‘07€¦ · frank dicresce anne dimarco james finlayson christopher foley john gilpin kenneth...

‘07Annual Report

67th

Table of Contents

1 Agenda, Board ofDirectors Memoriam

2 Minutes of thePrevious Meeting

4 Report of the Board ofDirectors

5 Auditor’s Report

Financial Statements

6 Balance Sheet

7 Statement of Operations

8 Statement of UndividedEarnings and Reserves

9 Statement of Cash Flows

10 Summary of SignificantAccounting Policies

15 Notes toFinancial Statements

Welcometo a brandnew bankingexperience.

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Annual Meeting AgendaApril 1, 2008

Call to Order

Minute of Silence

Minutes of the Previous Meeting

Presentation of the Annual Report

Report of the Board of Directors

Report of the General Manager

Elections

Appointments

New Business

Adjournment

Board of Directors

Directors Term Expires

Judith Skinner – President 2009Dina Ronan – Vice-President 2010Sandra Burk – Corporate Secretary 2010Ronald Agius 2008Stephen Benjamin 2008James Fernandes 2009Catherine Kerr 2008Michael Martosh 2009John Steidl 2010

David AndrewsCyril BamptonJack BenjaminWilliam James CampbellLinda ChristensenKyungmoon ChungVimy ColemanKatherine CroswellRoderick CulbersonFrank DiCresceAnne DiMarcoJames FinlaysonChristopher FoleyJohn GilpinKenneth Gower

James HallidayKurry HingooLivingston HolderAnne HulanDavid HullPauline IlesEmery KahnElisabeth KnuttLois KolarJames LoreeMartin MaguireGaetanao MarianoCarlos MeloHelen NobleJean Novosel

Theresa McKenzieIrene McNeilRonald RichardRussell RicheyWilliam RiddockTeresa ThomsonDale SearleFlorence E. SharpLodiya ShlimonGiacomo (Jack) SipioneBill YoshimotoFrancis WhiteRoderick WhiffenMieczyslaw WichorskiJane Blair Wilson

In Memoriam

2007 Annual General Meeting

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Minutes of the Annual Meeting held on March 27, 2007, 6:00 PM, Metro Hall, Room 308,55 John Street, Toronto, Ontario.

IntroductionChair: Mr. Stephen BenjaminSecretary: Ms. Sandra Burk

The Chair called the meeting to order.

The meeting was opened by one minute of silence in memory of the members whopassed away in the previous year.

The Chair welcomed the members in attendance and introduced the head table.

Minutes of the Previous MeetingMoved by: Mr. J. BroomeSeconded by: Mr. D. SangsterThat the Minutes of the previous Annual Meeting be adopted as read.Carried

Annual ReportMoved by: Mr. S.BenjaminSeconded by: Mr. M. MartoshThat the Year 2006 Annual Report be received.Carried

Report of the Board of DirectorsMr. S. Benjamin read the Report of the Board of Directors outlining the activitiesfor the year 2006 and the expectations for the year 2007.Moved by: Mr. S. BenjaminSeconded by: Mr. J. LaingThat the Report of the Board of Directors be adopted.Carried

Report of the General ManagerMr. B.G. Pullen read the Report of the General Manager, the Auditor’s Reportand the Loan Manager’s Report for the year 2006.Moved by: Mr. B. G. PullenSeconded by: Mr. J. LaingThat the Report of the General Manager, including the Auditor’s Reportand the Loan Manager’s Report be adopted.Carried

Minutes of the 2007 Annual General Meeting

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The Chair noted three vacancies on the Board of Directors – each of the three vacancies had athree- year term. The Chair read the rules of elections:

1. The elections will be held by ballot

2. Only members of this Credit Union may vote – one vote per member

3. Any ballot which contains votes for more or less than the number required to be elected shallbe void.

4. Nominations shall be declared by the Chair and shall be made from those present with noseconder required. Where the proposed nominee has been unable to attend, the mover of thenomination shall present to the Chair a letter of acceptance of the nomination bearing thesignature of the proposed nominee.

5. Closing the nominations shall be the prerogative of the Chair and only after calling three (3)times.

6. When the nominations are closed, the chair shall require the secretary to read the list from topdown. On the second reading, the Secretary will read the names from bottom up.The nomineewill declare his/her intention to stand or decline.

7. If there are only sufficient nominees to fill the vacancies occurring, the Secretary will cast oneballot in favour of those nominated.

The Chair called for nominations for the Board of Directors

Nominee NominatorDina Ronan Donald AltmanJohn Steidl John LaingSandra Burk Don Sangster

There being no further nominations, the nominations were closed. The Secretary read thenames from top to bottom and bottom to top.The nominees declared their intention to stand.There being only sufficient nominees to fill the present vacancies, the Chair requested theSecretary to cast a single ballot in favour of those nominated.

The Chair declared the following individuals elected to the Board of Directors for a three yearterm: Sandra Burk, Dina Ronan, John Steidl

Appointment of the AuditorMoved by: Mr. J. FernandesSeconded by: Mr. J. LaingThat the firm of BDO Dunwoody, Chartered Accountants be appointed the Auditors for theCredit Union for 2007.Carried

New BusinessThe Chair declared the meeting open for new business.

Mr. D. Altman asked a question regarding the Credit Union’s capital level. The General Manageradvised the level was 10% under the leverage test.

AdjournmentThere being no further business, the Chair requested a motion to adjourn the meeting.Moved by: Ms. B. IvanThat the meeting adjourn – time 6:28 PM.Carried

Elections

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On behalf of the Board of Directors I am pleased to present your Credit Union’s Annual Reportfor the year ending December 31, 2007.

Your Credit Union has completed another successful year of operations. Assets have increased,loans have increased, and deposits have increased.The Credit Union experienced anotherprofitable year and will be declaring rebates for the fiscal year 2007. First, the Credit Union isdeclaring a 7% rebate of interest paid on personal loans, Meritline home equity loans andvariable interest rate mortgage loans that are normally charged prime minus one quarterpercent. Second, a $20.00 fee rebate will be paid to each member having a chequing account.The rebates are applicable to loans and accounts in good standing as at December 31, 2007.

While satisfied with our growth and profitability, we are also pleased to announce an increase inMembers’ Equity of $207,000.Total Members’ Equity now stands at $4,700,000 and these fundscontribute to the Credit Union’s financial stability.

Members have requested more robust investment vehicles than traditional deposit accounts toinvest their money. In response, the Credit Union selected the ‘Ethical’ family of mutual funds tooffer our members.These funds apply social and environmental criteria to selecting thesecurities held in the Funds. Ethical Funds were selected because your Credit Union stronglysupports this approach to investing funds.The Funds are performing comparatively well andmember investment in the ‘Ethical’ family of mutual funds increased 11.9 percent in 2007.

Home and auto insurance costs are another important area of concern for our members.Insurance is made available to our members from our supplier, CUMIS, and their premiums onboth home and auto insurance products are now very competitive with industry leaders.TheCredit Union members have 841insurance policies in force and the numbers continue to climb.

During the year 2007 we reviewed our operation with the goal of delivering better products andservices to our members. Positive internal changes have already taken place and will continue in2008.To date, the changes have focused on internal delivery such as faster processing of loanrequests. In the near future you will see other improvements such as new chequing accountofferings and a more user-friendly web site with more features. Our ‘look’ will be a little differentas well, and first evidence of the new image is on the front cover of your Annual Report.

Each year at our Annual Meeting, elections are held for vacancies on the Board of Directors.Theterms of Ronald Agius, Stephen Benjamin and Catherine Kerr have expired. All are eligible forre-election, however Catherine Kerr has advised that she has chosen not to run for re-election.

Catherine Kerr joined the Metro Treasury Department in 1981. Cathy became a Credit Unionmember in May 1983 and in 1987 she was appointed to the Credit Union’s former CreditCommittee. In 1990 Cathy was elected to the Board of Directors and since then she has made asignificant contribution to the Board and served on all the Committees of the Board. We verymuch appreciate her long and valuable service with the Credit Union and while we’ll miss her onthe Board, we wish her every success and hope to see her regularly at future Annual Meetings.

On behalf of the Board of Directors, I would like to thank the City of Toronto and the manyindividuals in that organization for their support and co-operation. It is also my pleasure tothank you the members for your continued support of our Credit Union. Lastly, I thank my fellowdirectors for their commitment to the success of the Credit Union.

Respectfully submitted

Judith SkinnerPresident

Report of the Board of Directors

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To the Members ofThe Toronto Municipal Employees’ Credit Union Limited

We have audited the balance sheet of The Toronto Municipal Employees’Credit Union Limited as at December 31, 2007 and the statements of operations,undivided earnings and reserves and cash flows for the year then ended.Thesefinancial statements are the responsibility of the Credit Union’s management.Our responsibility is to express an opinion on these financial statements basedon our audit.

We conducted our audit in accordance with Canadian generally accepted auditingstandards.Those standards require that we plan and perform an audit to obtainreasonable assurance whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements. An audit also includes assessingthe accounting principles used and significant estimates made by management,as well as evaluating the overall financial statement presentation.

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

Chartered Accountants, Licensed Public Accountants

Markham, OntarioFebruary 15, 2008

Auditor’s Report

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December 31 2007 2006

ASSETS

Cash resources (Note 2) $ 4,688,626 $ 7,174,328

Accrued interest receivable 275,206 295,646Income taxes recoverable 8,095 –

283,301 295,646

Investments (Note 3) 17,253,300 15,043,350

Loans to members (Note 4)Personal loans 9,792,487 10,341,129Mortgages 17,182,961 14,845,352

26,975,448 25,186,481

Allowance for impaired loans (Note 5) (250,000) (250,000)

26,725,448 24,936,481

Future income tax assets (Note 6) 52,000 46,000

Capital assets (Note 7) 70,634 181,791

Accrued employee benefit asset (Note 8) 80,000 104,800

Prepaid expenses and other receivables 33,383 81,873

236,017 414,464

$ 49,186,692 $ 47,864,269

LIABILITIES ANDMEMBERS’ EQUITY

Liabilities to non-membersAccounts payable and accrued liabilities $ 407,168 $ 401,929Income taxes payable – 2,804

407,168 404,733

Liabilities to membersDeposits (Note 9) 43,501,417 42,353,285Accrued interest on members’ balances 265,944 235,357Rebates due to members (Note 10) 144,714 171,553Members’ shares (Note 11) 195,125 197,700

44,107,200 42,957,895Members’ equity

General reserve 4,501,641 4,287,576Undivided earnings 170,683 214,065

4,672,324 4,501,641

$ 49,186,692 $ 47,864,269

On behalf of the Board:

Director Director

The accompanying summary of significant accounting policies and notes are an integral part of these financial statements.

Balance Sheet

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For the year ended December 31 2007 2006

Operating revenueInterest

Personal loans $ 885,176 $ 871,769Mortgage loans 931,583 762,805

Investment income 847,825 797,434Other income 549,393 591,927

3,213,977 3,023,935

Financial expenseInterest on members’ balances (Note 9) 863,519 703,580Interest on external borrowing 3,778 5,387Rebates to members (Note 10) 142,014 170,232

1,009,311 879,199

Financial margin 2,204,666 2,144,736

ExpensesSalaries and benefits 901,838 838,254Provision for losses on impaired loans (Note 5) 30,618 36,668Administrative 717,949 665,876Occupancy costs 153,128 155,260Member security costs 78,085 74,602Amortization 111,157 111,159

1,992,775 1,881,819

Income before provision for income taxes 211,891 262,917

Provision for income taxes - current 47,208 55,852- future (recovery) (6,000) (7,000)

41,208 48,852

Net income $ 170,683 $ 214,065


Statement of Operations

Statement of Undivided Earnings and Reserves

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Undivided earnings, beginning of year $ 214,065 $ 168,919

Net income 170,683 214,065

384,748 382,984

Transfer to general reserve (214,065) (168,919)

Undivided earnings, end of year $ 170,683 $ 214,065

General reserve,beginning of year $ 4,287,576 $ 4,118,657

Transfer from undivided earnings 214,065 168,919

General reserve, end of year $ 4,501,641 $ 4,287,576


Statement of Cash Flows

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Cash provided by (used in)

Operating activitiesNet income $ 170,683 $ 214,065Adjustments to reconcile net income to netcash provided by operating activities

Amortization 111,157 111,159Future income taxes (recovery) (6,000) (7,000)Changes in non-cash working capital balances

Accrued interest receivable 20,440 (72,986)Prepaid expenses and other receivables 48,490 (13,214)Accounts payable and accrued liabilities 5,239 20,434Income taxes (10,899) (4,790)Accrued interest on members’ balances 30,587 44,008Rebates due to members (26,839) 49,671

342,858 341,347

Investing activitiesNet increase in investments (2,209,950) (198,759)Net increase in loans and mortgages (1,788,967) (1,423,499)Net acquisition of capital assets – (4,872)Accrued employee benefit asset 24,800 1,900

(3,974,117) (1,625,230)

Financing activitiesNet increase in deposits 1,148,132 358,562Net decrease in members’ shares (2,575) (6,200)

1,145,557 352,362

Change in cash resources (2,485,702) (931,521)

Cash resources,beginning of year 7,174,328 8,105,849

Cash resources, end of year $ 4,688,626 $ 7,174,328

Supplemental cash flow informationCash paid for interest (excluding interest paid to members) $ 3,778 $ 5,387Cash paid for income taxes $ 58,107 $ 60,642


Summary of Significant Accounting PoliciesDecember 31, 2007

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Nature of BusinessThe Credit Union, incorporated under the Credit Unions and Caisses Populaires Act (1994) and affiliated with CreditUnion Central of Ontario (“Central”) or (“CUCO”), provides financial products and services to its members.

Cash ResourcesCash resources consist of cash on hand and investments maturing or callable within one hundred days.

Allowance for Impaired LoansThe Credit Union writes off to the allowance for impaired loans all amounts known to be uncollectible. Amountsrecovered from loans previously written off are credited to the allowance for impaired loans.

As at the fiscal year end, the Credit Union calculates the allowance for impaired loans on an individual account basis inaccordance with Canadian generally accepted accounting principles and substantially in accordance with theguidelines set out in By-Law No. 6 of the Deposit Insurance Corporation of Ontario (D.I.C.O.).

Income TaxesThe Credit Union follows the asset and liability method of tax allocation in accounting for income taxes. Under thismethod, future tax assets and liabilities are determined based on differences between the financial reporting and taxbases of assets and liabilities, and measured using the substantively enacted tax rates and laws expected to be ineffect when the differences are realized.

Capital AssetsCapital assets are recorded at cost less accumulated amortization.

Amortization based on the estimated useful life of the asset is calculated as follows:

Computer equipment - 3 years straight lineFurniture and fixtures - 5 years straight lineLeasehold Improvements - straight line over the term of the lease

Employee Future BenefitsThe Credit Union provides pension benefits for employees under either a defined benefit plan or a definedcontribution plan.The cost of providing pension benefits under the defined benefit plan is actuarially determinedusing the projected unit credit method and is accrued annually. For the defined benefit plan, pension expenseincludes the cost of benefits provided, interest cost of projected benefits, return on pension plan assets, amortizationof the transitional asset, amortization of experience gains or losses and plan amendments. Adjustments arising fromplan amendments, experience gains or losses and changes in assumptions are amortized on a straight-line basis overthe expected average remaining service life of the employee group covered by the plan. Pension fund assets arevalued at market values.

General ReserveThe general reserve is created by appropriations from undivided earnings and is intended to enhance the financialstability of the Credit Union.

Revenue RecognitionThe Credit Union recognizes interest income on the accrual basis until such time as the loan is classified as impaired.

An impaired loan is any loan where, in management’s opinion, there has been a deterioration of credit quality to theextent that the Credit Union no longer has a reasonable assurance as to the timely collection of the full amount of theprincipal and interest. In addition, any loan where payment is contractually past due 90 days is classified as impaired.

The Credit Union ceases to reflect interest in its operating results on an impaired loan once the loan is more than 90days in arrears.


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Financial InstrumentsThe Credit Union recognizes and measures financial assets and financial liabilities on the Balance Sheet when theybecome a party to the contractual provisions of a financial instrument. All transactions related to financial instrumentsare recorded on a trade date basis. All financial instruments are measured at fair value on initial recognition.Measurement in subsequent periods depends on whether the financial instrument has been classified as held-for-trading (“HFT”), loans and receivables (“LR”), held to maturity (“HTM”), available for sale (“AFS”) or other financialliabilities (“OFL”).

The following is a summary of the accounting model the Credit Union has elected to apply to each of its significantcategories of financial instruments outstanding at December 31, 2007:

Cash resources HFTAccrued interest receivable HFT, HTM, LR, AFSInvestments HFT, HTM, AFSLoans and mortgages LRAccounts payable OFLLiabilities to members OFLIndex linked term deposits HFT

Held for TradingFinancial instruments are classified under this category if they are:(i) acquired principally for the purpose of selling or repurchasing in the near term;(ii) part of a portfolio of identified financial instruments that are managed together and for which there is evidence

of a recent actual pattern of short-term profit-taking;(iii) a derivative, except for a derivative that is a financial guarantee contract or a designated effective hedging

instrument; or(iv) designated at fair value using the fair value option (“FVO”)

Financial instruments cannot be transferred into or out of the Held for Trading category after inception. Fordesignation at fair value using the FVO option, reliable fair values must be readily available.

Financial instruments included in this category are certain investments in equity instruments and debt instruments,standalone derivatives, other than those designated as hedging items and embedded derivatives requiringseparation.These instruments are recognized initially at fair value and transaction costs are taken directly to theStatement of Operations.They are subsequently measured at fair value and gains and losses arising from changes infair value of these instruments are recorded in the Statement of Operations.

Loans and ReceivablesLoans and receivables are non-derivative financial assets with fixed or determinable repayment dates, usually withinterest, that are not debt securities or instruments classified as held for trading on initial recognition.

These instruments are initially recognized at fair value including direct and incremental transaction costs.They aresubsequently valued at amortized cost using the effective interest method less any provision for impairment.

Held to MaturityHeld to maturity investments include financial assets with fixed or determinable payments that the Credit Union’smanagement has the intention and ability to hold to maturity.They are initially recognized at fair value includingdirect and incremental transaction costs.They are subsequently valued at amortized cost using the effective interestmethod less any provision for impairment.


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Available for SaleAvailable for sale assets are non-derivative financial assets that are designated as available for sale or are notcategorized into any of the other categories described above.They are initially recognized at fair value includingdirect and incremental transaction costs.They are subsequently recorded at fair value with gains and losses arisingfrom changes in fair value being recognized in other comprehensive income in the Statement of ComprehensiveIncome when they have a quoted market price in an active market. Where a decline in the fair value is determined tobe other than temporary, the amount of the loss is removed from other comprehensive income and recognized in theincome statement. Investments in equity instruments classified as available for sale that do not have a quoted marketprice in an active market are measured at cost less any provision for impairment.

Other Financial LiabilitiesOther financial liabilities are non-derivative financial liabilities.These instruments are initially recognized at fair valueincluding direct and incremental transaction costs.They are subsequently measured at amortized cost using theeffective interest method.

The fair value of a financial instrument is the amount of consideration that would be agreed upon in an arm’s-lengthtransaction between knowledgeable, willing parties who are under no compulsion to act. Fair values are determinedby reference to quoted bid or asking prices as appropriate, in the most advantageous active market for thatinstrument to which the Credit Union has immediate access.

Fair values determined using valuation models require the use of assumptions concerning the amount and timingof estimated future cash flows and discounted rates. In determining those assumptions, external readily observablemarket inputs including interest rate yield curves, currency rates and price and rate volatilities are considered,as applicable.

Derivative Financial InstrumentsDerivative financial instruments are contracts that require or provide the opportunity to exchange cash flows orpayments determined by applying certain rates, indices or changes therein to notional contract amounts.

The Credit Union, in accordance with its risk management strategies, enters into various derivative contracts such asindex linked term deposits, to protect itself against the risk of fluctuations in interest rates as well as to meet itscustomers’ demands and to earn trading income.

Comprehensive IncomeSince the Credit Union did not have any financial assets as available for sale as at year end (except for CUCO shareswhich are at cost), and designated the index linked term deposits as held for trading, the adoption of the standardsdid not have any impact on other comprehensive income.

Use of EstimatesThe preparation of financial statements in accordance with Canadian generally accepted accounting principlesrequires management to make estimates and assumptions that affect the reported amounts of assets and liabilitiesat the date of the financial statements and the reported amounts of revenue and expenses during the reportingperiod. Actual results could differ from management’s best estimates as additional information becomes available inthe future.

Notes to Financial StatementsDecember 31, 2007

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1. Change in Accounting Policy

On January 1, 2007 the Credit Union adopted five new accounting standards that were issued by the CanadianInstitute of Chartered Accountants (“CICA”).These standards were: Comprehensive Income (handbook “Section1530”), Financial Instruments – Recognition and Measurement (handbook “Section 3855”), Financial Instruments –Disclosure and Presentation (handbook “Section 3861”), Hedges (handbook “Section 3865”) and Equity(handbook “Section 3251”). The adoption of these new standards resulted in changes in the accounting forfinancial assets and liabilities, non-financial derivatives and hedge accounting (which is optional). Thecomparative amounts for prior periods have not been restated as required by the transition requirements.Theimpact of adopting these standards was immaterial to the financial statements as a whole and hence notransition adjustment has been recorded.The impact of adopting these standards on net income in the currentyear was also not significant.

2. Cash Resources2007 2006

Cash $ 1,344,540 $ 1,059,838Bank GICs and bankers’ acceptances,maturities within 100 days 3,344,086 6,114,490

$ 4,688,626 $ 7,174,328

3. Investments

2007 2006Investments consist of: Effective Effective(thousands of dollars) Rate Rate

Held to MaturityGovernment Bonds and Bankers Acceptances,market value $ 13,232,789 ($11,471,925 in 2006) $ 13,241,620 5% $ 11,455,763 6%

Credit Union Central of Ontario,market value $3,350,498 ($3,303,196 in 2006) 3,350,498 4% 3,303,196 4%

Held for TradingIndex Linked Deposit Derivative at fair value (Note 12) 277,007 – – –

Available for SaleCredit Union Central of Ontario – Shares, at cost 382,915 4% 283,131 5%

Other 1,260 –% 1,260 –%

384,175 –% 284,391 –%

$ 17,253,300 5% $ 15,043,350 5%


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3. Investments (Continued)

Under the terms of an agreement with CUCO, the Credit Union is required to maintain deposits and shares withCUCO representing 7% (5% as liquidity reserve deposits plus an additional 2% in other deposits) and 0.6%respectively, of the total deposits and shares of the Credit Union as at December 31 of each year. Under the termsof this agreement, adjustments are required to be made annually in proportion to the increase or decrease in thedeposits and shares.The deposits and shares will remain with CUCO until such time as membership is withdrawn.The carrying values of the liquidity reserve deposits and other deposits in CUCO all approximate fair values.Thefair value of the shares in CUCO and in the Co-operatives have no quoted market value, but managementbelieves that there is no permanent decline in any of these investments (treated as available for sale financialassets, recorded at cost). Dividends on CUCO shares are at the discretion of the Board of Directorsof CUCO.

4. Loans to Members

Member loans generally mature within five years.

Variable rate loans are normally based on a “prime rate plus” formula.The rate above prime is determined by thetype of security offered and the member’s credit worthiness.The Credit Union’s prime rate at December 31, 2007is 6.00%.The net carrying value of variable rate loans to members approximates their fair value.

The rate offered to a particular member on fixed rate loans varies with the type of security offered and themember’s credit worthiness.

Residential mortgages are secured by residential property and generally are repayable in monthly blendedpayments of principal and interest.

Personal loans consist of term loans and lines of credit and, as such, have various repayment terms. Some of thepersonal loans are secured by wage assignment and personal property, and others are secured by wageassignment only.

The loans to members had the following average yields at December 31, 2007:

2007Principal Yield

Variable rate $ 20,789,371 6.92%

Fixed rate with maturities within one year 889,201 5.27%

Fixed rate with maturities between one and five years 5,296,876 5.75%

$ 26,975,448

2006Principal Yield

Variable rate $ 21,198,578 7.12%

Fixed rate with maturities within one year 1,118,300 5.33%

Fixed rate with maturities between one and five years 2,869,603 5.41%

$ 25,186,481

5. Allowance for Impaired Loans2007

Personal First Second Non-specificLoans Mortgage Mortgage Provision Total

Balance, opening $ 23,705 $ – $ – $ 226,295 $ 250,000Recoveries on loans

previously written off 141 – – – 141Provision (reduction) charged

to operations 57,019 – – (26,401) 30,618Loans written off (30,759) – – – (30,759)

Balance, ending $ 50,106 $ – – $ 199,894 $ 250,000

Gross principal balance ofimpaired loans $ 50,106

2006

Personal First Second Non-specificLoans Mortgage Mortgage Provision Total

Balance, opening $ 37,490 $ – $ – $ 212,510 $ 250,000Recoveries on loans previously

written off 2,467 – – – 2,467Provision charged to operations 22,883 – – 13,785 36,668Loans written off (39,135) – – – (39,135)

Balance, ending $ 23,705 $ – $ – $ 226,295 $ 250,000

Gross principal balanceof impaired loans $ 26,489


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6. Income Taxes

The tax effects of temporary differences that give rise to significant portions of the future income tax assetsand liabilities are presented below:

2007 2006

Future income tax assetsCapital assets $ 29,000 $ 23,000Allowance for impaired loans 38,000 42,000

67,000 65,000Future income tax liabilities

Accrued employee benefit asset 15,000 19,000

Total net future income tax assets $ 52,000 $ 46,000

The income tax expense attributable to income before income taxes differs from the amounts computed byapplying the Canadian statutory rates of 18.6% (2006 - 18.6%) to pretax income as a result of the following:

2007 2006

Income tax expense atstatutory rates $ 39,455 18.6% $ 48,955 18.6%

Increase (decrease) in incometaxes resulting from:

Expenses deducted in the accountsthat have no correspondingdeduction for income taxes 2,092 1.0% 1,410 0.5%

Income tax contingency and other (339) (0.1%) (1,513) (0.5%)

$ 41,208 19.5% $ 48,852 18.6%

7. Capital Assets2007 2006

Accumulated Accumulated

Cost Amortization Cost Amortization

Computer equipment $ 229,956 $ 228,333 $ 229,956 $ 151,681Furniture and fixtures 22,353 13,412 22,353 8,941Leasehold improvements 150,174 90,104 150,174 60,070

$ 402,483 $ 331,849 $ 402,483 $ 220,692

Net book value $ 70,634 $ 181,791


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8. Employee Future Benefits

The Credit Union’s employees are eligible for membership under either a defined benefit pension plan or definedcontribution pension plan.

The pension expense for the current year for the defined benefit plan is $74,800 (2006 - $67,900). Contributions of$50,000 (2006 - $66,000) for past service and current costs were made by the Credit Union to the plan during theyear. Benefits paid from the defined plan during the year were $Nil (2006 - $Nil).

Information about the company’s defined benefit plan as at December 31 is as follows:

2007 2006Accrued Benefit ObligationBalance at the beginning of the year $ 2,273,500 $ 1,958,100Current service cost 103,600 92,900Employee contributions 15,700 15,300Interest expense 119,600 108,100Actuarial loss (gain) (172,300) 99,100

Balance, end of the year $ 2,340,100 $ 2,273,500

Plan Assets, at Fair ValueBalance, beginning of the year $ 2,055,100 $ 1,821,200Interest income 146,200 130,300Employer contributions 50,000 66,000Employee contributions 15,700 15,300Actuarial gain (loss) (110,500) 22,300

Balance, end of the year $ 2,156,500 $ 2,055,100

Funded statusPlan deficit for actuarial purposes $ (183,600) $ (218,400)Unamortized initial net asset (347,900) (391,400)Unamortized actuarial losses 589,900 690,600Unamortized past service costs 21,600 24,000

Accrued benefit asset for accounting purposes $ 80,000 $ 104,800

Retirement Plan ExpenseCurrent service cost $ 103,600 $ 92,900Interest income (net) (26,600) (22,200)Amortization of initial asset (43,500) (43,500)Amortization of net actuarial losses 38,900 38,300Amortization of past service costs 2,400 2,400

Total retirement plan expense $ 74,800 $ 67,900

The significant actuarial assumptions adopted in measuring theCredit Union’s accrued benefit obligations are as follows:

2007 2006

Discount rate 5.00% 5.00%Expected long-term rate of return on assets 7.00% 7.00%Rate of compensation increase 5.00% 5.00%Expected average remaining service life 12 years 12 years


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8. Employee Future Benefits (Continued)

The Credit Union contributes a percentage of employee salaries to the defined contribution pension plan.The amount of the expense for the year was $8,328 (2006 - $8,087).

9. Deposits2007 2006

Personal chequing $ 3,428,718 $ 3,090,041Super saver 14,980,696 14,535,366Other savings 5,509,226 5,466,018Term deposits 3,428,181 3,536,953Registered retirement savings plans and

registered retirement income funds (includes embedded derivative) * 16,154,596 15,724,907

$ 43,501,417 $ 42,353,285

* Embedded derivative of $277,007 less unamortized premiums of $95,237 (net amount - $181,770).

Term deposits outstanding as at December 31, 2007 yield interest at an average rate of 3.00%. Deposits acceptedat guaranteed interest rates may be withdrawn prior to maturity date with penalty. Maturities of term depositsare as follows:

2008 $ 2,343,4462009 595,0572010 179,6592011 –2012 310,019

$ 3,428,181

Included in interest expense on members’ deposits are the following:

2007 2006

Personal chequing $ 5,014 $ 4,879Super saver 346,158 260,960Other savings 8,030 7,825Term deposits 120,000 129,451Registered retirement savings plan and

registered retirement income funds 384,317 300,465

$ 863,519 $ 703,580


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10. Rebates Due to Members

Member loan interest and fee rebates are determined annually at the discretion of the Board of Directors.

11. Members’ Shares

As a condition of membership, each member is required to hold membership shares.These membership shares aresubscribed for at a par value of $5 per share. In accordance with the by-laws of the Credit Union, every member ofthe Credit Union is required to hold 5 shares.These membership shares are redeemable at cost only when amembership is withdrawn.

12. Index-Linked Term Deposits

The Credit Union has outstanding $1,752,363 (2006 - $1,047,366) in Index-Linked Term Deposits to its members.Thistotal has been included in Note 15.The Index-Linked Term Deposits are three and five year deposits that pay interestat the end of the term, based on the performance of a variety of indices.

The Credit Union has entered into hedge agreements with Credit Union Central of Ontario to offset the exposure tothe indices associated with this product, whereby the Credit Union pays a fixed rate of interest annually for the termof each Index-Linked Term Deposit on the face value of the deposits sold. At the end of the term, the Credit Unionreceives an amount equal to the amount that will be paid to the depositors, based on the performance of theindices.The embedded derivative associated with these deposits is presented in member deposits and has a fairvalue of $277,007 (see Note 9) with a corresponding asset included in investments (Note 3).

13. Commitments and Contingencies

(a) The Credit Union is committed to advance approximately $6,193,000 (2006 - $5,670,000) for unused lines ofcredit issued on behalf of its members.

(b) A comprehensive credit facility is maintained with Central with authorized lines of credit totalling $957,000(2006 - $1,202,000), secured by a registered assignment of book debts and a general security agreement. AtDecember 31, 2007, the Credit Union’s indebtedness under this line was $Nil (2006 - $Nil).

(c) The Credit Union rents office space and equipment for which the minimum rental commitments for thenext three years are approximately as follows:

2008 $ 13,8652009 14,1402010 8,342

$ 36,347

The leases for branch office space expire July 31, 2010.

(d) The Credit Union is committed to advance loans totalling $87,530 (2006 - $185,685).

(e) The Credit Union participates in a technology services agreement along with other credit unions under amaster agreement expiring December 31, 2013 with charges based on volume and rate increases basedprimarily on changes in the Consumer Price Index.

14. Restricted Parties

Restricted parties include all directors and officers, as well as their spouses and immediate dependent family. AtDecember 31, 2007, loans, including mortgages loans, to these restricted parties totalled $449,000 (2006 - $416,000).None of the loans to restricted parties were impaired at December 31, 2007.

The Credit Union does not give interest rate discounts on loans and mortgages to restricted parties.


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15. Estimated Fair Value of Financial Instruments

Fair values for items that are short-term in nature approximate their book value.These include cash resources,accrued interest receivable and accounts payable. Estimated fair values of investments, loans and mortgages anddeposits are summarized as follows:

2007Book Value Fair Value Difference

Investments $ 17,253,300 $ 17,521,476 $ (268,176)Loans and mortgages 26,975,448 26,731,377 244,071Members deposits (43,501,417) (43,857,029) 355,612

$ 727,331 $ 395,824 $ 331,507

2006

Book Value Fair Value Difference

Investments $ 15,043,350 $ 15,059,512 $ (16,162)

Loans and mortgages 25,186,481 24,975,332 211,149

Members deposits (42,353,285) (42,397,796) 44,511

$ (2,123,454) $ (2,362,952) $ 239,498

Estimated fair values are determined as follows:

Investments are valued using quoted market prices where available while carrying values are used where noready market values are available.

Loans and mortgages and deposits are valued using a discounted cash flow calculation that uses interest ratescurrently offered for loans and mortgages and deposits with similar risk characteristics.

16. Regulatory Capital (Ontario)

The Credit Unions and Caisses Populaires Act (1994) requires theCredit Union to maintain regulatory capital at the following levels:

% of risk% of total weighted

assets assets

5% 8%

As at December 31, 2007, the Credit Union is in compliance with the Actand regulations regarding regulatory capital:

December 312007

Membership shares $ 195,125

Reserves and undivided earnings 4,672,324

Total regulatory capital $ 4,867,449

% of total assets 10%

% of total risk weighted assets 23%


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17. New Accounting Pronouncements

Recent accounting pronouncements that have been issued but are not yet effective, and have a potentialimplication for the Credit Union, are as follows:

Capital Disclosures

CICA Handbook Section 1535, Capital Disclosures, requires disclosure of an entity’s objectives, policies andprocesses for managing capital, quantitative data about what the entity regards as capital and whether theentity has complied with any capital requirements and, if it has not complied, the consequences of suchnon-compliance.This standard is effective for interim and annual financial statements relating to fiscalyears beginning on or after October 1, 2007.The Credit Union is currently assessing the impact of thenew standard.

Financial Instruments – Disclosures and Presentation

CICA Handbook Section 3862, Financial Instruments - Disclosure, increases the disclosures currentlyrequired to enable users to evaluate the significance of financial instruments for an entity’s financialposition and performance, including disclosures about fair value. CICA Handbook Section 3863 replaces theexisting requirements on the presentation of financial instruments, which have been carried forwardunchanged.These standards are effective for interim and annual financial statements relating to fiscal yearsbeginning on or after October 1, 2007.The Credit Union is currently evaluating the impact of the adoptionof these changes on the disclosure and presentation within its financial statements.

General Standards on Financial Statement Presentation

CICA Handbook Section 1400, General Standards on Financial Statement Presentation, has been amendedto include requirements to assess and disclose an entity’s ability to continue as a going concern.Thechanges are effective for interim and annual financial statements beginning on or after January 1, 2008.The Credit Union does not expect the adoption of these changes to have a material impact on itsfinancial statements.

International Financial Reporting Standards

The CICA will converge Canadian GAAP with International Financial Reporting Standards (“IFRS”) effectiveJanuary 1, 2011.The impact of the transition to IFRS on the Credit Union’s financial statements has yet tobe determined.

NEW CITY HALL100 QUEEN ST. WP.O. BOX 30, TORONTO, ON M5H 2N2

ETOBICOKE BRANCH2 CIVIC CENTRE COURTMAIN FLOORETOBICOKE, ONTARIOM9C 5A3

‘07€¦ · frank dicresce anne dimarco james finlayson christopher foley john gilpin kenneth...

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