Annual Report 2013 - NZCU South · Directors in governance, strategy and finance and being awarded with a Certificate in Company Direction. Throughout Shona’s first term on the

Annual Report 2013

Proud to be a Credit Union. Not a registered bank.

Money CoachingReceive on-going ‘one to one’ professional help. Become debt free and achieve those financial goals with this valuable service.

Personal LoansNZCU South personal loans are provided at competitive rates for any worthwhile purpose. Loan Repayment Insurance is available to cover sickness, disability, and involuntary loss of earnings.

Home LoansWhether you’re buying for the first time, refinancing or already have a home loan, we can offer you a home loan package for all your needs.

Life and Income InsuranceThis is an easy to arrange life insurance cover with many optional extra benefits including trauma, sickness and accident cover. After a few simple steps, we can also provide you with income replacement and any other general insurance.

Car InsuranceInstant approval for your motor vehicle insurance. Our car insurance will match any other insurer’s premium. Third Party Insurance and Roadside assistance is also available.

Credicare Bereavement FundMembership of this unique fund provides peace of mind for you and your family. On death, your next of kin receives an immediate tax-free payment.

Accessweb (Internet Banking)Carry out your banking transactions for free on your home PC, or indeed, from anywhere in the world via:www.nzcusouth.co.nz

Money Transfer ServiceOvernight transfer of your Credit Union funds to any bank account of your choice.

WebsiteAccess to products, services, interest rates, loan applications, and the latest in happenings at your Credit Union. An ideal way to link to your Internet banking page: www.nzcusouth.co.nz

Tax CheckOur tax check service is able to find out if you are due a tax refund in any one of the last five years. If you have underpaid your tax in a particular year, a return will not be filed for that year. Forms are available from our website www.nzcusouth.co.nz or your local branch.

Fisher Funds KiwiSaver SchemeA long-term retirement savings account to help you provide for a secure retirement. Attractive incentives are offered by Government to assist you to save. Application forms, Investment and Disclosure Statements are available from NZCU South.

Accesstxt®Check your savings, loan, investment balances, pay bills or transfer funds between your Credit Union accounts with your cell phone.

Accessdebit MasterCard®Buy things on-line, overseas, over the phone or by mail order and pay with your own money. Accessdebit MasterCard is linked to your NZCU South Account.

A copy of our current Investment Statement and our Prospectus is available free of charge from any of our Branches. NZCU South deposits are secured by a First Ranking registered Trust Deed. NZCU South is a registered Credit Union, not a registered bank.



ANNUAL GENERAL MEETING AGENDA 2013Members are cordially invited to attend the 26th Annual General Meeting of NZCU South, to be held on Thursday 26 September 2013 at the Stadium Southland, Isabella Street, Invercargill, commencing at 5.30 p.m.

• Welcome to Members and Guests

• Apologies

• Confirmation that a quorum is present

• Confirmation of Minutes of the 25th Annual General Meeting held on 27 September 2012

• Receipt and adoption of: (a) Chair and Directors' Report (b) Chief Executive Officer’s Report (c) Presentation of the Audited Financial Statements (d) Treasurer's Report (e) Trustees' Report (f) Audit and Risk Committee's Report (g) Independent Auditors’ Report

• Specific Business - Confirmation of Appointment of Auditor - Rule Changes - Adoption of Rules in full • General Business

• Remuneration of Directors

• Election of Directors (and Trustee(s))

By Order of the Board

ANNUAL REPORT 2013cONTENTs PAGE

NZCU South Directory 2

Director Profiles 3

Report of the Chair 5

Report of the Chief Executive Officer 7

Report of the Trustees 9

Statement of Comprehensive Income 11

Statement of Changes in Equity 11

Balance Sheet 12

Statement of Cash Flows 13

Notes to the Financial Statements 14

Independent Auditors’ Report 43

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Proud to be a Credit Union. Not a registered bank.Proud to be a Credit Union. Not a registered bank.

Board of Directors

Bevan E Killick Chair - Independent Director

Peter C L Taylor Deputy Chair - Elected Director

Wade Devine Secretary - Elected Director

John M Sheard Treasurer - Elected Director

Peter L McKnight Elected Director

Dominique F Dowding Appointed Director

Shona K Cumming Elected Director

Trustees

Shona K Cumming Chair

Peter C L Taylor

Peter L McKnight

Management

Andrew D Leys Chief Executive Officer

Tania E Dickie Chief Operating Officer

Daryl A Soal Finance Manager

Marilyn G Richardson Lending Manager

Jonet F Warhurst Marketing Manager

Helen W Malcolm Collections Manager

Michelle J Reihana Support Services Manager

Auditors

PricewaterhouseCoopers, Dunedin

Bankers

NZ Association of Credit Unions' Transactional Banking Facility

Westpac Banking Corporation, Dunedin North

solicitors

Lane Neave Lawyers, Christchurch (Prospectus and Security Regulations Compliance)

Prudential supervisor

Trustees Executors Limited, Auckland

Affiliations New Zealand Association of Credit Unions

Credit Union Institute of New Zealand

Sovereign Home Loans and Life Insurance

NZcU sOUThDIREcTORY

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NZcU sOUThDIREcTOR PROFILEs

Bevan Killick B.Com, F.CUINZ, CA, ACII, MInstD, Chair of Board, Member of Audit and Risk Committee Christchurch born and educated, Bevan Killick is a chartered accountant and a chartered insurance practitioner (UK). During his professional career, Bevan held senior positions in the Lloyd’s Insurance Market for 12 years. Now based back in Christchurch, Bevan is a professional director where his other roles include being chairman of the St John of God Hauora Trust and a director of Southern Response Earthquake Services Limited.

Bevan also worked with Recover Canterbury, the organisation responsible for helping businesses recover from the Canterbury earthquakes.

Wade Devine F.CUINZSecretary, Chair of Governance Committee

Wade was elected to the board of NZCU South and has been a Director for the past five years, is currently Chair of the Governance committee and Board Secretary. He has 15 years of experience as a Credit Union Director in various roles. He is married to Judi with two adult sons. Wade is a registered electrician and has spent his career in the practical electrical world from domestic, commercial, generation and industrial fields in both New Zealand

and overseas. Wade currently works in the field of maintenance systems. He is a Trustee of the Southland Electric Power Supply Consumer Trust. Other interests are Rotary, small block farming and world affairs.

Peter Taylor MBA, MA (Hons).Trustee, Deputy Chair, Chair of Audit and Risk Committee

Director of NZCU South since 2008. Peter is currently General Manager of Habitat for Humanity (Christchurch), building affordable post-quake housing for families in need. Peter has long been an advocate for community-based finance. He was General Manager of Credit Union Canterbury, led the establishment of the Christchurch small enterprise finance fund Just Dollars, served on the regional board of the Cooperative Enterprise Loans Trust and has been a member of credit unions and friendly societies over four decades.

Peter also brings a background of professional marketing and communications roles to the NZCU South board as both a former telecommunications senior manager and marketing consultant. Peter's previous governance roles include being Chair of the Board of Shirley Intermediate School in Christchurch in a period that saw a significant turnaround for the low-decile school. Peter’s daughter has recently completed a degree at Otago University and he enjoys alpine sports pursuits.

shona cumming LL.BChair of Trustees, Chair of Credit Committee

Shona is an elected director of NZCU South. She is in the final year of her first 3 year term on the Board of NZCU South.Shona is a married, mother of 3. She is based in Dunedin and works full time as a lawyer for Downie Stewart, Solicitors, Dunedin.

As the Chair of the Trustees and Credit Committee this year, Shona and her fellow Trustees worked with a senior management team who have been working tirelessly to make prudent lending available to our members, in an extremely competitive environment. Shona has not only brought her legal skills to the Board table, but she also brings governance skills that she has learned from her membership of the Institute of Directors. This has included completing a week-long course with the Institute of Directors in governance, strategy and finance and being awarded with a Certificate in Company Direction. Throughout Shona’s first term on the board of NZCU South she has, in her own time, attended the inaugural Institute of Director Annual Conference in Auckland and attends most of the local branch events in Dunedin. From these events Shona keeps herself informed and current. Shona shares the passion of her fellow directors in providing the best service possible to the members of NZCU South.

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NZcU sOUThDIREcTOR PROFILEs

Dominique Dowding B.Com (Hons)Member of Governance Committee

Dominique Dowding, is Executive Chairman and Managing Director of Dowding & Associates Ltd. Dowding & Associates is the investment arm for interests in: ICT, Digital Media, Property and Strategic Consultancy. Prior to starting her businesses in 1995, she held senior management positions and had investments in: Entertainment, Hospitality, ICT, Property and Tourism. She has been a professional director and an executive director of several companies in New Zealand and has lectured at several Universities on

governance, entrepreneurship, human capital and sales and marketing. She believes in the Credit Union ethos and her passion is to see New Zealand prosper via it's sciences, innovation, content and driving these great ideas in order to create economic growth, prosperity and opportunities for New Zealanders.

Peter McKnight Trustee, Member of Audit and Risk Committee Southland born, raised and educated, Peter is an electrical Crew Leader at New Zealand Aluminium Smelters Limited. Peter has been involved with Credit Unions for thirty years and has held various Board positions within the Credit Union over the past fifteen years. Presently Peter is a Director, a Trustee and serves on the Audit and Risk Committee. He is a member of CUINZ and holds a number of Credit Union qualifications. Peter is passionate about NZCU South and proud to be an elected Director. Outside interests include his family, horse breeding and travel.

John sheard Treasurer, Member of Governance Committee John is a born and bred West Coaster and has lived in Greymouth for most of his life. His professional occupation is as a Registered Medical Laboratory Scientist. John is also a member of the National Executive of the New Zealand Medical Laboratory Workers Union. John has been a Credit Union member since 1976. After initial involvement as a member of the Supervisory Committee John was elected as a Director in the 1980's. Since then John has been involved with transforming the small workplace Credit Union into a community Credit Union. Which after merging

with another to form Credit Union Westland covered the whole of the West Coast. Since his appointment to the board of Credit Union South when Credit Union Westland joined with the other four South Island community Credit Unions to form Credit Union South, John has twice been re-elected as a director. He is currently a member of the Governance Committee and has formerly been a member of both the Audit and Risk and Credit Committees. Outside of both work and the Credit Union, John enjoys spending time with his family which now includes four grandchildren.

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ATTENDANcE REGIsTER 1 July 2012 to 30 June 2013 - 14 Meetings held

Number of Meetings Number of MeetingsDIREcTOR Eligible to Attend Attended

Bevan Killick 14 12Wade Devine 14 13Peter Taylor 14 14Shona Cumming 14 14Dominique Dowding 14 13Peter McKnight 14 14John Sheard 14 13


NZcU sOUThREPORT OF ThE chAIR

FOR ThE YEAR ENDED 30 JUNE 2013

Dear Members,On behalf of the board and management I proudly present the Annual Report of NZCU South for the year ended 30 June 2013.

Ten dollars at a timeThere is a saying that “Millionaires are made ten dollars at a time”. Most of us have smaller goals such as paying off debt, buying a car, going on a holiday or saving a deposit for a home of our own. The same principle holds true – these goals are achieved “$10 at a time”.

An example of the “$10 at a time” principle is our fantastic Kiwisaver product. By regular savings in Kiwisaver, our members save regular modest amounts. Many members are now finding they have sufficient funds available for a deposit on a house. Proudly NZCU South’s Kiwisaver members and their funds are greater than all other credit unions combined. This is a fantastic achievement of NZCU South. Have you checked your Kiwisaver recently? Do you know others who could benefit from the Government’s $1000 kick start to Kiwisaver? Do you have children or grandchildren who are yet to join? The Government’s money is waiting to work for you!

Christmas Saver and other accounts are also available. This is where we structure members’ finances so that regular savings can be achieved. This results in a better future for individuals, their families and communities. Keep working towards your goals - $10 at a time.

Into our second fifty years!Last year we celebrated our first 50 years in Nelson where our first credit union began. As we have embarked on our second 50 years it has been necessary to correctly structure the organisation. After so many credit unions had merged to become NZCU South there had been insufficient focus on understanding what we would look like if the organisation was designed starting with a blank sheet of paper. There were legacy issues from constituent credit unions throughout the organisation. Additionally the ability to interact with Members via telephone or internet has changed the face of how service organisations interact with their members, customers, suppliers and other stakeholders. Over the past year, or so, the board and management have taken some difficult decisions. These have resulted in cultural change, staff changes and branch closures. This has not been without pain and a modest profit has resulted this year. Unlike a bank, I make no apologies for modest profits. After all it is all members’ money. This is all to ensure we are in the best possible shape to be able to achieve our objectives of financially empowering individuals, families and communities.

Being a credit UnionMost people seem to use foreign owned corporations for their banking. These banks employ staff members who are paid to sell more products, regardless of the needs of their customers. Credit unions, on the other hand, employ people to make the members of the credit union, their families and their community, financially stronger. Our staff members in branch work in your best interests. Usually they are not just staff members, they are also credit union members, just like you, working for you!

We are not profit driven, all profits are reinvested back into helping members. No profits leave the South Island. We are certainly in interesting times. Some parts of the island are suffering and others, such as the rebuild workers in Christchurch, are thriving. A credit union is just as important in good times and in bad. You are as likely to be sold inappropriate banking products no matter what part of the economic cycle the economy is in. Unlike

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other lenders, banks and loan sharks, we are not going to over burden our members with debt. As our profits come from things like member fees, the board and management have resisted large fee increases and higher interest rates so that the organisation absorbs the trading conditions rather than passing them on to you. While our profit is modest this year we continue to have a strong balance sheet. Members’ funds represent 17.2% of our total assets, which is an increase from 16.1% last year. Despite the tough financial times of the past year, we are financially stronger.

When you understand and engage with a credit union, like NZCU South, you can become financially stronger and achieve your goals.

People helping PeopleThank you to everyone who has contributed to our success this year. The results of the last year are respectable and solid and we should all be proud of our achievements in these difficult times. Thank you to our members who have been loyal and supportive. Thank you to our staff members and management who have executed the board’s strategy, been dedicated and have worked tirelessly in challenging times. Thank you to the board of directors who have professionally governed, robustly debated, held true to our values and made sound decisions.

For and on behalf of your Board,Stay strong and stay together! Save $10 at a time!

Bevan KillickChair of the Board

NZcU sOUThREPORT OF ThE chAIR



NZcU sOUThREPORT OF ThE chIEF EXEcUTIVE OFFIcER


It is my pleasure to present the 2012/13 CEO’s report for NZCU South.

The start of the 2012/13 financial year saw changes to the way we operate with the closure of 4 smaller branches at Lawrence, Westport, Hokitika and South City Invercargill, while the Palmerston agency was also closed. Changes to the economic environment over the past 5 years, combined with changes in the way members interact with their credit union, meant we needed to make prudent decisions in order to ensure the long term success of NZCU South. Unfortunately we lost many loyal long serving staff as a result of

the restructure and I’d like to recognize their contribution over many years which helped build the Credit Union we have today.

To this end we remain committed to our core purpose as a credit union by focusing the organization everyday on “Empowering our members to be confident about their financial future”.

Yet again, we have an excellent example of the commitment to our purpose with our education of members of the benefits of Kiwisaver. Membership of our KiwiSaver Scheme (now through Fisher Funds KiwiSaver Scheme) has increased over 33% in the past year and funds under management (KiwiSaver balances) have increased over 60% to now total over $26m. Encouraging regular savings, be it Christmas Saver or KiwiSaver, is all part of our efforts to “Empower you with the knowledge to be confident about your financial future.

Another significant achievement this year has been the launch of the MasterCard branded AccessDebit Card. This card represents leading edge technology with PayPass™ “Tap & Go” functionality as well as allowing members to make payments over the internet and phone. You will not be surprised to know that your Credit Union is leading all others in the promotion of the card, with over 3,500 cards issued so far.

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RBNZ Risk Weighted Capital Ratio (%)Minimum 8%

18.00%

16.00%

14.00%

12.00%

10.00%

2011 2012 2013

Christmas Saver at June ($M)

3.50

3.00

2.50

2.002009 2010 2011 2012

KiwiSaver Balances ($m)30

25

20

15

10

5

02010 2011 2012 2013

Personal Loans at 30 June (000’s)70000

68000

66000

64000

62000

60000

58000

56000

54000

52000

2007 2008 2009 2010 2011 2012

Operating Surplus (000’s)$1,000

$800

$600

$400

$200

$02009 2010 2012 20132011

Bad & Doubtful Loans Expense (000’s)$2,000

$1,800

$1,600

$1,400

$1,200

$1,0002009 2010 2012 20132011

12.63%

14.50%

15.84%


NZcU sOUThREPORT OF ThE chIEF EXEcUTIVE OFFIcER


Finances:The past year has seen the Credit Union produce a modest surplus to add to member reserves. The management and board are focused on prudent management of your credit union and in recent years has faced many challenges. The surplus for the 2012/13 year was $132,000, down from $407,000 in the 2011/12 financial year. The result was impacted by the following key areas:

- $592,000 one off cost of the restructure (branch closures & staff redundancies)

- Further decline in the loan pool, down $2.9m or 4%, but much improved from the 2011/12 year which was down over 13%

- One off costs associated with the launch of the MasterCard AccessDebit Card of $108,000

Despite the above we did add to member reserves, now over $18.64m. The RBNZ Risk Weighted Capital Ratio, a measure of our capital soundness, increased to 15.84% at year-end (up from 14.44% in the previous year).

Also we recorded a further drop in the net Bad & Doubtful Loans expense, down $262,000 or 19% to $1.1m (see graph). During the year we undertook a

comprehensive review of lending policies and procedures and expect that we should see a further decline in the cost of Bad Loans over the coming year.

Expenses overall were contained to be slightly lower than last year despite the one off cost of the restructure ($592,000) and the AccessDebit card ($108,000).

This year we are budgeting a modest increase in surplus and will be investing in upgrades to both our Internet Banking and Telephone banking platforms to improve services to members.

Thankfully, member demand for lending has improved since October 2012 with modest signs of growth at the end of the financial year and as we start the new financial year. This is particularly strong in Christchurch after several subdued years due to earthquakes and ongoing uncertainty. Your credit union is well positioned with strong capital and liquidity to meet the increased demand from members for loans. Helping members with affordable loans for prudent purposes, from short term personal loans to mortgages, remains one of our key objectives.

Thanks:Last year we celebrated our 50th anniversary in Nelson where it all started. I was privileged to meet the sole surviving founding Trustee of our credit union, Joseph Cotterell. Joseph and 6 friends from St Mary’s Parish in Nelson who decided on the 10th of October 1962 to “make a difference” by starting the first credit union here in the South. They did so because they knew the values of co-operation, and of people helping people, had a powerful potential to make a significant impact on the financial well-being of individuals and families within our community. They did not set the Credit Union up out of self-interest; it was something they wanted to do for the benefit of others.

Like every other year I’ve presented to the membership at our AGM, it was important that the reason we exist remained as clear and strong as ever. It was humbling to present to the AGM last year knowing Joseph was there. I also felt a sense of pride knowing the Board and Staff of your credit union have accepted the challenge set down by the founding trustees, and ensured we remain focused on “Empowering members to be confident about their financial future”. I’d like to thank the board and staff for their ongoing support and especially you the member, for we fully appreciate that without you there is no credit union. Andrew LeysChief Executive Officer

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18.00%

16.00%

14.00%

12.00%

10.00%

2011 2012 2013


3.50

3.00

2.50

2.002009 2010 2011 2012


25

20

15

10

5

02010 2011 2012 2013


68000

66000

64000

62000

60000

58000

56000

54000

52000

2007 2008 2009 2010 2011 2012


$800

$600

$400

$200

$02009 2010 2012 20132011


$1,800

$1,600

$1,400

$1,200

$1,0002009 2010 2012 20132011

12.63%

14.50%

15.84%


18.00%

16.00%

14.00%

12.00%

10.00%

2011 2012 2013


3.50

3.00

2.50

2.002009 2010 2011 2012


25

20

15

10

5

02010 2011 2012 2013


68000

66000

64000

62000

60000

58000

56000

54000

52000

2007 2008 2009 2010 2011 2012


$800

$600

$400

$200

$02009 2010 2012 20132011


$1,800

$1,600

$1,400

$1,200

$1,0002009 2010 2012 20132011

12.63%

14.50%

15.84%


18.00%

16.00%

14.00%

12.00%

10.00%

2011 2012 2013


3.50

3.00

2.50

2.002009 2010 2011 2012


25

20

15

10

5

02010 2011 2012 2013


68000

66000

64000

62000

60000

58000

56000

54000

52000

2007 2008 2009 2010 2011 2012


$800

$600

$400

$200

$02009 2010 2012 20132011


$1,800

$1,600

$1,400

$1,200

$1,0002009 2010 2012 20132011

12.63%

14.50%

15.84%


NZcU sOUThREPORT OF ThE TRUsTEEs


As the Chairman and CEO have mentioned in their reports, 2012/2013 has been another year full of challenges, not only for staff and management, but also for the Board and the Trustees.

The Trustees believe that we have all managed the year admirably.

The bad and doubtful loans expense is down from 2011/2012. This is a pleasing result. It is attributable in a large part to the effective implementation, by management and staff, of the new procedures and policies designed by Bob Anderson, a consultant employed to assist us in this regard.

The Trustees reiterate their encouragement to each and every member, that is experiencing financial difficulties, to talk to our friendly and qualified staff before taking any drastic action in relation to loan arrears.

We know that talking to our friendly staff often has truly great results for both the member and for NZCU South. Our staff share with us their success stories from time to time and it is wonderful for us to hear them.

On that note I say thank you to staff, management, my fellow directors and my fellow trustees and include an extract from the Act (under which our credit union is registered) as a timely reminder for us all about one of our core purposes:

To be proactive in the training and education of the members in the wise use of money and in the management of their financial affairs.

Shona CummingChair of Trustees

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NZcU sOUThcONTAcT cENTRE

Focused on our Members' needsIntroducing our Contact Centre staff from left Vania, Char, Alicia, Janine, Eddie, Antoinette, Holly and Narelle.

Your Contact Centre can help you get your banking completed and give you accurate information, quickly and

easily over the phone. Our friendly team is very knowledgeable and care about you and your banking, so

you’ll be better off. The hours of the Contact Centre are Monday to Friday from 8am until 6pm and Saturdays

from 9.30am until 4.00pm. Our team can help you to set up your Internet and Phone Banking so you can

complete your banking 24/7 at your convenience.


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cREDIT UNION sOUTh - sTATEMENT OF cOMPREhENsIVE INcOMEFOR ThE YEAR ENDED 30 JUNE 2013

Note 2013 2012 $'000 $'000 TOTAL OPERATING REVENUE 17,016 17,734 Interest revenue 3(a) 11,870 13,171Interest expense 3(b) 2,804 3,228

Net Interest Revenue 9,066 9,943 Other Income 3(c) 5,146 4,563 14,212 14,506OTHER EXPENSES Bad and doubtful loans 3(d) 1,115 1,377 Employee benefits 3(e) 4,726 5,050 Occupancy - operating leases 617 639 Depreciation 3(f) 464 685 Other administration expenses 3(g) 7,158 6,348 14,080 14,099 OPERATING SURPLUS 132 407 TOTAL COMPREHENSIVE INCOME 132 407

cREDIT UNION sOUTh - sTATEMENT OF chANGEs IN EQUITYFOR ThE YEAR ENDED 30 JUNE 2013

Note General Retained Reserve Earnings Total $'000 $'000 $'000 Balance at 1 July 2012 6,306 12,206 18,512 Transfer from General Reserve to Retained Earnings (6,306) 6,306 -

Total transfered 4 (6,306) 6,306 -

Operating Surplus - 132 132

Total comprehensive income - 132 132

Balance at 30 June 2013 4 - 18,644 18,644 Balance at 1 July 2011 6,306 11,799 18,105 Operating Surplus - 407 407 Total comprehensive income - 407 407 Balance at 30 June 2012 4 6,306 12,206 18,512

The attached notes to the financial statements form part of and should be read in conjunction with the financial statements.


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cREDIT UNION sOUTh - BALANcE shEET

As AT 30 JUNE 2013

2013 2012 MEMBERS' FUNDS Note $'000 $'000

Retained earnings 4 18,644 12,206 General reserve 4 - 6,306

TOTAL MEMBERS' FUNDS 18,644 18,512 ASSETS Cash and cash equivalents 5 2,819 2,794 Deposits at New Zealand Association of Credit Unions 6 15,000 18,500 Deposits at Registered Banks 6a 15,003 15,000 Trade and other receivables 7 1,020 989 Loans to members 8-9 69,951 72,891 New Zealand Association of Credit Union Capital Notes 11 3,096 3,096 Property, plant and equipment 12 1,183 1,618 TOTAL ASSETS 108,072 114,888 LIABILITIES Trade and other payables 13 2,287 2,455 Employee entitlements 594 672 Derivatives - interest rate swaps 10 - 22 Members' deposits 14 86,547 93,227 TOTAL LIABILITIES 89,428 96,376

NET ASSETS 18,644 18,512


These Financial Statements have been authorised for and on behalf of the Board by:

Bevan E. Killick Peter C.L.Taylor DIRECTOR DIRECTOR

30 August 2013 30 August 2013


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cREDIT UNION sOUTh - sTATEMENT OF cAsh FLOWs


Note 2013 2012 $'000 $'000

CASH FLOWS FROM OPERATING ACTIVITIES Interest received 12,154 12,793 Dividends received - NZACU Capital Notes 206 180 Fees and commissions received 5,146 3,655Bad loans recovered 295 145Interest paid (2,958) (2,755)Payments to suppliers and employees (13,136) (11,773) Net cash provided by operating activities 24 1,707 2,245

CASH FLOWS FROM INVESTING ACTIVITIES Net decrease in members' loans 1,530 9,444Payments for plant and equipment 12 (29) (357)Decrease in Deposits with New ZealandAssociation of Credit Unions - 4,500

Increase in term deposits with registered banks (1,000) (10,500) Net cash provided by investing activities 501 3,087

CASH FLOWS FROM FINANCING ACTIVITIES Net decrease in members' deposits (6,680) (1,883) Net cash used in financing activities (6,680) (1,883) Total net (decrease)/increase in cash held (4,472) 3,449 Cash at the beginning of the year 30,294 26,845 Cash at the end of the year 25,822 30,294

Represented by:

Cash and cash equivalents 2,819 2,794 Deposits at New Zealand Association of Credit Unions 6 15,000 18,500Call and Short Term Deposits at Registered Banks 6a 8,003 9,000 25,822 30,294



cREDIT UNION sOUTh - NOTEs TO ThE FINANcIAL sTATEMENTs FOR ThE YEAR ENDED 30 JUNE 2013

1 GENERAL INFORMATION

Reporting EntityThe Credit Union is a financial institution that is registered as a credit union under the Friendly Societies and Credit Unions Act 1982. The purpose of the Credit Union is to promote savings among its members and to use those savings for their mutual benefit. The Credit Union operates primarily in the South Island of New Zealand with its registered office at 26 Filleul Street, Dunedin. As the Credit Union is providing a community and social benefit, it is designated a public benefit entity.

The Credit Union is restricted in its borrowings and members contribute to the Credit Union by way of share subscriptions. The shares cannot be transferred or sold. Members are able to withdraw their funds subject to certain conditions. The Credit Union makes loans to members or invests funds on the members’ behalf. Interest and other income are received by the Credit Union and interest is paid to depositing members in the form of interest on shares.

The Credit Union operates predominantly in one industry, being the investment of members’ funds.

Trust DeedTo meet the requirements of The Securities Act 1978 a Trust Deed was entered into on 7 February 2001 between the Trustees of the Credit Union and Trustees Executors Limited. Trustees Executors Limited as the Prudential Supervisor was appointed to act in the interests of the members of the Credit Union by monitoring the compliance by the Credit Union of its obligations, its Rules, the Trust Deed and the Friendly Societies and Credit Unions Act 1982. In addition, the Prudential Supervisor is under duty to exercise reasonable diligence to ascertain whether the Credit Union has committed any breach of the Trust Deed or any of the conditions of issue of the shares; and has sufficient assets to meet its obligations to members, as they fall due.

2 STATEMENT OF ACCOUNTING POLICIES

The following are the material accounting policies adopted by the Credit Union in the preparation of the financial statements. Except where stated, the accounting policies have been consistently applied to all periods presented.

(a) Basis of PreparationThe Credit Union is an issuer for the purposes of the Financial Reporting Act 1993. The financial report is a general purpose financial report which has been prepared in accordance with the Financial Reporting Act 1993, the Friendly Societies and Credit Unions Act 1982 and the Securities Regulations 2009.

These financial statements were authorised for issue by the Directors on the date shown on the Balance Sheet on page 12.

These financial statements are required to be registered to keep the prospectus current and have been prepared in accordance with New Zealand Generally Accepted Accounting Practice. They comply with the New Zealand equivalents to International Financial Reporting Standards ('NZ IFRS'), International Financial Reporting Standards and other applicable Financial Reporting Standards as appropriate for public benefit entities. The comparative figures shown for 30 June 2012 have been taken from the corresponding audited financial statements.

The financial statements have been prepared in accordance with the historical cost convention, as modified for derivative financial instruments which are stated at their fair value. Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported.

The application of NZ IFRS required management to make judgements, estimates and assumptions about the carrying values of assets and liabilities not readily available from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to the accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of revision and future periods if the revision affects both current and future periods.

The presentation and functional currency is New Zealand dollars and figures are rounded to the nearest thousand dollars ($'000) unless otherwise stated.

(b) Revenue RecognitionInterest Revenue on loansInterest revenue on loans is calculated on the daily loan balance outstanding and is charged at each payment date. This is the effective interest method which allocates the interest over the term of the loans to which they relate. Interest income on impaired loans is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

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15


2 STATEMENT OF ACCOUNTING POLICIES - continued

(b) Revenue Recognition - continued

Investment RevenueInvestment interest revenue is recognised on an effective interest method which allocates the interest over the period that it relates to. Dividends on the New Zealand Association of Credit Unions Capital Notes are recorded as income once an entitlement to the income is notified to the Credit Union.

Fees & Commissions RevenueFees and commissions are brought to account on an accrual basis when the service has been provided.

(c) Expense RecognitionInterest expenseInterest on members shares' is recognised as an expense in the period that it relates to using the effective interest method, which allocates the interest expense over the term of the members' shares to which they relate.

Other expensesOther expenses are recorded in the period to which they relate.

(d) Income TaxNo amounts have been provided for Income Tax as the Credit Union’s income from members is exempt under section CW 44 of the Income Tax Act 2007. Income derived other than from members does not result in a taxable profit.

(e) Goods & Services TaxRevenue, expenses and assets are recognised net of GST except to the extent that GST is not recoverable from the Inland Revenue. In these circumstances, GST is recognised as part of the expense or cost of the asset.

(f) LeasesLeases of property, plant and equipment are operating leases as the substantial risks and benefits incidental to ownership of the asset, are retained by the legal owner. Lease payments for operating leases are charged as expenses in the periods in which they are incurred on a straight line method.

(g) Cash and cash equivalentsCash and cash equivalents includes cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts repayable on demand.

(h) Deposits at New Zealand Association of Credit Unions and Registered BanksDeposits at the New Zealand Association of Credit Unions and Registered Banks are recorded at cost, less any impairment losses.

(i) Trade and Other ReceivablesThese amounts represent amounts due for interest owing and other services performed by the Credit Union prior to the end of the financial period which are not received. The amounts are expected to be received within a year of recognition. They are initially recorded at fair value and subsequently measured at cost less any impairment provision.

(j) Loans to MembersLoans to members are loans which are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are initially recognised at fair value plus transaction costs and subsequently measured at amortised cost, using the effective interest method, less provision for impairment.

(k) Impairment of Loans An assessment is made at each balance date whether there is objective evidence that loans are impaired. A loan is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a 'loss event') and that loss event (or events) has an impact on the estimated future cash flows of the loan and can be reliably estimated. Objective evidence that a mortgage receivable is impaired includes observable data that comes to the attention of the directors about the following loss events:

• significant financial difficulty of the member;• a breach of contract, such as a default or delinquency in interest or principal payments;• a concession granted to the borrower that the lender would not otherwise consider for economic or legal reasons

relating to the borrower's financial difficulty; or• it becoming probable that the borrower will enter bankruptcy or other financial reorganisation.


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(k) Impairment of Loans - continuedThe amount provided for impairment of loans is determined by management and the Directors. The Prudential Standards issued by the New Zealand Association of Credit Unions enable the minimum provision to be based on specific percentages of the loan balance, contingent upon the length of time the repayments are in arrears, and the security held. This approach is adopted by the Credit Union. In addition, the Directors make a provision for loans in arrears where the collectability of the debts is considered doubtful by estimation of expected losses in relation to loan portfolios where specific identification is impracticable.

The Credit Union first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant and individually or collectively for financial assets that are not individually significant. If the Credit Union determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment for impairment.

The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the Statement of Comprehensive Income. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient the Credit Union may measure impairment on the basis of an instrument’s fair value using an observable market price.

For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics (that is, on the basis of the Credit Union’s grading process that considers asset type, industry, geographical location, collateral type, past-due status and other relevant factors).Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated.

Future cash flows for a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the Credit Union and historical loss experience for assets with credit risk characteristics similar to those in the Credit Union. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist.

Estimates of changes in future cash flows for groups of assets reflect and are directionally consistent with changes in related observable data from period to period (for example, changes in unemployment rates, property prices, payment status, or other factors indicative of changes in the probability of losses in the Credit Union and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Credit Union to reduce any differences between loss estimates and actual loss experience.

Loans which are known to be uncollectible are written off against the related allowance for impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtors credit rating), the previously recognised impairment loss is reversed by adjusting the allowance amount, with the reversal being recognised in the Statement of Comprehensive Income.

The various components of impaired assets are as follows:

Individually impaired loans are loans and advances for which there is reasonable doubt that the Credit Union will be able to collect all amounts of principal and interest in accordance with the terms of the agreement and for which an individual assessment of impairment is made.

Collectively impaired loans are loans and advances that are not individually assessed for which a collective assessment of impairment is made based on the length of time the loan is in arrears.

Restructured loans are loans where the original contractual terms have been modified to provide for concessions of interest, principal or repayment for reasons related to financial difficulties of the member.

Assets acquired through the enforcement of security are assets acquired in full or partial settlement of a loan or similar facility through the enforcement of security arrangements.


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(k) Impairment of Loans - continued Past-due loans are loans or similar facilities in arrears when a member has failed to make payment when contractually due which are not impaired loans. 90 day past due loans are loans which have not been operated by the member within its' key terms for at least 90 days and which are not impaired loans.

(l) Derivative financial instruments Derivatives (interest rate swaps) were entered into for the purpose of economically managing the interest rate risk of the Credit Union's fixed interest mortgage portfolio. All interest rate swaps held at balance date are recognised at fair value through profit or loss. The derivatives are not designated in an accounting hedge.

(m) New Zealand Association of Credit Unions Capital NotesThe Capital Notes are held as "available-for-sale" assets and are initially recognised at the amount of consideration paid, which is their fair value at the date of acquisition.

Dividend income from "available-for-sale" assets is separately recognised in the Statement of Comprehensive Income as part of other income when the Credit Union's right to receive payments is established (ex-dividend date).

"Available-for-sale" financial assets are normally carried at fair value in subsequent periods with changes in fair value being recognised in the Statement of Comprehensive Income as part of other comprehensive income. However, as the Capital Notes are equity instruments and do not have a quoted market price in an active market and the fair value cannot be measured reliably, they are measured at cost price in terms of the accounting standard NZ IAS 39. Note that this concession is likely to be removed in future with a requirement to measure capital notes at fair value subsequent to initial recognition.

The Credit Union assesses at each balance date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of Capital Notes classified as "available-for-sale", in addition to the indicators described under note 2(k) a significant or prolonged decline in the fair value of the instrument below its cost is considered in determining whether the investment is impaired. If any such evidence exists for "available-for-sale" financial assets, the cumulative loss measured as the difference between the acquisition cost and the current fair value, is recognised in the Statement of Comprehensive Income.

(n) Property, plant and equipmentAll property, plant and equipment is stated at historical cost less depreciation and any impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Credit Union and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the Statement of Comprehensive Income during the financial period in which they are incurred.

The buildings, plant and equipment are depreciated on a straight line basis. Depreciation of buildings, plant and equipment is calculated using rates which are estimated to expense the cost of the assets over their useful lives. The rates are as follows:

Buildings 4-10% per annum on cost Motor Vehicles 20% per annum on costLeasehold Improvements Term of Lease Plant, Equipment & Computer Equipment 20-33% per annum on cost

Asset purchases of less than $500 are not capitalised.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at least at each financial period for any impairment in value.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the Statement of Comprehensive Income.

(o) Impairment Testing of Assets (excluding property, plant and equipment and loans)At each reporting date, the Credit Union reviews the carrying values of its tangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset's carrying value. Any excess of the asset's carrying value over its recoverable amount is expensed to the Statement of Comprehensive Income.


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(p) Trade and Other PayablesThese amounts represent liabilities for goods and services provided to the Credit Union prior to the end of the financial period which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

(q) Employee Benefits Liabilities for wages and salaries, including non monetary benefits, annual leave and long service leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employees' service up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled. Liabilities for non-accumulating sick leave are recognised when the leave is taken and measured at the rates paid or payable. The liability for employee entitlements is carried at the present value of the estimated future cash flows. Employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made if material.

(r) Members' DepositsMembers’ deposits are the members' shares in the Credit Union. For the purposes of financial reporting, members' shares are recognised as debt instruments. They are recorded initially at fair value and subsequently at amortised cost. All payments of dividends on these shares are recorded as interest payments. Members have the right to one vote at the meetings of the Credit Union, regardless of the number of shares held. Interest on deposits is brought to account on an accrual basis and is presented as a part of trade and other payables.

(s) Financial Instruments RecognitionFinancial instruments are initially measured at fair value on trade date, which includes transactions costs, when the related contractual rights or obligations exist. Subsequent to initial recognition these instruments are measured as set out below.

Financial assets at fair value through profit or lossA financial asset is classified in this category only when the Credit Union becomes a party to the contractual provisions of the financial asset and if acquired principally for the purpose of selling in the short term or if so designated by management. Realised and unrealised gains and losses arising from changes in the fair value of these assets are included in the Statement of Comprehensive Income in the period in which they arise.

Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are stated at amortised costs using the effective interest rate method.

Held-to-maturity investmentsThese investments have fixed maturities, and it is the Credit Union’s intention to hold these investments to maturity. Any held-to-maturity investments held by the Credit Union are stated at amortised cost using the effective interest rate method.

Available-for-sale equity instrumentsInvestments in New Zealand Association of Credit Unions Capital Notes provide equity for the Association to enable it to provide essential services to the Credit Unions. They are held as "available-for-sale assets" under NZ IAS 39. This classification recognises that they do not meet the definition of "loans and receivables" or "held-to-maturity" investments because they do not have a fixed or determinable interest or dividend rate attached to them.

Financial liabilities Non-derivative financial liabilities are recognised at amortised cost, comprising original debt less principal payments and amortisation using the effective interest rate method. This category includes members' deposits and trade and other payables. Members' deposits meet the definition of financial liabilities under NZ IAS 32 as they are secured by a first ranking registered Trust Deed over the Credit Union's assets and revenue.

(t) Statement of Cash FlowsDefinitions of terms used in the Statement of Cash Flows:

Cash includes coins and notes, demand deposits and other highly liquid investments with original maturities of three months or less and includes at call borrowings such as bank overdrafts, used by the organisation as part of its day-to-day cash management.

Investing Activities are those activities relating to the acquisition and disposal of current and non current investments and any other non current assets. They include loans to members and repayments of loans by members.




(t) Statement of Cash Flows - continued

Financing Activities are those activities relating to changes in the size and composition of the capital structure of the Credit Union.

Operating Activities include all transactions and other events that are not investing or financing activities.

Certain cash flows have been netted in order to provide more meaningful disclosure as many of the cash flows are received and disbursed on behalf of members and reflect the activities of the members rather than those of the Credit Union. These include members' loans and borrowings.

(u) Critical Estimates, Judgements and Assumptions in Applying the Accounting PoliciesEstimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. This has an impact on the one critical estimate, being the impairment provision for doubtful loans (refer to note 9).

The Credit Union makes estimates and assumptions concerning the future when assessing the impairment provision on loans. The Credit Union reviews its loan portfolio to assess impairment at least monthly. The impairment provision is adjusted based on evidence relating to borrowers circumstances including the period that the loans are in arrears. The resulting accounting estimates will seldom equal the related actual results and there is a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. Also the Credit Union has used judgement concerning the future discounted cash flows of the New Zealand Association of Credit Unions Group when assessing whether there is any impairment loss on the New Zealand Association of Credit Unions' Capital Notes.

(v) Standards, Interpretations and Amendments to Published Standards that are not yet effective.The following new and amended standard, amendment and interpretation have been issued by the Accounting Standards Review Board (now replaced by the External Reporting Board) but have not been adopted by the Credit Union as they are not yet effective for the year ended 30 June 2013.

This is:

NZ IFRS 9: Financial Instruments (effective for annual reporting periods beginning after 1 January 2015)The new standard simplifies the classification criteria for financial assets, comparing to the current requirements of NZ IAS 39, which results in a reduced number of categories of financial assets and some consequential amendments to disclosures required by NZ IAS 1 Presentation of Financial Statements and NZ IFRS 7 Financial Instruments: Disclosures. The Credit Union's financial assets currently fall into the category of Loan receivables within NZ IAS 39 classification. If NZ IFRS 9 was adopted, these assets would have met the definition of the category of financial assets measured at amortised cost. However, their measurement and disclosure would not have been affected. The Credit Union would not have any transactions to disclose under the new NZ IAS 1 and NZ IFRS 7 disclosure requirements relating to gain or loss arising on derecognition of financial assets measured at amortised cost.

Other than the impact on the value of the NZACU Capital Notes as mentioned in (s) there will be no impact on the Credit Union's accounting for financial liabilities, as the new requirement only affects the accounting for financial liabilities that are designated as at fair value through profit or loss and the Credit Union does not have any such liabilities.

New Accounting Standards FrameworkThe Minister of Commerce has approved a new Accounting Standards Framework developed by the External Reporting Board (XRB). Under this Accounting Standards Framework, the Credit Union is classified as a public benefit entity and it is expected that it will be required to apply the new PBE Standards as applicable for private not-for-profit entities. These standards are being developed by the XRB based on current International Public Sector Accounting Standards (IPSAS). The effective date for the new standards for private not-for-profit entities is expected to be for reporting periods begining on or after 1 April 2015. This means the Credit Union expects to transition to the new standards in preparing its' (30 June) 2016 financial statements. As the PBE Standards as applicable for not-for-profit entities are still under development, the Credit Union is unable to assess the implications of the new Accounting Standards Framework at this time.

Due to the change in the Accounting Standards Framework for public benefit entities, the XRB has effectively frozen the financial reporting requirements for public benefit entities up until the new Accounting Standards Framework is effective. Therefore all new NZ IFRS and amendments to existing NZ IFRS issued after 1 June 2011 will not be applicable to public benefit entities. Accordingly, no disclosure has been made about new or amended NZ IFRS that exclude public benefit entities from their scope.

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3 REVENUE AND EXPENDITURE 2013 2012 $'000 $'000

(a) Interest Revenue Interest on Loans 10,377 11,847 Interest on Investments 1,358 1,101 Dividends on New Zealand Association of Credit Union Capital Notes 135 223

Total Interest Revenue $11,870 $13,171 (b) Interest Expense

Interest on Members' Call Shares 1,188 1,176 Interest on Members' Term Shares 1,616 2,018 Loss on Interest Rate Swaps (Derivatives) - 34

Total Interest Expense $2,804 $3,228 (c) Other Income

Accesscard - Eftpos Card Transaction Fees 1,555 1,600 Loan Application Fees 1,048 668 Cost Recovery Fees 189 187 Commissions Earned 857 1,254 Other Fees Charged 1,483 852 Other Income 14 2

Total Other Income $5,146 $4,563 (d) Bad and Doubtful Loans

Bad Loans Written Off 1,663 2,656 Provision for Loan Impairments - (decrease)/increase (253) (1,134) Bad Loans Recovered (295) (145)

Total Bad and Doubtful Loans $1,115 $1,377 (e) Employee Benefits

Salaries 4,575 4,880 Other 151 170

Total Employee Benefits $4,726 $5,050 (f) Depreciation

Buildings 88 69 Leasehold Improvements 194 359 Plant and Equipment 162 226 Motor Vehicles 20 31 Total Depreciation $464 $685


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3 REVENUE AND EXPENDITURE - Continued 2013 2012 $'000 $'000

(g) Other Administration Expenses Auditors' Remuneration - PricewaterhouseCoopers

External Audit - Audit of Financial Statements 35 29 Other assurance services 20 2

Accesscard Charges 1,264 1,131 Advertising and Marketing 752 1,021 Bank and Cash Delivery Charges 335 472 Credit Checks and Debt Recovery 335 273 Data Processing Charges 1,031 1,068 Other Occupancy Costs 191 229 Directors' Fees 195 195 Directors' Expenses and Training 53 51 Donations Made / Community Support - - Loyalty Fee Rebate 829 738 Staff Training and Seminars 88 84 Office Expenses 106 156

Telephone 228 261 Printing, Stationery & Postage 264 245

Consultancy Fees 117 29 Restructure Costs 592 - Other Sundry Expenses 723 364 Total Other Administration Expenses $7,158 $6,348

The restructuring costs relate to redundancies and similar costs for the closure of several branches

and agencies during the 2013 financial year. They are not expected to recur in future years.

(h) Interest Rates Interest is paid to members and relates to the Credit Union’s ability to pay the interest. At times during the period the Credit Union may offer depositors special accounts that have a pre-set interest rate. Interest rates applied to members’ deposits for the period were (% per annum):

Call Shares 2013 2012 S1 Everyday Account 1.50% 1.50% S2 Billpay and S3 Autopay Accounts 0.00% 0.00% S5 Goal Saver Account 2.00% 2.00% S6 Loyalty Saver Account 2.00 - 3.00% 2.00 - 3.00% S7 Christmas Saver and S8 Christmas Hamper Accounts 2.00% 2.00% S10 Success Saver Account 3.50% 3.50% S11 Money Management Account 0.00% 0.00%

S12 Seasonal Saver Account 0.00% 0.00% Term Shares I1 Term Deposit (I-2 months) 2.00 - 3.00% 2.00 - 3.00% I3 Term Deposit (3 months) 2.25 - 3.25% 2.25 - 3.25% I4 Term Deposit (4 months) 2.25 - 3.25% 2.25 - 3.25% I6 Term Deposit (6 months) 3.00 - 4.00% 3.25 - 4.25% I12 Term Deposit (12 months) 3.25 - 4.25% 3.25 - 4.25% I24 Term Deposit (24 months) 3.50 - 4.50% 4.00 - 5.00%


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4 RESERVES

Reserves as at 30 June 2013

Reserves as at 30 June 2012

Retained EarningsRetained earnings arise from retained surpluses accumulated from operations.

General ReserveIn past years a General Reserve was established in accordance with Section 119 of the Friendly Societies and Credit Unions Act 1982 which required the Credit Union to transfer 5% of gross earnings to the General Reserve until the General Reserve is the equivalent of 5% of total assets. Following the enactment of the Friendly Societies and Credit Unions Amendment Act 2012 there is no longer a requirement to maintain a General Reserve. Accordingly, this reserve has been transferred to Retained Earnings.

Total ReservesThe Trust Deed requires that the total reserves, including retained earnings, amount to at least 10% of the total assets of the Credit Union.

Retained General Total Earnings Reserve Reserves $'000 $'000 $'000

Balance brought forward 12,206 6,306 18,512

Operating profit for the period 132 - 132

Total Transferred 6,306 (6,306) -

Balance carried forward 18,644 - 18,644

Reserve % to Total Assets 17.25% 0.00% 17.25%

Retained General Total Earnings Reserve Reserves $'000 $'000 $'000

Balance brought forward 11,799 6,306 18,105

Operating profit for the period 407 - 407

Balance carried forward 12,206 6,306 18,512

Reserve % to Total Assets 10.62% 5.49% 16.11%


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5 CASH AND CASH EQUIVALENTS

Average Interest Rates 2013 2012 p.a. $'000 $'000

Cash on hand 0.00% 1,209 1,559 Bank Balances 0.50% 1,610 1,235

2,819 2,794

6 DEPOSITS AT NEW ZEALAND ASSOCIATION OF CREDIT UNIONS

Average Interest Rates 2013 2012 p.a. $'000 $'000

Call Deposits 2.55% 1,000 4,500 Term Deposits 4.02% 14,000 14,000

15,000 18,500

The Credit Union does not hold tradeable securities. Effective interest rates are the original contracted values. All balances are available within 3 months. The deposits with the New Zealand Association of Credit Unions' central banking facility are excess funds held on behalf of the Credit Union. The New Zealand Association of Credit Unions minimises its exposure to credit risk by maintaining a diversified portfolio with the majority of investments being deposits in banks and money market securities. Movements in market rates will not affect the recorded value of these investments.

6a DEPOSITS AT REGISTERED BANKS Average Interest Rates 2013 2012 p.a. $'000 $'000 call Deposits Heartland Bank 4.25% 1,003 -

Term Deposits SBS Bank deposit maturing 13 August 2012 0.00% - 2,000 BNZ deposit maturing 24 November 2012 0.00% - 1,000 BNZ deposit maturing 25 July 2013 4.60% 2,000 - BNZ deposit maturing 5 August 2013 4.62% 1,000 1,000 BNZ deposit maturing 13 August 2013 4.62% 2,000 - BNZ deposit maturing 23 September 2013 4.55% 2,000 2,000 BNZ deposit maturing 7 November 2013 4.40% 1,000 1,000 BNZ deposit maturing 7 November 2013 4.15% 2,000 2,000 BNZ deposit maturing 5 April 2014 4.38% 2,000 4,000 BNZ deposit maturing 14 June 2014 4.40% 2,000 2,000

15,003 15,000

$7,000,000 of the $15,003,027 (2012 $6,000,000 of $15,000,000) is invested for a period greater than 90 days and less than a year.


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7 TRADE AND OTHER RECEIVABLES 2013 2012 $'000 $'000

Accrued Interest 668 490 Accrued Dividends - Capital Notes 62 133 Insurance Rebates Receivable 260 328 Prepayments 30 38

1,020 989

All trade and other receivables are due within 1 year.

8 LOANS TO MEMBERS Loans are made in accordance with the Credit Risk Policy of the Credit Union and are repayable on demand. A provision for impairment has been made at the end of the reporting period.Bad loans are written off against the provision for impairment and the provision adjusted accordingly.

2013 2012 (a) Loans to members comprises: $'000 $'000

Neither Past Due nor Impaired 66,923 68,236 Past Due but Not Impaired

Up to 30 days 1,676 2,809 Impaired individually 43 67 Impaired collectively 2,350 3,073 Gross Loans 70,992 74,185 Less:

Allowance for impairment individually 43 67 Allowance for impairment collectively 998 1,227 1,041 1,294

Net Loans 69,951 72,891

(b) Credit quality - Security dissection

Secured by first mortgage over real estate 17,196 16,779 Secured by second mortgage over real estate 24 24 Secured by members' shares in the Credit Union 11,489 12,929 Unsecured loans 42,283 44,453

70,992 74,185

It is impracticable to provide a valuation of the collateral security held against loans because of the large number of loans that the Credit Union has at any one time. A breakdown of the quality of the security on a portfolio basis is:

2013 2012 $'000 $'000

Security held as mortgage against real estate is on the basis of: - loan to valuation ratio of less than 80% 12,899 12,186 - loan to valuation ratio of more than 80% 642 466 - loan to valuation ratio of more than 80% - (insured under the 3,678 4,152 Welcome Home Loan Scheme) 17,219 16,804


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8 LOANS TO MEMBERS - Continued 2013 2012(c) Credit quality - Concentration of loans (i) Loans to individual or related groups of members which exceed 10% of equity Nil Nil (ii) Loans to members concentrated to individuals employed in any particular industry Nil Nil (iii) Loans to members concentrated solely in New Zealand which is the common bond of the Credit Union 100% 100% (iv) Loans drawn down by member type

Loans to natural persons - Residential loans and facilities ($'000) 17,219 16,803

- Personal loans and facilities ($'000) 53,773 57,382 Loans to Charitable Trusts and Incorporated Societies ($'000) - -

70,992 74,185

9 IMPAIRMENT OF LOANS AND ADVANCES

2013 2012 (a) Provision for Impairment $'000 $'000

Opening balance 1,294 2,428 Decrease in provision for impairment in period (253) (1,134)

Balance carried forward 1,041 1,294

(b) Key assumptions in determining the provision for impairment In the course of the preparation of these financial statements the Credit Union has determined the likely

impairment loss on loans which have not maintained loan repayments in accordance with the loan contract, or where there is other evidence of potential impairment such as industrial restructuring, job losses or economic circumstances.

In identifying the impairment likely from these events the Credit Union is required to estimate the potential

impairment. This can be based on the individual circumstances of the member (individually impaired loans) or based on the length of time the loan is in arrears (collectively impaired loans). The impairment provision on collectively impaired loans is based on the following formula:

Period of Impairment % of balance 1 day to 30 days 0.5% 31 days to 90 days 20% 91 days to 180 days 40% 181 days to 270 days 60% 271 days to 365 days 80% Over 365 days 100%

This provision is checked to historical write offs and an additional provision is made if necessary.


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9 IMPAIRMENT OF LOANS AND ADVANCES - Continued (c) Impairment of Loans collectively Individually Provisioned Restructured impaired Loans Loans Loans Total Gross Receivables $'000 $'000 $'000 $'000 Carrying Amount at 1 July 2012 3,073 - 67 3,140 Addition to Class 915 - - 915 Written Off (1,638) - (24) (1,662) Deletions from Class - - - - Carrying Amount at 30 June 2013 2,350 - 43 2,393 Impairment Provision Impairment at 1 July 2012 1,227 - 67 1,294 Additions to Class 1,409 - - 1,409 Written Off (1,638) - (24) (1,662) Deletions from Class - - - - Impairment at 30 June 2013 998 - 43 1,041

Net Impaired Loans at 30 June 2013 1,352 - - 1,352

collectively Individually Provisioned Restructured impaired Loans Loans Loans Total Gross Receivables $'000 $'000 $'000 $'000 Carrying Amount at 1 July 2011 3,176 - 1,178 4,354 Addition to Class 1,517 - - 1,517 Written Off (1,620) - (1,036) (2,656) Deletions from Class - - (75) (75) Carrying Amount at 30 June 2012 3,073 - 67 3,140 Impairment Provision

Impairment at 1 July 2011 1,250 - 1,178 2,428 Additions to Class 1,597 - - 1,597 Written Off (1,620) - (1,036) (2,656) Deletions from Class - - (75) (75)

Impairment at 30 June 2012 1,227 - 67 1,294

Net Impaired Loans at 30 June 2012 1,846 - - 1,846

Restructured Loans and Loans with Enforcement of Security There were no restructured loans, no loans where real estate or other assets were acquired through the enforcement of security at 30 June 2013 (30 June 2012 Nil). All 90 day past due assets are included in the individually impaired and collectively impaired loan categories.

(d) Interest and Other Revenue recognised and foregone 2013 2012

$'000 $'000 Interest revenue on non-accrual and restructured loans 12 4 Interest foregone on non-accrual and restructured loans 8 4



10 DERIVATIVES - INTEREST RATE SWAPS 2013 2012 $'000 $'000 Interest rate swap contracts - (22)

Derivatives were current liabilities. The one remaining swap matured on 28 March 2013.

(30 June 2012 notional value $575,000). Derivative instruments used by the Credit Union

The Credit Union entered into derivative transactions through the New Zealand Association of Credit Unions in the normal course of business as a partial hedge to reduce the exposure to fluctuations in interest rates in accordance with the Credit Union's financial risk management policies. The final swap matured on 28 March 2013.

11 NEW ZEALAND ASSOCIATION OF CREDIT UNIONS CAPITAL NOTES

New Zealand Association of Credit Unions Capital Notes, classified as "available-for-sale" financial assets, are issued by the New Zealand Association of Credit Unions' Business Services Division as Trust Base Capital Notes (Capital Notes). These represent monies invested with the NZACU Business Services Division Trust for an open-ended term. The Capital Notes constitute unsecured obligations of the Business Services Division Trust and rank equally and without priority or preference among themselves. The Capital Notes rank after creditors in the event of the winding up of the Business Services Division Trust. Capital Notes may only be sold or transferred to another Credit Union that is a member of the Business Services Division Trust and with the consent of the Business Services Division Trust's Board of Directors. The Capital Notes are redeemable in full, with five years notice, by the Association. However, the Credit Union has no intention of redeeming the investments in the forseeable future.

There is no sufficiently active market for these securities which have no guaranteed rate of return. Dividends are payable on a six monthly basis subject to the profitability of the Business Services Division

Trust. Capital Notes are non current assets.

The New Zealand Association of Credit Unions has been generating a surplus in the last three financial years and has increased its' asset backing for the Capital Notes which had fallen below par.

The recent history of dividend payouts as a return on the Capital Notes supports the view that the Capital Notes are appropriately valued at their face value and it is determined that no impairment loss has arisen at balance date. Consequently, the carrying value of the Capital Notes approximates their fair value at balance date.

Investments in Capital Notes 2013 2012 $'000 $'000 Total Capital Notes at fair value 3,096 3,096

Total Available-for-sale investments 3,096 3,096

27


28


12 PROPERTY, PLANT AND EQUIPMENT (a) Classes of Property, Plant & Equipment 2013 2012 $'000 $'000 Land

At cost 300 300

300 300 Buildings

At cost 623 623 Accumulated depreciation (346) (321)

277 302 The latest rateable value of Land and Buildings are

52 Don Street, Invercargill $750,000 1-Jul-11 82 Main Street, Gore $280,000 1-Aug-10

Leasehold improvements

At cost 2,458 2,451 Accumulated depreciation (2,034) (1,776)

424 675 Plant & Equipment

At cost 3,302 3,274 Accumulated depreciation (3,162) (3,001)

140 273 Motor Vehicles

At cost 109 156 Accumulated depreciation (67) (88)

42 68

Total Property, Plant & Equipment 1,183 1,618

(b) Movements in Carrying Amounts

Reconciliation of the carrying amounts of each class of property, plant and equipment between the beginning and end of each period:

30 June 2013 Land and Leasehold Plant & Buildings Improvements Equipment Motor Vehicles Total $'000 $'000 $'000 $'000 $'000

Balance at 1 July 2012 602 675 273 68 1,618 Additions - 6 29 - 35 Disposals - - - (6) (6) Depreciation Expense (25) (257) (162) (20) (464) Carrying amount at 577 424 140 42 1,183 30 June 2013

30 June 2012 Land and Leasehold Plant & Buildings Improvements Equipment Motor Vehicles Total $'000 $'000 $'000 $'000 $'000

Balance at 1 July 2011 627 838 383 99 1,947 Additions - 241 116 - 357 Disposals - - - - - Depreciation Expense (25) (404) (226) (31) (686) Carrying amount at 602 675 273 68 1,618 30 June 2012

There were no impairment losses in respect of property, plant and equipment (2012 nil). All property, plant and equipment are non current assets.


29


13 TRADE AND OTHER PAYABLES 2013 2012 $'000 $'000

Accrued Interest Payable 591 745 Goods and Services Tax 35 24Resident Withholding Tax 33 35 Sundry Creditors and Accrued Expenses 550 828 Accesscard - ATM and Eftpos Card Settlement 999 823Accessdebitcard - ATM and Eftpos Card Settlement 79 - 2,287 2,455

Trade and other payables are current liabilities.

In completing the GST return for the year ended 30 June 2012, the Credit Union made voluntary disclosure and payment of GST for periods prior to 30 June 2011. The amount paid to IRD for those earlier periods totalled $212,346 which comprised the GST for the 15 months ended 30 June 2010 ($87,927), the GST for the year ended 30 June 2011 ($74,132) and use of money interest ($50,287).

14 MEMBERS' DEPOSITS 2013 2012 $'000 $'000 call shares

Savings Accounts 30,875 29,994 Christmas Club 3,077 3,194Christmas Hamper Account - 46Loyalty Account 18,142 19,778

Total Call Shares (all current liabilities) 52,094 53,012

Term shares Original Maturity Terms 0-3 months 978 1,647 4-6 months 11,164 13,7337-9 months - 28310-12 months 11,165 14,434 Greater than 12 months 11,146 10,118

Total Term Shares 34,453 40,215

Total Members' Deposits 86,547 93,227

Deposits from members are accepted on the basis of a fixed value of $1 per share. Deposits not in whole dollars are deemed to be advance subscriptions for shares. Dividends not paid in cash, and reinvested by members, are deemed to be subscriptions for shares and add to the members’ share balance in the Credit Union. The Directors believe the reported values reflect fair value. Members’ shares are secured by a first ranking equitable assignment by way of security over the whole of the Credit Union’s present and future undertaking, property, assets and revenues, including the proceeds received for the subscription for shares and unpaid capital (if any). The equitable assignment by way of security was granted in favour of Trustees Executors Limited, the Prudential Supervisor of the Credit Union, under a Trust Deed dated 7 February 2001, which has been registered with the Registrar of Companies. The Credit Union has also granted to Trustees Executors Limited a security interest in all its present and after-acquired personal property as additional security for the members’ shares. Trustees Executors Limited has registered a financing statement under the Personal Property Securities Act 1999 in respect of the same. The grant of this security interest was recorded in a Deed of Modification to Trust Deed dated 15 October 2002, which has been registered with the Registrar of Companies. On 19 February 2010 the Credit Union obtained a long-term issuer credit rating of BB with a stable outlook from Standard & Poor's. This credit rating was revised to BB- with a stable outlook on 13 December 2011, re-affirmed as BB- with a stable outlook on 12 December 2012 and revised to BB- with a negative outlook on 16 May 2013.


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15 COMMITMENTS

(a) Future Capital Commitments 2013 2012 $'000 $'000 As at balance date, the Credit Union has contracted to purchase property, plant and equipment to the value of: - 20

(b) Operating Lease CommitmentsAs at balance date, the Credit Union has entered into the operating lease agreements for the premises of the remaining branches in the South Island (except Invercargill and Gore). Operating leases contracted for but not capitalised in the financial statements, payable:

Not longer than 1 year 458 426 Longer than 1 and not longer than 5 years 436 516 Longer than 5 years - - 894 942 Each lease is for a three year term, with varying rights of renewal and with rent payable monthly in advance. (c) Outstanding Loan Commitments Loans and credit facilities approved but not paid out at the end of the financial period: Loans approved but not paid out 572 210 Undrawn overdraft, line of credit 207 182 Undrawn Accesscredit - 151 779 543

16 STANDBY BORROWING FACILITIES The Credit Union has a gross borrowing facility (as an overdraft facility) with the New Zealand Association of Credit Unions at 30 June 2013 of $2,500,000 (30 June 2012 $2,500,000). There are no borrowings against this facility. The interest rate is 5.15% p.a. (30 June 2012 5.15%) and the penalty rate is 7.75% p.a. (30 June 2012 7.75%). There are no material terms of use.

17 CONTINGENT LIABILITIES

There are no material contingent liabilities at 30 June 2013 (30 June 2012, Nil).

18 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The board has endorsed a policy of compliance and risk management to match the risk profile of the Credit Union. Key risk management policies encompassed in the overall risk management framework include: - Market Risk and Hedging Policy management - Credit risk management - Liquidity risk management - Capital adequacy management


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18 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES - Continued The Credit Union has undertaken the following strategies to minimise the risks arising from financialinstruments:

Market Risk and Hedging PolicyThe Credit Union is not exposed to currency risk, and other price risk. The Credit Union does not trade in the financial instruments it holds on its books. The Credit Union is exposed to interest rate risk arising from changes in market interest rates. The policy of the Credit Union to manage the risk is to maintain a balanced "on book" strategy by ensuring the net interest rate gaps between members' loans and members' shares are not excessive. The measured gap in each 3 month range is to be maintained between 7.5% and 9.00% of the difference between interest on loans and members deposits. The gap is measured monthly to identify any large exposures to the interest rate movements and to rectify the excess through targeted fixed rate interest products available through investment assets, and term deposit liabilities to rectify the imbalance to within acceptable levels. The Credit Union's exposure to interest rate risk is set out in Note 20 which details the contractual interest rate change profile and Note 10 sets out the interest rate swaps used to minimise interest rate risk. The following tables summarise the sensitivity of the Credit Union's financial assets and liabilities to a 1% movement in interest rates on the Credit Union's financial position and results. The 1% movement is used because management believes that this is the reasonably possible change to the Official Cash Rate (OCR) within the next 12 months.

The Credit Union performs sensitivity analysis to measure market risk exposures. The method used in determining the sensitivity was to evaluate the profit based on the timing of the interest repricing on the banking book of the Credit Union for the next 12 months. In doing the calculation the assumptions applied were that:

- The interest rate change would be applied equally over the loan products- The rate change would be as at the beginning of the 12 month period and no other rate changes would

be effective during the period- The term deposits would all reprice to the new interest rate at the term maturity, or be replaced by

deposits with similar terms and rates applicable- All loans would be repaid in accordance with the current average repayment (or contractual repayment

terms) - The value and mix of call savings to term deposits will be unchanged- The value and mix of personal loans to mortgage loans will be unchanged

There has been no change to the Credit Union's exposure to market risk or the way the entity manages and measures market risk in the reporting period.

2013 - Interest Rate Risk 2012 - Interest Rate Risk

-1% +1% -1% +1%Financial Assets Carrying Profit & Profit & Carrying Profit & Profit & amount Equity Equity amount Equity Equity NZACU and Bank Deposits 31,613 (316) 316 34,735 (347) 347Loan Receivables 69,951 (700) 700 72,891 (729) 729

101,564 (1,016) 1,016 107,626 (1,076) 1,076 Financial Liabilities Members' deposits 86,547 865 (865) 93,227 932 (932)

Derivatives - - - 22 - -

86,547 865 (865) 93,249 932 (932) Total (decrease) /increase (151) 151 (144) 144


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18 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES - Continued

Credit Risk - LoansCredit risk is the risk that the other party to a financial instrument will fail to discharge their obligation resulting in the Credit Union incurring a financial loss. This usually occurs when debtors fail to settle their obligations owing to the entity. There is no individual concentration of credit risk with respect of loans and receivables as the Credit Union has a large number of customers. The credit policy is that loans are only made to members that are credit worthy.

The Credit Union has established policies or procedures over the:

- Credit assessment and approval of loans and facilities covering acceptable risk assessment and security requirements

- Limits of exposure over the value to individual borrowers, non mortgage secured loans, commercial lending and concentrations to geographic and industry groups considered at high risk of default

- Reassessing and review of the credit exposures on loans and facilities- Establishing appropriate provisions to recognise the impairments of loans- Debt recovery procedures- Review of compliance with the above policies.

Regular reviews of compliance are conducted as part of the internal audit scope.

The risk of losses from the loans undertaken is primarily reduced by the nature and quality of the security taken. The board policy is to lend no more than 40% (2012 40%) of the loans in secured residential mortgages which carry an 80% Loan to Valuation ratio or better. There are four (4) mortgages that have a Loan to Valuation ratio in excess of 80% (2012 3). All loans over $25,000 require collateral security which the Credit Union can enforce by disposing of the secured assets in the event of default.

Daily reports monitor the loan repayments to detect delays in repayments and recovery action is undertaken after 7 days if not rectified. For loans where repayments are doubtful, external consultants are engaged to conduct recovery action once the loan is over 90 days in arrears. The exposures to losses arise predominantly in the non secured personal loans and facilities.

The significant accounting judgements related to the determination of the provision for impairment of loans are set out in Note 9.

Credit Risk - Liquid InvestmentsCredit risk is the risk that the other party to a financial instrument will fail to discharge their obligation resulting in the Credit Union incurring a financial loss. This usually occurs when members fail to settle their loan obligations to the Credit Union.

There is a concentration of credit risk with respect to investment receivables with the placement of investments in the New Zealand Association of Credit Unions and registered banks. The credit policy is that investments are only made to institutions that are credit worthy.

The risk of losses from the liquid investments undertaken is reduced by the nature and quality of the independent rating of the investee and the limits to concentration on one entity.

The board policy is to place the majority of investments with the New Zealand Association of Credit Unions, an association set up to support the member Credit Unions. The Association has a credit rating of BB- (Standard & Poor's) and invests principally in bank deposits and money market securities.Any other investments may only be with New Zealand registered Banks.

Credit Risk - Equity InvestmentsThe Credit Union does not have equity investments other than Capital Notes in the New Zealand Association of Credit Unions (refer note 11).


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18 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES - Continued

Liquidity RiskLiquidity risk is the risk that the Credit Union may encounter difficulties raising funds to meet commitments associated with financial instruments, e.g. borrowing repayments. It is the policy of the Board of Directors that the Credit Union maintains adequate cash reserves and committed credit facilities so as to meet the member withdrawal demands when requested.

The Credit Union manages liquidity risk by:- Continuously monitoring forecast and actual daily cash flows- Reviewing the maturity profiles of financial assets and liabilities- Maintaining adequate reserves, liquidity support facilities and reserve borrowing facilities- Regularly monitoring loan repayments and comparing to forecast cash flows.- The Credit Union has a standby borrowing facility with the NZACU to provide support to the Credit

Union if necessary at short notice.

The Credit Union's policy is to maintain at least 8% of total assets as liquid assets capable of being converted to cash within seven days. The ratio is monitored and reported to management, the Credit Union Directors and its' Trustees on a regular basis. Should the liquidity ratio fall below this level, the management and board are to address the matter and ensure that the liquid funds are obtained from new deposits or borrowing facilities available.

The maturity profile of the financial liabilities, based on the contractual repayment terms, is set out in the specific Note 19. Whilst there is liquidity deficiency for the within one month period of $40,972,000 as at 30 June 2013 (30 June 2012 $36,183,000), based on the contractual arrangements, the Credit Union can manage any potential mismatch and meet its' obligations as they fall due as all loans to members are repayable on demand. In addition, the profile assumes that all members' shares are repaid when they mature. In the ordinary course of business of the Credit Union normally retains the members deposits which are due within 1 month ensuring that it does not need to demand repayment of the members loans.

The ability to demand repayment of all member loans provides the Credit Union with ready access to funds if some or all members shares required repayment. The Credit Union also has the right at any time to require a sixty day notice period for repayment of members shares and has an undrawn overdraft facility of $2,500,000 with the New Zealand Association of Credit Unions (refer Note 16).

Capital ManagementThe Credit Union is regulated under the Friendly Societies and Credit Union Act 1982. The Credit Union operates under a Trust Deed which requires the minimum reserves to be held by the Credit Union to be 10% of total assets. The Credit Union reserves as at the end of the reporting period are stated in Note 4.

The Credit Union's capital is determined as follows: 2013 2012Tier 1 $'000 $'000Retained earnings 18,644 12,206General reserve - 6,306

Total Tier 1 reserves $18,644 $18,512

Tier 1 capital ratio 17% 16%

In addition, the Credit Union must comply with the "Deposit Takers (Credit Ratings, Capital Ratios and Related Party Exposures) Regulations 2010" which came into effect on 1 December 2010. These regulations require a minimum of 8% capital ratio (equity to risk weighted assets) and the Credit Union meets the requirements of these regulations. As at 30 June 2013, the Credit Union's capital ratio was 15.84% (2012 14.44%). To manage the Credit Union's capital, which can be affected by excessive growth and by changes in total assets, the Credit Union regularly reviews the capital adequacy ratio and monitors major movements in the asset levels. Policies have been implemented to require reporting to the board and the trustee if the capital ratio falls below 10%. Further, an annual capital budget projection of the capital level is maintained to address how strategic decisions or trends may impact on the capital level.


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19 MATURITY PROFILE OF FINANCIAL ASSETS AND LIABILITIES Monetary assets and liabilities have differing maturity profiles depending on the contractual term, and in the case of loans the repayment amount and frequency. The associated table shows the period in which different monetary assets and liabilities held will mature and be eligible for renegotiation or withdrawal. In the case of loans, the table shows the period over which the principal outstanding will be repaid based on the remaining period to the repayment date assuming contractual repayments are maintained. Interest on members' loans and interest on members' shares are included in the totals below. $'000

$'000

The expected liquidity is as per the contractual table above except that the members deposits which are due within one month are not expected to be repaid but to continue at the same level to provide continuing funds for the Credit Union.

30 June 2013Monetary Assets Receivable Cash, Bank andNZACU Deposits Trade and other receivables Loans to members

Future Intereston Loans

Capital Notes

Total Monetary Assets Receivable

Within 1 - 3 3 - 6 6 - 12 1-2 2 - 5 Over Total 1 Month Months Months Months Years Years 5 Years

11,822 14,000 3,000 4,000 - - - 32,822

1,020 - - - - - - 1,020

2,122 4,080 5,998 11,194 17,811 18,162 11,625 70,992

832 1,605 2,206 3,709 4,981 4,941 5,242 23,516

- - - - - - 3,096 3,096

15,796 19,685 11,204 18,903 22,792 23,103 19,963 131,446

30 June 2013 Monetary Liabilities Payable

Trade and other payables Members Deposits

Future Intereston Deposits

Total Monetary Liabilities Payable

Liquidity Deficiency/(Excess)


2,287 - - - - - - 2,287

54,390 6,195 10,834 8,025 7,041 62 - 86,547

91 200 346 512 459 - - 1,608

56,768 6,395 11,180 8,537 7,500 62 - 90,442

40,972 (13,290) (24) (10,366) (15,292) (23,041) (19,963) (41,004)



19 MATURITY PROFILE OF FINANCIAL ASSETS AND LIABILITIES - continued

$'000

$'000

35

30 June 2012Monetary Assets Receivable Cash, Bank andNZACU Deposits Trade and other receivables Loans to members

Future Intereston Loans

Capital Notes

Total Monetary Assets Receivable


18,294 12,000 4,000 2,000 - - - 36,294

951 - - - - - - 951

2,332 4,193 6,166 11,621 18,903 18,680 12,290 74,185

895 1,731 2,385 4,036 5,467 5,525 6,699 26,738

- - - - - - 3,096 3,096

22,472 17,924 12,551 17,657 24,370 24,205 22,085 141,264

30 June 2012 Monetary Liabilities Payable

Trade and other payables Members Deposits

Derivatives

Future Intereston Deposits

Total Monetary Liabilities Payable

Liquidity Deficiency/(Excess)


2,455 - - - - - - 2,455

56,096 7,608 14,782 9,775 4,966 - - 93,227

- 7 7 8 - - - 22

104 256 556 471 254 - - 1,641

58,655 7,871 15,345 10,254 5,220 - - 97,345

36,183 (10,053) 2,794 (7,403) (19,150) (24,205) (22,085) (43,919)


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20 INTEREST RATE RISK The Credit Union’s exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as

a result of changes in market interest rates and the effective weighted average interest rate on classes of financial assets and financial liabilities, is as follows:

(a) NZACU Capital Notes do not have any predetermined earning rate. A dividend is payable on a six-monthly basis in arrears subject to the profitability of the NZACU Business Services Trust.

The last dividend payment was for the 6 months ended 31 December 2012 and was at 4.65% per annum. The expected dividend for the 6 months ended 30 June 2013 is 4.00% per annum.

Monetary Assets

Cash 1,209 1,559 1,209 1,559 N/A N/A

Bank Balances 1,610 1,235 1,610 1,235 0.50% 0.50%

Deposits at NZACU 15,000 18,500 15,000 18,500 4.02% 4.03%

Deposits at Banks 8,003 9,000 3,000 4,000 4,000 2,000 15,003 15,000 4.73% 4.46%

Trade and other receivables 1,020 951 1,020 951 N/A N/A

Loans to members 70,992 74,185 70,992 74,185 14.27% 14.73%

NZACU Capital Notes - see (a) 3,096 3,096 3,096 3,096 4.33% 5.77%

Total Monetary Assets 70,992 74,185 24,613 28,735 3,000 4,000 4,000 2,000 0 0 0 0 3,096 3,096 2,229 2,510 107,930 114,526

Monetary Liabilities

Members' Deposits - Call 52,094 53,012 52,094 53,012 2.42% 2.40%

Members' Deposits - Term 8,491 10,692 10,834 14,782 8,025 9,775 7,041 4,966 62 0 34,453 40,215 4.36% 4.64%

Derivatives/Interest rate swaps 0 7 0 7 0 8 0 22 N/A N/A

Other payables 2,287 2,455 2,287 2,455 N/A N/A

Total Monetary Liabilities 0 0 60,585 63,711 10,834 14,789 8,025 9,783 7,041 4,966 62 0 0 0 2,287 2,455 88,834 95,704

2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012

$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 % %

Floating interest rate

Fixed Interest Rate Maturing in:

0 to 3 months 3 to 6 months 6 to 12 months 1 to 2 years 2 to 5 years Over 5 years

Repricing period at Repricing period at



* The weighted average effective interest rate has been calculated on the interest sensitive financial instruments in each category. N/A = Not Applicable.

Monetary Assets

Cash 1,209 1,559 1,209 1,559 N/A N/A

Bank Balances 1,610 1,235 1,610 1,235 0.50% 0.50%

Deposits at NZACU 15,000 18,500 15,000 18,500 4.02% 4.03%

Deposits at Banks 8,003 9,000 3,000 4,000 4,000 2,000 15,003 15,000 4.73% 4.46%

Trade and other receivables 1,020 951 1,020 951 N/A N/A

Loans to members 70,992 74,185 70,992 74,185 14.27% 14.73%

NZACU Capital Notes - see (a) 3,096 3,096 3,096 3,096 4.33% 5.77%

Total Monetary Assets 70,992 74,185 24,613 28,735 3,000 4,000 4,000 2,000 0 0 0 0 3,096 3,096 2,229 2,510 107,930 114,526

Monetary Liabilities

Members' Deposits - Call 52,094 53,012 52,094 53,012 2.42% 2.40%

Members' Deposits - Term 8,491 10,692 10,834 14,782 8,025 9,775 7,041 4,966 62 0 34,453 40,215 4.36% 4.64%

Derivatives/Interest rate swaps 0 7 0 7 0 8 0 22 N/A N/A

Other payables 2,287 2,455 2,287 2,455 N/A N/A

Total Monetary Liabilities 0 0 60,585 63,711 10,834 14,789 8,025 9,783 7,041 4,966 62 0 0 0 2,287 2,455 88,834 95,704

2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012

$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 % %

Weighted average effective

interest rate*

Fixed Interest Rate Maturing in: Non-interest sensitive

Total

0 to 3 months 3 to 6 months 6 to 12 months 1 to 2 years 2 to 5 years Over 5 years

Repricing period at Repricing period at

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21 OTHER CREDIT RISKS

(a) Maximum Credit Risk Exposure

The Credit Union’s maximum credit risk exposure, without taking into account the value of any collateral or other security, in the event other parties fail to perform their obligations under financial instruments in relation to each class of recognised financial asset, is the carrying amount of those assets as indicated in the Balance Sheet.

(b) Concentrations of Credit Risk

The Credit Union minimises concentrations of credit risk in relation to loans by undertaking transactions with a large number of customers. Credit risk is currently managed in accordance with the Prudential Standards to reduce the Credit Union’s exposure to potential failure of counterparties to meet their obligations under the contract or arrangement. All loans are to members of the Credit Union who are concentrated mainly within the South Island of New Zealand.

(c) Large Counterparties

The Credit Union has exposure to counter-parties in excess of 10% of equity as follows:

In relation to loans to members, where a member has shares as security or deemed security, the security has not been taken into account when calculating the percentage of exposure.

(d) Loans to Members

Loans can only be made to Credit Union members. Loan interest rates range from 5.95% to 24.25% p.a. (30 June 2012 5.95% to 24.25% p.a.) excluding those delinquent loans with penalty interest of 5.00%. The Credit Union has a credit risk policy that requires various levels and types of security for loans and provides that a portion of loans may be secured over the borrowing member's shares. The Friendly Societies and Credit Unions Act 1982 limits the risk of any one member and provides, along with the loan agreement that any and all shares might be used to offset an individual loan to the limit of their liability. Under section 110 of the Act, the maximum indebtedness and repayment terms of a member shall not, without the prior consent of the Registrar, exceed the following limits:

Unsecured Loan - 5% of the value of the assets of the Credit Union and a maximum term of 5 yearsSecured Loan - 10% of the value of the assets of the Credit Union and a maximum term of 10 years

The Registrar of Friendly Societies and Credit Unions has approved an extension of the secured loan term from 10 to 30 years for loans on first mortgage.

Number of counterparties

2013 2012 Greater than 100% of equity 1 NZACU 1 NZACU

Between 90% and 100% of equity - -


Between 70% and 80% of equity 1 BNZ 1 BNZ






Between 10% and 20% of equity - 1 SBS

less than 10% equity 1 Heartland -


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22 CONCENTRATION OF FUNDING

The Credit Union’s source of funding is members’ deposits. Accordingly, funding is concentrated in and limited to the area of the 'common bond' of the Credit Union and consequently funding is from individuals (residing or working within New Zealand), registered charitable trusts and incorporated societies within New Zealand with the majority of members within the South Island. The funding from members is recorded as Members’ Shares in the Balance Sheet.

23 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

All financial assets and liabilities, with the exception of loans to members are short-term instruments where their carrying amount in the Balance Sheet equates to their fair values. As detailed in the accounting policies, loans are carried at estimated realisable value after providing for impairments. The Directors believe that any differences between carrying value and fair value are not material because the loan periods are relatively short and can be changed to "on demand" by the Trustees. In addition, interest rate differences between lending dates and balance date are not significant. Fair value measurements of financial instruments are classified using a Fair Value Hierarchy (with levels 1-3) that reflects the significance of the inputs used in making the measurements. The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. The three different levels have been defined as follows: - Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1) - Inputs other than quoted prices included within level 1 that are observable for the asset and liability, either directly (that is as prices) or indirectly (that is, derived from prices) (level 2) - Inputs for the asset and liability that are not based on observable market data (that is, unobservable inputs)

(level 3) The only financial instruments held by the Credit Union that are recognised at fair value are derivative assets and liabilities. Derivatives are used by the Credit Union to manage interest rate risk arising from interest rate changes. An independent valuation of fair value is obtained at the end of each reporting period. The fair value is calculated by using data sourced from Bloomberg to derive the zero-coupon discount factor that corresponds to each swap's payment and floating rate reset date over the remaining life of a swap, as at each reporting period. Management considers the derivatives held by the Credit Union to be included in level 2 as all significant inputs required to fair value the derivatives are observable.


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24 CASH FLOW STATEMENT RECONCILIATION 2013 2012 Reconciliation of net cash flow from operating $'000 $'000 activities with operating profit

Operating surplus 132 407 Non Cash Items Depreciation 464 685 Bad Loans expense 1,663 2,656 Provision for Loan Impairment (253) (1,134) Changes in Assets and Liabilities Interest Rate Swaps - Derivatives (22) (169) Increase in Trade and Other Receivables (31) (526) (Decrease)/increase in Trade and Other Payables (246) 326 Net Cash Provided by Operating Activities 1,707 2,245

25 RELATED PARTY DISCLOSURES

The Credit Union deals with Directors and Trustee(s) on the same terms and conditions applied to all members (including interest rates on loans and shares):

2013 2012 Directors’ holdings at balance date are: $'000 $'000

Owing to Directors (Shares) 32 26 Owing by Directors (Loans) - - Interest expense (On Shares) 1 1

Interest income (On Loans) - -

There are no shares from Directors exceeding 12 months and all directors' loans are repayable on demand. The Directors received fees of $195,000 (30 June 2012 $195,000) for their services. Key management persons are those with authority and responsibility for planning, directing and controlling the activities of the Credit Union, directly or indirectly, including any director (whether executive or otherwise) of the entity. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Key management persons comprise the Directors and the two executive managers responsible for the day to day financial and operational management of the Credit Union.


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25 RELATED PARTY DISCLOSURES - continued 2013 2012 Key management remuneration (excluding Directors' fees): $'000 $'000

Short term employee benefits 364 352 Long term employee benefits - -

Total remuneration 364 352

Remuneration shown as short term benefits means (where applicable) wages, salaries, paid annual leave, sick leave, bonuses and the value of fringe benefits received, but excludes out of pocket expense reimbursements. Shona Cumming, a current Director of Credit Union South is an Associate of the legal firm Downie Stewart. Payments totalling $8,799 (30 June 2012 $0) were made to Downie Stewart for services provided in the normal course of business. Alex King, a previous Director of Credit Union South (to September 2010), is a beneficial owner of Linux Works which provides IT and computer consulting services to the Credit Union which cost $28,739 in 2013 (30 June 2012 $19,857). Andrew Leys, the Chief Executive Officer of Credit Union South is a beneficial owner of Taxcheck.co.nz Limited, a company that provides tax refund services to members of the Credit Union. The Credit Union received $36,977 in commissions in 2013 (30 June 2012 $28,292).

26 EVENTS OCCURRING AFTER BALANCE DATE There are no known events subsequent to 30 June 2013 which would materially affect these financial statements (2012 nil).



27 CLASSIFICATION OF FINANCIAL ASSETS AND LIABILITIES

30 June 2013 Loans and receivables Available-for-sale Total $'000 $'000 $'000 Financial assets as per Balance sheet Cash and cash equivalents 2,819 - 2,819 Deposits at New Zealand Association of Credit Unionsand trading banks 30,003 - 30,003 Trade and other receivables (excluding prepayments) 990 - 990 Loans to members 69,951 - 69,951 Capital Notes - 3,096 3,096

Total 103,763 3,096 106,859 Financial liabilities at fair Other financial Total value through profit or loss liabilities $'000 $'000 $'000 Financial liabilities as per Balance sheet Trade and other payables (excluding provisionsand employee benefits) - 2,287 2,287 Members' deposits - 86,547 86,547

Total - 88,834 88,834 30 June 2012 Loans and receivables Available-for-sale Total $'000 $'000 $'000 Financial assets as per Balance sheet Cash and cash equivalents 2,794 - 2,794 Deposits at New Zealand Association of Credit Unionsand trading banks 33,500 - 33,500 Trade and other receivables (excluding prepayments) 951 - 951 Loans to members 72,891 - 72,891 Capital Notes - 3,096 3,096

Total 110,136 3,096 113,232 Financial liabilities at fair Other financial Total value through profit or loss liabilities $'000 $'000 $'000 Financial liabilities as per Balance sheet Trade and other payables (excluding provisionsand employee benefits) - 2,455 2,455 Derivatives 22 - 22 Members' deposits - 93,227 93,227

Total 22 95,682 95,704

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Success Saver AccountEarn high rates of interest while your savings are on-call. Interest on the daily balance and paid monthly.

Loyalty Saver AccountEnsures priority for loans and creates your Credit Union’s lending pool.

Everyday AccountEFTPOS (or ATM) real time service available via Accesscard. 24 hour, 7 day “access” to your funds worldwide.

Accesscash® ATMFree ATM access to your funds. Our ATM’s also “talk” to assist our visually impaired members.

Term Share InvestmentsThree, six, nine and twelve month terms at ”Market Related“ interest rates. Rates for other terms are available on application.

AccessphoneOur Accessphone provides 24 hour access to your accounts. Simply use your telephone to obtain balances, transaction details, interest details, pay bills and transfer funds etc.

Billpay AccountTo provide for those regular bills. We take the hassle out of paying accounts.

Travel ServiceTravelex overseas currency and “Cash Passport” are available on request.

Christmas Saver AccountTo provide for that much needed cash at Christmas time.

Bfree Youth AccountA youth savings account especially for 11-18 year olds.

Automatic Payments / Direct DebitsAutomatic Payments or Direct Debits for your insurances, rent, hire purchase, mortgage repayments, etc.

Transactional BankingConvenient Direct Debits are available for your regular payments. Personal cheque accounts are also available.

Jimmy J Saver / School Banking ServiceSavings accounts for the children - to help develop the savings habit. Our school banking service is available at various schools.

Goal Saver AccountAn account for the serious saver who is interested in maximising their savings. Your interest rate increases as your balance increases. An easy way to save towards your “Special” goal.

Friendly AdviceYour staff are always available to give you helpful, confidential assistance with your money management - WE CARE!!

A copy of our current Investment Statement and our Prospectus is available free of charge from any of our Branches. NZCU South deposits are secured by a First Ranking registered Trust Deed. NZCU South is a registered Credit Union, not a registered bank.


South Island Branches

Invercargill Corner Kelvin & Don Streets 03 211 3950Gore 82 Main Street 03 208 3721Dunedin 26 Filleul Street 03 477 1473Oamaru 39 Thames Street 03 434 2240Timaru 33 Canon Street 03 688 9514

Christchurch Hub Hornby Mall Shop 125, 418 Main South Road 03 375 7200Greymouth 34 Mackay Street 03 768 0184Nelson Shop 2A, 126 Trafalgar Street 03 539 1700Richmond Shop 3, 250 Queen Street 03 539 1700

NZCU South is not a registered bank. NZCU South deposits are shares secured by a first ranking registered Trust Deed. NZCU South has a BB- (Negative watch) credit rating from Standard & Poor’s. A current investment statement and prospectus is available on request.

26 Filleul Street, PO Box 6294, Dunedin 9059, New Zealand

South Island Freephone: 0800 86 56 36

Facsimile: 03 477 6910

Email: [email protected]

www.nzcusouth.co.nz

Documents

Annual Report 2013 - NZCU South · Directors in governance, strategy and finance and being awarded with a Certificate in Company Direction. Throughout Shona’s first term on the