07-grand forks district savings credit union · mike gilmore, ca, cfp james r. grant, ca bill...

Financial Statements

Grand Forks District Savings Credit Union

December 31, 2007

Contents

Page

Auditors' report 1

Balance sheet 2

Statements of earnings and retained earnings 3

Statement of comprehensive income and accumulated

other comprehensive income 4

Statement of cash flows 5

Notes to the financial statements 6-22

Partners Kevin Crookes, CA, CBV Paul F. Gallo, CA Mike Gilmore, CA, CFP James R. Grant, CA Bill McTavish, CGA, CA Dan Vass, CA J. Kim Ward, CA, CFP Bill Winters, CA, CFP

Audit • Tax • Advisory

Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd 1

Grant Thornton LLP 200 - 1633 Ellis Street Kelowna, BC V1Y 2A8

T (250) 712-6800 (800) 661-4244 (Toll Free)

F (250) 712-6850 www.GrantThornton.ca

Auditors’ report

To the members of

Grand Forks District Savings Credit Union

We have audited the balance sheet of Grand Forks District Savings Credit Union as at December 31, 2007 and the statements of earnings and retained earnings, comprehensive income and accumulated other comprehensive income and cash flows for the year then ended. These financial statements are the responsibility of the Credit Union's management. 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 plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these financial statements present fairly, in all material respects, the financial position of the Credit Union as at December 31, 2007 and the results of its operations and cash flows for the year then ended in accordance with Canadian generally accepted accounting principles.

Kelowna, BC

January 19, 2008 Chartered accountants

http://www.GrantThornton.ca

See accompanying notes to the financial statements

2

Grand Forks District Savings Credit Union Balance sheet December 31 2007 2006

Assets

Cash resources (Note 4) $ 6,893,446 $ 24,424,432

Loans (Note 5) 165,997,649 148,633,769

Investments and other (Note 6) 14,019,346 14,065,475

Capital (Note 7) 2,415,675 2,158,882

$ 189,326,116 $ 189,282,558

Liabilities and equity

Deposits (Note 8) $ 176,432,075 $ 179,945,134

Borrowings (Note 9) 3,450,000 -

Payables and accruals 1,443,277 1,768,131

Retained earnings 7,979,957 7,569,293

Accumulated other comprehensive income 20,807 -

$ 189,326,116 $ 189,282,558

Commitment (Note 18)

On behalf of the Board

Director

Director


3

Grand Forks District Savings Credit Union Statement of earnings and retained earnings Year ended December 31 2007 2006

Financial income Loans $ 8,895,930 $ 8,287,576 Cash resources and investments 1,219,838 1,301,247

10,115,768 9,588,823 Financial expense

Deposits 4,829,354 4,242,203 Share dividends 15,710 14,839

4,845,064 4,257,042

Financial margin 5,270,704 5,331,781

Provision for loan losses, net of recoveries 142,956 51,288 5,127,748 5,280,493

Other income (Note 14) 1,394,886 1,156,995

Operating margin 6,522,634 6,437,488

Operating expenses (Note 15) 5,539,318 5,336,346 Patronage dividends 326,363 586,730

5,865,681 5,923,076

Earnings before income taxes 656,953 514,412

Income taxes (Note 16) 134,922 90,111

Net earnings $ 522,031 $ 424,301

Retained earnings, beginning of year $ 7,569,293 $ 7,144,992

Adjustment for change in accounting policies (Note 3) (111,367) - Net earnings 522,031 424,301

Retained earnings, end of year $ 7,979,957 $ 7,569,293


4

Grand Forks District Savings Credit Union Statement of comprehensive income and accumulated other comprehensive income Year ended December 31, 2007

Net earnings $ 522,031

Other comprehensive income, net of tax Unrealized loss on derivatives (100,855) Transfer to income (7,463)

Total other comprehensive income (108,318)

Comprehensive income $ 413,713

Accumulated other comprehensive income

Balance, beginning of year $ - Adjustment for changes in accounting policies, net of tax expense of $28,119 (Note 3) 129,125 Other comprehensive income (108,318)

Balance, end of year $ 20,807


5

Grand Forks District Savings Credit Union Statement of cash flows Year ended December 31 2007 2006

Increase (decrease) in cash resources

Operating activities Net earnings $ 522,031 $ 424,301 Adjustments for non-cash items

Provision for loan losses, net of recoveries 142,956 51,288 Loss on sale of capital assets 43,116 - Amortization 299,311 310,117 Change in interest accruals 207,128 306,564 Payables and accruals (324,855) 413,893 Change in fair value of HFT investments 20,807 -

910,494 1,506,163

Financing activities Deposits, net of withdrawals (3,754,752) 7,754,785 Borrowings 3,450,000 - Redemption of equity shares 358 (2,832)

(304,394) 7,751,953

Investing activities Loans, net of repayments (17,583,995) 5,504,746 Investments and other 46,129 11,671 Purchase of capital assets (622,470) (298,738) Proceeds from sale of capital assets 23,250 -

(18,137,086) 5,217,679

Net (decrease) increase in cash resources (17,530,986) 14,475,795

Cash resources, beginning of year 24,424,432 9,948,637

Cash resources, end of year $ 6,893,446 $ 24,424,432

Supplementary cash flow information Interest paid $ 4,588,019 $ 3,990,389 Income taxes paid $ 144,486 $ 87,104 Income taxes recovered $ - $ 85,845

Grand Forks District Savings Credit Union Notes to the financial statements December 31, 2007

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1. Governing legislation and operations

The Credit Union is incorporated under the Credit Union Incorporation Act of British Columbia and is subject to the Financial Institutions Act of British Columbia. The Credit Union serves members principally in the Boundary Area of British Columbia.

2. Summary of significant accounting policies

Basis of presentation

These financial statements have been prepared in accordance with accounting practices generally accepted in Canada. In preparing these financial statements management has made estimates and assumptions that affect the amounts reported. Actual results could differ from those estimates.

Loans

Loans are initially measured at fair value and subsequently remeasured at their amortized cost, net of allowance, using the effective interest rate method as prescribed by CICA Handbook Section 3855 Financial Instruments – Recognition and Measurement.

Loan interest

Interest income from loans is recorded on the accrual method, except where a loan is impaired. Interest received on an impaired loan is recognized in earnings only if there is no doubt as to the collectibility of the carrying value of the loan; otherwise, the interest received is credited to the principal.

Allowance for loan losses

The allowance for loan losses is maintained at a level considered adequate to absorb expected loan losses. Specific allowances are provided for specifically identified loans that have been impaired. A loan is classified as impaired generally at the earlier of when, in the opinion of management, there is reasonable doubt as to the collectibility of principal and interest, or when interest is 180 days past due. Impaired loans are carried at their estimated realizable amounts, determined by discounting the expected future cash flows inherent in the loans. When the amounts of future cash flows cannot be estimated with reasonable reliability, impaired loans are carried at the fair value of the underlying security, net of estimated costs of realization.

Specific allowances are supplemented by general allowances determined by judgement of management based on historical loan loss experience, known risks in the portfolio and current economic conditions and trends.

(continued)


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2. Summary of significant accounting policies (continued)

Loans (continued)

Loan fees

The accounting treatment for loan fees varies depending on the transaction. Fees that are considered to be material and an adjustment to loan yield are capitalized and amortized using the effective interest method. Mortgage prepayment fees are recognized in other interest income when received, unless they relate to a minor modification to the terms of the mortgage, in which case the fees are capitalized and amortized over the average remaining term of the original mortgage.

Investments

Investments in equity investments that do not have a quoted market price in an active market are measured at cost.

Capital assets

Capital assets are recorded at cost less accumulated amortization. Rates of amortization applied on a straight-line basis to write off the cost of capital assets over their estimated lives are as follows:

Building and renovations 10 and 33 years Parking lot 12 years Computer equipment 3 years Other equipment 10 years

No amortization is recorded in the year of acquisition.

Employee future benefits

The cost of pensions and other retirement benefits earned by employees is actuarially determined using the projected benefit method prorated on service and management’s best estimate of expected plan investment performance, salary escalation, retirement ages of employees and expected health care costs. For the purpose of calculating the expected return on plan assets, those assets are valued at fair value. The accrued benefit asset or liability represents the cumulative difference between the expense and funding contributions and is included in payables and accruals on the balance sheet.

(continued)


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2. Summary of significant accounting policies (continued)

Income taxes

The Credit Union follows the asset and liability method of accounting for income taxes, whereby future tax assets and liabilities are recognized for the expected future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Future tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

Net future income tax assets and liabilities are included in other assets or payables and accruals, as applicable.

Classification of financial instruments

The classification of financial instruments is described in Note 3, change in accounting policies.

Membership shares

Membership shares are classified as liabilities or as member equity according to their terms. Where shares are redeemable at the option of the member, either on demand or on withdrawal from membership, the shares are classified as liabilities. Where shares are redeemable at the discretion of the Credit Union board of directors, the shares are classified as equity.

Distributions to members

Patronage rebates and dividends on shares classified as liabilities are charged against earnings.


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3. Change in accounting policies

(a) Current year changes

Financial instruments, hedges and comprehensive income

On January 1, 2007, the Credit Union adopted CICA Handbook Sections 3855 Financial Instruments Recognition and Measurement, 1530 Comprehensive Income, 3861 Financial Instruments – Disclosure and Presentation and Section 3865 Hedges. These standards have been applied without restatement of prior periods.

Financial Instruments – Recognition and Measurement

Section 3855, Financial Instruments – Recognition and Measurement, establishes guidance for recognizing and measuring financial assets, financial liabilities, and non-financial derivatives. Under the new standard, financial assets and liabilities are initially recognized at fair value and are subsequently accounted for based on their classification as described below. The classification depends on the purpose for which the financial instruments were acquired, their characteristics and choice where applicable.

Financial assets must be classified as held-for-trading (HFT), available-for-sale (AFS), held-to-maturity (HTM), or loans and receivables (L&R). Financial liabilities are required to be classified as held-for-trading (HFT) or other financial liabilities (OFL). All financial instruments, including derivatives, are measured at fair value, except for loans and receivables, held-to maturity and other financial liabilities which are measured at amortized cost. Gains and losses on held-for-trading financial assets and financial liabilities are recognized in net earnings. Unrealized gains and losses on available for sale financial assets are recognized in other comprehensive income (OCI) until the financial asset is derecognized for other than temporary impairment, at which time any unrealized gains or losses are recorded in net earnings.

All embedded derivatives identified were closely related with its underlying contract. Therefore, these embedded derivatives were not separately valued.

Accumulated other comprehensive income (AOCI) is included in the balance sheet as a separate component of equity (net of tax) and includes net unrealized gains and losses on available for sale assets and effective hedging relationships.

Fair values are based on quoted market prices where available from active markets, otherwise fair values are estimated using a variety of valuation techniques and models.

Transaction costs related to financial instruments classified as held-for-trading are expensed as incurred. Transactions costs related to other than financial instruments classified as held-for-trading are capitalized and amortized using the effective interest method.

(continued)


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3. Change in accounting policies (continued)

(a) Current year changes (continued)

Financial instruments, hedges and comprehensive income (continued)

Hedges

Derivative financial instruments are financial contracts that require or provide an option to exchange cash flows or payments determined by applying certain rates, indices or changes therein to notional contract amounts. Derivative financial instruments are used to manage financial risks, such as movements in interest rates, foreign exchange rates, and other financial indices as well as to take trading positions. There are three types of hedge accounting: fair value, cash flow and hedges of net investments in self-sustaining foreign operations. The Credit Union utilizes cash flow hedges only.

A derivative qualifies for hedge accounting if they meet the criteria specified in Section 3865 – Hedges. In order for derivatives to qualify for hedge accounting, the hedge relationship must be designated and formally documented at inception in accordance with Section 3865. The particular risk management objective and strategy, the specific asset, liability or cash flow being hedged, as well as how hedge effectiveness is assessed and measured is documented. Hedge effectiveness requires a high correlation of changes in fair values or cash flows between the hedged and hedging items. We assess the effectiveness in hedging relationships, both at inception and on an ongoing basis. Ineffectiveness results to the extent that the changes in the fair value of the hedging derivative differ from the changes in the fair value of the hedged risk in the hedged item; or the cumulative change in the fair value of the hedging derivative differs from the cumulative change in fair value of expected future cash flows of the hedged item. Commencing January 1, 2007, the amount of ineffectiveness of hedging instruments is recorded immediately in income. Prior to January 1, 2007, the ineffectiveness was only recognized over time or upon the termination of the hedge.

Derivatives, including trading derivatives, that do not qualify for hedge accounting are marked-to-market and stated at fair value. These derivatives are reported as assets or liabilities with changes in fair value recorded in income.

(continued)


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Hedges (continued)

Cash flow hedges

We designate cash flow hedges primarily as part of interest rate risk management strategies that use derivatives and other financial instruments to mitigate our risk from variable cash flows by effectively converting certain variable rate financial instruments to fixed rate financial instruments. The effective portion of the change in fair value of the derivative instrument is offset through OCI until the variability in cash flows being hedged is recognized in income in future accounting periods, at which time an appropriate portion of the amount that was in the AOCI is reclassified into income. The ineffectiveness portion of the change in fair value of the hedging derivative is recognized in interest income immediately as it arises. In the event that a hedged item is sold or matures prior to the termination of the related derivative, any realized or unrealized gain or loss on the derivative is recognized in income. Realized and unrealized gains and losses associated with derivatives, which have been terminated or cease to be effective prior to maturity are deferred and recognized in income in the period in which the underlying hedged item is recognized.

Derivative financial instruments

At December 31, 2007, the Credit Union had outstanding interest rate swap contracts in the notional principal amount of $nil (2006 - $9,000,000). Interest rate swaps involve the exchange of interest flows between two parties on a specified notional principal amount for a pre-determined period at agreed upon fixed and floating rates. Principal amounts are not exchanged and are not indicative of a credit exposure. The Credit Union manages credit risk by dealing with creditworthy counterparties and setting limits for investments with those counterparties.

Transitional adjustment

Upon adoption of the new standards we re-established our hedging relationships and our deferred hedge balances are now included as an adjustment to AOCI. The accumulated ineffectiveness related to these hedges has been recognized in retained earnings together with deferred hedge balances related to hedging relationships that have not been continued or would not qualify for hedge effectiveness under the new standards.

(continued)


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As a result of the adoption of these new standards, the Credit Union has classified its financial instruments as follows:

Cash resources – HFT Credit Union Central of British Columbia shares and other investments – AFS Credit Union Central of British Columbia term deposits – HTM Loans, accrued interest, and other receivables – L&R Deposits, borrowings, payables and accruals – OFL

As required, these standards have been applied as an adjustment to AOCI. The impact of adopting these standards as at January 1, 2007 was as follows:

As at Adjustment As at December 31, upon adoption January 1, 2006

of new standards

2007

Assets Cash resources $ 24,424,432 $ - $ 24,424,432 Loans 148,633,769 (111,367) 148,522,402 Investments and other 14,065,475 157,244 14,222,719 Capital 2,158,882 - 2,158,882

Impact on total assets $ 189,282,558 $ 45,877 $ 189,328,435

Liabilities and equity Deposits $ 179,945,134 $ - $ 179,945,134 Payables and accruals 1,768,131 28,119 1,796,250 Retained earnings 7,569,293 (111,367) 7,457,926 Accumulated other

comprehensive income - 129,125 129,125

Impact on total liabilities and equity $ 189,282,558 $ 45,877 $ 189,328,435

(continued)


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3. Change in accounting polices (continued)


Accounting changes

Handbook Section 1506, Accounting Changes, was issued in July 2006 and revises current standards for changes in accounting policy, estimates or errors. An entity is permitted to change an accounting policy only when it results in financial statements that provide reliable and more relevant information or when required under a primary source of Canadian GAAP. The guidance also addresses how to account for a change in accounting policy, estimate or corrections of errors and establishes enhanced disclosures about their effects in the financial statements. These recommendations are effective for fiscal years beginning on or after October 1, 2006. The Credit Union has implemented these recommendations as of January 1, 2007.

(b) Future changes in accounting policies

Financial instruments – presentation and disclosure

Handbook Section 3862, Financial Instruments – Disclosures, and Handbook Section 3863, Financial Instruments – Presentation, both issued in December 2006, revise the current standards on financial instrument disclosure and presentation. Section 3862 places additional emphasis on disclosures regarding the risks associated with both recognized and unrecognized financial instruments and how these risks are managed. Section 3863 establishes standards for presentation of financial instruments and non-financial derivatives and provides additional guidance with classification of financial instruments between liabilities and equity from the perspective of the issuer. These standards will be adopted by the Credit Union effective January 1, 2008.

Capital disclosures

Handbook Section 1535, Capital Disclosures, was issued in December 2006. This section requires enhanced quantitative disclosures about what is regarded as capital and disclosure of information with respect to the objectives, policies and processes used to manage capital. These standards will be adopted by the Credit Union effective January 1, 2008.


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4. Cash resources 2007

2006

Cash and current accounts $ 1,107,617 $ 868,838 Term deposits and accrued interest

Callable or maturing in - three months or less 2,727,875 17,388,902 - more than three months 3,057,954 6,166,692

$ 6,893,446 $ 24,424,432

Provincial legislation requires the Credit Union to maintain, for liquidity purposes, deposits with Credit Union Central of British Columbia of at least 8% (2006 - 8%) of deposits and borrowings. At December 31, 2007, the Credit Union’s liquidity deposits exceed the minimum requirement by $5,659,280 (2006 - $22,862,017).

5. Loans 2007

2006

Personal loans Residential mortgages $ 82,333,303 $ 69,447,051 Other 14,036,155 14,062,238

Commercial loans Mortgages 27,692,246 25,916,618 Other 3,951,288 3,350,095

Purchased mortgages 38,294,204 35,950,268 Accrued interest 566,997 537,499 Deferred loan fees (116,544) -

166,757,649 149,263,769 Allowance for loan losses

Specific - 50,000 General 760,000 580,000

760,000 630,000

$ 165,997,649 $ 148,633,769

(continued)


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5. Loans (continued)

Allowance for loan losses 2007

2006

Beginning Write-offs / Ending Ending Balance

Provision

(Recoveries)

Balance

Balance

Commercial $ 460,000 $ 180,000 $ (50,000) $ 590,000 $ 460,000 Residential 170,000 14,970 (14,970) 170,000 170,000

$ 630,000 $ 194,970 $ (64,970) $ 760,000 $ 630,000

Percentage of total loans and accrued interest 0.46% 0.42%

Impaired loans and related allowances 2007

2006

Loan Specific Carrying Carrying Balances

Allowance

Amount

Amount

Commercial $ 37,052 $ - $ 37,052 $ 93,283 Residential 347,864 - 347,864 -

$ 384,916 $ - $ 384,916 $ 93,283

6. Investments and other 2007

2006

Term deposits $ 13,249,450 $ 13,256,937 Shares

Credit Union Central of British Columbia 551,393 568,544 CUPP Services Ltd. 57,039 52,002 Credential Securities Inc. 10,000 10,000 Stabilization Central Credit Union 252 252

Receivables and prepaids 151,212 177,740

$ 14,019,346 $ 14,065,475

Investment in shares of Credit Union Central of British Columbia is required as a condition of membership and by governing legislation.


16

7. Capital assets 2007

2006

Accumulated Net Net

Cost

Amortization

Book Value

Book Value

Land $ 239,792 $ - $ 239,792 $ 239,792 Building and renovations 2,321,994 1,044,025 1,277,969 1,199,337 Parking lot 37,637 19,947 17,690 20,481 Computer equipment 668,814 290,264 378,550 323,123 Other equipment 645,546 143,872 501,674 376,149

$ 3,913,783 $ 1,498,108 $ 2,415,675 $ 2,158,882

8. Deposits 2007

2006

Term $ 79,361,387 $ 77,693,393 Demand 59,958,101 66,887,676 Registered savings plans 34,836,523 33,329,695 Accrued interest and dividends 1,950,352 1,709,016 Membership equity shares (Note 10) 325,712 325,354

$ 176,432,075 $ 179,945,134

Under agreements with the trustee of the registered savings plans, members' contributions to the plans are deposited with the Credit Union at rates of interest determined by the Credit Union.

9. Borrowings 2007

2006

Credit Union Central of British Columbia $ 3,450,000 $ -

The Credit Union has available to it, through the Credit Union Central of British Columbia, an operating line and term facility of up to 5% of total assets based on the most recent available data secured by an assignment of loans to members, accounts receivable and a demand debenture in favour of Credit Union Central of British Columbia. The above loan bears interest at an effective rate of 4.93%.


17

10. Equity shares

Capital of the Credit Union is divided into two classes of equity shares designated as membership and patronage.

The Credit Union is authorized to issue an unlimited number of non-transferable, voting equity shares, with a par value of $1. Members are required to own membership equity shares which, under certain occurrences, are redeemable.

Equity shares, which are not guaranteed by the Credit Union Deposit Insurance Corporation of British Columbia, are redeemable only with the consent of the Board of Directors of the Credit Union.

Membership shares issued are included in deposit balances (see Note 8)

11. Capital requirements

The Credit Union is required under provincial legislation to maintain a minimum capital base equal to 8% of the total risk-weighted value of assets, each asset being assigned a risk factor based on the probability that a loss may be incurred on ultimate realization of that asset.

The Credit Union’s current capital base exceeds 13% (2006 – 14.55%) of the total value of risk-weighted assets.


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12. Interest rate sensitivity

The Credit Union is exposed to interest rate risk as a consequence of the mismatch, or gap between the assets, liabilities and off balance sheet instruments scheduled to reprice on particular dates.

Maturity dates substantially coincide with interest adjustment dates. Amounts with floating interest rates, or due on demand, are classified as maturing within three months, regardless of maturity. Amounts that are not interest sensitive are grouped together, regardless of maturity.

The table below does not incorporate management’s expectation of future events where repricing or maturity dates of certain loans and deposits differ significantly from the contractual date.

Not Interest

Interest Sensitive Balances (000’s) Sensitive

Total

Within 4 Months Over 1 3 months

to 1 year

to 5 years

Assets Cash resources $ 2,728 $ 2,057 $ 1,000 $ 1,108 $ 6,893 Yield 4.4% 4.2% 4.2% Loans 46,420 35,337 83,855 386 165,998 Yield 4.7% 3.8% 5.5% Other 770 2,210 9,347 4,108 16,435 Yield 3.4% 3.8% 4.7%

49,918 39,604 94,202 5,602 189,326

Liabilities Deposits 46,642 54,926 30,017 44,847 176,432 Yield 3.4% 3.9% 4.0% Borrowings 3,450 - - - 3,450 Yield 4.9% Other - - - 9,444 9,444

50,092 54,926 30,017 54,291 189,326

Interest sensitivity position, 2007 $ (174) $ (15,322) $ 64,185 $ (48,689) $ -

Interest sensitivity position, 2006 $ (24,745) $ (29,618) $ 75,416 $ (21,053) $ -


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13. Fair values of financial instruments

The estimated fair values of financial instruments are designed to approximate values at which these instruments could be exchanged in a current market. However, many of the financial instruments lack an available trading market and therefore fair values are based on estimates.

No fair values have been determined for property and equipment, or any other asset or liability that is not a financial instrument. The fair values of cash resources, variable rate loans and deposits, other assets and liabilities are assumed to equal their book values. The fair values of fixed rate loans and deposits are determined by discounting the expected future cash flows at the estimated current market rates for loans and deposits with similar characteristics.

Changes in interest rates are the main cause of changes in the fair value of the Credit Union’s financial instruments. The majority of the Credit Union’s financial instruments are carried at historical cost and are not adjusted to reflect increases or decreases in fair value due to market fluctuations, including those due to interest rate changes.

2007 (000’s)

2006

Fair Value Fair Value Estimated Favourable/ Favourable/

Book Value

Fair Value

(Unfavourable)

(Unfavourable)

Assets Cash resources $ 6,893 $ 6,813 $ (80) $ (110) Loans 165,998 163,546 (2,452) (278) Investments and other 14,019 14,019 - - Derivatives - 191

(2,532) (197)

Liabilities Deposits 176,432 176,488 (56) 348 Borrowings 3,450 3,450 - - Payables and accruals 1,443 1,443 - -

(56) 348

Fair value difference $ (2,588) $ 151


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14. Other income 2007

2006

Account service fees $ 637,825 $ 554,632 Foreign exchange 278,114 171,153 Mutual fund fees 119,026 124,336 Loan administration fees 142,607 119,051 Other 90,953 80,346 Insurance commissions and fees 92,021 74,866 Safety deposit rentals 34,340 32,611

$ 1,394,886 $ 1,156,995

15. Operating expenses 2007

2006

Advertising and member relations $ 198,725 $ 182,148 Amortization 299,311 310,117 Data processing 469,815 463,076 Dues and assessments 122,508 151,560 Human resource development 53,893 83,851 Loss on disposal of capital assets 43,116 - Occupancy 512,262 456,538 Other 384,994 414,734 Phoenix Foundation donation 50,000 150,000 Professional fees 196,931 125,099 Salaries and benefits 3,073,250 2,862,229 Service charges 134,513 136,994

$ 5,539,318 $ 5,336,346

16. Provision for income taxes

The components of income tax expense are as follows: 2007

2006

Current income taxes $ 137,970 $ 144,487 Future income tax benefits (3,048) (54,376)

Income taxes $ 134,922 $ 90,111

(continued)


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16. Provision for income taxes (continued)

The total provision for income taxes in the statement of earnings and retained earnings is at a rate less than the combined federal and provincial statutory income tax rate of the applicable year for the following reasons:

2007

2006

Combined federal and provincial statutory income tax rate 34.12% 34.12% Decrease in rate due to:

Rate reduction applicable to credit unions (16.50)% (16.50)% Other, net 2.92% (0.10)%

Effective income tax rate 20.54% 17.52%

The components of future income tax balances are as follows:

Future income tax assets Allowance for credit losses $ 117,800 $ 102,717 Deferred items 70,959 69,176 Other 9,178 22,996

Net future income tax assets $ 197,937 $ 194,889

17. Pension and other retirement benefits

The Credit Union participates in a multi-credit union defined benefit pension plan. Contributions are made by the Credit Union and the employees, and pensions are based on years of service, contributions and average earnings at retirement. An actuarial valuation is performed periodically to determine the present value of the accrued pension benefits. As at December 31, 2006 (date of the most recent valuation) the plan actuary reported that the plan assets exceeded the actuarially determined liabilities of the plan for accrued pension benefits.

The Credit Union also provides retirement benefits for a portion of its employees under a multi-employer defined contribution pension plan.

In addition to providing pension benefits as above, the Credit Union provides certain health care and life insurance benefits for retired employees and their dependents. The Credit Union accrues the projected future cost of providing post-retirement benefits other than pension during the period that employees render the services necessary to be eligible for such benefits. The accrued liability included in payables and accruals at December 31, 2007 is $407,800 (2006 - $344,100) and the expense for the year is $63,700 (2006 - $58,200).


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18. Commitment

Computer services

The Credit Union is committed to acquiring online data processing services until November 30, 2016 at an approximate cost of $300,000 per year. Data processing charges are based on the level of equipment and services utilized and on the number of Credit Union members.

19. Off balance sheet

In the normal course of business, the Credit Union enters into various off balance sheet commitments. These balances are not reflected on the balance sheet.

Letters of credit

At December 31, 2007, the Credit Union has outstanding letters of credit on behalf of members in the amount of $237,800 (2006 - $207,300).

20. Related party transactions 2007

2006

Directors received total remuneration made up of: - Honoraria $ 20,375 $ 20,650 - Lost wages reimbursed 4,500 6,500

Total directors’ remuneration $ 24,875 $ 27,150

At December 31, 2007, loans to directors, officers and employees of the Credit Union amounted to approximately $6,930,212 (2006 - $4,666,899). All such loans were granted in accordance with normal lending terms, except for computer loans to employees and officers, which are offered at reduced rates.

19. Comparative figures

Comparative figures are reclassified, where appropriate, to conform with the current year’s presentation.

07-grand forks district savings credit union · mike gilmore, ca, cfp james r. grant, ca bill...

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