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ACCESS CREDIT UNION LIMITED
Consolidated Financial StatementsFor the year ended December 31, 2015
ACCESS CREDIT UNION LIMITED
Consolidated Financial StatementsFor the year ended December 31, 2015
Contents
Independent Auditor's Report 2
Consolidated Financial Statements
Consolidated Balance Sheet 3
Consolidated Statement of Comprehensive Income 4
Consolidated Statement of Changes in Members' Equity 5
Consolidated Statement of Cash Flows 6
Notes to Consolidated Financial Statements
1. Nature of Operations and Summary of Significant Accounting Policies 7
2. Critical Accounting Estimates and Judgments 15
3. Funds on Hand and on Deposit 16
4. Other Assets 16
5. Investments 16
6. Loans to Members 18
7. Allowance for Impaired Loans 19
8. Property, Plant and Equipment 22
9. Intangible Assets 23
10. Investment Property 23
11. Borrowings 24
12. Other Liabilities 24
13. Members' Deposits 24
14. Pension Plan 25
15. Income Taxes 25
16. Members' Shares 27
17. Personnel Expenses 27
18. Related Party Transactions 28
19. Financial Instrument Classification 29
20. Fair Value Measurement 30
21. Financial Instrument Risk Management 32
22. Capital Management 38
23. Commitments 39
ACCESS CREDIT UNION LIMITEDConsolidated Statement of Comprehensive Income
For the year ended December 31 2015 2014
RevenueInterest on loans to members $ 62,678,849 $ 61,093,611Investment income
Profit from associates 762,201 762,910Liquidity deposits 2,928,850 2,972,989Shares and debentures 831,339 934,236
67,201,239 65,763,746
Cost of funds 31,608,121 30,514,888
Gross financial margin 35,593,118 35,248,858
Operating ExpensesPersonnel (Note 17) 17,038,131 16,779,846Administrative 7,055,033 6,395,754Occupancy 2,894,589 2,990,965Members' security 1,755,475 1,812,594Organizational 947,924 722,705
Gross operating expenses 29,691,152 28,701,864
Less other income 9,079,164 9,700,849
20,611,988 19,001,015
Gross operating income 14,981,130 16,247,843
Provision for impaired loans (recovery) (Note 7) 42,930 (129,783)
Income before income taxes 14,938,200 16,377,626
Provision for Income Taxes (Note 15)Current 2,025,176 2,560,367Deferred 29,476 17,000
2,054,652 2,577,367
Net income for the year 12,883,548 13,800,259
Change in unrealized losses on available-for-saleinvestments net of tax (52,552) (65,126)
Total comprehensive income for the year $ 12,830,996 $ 13,735,133
The accompanying notes are an integral part of these consolidated financial statements. 4
ACCESS CREDIT UNION LIMITEDConsolidated Statement of Changes in Members' Equity
For the year ended December 31
AccumulatedOther
ComprehensiveIncome
Members' Shares
Retained Earnings Total
Balance at December 31, 2013 $ 295,708 $ 12,749,613 $ 107,425,026 $ 120,470,347
Net income for the year - - 13,800,259 13,800,259
Issue of members' shares - 11,885 - 11,885
Redemption of members' shares - (3,484,600) - (3,484,600)
Change in unrealized losses onavailable-for-sale investments (65,126) - - (65,126)
Balance at December 31, 2014 230,582 9,276,898 121,225,285 130,732,765
Net income for the year - - 12,883,548 12,883,548
Issue of members' shares - 12,425 - 12,425
Redemption of members' shares - (4,544,072) - (4,544,072)
Change in unrealized losses onavailable-for-sale investments (52,552) - - (52,552)
Balance at December 31, 2015 $ 178,030 $ 4,745,251 $ 134,108,833 $ 139,032,114
The accompanying notes are an integral part of these consolidated financial statements. 5
ACCESS CREDIT UNION LIMITED Consolidated Statement of Cash Flows
For the year ended December 31 2015 2014
Cash Flows from Operating ActivitiesNet income for the year $ 12,883,548 $ 13,800,259Adjustments for
Interest and investment revenue (67,201,239) (65,763,746)Interest expense 31,608,121 30,514,888Depreciation expense 1,222,620 1,374,178Provision for impaired loans 42,930 (129,783)Loss on disposal of property, plant and equipment 39,920 8,253Deferred income taxes 55,000 17,000
(21,349,100) (20,178,951)
Change in other assets and liabilities (755,917) 703,837Change in income taxes payable (1,057,884) 700,756
(1,813,801) 1,404,593Changes in member activities (net)
Change in loans to members (110,446,054) (152,500,834)Change in members' deposits 144,389,286 146,145,094
33,943,232 (6,355,740)Cash flows related to interest, dividends, and income taxes
Interest received on loans to members 62,682,597 60,810,688Interest received on investments 3,798,494 4,130,873Dividends received on investments in associates 672,000 598,668Interest paid on members' deposits (31,198,776) (30,614,168)
35,954,315 34,926,061
Total cash flows from operating activities 46,734,646 9,795,963
Cash Flows from Investing ActivitiesPurchase of investment property (6,311) (3,668)Redemption of investments 6,653,664 6,272,359Purchase of property, plant and equipment (899,787) (446,933)Purchase of intangibles (68,840) (73,733)Purchase of investments (7,721,285) -
Total cash flows from investing activities (2,042,559) 5,748,025
Cash Flows from Financing ActivitiesIssue of common and surplus shares 12,425 11,885Redemption of common and surplus shares (4,544,072) (3,484,600)
Total cash flows from financing activities (4,531,647) (3,472,715)
Net increase in cash and cash equivalents 40,160,440 12,071,273
Cash and cash equivalents, beginning of year 145,817,152 133,745,879
Cash and cash equivalents, end of year $ 185,977,592 $ 145,817,152
Comprised of the followingFunds on hand and on deposit $ 39,051,342 $ 84,103,192Credit Union Central of Manitoba term deposits 146,926,250 64,713,960Credit Union Central of Manitoba borrowings - (3,000,000)
$ 185,977,592 $ 145,817,152
The accompanying notes are an integral part of these consolidated financial statements. 6
ACCESS CREDIT UNION LIMITEDNotes to Consolidated Financial Statements
For the year ended December 31, 2015
1. Nature of Operations and Summary of Significant Accounting Policies
Reporting Entity
Access Credit Union Limited (the "Credit Union") is incorporated under the Credit Unions andCaisses Populaires Act of the Province of Manitoba ("the Act") and is a member of Credit UnionCentral of Manitoba ("CUCM"). The Credit Union operates as one operating segment in the loansand deposit taking industry in Manitoba. Products and services offered to its members includeconsumer, commercial, agricultural loans and mortgages, chequing and savings accounts, termdeposits, registered deposits, mutual funds, automated banking machines ("ABMs"), debit and creditcards and Internet banking. The Credit Union has seventeen branches located throughout SouthernManitoba. The Credit Union's head office is located at Stanley Business Centre unit #2 - 23111 PTH#14, Winkler Manitoba.
These financial statements have been authorized for issue by the Board of Directors on February 24,2016.
Basis of Presentation
These financial statements have been prepared in accordance with International Financial ReportingStandards ("IFRS") as issued by the International Accounting Standards Board (the "IASB").
These financial statements were prepared under the historical cost convention, as modified by therevaluation of available-for-sale financial assets and derivative financial instruments measured at fairvalue.
The Credit Union’s functional and presentation currency is the Canadian dollar.
The preparation of financial statements in compliance with IFRS requires management to makecertain critical accounting estimates. It also requires management to exercise judgment in applyingthe Credit Union’s accounting policies. The areas involving a higher degree of judgment orcomplexity, or areas where assumptions and estimates are significant to the financial statements aredisclosed in Note 2.
Basis of Consolidation
These financial statements include the accounts of the Credit Union and its wholly-ownedsubsidiaries, 5033179 Manitoba Ltd. and 6009655 Manitoba Ltd.
Significant Accounting Policies
Cash and Cash Equivalents
For the purpose of the statement of cash flows, cash and cash equivalents includes cash on handand current accounts with CUCM and term deposits held with CUCM for liquidity purposes lessborrowings that are repayable on demand.
Cash and cash equivalents are classified as loans and receivables and are carried at amortizedcost, which is equivalent to fair value.
7
ACCESS CREDIT UNION LIMITEDNotes to Consolidated Financial Statements
For the year ended December 31, 2015
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
Significant Accounting Policies (continued)
Other Assets
Accounts receivable are classified as loans and receivables and are initially measured at fair valuenet of any transaction costs directly attributable to the issuance of the instrument and subsequentlyare carried at amortized cost using the effective interest rate method, less any impairment losses,which approximates fair value.
Investments
CUCM - Liquidity deposits
These deposit instruments are classified as loans and receivables and are initially measured at fairvalue plus transaction costs that are directly attributable to their acquisition. Subsequently they arecarried at amortized cost, which approximates fair value.
Shares
These instruments are classified as available-for-sale and are initially recognized at fair value plustransaction costs that are directly attributable to their acquisition. Subsequently they are carried atfair value, unless they do not have a quoted market price in an active market and fair value is notreliably determinable in which case they are carried at cost.
Changes in fair value, except for those arising from interest calculated using the effective interestrate, are recognized as a separate component of other comprehensive income.
Where there is a significant or prolonged decline in the fair value of an equity instrument (whichconstitutes objective evidence of impairment), the full amount of the impairment, including anyamount previously recognized in other comprehensive income, is recognized in net income.
Purchases and sales of equity instruments are recognized on settlement date with any change in fairvalue between trade date and settlement date being recognized in accumulated othercomprehensive income.
On sale, the amount held in accumulated other comprehensive income associated with thatinstrument is removed from equity and recognized in net income.
Bonds and debentures
These investment instruments are classified as available-for-sale and are initially measured at fairvalue plus transaction costs that are directly attributable to their acquisition. Subsequently they arecarried at fair value.
Changes in fair value, except for those arising from interest calculated using the effective interestrate, are recognized as a separate component of other comprehensive income.
8
ACCESS CREDIT UNION LIMITEDNotes to Consolidated Financial Statements
For the year ended December 31, 2015
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
Significant Accounting Policies (continued)
Investments - Bonds and debentures (continued)
On sale, the amount held in accumulated other comprehensive income associated with thatinstrument is removed from equity and recognized in net income.
Investments in Associates
The equity method of accounting is used to account for investments in associates in which the CreditUnion has an ownership interest which results in it having significant influence to participate in thefinancial and operating policy decisions of the investee but not control. Under this method, theinvestment is initially recorded at cost and is adjusted thereafter for the post-acquisition change inthe Credit Union's share of net assets of the investee.
The carrying value of investments accounted for using the equity method are based on the initialinvestment in these companies adjusted for the Credit Union's share of profit or loss of the investee.
The fiscal year end for all associates is September 30.
Loans to Members
All loans to members are non-derivative financial assets with fixed or determinable payments thatare not quoted in an active market and have been classified as loans and receivables.
Loans to members are initially measured at fair value, net of loan origination fees and inclusive oftransaction costs incurred.
Loans to members are subsequently measured at amortized cost, using the effective interest ratemethod, less any impairment (losses).
Loans to members are reported at their recoverable amount representing the aggregate amount ofprincipal, less any allowance or provision for impaired loans plus accrued interest. Interest isaccounted for on the accrual basis for all loans.
If there is objective evidence that an impairment loss on loans to members carried at amortized costhas incurred, the amount of the loss is measured as the difference between the loans carryingamount and the present value of expected cash flows discounted at the loans original effectiveinterest rate. Short-term balances are not discounted.
The Credit Union first assesses whether objective evidence of impairment exists individually forfinancial assets that are individually significant.
9
ACCESS CREDIT UNION LIMITEDNotes to Consolidated Financial Statements
For the year ended December 31, 2015
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
Significant Accounting Policies (continued)
Loans to Members (continued)
If it is determined that no objective evidence of impairment exists for an individually assessedfinancial asset, whether significant or not, the asset is included in a group of financial assets withsimilar credit risk characteristics and that group of financial assets is collectively assessed forimpairment. Assets that are individually assessed for impairment and for which an impairment loss isor continues to be recognized are not included in a collective assessment of impairment. Theexpected future cash outflows for a group of financial assets with similar credit risk characteristicsare estimated based on historical loss experience.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can berelated objectively to an event occurring after the impairment was recognized, the previouslyrecognized impairment loss is reversed. Any subsequent reversal of an impairment loss isrecognized in net income.
Bad Debts Written Off
Bad debts are written off from time to time as determined by management and approved by theBoard of Directors when it is reasonable to expect that the recovery of the debt is unlikely. Bad debtsare written off against the provisions for impairment, if a provision for impairment had previouslybeen recognized. If no provision had been recognized, the write offs are recognized as expenses innet income.
Property Held for Resale
Property held for resale is valued at the lower of cost and fair market value.
Property, Plant and Equipment
Property, plant and equipment is initially recorded at cost and subsequently measured at cost lessaccumulated depreciation and any accumulated impairment (losses), with the exception of landwhich is not depreciated. Depreciation is recognized in net income and is provided on a straight-linebasis over the estimated useful life of the assets as follows:
Buildings 35 - 40 yearsFurniture and equipment 5 - 20 yearsComputer equipment 5 yearsAutomated teller machines 10 yearsParking lots 10 - 23 yearsLeasehold improvements 15 yearsVehicles 5 - 7 years
Depreciation methods, useful lives and residual values are reviewed annually and adjusted ifnecessary.
10
ACCESS CREDIT UNION LIMITEDNotes to Consolidated Financial Statements
For the year ended December 31, 2015
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
Significant Accounting Policies (continued)
Intangible Assets
Intangible assets consist of computer software which are not integral to the computer hardwareowned by the Credit Union. Software is initially recorded at cost and subsequently measured at costless accumulated amortization and any accumulated impairment (losses). Software is amortized ona straight-line basis over its estimated useful life of 10 years.
Investment Property
The Credit Union's investment property consists of land and building held to earn rental income.Investment property is initially recorded at cost and subsequently measured at cost lessaccumulated depreciation and accumulated impairment (losses). Land is not depreciated. Buildingsare depreciated on a straight-line basis over their estimated useful life of 40 years.
Rent receivable is recognized in net income and is spread on a straight-line basis over the period ofthe lease. Where an incentive, such as a rent free period is given to a tenant, the carrying value ofthe investment property excludes any amount reported as a separate asset as a result ofrecognizing rental income on this basis.
Impairment of Non-Financial Assets
Non-financial assets are subject to impairment tests whenever events or changes in circumstancesindicate that their carrying amount may not be recoverable. Where the carrying value of an assetexceeds its recoverable amount, which is the higher of value in use and fair value less costs to sell,the asset is written down accordingly.
Where it is not possible to estimate the recoverable amount of an individual asset, the impairmenttest is carried out on the asset's cash-generating unit, which is the lowest group of assets in whichthe asset belongs for which there are separately identifiable cash flows.
Impairment charges are included in net income, except to the extent they reverse gains previouslyrecognized in other comprehensive income.
Income Taxes
Income tax expense comprises current and deferred income tax. Current and deferred income taxesare recognized in net income except to the extent that it relates to a business combination, or itemsrecognized directly in equity or in other comprehensive income.
11
ACCESS CREDIT UNION LIMITEDNotes to Consolidated Financial Statements
For the year ended December 31, 2015
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
Significant Accounting Policies (continued)
Income Taxes (continued)
Current income taxes are recognized for the estimated income taxes payable or receivable ontaxable income or loss for the current year and any adjustment to income taxes payable in respect ofprevious years. Current income taxes are measured at the amount expected to be recovered from orpaid to the taxation authorities. This amount is determined using tax rates and tax laws that havebeen enacted or substantively enacted by the year end date.
Deferred income tax assets and liabilities are recognized where the carrying amount of an asset orliability differs from its tax base.
Recognition of deferred income tax assets for unused tax (losses), tax credits and deductibletemporary differences is restricted to those instances where it is probable that future taxable profitwill be available which allow the deferred income tax asset to be utilized. Deferred income tax assetsare reviewed at each reporting date and are reduced to the extent that it is no longer probable thatthe related tax benefit will be realized.
The amount of the deferred income tax asset or liability is measured at the amount expected to berecovered from or paid to the taxation authorities. This amount is determined using tax rates and taxlaws that have been enacted or substantively enacted by the year end date and are expected toapply when the liabilities / assets are settled / recovered.
Members' Deposits
All members' deposits are initially measured at fair value, net of any transaction costs directlyattributable to the issuance of the instrument.
Members' deposits are subsequently measured at amortized cost, using the effective interest ratemethod and have been classified as other liabilities.
Pension Plan
The Credit Union participates in a multi-employer defined contribution pension plan recognizingcontributions as an expense in the year to which they relate as disclosed in Note 14.
Other Liabilities
Liabilities for trade creditors and other payables are classified as other financial liabilities and initiallymeasured at fair value net of any transaction costs directly attributable to the issuance of theinstrument and subsequently carried at amortized cost using the effective interest rate method,which approximates fair value.
12
ACCESS CREDIT UNION LIMITEDNotes to Consolidated Financial Statements
For the year ended December 31, 2015
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
Significant Accounting Policies (continued)
Provisions
Provisions are recognized for liabilities of uncertain timing or amounts that have arisen as a result ofpast transactions, including legal or constructive obligations. The provision is measured as the bestestimate of the expenditure required to settle the obligation at the reporting date.
Members’ Shares
Members’ shares issued by the Credit Union are classified as equity only to the extent that they donot meet the definition of a financial liability or financial asset.
Revenue Recognition
Interest on loans is recorded using the effective interest method except for loans which areconsidered impaired. When a loan becomes impaired, recognition of interest income ceases whenthe carrying amount of the loan (including accrued interest) exceeds the estimated realizable amountof the underlying security. The amount of initial impairment and any subsequent changes arerecorded through the provision for impaired loans as an adjustment to the specific allowance.
Investment income is recorded using the effective interest method.
Commissions, service charges and other revenue are recognized as income when the relatedservice is provided or entitlement to receive income is earned.
Foreign Currency Translation
Foreign currency accounts are translated into Canadian dollars as follows:
At the transaction date, each asset, liability, revenue and expense denominated in a foreign currencyis translated into Canadian dollars by the use of the exchange rate in effect at that date. At the yearend date, unsettled monetary assets and liabilities are translated into Canadian dollars by using theexchange rate in effect at the year end date and the related translation differences are recognized innet income. Exchange gains and losses arising on the retranslation of monetary available-for-salefinancial assets are treated as a separate component of the change in fair value and recognized innet income. Exchange gains and losses on non-monetary available-for-sale financial assets formpart of the overall gain or loss recognized in respect of that financial instrument.
Non-monetary assets and liabilities that are measured at historical cost are translated into Canadiandollars by using the exchange rate in effect at the date of the initial transaction and are notsubsequently restated. Non-monetary assets and liabilities that are measured at fair value or arevalued amount are translated into Canadian dollars by using the exchange rate in effect at thedate the value is determined and the related translation differences are recognized in net income orother comprehensive income consistent with where the gain or loss on the underlying non-monetaryasset or liability has been recognized.
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ACCESS CREDIT UNION LIMITEDNotes to Consolidated Financial Statements
For the year ended December 31, 2015
1. Nature of Operations and Summary of Significant Accounting Policies (continued)
Significant Accounting Policies (continued)
Standards, Amendments and Interpretations Not Yet Effective
Accounting standards that have been issued but are not yet effective are listed below. The CreditUnion has not yet assessed the impact of these standards and amendments or determined whetherit will early adopt them.
Amendments to IAS 1 Presentation of Financial Statements
The amendments to IAS 1 are a part of a major initiative to improve disclosure requirements in IFRSfinancial statements. The amendments clarify the application of materiality to note disclosure and thepresentation of line items in the primary statements provide options on the ordering of financialstatements and additional guidance on the presentation of other comprehensive income related toequity accounted investments. The effective date for these amendments is January 1, 2016, withearlier application permitted. The Credit Union is in the process of evaluating the impact of the newstandard.
IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement
IFRS 9 amends the requirements for classification and measurement of financial assets, impairment,and hedge accounting. IFRS 9 introduces an expected loss model of impairment and retains butsimplifies the mixed measurement model and establishes three primary measurement categories forfinancial assets: amortized cost, fair value through profit or loss, and fair value through othercomprehensive income. The basis of classification depends on the entity's business model and thecontractual cash flow characteristics of the financial asset. Entities are required to apply IFRS 9 forannual periods beginning on or after January 1, 2018, with earlier application permitted. The CreditUnion is in the process of evaluating the impact of the new standard.
Amendments to IFRS 7 Financial Instruments: Disclosures
This amendment aligns with the deferral of the effective date of IFRS 9. Instead of requiringrestatement of comparative financial statements, entities are either permitted or required to providemodified disclosures on transition from IAS 39 to IFRS 9 on the basis of the entity's date of adoptionand if the entity chooses to restate prior periods. The amendment is effective for annual periodsbeginning on or after January 1, 2016. The Credit Union is in the process of evaluating the impact ofthe new standard.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 is based on the core principle to recognize revenue to depict the transfer of goods orservices to customers in an amount that reflects the consideration to which the entity expects to beentitled in exchange for those goods or services. IFRS 15 focuses on the transfer of control. IFRS 15replaces all of the revenue guidance that previously existed in IFRSs. Entities are required to applyIFRS 15 for annual periods beginning on or after January 1, 2017, with earlier application permitted.The Credit Union is in the process of evaluating the impact of the new standard.
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ACCESS CREDIT UNION LIMITEDNotes to Consolidated Financial Statements
For the year ended December 31, 2015
2. Critical Accounting Estimates and Judgments
The Credit Union makes estimates and assumptions about the future that affect the reportedamounts of assets and liabilities. Estimates and judgments are continually evaluated based onhistorical experience and other factors, including expectations of future events that are believed tobe reasonable under the circumstances. In the future, actual experience may differ from theseestimates and assumptions.
The effect of a change in an accounting estimate is recognized prospectively by including it incomprehensive income in the period of the change, if the change affects that period only; or in theperiod of the change and future periods, if the change affects both.
The estimates and assumptions that have a significant risk of causing material adjustment to thecarrying amounts of assets and liabilities within the next financial year are discussed below.
Fair Value of Financial Instruments
The Credit Union determines the fair value of financial instruments that are not quoted in an activemarket, using valuation techniques. Those techniques are significantly affected by the assumptionsused, including discount rates and estimates of future cash flows. In that regard, the derived fairvalue estimates cannot always be substantiated by comparison with independent markets and, inmany cases, may not be capable of being realized immediately.
The methods and assumptions applied, and the valuation techniques used, are disclosed in Note 20.
Provision for Impaired Loans
In determining whether an impairment loss should be recorded in the statement of comprehensiveincome the Credit Union makes judgment on whether objective evidence of impairment existsindividually for financial assets that are individually significant. Where this does not exist the CreditUnion uses its judgment to group loans to members with similar credit risk characteristics to allow acollective assessment of the group to determine any impairment loss.
In determining the collective loan loss provision, management uses estimates based on historicalloss experience for assets with similar credit risk characteristics and objective evidence ofimpairment. Further details on the estimates used to determine the allowance for impaired loanscollective provision are provided in Note 7.
Income Taxes
The Credit Union periodically assesses its liabilities and contingencies related to income taxes for allyears open to audit based on the latest information available. For matters where it is probable thatan adjustment will be made, the Credit Union records its best estimate of the income tax liabilityincluding the related interest and penalties in the current tax provision. Management believes theyhave adequately provided for the probable outcome of these matters; however, the final outcomemay result in a materially different outcome than the amount included in the tax liabilities.
15
ACCESS CREDIT UNION LIMITEDNotes to Consolidated Financial Statements
For the year ended December 31, 2015
2. Critical Accounting Estimates and Judgments (continued)
Property, Plant and Equipment
The estimated useful life, residual value and depreciation method chosen are the Credit Union’s bestestimate of such and are based on industry norms, historical experience of management and otherestimates. These estimates also consider the period and distribution of future cash inflows.
Readers are cautioned that this list is not exhaustive and other items may also be affected byestimates and judgments.
3. Funds on Hand and on Deposit
The Credit Union's cash and current accounts are held with CUCM. The average yield on theaccounts at December 31, 2015 is 0.50% (2014 - 1.00%).
Included in the balance of funds on hand and on deposit is $23,168,987 (2014 - $20,881,740)denominated in US dollars.
4. Other Assets2015 2014
Accounts receivable $ 192,676 $ 268,317Prepaid expenses 2,211,953 1,642,441
$ 2,404,629 $ 1,910,758
5. Investments
Credit Union Central of Manitoba
Liquidity deposits2015 2014
Contract and daily interest deposits $ 146,926,250 $ 64,713,960Accrued interest receivable 264,496 294,891
$ 147,190,746 $ 65,008,851
The term deposits with CUCM bear interest at rates ranging from 0.71% to 3.52% and have originalmaturity dates from 4 days to 10 months.
16
ACCESS CREDIT UNION LIMITEDNotes to Consolidated Financial Statements
For the year ended December 31, 2015
5. Investments (continued)
Included in the balance of liquidity deposits is $1,534,402 (December 31, 2014 - $5,936,602)denominated in US dollars.
Shares2015 2014
CUCM - Class 1 shares $ 10,262,200 $ 6,430,250CUCM - Class 2 shares 351,645 2,462,310Concentra Financial Services Association - Membership shares 62,568 62,568Concentra Financial Services Association - Class D shares 6,000,000 -
$ 16,676,413 $ 8,955,128
The shares in CUCM are required as a condition of membership and are redeemable uponwithdrawal of membership or at the discretion of the Board of Directors of CUCM. In addition, themember credit unions are subject to additional capital calls at the discretion of the Board of Directorsof CUCM.
Class 1 and 2 CUCM shares are subject to a rebalancing mechanism at least annually and areissued and redeemable at par value. There is no separately quoted market value for these shares.However, fair value is determined to be equivalent to the par value due to the fact that transactionsoccur at par value on a regular and recurring basis.
The Credit Union is not intending to dispose of any CUCM shares as the services supplied by CUCMare relevant to the day to day activities of the Credit Union.
Dividends on these shares are at the discretion of the Board of Directors of CUCM.
The membership shares of Concentra Financial Services Association are required as a condition ofmembership and are redeemable upon withdrawal of membership subject to the approval of theBoard of Directors of the Association.
During the year, the Credit Union purchased 240,000 class D shares.
Bonds and Debentures2015 2014
Concentra Financial ServicesDebenture (5.82% due August 15, 2021) $ 1,051,559 $ 7,035,820
Co-operators subordinated notes (1.60% due November 30, 2016) 250,000 250,000
Municipal debentures (various 4.24% to 8.00% due April 1, 2017 to December 1, 2024) 5,466,673 6,188,628
6,768,232 13,474,448
Accrued interest receivable 111,551 119,461
$ 6,879,783 $ 13,593,90917
ACCESS CREDIT UNION LIMITEDNotes to Consolidated Financial Statements
For the year ended December 31, 2015
6. Loans to Members2015 2014
ConsumerNon-real estate $ 101,692,406 $ 108,205,797Real estate 779,298,076 710,752,110
CommercialNon-real estate 161,501,775 171,025,262Real estate 415,136,111 397,769,082
AgriculturalNon-real estate 157,536,260 155,447,730Real estate 211,112,250 172,838,695
1,826,276,878 1,716,038,676
Accrued interest receivable 3,673,320 3,677,068
1,829,950,198 1,719,715,744
Allowance for impaired loans (4,003,723) (4,168,645)
Net loans to members $ 1,825,946,475 $ 1,715,547,099
Consumer real estate loans are loans secured by residential property and are generally repayablemonthly with either blended payments of principal and interest or interest only.
Consumer non-real estate loans consist of term loans and lines of credit that are non-real estatesecured and, as such, have various repayment terms. They are secured by various types ofcollateral, including charges on specific equipment or personal property, investments, and personalguarantees.
Commercial loans consist of term loans, operating lines of credit and mortgages to individuals,partnerships and corporations, and have various repayment terms. They are secured by varioustypes of collateral, including mortgages on real property, general security agreements, charges onspecific equipment, investments, and personal guarantees.
Agricultural loans consist of term loans, operating lines of credit and mortgages to individuals,partnerships, and corporations for agricultural purposes and have various repayment terms. Theyare secured by various types of collateral, including mortgages on real property, general securityagreements, charges on specific equipment, assignments of crops and livestock, investments, andpersonal guarantees.
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ACCESS CREDIT UNION LIMITEDNotes to Consolidated Financial Statements
For the year ended December 31, 2015
6. Loans to Members (continued)
Credit Quality of Loans
It is not practical to value all collateral as at the balance sheet date due to the variety of assets andconditions. A breakdown of the security held on a portfolio basis is as follows:
2015 2014
Unsecured loans $ 95,937,041 $ 127,347,463Loans secured by assignment of members' deposits 13,120,062 11,600,793Loans secured by real property 1,454,566,944 1,297,135,513Loans secured by chattels 266,326,151 283,631,975
$ 1,829,950,198 $ 1,719,715,744
Concentration of Risk
The Credit Union has an exposure to groupings of individual loans which concentrate risk and createexposure to particular segments as follows:
No individual or related groups of loans to members exceed 5% of members' deposits and capital asat December 31, 2015.
As at December 31, 2015, the Credit Union held $286,795,731 (2014 - $251,532,596) in outstandingagricultural loans relating to the crop farming industry and $47,258,580 (2014 - $31,290,207) relatingto the livestock farming industry, $72,142,007 (2014 - $72,468,865) in outstanding commercial loansrelating to the construction industry, $154,927,294 (2014 - $149,699,907) relating to the real estate,rental and leasing industry, $54,296,039 (2014 - $45,228,834) relating to the health care and socialassistance industry and $46,882,897 (2014 - $48,252,940) relating to the accommodation and foodservices industry.
The majority of loans to members are with members located in southern Manitoba. A sizeableportfolio of the Credit Union's loan portfolio is secured by residential property in southern Manitoba.Therefore, the Credit Union is exposed to the risks in reduction of the loan to valuation ratiocoverage should the property market be subject to a decline. The risk of losses from loansundertaken is primarily reduced by the nature and quality of the security taken.
7. Allowance for Impaired Loans
Total allowance for impaired loans is comprised of:2015 2014
Collective allowance $ 3,032,123 $ 3,151,517Individual specific allowance 971,600 1,017,128
Total allowance $ 4,003,723 $ 4,168,645
19
ACCESS CREDIT UNION LIMITEDNotes to Consolidated Financial Statements
For the year ended December 31, 2015
7. Allowance for Impaired Loans (continued)
During the year ended December 31, 2015, the Credit Union acquired $307,000 (December 31,2014 - $721,900) of assets in respect of problem loans.
Movement in individual specific and collective allowance for impairment is as follows:
2015 Consumer Agricultural Commercial Total
Balance at December 31, 2014 $ 808,407 $ 1,001,440 $ 2,358,798 $ 4,168,645Provision for impaired loans (recovery) 207,857 22,419 (187,346) 42,930
1,016,264 1,023,859 2,171,452 4,211,575
Loans written off (net) (189,918) - (17,934) (207,852)
Balance at December 31, 2015 $ 826,346 $ 1,023,859 $ 2,153,518 $ 4,003,723
Gross principal balance of individually impaired loans $ 4,473,722 $ 1,465,218 $ 3,396,478 $ 9,335,418
2014 Consumer Agricultural Commercial Total
Balance at December 31, 2013 $ 869,217 $ 943,010 $ 2,637,268 $ 4,449,495Provision for impaired loans (recovery) 62,236 58,430 (250,449) (129,783)
931,453 1,001,440 2,386,819 4,319,712
Loans written off (net) (123,046) - (28,021) (151,067)
Balance at December 31, 2014 $ 808,407 $ 1,001,440 $ 2,358,798 $ 4,168,645
Gross principal balance of individually impaired loans $ 3,361,668 $ 1,157,787 $ 3,786,101 $ 8,305,556
An analysis of individual loans that are impaired or potentially impaired based on period ofdelinquency is as follows:
2015 2014
Carrying Value
Individual Specific
Allowance Carrying
Value
Individual Specific
Allowance Period of delinquency
Less than 30 days $ 1,194,880 $ 1,527 $ 259,711 $ 14,95531 to 90 days 887,088 62,720 374,940 55,969Greater than 90 days 2,548,813 374,419 2,197,600 374,239
Total impaired loans in arrears 4,630,781 438,666 2,832,251 445,163
Total impaired loans not in arrears 4,704,637 532,934 5,473,305 571,965
Total impaired loans $ 9,335,418 $ 971,600 $ 8,305,556 $ 1,017,128
20
ACCESS CREDIT UNION LIMITEDNotes to Consolidated Financial Statements
For the year ended December 31, 2015
7. Allowance for Impaired Loans (continued)
Key Assumptions in Determining the Allowance for Impaired Loans Collective Allowance
The Credit Union has determined the likely impairment loss on loans which have not maintained theloan repayments in accordance with the loan contract, or where there is other evidence of potentialimpairment such as industrial restructuring, job losses or economic circumstances. In identifying theimpairment likely from these events the Credit Union estimates the potential impairment using theloan type, industry, geographical location, type of loan security, the length of time the loans are pastdue and the historical loss experience. The circumstances may vary for each loan over time,resulting in higher or lower impairment losses. The methodology and assumptions used forestimating future cash flows are reviewed regularly by the Credit Union to reduce any differencesbetween loss estimates and actual loss experience.
An estimate of the collective allowance is based on the period of repayments that are past due,historical write-offs, and losses that have occurred in the agriculture and manufacturing sectors.
For purposes of the collective allowance, loans are classified into separate groups with similar riskcharacteristics, based on the type of product and type of security.
Loans with repayments past due but not regarded as individually impaired and considered indetermining the collective allowance are as follows:
2015 Consumer Agricultural Commercial Total
1 to 30 days $ 7,947,607 $ 2,077,454 $ 4,072,774 $ 14,097,83531 to 90 days 1,161,489 226,071 730,606 2,118,166Greater than 90 days - - - -
Balance at December 31, 2015 $ 9,109,096 $ 2,303,525 $ 4,803,380 $ 16,216,001
2014Consumer Agricultural Commercial Total
1 to 30 days $ 6,239,716 $ 3,500,319 $ 9,669,132 $ 19,409,16731 to 90 days 846,585 247,452 241,281 1,335,318Greater than 90 days - - - -
Balance at December 31, 2014 $ 7,086,301 $ 3,747,771 $ 9,910,413 $ 20,744,485
21
ACCESS CREDIT UNION LIMITEDNotes to Financial Statements
For the year ended December 31, 2015
8. Property, Plant and Equipment
Land Buildings
Furnitureand
EquipmentComputer
Equipment
AutomatedTeller
MachinesParking
Lots
LeaseholdImprove-
ments Vehicles Total Cost
Balance at December 31, 2013 $ 1,676,290 $ 18,410,996 $ 5,547,196 $ 2,153,021 $ 1,065,760 $ 345,113 $ 424,392 $ 78,227 $ 29,700,995Additions - 45,463 137,164 197,879 66,427 - - - 446,933Disposals - - 381,872 916,314 39,293 - 16,209 - 1,353,688
Balance at December 31, 2014 1,676,290 18,456,459 5,302,488 1,434,586 1,092,894 345,113 408,183 78,227 28,794,240Additions - 325,987 199,438 172,713 140,618 - 40,275 20,756 899,787Disposals - - 382,426 388,174 330,951 - - - 1,101,551
Balance at December 31, 2015 $ 1,676,290 $ 18,782,446 $ 5,119,500 $ 1,219,125 $ 902,561 $ 345,113 $ 448,458 $ 98,983 $ 28,592,476
Accumulated Depreciation
Balance at December 31, 2013 $ - $ 6,176,179 $ 3,997,234 $ 1,819,858 $ 637,814 $ 265,407 $ 333,521 $ 78,227 $ 13,308,240Depreciation expense - 500,023 177,955 140,918 65,283 4,625 28,547 - 917,351Disposals - - 383,211 914,304 31,710 - 16,209 - 1,345,434
Balance at December 31, 2014 - 6,676,202 3,791,978 1,046,472 671,387 270,032 345,859 78,227 12,880,157Depreciation expense - 501,389 176,843 133,907 62,453 4,396 31,049 808 910,845Disposals - - 363,705 376,966 320,960 - - - 1,061,631
Balance at December 31, 2015 $ - $ 7,177,591 $ 3,605,116 $ 803,413 $ 412,880 $ 274,428 $ 376,908 $ 79,035 $ 12,729,371
Net Book Value
December 31, 2014 $ 1,676,290 $ 11,780,257 $ 1,510,510 $ 388,114 $ 421,507 $ 75,081 $ 62,324 $ - $ 15,914,083
December 31, 2015 $ 1,676,290 $ 11,604,855 $ 1,514,384 $ 415,712 $ 489,681 $ 70,685 $ 71,550 $ 19,948 $ 15,863,105
22
ACCESS CREDIT UNION LIMITEDNotes to Consolidated Financial Statements
For the year ended December 31, 2015
9. Intangible AssetsComputerSoftware
CostBalance at December 31, 2013 $ 2,968,594
Additions 73,733
Balance on December 31, 2014 3,042,327Additions 68,840Disposals (106,161)
Balance on December 31, 2015 $ 3,005,006
Accumulated DepreciationBalance at December 31, 2013 $ 1,138,068
Depreciation expense 404,335
Balance on December 31, 2014 1,542,403Depreciation expense 259,084Disposals (106,161)
Balance on December 31, 2015 $ 1,695,326
Net Book ValueDecember 31, 2014 $ 1,499,924
December 31, 2015 $ 1,309,680
10. Investment PropertyLand Buildings Total
CostBalance at December 31, 2013 $ 105,674 $ 2,102,335 $ 2,208,009
Additions - 3,668 3,668
Balance on December 31, 2014 105,674 2,106,003 2,211,677Additions - 6,311 6,311
Balance on December 31, 2015 $ 105,674 $ 2,112,314 $ 2,217,988
Accumulated DepreciationBalance at December 31, 2013 $ - $ 105,532 $ 105,532
Depreciation expense - 52,492 52,492
Balance on December 31, 2014 - 158,024 158,024Depreciation expense - 52,691 52,691
Balance on December 31, 2015 $ - $ 210,715 $ 210,715
Net Book ValueDecember 31, 2014 $ 105,674 $ 1,947,979 $ 2,053,653
December 31, 2015 $ 105,674 $ 1,901,599 $ 2,007,273
23
ACCESS CREDIT UNION LIMITEDNotes to Consolidated Financial Statements
For the year ended December 31, 2015
10. Investment Property (continued)
Investment properties were not subject to external valuation as completion of the construction of theInvestment Property occurred during the 2012 year. There have been no indicators during the yearthat would result in the fair value differentiating from construction cost. As a result, the fair valueapproximates the cost of construction.
During the year the Credit Union earned revenue of $262,609 through the lease of the InvestmentProperty.
Investment Property held by the Credit Union is leased out under operating leases. The futureminimum lease payments under non-cancelable leases are as follows:
Less than 1 year $ 178,264Between 1 and 5 years 713,054More than 5 years 311,961
$ 1,203,279
11. Borrowings
The Credit Union obtained a term loan from Credit Union Central of Manitoba on December 31, 2014which matured January 1, 2015.
12. Other Liabilities2015 2014
Accrued expenses and trade accounts $ 5,384,321 $ 5,683,923Remittances due on behalf of members 1,567,270 1,516,864Other outstanding cheques 715,910 728,760
$ 7,667,501 $ 7,929,547
13. Members' Deposits2015 2014
Chequing $ 365,326,832$ 351,827,057Savings 486,789,634 479,257,831Term deposits 652,588,645 553,565,348Registered plans 396,250,649 371,889,332Unclaimed and inactive accounts 35,207 62,113
1,900,990,967 1,756,601,681
Accrued interest payable 13,255,310 12,845,965
$ 1,914,246,277$ 1,769,447,646
24
ACCESS CREDIT UNION LIMITEDNotes to Consolidated Financial Statements
For the year ended December 31, 2015
13. Members' Deposits (continued)
Included in chequing deposits is an amount of $24,485,406 to be settled in US dollars (December31, 2014 - $26,457,195).
Concentration of Risk
The Credit Union has an exposure to groupings of individual deposits which concentrate risk andcreate exposure to particular segments.
No individual or related groups of members' deposits exceed 5% of members' deposits and capitalas at December 31, 2015.
The majority of members' deposits are with members located in and around southern Manitoba.
14. Pension Plan
The Credit Union has a multi-employer defined contribution pension plan for full-time employees.The contributions are held in trust by the Cooperative Superannuation Society Limited and are notrecorded in these financial statements. The Credit Union matches employee contributions at anaverage rate of 6% of the employee salary. The expense and payments for the year endedDecember 31, 2015 were $763,527 (2014 - $754,677). As a defined contribution pension plan, theCredit Union has no further liability or obligation for future contributions to fund future benefits to planmembers.
15. Income Taxes
The significant components of income tax expense included in net income are composed of:
2015 2014Current Tax Expense
Based on current year taxable income $ 2,025,176 $ 2,560,367
Deferred Tax ExpenseOrigination and reversal of temporary differences 29,476 17,000
Total income tax expense $ 2,054,652 $ 2,577,367
25
ACCESS CREDIT UNION LIMITEDNotes to Consolidated Financial Statements
For the year ended December 31, 2015
15. Income Taxes (continued)
The total provision for income taxes in the consolidated statement of comprehensive income is at arate less than the combined federal and provincial statutory income tax rates for the followingreasons:
2015 2014% %
Combined federal and provincial statutory income tax rates 27.0 27.0Credit Union rate reduction (13.0) (10.1)Non taxable earnings from associates (0.7) (0.8)Reassessments and adjustments of prior years - (0.1)Non-deductible and other items 0.5 (0.3)
13.8 15.7
The movement in deferred income tax liabilities and assets are as follows:
Balance atDecember 31
2014
Recognizein Net
Income
RecognizeDirectly in
Equity
Balance atDecember 31
2015Deferred income tax liabilitiesProperty, plant and equipment $ 614,800 $ 10,200 $ - $ 625,000Investment property 29,300 7,700 - 37,000Fair value adjustment on
debentures 73,100 (32,624) 25,524 66,000
717,200 (14,724) 25,524 728,000
Deferred income tax assetsGoodwill 57,700 (3,700) - 54,000Non-deductible pension expense 206,900 (35,900) - 171,000Allowance for impaired loans 112,600 (4,600) - 108,000
377,200 (44,200) - 333,000
Net deferred income tax liability $ 340,000 $ 29,476 $ 25,524 $ 395,000
26
ACCESS CREDIT UNION LIMITEDNotes to Consolidated Financial Statements
For the year ended December 31, 2015
16. Members' SharesAuthorized 2015 2014
Common Unlimited $ 240,780 $ 210,250
Surplus Unlimited 4,504,471 9,066,648
$ 4,745,251 $ 9,276,898Terms and Conditions
Each member must purchase one common share. No member may hold more than 10% of theissued shares of any class. Each member of the Credit Union has one vote, regardless of thenumber of shares that a member holds. Funds invested by members in members' shares are notinsured by Deposit Guarantee Corporation of Manitoba.
Authorized shares
Common shares
Authorized common share capital consists of an unlimited number of common shares, issued andredeemable at $5 each. The total amount of common shares purchased or redeemed by the CreditUnion in a fiscal year shall not exceed the total amount of common shares issued in that year if theCredit Union’s equity is, or would by such purchase or redemption be, less than the level of capitalas prescribed by the Act.
Surplus shares
Authorized surplus share capital consists of an unlimited number of surplus shares, issued andredeemable at $1 each. The total amount of surplus shares purchased or redeemed by the CreditUnion in a year shall not exceed 5% of the amount of surplus shares outstanding at the last year-end of the Credit Union if the Credit Union’s equity is, or would by such purchase or redemption be,less than the level of capital as prescribed by the Act.
The withdrawal is also subject to terms of the Credit Union's VIP program which restrict redemptionto certain situations: member is deceased, member ceases to reside inside the Credit Union'strading area, wind-up or dissolution of a business or corporation, bankruptcies, legal claim, hardship,member reaching the age of 65. All such payouts are at the discretion of the Board of Directors.
17. Personnel Expenses
2015 2014
Salaries and wages $ 12,846,213 $ 12,526,673Employee benefits 3,691,115 3,860,020Training 500,803 393,153
$ 17,038,131 $ 16,779,846
27
ACCESS CREDIT UNION LIMITEDNotes to Consolidated Financial Statements
For the year ended December 31, 2015
18. Related Party Transactions
Key management personnel are those persons having authority and responsibility for planning,directing and controlling the activities of the Credit Union, directly or indirectly. Key managementpersonnel have been taken to comprise the directors and members of management responsible forthe day to day financial and operational management of the Credit Union.
The aggregate compensation of key management personnel during the year was as follows:
2015 2014Compensation
Salaries, and other short-term employee benefits $ 1,599,868 $ 1,389,352Total pension and other post-employment benefits 158,018 144,812
$ 1,757,886 $ 1,534,164
Compensation to the directors and officers of the Credit Union for expenses associated with theperformance of their duties during the year was as follows:
2015 2014
Honouraria and per diems $ 90,154 $ 64,950Meeting, training and conference costs 52,128 56,295
$ 142,282 $ 121,245
The Credit Union’s policy for lending to and receiving deposits from key management personnel isthat the loans are approved and deposits accepted on the same terms and conditions which apply tomembers for each class of loan or deposit. There are no benefits or concessional terms andconditions applicable to key management personnel or close family members. Loans and deposits tokey management personnel as at December 31 is as follows:
2015 2014Loans to key management personnel
Aggregate value of loans advanced $ 4,724,957 $ 6,815,662Interest received on loans advanced 82,022 233,240
Deposits from key management personnelAggregate value of term and savings accounts 1,093,252 1,051,036Interest paid on term and savings accounts 10,721 7,831
28
ACCESS CREDIT UNION LIMITEDNotes to Consolidated Financial Statements
For the year ended December 31, 2015
19. Financial Instrument Classification
The carrying amount of the Credit Union's financial instruments by classification is as follows:
Available-for-Sale
Held-for-Trading
Loans andReceivables
Other FinancialLiabilities Total
(in thousands)December 31, 2015
Funds on hand and on deposit $ - $ - $ 39,051 $ - $ 39,051Accounts receivable - - 193 - 193Liquidity deposits - - 147,191 - 147,191Shares 16,676 - - - 16,676Bonds and debentures 6,880 - - - 6,880Loans to members - - 1,825,946 - 1,825,946Other liabilities - - - (7,668) (7,668)Members' deposits - - - (1,914,246) (1,914,246)
$ 23,556 $ - $ 2,012,381 $ (1,921,914)$ 114,023
December 31, 2014Funds on hand and on deposit $ - $ - $ 84,103 $ - $ 84,103Accounts receivable - - 268 - 268Liquidity deposits - - 65,009 - 65,009Shares 8,955 - - - 8,955Bonds and debentures 13,594 - - - 13,594Loans to members - - 1,715,547 - 1,715,547Borrowings - - - (3,000) (3,000)Other liabilities - - - (7,930) (7,930)Members' deposits - - - (1,769,448) (1,769,448)
$ 22,549 $ - $ 1,864,927 $ (1,780,378)$ 107,098
29
ACCESS CREDIT UNION LIMITEDNotes to Consolidated Financial Statements
For the year ended December 31, 2015
20. Fair Value Measurement
Assets and liabilities that are measured at fair value in the balance sheet are grouped into threelevels of a fair value hierarchy. The following is an analysis of assets and liabilities that aremeasured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on thedegree to which the fair value is observable:
• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in activemarkets for identical assets or liabilities using the last bid price. There are no assets or liabilitiesmeasured at fair value classified as Level 1.
• Level 2 fair value measurements are those derived from inputs other than quoted prices includedwithin Level 1 that are observable for the asset or liability, either directly (i.e., as prices) orindirectly (i.e., derived from prices). Assets and liabilities measured at fair value and classified asLevel 2 include investments in shares, bonds and debentures.
• Level 3 fair value measurements are those derived from valuation techniques that include inputsfor the asset or liability that are not based on observable market data (unobservable inputs).There are no assets or liabilities measured at fair value classified as Level 3.
There were no transfers between levels for the year ended December 31, 2015.
The following table presents the valuation technique used in determination of fair values within level2 including the key inputs used:
Description Valuation Approach and Inputs Used
Bonds anddebentures
Bonds and debentures are valued using the discounted cash flow model usingobservable inputs for a market rate of 4.25%.
CUCM andConcentra shares
Class 1 and 2 CUCM shares are subject to a rebalancing mechanism and are issuedand redeemable at par value. There is no separately quoted market value for theseshares. However, fair value is determined to be equivalent to the par value due to thefact that transactions occur at par value on a regular and recurring basis.
Concentra shares are held at their carrying amount which is deemed to approximatefair value.
30
ACCESS CREDIT UNION LIMITEDNotes to Consolidated Financial Statements
For the year ended December 31, 2015
20. Fair Value Measurement (continued)
The following table presents the assets and liabilities for which fair value is disclosed in the notes tothe financial statements as at December 31, 2015:
Financial Instrument Valuation Technique Significant Unobservable Inputs
Funds on hand and ondeposit
The carrying amount of the funds on hand andon deposit approximates their fair value.
-
Accounts receivable The carrying amount of short-term tradereceivables (less than 12 months)approximates their fair value.
-
Liquidity deposits The fair market value of liquidity deposits iscalculated based on the present value of futurecash flows. To determine present value, futurecash flows are discounted by the current ratecurve by which the asset or liability is originallypriced.
Discount spot rates vary from 0.28%to 3.14% based on maturity date andtype of deposit.
Loans to members The fair market value of loans to members iscalculated based on the present value of futurecash flows. To determine present value, futurecash flows are discounted by the current ratecurve by which the asset or liability is originallypriced.
Discount spot rates vary from 2.54%to 3.74% based on maturity date andtype of loan.
Other liabilities The carrying amount of short-term otherliabilities (less than 12 months) approximatestheir fair values.
-
Members' deposits The fair market value of members' deposits iscalculated based on the present value of futurecash flows. To determine present value, futurecash flows are discounted by the current ratecurve by which the asset or liability is originallypriced.
Discount spot rates vary from 0.70%to 3.40% based on renewal date ofthe deposit.
31
ACCESS CREDIT UNION LIMITEDNotes to Consolidated Financial Statements
For the year ended December 31, 2015
20. Fair Value Measurement (continued)
The following represents the fair values of on and off balance sheet financial instruments of theCredit Union. In addition, the value of intangibles such as long-term member relationships are notincluded in the fair value amounts. The Credit Union considers the value of intangibles to besignificant.
2015 2014
(in thousands) Book Value Fair ValueExcess over
Book Value Book Value Fair ValueExcess over
Book ValueAssets
Funds on hand and on deposit $ 39,051 $ 39,051 $ - $ 84,103 $ 84,103 $ -Accounts receivable 193 193 - 268 268 -Liquidity deposits 147,191 147,800 609 65,009 65,806 797CUCM and Concentra
shares 16,676 16,676 - 8,955 8,955 -Bonds and debentures 6,880 8,281 1,401 13,594 16,032 2,438Loans to members 1,825,946 1,839,408 13,462 1,715,547 1,723,501 7,954
$ 2,035,937 $ 2,051,409 $ 15,472 $ 1,887,476 $ 1,898,665 $ 11,189Liabilities
Borrowings $ - $ - $ - $ 3,000 $ 3,000 $ -Accounts payable 7,668 7,668 - 7,930 7,930 -Members' deposits 1,914,246 1,923,327 9,081 1,769,448 1,776,800 7,352
$ 1,921,914 $ 1,930,995 $ 9,081 $ 1,780,378 $ 1,787,730 $ 7,352
Interest rate sensitivity is the main cause of changes in the fair value of the Credit Union's financialinstruments. The book values are generally not adjusted to reflect the fair value, as it is the CreditUnion's intention to realize their value over time by holding them to maturity.
21. Financial Instrument Risk Management
General Objectives, Policies and Processes
The Board of Directors has overall responsibility for the determination of the Credit Union's riskmanagement objectives and policies and, whilst retaining ultimate responsibility for them, it hasdelegated the authority for designing and operating processes that ensure effective implementationof the objectives and policies to the Credit Union's finance function. The Board of Directors receivesquarterly reports from the Credit Union's Chief Executive Officer through which it reviews theeffectiveness of the processes put in place and the appropriateness of the objectives and policies itsets.
32
ACCESS CREDIT UNION LIMITEDNotes to Consolidated Financial Statements
For the year ended December 31, 2015
21. Financial Instrument Risk Management (continued)
Credit Risk
Credit risk is the risk of financial loss to the Credit Union if a counterparty to a financial instrumentfails to make payments of interest and principal when due. The Credit Union is exposed to credit riskfrom claims against a debtor or indirectly from claims against a guarantor of credit obligations.
Risk Measurement
Credit risk rating systems are designed to assess and quantify the risk inherent in credit activities inan accurate and consistent manner. To assess credit risk, the Credit Union takes into considerationthe member's character, ability to pay, and value of collateral available to secure the loan.
Objectives, Policies and Procedures
The Credit Union's credit risk policies set out the minimum requirements for management of creditrisk in a variety of transactional and portfolio management contexts. Its credit risk policies comprisethe following:
• General loan policy statements including approval of lending policies, eligibility for loans,exceptions to policy, policy violations, liquidity, loan administration, credit concentration limits,and risk rating;
• Loan lending limits including Board of Directors limits, schedule of assigned limits andexemptions from aggregate indebtedness;
• Loan collateral security classifications which set loan classifications, advance ratios anddepreciation periods;
• Procedures outlining loan overdrafts, release or substitution of collateral, temporary suspensionof payments and loan renegotiations;
• Loan delinquency controls regarding procedures followed for loans in arrears; and
• Audit procedures and processes are in existence for the Credit Union's lending activities.
With respect to credit risk, the Board of Directors receives monthly reports summarizing new loans,delinquent loans and overdraft utilization. The Board of Directors also receives an analysis of baddebts and allowance for impaired loans quarterly.
33
ACCESS CREDIT UNION LIMITEDNotes to Consolidated Financial Statements
For the year ended December 31, 2015
21. Financial Instrument Risk Management (continued)
Maximum Exposure to Credit Risk
The Credit Union's maximum exposure to credit risk without taking account of any collateral or othercredit enhancements is as follows:
2015 2014
Carrying Maximum MaximumValue Exposure Exposure
CUCM deposits $ 146,926,250 $ 146,926,250 $ 64,713,960Loans to members 1,825,946,475 1,825,946,475 1,715,547,099Undisbursed loans - 98,341,643 121,362,178Unutilized lines of credit - 163,558,523 151,280,349Unexpired letters of credit - 1,251,117 4,227,135
$ 1,972,872,725 $ 2,236,024,008 $ 2,057,130,721
Details regarding concentration of credit risk, collateral and other credit enhancements held andloans past due but not impaired are disclosed in Notes 6 and 7.
The amount of financial assets that would otherwise be past due or impaired whose terms havebeen renegotiated is $346,290 (December 31, 2014 - $14,977).
There have been no significant changes from the previous year in the exposure to risk or policies,procedures and methods used to measure the risk.
Liquidity Risk
Liquidity risk is the risk that the Credit Union will not be able to meet all cash outflow obligations asthey come due. The Credit Union mitigates this risk by monitoring cash activities and expectedoutflows so as to meet all cash outflow obligations as they fall due.
Risk Measurement
The assessment of the Credit Union's liquidity position reflects management's estimates,assumptions and judgments pertaining to current and prospective firm specific and marketconditions and the related behaviour of its members and counterparties.
Objectives, Policies and Procedures
The Credit Union's liquidity management framework is designed to ensure that adequate sources ofreliable and cost effective cash or its equivalents are continually available to satisfy its current andprospective financial commitments under normal and contemplated stress conditions.
Provisions of the Act require the Credit Union to maintain liquid assets of at least 8% of members'deposits and borrowings in order to meet member withdrawals.
34
ACCESS CREDIT UNION LIMITEDNotes to Consolidated Financial Statements
For the year ended December 31, 2015
21. Financial Instrument Risk Management (continued)
Objectives, Policies and Procedures (continued)
The Credit Union manages liquidity risk by:
• Continuously monitoring actual daily cash flows and longer term forecasted cash flows;• Monitoring the maturity profiles of financial assets and liabilities;• Maintaining adequate reserves, liquidity support facilities and reserve borrowing facilities; and• Monitoring the liquidity ratios monthly.
The Board of Directors receives monthly liquidity reports as well as information regarding cashbalances in order for it to monitor the Credit Union's liquidity framework. The Credit Union was incompliance with the liquidity requirements throughout the fiscal year.
As at December 31, 2015, the position of the Credit Union is as follows:
Qualifying liquid assets on hand $ 185,587,451Total liquidity requirement 153,139,702
Excess liquidity $ 32,447,749
The following are the contractual maturities of financial liabilities, including estimated interestpayments:
2015
GrossCarrying Nominal Less than 1 - 3 3 - 12 Greater thanAmount Cash Outflow 1 Month Months Months 1 Year
(in thousands)Borrowings $ - $ - $ - $ - $ - $ -Other liabilities 7,668 (7,668) (7,668) - - -Members' deposits 1,914,246 (1,945,607) (916,634) (57,277) (383,825) (587,871)Unutilized lines of credit - (163,559) (163,559) - - -Unadvanced loans - (98,342) (98,342) - - -
$ 1,921,914 $ (2,215,176) $ (1,186,203) $ (57,277) $ (383,825)$ (587,871)
2014
GrossCarrying Nominal Less than 1 - 3 3 - 12 Greater thanAmount Cash Outflow 1 Month Months Months 1 Year
(in thousands)Borrowings $ 3,000 $ (3,000) $ (3,000) $ - $ - $ -Other liabilities 7,930 (7,930) (7,930) - - -Members' deposits 1,769,448 (1,802,303) (892,092) (57,235) (274,163) (578,813)Unutilized lines of credit - (151,280) (151,280) - - -Unadvanced loans - (121,362) (121,362) - - -
$ 1,780,378 $ (2,085,875) $ (1,175,664) $ (57,235) $ (274,163) $ (578,813)
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ACCESS CREDIT UNION LIMITEDNotes to Consolidated Financial Statements
For the year ended December 31, 2015
21. Financial Instrument Risk Management (continued)
There have been no significant changes from the previous year in the exposure to risk or policies,procedures and methods used to measure the risk.
Market Risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate asa result of market factors. Market factors include three types of risk: interest rate risk, currency risk,and equity risk.
Interest Rate Risk
Interest rate risk is the potential for financial loss caused by fluctuations in fair value or future cashflows of financial instruments because of changes in market interest rates. The Credit Union isexposed to this risk through traditional banking activities, such as deposit taking and lending.
The Credit Union's goal is to manage the interest rate risk of the balance sheet to a target level. TheCredit Union continually monitors the effectiveness of its interest rate mitigation activities.
Risk Measurement
The Credit Union's position is measured monthly. Measurement of risk is based on rates charged toclients as well as funds transfer pricing rates.
Objectives, Policies and Procedures
The Credit Union's major source of income is financial margin, the difference between interestearned on investments and loans to members and interest paid on members' deposits. Theobjective of asset/liability management is to match interest sensitive assets with interest sensitiveliabilities as to amount and as to term to their interest rate repricing dates, thus minimizingfluctuations of income during periods of changing interest rates.
Schedules of matching and interest rate vulnerability are regularly prepared and monitored by CreditUnion management and reported to the Deposit Guarantee Corporation of Manitoba in accordancewith the Credit Union's structural interest rate risk management policy. This policy has beenapproved by the Board of Directors as required by Regulations to the Act. For the year endedDecember 31, 2015 the Credit Union was in compliance with this policy.
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ACCESS CREDIT UNION LIMITEDNotes to Consolidated Financial Statements
For the year ended December 31, 2015
21. Financial Instrument Risk Management (continued)
The following schedule shows the Credit Union's sensitivity to interest rate changes. A significantamount of loans and deposits can be settled before maturity on payment of a penalty, but noadjustment has been made for repayments that may occur prior to maturity.
Maturity Dates Assets LiabilitiesAsset /
Liability Gap
(in thousands)Interest sensitive
Variable $ 892,876 $ 633,721 $ 259,1550 - 6 months 208,214 170,988 37,2267 - 12 months 113,996 283,664 (169,668)1 - 2 years 150,217 182,258 (32,041)2 - 3 years 230,956 149,661 81,2953 - 4 years 180,785 147,771 33,0144 - 5 years 191,393 69,442 121,951Greater than 5 years 42,403 412 41,991
Interest sensitive 2,010,840 1,637,917 372,923
Non-interest sensitive 50,501 423,424 (372,923)
Total $ 2,061,341 $ 2,061,341 $ -
Interest sensitive assets and liabilities cannot normally be perfectly matched by amount and term tomaturity. One of the roles of a credit union is to intermediate between the expectations of borrowersand depositors.
An analysis of the Credit Union's risk due to changes in interest rates was calculated using financialmodelling software and determined that an increase in interest rates of 1% could result in anincrease to net income of $4,215,560 while a decrease in interest rates of 1% could result in adecrease to net income of $4,566,370.
There have been no significant changes from the previous year in the exposure to risk or policies,procedures and methods used to measure the risk.
Currency Risk
Currency exchange risk relates to the Credit Union operating in different currencies and convertingnon-Canadian earnings at different points in time at different foreign exchange levels when adversechanges in foreign currency exchange rates occur.
The Credit Union’s currency exchange risk is related to US dollar deposits denominated in USdollars. Foreign currency changes are continually monitored by the investment committee foreffectiveness of its foreign exchange mitigation activities and holdings are adjusted when offside ofthe investment policy.
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ACCESS CREDIT UNION LIMITEDNotes to Consolidated Financial Statements
For the year ended December 31, 2015
21. Financial Instrument Risk Management (continued)
Risk Measurement
The Credit Union's position is measured weekly. Measurement of risk is based on rates charged tomembers as well as currency purchase costs.
Objectives, Policies and Procedures
The Credit Union's exposure to changes in currency exchange rates shall be controlled by limitingthe unhedged foreign currency exposure to $350,000 in US funds.
There have been no significant changes from the previous year in the exposure to risk or policies,procedures and methods used to measure the risk.
22. Capital Management
The Credit Union’s objectives with respect to capital management are to maintain a capital base thatis structured to exceed regulatory requirements and to best utilize capital allocations.
Regulations to the Act require that the Credit Union establish and maintain a level of capital thatmeets or exceeds the following:
• Total members' capital as shown on the balance sheet shall not be less than 5% of the bookvalue of all assets;
• Retained earnings shall not be less than 3% of the book value of assets; and
• Capital calculated in accordance with the Act shall not be less than 8% of the risk weighted valueof its assets.
The Credit Union considers its capital to include members' shares (common shares and surplusshares), and retained earnings. There have been no changes in what the Credit Union considers tobe its capital since the previous period.
2015 2014
Members' shares $ 4,745,251 $ 9,276,898Retained earnings 134,108,833 121,225,285
$ 138,854,084 $ 130,502,183
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ACCESS CREDIT UNION LIMITEDNotes to Consolidated Financial Statements
For the year ended December 31, 2015
22. Capital Management (continued)
The Credit Union establishes the risk weighted value of its assets in accordance with theRegulations of the Act which establishes the applicable percentage for each class of assets. TheCredit Union's risk weighted value of its assets as at December 31, 2015 - $1,152,553,720(December 31, 2014 - $1,084,487,176).
As at December 31, 2015, the Credit Union met the capital requirements of The Act with a calculatedmembers' capital ratio of 6.74% (December 31, 2014 - 6.81%), a retained surplus ratio of 6.51%(December 31, 2014 - 6.33%) and a risk weighted asset ratio of 11.92% (December 31, 2014 -11.91%).
23. Commitments
Credit Facilities
The Credit Union has approved lines of credit with CUCM equal to 10% of its members' deposits andbears interest at 2% above the variable current account rate (effective rate of 2.50% at December31, 2015). For the current year, this amounts to $191.4 million. These accommodations are securedby an assignment of shares and deposits in CUCM and a general assignment of loans receivablefrom members. The balance outstanding at December 31, 2015 was $Nil (December 31, 2014 -$3,000,000).
Loans to Members
The Credit Union has the following commitments to its members at the year end date on account ofloans, unused lines of credit and letters of credit:
Unadvanced loans $ 98,341,643Unused lines of credit 163,558,523Letters of credit 1,251,117
Contractual Obligations
Other
Credit Union Central of Manitoba
The Credit Union is a member of CUCM, which provides banking and other services to CreditUnions in Manitoba. By nature of membership in CUCM, the Credit Union is obligated to payaffiliation dues which are based on membership and assets.
Deposit Guarantee Corporation of Manitoba
The Deposit Guarantee Corporation of Manitoba (DGCM) is a deposit insurance corporation. Bylegal obligation under the Act, DGCM guarantees the deposits of all members of Manitoba creditunions/caisse. By legislation, the credit union/caisse pays a quarterly levy to DGCM based on apercentage of members’ deposits.
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ACCESS CREDIT UNION LIMITEDNotes to Consolidated Financial Statements
For the year ended December 31, 2015
23. Commitments (continued)
Contractual Obligations (continued)
Celero Solutions
The Credit Union has entered into an agreement with Celero Solutions to provide the delivery ofsome banking system services and the maintenance of the infrastructure needed to ensureuninterrupted delivery of such services. Celero Solutions is a company formed as a joint venture bythe Credit Union Centrals of Alberta, Saskatchewan and Manitoba along with Concentra Financialand Credit Union Electronic Transaction Services. The agreement expires December 31, 2022.
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