ROCKY MOUNTAIN HOUSE, ALBERTA FINANCIAL STATEMENTS …€¦ · Accounts payable and accrued...

ROCKY CREDIT UNION LTD.

ROCKY MOUNTAIN HOUSE, ALBERTA

FINANCIAL STATEMENTS

FOR THE YEAR ENDED OCTOBER 31, 2015

ROCKY CREDIT UNION ~ ownership. Community. Innovation. ~

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING

These financial statements were prepared by the management of Rocky Credit Union Ltd. (the "Credit Union") who are responsible for their accuracy, completeness and integrity. They were prepared in accordance with the requirements of the Credit Union Act (Alberta) and conform in all material respects with International Financial Reporting Standards.

Systems of internal control and reporting procedures are designed to provide reasonable assurance that the financial records are complete and accurate so as to safeguard the assets of the Credit Union. These systems include establishment and communication of standards of business conduct throughout all levels of the organization to provide assurance that all transactions are authorized and proper records are maintained. Internal control provides management with the ability to assess the adequacy of these controls. Further, they are reviewed by the Credit Union's external auditors.

The Board of Directors has approved the financial statements. The Board, comprising seven directors who are not officers or employees of the Credit Union, has reviewed the statements with the external auditors in detail and received regular reports on internal control findings. Hawkings Epp Dumont LLP, the external auditors appointed by the membership, have examined the financial statements of the Credit Union in accordance with Canadian auditing standards. They have had full and free access to the internal audit staff, other management staff, and the Audit and Finance Committee of the Board. Their report appears herein.

Rocky Mountain House, Alberta January 5, 2016

oougmg Chief Executive Officer

403.845.2861 403 845. 7295

) VP Finance

403.845. 7 441 PO Box 1420 Stn Main Rocky Mountain House. AB T 4T 1B1 www.rockycreditunion.com

INDEPENDENT AUDITORS' REPORT

To the Members of Rocky Credit Union Ltd.

We have audited the accompanying financial statements of Rocky Credit Union Ltd., which comprise thestatement of financial position as at October 31, 2015 and the statements of net income andcomprehensive income, members' equity, and cash flows for the year ended October 31, 2015, and therelated notes, which comprise a summary of significant accounting policies and other explanatoryinformation.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements inaccordance with International Financial Reporting Standards and for such internal control asmanagement determines is necessary to enable the preparation of financial statements that are free frommaterial misstatement, whether due to fraud or error.

Auditors' Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. Weconducted our audit in accordance with Canadian generally accepted auditing standards. Thosestandards require that we comply with ethical requirements and plan and perform the audit to obtainreasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures inthe financial statements. The procedures selected depend on the auditors' judgment, including theassessment of the risks of material misstatement of the financial statements, whether due to fraud orerror. In making those risk assessments, the auditor considers internal controls relevant to the entity'spreparation and fair presentation of the financial statements in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness ofthe entity's internal controls. An audit also includes evaluating the appropriateness of accounting policiesused and the reasonableness of accounting estimates made by management, as well as evaluating theoverall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis forour audit opinion.

Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position ofRocky Credit Union Ltd. as at October 31, 2015 and its financial performance and cash flows for the yearended October 31, 2015 in accordance with International Financial Reporting Standards.

Edmonton, Alberta Hawkings Epp Dumont LLPJanuary 5, 2016 Chartered Accountants


STATEMENT OF FINANCIAL POSITION

AS AT OCTOBER 31, 2015

2015 2014ASSETS

Cash and cash equivalents (Note 5) $ 7,273,772 $ 9,553,882Investments (Note 6) 112,746,773 99,707,601Derivative assets (Note 7) 43,696 118,269Member loans (Note 8) 246,875,352 242,649,992Taxes receivable 114,322 80,129Deferred income tax asset (Note 14) 36,000 -Property and equipment (Note 9) 4,412,282 4,611,201Intangible assets (Note 10) 240,697 312,417Other assets (Note 11) 373,708 646,461

$372,116,602 $357,679,952

LIABILITIES

Member deposits (Note 13) $331,481,405 $319,346,336Derivative liabilities (Note 7) 43,696 141,624Accounts payable and accrued liabilities - operating 638,979 614,706Accounts payable and accrued liabilities - capital - 69,318Deferred income tax liability (Note 14) - 13,000

332,164,080 320,184,984

MEMBERS' EQUITY

Dividends distributable (Note 15) 531,331 506,000Member shares (Note 15) 15,391,827 14,956,030Retained earnings 24,029,364 22,032,938

39,952,522 37,494,968

$372,116,602 $357,679,952

ON BEHALF OF THE BOARD:

______________________________ Director

______________________________ Director

The accompanying notes are an integral part of these financial statements. 2.


STATEMENT OF NET INCOME AND COMPREHENSIVE INCOME


2015 2014FINANCIAL INCOME

Interest from member loans $ 9,136,267 $ 9,166,431Investment income 1,228,820 1,435,018

10,365,087 10,601,449

FINANCIAL EXPENSEInterest on member deposits 3,070,290 3,340,469Interest on financing 1,327 4,990Interest rate swap expense (Note 7) 20,332 3,470

3,091,949 3,348,929

FINANCIAL MARGIN 7,273,138 7,252,520

PROVISION (RECOVERIES) FOR LOAN IMPAIRMENT (NOTE 8) (42,527) (76,007)

FINANCIAL MARGIN INCOME AFTER PROVISION FOR LOAN IMPAIRMENT 7,315,665 7,328,527

OTHER INCOME 1,644,929 1,532,023

RECOVERIES FOR INSURANCE SETTLEMENT - 104,000

GROSS MARGIN 8,960,594 8,964,550

OPERATING EXPENSES (SCHEDULE I) 5,786,947 5,703,156

INCOME BEFORE INCOME TAXES 3,173,647 3,261,394

INCOME TAXES (NOTE 14)Current 834,066 790,746Deferred (recovery) (49,000) (14,520)

785,066 776,226

NET INCOME AND COMPREHENSIVE INCOME $ 2,388,581 $ 2,485,168



STATEMENT OF MEMBERS' EQUITY


Dividends Member RetainedDistributable Shares Earnings Total

Balance, October 31, 2013 $ 477,439 $ 14,165,185 $ 19,927,270 $ 34,569,894

Net income - - 2,485,168 2,485,168Dividends paid (477,439) 471,968 - (5,471)Dividends declared 506,000 - (506,000) -Tax recovery on dividends paid - - 126,500 126,500Issuance of member shares - 1,700,970 - 1,700,970Redemption of member shares - (1,382,093) - (1,382,093)

Balance, October 31, 2014 $ 506,000 $ 14,956,030 $ 22,032,938 $ 37,494,968

Net income - - 2,388,581 2,388,581Dividends paid (502,283) 498,940 - (3,343)Dividends declared 527,614 - (527,614) -Tax recovery on dividends paid - - 135,459 135,459Issuance of member shares - 1,011,417 - 1,011,417Redemption of member shares - (1,074,560) - (1,074,560)

Balance, October 31, 2015 $ 531,331 $ 15,391,827 $ 24,029,364 $ 39,952,522



STATEMENT OF CASH FLOWS


2015 2014OPERATING ACTIVITIES

Net income $ 2,388,581 $ 2,485,168Adjustments for:

Depreciation of property and equipment 292,939 278,769Amortization of intangible assets 93,820 78,307Deferred income taxes (49,000) (14,520)(Gain)/Loss on disposal of property and equipment - 98Provision for loan impairment, net of recoveries (42,527) (76,007)Net interest income (7,273,138) (7,252,520)Interest received 10,426,858 10,487,601Interest paid (3,295,230) (3,363,224)Income taxes paid (868,259) (1,357,489)Current income tax expense 834,066 790,746

2,508,110 2,056,929Changes in non-cash working capital:

Other assets 272,753 (463,911)Accounts payable and accrued liabilities - operating 24,273 62,803Derivatives, net (23,355) (45,350)

Net change in member deposits 12,338,350 20,666,665Net change in member loans (4,162,478) (15,233,608)Net change in investments (13,121,298) (81,762,311)

(2,163,645) (74,718,783)

FINANCING ACTIVITIESIssuance of member shares, net 435,797 790,846Dividends paid (502,283) (477,439)Income tax savings on dividends 135,459 126,500Net decrease in assets held for sale - 149,525

68,973 589,432

INVESTING ACTIVITIESPurchase of property and equipment (94,020) (1,563,265)Proceeds on disposal of property and equipment - 1,001Purchase of intangible assets (22,100) (35,000)Accounts payable and accrued liabilities - capital (69,318) (356,331)

(185,438) (1,953,595)

NET CHANGE IN CASH AND CASH EQUIVALENTS (2,280,110) (76,082,946)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 9,553,882 85,636,828

CASH AND CASH EQUIVALENTS, END OF YEAR $ 7,273,772 $ 9,553,882



NOTES TO FINANCIAL STATEMENTS

OCTOBER 31, 2015

1. REPORTING ENTITY INFORMATION

a) Entity information

Rocky Credit Union Ltd. (the "Credit Union") is incorporated under the Credit Union Act ("Act") ofAlberta on January 19, 1944 and operates one branch in Rocky Mountain House, Alberta.

The Credit Union Deposit Guarantee Corporation (the "Corporation"), a provincial corporation,guarantees the repayment of all deposits with Alberta credit unions, including accrued interest. TheAct provides that the Province will ensure that the Corporation carries out this obligation.

The Credit Union's registered office is located at 5035 49 St. Rocky Mountain House AB T4T 1B1.

b) Statement of compliance

The financial statements have been prepared in accordance with International Financial ReportingStandards ("IFRS") and interpretations, issued by the International Accounting Standards Board("IASB").

These financial statements have been approved and authorized for issue by the Board of Directors(the "Board") on January 5, 2016.

c) Basis of measurement

The financial statements have been prepared under the historical cost convention except for therevaluation of certain financial instruments.

d) Functional and presentation currency

These financial statements are presented in Canadian dollars, which is the Credit Union'sfunctional currency.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a) Cash and cash equivalents

Cash and cash equivalents consist of cash on hand and operating accounts with Credit UnionCentral Alberta ("Central"). Cash and cash equivalents also consist of deposits including highlyliquid financial assets with original maturities of three months or less carried at amortized cost.

b) Financial assets and liabilities

(i) Financial Assets

The Credit Union designates financial assets as follows: loans and receivables, available forsale ("AFS"), held-to-maturity and fair value through profit or loss ("FVTPL"). Managementdetermines the classification of its financial instruments at initial recognition.

(Continues)

6.



OCTOBER 31, 2015

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

b) Financial assets and liabilities (continued)

(i) Financial Assets (continued)

Loans and receivables

Cash and cash equivalents, member loans and accounts receivable are designated as loansand receivables. Loans and receivables are non-derivative financial assets with fixed ordeterminable payments that are not quoted in an active market.

Loans and receivables are initially recognized at fair value, which is the cash consideration tooriginate or purchase the loan net of any transaction costs. Loans and receivables aresubsequently recognized at amortized cost using the effective interest method.

Interest from member loans is included in the Statement of Net Income. The impairment loss isreported as a deduction from the carrying value of the member loan and recognized in theStatement of Net Income as "provision for loan impairment".

Available for sale

Available for sale instruments are non-derivative financial assets that are designated asavailable for sale or are not classified as loans and receivables, held-to-maturity or FVTPL. TheCredit Union’s AFS assets include the shares in Credit Union Central of Alberta ("Central").

AFS assets are recognized at fair value, which is the cash consideration paid includingtransaction costs unless fair value is not readily determinable. Unrealized gains and losses arerecognized in the Statement of Comprehensive Income, except for foreign currency translationdifferences on monetary AFS assets which are recognized immediately in the Statement of NetIncome. If an AFS asset is impaired, the cumulative gain or loss previously recognized in theStatement of Comprehensive Income is recognized in the Statement of Net Income.

Interest income is calculated using the effective interest method. Dividends on investments inequity instruments classified as AFS are recognized in the Statement of Net Income when theright to receive payment is established.

Held-to-maturity

Held-to-maturity financial assets are non-derivative assets with fixed or determinable paymentsand fixed maturity dates that the Credit Union has the positive intention and ability to hold tomaturity date, and which are not designated as a fair value through profit or loss or as availablefor sale. The Credit Union's held-to-maturity investments include its term deposits with Centraland Concentra Financial and mortgage pool investment with MonCana Bank of Canada. Held-to-maturity financial assets are measured at amortized cost using the effective interest method,with revenue recognized on an effective yield basis. Transaction costs are included in themeasurement of the assets.

(Continues)

7.



OCTOBER 31, 2015




Fair value through profit or loss

A financial asset is classified as FVTPL when the financial asset meets either of the followingconditions:

- A financial asset is classified as held-for-trading, if:

1. it has been acquired principally for the purpose of selling it in the near term; or2. on initial recognition it is part of a portfolio of identified financial instruments that the

Credit Union manages together and has a recent actual pattern of short-term profit-taking; or

3. it is a derivative (except for a derivative that is designated and effective as a hedginginstrument)

- A financial asset may be designated as FVTPL upon initial recognition if:

1. such designation eliminates or significantly reduces a measurement or recognitioninconsistency that would otherwise arise; or

2. the financial asset forms part of a group of financial assets which is managed and itsperformance is evaluated on a fair value basis, in accordance with the Credit Union'sdocumented risk management or investment strategy, and information about thegrouping is provided internally on that basis to the Credit Union's key managementpersonnel.

Financial instruments at FVTPL are stated at fair value, with any gains or losses arising on re-measurement recognized immediately in Net Income. Fair value is determined in the mannerdescribed in Note 21.

Financial assets classified as FVTPL include derivative assets.

Derivative instruments

A derivative is a financial instrument whose value changes in response to a change in aspecified interest rate and equity index, provided in the case of a non-financial variable, thevariable is not specific to a party to the contract. Derivative contracts require no initial netinvestment, or an initial investment which would be smaller than a non-derivative contract, andare settled at a future date.

Derivatives are recognized at fair value on the trade date with subsequent gains or losses,resulting from fair market value adjustments, booked to Net Income.

(Continues)

8.



OCTOBER 31, 2015




Derivative instruments (continued)

Derivatives may also be embedded in other financial instruments and are treated as separatederivatives when (i) their economic characteristics and risks are not closely related to those ofthe host contract; (ii) a separate instrument with the same terms would meet the definition of aderivative instrument; and (iii) the host contract is not recognized at fair value.

(ii) Financial Liabilities

The Credit Union designates member deposits and accounts payable and accrued liabilities asother financial liabilities. Other financial liabilities are initially recognized at fair value andsubsequently measured at amortized cost using the effective interest rate method.

(iii)Impairment of Financial Assets

The Credit Union assesses, at each balance sheet date, whether there is objective evidencethat a financial asset or group of financial assets is impaired, resulting from one or more eventsthat occurred after the initial recognition of the asset (a "loss event"). The loss event(s) has(have) an impact on the estimated future cash flows of the financial asset or group of financialassets that can be reliably estimated.

Objective evidence that financial assets are impaired can include: Significant financial difficultyof the borrower or issuer, default or delinquency by the borrower, restructuring of a loan oradvance by the Credit Union on non-market terms that the Credit Union would not otherwiseconsider, and indications that a borrower will enter bankruptcy.

(Continues)

9.



OCTOBER 31, 2015



(iii)Impairment of Financial Assets (continued)

Financial assets classified as loans and receivables

For the purpose of an individual evaluation of impairment, the amount of the impairment loss ona fixed rate financial instrument is measured as the difference between the asset's carryingamount and the present value of estimated future cash flows discounted at the financial asset'soriginal effective interest rate. The carrying amount of the asset is reduced through the use ofan allowance account and the amount of the loss is recognized in the Statement of Net Income.

If a loan has a variable interest rate, the discount rate for measuring any impairment loss is thecurrent effective interest rate determined under the contract. The calculation of the presentvalue of the estimated future cash flows of a collateralized financial asset reflects the cash flowsthat may result from foreclosure less costs for obtaining and selling the collateral, whether ornot the foreclosure is probable.

For the purpose of a collective evaluation of impairment, financial assets are categorized on thebasis of similar credit risk characteristics. Future cash flows in a group of financial assets thatare collectively evaluated for impairment are estimated on the basis of historical lossexperience for assets with credit risk characteristics similar to those in the group, taking intoaccount current rates, work out costs, and discount factors.

On an ongoing basis, the Credit Union adjusts the input on the collective allowance, taking intoaccount factors such as historical loss experience and adjusting for current observable data.Estimates of changes in future cash flows for groups of assets reflect changes in relatedobservable data from period to period including changes in unemployment rates, real estate orcommodity prices (oil and gas), or payment status.

The methodology and assumptions used for estimating future cash flows are reviewed regularlyby the Credit Union to reduce any differences between loss estimates and actual lossexperience. When a loan is uncollectible, it is written off after all the necessary procedures havebeen completed and the amount of the loss has been determined. If, in a subsequent period,the amount of the impairment loss decreases and the decrease can be related objectively to anevent occurring after the impairment was recognized, the previously recognized impairmentloss is reversed by adjusting the allowance account. The amount of the reversal is recognizedin the Statement of Net Income in loan impairment expense.

Loans that were past due and either subject to collective impairment assessment or areindividually significant and whose terms have been renegotiated, are no longer considered tobe past due and are treated as new loans.

(Continues)

10.



OCTOBER 31, 2015


c) De-recognition of financial instruments

Financial assets are derecognized when the contractual rights to receive the cash flows from theseassets have ceased to exist or the assets have been transferred and substantially all the risks andrewards of ownership of the assets are also transferred. If the Credit Union has neither transferrednor retained substantially all the risks and rewards of the transferred financial asset, it assesseswhether it has retained control over the transfer asset. If control has been retained, the CreditUnion recognizes the transferred asset to the extent of its continuing involvement. If control has notbeen retained, the Credit Union derecognizes the transferred asset.

Financial liabilities are derecognized when they have been redeemed or otherwise extinguished.

d) Property and equipment

Land is measured at cost and is not depreciated. Other items of property and equipment aremeasured at cost less accumulated depreciation and impairment losses. Depreciation of propertyand equipment is calculated at the following annual rates and methods:

Building 4% Straight-lineLand improvements 8% Straight-lineOffice equipment 20% - 33% Straight-lineFurniture and equipment 10% - 25% Straight-lineSecurity equipment 3% - 20% Straight-lineComputer equipment 30% - 33% Straight-line

Depreciation is recorded in the initial month of acquisition; no depreciation is recorded in the monthof disposal. Subsequent expenditures are included in the asset's carrying amount or arerecognized as a separate asset, as appropriate, only when it is probable that future economicbenefits associated with the item will flow to the Credit Union and the cost of the item can bemeasured reliably.

e) Intangible assets

Computer software costs are capitalized when the future economic benefit is expected to exceed aperiod of one year. Otherwise, software costs are expensed when incurred. Capitalized softwarecosts are initially recognized at cost and amortized using the straight-line method over theexpected useful life. The expected useful life ranges from 3 to 10 years. Amortization expense isrecognized in the Statement of Net Income as part of general expense.

f) Impairment of non-financial assets

At the end of each reporting period, the Credit Union reviews the carrying amounts of its tangibleassets to determine whether there is any indication that those assets have suffered an impairmentloss. If any such indication exists, the recoverable amount of the asset is estimated. An impairmentloss is recognized for the amount by which the asset's carrying amount exceeds its recoverableamount.

(Continues)

11.



OCTOBER 31, 2015


f) Impairment of non-financial assets (continued)

The recoverable amount is the higher of fair value, less costs to sell and value in use. Fair valueless costs to sell is determined as the amount that would be obtained from the sale of the asset inan arm's length transaction between knowledgeable and willing parties. In assessing value in use,the estimated future cash flows are discounted to their present value using a pre-tax discount rate.This rate reflects current market assessments of the time value of money as well as the risksspecific to the asset.

An impairment loss is recognized immediately in the Statement of Net Income. Where animpairment loss subsequently reverses, the carrying amount of the asset is increased to therevised estimate of its recoverable amount. A reversal of an impairment loss is recognizedimmediately in the Statement of Net Income.

g) Income taxes

Income tax expense comprises current and deferred tax.

(i) Current tax is the expected tax payable or receivable on the taxable income or loss for the year,using tax rates enacted or substantively enacted at the reporting date and any adjustment to taxpayable in respect of previous years.

(ii) Deferred tax is recognized for temporary differences between the carrying amounts of assetsand liabilities for financial reporting purposes and the amounts used for taxation purposes.Deferred tax is measured at the tax rates that are expected to be applied to the temporarydifferences when they reverse, based on the laws that have been enacted or substantivelyenacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legallyenforceable right to offset current tax liabilities against current tax assets and they relate toincome taxes levied by the same tax authority on the same taxable entity.

A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporarydifferences to the extent that it is probable that future taxable profits will be available against whichthey can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced tothe extent that it is no longer probable that the related tax benefit will be realized.

h) Foreign currency translation

Transactions in foreign currencies are translated to the functional currency of the Credit Union atthe exchange rates at the dates of the transactions. Monetary assets and liabilities denominated inforeign currencies at the reporting date are translated to the functional currency at the exchangerate at that date. Non-monetary items that are measured in terms of historical cost in a foreigncurrency are translated using the exchange rate at the date of the transaction. Foreign currencydifferences arising on translation are recognized in the Statement of Net Income.

(Continues)

12.



OCTOBER 31, 2015


i) Member shares

Member shares issued by the Credit Union are classified as equity only to the extent that they donot meet the definition of a financial liability.

Common and surplus shares are accounted for in accordance with International FinancialReporting Interpretations Committee 2 ("IFRIC 2") - Members’ Shares in Co-operative Entities andSimilar Instruments (“IFRIC 2”). Common and surplus shares where redemption is restricted by theentity are classified as equity. In accordance with IFRIC 2, dividends to holders of equityinstruments are recognized directly in equity, net of income tax benefits.

j) Pension plan

The Credit Union offers employees a defined contribution plan where contributions are made byboth the Credit Union and the employee. Contributions are based on a percentage of salary and nofurther contributions are required once the employee retires or leaves the Credit Union. Obligationsfor contributions to defined contribution plans are recognized in personnel expense in theStatement of Net Income when they are due.

k) Revenue recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to theCredit Union and the revenue can be reliably measured. The following specific recognition criteriamust also be met before revenue is recognized;

(i) Interest income is recognized on the Statement of Net Income for all financial assets measuredat amortized cost using the effective interest rate method. The effective interest rate is the ratethat discounts estimated future cash flows through the expected life of the financial instrumentback to the net carrying amount of the financial asset. The application of the method has theeffect of recognizing revenue of the financial instrument evenly in proportion to the amountoutstanding over the period to maturity or repayment.

(ii) Interest income and dividends on investments include both interest on financial assets held atamortized cost using the effective interest rate, and dividends. Dividends are recognized whenthe Credit Union's right to receive the payment is established.

(iii)Other income is recognized in the fiscal period in which the related service is provided, whichincludes fees, service charges and commission income.

l) Assets held for sale

Assets are classified as held for sale when their carrying amounts will be recovered principallythrough sale within 12 months. They are measured at the lower of the carrying amount and the fairvalue less costs to sell. Assets held for sale are not depreciated.

m) Provisions

A provision is recognized if, as a result of a past event, the Credit Union has a present legal orconstructive obligation that can be estimated reliably, and it is probable that an outflow of economicbenefits will be required to settle the obligation. Short-term employee benefit obligations aremeasured on an undiscounted basis and expensed as the related service is provided.

13.



OCTOBER 31, 2015

3. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

The preparation of financial statements in conformity with IFRS requires the use of certain criticalaccounting estimates. It also requires management to exercise its judgment in the process of applyingthe Credit Union's accounting policies. Changes in assumptions may have a significant impact on thefinancial statements in the period the assumptions changed. Management believes that the underlyingassumptions are appropriate and that the Credit Union's financial statements therefore present thefinancial position and results fairly.

Significant estimates made in the preparation of these financial statements include, but are not limitedto the following areas, with further information contained in the applicable accounting policy note:

a) Allowance for impaired loans

The Credit Union reviews its individually significant loans at each reporting date to assess whetheran impairment loss should be recognized. In particular, judgement by management is required inthe estimation of the amount and timing of future cash flows when determining the impairment loss.

In estimating these cash flows, the Credit Union makes judgements about the borrower's financialsituation and the net realizable value of collateral. These estimates are based on assumptionsabout a number of factors and actual results may differ, resulting in future changes to theallowance.

Member loans receivable that have been assessed individually and found not to be impaired, andall individually insignificant loans, are then assessed collectively. The assessment is performedusing groups of assets with similar risk characteristics in order to determine whether provisionshould be made. Provision would be made due to incurred loss events for which there is objectiveevidence but whose effects are not yet evident. The collective provision assessment takes accountof data from the loan portfolio such as credit quality, delinquency, historical performance andindustry economic outlook. The impairment loss on loans receivable is disclosed in more detail inNote 8.

b) Impairment of non-financial assets

Impairment exists when the carrying value of an asset exceeds its recoverable amount, which isthe higher of its fair value less costs to sell and its value in use. The fair value less costs to sellcalculation is based on available data from binding sales transactions in an arm's lengthtransaction of similar assets or observable market prices less incremental costs for disposing of theasset. The value in use calculation is based on estimated future cash flows which are discountedto their present value using a pre-tax discount rate that reflects current market assessments of thetime value of money and the risks specific to the asset for which the estimates of future cash flowshave not been adjusted.

14.



OCTOBER 31, 2015

4. STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE

At October 31, 2015 a number of standards and interpretations, and amendments thereto, have beenissued by the International Accounting Standards Board ("IASB"), which are not effective for thesefinancial statements. Those which could have an impact on the Credit Union's financial statements inthe future are discussed below:

IFRS 9 Financial Instruments ("IFRS 9")

IFRS 9 Financial Instruments issued on July 24, 2014 replaces IAS 39 Financial Instruments:Recognition and Measurement and is effective for annual periods beginning on or after January 1,2018. IFRS 9 is required to be applied retrospectively when initially applied.

ImpairmentIFRS 9 introduces an expected loss model for all financial assets not classified as or designated asFVTPL. Allowances are measured according to the model which has three stages: (1) on initialrecognition; twelve month expected credit losses are recognized in profit or loss and a lossallowance is established; (2) if credit risk increases significantly since initial recognition, and theresulting credit risk is not considered to be low, full lifetime expected credit losses are recognized;and (3) when a financial asset is considered credit impaired, interest revenue is calculated basedon the carrying amount of the asset, net of the loss allowance, rather than its gross carryingamount.

Classification and measurementIFRS 9 also introduces a principles-based approach to the classification of financial assets basedon an entity’s business model and the nature of the cash flows of the assets. All financial assets,including hybrid contracts, are measured at FVTPL, fair value through other comprehensiveincome or amortized cost replacing the existing IAS 39 classifications of held-to-maturity, loans andreceivables, and available-for-sale.

TransitionThe impairment, classification, and measurement requirements of IFRS 9 will be appliedretrospectively by adjusting the opening balance sheet at November 1, 2017. At this stage, it is notpossible to quantify the potential financial effect of adoption of IFRS 9 to the Credit Union.

5. CASH AND CASH EQUIVALENTS

The Credit Union's cash and cash equivalents consist of cash on hand and operating accounts withCentral. The average yield on the accounts at October 31, 2015 is 0.25% (2014 - 0.25%).

Included in cash and cash equivalents is $524,179 (2014 - $82,428) denominated in U.S. dollars.

15.



OCTOBER 31, 2015

6. INVESTMENTS

2015 2014Available for sale

Credit Union Central of Alberta - Shares $ 4,500,000 $ 4,500,000

Held to maturityCredit Union Central of Alberta - term deposits 99,615,609 85,644,890Mortgage pools 3,112,095 4,041,171Concentra Financial debenture, bearing interest at 1.54%, maturing October 2016 3,002,152 3,004,623Concentra Financial debenture, bearing interest at 4.05%, maturing November 2022 2,516,917 2,516,917

108,246,773 95,207,601

$112,746,773 $ 99,707,601

Term deposits mature within one year with interest rates ranging from 0.22% to 1.00%. As required bythe Credit Union Act, the Credit Union holds investments in Central to maintain its statutory liquidityrequirements as described in Note 20.

The Credit Union holds an 80% and 9.80% unit share percentage, respectively, in two residentialmortgage pools with MonCana Bank of Canada (the "MonCana"). The Credit Union received its unitshare percentage of the MonCana return on the mortgage pools, less any fees or charges, on amonthly basis. The mortgage pools earned returns equated to 3.44% (2014 - 3.44%) and 2.88% (2014- 2.76%) respectively for 2015.

7. DERIVATIVES

a) Index-linked options

The Credit Union has $2,591,979 (2014 - $2,823,577) in index-linked deposits to its members.These deposits mature in years 2016 to 2020 and pay bonus interest to the depositors, at the endof the term, based upon the performance of the index. The Credit Union has entered into optionagreements with Central to offset the exposure on these deposits and, at the end of the term, theCredit Union will receive payments from Central which will offset the amounts that will be paid tothe depositors.

Index-linked options are used to fix costs on term deposit and registered retirement savings plansproducts which pay a return to the deposit holder based on the change in equity market indexes.The embedded derivative in these products, as well as the option derivatives, are marked tomarket through investment income.

The unamortized portion of the index-linked option contracts are $80,660 (2014 - $114,633) andare included in member deposits. Amortization in the amount of $51,380 (2014 - $53,824) iscalculated on a straight-line basis over the term of the deposits and is included in interest onmember deposits.

(Continues)

16.



OCTOBER 31, 2015

7. DERIVATIVES (Continued)

a) Index-linked options (Continued)

The notional amounts of equity-linked derivative contracts maturing at various times are as follows:

2015 2014Notional amounts

Mature in 1 year $ 523,978 $ 555,515Mature in 1-5 years 2,068,001 2,268,062

$ 2,591,979 $ 2,823,577

Current replacement cost $ 43,696 $ 118,269

Notional amounts are the contract amounts used to calculate the cash flows to be exchanged.They are a common measure of volume of outstanding transactions but do not represent credit ormarket risk exposure.

b) Interest swap options

The Credit Union utilizes interest rate swaps which are transactions where two parties exchangeinterest flows on a specified notional amount for a predetermined period, based on agreed uponfixed and floating rates. Notional amounts are not exchanged. The interest rate swap has beenmarked to market through interest rate swap expense. Income and expenses associated with theswap are settled semi-annually and recorded in interest rate swap expense. The notional amountoutstanding with the Central at the end of the year totaled $NIL (2014 - $3,000,000) and theagreement expired in March 2015.

2015 2014

Annual settlement $ 20,332 $ 48,731Mark to market adjustment - (45,261)

Interest rate swap expense $ 20,332 $ 3,470

Current liabilities $ - $ (23,355)

c) Total derivative liabilities2015 2014

Index-linked options $ 43,696 $ 118,269Interest rate swap options - 23,355

$ 43,696 $ 141,624

17.



OCTOBER 31, 2015

8. MEMBER LOANS

a) Loan continuity

Recorded Specific Collective 2015Loan Allowance Allowance Net

Residential mortgages $129,044,523 $ - $ 167,374 $128,877,149Consumer loans 57,486,311 54,675 105,237 57,326,399Commercial loans 38,868,870 58,485 106,429 38,703,956Commercial mortgages 14,072,525 - - 14,072,525Agricultural loans 5,194,658 - 15,079 5,179,579Agricultural mortgages 2,268,698 - - 2,268,698

246,935,585 113,160 394,119 246,428,306

Accrued interest 447,046 - - 447,046

$247,382,631 $ 113,160 $ 394,119 $246,875,352

Recorded Specific Collective 2014Loan Allowance Allowance Net

Residential mortgages $123,074,266 $ - $ 128,133 $122,946,133Consumer loans 60,064,900 11,309 85,241 59,968,350Commercial loans 41,912,132 304,044 79,847 41,528,241Commercial mortgages 9,975,038 - - 9,975,038Agricultural loans 5,107,395 - 12,095 5,095,300Agricultural mortgages 2,710,239 - - 2,710,239

242,843,970 315,353 305,316 242,223,301

Accrued interest 426,691 - - 426,691

$243,270,661 $ 315,353 $ 305,316 $242,649,992

b) Reconciliation of provision for loan impairment

2015 2014Residential Commercial Consumer Agricultural Total Total

Balance, beginning of year $ 128,133 $ 383,891 $ 96,550 $ 12,095 $ 620,669 $ 842,323Allowance for credit losses:Normal credit factors,

net of recoveries 39,241 (171,006) 86,254 2,984 (42,527) (76,007)167,374 212,885 182,804 15,079 578,142 766,316

Loans written off - (47,971) (22,892) - (70,863) (145,647)

Balance, end of year $ 167,374 $ 164,914 $ 159,912 $ 15,079 $ 507,279 $ 620,669

(Continues)18.



OCTOBER 31, 2015

8. MEMBER LOANS (Continued)

c) Loans and advances individually impaired2015 2014Total Total

Residential mortgages $ 361,821 $ 424,837Consumer loans 101,975 11,320Commercial loans 58,456 266,711

$ 522,252 $ 702,868

The fair value of the collateral held by the Credit Union as security for the above loans was$530,900 (2014 - $644,900). The Credit Union has estimated the fair value of collateral based onan updated assessment of the security appraisal undertaken at the original funding assessmentand management's knowledge of local real estate market conditions, where appropriate.

The collateral and other credit enhancements held by the Credit Union as security for loansinclude: (i) insurance and mortgages over residential lots and properties, (ii) recourse to businessassets such as real estate, equipment, inventory and accounts receivable, (iii) recourse to thecommercial real estate properties being financed, and (iv) recourse to liquid assets, guaranteesand securities.

Valuations of collateral are updated periodically depending on the nature of the collateral. TheCredit Union has policies in place to monitor the existence of undesirable concentration in thecollateral supporting its credit exposure.

d) Loans past due but not impaired

A loan is considered past due when a payment had not been received by the contractual due date.The following table presents the carrying value of loans that are past due but not classified asimpaired because they are either (i) less than 90 days past due unless there is information to thecontrary that an impairment event has occurred or (ii) fully secured and collection efforts arereasonably expected to result in repayment.

Loans that are past due but not impaired as at October 31, 2015 are as follows:

30 to 59 60 to 89 90 days 2015 2014days days or more Total Total

Residential mortgages $ 828,210 $ - $ 226,653 $ 1,054,863 $ 169,523Consumer loans 423,884 243,561 10,390 677,835 1,080,564Commercial mortgages 32,375 - - 32,375 292,033Agricultural loans 2,241 - 27,050 29,291 86,566

Total $ 1,286,710 $ 243,561 $ 264,093 $ 1,794,364 $ 1,628,686

(Continues)

19.



OCTOBER 31, 2015

8. MEMBER LOANS (Continued)

e) Concentration of risk

The Credit Union has an exposure to groupings of individual loans which concentrate risk andcreate exposure to particular segments. As at October 31, 2015, the Credit Union hasapproximately $36,580,000 (2014 - $39,626,000) of loans that are primarily related to the oil andgas sector.

There were no individual or related groups of loans to members which exceeded 3% of total assetsat October 31, 2015 or October 31, 2014.

The majority of loans to members are with members located in and around Rocky MountainHouse, Alberta. A significant portion of the Credit Union's loan portfolio is secured by residential,commercial and agricultural property in and around Rocky Mountain House, Alberta. Therefore, theCredit Union is exposed to the risks in reduction of the loan to valuation ratio coverage should theoil and gas economy and property market be subject to a decline. The risk of loss from loansundertaken is primarily reduced by the nature and quality of the security taken.

20.



OCTOBER 31, 2015

9. PROPERTY AND EQUIPMENT

Land and Land Furniture and Security ComputerImprovements Building Equipment Equipment Equipment Total

COST:

Balance at October 31, 2014 $ 743,866 $ 3,978,613 $ 476,721 $ 148,198 $ 216,848 $ 5,564,246

Additions 19,220 41,716 29,037 3,046 1,001 94,020Disposals and reclassifications - - (8,646) - (7,051) (15,697)

Balance at October 31, 2015 $ 763,086 $ 4,020,329 $ 497,112 $ 151,244 $ 210,798 $ 5,642,569

ACCUMULATED DEPRECIATION:

Balance at October 31, 2014 $ 9,872 $ 525,469 $ 200,592 $ 76,532 $ 140,580 $ 953,045

Depreciation expense 13,837 159,350 66,696 16,130 36,926 292,939Disposals and reclassifications - - (8,646) - (7,051) (15,697)

Balance at October 31, 2015 $ 23,709 $ 684,819 $ 258,642 $ 92,662 $ 170,455 $ 1,230,287

NET BOOK VALUE:

October 31, 2015 $ 739,377 $ 3,335,510 $ 238,470 $ 58,582 $ 40,343 $ 4,412,282

October 31, 2014 $ 733,994 $ 3,453,144 $ 276,129 $ 71,666 $ 76,268 $ 4,611,201

21.



OCTOBER 31, 2015

10.INTANGIBLE ASSETS

COST:

Balance at October 31, 2014 $ 717,457

Additions 22,100


ACCUMULATED AMORTIZATION:


Amortization expense 93,820


NET BOOK VALUE:

October 31, 2015 $ 240,697

October 31, 2014 $ 312,417

11.OTHER ASSETS

2015 2014

Accounts receivable - general $ 191,798 $ 136,288Prepaid expenses 81,052 141,535Community Investment Fund 55,000 70,000Mortgage pool receivable 45,858 298,638

$ 373,708 $ 646,461

22.



OCTOBER 31, 2015

12.OPERATING DEMAND LOAN AND TERM LOAN

a) The Credit Union has a revolving operating demand loan with Central of $13,400,000 (including aU.S dollar component equivalent to Cdn $1,400,000) (2014 - $13,200,000). The demand loanbears interest at Central's prime rate for Canadian dollar advances and Central's U.S. base rate onU.S. advances, in both cases plus or minus Central's applicable discount or margin rates in effectfrom time to time. At October 31, 2015, the Credit Union had $NIL outstanding on its operatingdemand loan (2014 - $NIL). The demand loan is secured by a Security Agreement coveringaccounts and instruments.

b) The Credit Union has a revolving term loan with Central of $20,000,000 (2014 - $20,000,000). Theterm loan bears interest at (i) Central's prime rate plus or minus Central's applicable discount ormargin rates in effect from time to time, or (ii) at the option of the Credit Union for terms of morethan 30 days at a fixed rate equal to Central's money market deposit rate of the equivalent paidfixed swap rate for the term plus or minus the applicable discount or margin rate. Any borrowingsover 5% of the Credit Union's total assets will be priced at a 2% premium. At October 31, 2015, theCredit Union had $NIL outstanding on its term loan (2014 - $NIL).

13.MEMBER DEPOSITS

2015 2014

Demand deposits $210,089,049 $200,262,292Term deposits 87,226,668 85,110,576Registered Retirement Savings Plans ("RRSP") 17,277,385 18,016,300Registered Retirement Income Funds ("RRIF") 8,655,772 8,912,647Tax-Free Savings Account ("TFSA") 7,288,359 5,897,068

330,537,233 318,198,883

Accrued interest payable 944,172 1,147,453

$331,481,405 $319,346,336

Concentra Financial Services Association ("Concentra") is the trustee of the RRSP, RRIF and TFSAinvestments offered to members. Under an agreement with Concentra, members' contributions to theplans, as well as income earned, are deposited in the Credit Union.

Deposits are subject to the following terms:

a) Term deposits are subject to fixed and variable rates of interest up to 4.00%, with interestpayments due monthly, annually or on maturity.

b) Registered savings plans are subject to fixed and variable rates of interest up to 4.00%, withinterest payments due monthly, annually or on maturity.

(Continues)

23.



OCTOBER 31, 2015

13.MEMBER DEPOSITS (Continued)

Concentration of risk

The Credit Union has an exposure to groupings of individual deposits which concentrate risk andcreate exposure to particular segments. The majority of member deposits are located in andaround Rocky Mountain House, Alberta.

There was one member or related groups of members for which deposits exceeded 3% of totalassets at October 31, 2015 (2014 - One).

Maturities are as follows:On Within 1 to 2 2+

Demand 1 Year Years Years Total

Demand $210,089,049 $ - $ - $ - $210,089,049Term - 59,855,120 7,121,801 20,249,747 87,226,668RRSP 3,044,675 7,210,533 1,575,639 5,446,538 17,277,385RRIF 869,115 2,774,389 905,429 4,106,839 8,655,772TFSA 2,866,196 2,043,111 353,164 2,025,888 7,288,359

Total $216,869,035 $ 71,883,153 $ 9,956,033 $ 31,829,012 $330,537,233

14.INCOME TAXES

a) Income tax expense

Reasons for the difference between the tax expense for the year and the expected income taxesbased on the statutory rate of 24.92% (2014 - 23.73%) are as follows:

2015 2014

Net income before income taxes $ 3,173,647 $ 3,261,394

Expected provision for income taxes at statutory rates $ 790,776 $ 773,849Non-deductible expenses 42,531 16,897Origination and reversal of timing differences (49,000) (14,520)Other 759 -

Total provision for income taxes $ 785,066 $ 776,226

(Continues)

24.



OCTOBER 31, 2015

14.INCOME TAXES (Continued)

b) Deferred income taxes

The deferred income tax asset (liability) is comprised of temporary deductible (taxable) differencesbetween the tax basis and carrying values in the following accounts:

2015 2014

Property and equipment and intangible assets $ (65,300) $ (83,000)Member loans 101,300 70,000

$ 36,000 $ (13,000)

15. DIVIDENDS DISTRIBUTABLE

The Credit Union's common shares have the following characteristics:

i) an unlimited number may be issued;ii) a par value of $1, but fractional shares may be issued;iii) transferable only in restricted circumstances;iv) non-assessable;v) redemption of member shares is at par value and is at the discretion of the Credit Union,

subject to the restrictions contained in the Credit Union Act and Regulations; andvi) Common share investment is restricted to a maximum 25,000 common shares.

A membership in the Credit Union requires the purchase of a minimum of five shares. Equity accountsare established as a means of returning excess earnings to the members while maintaining the CreditUnion's equity base.

Member shares are not guaranteed by the Corporation. Characteristics include performance, freedomfrom mandatory charge and subordination to the rights of creditors and depositors.

The Board of Directors declared a dividend allocation to be paid to members by way of the issuance ofcommon shares and cash, depending on the balance in the members common share account. Thebalance of the dividend allocation was paid in November 2015 and is calculated as follows:

2015 2014

3.50% dividends on common shares calculated on the minimum quarterly balance (2014 - 3.50%), $ 531,331 $ 506,000

25.



OCTOBER 31, 2015

16.PENSION PLAN

The expense and payments for the year ended October 31, 2015 were $127,061 (2014 -$125,302).

17.RELATED PARTY TRANSACTIONS

Key management personnel and directors

(a) Compensation and dividends

Key management personnel ("KMP") of the Credit Union are those persons having authority andresponsibility for planning, directing, and controlling the activities of the Credit Union, directly orindirectly. KMP comprise members of management responsible for the day-to-day financial andoperational management of the Credit Union. The Credit Union's KMP is comprised of 5 individuals(2014 - 5). The summary of compensation for KMP for the year ended October 31, 2015 is$791,408 (2014 - $757,151).

As at October 31, 2015, the total members' shares held by KMP were $144,703 (2014 - $155,336)with related dividends paid of $4,968 (2014 - $4,629).

(b) Member loans

There are no loans that are impaired in relation to loan balances with KMP or directors. There areno benefits or concessional terms and conditions applicable to the family members of KMP ordirectors. Directors and KMP of the Credit Union have loans totalling $769,071 (2014 - $1,099,209)which is 0.31% (2014 - 0.45%) of total loans. The Credit Union, in accordance with its policy,grants mortgages to its management and employees at the Credit Union prime less 2% and onconsumer loans at prime less 1%, with a 2% floor for all loans. All loans are in good standing.Interest and other revenue earned on loans are $27,726 (2014 - $22,370).

(c) Member deposits

Directors and KMP have deposits at the Credit Union totaling $1,389,734 (2014 - $1,169,269)which is 0.42% (2014 - 0.37%) of total deposits. These accounts are maintained under the sameterms and conditions as accounts of other members and are included in member deposits.Management and staff have access to personal chequing accounts which do not incur accountoperating fees. Interest on deposits is $11,128 (2014 - $6,240).

(d) Directors' remuneration

Amounts paid annually to directors range from $460 (2014 - $435) to $2,485 (2014 - $3,610) withan average of $1,790 (2014 - $2,519). In addition, there are meeting, travel and training costs of$29,171 incurred in the current year (2014 - $32,583).

26.



OCTOBER 31, 2015

18.COMMITMENTS

a) Retail banking services agreement

The Credit Union entered into an eroWORKS Retail Banking services agreement with CeleroSolutions Inc. The agreement is effective for a ten year term commencing June 1, 2006 and shallbe automatically renewed for five years unless terminated by either party. Under the terms of thisagreement the Credit Union is committed to annual operating fees which vary annually based onthe projected operating costs for eroWORKS Retail Banking for the upcoming year. Currently theCredit Union's annual operating fee is $192,879 (2014 - $199,016).

The Credit Union recently signed a letter of intent with Celero Solutions Inc. to conclude anamended and restated service agreement commencing January 1, 2016 and continuing untilDecember 31, 2025.

b) Indemnification of directors and officers

The Credit Union has Directors and Officers insurance coverage that limits its exposure to certainevents or occurrences while the Director or Officer is or was serving at the Credit Union's request.The insurance coverage enables the Credit Union to recover a portion of any future amounts paid.The maximum potential amount of future payments is $10,000 per claim.

19.RISK MANAGEMENT

a) Credit risk

Credit risk is the risk that financial loss will be incurred due to the failure of a counterparty todischarge its contractual commitment or obligation to the Credit Union arising from cash and cashequivalents, accounts receivable, member loans, investments, securities and derivativeinstruments with positive market values. The primary credit risk arising from loans is the possibilitythat members will be unable or unwilling to repay some or all of the principal and interest on theirloans. Provision for impairment losses are made for losses that are anticipated at the Statement ofFinancial Position date.

(Continues)

27.



OCTOBER 31, 2015

19.RISK MANAGEMENT (Continued)

a) Credit risk (Continued)

Management of credit risk is an integral part of the Credit Union's activities. Management carefullymonitors and manages the Credit Union's exposure to credit risk by a combination of methods.Credit risk arises principally from lending activities that result in member loans and treasuryactivities that result in investments. There is also credit risk in unfunded loan commitments as wellas the periodic use of syndications with other financial institutions to limit the potential exposure toany one member. The overall management of credit risk is centralized in the Credit Committee,which reports to the Board.

The Credit and Governance Committees are responsible for approving and monitoring the CreditUnion's tolerance for credit exposures, which it does through review and approval of the CreditUnion's lending policies and setting limits on credit exposures to individual members and acrosssectors. The Credit Union maintains levels of borrowing approval limits, and prior to advancingfunds to a member, an assessment of the credit quality of the member is made. The Credit Unionemphasizes responsible lending in its relationships with members and establishes that loans arewithin the member's ability to repay, rather than relying exclusively on collateral.

The Credit Union often takes security as collateral in common with other lending institutions. TheCredit Union maintains guidelines on the acceptability of specific types of collateral which mayinclude commercial, agricultural, residential and personal property. Where significant impairmentindicators are identified, the Credit Union will take additional measures to manage the risk ofdefault which may include seeking additional collateral.

The credit quality of the loan portfolio for those loans that are neither past due nor impaired can beassessed by reference to the Credit Union's internal rating system. The Credit Union assesses thequality of loans using an internal rating tool taking into consideration a number of factors, such asthe security, current and projected cash flow and utilizes the experience and judgment of the Creditdepartment. The current risk rating format consists of four categories reflecting various degrees ofrisk and the availability of collateral.

Significant changes in the oil and gas economy of the Rocky Mountain House area, or deteriorationin the residential and commercial lending sectors, which represent a concentration within the CreditUnion's loan portfolio, may result in losses that are different from those predicted at the Statementof Financial Position date.

(i) Credit risk exposure

The following information represents the maximum exposure to credit risk before taking intoconsideration any collateral or credit enhancements. For financial assets recognized on theStatement of Financial Position, the exposure to credit risk is the stated carrying amount. For offbalance sheet items, the maximum exposure is the full amount of the undrawn facilities or loancommitment.

(Continues)

28.



OCTOBER 31, 2015



(i) Credit risk exposure (Continued)

2015 2014Outstanding

Cash and cash equivalents (1) $ 7,273,772 $ 9,553,882Investments (1) 112,746,773 99,707,601Member loans (2) 246,875,352 242,649,992

366,895,897 351,911,475

Undrawn commitmentsLetters of guarantee 850,915 732,015Commitments to extend credit (3)

Original terms to maturity of one year or less 24,701,903 21,681,393Original terms to maturity of one year or more 21,711,996 34,549,869

47,264,814 56,963,277

Total exposure $414,160,711 $408,874,752

(1) Cash and cash equivalents and investments

Credit risk arises from cash and cash equivalents and investments held by the Credit Union tomeet regulatory and internal liquidity requirements and for general business purposes. Thisaspect of credit risk is principally managed by management who reports to the Board. Themanaged assets consist of cash and investments held with Central. Central invests on behalfof the Credit Union as per the investment policies approved by the Investment Committee ofthe Board of Directors of the Credit Union. The investment policy requires that all investmentsare highly-rated and that all of the assets are readily convertible to cash.

(2) Member loans

For the retail loan portfolio (residential and consumer loans), the Credit Union's underwritingmethodologies and risk modelling are member-based rather than product-based. The CreditUnion reviews the member's capacity to repay the residential mortgages which are fullysecured by residential property with 21.03% (2014 - 18.82%) in mortgages insured by CanadaMortgage and Housing Corporation and other mortgage insurance providers and 33.54%(2014 - 34.12%) in conventional mortgages with an ongoing maximum advance ratio to 80%of the appraised value.

(3) Credit commitments

In the normal course of business, the Credit Union enters into various commitments to meetthe credit requirements of its members. These credit arrangements are subject to the CreditUnion's normal credit standards and collateral may be obtained where appropriate. Thecontract amounts for these commitments as set out above represent the maximum exposureto the Credit Union should the contracts be fully drawn and any collateral held proves to be ofno value. As many of these arrangements will expire or terminate without being drawn upon,the contract amounts do not necessarily represent the future cash requirements. Suchcommitments are not included on the Statement of Financial Position.

(Continues)

29.



OCTOBER 31, 2015



(ii) Concentration of credit risk

Concentration of credit risk exists if a number of borrowers are engaged in similar economicactivities, or are located in the same geographic region, and indicates the sensitivity of theCredit Union to developments affecting a particular segment of borrowers or geographic region.

Geographic credit risk exists for the Credit Union due to its primary service area being in RockyMountain House.

b) Market risk

Market risk is the risk of loss in value of financial instruments that may arise from changes inmarket factors such as interest rates, foreign currency risk, equity prices and credit spreads. TheCredit Union's exposure changes depending on market conditions.

The Credit Union uses various risk management processes to manage market risk.

Management of market risk is established in policies and procedures established by the Board ofDirectors. In addition, the Corporation monitors standards to which the Credit Union must comply.

The primary market risk policies and procedures include the following:

(i) Interest rate risk management framework to measure and control interest rate exposure:

1. Identify significant interest rate risk, including re-pricing risk and interest spread risk;2. Utilize sensitivity tools to measure various risk positions and evaluate their possible impact;3. Develop products and services, and related pricing to ensure consistent net interest

margins and profitability; and4. Utilize derivative products to assist in ensuring consistent interest margins.

(ii) Investment and derivative management to measure and control on and off balance sheetassets to ensure investment objectives are met:

1. Established standards for safety, liquidity and yield;2. Limits on eligible investments;3. Limits on investment concentrations;4. Limits on investment term to maturity;5. Limits on the use of derivative products;6. Controls on securities dealers utilized;7. Limits on real property and equipment for the Credit Union's use; and8. Processes that identify adverse situations and trends

c) Fair value risk

Fair value risk is the potential for loss from an adverse movement in the value of a financialinstrument. The Credit Union incurs fair value risk on its loans, term deposits and investments held.The Credit Union does not hedge its fair value risk. See Note 21 for further information on fairvalue of financial instruments.

(Continues)

30.



OCTOBER 31, 2015


d) Interest rate risk

Interest rate risk is the risk that the value of a financial instrument might be adversely affected by achange in the interest rates. Changes in market interest rates may have an effect on the cash flowsassociated with some financial assets and liabilities, known as cash flow risk, and on the fair valueof other financial assets or liabilities, known as price risk. The Credit Union incurs interest rate riskon its loans and other interest bearing financial instruments.

To manage the repricing of asset and liability mismatch opportunities, the Credit Union willundertake campaigns to procure deposits or loans that re-price or mature within a specific timeperiod, buy or sell assets that reprice or mature within a specific time period and may purchasederivative instruments. These decisions are based on economic conditions, member behaviour,capital and liquidity levels and compliance with the Credit Union policy.

Based on the current financial instruments, it is estimated that a 1.0% increase in the prime interestrate would increase financial margin by $287,000 (2014 - $75,000). A 1.0% decrease in the primeinterest rate would decrease financial margin by $396,000 (2014 - $522,100)

The following schedule shows the Credit Union's sensitivity to interest changes as at October 31,2015. Fixed rate assets and liabilities are reported based on scheduled repayments. Variable rateassets and liabilities that are linked to the prime rate are reported in the floating rate category. Non-interest bearing assets and liabilities are reported in the non-rate sensitive category.


Floating Within 1 to 5 Non-rateRate 1 Year Years Sensitive Total

AssetsCash and cash equivalents $ 6,429,806 $ - $ - $ 843,966 $ 7,273,772

Effective Yield 0.25% 0.00% 0.00% 0.00% 0.22%Investments - 102,549,145 5,612,094 4,585,534 112,746,773

Effective Yield 0.00% 0.67% 3.06% 2.65% 0.87%Member loans 75,881,449 37,780,882 133,273,254 (60,233) 246,875,352

Effective Yield 3.70% 3.59% 3.59% 0.00% 3.63%Other - - - 5,220,705 5,220,705

82,311,255 140,330,027 138,885,348 10,589,972 372,116,602

LiabilitiesMember deposits 6,779,984 252,402,782 41,734,173 30,564,466 331,481,405

Effective Yield 0.85% 0.69% 2.02% 0.00% 0.80%Other - - - 682,675 682,675Equity - - - 39,952,522 39,952,522

6,779,984 252,402,782 41,734,173 71,199,663 372,116,602

Financial Position Statement Gap $ 75,531,271 $112,072,755)$ 97,151,175 $ (60,609,691)$ -

(Continues)31.



OCTOBER 31, 2015


d) Interest rate risk (Continued)


Floating Within 1 to 5 Non-rateRate 1 Year Years Sensitive Total

Financial Position Statement Gap $ (95,915,695)$ 27,282,512 $116,121,001 $ (47,487,818)$ -

Interest sensitive assets and liabilities cannot normally be perfectly matched by amount and termto maturity. One of the roles of the Credit Union is to intermediate between the expectations ofborrowers and depositors.

e) Liquidity risk

Liquidity risk is the risk that the Credit Union cannot meet a demand for cash or fund its obligationsas they come due. The Credit Union's management oversees the Credit Union's liquidity risk toensure the Credit Union has access to enough readily available funds to cover its financialobligations as they come due. The Credit Union's business requires such capital for operating andregulatory purposes. Refer to Note 20 for further information about the Credit Union's regulatoryrequirement.

The Credit Union uses various risk management processes to manage liquidity risk.

Management of liquidity risk is established in policies and procedures established by the Board ofDirectors. In addition, the Corporation monitors standards to which the Credit Union must comply.

The primary liquidity risk and procedures include the following:

Liquidity risk management framework to measure and control liquidity risk exposure;

1. Maintain sufficient liquid assets to meet normal operating requirements;2. Maintain Corporation regulated liquidity investments;3. Maintain a line of credit and borrowing facility with Central;4. Daily management of liquidity, which factors in known and projected inflows/outflows;5. Maintain sufficient liquid assets that can be readily converted to cash with minimal or no

cost;6. Maintain liquid assets in excess of normal operating requirements;7. Diversification in investing to ensure various sources of funding liquidity can be maintained;

and8. Liquidity management contingency planning.

The Credit Union enters into transactions to borrow funds from financial institutions or othercreditors, for which repayment is required at various maturity dates. Liquidity risk is measured byreviewing the Credit Union's future net cash flows for the possibility of a negative net cash flow.

The Credit Union manages the liquidity risk resulting from its accounts payable and memberdeposits by investing in liquid assets.

(Continues)

32.



OCTOBER 31, 2015


e) Liquidity risk (Continued)

On a periodic basis management ensures that it has adhered to the regulatory requirement of theCredit Union Act of Alberta minimum liquidity ratio of 6% of total assets. The Credit Union’s liquidityratio was 7.95% at October 31, 2015 (2014 – 8.09%).

Management reviews its compliance with these policies and reports its statutory liquidity position tothe Board on a monthly basis. The Audit and Finance Committee ensures that a periodic review isperformed to verify compliance with policy and procedures.

f) Foreign exchange risk

Foreign exchange risk is the risk that arises when future commercial transactions or recognizedassets or liabilities are denominated in a foreign currency. Net foreign exchange risk is notconsidered significant as at the date of the Statement of Financial Position, as the Credit Uniondoes not engage in any active trading of foreign currency positions or hold significant foreigncurrency denominated financed investments for an extended period.

g) Price risk

Price risk arises from changes in market risks, other than the interest rate, credit, liquidity or foreignexchange risk, such as changes in commodity prices, where these changes cause fluctuations inthe fair value or future cash flows of a financial instrument. The Credit Union is exposed to pricerisk as members of the Credit Union are employed in the oil and gas commodity sector.

33.



OCTOBER 31, 2015

20.CAPITAL MANAGEMENT

The Corporation monitors compliance with legislative capital requirements for capital adequacy andminimum capital as prescribed under the Credit Union Act. The capital adequacy rules are based onthe Basel III framework, consistent with the financial industry in general. The Act also requires a risk-weighted asset calculation for credit and operational risk.

Under the Act, Credit Unions are required to measure capital adequacy in accordance withinstructions for determining risk-adjusted capital and risk-weighted assets ("RWA") including off-balance sheet commitments. Based on the prescribed risk of each type of asset, a weighting of 0% to150% is assigned. The ratio of legislated capital to risk-weighted assets is calculated and compared tothe standard outlined by the Act. Legislative standards require the Credit Unions to maintain aminimum of the greater of 8% of RWA and 4% of total assets. An additional regulatory requirement ofcapital equal to 2.5% of RWA is also required.

Also, the Corporation expects all Credit Unions to hold a self - identified internal capital buffer equal to2% of RWA in addition to the capital levels previously described.

Primary capital is share capital and retained earnings.

Secondary capital of the Credit Union consists of deferred income taxes payable and the collectiveallowance for member loans.

The primary capital policies and procedures include the following:

a) Adhere to regulatory capital requirements as minimum benchmarks (i.e. growth, operations,enterprise risk);

b) Co-ordinate strategic risk management and capital management;c) Develop financial performance targets/budgets/goals;d) Administer a patronage program that is consistent with capital requirements;e) Administer an employee incentive program that is consistent with capital requirements;f) Develop a planned growth strategy that is coordinated with capital growth; andg) Update plans that consider the strengths, weaknesses, opportunities and threats to the Credit

Union.

The Credit Union has adopted a capital plan that conforms to the capital framework and is regularlyreviewed and approved by the Board of Directors. The following table compares the Act regulatorystandards to the Credit Union's board policy for the year:

Regulatory Standards Board minimum limitsTotal eligible capital to risk-weighted assets 8% 15%Regulatory capital buffer 2.50% 2.50%Self-identified capital buffer 2% 2%Total eligible capital to total assets 4% 4%

(Continues)

34.



OCTOBER 31, 2015

20.CAPITAL MANAGEMENT (Continued)

During the year, the Credit Union complied with all internal and external capital requirements. Thefollowing table summarizes key capital information:

2015 2014

Capital summary

Eligible capitalPrimary capital $ 39,421,191 $ 36,988,968Secondary capital 394,119 318,316

39,815,310 37,307,284

Less: intangible assets (240,697) (312,417)

Total available capital $ 39,574,613 $ 36,994,867

Risk-weighted assetsTotal risk-weighted assets $168,830,550 $177,954,749Total eligible capital to risk weighted assets 23.44% 20.79%

Total assetsTotal assets $372,116,602 $357,679,952Total eligible capital to total assets 10.64% 10.34%

35.



OCTOBER 31, 2015

21.FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair values of financial instruments are designed to approximate values at which theseinstruments could be exchanged in the current market. However, many of the financial instrumentslack an available trading market and therefore fair values are based on estimates. In addition, thefollowing amounts do not include the fair value of items that are not financial assets, such as propertyand equipment and intangible assets.

Methods and assumptions

The following methods and assumptions were used to estimate fair values of financial instruments:

a) Financial Assets:

The fair value of financial assets is determined by using quoted market values when available.For financial assets where market quotes are not available, the Credit Union uses estimationtechniques to determine fair value. These estimation techniques include discounted cash flows,internal models that utilize observable market data or comparisons with other financial assetsthat are substantially the same. Where there is no observable market data, management usesestimates that it believes to be reasonable.

b) Member Loans:

For variable interest rate loans that are frequently re-priced, stated values are assumed to befair values. Fair values of other loans are estimated using discounted cash flow calculationswith market interest rates for similar groups of loans and maturity dates.

c) Member Deposits:

The fair value of deposits with no specified maturity term is their stated value. The fair value forother deposits is estimated using discounted cash flow calculations at market rates for similardeposits.

d) Derivative Instruments:

The fair value of derivative financial instruments is established by referring to the appropriatecurrent market yields with matching terms of maturity. The fair values reflect the estimatedamounts that the Credit Union would receive or pay to terminate the contracts at the reportingdate.

The most significant assumption relates to the discount rates utilized. If the shift in interest rates ofsuch instruments would increase by 100 basis points then the fair value of financial assets woulddecrease by $4,454,217 and the fair value of financial liabilities would decrease by $1,389,491.

(Continues)

36.



OCTOBER 31, 2015

21.FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

The table below sets out the fair value of financial instruments, including derivatives, using thevaluation methods and assumptions referred to above. The table does not include assets andliabilities that do not meet the definitions of financial instruments:

October 31, 2015 October 31, 2014

Carrying CarryingLevels amount Fair value Change amount Fair value Change

(In thousands)Financial Assets:

Cash and cash equivalents 1 $ 7,274 $ 7,274 $ - $ 9,554 $ 9,554 $ -Investments 1 112,747 113,052 (305) 99,708 100,077 (369)Member loans 2 246,875 246,336 539 242,650 241,413 1,237Derivative assets 2 44 44 - 118 118 -Accounts receivable 2 238 238 - 435 435 -

$ 367,178 $ 366,944 $ 234 $ 352,465 $ 351,597 $ 868

Financial Liabilities:Member deposits 2 $ 331,481 $ 332,713 $ (1,232) $ 319,346 $ 320,289 $ (943)Accounts payable and accrued liabilities - operating 2 639 639 - 615 615 -Dividends payable 2 531 531 - 506 506 -Accounts payable and accrued liabilities - capital 2 - - - 69 69 -Derivative liabilities 2 44 44 - 142 142 -

$ 332,695 $ 333,927 $ (1,232) $ 320,678 $ 321,621 $ (943)

Fair value hierarchy

Assets and liabilities recorded at fair value in the Statement of Financial Position are measured andclassified in a hierarchy consisting of three levels for disclosure purposes. Observable inputsrepresent instances where market data is obtained from independent sources. Unobservable inputsare based on the Credit Union's own internal assumption.

Level 1 - unadjusted quoted prices in active markets for identical assets or liabilities;Level 2 - inputs, other than quoted prices included within level 1, are observable for the asset

or liability either directly or indirectly; and Level 3 - inputs that are not based on observable market data.

22.COMPARATIVE FIGURES

Certain comparative figures have been reclassified to conform to the current year's presentation.

37.

ROCKY CREDIT UNION LTD.SCHEDULE I

SCHEDULE OF OPERATING EXPENSES


2015 2014

Personnel $ 3,045,389 $ 3,041,531

Occupancy Depreciation 173,187 156,456Maintenance, utilities and janitorial 111,789 147,710Property taxes 25,532 21,399Other 10,506 13,505

321,014 339,070

Security Deposit guarantee assessment 510,989 436,250Bonding 26,033 28,981Depreciation 16,130 12,175Other 10,193 6,454

563,345 483,860

Organization Credit Union Central dues 97,776 85,719Other 26,041 27,429Directors and committee remuneration 14,320 20,150Annual meeting 5,345 5,252Central annual general and other meetings 2,789 10,941Director travel 341 1,423

146,612 150,914

General Computer services 457,087 424,199Cash, service charges and other fees 330,730 333,166Depreciation and amortization 197,443 188,445Advertising and marketing 186,904 182,877Consulting and professional fees 119,529 138,968Equipment leases, repairs and maintenance 91,736 87,984Office and communication 86,830 101,064Other 74,146 74,646Courier and postage 57,117 57,310Memberships and subscriptions 56,940 51,100Insurance 34,339 32,596Staff travel 17,786 15,426

1,710,587 1,687,781

$ 5,786,947 $ 5,703,156


ROCKY MOUNTAIN HOUSE, ALBERTA FINANCIAL STATEMENTS …€¦ · Accounts payable and accrued...

Documents

Transcript of ROCKY MOUNTAIN HOUSE, ALBERTA FINANCIAL STATEMENTS …€¦ · Accounts payable and accrued...