Financial Statements of NATIONAL BUILDING SOCIETY OF CAYMAN. March 31, 2015

Transcription

1 CAYMAN ISLANDS Supplement No. 1 published with Extraordinary Gazette No. 61 dated 14 August Financial Statements of NATIONAL BUILDING SOCIETY OF CAYMAN

2 Financial Statements of NATIONAL BUILDING SOCIETY OF CAYMAN 2

3 Table of Contents Page Independent Auditors Report to the Directors 1-2 Statement of Financial Position 3 Statement of Profit or Loss and Other Comprehensive Income/(Loss) 4 Statement of Changes in Shareholders Equity 5 Statement of Cash Flows 6 Notes to Financial Statements 7-36 Schedule A Section 21 Building Societies Law (2014 Revision) Disclosure 37 3

4 Statement of Financial Position As at Notes Assets Cash and cash equivalents 3 2,336,219 1,983,566 Loans, net 4,15 34,142,511 34,610,902 Interest receivable ,688 32,753 Due from related companies 15 72,155 86,023 Investments in debt securities 5,15 10,788,864 10,681,955 Other receivables 6 585, ,110 Property and equipment 7 2,772,396 2,880,002 Total assets CI$ 50,799,077 50,552,311 Liabilities and shareholders equity Liabilities Savings and investment shares 8,15 44,920,422 45,493,506 Interest payable 9,15 445, ,781 Other payables 458,130 67,164 45,823,605 45,944,451 Shareholders equity Paid-up proprietary shares 10 1,579,950 1,579,950 Special proprietary shares Series A , ,000 Contributed capital 11 1,361,978 1,361,978 Credit loss reserve 4,12 2,964,821 1,034,907 (Accumulated deficit)/retained earnings (1,231,277) 331,025 4,975,472 4,607,860 Total liabilities and shareholders equity CI$ 50,799,077 50,552,311 See accompanying notes to financial statements. Approved on behalf of the Board of Directors on June 30, 2015 Director Print name Director Print name 4

5 Statement of Profit or Loss and Other Comprehensive Income/(Loss) Year ended Notes Interest income Interest on loans 15 2,230,914 1,825,965 Interest from investments in debt securities 298, ,433 Other interest income 4,427 5,783 2,533,759 2,100,181 Interest expense Interest on savings and investment shares 15 (1,523,984) (1,503,981) Other interest and bank charges (35,608) (46,580) Net interest income before provisions and other items 974, ,620 Increase in provision for loan losses 4 (45,361) (626,919) Net income/(loss) after provisions and before other items 928,806 (77,299) Other income 13,15 843, ,002 Operating expenses 14,15 (1,404,560) (1,285,647) Net profit (loss), being comprehensive income/(loss) for the year CI$ 367,612 (436,944) See accompanying notes to financial statements. 5

6 Statement of Changes in Shareholders Equity Year ended Note Paid-up Special Contributed Credit Total proprietary proprietary capital loss Retained shareholders shares shares Series A reserve earnings equity Balances at March 31, ,579, , ,518 1,486,358 3,682,826 Transfer to credit loss reserve ,389 (718,389) - Total comprehensive loss for the year (436,944) (436,944) Contributed capital arising from 11 common control sale of associate - - 1,361, ,361,978 Balances at March 31, 2014 CI$ 1,579, ,000 1,361,978 1,034, ,025 4,607,860 Transfer to credit loss reserve ,929,914 (1,929,914) - Total comprehensive income for the year , ,612 Balances at CI$ 1,579, ,000 1,361,978 2,964,821 (1,231,277) 4,975,472 See accompanying notes to financial statements. 6

7 Statement of Cash Flows Year ended Note Operating activities Net profit/(loss) for year 367,612 (436,944) Adjustments for: Increase/(decrease) in provision for loan losses (45,361) 626,919 Depreciation 7 128, ,056 Changes in operating assets and liabilities: Loans, net 2,998, ,027 Interest receivable (68,935) 136,898 Due from related companies 13,868 (196,926) Other receivables (308,134) 43,897 Savings and investment shares (573,084) (792,288) Interest payable 61,271 (57,549) Other payables 390,965 (328,925) Net Cash from operating activities 2,964,824 53,165 Investing activities Investments in debt securities (106,909) (5,243,319) Proceeds from disposal of investment in associate - 2,753,110 Purchases of property and equipment (20,596) (90,070) Loan repurchased from JNBS 15 (2,484,666) - Net cash used in investing activities (2,612,171) (2,580,279) Net increase/(decrease) in cash and cash equivalents during year 352,653 (2,527,114) Cash and cash equivalents at beginning of year 1,983,566 4,510,680 Cash and cash equivalents at end of year 3 CI$ 2,336,219 1,983,566 Supplemental information on cash flows from operating activities: Interest received CI$ 2,440,501 2,237,079 Interest paid CI$ 1,498,321 1,608,110 See accompanying notes to financial statements. 7

8 Notes to Financial Statements 1. Incorporation and background information National Building Society of Cayman (the Society ) was incorporated under the Building Societies Law (Revised) of the Cayman Islands on October 5, As at the year end the Society s principal activities are granting home loans and operating savings share accounts in the Cayman Islands. The majority shareholder of the Society is Jamaica National Building Society ( JNBS, Parent Society ). JNBS is committed to providing financing to support the Society s operations. The registered office of the Society is 29 Elgin Avenue, George Town, Grand Cayman, Cayman Islands. The Society s management authorizes the issuance of these financial statements on June 30, Significant accounting policies These financial statements are prepared in accordance with International Financial Reporting Standards ( IFRS ) and interpretations as issued by the International Accounting Standards Board ( IASB ). The accounting policies have been applied consistently by the Society. The significant accounting policies adopted by the Society are as follows: (a) Basis of preparation The functional and presentation currency of the financial statements is the Cayman Islands dollar, the local currency of the Cayman Islands, reflecting the fact that the Society s operations are primarily conducted using this currency. Certain new, revised and amended standards and interpretations came into effect during the current financial year. They did not have any significant effect on the financial statements, and, based on the Society s current operations, none of them are expected to have any impact on the amounts and disclosures in the financial statements. The financial statements have been prepared on a going concern basis, with historical cost accounting being applied, except for loans, investments in debt securities, which are measured at amortised cost using the effective interest rate method, less impairment, if any. (b) Use of estimates and judgements The preparation of these financial statements in accordance with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, income and expenses. Actual results could differ from those estimates. 7

9 2. Significant accounting policies (continued) (b) Use of estimates and judgements (continued) Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. Judgements made by management in the application of IFRS that have a significant effect on the financial statements are discussed below: (i) Allowance for impairment losses In determining amounts recorded for impairment losses on loans and receivables in the financial statements, management makes judgements regarding indicators of impairment, that is, whether there are indicators that suggest there may be a measurable decrease in the estimated future cash flows from receivables, for example, default and adverse economic conditions. Management also makes estimates of the likely estimated future cash flows of impaired loans and receivables as well as the timing of such cash flows. Historical loss experience is applied where indicators of impairment are not observable on individual significant loans and receivables with similar characteristics, such as credit risks. (ii) Residual value and expected useful life of property, plant & equipment The residual value and the expected useful life of an asset are reviewed at each financial year-end, and, if expectations differ from previous estimates, the change is accounted for. The useful life of an asset is defined in terms of the asset s expected utility by the Society. It is probable that outcomes within the next financial year may require material adjustments to the assumptions and carrying amounts reflected in the financial statements. (c) Foreign currency translation Transactions in foreign currencies are translated at the foreign exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the statement of financial position date are translated to Cayman Islands dollars at that date. Foreign exchange differences arising on translation are recognised in the profit or loss and other comprehensive income/(loss). Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to Cayman Islands dollars at the date that the values are determined. 8

10 2. Significant accounting policies (continued) (d) Financial instruments (i) Classification A financial asset is any asset that is cash, a contractual right to receive cash or another financial asset, exchange financial instruments under conditions that are potentially favourable or an equity instrument of another enterprise. Financial assets comprise cash and cash equivalents, loans, interest receivable, due from related companies, investments in debt securities and other receivables. A financial liability is any liability that is a contractual obligation to deliver cash or another financial asset or to exchange financial instruments with another enterprise under conditions that are potentially unfavourable. Financial liabilities comprise savings and investment shares, interest payable and other payables. (ii) Recognition The Society recognises financial assets and financial liabilities on the date it becomes a party to the contractual provisions of the instrument. (iii) Measurement Financial instruments are measured initially at cost which is the fair value of the consideration given or received. Subsequent to initial recognition all financial instruments are carried at amortised cost using the effective interest rate method, less impairment, if any. For all financial instruments, except loans and investment shares, amortized cost is considered to approximate fair value due to the short-term or immediate nature of these instruments. (iv) Specific instruments Cash and cash equivalents Cash and cash equivalents are shown at cost. They comprise cash in hand and cash held in current accounts with original maturities of less than 3 months. These are subject to an insignificant risk of changes in value, and are held for the purposes of meeting short-term commitments, rather than for investment purposes. Loans, net Mortgage loans are categorised as loans and receivables and are carried at amortised cost net of any provisions for impairment of such loans. When loans cannot be recovered, they are written off and charged against the bad debt expense; however this may not occur until all the necessary legal proceedings have been completed and the amount of the loss is finally determined. In certain cases, they are written off when the borrower has consistently defaulted on their monthly repayments, and management deem the amounts irrecoverable. In assessing each loan, securities held as collateral and other factors such as business and economic conditions are taken into account. 9

11 2. Significant accounting policies (continued) (d) Financial instruments (continued) (iv) Specific instruments (continued) Investments in debt securities The Society s investments in debt securities are categorised as loans and receivables and are carried in the statement of financial position at amortised cost using the effective interest method less any impairment losses as per IAS 39. (v) Derecognition Financial assets The Society derecognises a financial asset only when the contractual rights to the cash flows from the financial asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. The difference between the carrying amount of the financial asset derecognised and the consideration received or receivable is recognised in the statement of profit or loss and other comprehensive income/(loss). Financial liabilities The Society derecognises financial liabilities when, and only when, the Society s obligations are discharged, cancelled, or they expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid or payable is recognised in the profit or loss and other comprehensive loss. (vi) Identification and measurement of impairment: The carrying amounts of the Society s financial assets are reviewed at each reporting date to determine whether there is objective evidence that financial instruments not carried at fair value through profit or loss are impaired. Financial assets are impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset, and the loss event has an impact on the future cash flows of the asset that can be estimated reliably. If any such indication exists, the asset s recoverable amount is estimated at each reporting date. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. Objective evidence that financial assets are impaired include default or delinquency by a borrower, restructuring of a loan or advance by the Society on terms that the Society would not otherwise consider, adverse changes in the payment status of the borrowers or issuers, indications that a debtor or issuer will enter into bankruptcy or observable data indicating that there is measurable decrease in expected cash flows from a group of financial assets. 10

12 2. Significant accounting policies (continued) (d) Financial instruments (continued) The Society considers evidence of impairment at both a specific asset and collective level. All individually significant financial assets are assessed for impairment. All significant assets found not to be specifically impaired are then collectively assessed for any impairment incurred but not yet identified. Assets that are not individually significant are then collectively assessed for impairment by grouping together financial assets (carried at amortised cost) with similar risks. In assessing collective impairment, the Society uses historical information of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical trends. Impairment losses on assets carried at amortised cost are measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the asset s original effective interest rate. Impairment losses are recognised in profit or loss and reflected in bad debt expense. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. (vii) Interest income and expense Interest income and expense are recognised in the profit or loss and other comprehensive loss on an accruals basis unless the collection of income is considered doubtful, in which case interest income are not accrued and are taken into account on a cash basis. (e) Property and equipment Property and equipment are stated at cost less accumulated depreciation and are depreciated on a straight-line basis at the following annual rates which are estimated to write-off the cost of these assets to their residual values over the period of their expected useful lives: Buildings Motor vehicles Leasehold improvements Computer software Computer hardware Furniture and fittings Office equipment 2.5% per annum 20% per annum 33% per annum 33% per annum 33% per annum 10% per annum 10% per annum The depreciation/amortisation methods, useful lives and residual values are reassessed at each reporting date. 11

13 2. Significant accounting policies (continued) (f) Provisions and contingencies (i) Provisions A provision is recognised when the Society has a legal or constructive obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate of the amount can be made. If the effect is material, provisions are determined by discounting the expected future cash flows at a pretax discount rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. (ii) Contingencies When it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability unless the probability of outflow of economic benefits is remote. Contingent assets are not recognised in the financial statements but are disclosed when an inflow of economic benefits is probable. (g) Credit loss reserve (h) Taxation The credit loss reserve is maintained at a level considered adequate to create a general provision for probable credit losses and is based on management s evaluation of individual loans in the credit portfolio. The evaluation takes all relevant matters into consideration, including prevailing and anticipated business and economic conditions, the collateral held, the debtor s ability to repay the loan and any loan on which interest payments and principal repayments are ninety or more days in arrears. The credit loss reserve is a reserve apportioned from the retained earnings. This credit loss reserve is in excess of provision for loan losses determined under IFRS and is based on prudent assessment by the Society of adverse economic trends and losses inherent in its loan portfolio. The Cayman Islands levies no taxes on income or gains. (i) Employee benefits Employee benefits comprise all forms of consideration given by the Society in exchange for services rendered by employees. These include current or short-term benefits such as salaries, statutory contributions paid, annual vacation leave and sick leave. Short-term employee benefits are recognised in profit or loss. The expected cost of vacation leave that accumulates is recognised over the period that the employee becomes entitled to the leave. Obligations for contributions to the defined contribution pension scheme are recognised as an expense as incurred. 12

14 2. Significant accounting policies (continued) (j) Related parties A related party is a person or entity that is related to the entity that is preparing its financial statements (referred to in IAS 24, Related Party Disclosures as the reporting entity in this case, the Society). (A) A person or close member of that person s family is related to a reporting entity if that person: (i) has control or joint control over the reporting entity; (ii) has significant influence over the reporting entity; or (iii) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity. (B) An entity is related to a reporting entity if any of the following conditions applies: (i) The entity and the reporting entity are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others). (ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the entity is a member). (iii) Both entities are joint ventures of the same third party. (iv) One entity is a joint venture of a third party and the other entity is an associate of the (v) third party. The entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to the reporting entity. (vi) The entity is controlled, or jointly controlled by a person identified in (A). (vii) A person identified in (A) (i) has significant influence over the entity or is a member of the key management personnel of the entity (or a parent of the entity). A related party transaction is a transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged. 13

15 2. Significant accounting policies (continued) (k) Standards adopted during the year ended Certain new, revised and amended standards and interpretations came into effect during the current financial year. The Society has assessed them and has adopted those which are relevant to its financial statements, namely: Amendments to IAS 32, Offsetting of Financial Assets and Financial Liabilities which is effective for annual reporting periods beginning on or after January 1, 2014, clarifies those conditions needed to meet the criteria specified for offsetting financial assets and liabilities. It requires the entity to prove that there is a legally enforceable right to set off the recognised amounts. Conditions such as whether the set off is contingent on a future event and the nature and right of set-off and laws applicable to the relationships between the parties involved should be examined. Additionally, to meet the criteria, an entity should intend to either settle on a net basis or to realise the asset and settle the liability simultaneously. The adoption of this amendment did not result in any change to the presentation and disclosures in the financial statements. (l) New accounting standards and interpretations not yet effective Certain new, revised and amended standards and interpretations have been issued which are not yet effective for the current year and which the Society has not early-adopted. The Society has assessed the relevance of all such new standards, amendments and interpretations with respect to the Society s operations and has determined that the following are likely to have an effect on the financial statements: IFRS 15, Revenue From Contracts With Customers, effective for accounting periods beginning on or after January 1, 2017, replaces IAS 11-Construction Contracts, IAS 18 -Revenue, IFRIC 13 -Customer Loyalty Programmes, IFRIC 15 -Agreements for the Construction of Real Estate, IFRIC 18- Transfer of Assets from Customers and SIC-31 Revenue Barter Transactions Involving Advertising Services. It does not apply to insurance contracts, financial instruments or lease contracts, which fall in the scope of other IFRSs. It also does not apply if two companies in the same line of business exchange non-monetary assets to facilitate sales to other parties. The Society will apply a five-step model to determine when to recognise revenue, and at what amount. The model specifies that revenue should be recognised when (or as) an entity transfers control of goods or services to a customer at the amount to which the entity expects to be entitled. Depending on whether certain criteria are met, revenue is recognised at a point in time, when control of goods or services is transferred to the customer; or over time, in a manner that best reflects the entity s performance. 14

16 There will be new qualitative and quantitative disclosure requirements to describe the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. 15

17 2. Significant accounting policies (continued) (l) New accounting standards and interpretations not yet effective (continued) The Society is assessing the impact that the standard will have on its 2018 financial statements. IFRS 9, Financial Instruments (is effective for accounting periods beginning on or after January 1, 2018). The standard retains but simplifies the mixed measurement model and establishes two primary measurement categories for financial assets: amortised cost and fair value. It eliminates the existing IAS 39 categories of held to maturity, available-for-sale and loans and receivables. For an investment in an equity instrument which is not held for trading, the standard permits an irrevocable election, on initial recognition, to present all fair value changes from the investment in other comprehensive income. The standard includes guidance on classification and measurement of financial liabilities designated as fair value through profit or loss and incorporates certain existing requirements of IAS 39, Financial Instruments: Recognition and Measurement on the recognition and de-recognition of financial assets and financial liabilities. The Society is assessing the impact the standard will have on its 2019 financial statements. Amendments to IAS 16 and IAS 38, Clarification of Acceptable Methods of Depreciation and Amortisation, are effective for accounting periods beginning on or after January 1, The amendment to IAS 16, Property, Plant and Equipment explicitly states that revenue-based methods of depreciation cannot be used. This is because such methods reflect factors other than the consumption of economic benefits embodied in the assets. The amendment to IAS 38, Intangible Assets introduces a rebuttable presumption that the use of revenue-based amortisation methods is inappropriate for intangible assets. The Society is assessing the impact that these amendments will have on its 2017 financial statements. Improvements to IFRS and cycles contain amendments to certain standards and interpretations and are effective for accounting periods beginning on or after July 1, The main amendments applicable to the Society are as follows: IFRS 13, Fair Value Measurement is amended to clarify that issuing of the standard and consequential amendments to IAS 39, and IFRS 9, did not intend to prevent entities from measuring short-term receivables and payables that have no stated interest rate at their invoiced amounts without discounting, if the effect of not discounting is immaterial. 16

18 2. Significant accounting policies (continued) (l) New accounting standards and interpretations not yet effective (continued) Improvements to IFRS and (continued) IAS 16, Property, Plant and Equipment and IAS 38, Intangible Assets. The standards have been amended to clarify that, at the date of revaluation: (i) the gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount of the asset and the accumulated depreciation (amortisation) is adjusted to equal the difference between the gross carrying amount and the carrying amount of the asset after taking account of accumulated impairment losses or (ii) the accumulated depreciation (amortisation) is eliminated against the gross carrying amount of the asset. IAS 24, Related Party Disclosures has been amended to extend the definition of related party to include a management entity that provides key management personnel services to the reporting entity, either directly or through a group entity. For related party transactions that arise when key management personnel services are provided to a reporting entity, the reporting entity is required to separately disclose the amounts that it has recognised as an expense for those services that are provided by a management entity; however, it is not required to look through the management entity and disclose compensation paid by the management entity to the individuals providing the key management personnel services. The Society is assessing the impact that these standards will have on its 2016 financial statements. Improvements to IFRS cycle, contain amendments to certain standards and interpretations and are effective for accounting periods beginning on or after January 1, The main amendment applicable to the Society is as follows: IFRS 7, Financial Instruments: Disclosures, has been amended to clarify when servicing arrangements are in the scope of its disclosure requirements on continuing involvement in transferred assets in cases when they are derecognised in their entirety. A servicer is deemed to have continuing involvement if it has an interest in the future performance of the transferred asset e.g. if the servicing fee is dependent on the amount or timing of the cash flows collected from the transferred financial asset; however, the collection and remittance of cash flows from the transferred asset to the transferee is not, in itself, sufficient to be considered continuing involvement. The Society is assessing the impact that these standards will have on its 2017 financial statements. NATIONAL BUILDING SOCIETY OF CAYMAN 17

19 2. Significant accounting policies (continued) (k) New accounting standards and interpretations not yet effective (continued) IAS 1, Presentation of Financial Statements, effective for accounting periods beginning on or after January 1, 2016 has been amended to clarify or state the following: (i) specific single disclosures that are not material do not have to be presented even if they are a minimum requirement of a standard; (ii) the order of notes to the financial statements is not prescribed; (iii) line items on the statement of financial position and the statement of profit or loss and other comprehensive income (OCI) should be disaggregated if this provides helpful information to users. Line items can be aggregated if they are not material; (iv) specific criteria is now provided for presenting subtotals on the statement of financial position and in the statement of profit or loss and OCI with additional reconciliation requirements for the statement of profit or loss and OCI; and (v) the presentation in the statement of OCI of items of OCI arising from joint ventures and associates are accounted for using the equity method follows IAS 1 approach of splitting items that may, or that will never, be classified to profit or loss. The Society is assessing the impact that this amendment will have on its 2017 financial statements. 3. Cash and cash equivalents Cash at bank 2,197,581 1,854,389 Cash in hand 138, ,177 CI$ 2,336,219 1,983,566 Cash at bank include deposits with Cayman National Bank and Royal Bank of Canada, both of which are large financial institutions located in the Cayman Islands. 18

20 4. Loans and interest receivable Loans, gross 36,916,244 37,515,526 Provision for loan losses (2,773,733) (2,904,624) Loans, net CI$ 34,142,511 34,610,902 Loans are repayable in monthly instalments of principal and interest, and are primarily secured by a first charge on real estate in the Cayman Islands. CI$61,994 (2014: CI$193,412) of loans outstanding at are secured by savings and investment shares. Of the loans outstanding as at, 16.13% (2014: 16.82%) are repayable in United States dollars with the remaining loans being repayable in Cayman Islands dollars. The Cayman Islands dollar is pegged to the United States dollar at CI$1 = US$1.20. Consistent with most building societies with similar lending and deposit-taking activities, the management of mismatched maturity positions is ultimately based on management s reasonable expectations of future events. It is reasonably possible that the expectations associated with these amounts could change in the near term (i.e. within one year) and that the effect of such changes could be material to the financial statements. It is management s belief that the Society s cash and cash equivalents together with maturing loans will be sufficient to cover any net withdrawal from savings or investment shares over the next twelve months. As at, there were 229 loans (2014: 243 loans) outstanding and 22 (2014: 13) that were over one year in arrears. As at the principal amount of the loans which were in arrears for over one year was CI$4,878,677 (2014: CI$2,835,681). Loans which were in arrears for more than 90 days but less than one year amounted to CI$4,762,612 (2014: CI$6,998,945). The Society has legal cases outstanding in its normal course of business. The Directors have determined that the provision for loan losses is adequate as at. The actual amounts ultimately collected are subject to the impact of future changes in business and economic conditions as well as other factors. The ultimate loan losses incurred by the Society may vary significantly from the estimated amounts included in the financial statements and the differences could be material. The estimates are continuously reviewed and, as adjustments to these provisions become necessary, they are reflected in current operations. 19

21 4. Loans and interest receivable (continued) As at, the Directors have also determined that interest receivable of CI$2,270,369 (2014: CI$1,695,171) has been placed on a non-accrual status. The Society manages certain loans on behalf of JNBS. These are loans that were originally granted by the Society but have since been sold to JNBS over the past several years, and as such are no longer included within the loan portfolio of the Society. There were no additional loan sales to JNBS during the year ended. However, a total of $2,484,666 loans were repurchased from JNBS (2014: 0) during the year. As at, the total value of the loan portfolio owned by JNBS but managed by the Society was CI$8,482,857 (2014: CI$12,253,138). The Society is paid a management fee by JNBS for managing these loans. During the year ended, the Society received a management fee of CI$494,262 (2014: CI$630,307), which is included within commissions and service charges in the statement of profit or loss and other comprehensive income/(loss). (a) Loan portfolio Loan portfolio, less provision for loan losses, is as follows: Mortgage loans 34,080,517 34,417,489 Share loans 61, ,413 CI$ 34,142,511 34,610,902 The Society s mortgage loan agreements include the right to call mortgages at any time with six months notice, except for new loans, which cannot be called until six months after the issue date. (b) Loans, gross maturity profile The maturity profile of the loans is as follows: Within 3 months 5, ,809 3 months to 1 year 21,164 43,398 1 year to 5 years 506, ,206 5 years and over 36,382,708 36,640,113 CI$ 36,916,244 37,515,526 20

22 4. Loans and interest receivable (continued) (c) Concentration The Society s loan portfolio, less provision for losses, is concentrated as follows: Number of loans CI$ Number of loans CI$ Professional and other services 3 417, ,498,114 Individuals ,725, ,112, ,142, ,610,902 (d) Impaired loans The Society s loans portfolio, sorted by impairment, is as follows: Loans neither past due nor impaired 23,944,722 20,631,297 Past due but not impaired 30 to 59 days 1,681,417 5,538, to 89 days 1,648,816 1,510,923 Individually impaired 90 to 180 days 1,437,417 1,797, to 365 days 3,325,195 5,201, to 18 months 2,199,271 1,890,444 Over 18 months 2,679, ,237 Less provision for loan losses (2,773,733) (2,904,624) Loans, net CI$ 34,142,511 34,610,902 Loans and advances on which interest is no longer accrued amounted to CI$12,971,522 (2014: CI$12,142,945) and represents 35.14% (2014: 32.37%) of the gross loans portfolio. These loans are included in the financial statements net of provision for loan losses. 21

23 4. Loans and interest receivable (continued) (e) Provision for loan losses The movement in the provision for loan losses is as follows: At beginning of the year 2,904,624 2,368,106 Increase in provision for loan losses 45, ,919 Bad debts written off during the year (176,252) (90,401) Balance at end of the year CI$ 2,773,733 2,904,624 The total provision and reserve against loans is broken down as follows: Provision for loan losses 2,773,733 2,904,624 Credit loss reserve (Note 12) 2,964,821 1,034,907 CI$ 5,738,554 3,939, Investments in debt securities Certificate of deposit with JNBS (Note 15) 9,552,486 9,474,173 Repurchase agreement 1,036,414 1,013,042 Cayman Islands Development Bank bonds 166, ,000 Interest receivable on USD$ investments 30,612 26,704 Interest receivable on certificate of deposit 3,352 2,036 CI$ 10,788,864 10,681,955 Certificate of deposit with JNBS includes a Great Britain Pound Sterling Certificate of Deposit of CI$ 3,350,271 (2014: CI$4,266,549). It carries interest at 2.5% per annum and will mature on June 06, In addition, certificate of deposit with JNBS includes United States Dollars Certificate of Deposit of CI$ 4,337,632, CI$ 1,020,838 and CI$843,745 (2014: CI$5,207,624)) with interest at 3%, 2.5% and 2% and will mature on April 17, 2015, April 22, 2015 and April 10, 2015, respectively. As at and 2014, the Society held two US$100,000 (CI$83,000) Cayman Islands Development Bank variable rate development bonds with interest rates of. 22

24 5. Investments in debt securities (continued) US$ 6-month LIBOR +2.75% and % and maturity date of June 30, The timely payment of principal and interest are guaranteed by the Cayman Islands Government. 6. Other receivables Prepayments 27,243 35,597 Miscellaneous receivables 558, ,513 CI$ 585, ,110 Miscellaneous receivables consist primarily of mortgage late fees receivable, loan fees receivable and staff advances. 23

25 7. Property and equipment Motor Leasehold Computer Computer Furniture and Office Buildings vehicles improvements software hardware fittings equipment Total Cost: March 31, ,016,118 38, ,603 85, , ,430 76,050 3,792,146 Additions 29,740 23, ,818 28,036 3,664 90,070 March 31, ,045,858 61, ,603 85, , ,466 79,714 3,882,216 Additions ,783 5,631 13,182 20,596 3,045,858 61, ,603 85, , ,097 92,896 3,902,812 Depreciation: March 31, ,014 21, ,603 63, , ,888 47, ,158 Charge for year 75,775 10,410-8,960 9,167 15,674 4, ,056 March 31, ,789 32, ,603 72, , ,562 51,232 1,002,214 Charge for year 76,890 12,360-8,982 3,554 21,295 5, , ,679 44, ,603 81, , ,857 56,353 1,130,416 Net book values at CI$ 2,621,179 17,271-4,127 4,036 89,240 36,543 2,772,396 Net book values at March 31, 2014 CI$ 2,698,069 29,631-13,109 5, ,904 28,482 2,880,002 24

26 8. Savings and investment shares (a) Savings and investment shares maturity profile Savings shares are repayable on demand and have no voting rights. Investment shares are repayable upon maturity and have no voting rights. The maturity distribution of the savings and investment shares is as follows: On demand 3,468,337 3,454,136 Within one year 41,431,941 42,007,226 Over one year 20,144 32,144 CI$ 44,920,422 45,493,506 As at, savings shares of 2.03% (2014: 1.98%) and investment shares of 79.67% (2014: 78.26%) are denominated in United States dollars and 7.36% (2014: 9.33%) of total savings and investment shares are denominated in British pounds. The remaining savings and investment shares are denominated in Cayman Islands dollars. (b) Concentration The Society s savings and investment shares portfolio is concentrated as follows: Number of accounts CI$ Number of accounts CI$ Public Authorities 8 586, ,002 Financial Institutions 16 6,394, ,641,492 Commercial and business 27 72, ,627 Individuals 2,191 37,866,949 2,452 39,218,385 2,242 44,920,422 2,501 45,493, Interest payable Savings shares and investment shares 445, ,781 CI$ 445, ,781 25

27 10. Share capital Paid-up proprietary shareholders are entitled to vote at any meeting of the Society, with each paid-up proprietary shareholder having one vote. Paid-up proprietary shares are issued in multiples of CI$10 and CI$1 each. Special proprietary shares Series A are entitled to vote at any meeting of the Society, with each share carrying five votes each and giving the holder the right to appoint at least 75% of the Directors of the Society. Special proprietary shares Series A are issued at CI$10 each. Paid-up proprietary Special proprietary shares shares Series A 2015 and 2014 Number CI$ Number CI$ Issued and fully paid: Balances at beginning and end of year 1,522,950 1,579,950 30, , Contributed capital During the year ended March 31, 2014, the Society sold its interests in JNMS (C), [a company incorporated in the Cayman Islands], to JNBS for a surplus of CI$1,361,978 which is included in Contributed Capital within equity as this is a common control transaction between entities with the same ultimate beneficial owner. 12. Credit loss reserve Balance at beginning of year 1,034, ,518 Transfer from retained earnings during year 1,929, ,389 Balance at end of year CI$ 2,964,821 1,034,907 This reserve is representing general provision for loan losses as described in note 2(g). 26

28 13. Other income Note Commissions and service charges 574, ,392 Late charges 189, ,839 Rental Income 74,500 86,400 Miscellaneous income 5,399 18,371 CI$ 843, , Operating expenses Note Staff cost excluding pension contributions 510, ,915 Depreciation 7 128, ,056 Audit fees 89,097 77,700 Utilities 85,079 78,300 Professional fees 84,837 10,812 Advertising 80,521 96,827 Staff insurance 66,408 66,740 Computer maintenance and license fees 55,622 41,795 Other expenses 49,882 33,205 Repairs and maintenance 46,029 31,598 Business insurance 44,003 71,609 Office cleaning 35,274 28,587 Security 33,578 25,409 Printing and postage 25,459 26,458 Pension contributions 16 23,274 22,012 Government licences 15,271 52,692 Foreign exchange loss 14,429 22,988 Rent 6,210 5,765 Office supplies 4,203 5,730 Travel and entertainment 3,397 3,434 Donations 2,905 1,015 CI$ 1,404,560 1,285,647 27

29 15. Related parties Included in these financial statements are the following balances and transactions with JNBS, its subsidiaries and the Directors of the Society: JNBS Statement of financial position Investments in debt securities CI$ 9,552,486 9,474,173 Repurchase of JN Repo loans 2,484,666 0 Due from JNBS 37,194 66,933 Savings and investment shares (26,096) (21,978) Interest receivable on certificate of deposits 3,352 2,036 Profit or loss and other comprehensive income/(loss) Other income 494, ,307 JNMS and its subsidiaries Statement of financial position Due from JNMS and its subsidiaries CI$ 34,961 19,090 Savings and investment shares 11,244 Profit or loss and other comprehensive income/(loss) Interest income - 47,591 Interest expense 9,246 - Rent received 74,500 86,400 Directors Statement of financial position Loans, net CI$ 558, ,232 Interest receivable 2,390 4,420 Savings and investment shares (4,994,974) (6,000,030) Interest payable (42,758) (48,378) Profit or loss and other comprehensive income/(loss) Interest income ,102 Interest expense (942,457) (240,229) Operating expenses (28,957) (12,057) Due from related companies have no fixed terms of repayment and do not bear interest. Loans, net, interest receivable and interest income relate to loans extended to a director and relatives of that director by the Society. As at, these loans are accruing interest at rates from US Prime 2% to US Prime 3% (2014: US Prime +2% to US Prime +3.0%). As at, savings and investment shares accounts held by directors include savings shares accruing interest at rates from 0% to 0.25% (2014: 0% to 0.25%) and investment shares accruing interest at rates from 1.0% to 4.0% (2014: 1.0 % to 5.0%). Operating expenses include remuneration paid to a director of the Society. 28

30 16. Pension scheme As required by the Cayman Islands Law, the Society participates in a defined contribution pension scheme, the Cayman National Pension Plan. The Society is required to match each employee s contribution on a one to one basis up to 5% of the employee s annual salary. During the year ended, the Society contributed CI$23,274 (2014: CI$22,012) to this scheme on behalf of its employees. 17. Regulatory matters The Society is subject to regulatory capital requirements established by the Cayman Islands Monetary Authority ( CIMA ). Failure to meet minimum regulatory capital requirements can initiate certain actions by CIMA that if undertaken, could have a direct material effect on the Society s financial statements. Under capital adequacy guidelines used by CIMA, the Society must meet specific capital guidelines that involve quantitative measures of the Society s assets, liabilities, and certain off-statement of financial position items as calculated under regulatory accounting practices. The Society s regulatory capital amounts and classification are also subject to qualitative judgments by CIMA about components and risk weightings. As at and 2014, the Society s regulatory capital amount and its risk asset ratio, as well as CIMA s minimum requirements, are presented in the following table: 2015 minimum 2014 minimum for regulatory for regulatory capital and capital capital and capital Actual adequacy purposes Actual adequacy purposes Regulatory capital CI$ 3,887,797 3,903,787 4,607,860 3,941,283 Risk asset ratio 15.52% 15% 17.54% 15% Liquidity ratio 29.22% 10% 27.48% 10% 29

31 18. Financial risk management The Society has exposure to the following risks from its use of financial instruments: Credit risk Liquidity risk Market risk Operational risk The Society has a risk management framework that seeks to balance strong corporate oversight with well-defined independent risk management functions within the business. The Society also has appropriate documented strategies, policies and processes, and authority delegated throughout the organization. The Board of Directors has overall responsibility for the establishment and oversight of the Society s risk management framework. It also has responsibility for capital management and to ensure prudential operations and regulatory compliance. The Board of Directors manages and reviews major risk exposures and concentrations across the organization in accordance with best practices. The risk management policies and procedures are established by the Parent Society s Risk Management Unit to identify, assess and measure the risks faced by the Society, to set appropriate risk limits and controls, and to monitor risks and adherence to limits set. The focus of financial risk management for the Society is ensuring that the Society has adequate economic capital and that the use of and proceeds from its financial assets are sufficient to fund the obligations arising from it contractual liabilities. A key aspect in the management of the Society s financial risk is through matching the timing of cash flows from assets and liabilities. The Society actively manages its investments using an approach that balances quality, diversification, liquidity and return. The portfolio is reviewed on a periodic basis, as are investment guidelines and limits with the objective of ensuring that the Society can always meet its obligations without undue cost and in accordance with the Society s internal and regulatory capital requirements. The Parent Society s Audit Committee is responsible for monitoring compliance with the Society s risk management policies and procedures. The Audit Committee is assisted by the Group Internal Audit Department which undertakes cyclical reviews of risk management controls and procedures, the results of which are reported to the heads of the Compliance Department, the Risk Management Unit, the Audit Committee and the Board of Directors. Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered. The Society, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment, in which all employees understand their roles and obligations. 30

32 31

33 18. Financial risk management (continued) (a) Credit risk The risk of financial loss to the Society if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Society s loans and advances to borrowers and investment securities. There has been no significant change to the Society s exposure to credit risk or the manner in which it measures and manages the risk during the year. The Society manages credit risk associated with loans by evaluating debtors ability to repay loans, ensuring that: (i) all loans are properly collateralised and the securities are insured; (ii) loan loss provisioning is in keeping with the Society s policy for the provision of loan losses, as discussed in Note 2 (f); (iii) loans are not concentrated in one individual, company or group; and (iv) strong underwriting and credit administration services are in place. The decision for each loan is evaluated by the Credit Committee which then recommends to the Board Loan Sub-Committee. All loans above CI$125,000 must be formally approved by the Board Loan Sub-Committee, prior to funds being advanced. A significant proportion of the cash and cash equivalents is represented by cash balances held in current accounts with Cayman National Bank and Royal Bank of Canada. Debt securities consist of bonds issued by Cayman Islands Development Bank and certificate of deposits with JNBS and a third party. The Society limits its exposure to credit risk by only investing in rated instruments or instruments issued by rated counterparties with good credit ratings. Management also monitors and reviews the credit rating of its counterparties. In instances where the credit rating has fallen under a certain level, management will dispose of the holding as soon as practical. As such, management does not expect any counterparty to fail to meet its obligations. There was no change in the nature of exposure to credit risk to which the Society is subjected to or its approach to measuring and managing this risk during the year. 32