Question 1 (40 Marks)<\/p>\n
Please review the financial statements for Stonebridge Credit Union and answer the following questions:<\/p>\n
a)\tIdentify and briefly outline your concerns with this credit union (18 marks);<\/p>\n
b)\tOutline any additional questions you would need to ask the Board or Management and any additional information from Stonebridge Credit Union you would require confirming the extent of the concerns identified in a) above; (12 marks);<\/p>\n
c)\tPrepare a supervisory letter addressed to Stonebridge Credit Union identifying your major concerns and their impact on the institution’s risk profile, providing any recommendations to reduce the impact \/ risk. (10 marks).<\/p>\n
Question 2 (20 marks)<\/p>\n
The town of Timber Ridge has enjoyed a stable business environment with the region’s main employer, Fastlink Timber Mills able to renew softwood lumber contracts with buyers in Alberta and the United States. Sales distribution is 20% within Canada and 80% to the US. Work force is just under 5,000.<\/p>\n
The Timber Ridge Credit Union (TRCU) operates 3 branches in the town serving the surrounding communities (population 23,250). TRCU is the predominant retail and commercial financial institution with over $2.0 billion in loans outstanding related to residential mortgages, personal lines of credit and business loans. The Timber Ridge Credit Union (TRCU) has three locations in the town, all of which serve the areas in the immediate vicinity (population 23,250). With more than $2.0 billion in outstanding loans relating to home mortgages, personal lines of credit, and business loans, TRCU is the preeminent retail and commercial financial institution in the area.<\/p>\n
As part of the US Federal Government’s shift in trade policy, soft wood lumber tariffs have been proposed on products originating in Canada to a level that ongoing profitable export to 80% of Fastlink Timber Mills US clients is in question.<\/p>\n
Provide a description of the current and potential risks affecting TRCU as a result of any disruption to US exports. Include in the description how earnings, capital, liquidity, treasury and operational functions at TRCU will be impacted. Also provide possible risk mitigation considerations for discussion with TRCU management.<\/p>\n
Stonebridge Credit Union
\nBalance Sheet
\nDecember 31
\n(‘000)\t2017\t2016<\/p>\n
Assets
\nCash Resources (note 1)\t86,743\t135,222
\nInvestments (note 2)\t247,378\t255,458
\nMember Loans (note 3)\t2,425,612\t2,064,405
\nProperty & Equipment\t11,168\t12,437
\nOther\t6,953\t8,812
\n2,777,854\t2,476,334<\/p>\n
Liabilities and Equity
\nMember Deposit s (note 4)\t2,027,463\t1,868,667
\nSecuritizations\t535,709\t434,559
\nBorrowing (note 5)\t34,500\t—
\nPayables\t8,052\t6,756
\nOther Liabilities\t4,094\t8,799
\nEquity Shares\t82,023\t84,256
\nRetained Earnings\t85,013\t73,297
\n2,777,854\t2,476,334<\/p>\n
Stonebridge Credit Union
\nStatement of Profit and Loss and Retained Earnings
\nDecember 31
\n(‘000)
\n2017\t2016<\/p>\n
Interest Income
\nInterest on Member Loans
\n89,613
\n84,559
\nOther Interest\t3,978\t3,194
\n93,591\t87,753
\nInterest Expense
\nInterest on Member Deposits\t36,745\t35,424
\nBorrowing & Securitization\t8,786\t7,149
\n45,531\t42,573
\nNet Interest Income\t48,060\t45,180
\nOther Income\t8,650\t7,386<\/p>\n
Net Interest & Other Income\t56,710\t52,566
\nProvision for credit losses\t(417)\t2,363<\/p>\n
Operating Expenses\t38,896\t36,984
\nPatronage Return\t1,179\t1,164
\nIncome Taxes\t4,079\t(815)<\/p>\n
Net Income Attributable to Members\t12,973\t12,870<\/p>\n
Retained Earnings, beginning of year\t73,297\t60,427
\nRetained Earnings, end of year\t85,013\t73,297<\/p>\n
Notes to the Financial Statements<\/p>\n
Note 1\tCash Resources
\n2017\t2016<\/p>\n
Cash\t42,237\t27,963
\nDeposit maturing within 3 months
\nSchedule 1 Bank\t17,420\t35,003
\nCentral 1\t27,086\t72,256
\n86,743\t135,222<\/p>\n
Note 2\tInvestments\t2017\t2016<\/p>\n
Central 1 Reserve Deposit\t153,917\t141,913
\nT-bills & BAs\t9,565\t76,795
\nCentral 1 Discount Deposit\t23,040\t24,052
\nMortgage Backed Securities\t41,631\t —
\nFair Value Adjustments\t19,225\t12,698
\n247,378\t255,458<\/p>\n
Note 3\tMember Loans\t2017\t2016<\/p>\n
Residential Mortgages
\nUninsured\t824,944\t583,593
\nInsured by CMHC\t72,662\t46,194
\nInsured by Genworth or Canada Guaranty\t537,986\t499,606<\/p>\n
Personal Loans\t13,576\t13,779
\nCommercial Loans\t972,901\t923,676<\/p>\n
Fees & Allowances for Credit Losses\t3,543\t(2,443)
\nNet Loans to Members\t2,425,612\t2,064,405<\/p>\n
Note 4 \tMember Deposits\t2017\t2016<\/p>\n
Demand Deposits\t627,479\t495,641
\nTerm Deposits\t801,803\t820,801
\nRegistered Deposits\t536,589\t515,425
\nForeign Currency Deposits\t46,352\t21,120<\/p>\n
Accrued Interest payable\t16,481\t17,029
\nUnamortized broker fees\t(1,241)\t(1,349)
\n2,027,463\t1,868,667<\/p>\n
Note 5\tBorrowing (O\/S balances)\t2017\t2016<\/p>\n
Line of Credit with a Schedule 1 Bank\t—\t—
\nCentral 1\t12,000\t—
\nDesjardin\t22,500\t—
\n34,500\t—<\/p>\n","protected":false},"excerpt":{"rendered":"
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