three Sisters Scottish Festival
Society (Canmore Highland
Games)

Canmore Highland Games

Canmore soccer
Victims Services (Airdrie and
Cochrane districts)

Christmas in Canmore

WOR Association - National
Wall of Remembrance, Banff
7
Accomplishments 2014
CAPITAL AND RISK

FINANCIAL
PERFORMANCE
RWA ratio reached 13.50%
which exceeds regulatory
requirements of 12.00%.
Series F investment shares was
fully subscribed.

Exceeded ROA by 10 basis
points.

Increased Profit Share paid to
members. Members will receive
a rebate on loan interest paid
on residential mortgages of
5.0% and an interest bonus
of 8.0% on Guaranteed
Investment Certificates (GICs)
interest received.
CREDIT

Ongoing review of member
loan product line

Met budget projections
HUMAN RESOURCES
8

Continued to utilize staff
survey to improve employee
compensation program

Introduced employee training
roadmaps to increase
knowledge and advancement
opportunities

Corporate structure enhanced
to deal with compliance and
operational requirements.
INFRASTRUCTURE

PRODUCTS
Replaced aging ATMs in all
locations
LEGISLATION AND
GOVERNANCE

Enhanced the Investment
Policy of the Credit Union

Developed framework for long
term capital requirements to
strengthen your credit union.
LIQUIDITY

Continue to attract deposits to
meet and fund member loan
demands

Deposit portfolio exceeded
budget projections.
9

Launched Small Business
Member Direct.

Complete review of online
products offered by the
Credit Union. Developed a
strategy to implement new
services in 2015. These include
Interac Flash, Remote Deposit
Capture, Personal Financial
Management tool for Member
Direct Online Banking, and
mobile apps.
2014 Financial Performance
The graphs indicate your
Credit Union continues
to experience success
in a very competitive
marketplace.
Assets
(Millions)
350
300
250
200
150
100
50
0
2012
2013
2014
Income before Profit Share
& Taxes (Thousands)
2000
1500
1000
500
0
10
2012
2013
2014
Member Loans
Capital & Retained
Earnings (Millions)
(Millions)
250
25
200
20
150
15
100
10
50
5
0
2012
2013
0
2014
Member Deposits
(Millions)
300
250
200
150
100
50
0
2012
2013
2014
11
2012
2013
2014
Management Responsibility
To the Members of Bow Valley
Credit Union Ltd.
Management is responsible for
the preparation and presentation
of the accompanying financial
statements, including responsibility
for
significant
accounting
judgements and estimates in
accordance with International
Financial Reporting Standards and
ensuring that all information in the
annual report is consistent with
the statements. This responsibility
includes selecting appropriate
accounting
principles
and
methods, and making decisions
affecting the measurement of
transactions in which objective
judgement is required.
In discharging its responsibilities
for the integrity and fairness of the
financial statements, management
designs
and
maintains
the
necessary accounting systems
and related internal controls to
provide reasonable assurance that
transactions are authorized, assets
are safeguarded and financial
records are properly maintained to
provide reliable information for the
preparation of financial statements.
Larry Bohn
Chief Executive Officer
The Board of Directors and Audit
Committee are composed entirely
of Directors who are neither
management nor employees of the
Credit Union. The Board is responsible
for overseeing management in
the performance of its financial
reporting responsibilities, and for
approving the financial information
included in the annual report. The
Board fulfils these responsibilities by
reviewing the financial information
prepared by management and
discussing relevant matters with
management
and
external
auditors. The Committee is also
responsible for recommending the
appointment of the Credit Union’s
external auditors.
Collins Barrow Edmonton LLP, an
independent firm of Chartered
Accountants, is appointed by the
members to audit the financial
statements and report directly
to them; their report follows. The
external auditors have full and free
access to, and meet periodically
and separately with, both the
Committee and management to
discuss their audit findings
Byron Bidulka, CGA
Manager of Finance
12
Independent Auditor’s Report
Collins Barrow Edmonton LLP
2380 Commerce Place
10155 – 102 Street N.W.
Edmonton, Alberta
T5J 4G8 Canada
INDEPENDENT AUDITORS’ REPORT
T. 780.428.1522
F. 780.425.8189
www.collinsbarrow.com
To the Members of Bow Valley Credit Union Ltd.
We have audited the accompanying financial statements of Bow Valley Credit Union Ltd., which comprise
the statement of financial position as at October 31, 2014 and the statements of income and
comprehensive income, changes in members’ equity and cash flows for the year ended October 31,
2014, and a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with International Financial Reporting Standards, and for such internal control as
management determines is necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We
conducted our audit in accordance with Canadian generally accepted auditing standards. Those
standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statements. The procedures selected depend on the auditors’ judgement, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the Credit
Union’s preparation and fair presentation of the financial statements in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as well
as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of Bow
Valley Credit Union Ltd. as at October 31, 2014 and its financial performance and its cash flows for the
year ended October 31, 2014 in accordance with International Financial Reporting Standards.
Edmonton, Alberta
December 9, 2014
This office is independently owned and operated by Collins Barrow Edmonton LLP
The Collins Barrow trademarks are used under License.
Chartered Accountants
13
Statement of Financial Position
October 31, 2014
October 31,
2014
Assets
Cash
Income taxes receivable
Investments (Note 4)
Loans to members (Note 5)
Derivative financial assets
Other assets (Note 6)
Property and equipment (Note 7)
Intangible assets (Note 7)
$
October 31,
2013
8,342,579 $ 10,590,531
17,339
--40,773,493
37,342,876
246,837,634
233,343,381
265,679
344,817
89,968
96,412
8,428,373
8,507,901
347,154
449,272
$ 305,102,219 $ 290,675,190
Liabilities
Member deposits (Note 8)
Accounts payable and accrued liabilities (Note 9)
Income taxes payable
Derivative financial liabilities (Note 8)
Deferred income tax liability (Note 13)
Members’ Equity
Allocation distributable (Note 11)
Share capital (Note 12)
Retained earnings
$ 282,073,744 $ 269,802,957
829,466
449,566
--128,300
265,679
344,817
98,187
102,429
283,267,076
270,828,069
461,644
7,842,832
13,530,667
374,218
6,849,292
12,623,611
21,835,143
19,847,121
$ 305,102,219 $ 290,675,190
Commitments (Note 16)
Approved on behalf of the Board
John Stutz, Chairperson
Doug Cameron, Director
See accompanying notes to the financial statements
14
Statement of Income and
Comprehensive Income
October 31, 2014
2014
Financial Income
Interest on member loans
Investment
$
9,600,679 $
559,523
2013
9,135,820
1,076,460
10,160,202
10,212,280
2,938,767
4,113
3,123,193
4,940
2,942,880
3,128,133
7,217,322
7,084,147
283,475
233,125
6,933,847
6,851,022
74,096
79,372
6,859,751
6,771,650
210,054
1,563,114
(39,529)
164,917
1,515,756
(3,063)
1,733,639
1,677,610
8,593,390
8,449,260
Less: Operating expenses (Schedule 1)
7,240,477
6,838,354
Income before income taxes
1,352,913
1,610,906
312,196
(4,242)
364,287
5,889
307,954
370,176
Financial Expenses
Interest on member deposits
Interest on borrowings
Financial margin before profit share
Profit share (Note 11)
Financial margin
Charge for loan impairment (Note 5)
Other income (expenses)
Sub-lease
Service charges and other
Loss on disposal of property and equipment
Income tax expense (recovery) (Note 13)
Current income taxes expense
Deferred income taxes expense
Net income and comprehensive income
15
$
1,044,959 $
1,240,730
Statement of Changes in
Members’ Equity
For the Year Ended October 31, 2014
Share
Capital
Allocation
Distributable
5,783,785 $
---
Retained
Earnings
Total
Equity
As at November 1, 2012
Total net income for the year
Share capital issued and
redeemed for cash, net
Investment shares issued to settle
allocation distributable
Dividends on investment shares,
net of tax recovery of $30,759
Patronage distribution declared
$
302,729 $ 11,493,215 $ 17,579,729
--1,240,730
1,240,730
As at October 31, 2013
$
6,849,292 $
374,218 $ 12,623,611 $ 19,847,121
As at November 1, 2013
Total net income for the year
Share capital issued and
redeemed for cash, net
Investment shares issued to settle
allocation distributable
Dividends on investment shares,
net of tax recovery of $40,266
Patronage distribution declared
$
6,849,292 $
---
374,218 $ 12,623,611 $ 19,847,121
--1,044,959
1,044,959
As at October 31, 2014
$
768,249
---
---
768,249
297,258
(302,729)
---
(5,471)
-----
141,093
233,125
(110,334)
---
30,759
233,125
621,857
---
---
621,857
371,683
(374,218)
---
(2,535)
-----
178,169
283,475
(137,903)
---
40,266
283,475
7,842,832 $
16
461,644 $ 13,530,667 $ 21,835,143
Statement of Cash Flows
Cash flows from operating activities:
Net income
Adjustments for:
Non-cash items:
Net interest income
Provisions for impaired loans
Provisions for deferred income taxes
Depreciation
Loss on disposition of property and equipment
Unpaid patronage dividends
$
Changes in other assets:
Changes in other assets
Changes in accounts payable and accrued liabilities
Changes in income taxes payable
Changes in member activities (net):
Changes in member loans
Changes in member deposits
Cash flows related to interest:
Interest received on member loans
Interest received on investments
Interest paid on member deposits
Interest paid on external borrowings
Cash flows from financing activities:
Issuance of common and investment shares
Redemption of common and investment shares
Tax recovery on investment share dividends
Cash flows from investing activities:
Proceeds from sale of investments
Purchase of investments
Additions to intangible assets
Additions to property and equipment
Proceeds on disposal of assets
Net increase (decrease) in cash
Cash, beginning of year
Cash, end of year
$
17
2014
2013
1,044,959 $
1,240,730
(6,933,847)
74,096
(4,242)
539,983
39,529
(2,535)
(6,851,022)
79,372
5,889
576,283
3,063
(5,471)
(5,242,057)
(4,951,156)
6,444
379,900
(145,639)
(12,703)
(117,559)
71,439
240,705
(58,823)
(13,582,906)
12,445,889
(20,804,644)
14,093,933
(1,137,017)
(6,710,711)
9,615,236
560,723
(3,113,869)
(4,113)
9,084,455
1,077,384
(3,297,517)
(4,940)
7,057,977
6,859,382
919,608
(4,861,308)
1,023,565
(401,708)
40,266
1,024,873
(256,624)
30,759
662,123
799,008
1,318,182
(4,750,000)
(572)
(397,293)
---
7,507,244
--(1,789)
(261,088)
36,370
(3,829,683)
7,280,737
(2,247,952)
10,590,531
3,218,437
7,372,094
8,342,579 $
10,590,531
Schedule 1: Operating Expenses
2014
Personnel
$
Security
Bonding
Deposit guarantee
Security equipment
Organizational
Central dues
Directors’ expenses
Directors’ fees and committee remuneration
Other
Occupancy
Depreciation
Insurance
Property taxes
Rent
Repairs and maintenance
Utilities
General business
Advertising
Depreciation
Cash and service charges
Computer
Courier and postage
Office
Other
Professional fees
Telephone
$
18
3,580,116
2013
$
3,268,405
38,750
382,860
19,756
36,969
374,695
18,234
441,366
429,898
84,651
4,443
19,285
28,033
83,127
7,939
15,910
25,117
136,412
132,093
229,635
16,500
109,483
275,368
166,651
87,721
229,326
16,043
109,436
274,693
174,144
87,020
885,358
890,662
193,246
310,348
195,542
830,255
119,769
75,491
259,140
170,962
42,472
179,415
346,957
159,946
786,542
125,981
76,983
211,550
190,407
39,515
2,197,225
2,117,296
7,240,477
$
6,838,354
Notes to the Financial Statements
October 31, 2014
1.
Nature of operations
Bow Valley Credit Union Ltd. (the “Credit Union”) was formed pursuant to the Credit Union Act of the
Province of Alberta and operates six Credit Union branches. The Credit Union serves members in
Banff, Calgary, Canmore, Cochrane, Airdrie and their surrounding communities. The Credit Union is
headquartered at 212 5th Avenue West, Cochrane, Alberta, T4C 2G4.
The Credit Union Deposit Guarantee Corporation (the “Corporation”), a provincial corporation,
guarantees the repayment of all deposits with Alberta credit unions, including accrued interest. The
Credit Union Act provides that the Province of Alberta will ensure that the Corporation carries out this
obligation.
2.
Basis of preparation
Statement of compliance
These financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and
interpretations of the International Financial Reporting Interpretations Committee (“IFRIC”).
These financial statements were approved by the Board of Directors of the Credit Union on
December 9, 2014.
Basis of presentation
These financial statements were prepared under the historical cost convention, except for those
financial assets and financial liabilities, including derivatives that are measured at fair value.
Functional and presentation currency
These financial statements are presented in Canadian dollars, the Credit Union’s functional and
presentational currency.
Use of estimates and judgements
The preparation of financial statements in accordance with IFRS requires the use of certain critical
accounting estimates and judgements that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the balance sheet date and the reported
amounts of revenue and expenses during the reporting period. Actual results could differ from such
estimates. Estimates and judgements are continually evaluated and are made based on historical
experience and other factors, including expectations of future events that are reasonable under the
circumstances.
The effect of a change in an accounting estimate is recognized prospectively by including it in
comprehensive income in the period of the change, if the change affects that period only; or in the
period of the change and future periods, if the change affects both.
Fair value of financial instruments:
The Credit Union determines the fair value of financial instruments that are not quoted in an active
market, using valuation techniques that include the use of mathematical models. Those techniques
are significantly affected by observable market data and the assumptions used, including discount
rates, prepayment rates and estimates of future cash flows. In that regard, the derived fair value
estimates cannot always be substantiated by comparison with independent markets and, in many
cases, may not be capable of being realized immediately.
Management believes that the chosen valuation techniques and assumptions used are appropriate
in determining the fair value of financial instruments.
The methods, and assumptions applied, and the valuation techniques used, for financial instruments
that are not quoted in an active market are disclosed in note 14.
19
October 31, 2014
2.
Basis of preparation (Continued)
Use of estimates and judgements (Continued)
Impairment losses on member loans:
The Credit Union reviews its loan portfolio to assess impairment at each balance sheet date. In
determining whether an impairment loss should be recorded in the statement of income and
comprehensive income, the Credit Union makes judgements as to whether there is any objective
evidence indicating an impairment followed by a measureable decrease in the estimated future
cash flows from a portfolio of loans before the decrease can be identified in that portfolio. The
assessment takes into account 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.
Income taxes:
Provisions for income taxes are made using the best estimate of the amount expected to be paid
based on a qualitative assessment of all relevant factors. The Credit Union reviews the adequacy of
these provisions at the end of each reporting period. However, it is possible that at some future date
an additional liability could result from audits by taxation authorities. Where the final outcome of
these tax-related matters is different from the amounts that were initially recorded, such differences
will affect the tax provisions in the period in which such determination is made.
Deferred income taxes:
Deferred income tax assets are recognized in respect of unused tax losses or deductible temporary
differences to the extent that it is probable that taxable income will be available against which the
losses can be utilized. Judgement is required to determine the amount of deferred income tax assets
that can be recognized, based on the likely timing and level of future taxable profits, together with
future tax planning strategies.
3.
Significant accounting policies
The Credit Union follows accounting policies appropriate to its activities and governing legislation, as
set out below. These policies have been consistently applied to all the periods presented, unless
otherwise stated.
Financial instruments
Recognition and Measurement:
Financial assets and financial liabilities, including derivatives, are recognized on the statement of
financial position when the Credit Union becomes a party to the contractual provisions of a financial
instrument or non-financial derivative contract. The Credit Union recognizes financial instruments at
the trade date. All financial instruments are initially measured at fair value. Subsequent measurement
is dependent upon the financial instrument’s classification. Transaction costs relating to financial
instruments designated as fair value through profit or loss (“FVTPL”) are expensed as incurred.
Transaction costs for other financial instruments are capitalized on initial recognition.
20
October 31, 2014
3.
Significant accounting policies (Continued)
Financial instruments (Continued)
Financial Instruments at Fair Value through Profit or Loss:
This category comprises two sub-categories: financial assets held for trading and financial assets
designated by the Credit Union as FVTPL upon initial recognition.
A financial instrument is classified as held for trading if it is acquired principally for the purpose of
selling or repurchasing it in the near term or if it is part of a portfolio of identified financial instruments
that are managed together and for which there is evidence of a recent actual pattern of short-term
profit taking. Derivatives are also categorized as held for trading unless they are designated and
effective as hedging instruments.
The Credit Union may designate any financial asset or liability as held for trading where the following
conditions are met:
•
The designation eliminates or significantly reduces an accounting mismatch that would
otherwise arise; or
•
The financial instruments are part of a portfolio of financial instruments which is risk managed and
reported to senior management on a fair value basis.
The Credit Union has classified its derivatives as FVTPL. Financial instruments included in this category
are recognized initially at fair value with transaction costs recognized in net income.
Gains and losses arising from changes in fair value are included in the statement of income and
comprehensive income as part of net interest income. Interest income and expense on financial
assets held for trading are included in net interest income.
Available-for-sale:
The Credit Union has classified the following financial assets as available-for-sale: cash and
investments. These assets are initially recognized at their fair value. Investments in equity instruments
that do not have a quoted market price in an active market are measured at cost.
Transactions to purchase or sell these items are recorded on the settlement date, and transaction
costs directly attributable to their acquisition are included in the fair value cost of these assets, while
transaction costs arising from their disposal are immediately recognized in income. Total investment
income is allocated to net income by the effective interest method, using an effective interest rate
which discounts estimated future cash receipts to the net carrying amount of the financial asset,
over the asset’s expected life, or other appropriate period.
Available-for-sale financial assets are subsequently measured at their fair value, without any
deduction or transaction costs incurred on sale or other disposals. Gains and losses arising from
changes in fair value, except for impairment losses and foreign exchange translation adjustments,
are recognized in other comprehensive income, until the financial asset is sold or otherwise
derecognized.
Upon derecognition the cumulative gain or loss previously recognized in
accumulated other comprehensive income is transferred to net income.
Derecognition of financial instruments:
Financial assets are derecognized when the Credit Union no longer has contractual rights to the cash
flows from the asset, or when substantially all of the risks and rewards of ownership are transferred. If
the Credit Union has neither transferred nor retained substantially all the risks and rewards of
ownership, it assesses whether it has retained control over the transferred assets.
A financial liability is derecognized when it is extinguished, discharged, cancelled or expired.
21
October 31, 2014
3.
Financial instruments (Continued)
Loans and receivables:
The Credit Union has classified the following financial assets as loans and receivables: loans to
members, investment in mortgage pools, other investments, trade receivables and deposits. These
assets are initially recognized at fair value. Fair value is approximated by the instrument’s initial cost
in a transaction between unrelated parties. Transactions to purchase or sell these items are recorded
on the settlement date, and transaction costs are immediately recognized in income. Total interest
income, calculated using the effective interest rate method, is recognized in net income.
Loans and receivables are subsequently measured at their amortized cost, using the effective
interest rate method. Under this method, estimated future cash receipts are discounted over the
asset’s expected life, or other appropriate period, to its net carrying value. Amortized cost is the
amount at which the financial asset is measured at initial recognition less principal repayments, plus
or minus the cumulative amortization using the effective interest rate method of any difference
between that initial amount and the maturity amount, and less any reduction for impairment or
uncollectability. Gains and losses arising from changes in fair value are recognized in net income
upon derecognition or impairment.
Other financial liabilities:
The Credit Union has classified the following financial liabilities as other financial liabilities: member
deposits, loan payable and accounts payable and accrued liabilities. These liabilities are initially
recognized at their fair value. Fair value is approximated by the instrument’s initial cost in a
transaction between unrelated parties. Transactions to purchase or sell these items are recorded on
the settlement date, and transaction costs are immediately recognized in income. Total interest
expense, calculated using the effective interest rate method, is recognized in net income.
Fees incurred on an exchange of financial liabilities or a modification of the terms of financial liabilities
that is accounted for as an extinguishment are included as part of the gain or loss on extinguishment,
while any related other costs incurred are recognized in current earnings. All fees and costs incurred on
the exchange or modification of a financial liability not accounted for as an extinguishment are
included in the carrying amount of the modified financial liability and amortized over its remaining
expected life. Any related other costs incurred are recognized in current year earnings.
Other financial liabilities are subsequently measured at amortized cost using the effective interest
rate method
Financial asset impairment:
The Credit Union assesses impairment of all its financial assets, except those classified as FVTPL.
Impairment is measured as the difference between the asset’s carrying value and its fair value. Any
impairment which, is not considered temporary, is included in current year earnings.
Derivative financial instruments:
All derivative financial instruments are recognized in other assets or other liabilities at fair value,
including those embedded in financial or other contracts that are not closely related to the host
contract. Changes in the fair values of derivative financial instruments are immediately recognized
in income, unless designated as cash flow hedges.
22
October 31, 2014
3.
Interest income and expense
Interest income and expense for all interest-bearing financial instruments, except those designated
as FVTPL, is recognized within financial income or financial expense in the statement of
comprehensive income as they accrue using the effective interest rate method.
Once a financial asset has been determined to be impaired or written down as a result of an
impairment loss, uncollected interest continues to be accrued. A loan is classified as impaired when
there is reasonable doubt as to the ultimate collection of some portion of principal or interest.
Service charges and other income
Service charges and other income not directly attributable to the acquisition of financial instruments
is recognized when the related service is provided and the income contractually due. Service
charges and other income that is directly attributable to acquiring or issuing a financial asset or
financial liability not classified as FVTPL, is added to or deducted from the initial carrying value.
Service charges and other income is then included in the calculation of the effective interest rate
and amortized through profit or loss over the term of the financial asset or financial liability. For
financial instruments carried at fair value through profit or loss, transaction costs are immediately
recognized in profit or loss on initial recognition.
Cash
Cash consists of balances with less than three months maturity from the original date of acquisition,
including cash on hand, cheques and other items in transit and demand deposits with Credit Union
Central of Alberta Limited (“Central”).
Loans to members and accrued interest
Loans to members are recorded at the lower of principal plus accrued interest and estimated
realizable amounts. Estimated realizable amounts are determined by discounting the expected
future cash flows at the effective interest rate inherent in the loans. When the amount and timing of
future cash flows cannot be estimated with reasonable reliability, estimated realizable amounts are
measured at the fair value of the security underlying the loans, net of expected costs of realization.
When interest or principal payments are past due by 60 days or more, the loan is classified as
impaired unless there is no reasonable doubt as to the collectibility of all interest and principal. Any
subsequent payments received on an impaired loan are applied to reduce the recorded investment
in the loan.
Derivative financial instruments
Derivative financial instruments are contracts, such as options with futures, where the value of the
contract is derived from the price of an underlying variable. The most common underlying variables
include stocks, bonds, commodities, currencies, interest rates and market rates. The Credit Union
periodically enters into derivative contracts to manage financial risks associated with movements in
interest rates and other financial indices to ensure the rate of return of its member’s equity linked
deposits. The fair value of this derivative is reported as the derivative financial asset. The Credit
Union’s policy is not to utilize derivative financial instruments for trading or speculative purposes.
Included in member deposits and accrued interest are certain equity linked deposit contracts. The
deposit obligation varies according to the performance of certain equity indices and includes an
embedded derivative that must be accounted for separately from the host contract. The fair value
of the embedded derivative is reported as the derivative financial liability.
23
October 31, 2014
3.
Provision for loan impairment
The Credit Union maintains a provision for loan impairment, which, in management’s opinion, is
considered adequate to provide for credit-related losses.
The Credit Union considers evidence of impairment for loans receivable at both a specific asset and
collective level. All individually significant loans are assessed for specific impairment. All individually
significant receivables found not to be specifically impaired are then collectively assessed for any
impairment that has been incurred but not yet identified. Loans that are not individually significant
are collectively assessed for impairment by grouping together loans with similar risk characteristics.
In assessing collective impairment the Credit Union uses historical trends of the probability of default,
timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to
whether current economic and credit conditions are such that the actual losses are likely to be
greater or less than suggested by historical trends.
Property and equipment
Property and equipment are recorded at cost. Depreciation is recorded on a straight-line basis over
the estimated useful lives of the assets, as follows:
Buildings
Computer equipment
Furniture and equipment
Leasehold improvements – term of lease
10 - 40 years
3 - 10 years
3 - 10 years
10 years
Gains and losses on the disposal of property and equipment are recorded in earnings in the year of
disposal.
Intangible assets
Computer software that is not an integral part of other property and equipment is accounted for as
intangible assets. Computer software is stated at cost less accumulated amortization. Amortization of
computer software is calculated by applying the straight-line method at rates based on estimated
useful lives between 3 and 10 years.
Foreclosed assets
Foreclosed assets held for sale are recorded at the lower of carrying amount or fair value less cost to
sell. Fair value is based on appraised market values. Any difference between the book value of the
loan prior to foreclosure and the amount of initial measurement of the foreclosed assets is recognized
by a charge or credit to income.
Impairment of Non-Financial Assets
An impairment loss is recognized if the carrying amount of a cash-generating unit exceeds its
estimated recoverable amount. The recoverable amount of an asset or a cash-generating unit is the
greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated
future cash flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessment of the time value of money and the risks specific to the assets.
Impairment losses are recognized in the statement of income and comprehensive income.
Impairment losses recognized in prior years are assessed at each reporting date for any indications
that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a
change in the estimates used to determine the recoverable amount. An impairment loss is reversed
only to the extent that the asset’s carrying amount does not exceed the carrying amount that would
have been determined, net of depreciation, if no impairment loss had been recognized.
24
October 31, 2014
3.
Unauthorized overdrafts
At the end of each fiscal year, the Credit Union writes off all unauthorized overdrafts outstanding for
at least 90 days.
Income taxes
Income tax expense comprises current and deferred taxes. Current taxes and deferred taxes are
recognized in net income except to the extent that it relates to a business combination, or items
recognized directly in equity.
Current income tax expense is based on the results for the period as adjusted for items that are not
taxable or not deductible. Current income tax is calculated using tax rates and laws that were
enacted or substantively enacted at the end of the reporting period. Management periodically
evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is
subject to interpretation. Provisions are established where appropriate on the basis of amounts
expected to be paid to the tax authorities.
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 that 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 related deferred income tax asset is realized or the deferred income tax liability is settled.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax
liabilities and assets, and they relate to income taxes levied by the same tax authority on the same
taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on
a net basis or their tax assets and liabilities will be realized simultaneously.
Foreign currency translation
Transaction amounts denominated in foreign currencies are translated into their Canadian dollar
equivalents at exchange rates prevailing at the transaction dates. Carrying values of monetary
assets and liabilities reflect the exchange rates at the balance sheet date. Transaction gains and
losses are included in current income.
25
October 31, 2014
3.
Changes in Accounting Policies
The Credit Union has adopted the following new standards and amendments to standards, including
any consequential amendments to other standards, with a date of initial application of November 1,
2013. The adoption of these policies has not impacted the Credit Union’s financial statements.
IFRS 7 “Financial Instruments: Disclosure” (“IFRS 7”) was amended in December 2011. The amendments
provide additional information about offsetting of financial assets and financial liabilities and enable
the evaluation of netting arrangements and their impact on the financial statements.
IFRS 10 “Consolidated Financial Statements” (“IFRS 10”) was issued by the IASB in May 2011. IFRS 10
establishes principles for the presentation and preparation of consolidated financial statements
when an entity controls one or more other entities.
IFRS 10 replaces the consolidated
requirements in SIC-12 Consolidated – Special Purpose Entities and IAS 27 Consolidated and
Separate Financial Statements.
IFRS 11 “Joint Arrangements” (“IFRS 11”) was issued by the IASB in May 2011. IFRS 11 provides for a
more realistic reflection of joint arrangements by focusing on the rights and obligations of the
arrangement, rather than its legal form. The standard addresses inconsistencies in the reporting of
joint arrangements by requiring a single method to account for interests in jointly controlled entities.
IFRS 11 supersedes IAS 31 Interest in Joint Ventures and SIC-13 Jointly Controlled Entities – NonMonetary Contributions by Venturers.
IFRS 12 “Disclosure of Interests in Other Entities” (“IFRS 12”) was issued by the IASB in May 2011. IFRS 12 is a
new and comprehensive standard on disclosure requirements for all forms of interests in other
entities, including subsidiaries, joint arrangements, associates and unconsolidated structured entities.
IFRS 13 “Fair Value Measurement” (“IFRS 13”) was issued by the IASB in May 2011. IFRS 13 establishes a
single source of guidance on fair value measurement and disclosure requirements currently
dispersed throughout IFRS. Subject to limited exceptions, IFRS 13 is applied when fair value
measurements or disclosures are required or permitted by other IFRS’s.
IAS 1 “Financial Statement Presentation” (“IAS 1”) was amended in June 2011. The amendments
were made to accounting of other comprehensive income and requires items that may be
reclassified to the profit or loss section to be grouped together.
IAS 19 “Employee Benefits” (“IAS 19”) was amended in June 2011. The amendments were made to
the accounting of defined benefit pension plans and termination benefits. The Credit Union does not
have any defined benefit pension plans.
IAS 32 “Financial Instruments: Presentation” (“IAS 32”) was amended May 2012. The amendment
was made to clarify the income tax consequences of distributions to holders of equity instruments
and of transaction costs of equity transactions. The dividends on investment shares paid by the
Credit Union are included in the amendment.
Future Changes in Accounting Policies
The following standards have been issued but are not yet effective:
IFRS 9 “Financial Instruments” (“IFRS 9”) was issued by the IASB in October 2010 and will replace IAS 39
“Financial Instruments: Recognition and Measurement” (“IAS 39”). IFRS 9 uses a single approach to
determine whether a financial asset is measured at amortized cost or fair value, replacing the
multiple rules in IAS 39.
The approach in IFRS 9 is based on how an entity manages its
financial instruments in the context of its business model and the contractual cash flow
characteristics of the financial assets. Most of the requirements in IAS 39 for classification and
measurement of financial liabilities were carried forward unchanged to IFRS 9. The new standard
also requires a single impairment method to be used, replacing the multiple impairment methods in
IAS 39. IFRS 9 is effective for annual periods beginning on or after January 1, 2015.
26
October 31, 2014
4.
Investments
October 31,
2014
Credit Union Central of Alberta Limited
Shares
Term deposits
$
Mortgage pool
Other
Accrued interest
Current
Non-current
3,019,790
34,000,000
October 31,
2013
$
2,769,790
29,500,000
37,019,790
32,269,790
3,474,574
250,000
29,129
4,792,757
250,000
30,329
$
40,773,493
$
37,342,876
$
37,317,830
3,455,663
$
33,868,302
3,474,574
As of October 31, 2014, the credit union is a 17.522% (unit share percentage) participant in a
residential mortgage pool with Concentra Financial Services Association (“Concentra Financial”).
The Credit Union receives its unit share percentage of the Concentra Financial return on the pool,
less any fees or charges on a monthly basis. This return equated to 3.56% (2013 – 3.18%).
All term deposits mature within one year. As required by the Credit Union Act, the Credit Union holds
investments in Central to maintain its liquidity level.
5.
Loans to members
Principal and allowance by loan type
Gross
Amount
Consumer
Residential
mortgages
Commercial
Accrued loan
interest
$ 25,072,617
Specific
Allowance
$
48,165
Collective
Allowance
$
112,431
Total
Allowance
$
October 31,
2014
Net
Carrying
Value
160,596
$ 24,912,021
168,412,006
53,513,934
31,370
60,000
247,076
202,146
278,446
262,146
168,133,560
53,251,788
246,998,557
139,535
561,653
701,188
246,297,369
540,265
---
---
---
540,265
701,188
$ 246,837,634
$ 247,538,822
$
139,535
$
561,653
$
At October 31, 2014, there were delinquent loan payments totaling $49,100.
27
October 31, 2014
5.
Loans to members (continued)
Principal and allowance by loan type
Gross
Amount
Consumer
Residential
mortgages
Commercial
Agricultural
$ 22,953,136
Specific
Allowance
$
118,375
Collective
Allowance
$
102,580
October 31,
2013
Net
Carrying
Value
Total
Allowance
$
220,955
$ 22,732,181
150,406,885
60,110,074
14,810
--26,132
---
222,963
226,296
---
222,963
252,428
---
150,183,922
59,857,646
14,810
233,484,905
144,507
551,839
696,346
232,788,559
554,822
---
---
---
554,822
696,346
$ 233,343,381
Accrued loan
interest
$ 234,039,727
$
144,507
$
551,839
$
At October 31, 2013, there were delinquent loan payments totaling $56,833.
Maturity of loans
Loans to members, excluding accrued interest, mature as follows:
Under 1 year
1 to 2 years
2 to 3 years
3 to 4 years
Over 4 years
October 31,
2014
October 31,
2013
$ 135,945,594
28,413,470
28,941,840
20,132,213
33,565,440
$ 135,113,382
31,910,738
19,202,681
19,521,636
27,736,468
$ 246,998,557
$ 233,484,905
Loan allowance details
Details of the changes in the allowance for loan impairment are as follows:
October 31,
2014
$
Balance, beginning of year
Less: accounts written off, net of recoveries
Charge for loan impairment
$
Balance, end of year
696,346
(69,254)
October 31,
2013
$
726,274
(109,300)
627,092
616,974
74,096
79,372
701,188
$
696,346
During the year, recoveries totaled $9,990 (2013 - $13,995). Included in accounts written off, net of
recoveries is the change in the allowance for impaired accrued interest.
28
October 31, 2014
6.
Other assets
October 31,
2014
Prepaid expenses
Receivables and deposits
Current
Non-current
7.
October 31,
2013
$
70,264
19,704
$
77,649
18,763
$
89,968
$
96,412
$
89,968
---
$
96,412
---
Property, equipment and intangible assets
Balance at
November
1, 2012
Land
$ 1,403,104 $
Buildings
8,786,959
Leasehold improvements
233,816
Computer equipment
963,877
Furniture and equipment 1,285,640
Intangible asset
Computer software
Additions
Disposals
--- $
10,387
--120,120
130,581
--- $
------52,737
12,673,396
261,088
52,737
971,392
1,789
8,071
$ 13,644,788 $
262,877 $
Cost
Balance at
October
31, 2013
Additions
Balance at
October
31, 2014
Disposals
--- $
56,181
--218,501
122,611
--- $
----590,760
56,192
12,881,747
397,293
646,952
12,632,088
965,110
572
---
965,682
1,403,104 $
8,797,346
233,816
1,083,997
1,363,484
60,808 $ 13,846,857 $
397,865 $
646,952 $ 13,597,770
Accumulated Depreciation
Balance at
Balance at
November
October
1, 2012
Depreciation Adjustments
31, 2013 Depreciation Adjustments
Land
$
--- $
Buildings
2,252,727
Leasehold improvements
47,411
Computer equipment
706,823
Furniture and equipment
959,291
Intangible asset
Computer software
$
1,403,104
8,853,527
233,816
711,738
1,429,903
Balance at
October
31, 2014
--- $
229,326
23,778
78,626
97,238
--- $
------(21,374)
--- $
2,482,053
71,189
785,449
1,035,155
--- $
229,635
23,778
80,029
94,512
--- $
----(542,030)
(56,055)
--2,711,688
94,967
323,448
1,073,612
3,966,252
428,968
(21,374)
4,373,846
427,954
(598,085)
4,203,715
368,523
147,315
---
515,838
102,690
---
618,528
4,334,775 $
576,283 $
(21,374) $
29
4,889,684 $
530,644 $
(598,085) $
4,822,243
October 31, 2014
7.
Property, equipment and intangible assets (Continued)
Net Book Value
Balance at
November
1, 2012
Land
Buildings
Leasehold
improvements
Computer
equipment
Furniture and
equipment
8.
Balance at
October
31, 2014
1,403,104 $
6,534,232
1,403,104 $
6,315,293
186,405
162,627
138,849
257,054
298,548
388,290
326,349
328,329
356,291
$
8,707,144 $
8,507,901 $
8,428,373
$
602,869 $
449,272 $
347,154
$
Intangible asset
Computer software
Balance at
October
31, 2013
1,403,104
6,141,839
Member deposits
Demand
Term
Registered deposits (RRSPs, RRIFs,
RESPs and TFSAs)
Accrued interest
October 31,
2014
October 31,
2013
$ 158,030,119
66,632,149
$ 145,324,940
68,236,554
56,417,169
55,072,053
281,079,437
268,633,547
994,307
1,169,410
$ 282,073,744
$ 269,802,957
Concentra Financial acts as the trustee of the Registered Retirement Savings Plan (RRSP), the
Registered Education Savings Plan (RESP), the Tax-Free Savings Account (TFSA) and the Registered
Retirement Income Fund (RRIF) offered to members. Under the agreement, Concentra Financial
deposits the contributions to the plan, and the interest earned on them, in the Credit Union.
Maturity of deposits
Member deposit accounts, not including the related accrued interest, mature as follows:
Under 1 year
1 to 2 years
2 to 3 years
3 to 4 years
Over 4 years
Fair value of embedded derivative
30
October 31,
2014
October 31,
2013
$ 180,563,266
19,431,834
7,752,158
1,889,867
71,707,991
$ 158,869,048
25,046,300
8,305,100
1,282,729
75,475,187
281,345,116
268,978,364
265,679
344,817
$ 281,079,437
$ 268,633,547
October 31, 2014
9.
Accounts payable and accrued liabilities
2014
Accounts payable and accrued liabilities
Deferred revenue
Other liabilities
Current
Non-current
10.
2013
$
486,935
37,500
305,031
$
412,066
37,500
---
$
829,466
$
449,566
$
524,435
305,031
$
449,566
---
Loans payable
The Credit Union has an authorized line of credit from Central of $9 million (2013 - $9 million), due on
demand and bearing interest at prime minus 0.5%. At October 31, 2014, the balance of the line of
credit was $nil (2013 - $nil).
The Credit Union also has access to term loans having a combined maximum available credit of
$6 million (2013 - $6 million). Interest on these facilities for terms less than one year are based on
Alberta Central’s Prime Rate plus or minus the applicable discount or margin of Alberta Central in
effect from time to time, or at the option of the Credit Union for terms of more than 30 days a fixed
rate equal to Alberta Central’s money market deposit rate or the equivalent paid fixed swap rate for
the term plus or minus the applicable discount or margin. At October 31, 2014, the balance of the
revolving term loan was $nil (2013 - $nil).
The line of credit and revolving term loans are secured by a registered security agreement covering
all present and future accounts, investments and deposits held with Central.
11.
Allocation distributable
The Board of Directors declared a profit share allocation for the current year of $283,475 (2013 $233,125). The profit share is equal to 8% of interest paid to members on term deposits and 5% of
interest received on residential mortgages during the year from November 1, 2013 to October 31, 2014.
In addition, the Board of Directors declared dividends of $178,169 (2013 - $141,093) on all investment
shares outstanding as of October 31, 2014. Dividends declared on Series A, Series B, Series C, Series
D, Series E and Series F investment shares were $17,925, $25,259, $27,428, $55,436, $35,458 and
$16,663, respectively (2013 - Series A - $18,553, Series B - $26,966, Series C - $28,888, Series D - $53,605,
Series E - $13,081, and Series F - $nil). The dividends were calculated at an effective annual rate of
3.30% on Series A, 3.30% on Series B, 3.30% on Series C, 5.00% on Series D, 3.50% on Series E, and 3.50%
on Series F investment shares (2013 - Series A - 3.29%, Series B - 3.29%, Series C - 3.29%, Series D - 5.00%,
Series E - 3.50%, and Series F – nil%). The dividends are to be paid by issuance of Series A, B, C, D, E
and F investment shares in December 2014.
12.
Share capital
The Common shares have the following characteristics:
a)
b)
c)
d)
e)
issuable in unlimited number;
a par value of $1 but issuable as fractional shares;
transferable only in restricted circumstances;
non-assessable;
redeemable at par value at the discretion of the Credit Union, subject to the restrictions
contained in the Credit Union Act.
A membership in the Credit Union requires the purchase of a minimum of 25 shares (5 shares for
minors and members 65 years of age or over).
31
October 31, 2014
12.
Share capital (Continued)
The Series A, B, C, D, E and F investment shares have the following characteristics:
a)
b)
c)
d)
e)
no par value, and not issuable as fractional shares except in the form of a dividend;
no voting rights;
callable at the discretion of the Credit Union upon 5 years written notice;
transferable under limited circumstances;
dividends are non-cumulative and rank ahead of profit share allocation on common shares.
They are also subject to the Credit Union’s dividend policy which can be changed at the
discretion of the Board of Directors;
f) minimum purchase amount is 1,000 shares and the maximum amount is 50,000 shares per
member; and
g) redeemable at $1.00 at the discretion of the Credit Union, subject to the restrictions contained
in the Credit Union Act.
The Corporation does not guarantee common shares nor investment shares which represent “at-risk”
capital.
Issued and
Outstanding
as at
November 1,
2012
Shares
Issued
for
Share
Dividends
Shares
Issued
for Cash
Shares
Redeemed
Issued and
Outstanding
as at
October 31,
2013
Common Shares
2,498,872
24,873
176,931
(185,070)
2,515,606
Investment Shares
Series A
Series B
Series C
Series D
Series E
564,720
832,401
866,741
1,021,051
---
--------1,000,000
17,280
25,471
26,523
51,053
---
(18,096)
(38,251)
(15,207)
-----
563,904
819,621
878,057
1,072,104
1,000,000
3,284,913
1,000,000
120,327
(71,554)
4,333,686
5,783,785
1,024,873
297,258
(256,624)
6,849,292
Shares
Redeemed
Issued and
Outstanding
as at
October 31,
2014
Issued and
Outstanding
as at
November 1,
2013
Shares
Issued
for Cash
Shares
Issued
for
Share
Dividends
Common Shares
2,515,606
23,565
230,590
(188,515)
Investment Shares
Series A
Series B
Series C
Series D
Series E
Series F
563,904
819,621
878,057
1,072,104
1,000,000
---
----------1,000,000
18,552
26,965
28,888
53,606
13,082
---
(39,266)
(81,152)
(75,779)
(16,996)
-----
543,190
765,434
831,166
1,108,714
1,013,082
1,000,000
4,333,686
1,000,000
141,093
(213,193)
5,261,586
6,849,292
1,023,565
371,683
(401,708)
7,842,832
32
2,581,246
October 31, 2014
13.
Income taxes
Components of deferred income tax asset (liability)
Deferred income tax asset (liability) is comprised of temporary deductible (taxable) differences
between tax bases and carrying values in the following accounts:
October 31,
2014
October 31,
2013
Property, equipment and intangible assets
Allowance for credit losses
$
(242,088)
143,901
$
(244,001)
141,572
Total
$
(98,187)
$
(102,429)
Income tax rate reconciliation
The income tax rate differs from the amount that would be expected for the following reasons:
October 31,
2014
Statutory rate
Income tax rate adjusted for the effect of:
Credit Union and General Tax deduction
Non-deductible expenses and other
Effective income tax rate
14.
October 31,
2013
38.00%
38.00%
(15.54)%
0.30%
(16.51)%
1.49%
22.76%
22.98%
Nature and extent of risk arising from financial instruments
The Credit Union, as part of its operations, carries a number of financial instruments. It is
management’s opinion that the Credit Union is exposed to the following risks as a result of holding
financial instruments:
•
•
•
•
•
•
Credit risk;
Liquidity risk;
Fair value risk;
Foreign currency risk;
Interest rate risk; and
Market risk
The following is a description of these risks and how the Credit Union manages the exposure to them.
Credit risk
Credit risk is the risk that a financial loss will be incurred due to the failure of a counterparty to
discharge its contractual commitment or obligation to the Credit Union. Credit risk arises principally
as a result of the Credit Union’s lending activities with members.
Risk measurement
The Credit Union employs a risk measurement process for its loan portfolio which is designed to assess
and quantify the level of risk inherent in credit granting activities. Risk is measured by reviewing
qualitative and quantitative factors that impact the loan portfolio.
Credit quality performance
Refer to Note 5 for additional information on the potential loss exposure related to the Credit Union’s
loan portfolio.
33
October 31, 2014
14.
Nature and extent of risk arising from financial instruments (Continued)
Credit risk (Continued)
Objectives, policies and processes
The Credit Union is committed to the following principles in managing credit risk exposure:
•
•
•
•
•
Credit risk assessment includes the establishment of policies and processes related to credit
risk management and risk rating;
Credit risk mitigation includes credit structuring, collateral, and guarantees;
Credit risk approval limits includes establishing credit risk limits and reporting exceptions
thereto;
Credit risk documentation focuses on documentation and administration; and
Credit risk monitoring and review.
The Credit Union’s credit risk policies, processes and methodologies are reviewed annually to ensure
they remain relevant and effective in managing credit risk.
Liquidity risk
Liquidity risk is the risk of having insufficient financial resources to meet the Credit Union’s cash and
funding requirements, statutory liquidity requirements, or both.
Risk measurement
The assessment of the Credit Union’s liquidity position reflects management’s estimates, assumptions
and judgements pertaining to current and prospective market conditions and the related investing
and borrowing activities of members.
The acceptable amount of risk is defined by policies that are approved by the Board of Directors.
The Credit Union manages liquidity by monitoring, forecasting and managing cash flows and the
concentration of loans and deposits within approved policies. Management provides monthly
reports on these matters to the Board of Directors. Key features of liquidity management include:
•
Daily monitoring of expected cash inflows and outflows and tracking and forecasting the
liquidity position; and
•
Consideration of the term structure of loans and deposits, with emphasis on deposit
maturities, as well as expected loan funding and other commitments to ensure the Credit
Union can maintain required levels of liquidity while meeting its obligations.
As at October 31, 2014, the Credit Union is in compliance with its liquidity requirements as required by
the Act.
Fair value of financial instruments
Fair value is the consideration that would be agreed to in an arm’s length transaction between
knowledgeable and willing parties with no compulsion to act. Estimates respecting fair values are
based on subjective assumptions and contain significant uncertainty. Fair values represent estimates
of value at a particular point in time and may not be relevant in predicting future cash flows or
earnings. Potential income taxes or other expenses that may be incurred on actual disposition have
not been reflected in the fair values disclosed.
34
October 31, 2014
14.
Fair value of financial instruments (Continued)
The following methods and assumptions were used to estimate fair values of financial instruments:
a)
b)
c)
d)
the book value for cash, short-term investments, accounts receivable and accounts payable
and accrued liabilities approximate their fair value due to their short term nature;
estimated fair value of investments are based on quoted market prices when available or
quoted market prices of similar investments;
for variable interest rate loans that are frequently re-priced, book values are assumed to be fair
values. Fair values of other loans are estimated using discounted cash flows calculations with
market interest rates for similar groups of loans and maturity dates; and
fair value of variable rate and demand deposits approximate their book value. Fair values of
other deposits are estimated using discounted cash flow calculations at market rates for similar
deposits.
The fair value of the financial instruments and their related carrying values have been summarized
and included in the table below:
October 31, 2014
Carrying
Fair
Amount
Value
Financial assets
Fair-value-through-profit-or-loss
Available-for-sale
Cash
Investments
Loans and receivable
Other investments
Mortgage pool
Loans to members
Receivables and deposits
Financial liabilities
Fair-value-through-profit-or-loss
Derivative financial liabilities
Other financial liabilities
Member deposits
Accounts payable
and accrued liabilities
October 31, 2013
Carrying
Fair
Amount
Value
265,679
265,679
344,817
344,817
8,342,579
37,045,165
8,342,579
37,045,165
10,590,531
32,294,793
10,590,531
32,294,793
250,000
3,478,328
246,837,634
19,704
250,000
3,464,782
247,484,527
19,704
250,000
4,798,083
233,343,381
18,763
250,000
4,789,948
233,468,259
18,763
265,679
265,679
344,817
344,817
282,073,744
282,470,530
269,802,957
269,595,522
829,466
829,466
449,566
449,566
The following tables presents at October 31, 2014 and October 31, 2013, the level within the fair value
hierarchy for each financial asset and liability measured at fair value.
October 31, 2014
Level 1
Level 2
Level 3
Total
Financial assets:
Cash
Investments
$
$
$
8,342,579
-----
$
$
$
--37,045,165
265,679
$
$
$
-------
$
8,342,579
$ 37,045,165
$
265,679
Financial liabilities:
$
---
$
265,679
$
---
$
35
265,679
October 31, 2014
14.
Fair value of financial instruments (Continued)
October 31, 2013
Level 1
Level 2
Level 3
Total
Cash
Investments
$ 10,590,531
$
--$
---
$
$
$
--32,294,793
344,817
$
$
$
-------
$ 10,590,531
$ 32,294,793
$
344,817
Financial liabilities:
$
$
344,817
$
---
$
---
344,817
Financial assets:
During the year the Credit Union has not transferred any financial instruments from levels 1 and 2 to
level 3 of the fair value hierarchy.
Foreign currency risk
The following items are denominated in US Dollars (translated to Canadian currency at the year end
rate):
October 31,
2014
$
$
Cash
Member deposits and accrued interest
2,462,730
2,354,353
October 31,
2013
$
$
2,452,567
2,292,911
Interest rate risk
The Credit Union’s primary source of income is its financial margin, which is the difference between
interest earned on investments and loans to members and interest paid to members on their deposits
and on loans payable. The objective of managing the financial margin is to manage repricing or
maturity dates of loans and investments and members’ savings and deposits within policy limits that
are intended to limit the Credit Union’s exposure to changing interest rates. The differential
represents the net mismatch between loans and investments and members’ savings and deposits by
maturity dates.
36
October 31, 2014
14.
Interest rate re-price
(In thousands)
Floating
Rate
Assets
Cash
(effective yield %)
Investments
(effective yield %)
Member loans
(effective yield %)
Income taxes receivable
Other
Intangible assets
$
3,274
0.20
3,020
2.00
88,862
3.96
-----------
Within
One Year
$
----34,000
1.03
47,257
4.11
-----------
One to
Five Years
$
----3,475
2.47
110,880
4.01
-----------
Non-Rate
Sensitive
$
5,069
--278
--(161)
--17
266
90
8,428
347
October 31,
2014
Total
$
8,343
0.08
40,773
1.22
246,838
4.01
17
266
90
8,428
347
95,156
81,257
114,355
14,334
305,102
142,127
0.67
---------
77,252
1.69
---------
32,371
1.78
---------
30,324
--266
98
829
21,835
282,074
1.01
266
98
829
21,835
Subtotal
142,127
77,252
32,371
53,352
305,102
2014 Net gap
Percentage of assets
(46,971)
(15.40)
4,005
1.31
81,984
26.87
(39,018)
(12.78)
-----
Subtotal
Liabilities and Equity
Member deposits
(effective yield %)
Derivative financial liability
Deferred income tax liability
Accounts payable and other
Equity
Interest rate re-price
(In thousands)
Floating
Rate
Assets
Cash
(effective yield %)
Investments
(effective yield %)
Member loans
(effective yield %)
Other
Intangible assets
$
8,521
0.20
2,770
0.00
94,227
4.08
---------
Within
One Year
$
----31,191
1.07
37,299
4.11
---------
One to
Five Years
$
----3,102
2.43
101,959
4.01
---------
Non-Rate
Sensitive
$
2,070
--280
--(142)
--345
96
8,508
449
October 31,
2013
Total
$
10,591
0.23
37,343
1.10
233,343
4.06
345
96
8,508
449
Subtotal
105,518
68,490
105,061
11,606
290,675
Liabilities and Equity
Member deposits
(effective yield %)
Derivative financial liability
Income taxes payable
Deferred income tax liability
Accounts payable and other
Equity
135,652
0.70
-----------
69,277
2.07
-----------
38,419
1.90
-----------
26,455
--345
128
102
450
19,847
269,803
1.15
345
128
102
450
19,847
Subtotal
135,652
69,277
38,419
47,327
290,675
2013 Net gap
Percentage of assets
(30,134)
(10.37)
(787)
(0.27)
66,642
22.93
(35,721)
(12.29)
-----
37
October 31, 2014
14.
Market risk
Market risk arises from changes in interest rates that affect the Credit Union’s net interest income.
Exposure to this risk directly impacts the Credit Union’s income from its loan and deposit portfolios.
The Credit Union’s objective is to earn an acceptable net return on these portfolios, without taking
unreasonable risk, while meeting member-owner needs.
Risk Measurement
The Credit Union’s risk position is measured and monitored each month to ensure compliance with policy.
Management provides monthly reports on these matters to the Credit Union’s Board of Directors.
Management is responsible for managing the Credit Union’s interest rate risk, monitoring approved
limits and compliance with policies. The Credit Union manages market risk by developing and
implementing asset and liability management policies, which are approved and periodically
reviewed by the Board.
The Credit Union’s goal is to achieve adequate levels of profitability, liquidity and safety. The Board
of Directors reviews the Credit Union’s investment and asset liability management policies
periodically to ensure they remain relevant and effective in managing and controlling risk.
The following table provides the potential before tax impact on an immediate and sustained 1%
increase or decrease in interest rates on net interest income. All interest rate risk measures are based
upon interest rate exposures at a specific time and continuously change as a result of business
activities and risk management initiatives.
Before tax impact of
1% increase of rates
1% decrease of rates
October 31, 2014
$
663,000
$
(800,000)
Interest rate risk arises from a mismatch between deposit rate and maturities and the yields and
maturities of the loans they fund.
15.
Capital management
The Credit Union’s objectives when managing capital are:
•
To ensure the long term viability of the Credit Union and the security of member deposits by
holding a level of capital deemed sufficient to protect against unanticipated losses; and
•
To comply at all times with the capital requirements set out in the Act.
The Credit Union measures the adequacy of capital using two methods:
•
Total capital as a percent of total assets; and
•
Total capital as a percent of risk weighted assets. Under this method the Credit Union
reviews its loan portfolio and other assets and assigns a risk weighting using definitions and
formulas set out in the Act and by the Credit Union Deposit Guarantee Corporation. The
more risk associated with an asset, a higher weighting is assigned. This method allows the
Credit Union to measure capital relative to the possibility of loss with more capital required to
support assets that are seen as being higher risk.
38
October 31, 2014
15.
Capital management (Continued)
The Credit Union’s management ensures compliance with capital adequacy through the following:
•
•
•
•
•
Establishing policies for capital management, monitoring and reporting;
Establishing policies for related areas such as asset liability management;
Reporting to the Board of Directors regarding financial results and capital adequacy;
Reporting to the Credit Union Deposit Guarantee Corporation on its capital adequacy; and
Establishing budgets and reporting variances to those budgets.
The Credit Union is required under the Act to hold capital equal to or exceeding the greater of
•
•
4% of total assets; and
8% of risk weighted assets
The Credit Union is also required under the Act to maintain a Regulatory Capital Buffer equal to 2.0%
of its risk weighted assets for the 2014 fiscal year, increasing to 2.5% in the 2015 fiscal year. The Credit
Union also sets an internal capital buffer that, at a minimum, is 2.0% of its risk weighted assets.
The Credit Union has a stated policy that it will maintain at all times capital equal to no less than the
minimum requirements as set out by the Act.
The Credit Union was in compliance with the regulatory requirements as indicated by the Act as follows:
October 31,
2014
7.26%
13.62%
Capital as a % of total assets
Capital as a % of risk weighted assets
16.
October 31,
2013
6.90%
12.42%
Contingent liabilities and commitments
Financial instruments that potentially subject the Credit Union to concentrations of credit risk consist
of guarantees, standby letters of credit and commitments to extend credit.
To meet the needs of its members and manage its own exposure to fluctuations in interest rates, the
Credit Union participates in various commitments and contingent liability contracts. The primary
purpose of these contracts is to make funds available for the financing needs of customers. These
are subject to normal credit standards, financial controls, risk management and monitoring
procedures. The contractual amounts of these credit instruments represent the maximum credit risk
exposure without taking into account the fair value of any collateral, in the event other parties fail to
perform their obligations under these instruments.
Guarantees and standby letters of credit represent irrevocable assurances that the Credit Union will
make payments in the event that a customer cannot meet its obligations to third parties, and they
carry the same risk, recourse and collateral security requirements as loans extended to customers.
Documentary and commercial letters of credit are instruments issued on behalf of a customer
authorizing a third party to draw drafts up to a stipulated amount subject to specific terms and
conditions. The Credit Union is at risk for any drafts drawn that are not ultimately settled by the
customer and the amounts are collateralized by the goods to which they relate. Commitments to
extend credit represent unutilized portions of authorizations to extend credit in the form of loans,
bankers’ acceptances or letters of credit.
To manage exposure to interest rate fluctuations and to manage asset and liability mismatches, the
Credit Union may enter into interest rate swaps. These minimize the interest rate risk and cash
required to liquidate the contracts by entering into counter-balancing positions. The Credit Union did
not use interest rate swaps in the current year.
39
October 31, 2014
16.
Contingent liabilities and commitments (Continued)
The Credit Union makes the following instruments available to its members:
a) Guarantees and standby letters of credit representing irrevocable assurances that the Credit
Union will pay if a member cannot meet their obligations to a third party;
b) Documentary and commercial letters of credit to allow a third party to draw drafts to a
maximum agreed amount under specific terms and conditions; and
c)
Commitments to extend credit representing unused portions of authorizations to extend credit in
the form of loans including lines of credit, credit limits, guarantees or letters of credit.
The amounts shown on the table below do not necessarily represent future cash requirements since
many commitments will expire or terminate without being funded.
As at October 31, 2014, the Credit Union had the following outstanding financial instruments subject
to credit risk:
October 31,
October 31,
2014
2013
$
Guarantees and standby letters of credit
Commitments to extend credit – original term to
maturity of greater than one year
Commitments to extend credit – original term to
maturity of one year or less
$
1,675,782
$
552,700
5,749,009
7,099,408
37,620,992
36,688,120
45,045,783
$
44,340,228
Contingent liabilities
During the normal course of business, the Credit Union enters into legal proceedings primarily relating
to the recovery of delinquent loans. As a result, counterclaims or proceedings have been or may be
instituted against the Credit Union.
The Credit Union has currently been named as defendant on a statement of claim of $3.8 million
relating to unpaid construction costs on a project the Credit Union has financed. Also named in the
lawsuit is a member of the Credit Union which the Credit Union has a loan outstanding of $6.5 million
at October 31, 2014 to finance the related construction. The Credit Union has filed a Statement of
Defence and Formal Offer to Settle for $100, and believes the claim is wholly without merit and is not
expected by management to have a material effect on the financial position of the Credit Union or
on its results of operations.
Commitments
The Credit Union has entered into leases for its premises; the estimated future minimum lease
payments for premises are as follows:
2015
2016
2017
2018
2019 and subsequent
$
$
$
$
$
40
269,147
269,147
257,338
251,433
398,102
October 31, 2014
17.
Related party transactions
Directors, management and staff
The Credit Union, in accordance with its policy, grants credit to its management, staff and directors.
Management and staff rates are slightly below member rates, which range from 1.00% to 6.50%
(2013 - 1.00% to 7.00%) per annum. Directors pay regular member rates. Directors, management
and staff had $5,970,157 (2013 - $6,264,372) in loans outstanding at October 31, 2014. All loans were
in good standing at October 31, 2014 and October 31, 2013.
Directors, management and staff of the Credit Union hold deposit accounts. These accounts are
maintained under the same terms and conditions as accounts of other members, with the exception
of staff members who are eligible for chequing accounts with reduced service charges, savings
accounts earning interest at the Bow Valley Prime Rate less 0.50%, and an employee variable RRSP
program earning interest at the prime rate. These accounts are included in member deposits and
accrued on the balance sheet.
Remuneration
Key management personnel consisting of those persons with authority and responsibility for planning,
directing and controlling the activities of the Credit Union received compensation in the form of
salaries and benefits during the year of $668,211 (2013 - $721,576). Remuneration paid to the Board
of Directors during the year was $23,998 (2013 - $24,796), ranging from $872 to $3,912, with an
average of $2,400 per director.
Credit Union Central of Alberta Limited (Central)
The Credit Union is a member of Central, which acts as a depository for surplus funds received from
and loans made to credit unions. Central also provides other services for a fee to the Credit Union
and acts in an advisory capacity.
The Credit Union Deposit Guarantee Corporation
The Credit Union Deposit Guarantee Corporation is a deposit insurance corporation, which protects
the savings and deposits of all credit union members in every credit union within Alberta.
18.
Segmented information
The Credit Union operates principally in personal and commercial banking in Alberta. Operating
branches are similar in terms of products and services provided, and methods used to distribute
products.
41
Credit Union
FULL SERVICE LOCATIONS
AIRDRIE EAST
CANMORE
1600 Market Street S.E. Airdrie, Alberta T4A 0K9
810 - 8 Street Canmore, Alberta T1W 2B7
Phone: (403) 948-2109 | Fax: (403) 948-2153
Phone: (403) 678-5549 | Fax: (403) 678-5120
AIRDRIE WEST
COCHRANE
104 - 1 Avenue N.E. Airdrie, Alberta T4B 0R6
212 - 5 Avenue W. Cochrane, Alberta T4C 2G4
Phone: (403) 948-6737 | Fax: (403) 948-6056
Phone: (403) 932-3277 | Fax: (403) 932-6468
BANFF
216 Banff Avenue Banff, Alberta T1L 1A8
Phone: (403) 762-3368 | Fax: (403) 762-5872
CALGARY
1125 – 8 Street SW Calgary, Alberta T2R 1L4
Phone: (403) 232-4500 | Fax: (403) 250-1544
ADMINISTRATION OFFICE
Box 876, 212-5th Avenue W. Cochrane, Alberta, T4C 1A9
Ph: 403.932.4693 | Fax: 403.932.9865
www.bowvalleycu.com