Corporate reports

As a wholly-owned subsidiary of Vancity Credit Union , our annual reports are rolled up into the corporate reporting of our parent company.

Learn more about Vancity, its performance, and where Vancity Community Investment Bank fits in to the bigger picture, through the annual reports on the Vancity website.

Basel II Pillar 3 Disclosure

1: Related party policy

Introduction

Vancity Community Investment Bank and its subsidiary Citizens Trust Company (collectively “the bank”) has in place policies to identify, monitor and report on transactions with related parties in accordance with the Bank Act (BA) and the Trust and Loan Companies Act (TLCA).

The bank must enter into transactions with related parties only as permitted by the legislation.

Related Party transactions are monitored to

  • fulfill regulatory requirements
  • prevent self dealing, and
  • the exercise of undue influence by related parties

Due diligence in the identification, monitoring and reporting of related parties transactions will serve to

  • protect member and organizational assets
  • protect reputational risk, and
  • provide transparency on reporting of related party transactions

Legislation

Part XI of the BA and TLCA define a related party which includes both individuals and legal entities. In addition to complying with the acts and this Policy, the bank will ensure related parties are informed of their duties and have a clear understanding of their responsibilities on regulatory requirements pertaining to disclosure in conducting transactions or business with the bank.

Related party

Summary of definition under part XI of the BA and TLCA

Individuals

If they hold positions of responsibility or otherwise have an ability to influence transactions to the advantage of themselves or another entity over those of the bank.

Entity

If it is controlled by a person who is related party to the bank within the meaning of the bank Related Party Definition

Related parties

The following table outlines the Related Parties as defined by legislation and the bank.

Type

Related parties

Board of Director

All Board Members

Senior Officers

  • CEO, COO, President, Secretary, Treasurer, Controller, CFO, Chief Accountant, Chief Auditor or Actuary
  • An individual who performs the functions similar to those above
  • Head of a strategic planning unit
  • Head of the unit providing legal services or human resource services
  • Any other officer reporting directly to the Board, CEO, or COO.

Family Members

Spouses and children under the age of 18 years of Directors and/or Senior Officers.

Enterprises

Enterprises (including sole proprietorships, partnerships, corporations, and trusts) in which Directors/Senior Officers or their spouses or children under the age of 18 have a material, direct or indirect ownership, interest (≥ 50%).

Roles and accountabilities

This table outlines the roles and accountabilities within the Related Party Transactions Policy.

Role

Accountability

Board of Directors

Delegates review and monitoring activities to the Risk & Conduct Review Committee (RCRC).

Risk & Conduct Review Committee (RCRC)

  • Ensures organizational compliance to this policy.
  • Establishes management approval authority for permitted, nominal, or immaterial related party transactions as set out in OSFI Bulletin E-6.
  • Approving terms and conditions for permitted loans on preferred terms to related parties.
  • Reviews and approves related party transactions that exceed the authority limit for management.
  • Ensures transactions with related parties that may have a material effect on the stability or solvency of the bank are identified.
  • Monitors the adherence to this policy.

Management

  • Ensures that staff correctly identify and report related party transactions and loans.
  • Considers for approval related party transactions that meet the criteria under this policy.
  • Conducts reviews of related party transactions.
  • Ensures that relevant and accurate reports are provided to the RCRC.
  • Audits related party transactions.

Corporate Secretary

  • Ensures there is sufficient governance for managing related party transactions and the reporting of related party transactions to the RCRC is timely.
  • Prepares a schedule of related parties annually and provides access to staff within Vancity and the bank for monitoring, tracking and reporting purposes of related party transactions.
  • Facilitates the completion of the annual review of this Policy.

Chief Risk Officer (CRO)

  • Accountable for related party credit transactions.
  • Ensuring procedures and programs for their identification are in place.
  • Ensures integrity of reporting to RCRC.

Chief Financial Officer (CFO)

  • Accountable for the non-credit related party transactions.
  • Ensuring procedures and programs for their identification are in place.
  • Ensures integrity of reporting to RCRC.

Disclosure

All related parties are asked to file a Related Party Disclosure Statement that includes a listing of all personal and entity affiliations. They must also notify the Corporate Secretary within 30 days of any change to this information.

In addition, when transacting business with the bank , related parties are required to disclose their related party status to staff.

Timelines

The CRO and the CFO will report to the RCRC on credit and non credit transactions with related parties respectively during the previous quarter and as required.

Borrowing and issuance of Shares and debt obligations

The related party provisions of the Bank Act and the TLCA do not apply to the issue of shares of the bank to a related party of the bank if such shares are fully paid for in money. The bank is permitted under the Bank Act and the TLCA to borrow money from or issue debt obligations to a related party. However, any such transactions must meet internal governance requirements of the bank and the related party, and any applicable requirements of the Bank Act or the TLCA.

2: Regulatory capital

Quantitative disclosures

 

 

12/31/2015

12/31/2016

Modified Capital Disclosure Template

All-in

Transitional

All-in

Transitional

Common Equity Tier 1 Capital: instruments and reserves

1

Directly issued qualifying common share capital (and equivalent for non-joint stock companies) plus related stock surplus

20,464,000.00

 

20,464,000.00

 

2

Retained earnings

3,683,000.00

 

6,849,000.00

 

3

Accumulated other comprehensive income (and other reserves)

(98,000.00)

 

(302,000.00)

 

4

Directly issued capital subject to phase out from CET1 (only applicable to non-joint stock companies)

 

 

 

 

5

Common share capital issued by subsidiaries and held by third parties (amount allowed in group CET1)

 

 

 

 

6

Common Equity Tier 1 capital before regulatory adjustments

24,049,000.00

 

27,011,000.00

 

Common Equity Tier 1 capital: regulatory adjustments

28

Total regulatory adjustments to Common Equity Tier 1

(953,000.00)

 

(318,000.00)

 

29

Common Equity Tier 1 capital (CET1)

23,096,000.00

23,757,000.00

26,693,000.00

26,941,000.00

Additional Tier 1 capital: instruments

30

Directly issued qualifying Additional Tier 1 instruments plus related surplus

 

 

 

 

31

of which: classified as equity under applicable accounting standards

 

 

 

 

32

of which: classified as liabilities under applicable accounting standards

 

 

 

 

33

Directly issued capital instruments subject to phase out from additional Tier 1

 

 

 

 

34

Additional Tier 1 instruments (CET1 instruments not included in row 5) issued by subsidiaries and held by third parties (amount allowed in group AT1)

 

 

 

 

35

of which: instruments issued by subsidiaries subject to phase out

 

 

 

 

36

Additional Tier 1 capital before regulatory adjustments

 

 

 

 

Additional Tier 1 capital: regulatory adjustments

43

Total regulatory adjustments to Additional Tier 1 capital

 

 

 

 

44

Additional Tier 1 capital (AT1)

 

 

 

 

45

Tier 1 Capital (T1 = CET1 + AT1)

23,096,000.00

23,757,000.00

26,693,000.00

26,941,000.00

Tier 2 capital: instruments and allowances

46

Directly issued qualifying Tier 2 instruments plus related stock surplus

 

 

 

 

47

Directly issued capital instruments subject to phase out from Tier 2

 

 

 

 

48

Tier 2 instruments (and CET1 and AT1 instruments not included in rows 5 or 34 ) issued by subsidiaries and held by third parties (amount allowed in group Tier 2)

 

 

 

 

49

of which: instruments issued by subsidiaries subject to phase out

 

 

 

 

50

Collective allowances

 

 

 

 

51

Tier 2 capital before regulatory adjustments

 

 

 

 

Tier 2 Capital: regulatory adjustments

57

Total Regulatory adjustments to Tier 2 capital

 

 

 

 

58

Tier 2 capital (T2)

 

 

 

 

59

Total capital (TC = T1 + T2)

23,096,000.00

23,757,000.00

26,693,000.00

26,941,000.00

60*

Total risk-weighted assets

65,768,000.00

66,671,000.00

70,910,000.00

71,123,000.00

Capital ratios

61

Common Equity Tier 1 (as percentage of risk-weighted assets)

35.12

35.63

37.64

37.88

62

Tier 1 (as percentage of risk-weighted assets)

35.12

35.63

37.64

37.88

63

Total capital (as percentage of risk weighted assets)

35.12

35.63

37.64

37.88

OSFI all-in target

69

Common Equity Tier 1 capital all-in target ratio

7.00

 

7.00

 

70

Tier 1 capital all-in target

8.50

 

8.50

 

71

Total capital all-in target ratio

10.50

 

10.50

 

 

 

 

 

 

 

* The bank is using option #2 under OSFI’s CAR guideline for CVA capital charge phase-in.

 

3: Capital adequacy

The bank’s internal capital adequacy assessment process (ICAAP) requires the bank to formulate and execute its strategic objectives within the organization’s risk philosophy and appetite. The primary purpose of the bank’s risk appetite statement is to provide a high level overview of its tolerance for risk in pursuit of its mission and strategic goals. The bank formulates and executes on its strategic objectives within the organization’s risk philosophy and appetite.

The bank’s risk appetite statement is as follows:

Qualitative statements

  • We make the following commitments in order to live our purpose and values in how we do business. Our aim is to strengthen the bank’s long-term business while contributing to the well-being of our customers, staff, communities and the environment;
  • We will be responsible and effective financial managers so the bank remains strong and prospers;
  • We will provide our customers with outstanding service and advice, and help them achieve their financial goals;
  • We will ensure that the bank is a great place to work;
  • We will lead by example and use our resources and expertise to effect positive change in our communities; and
  • We will be accountable for living up to our commitments.

Quantitative statements

  • Maintain a capital position that meets or exceeds tolerances required to enable the bank’s vision and meet regulatory requirements;
  • Adhere to OSFI and internal management limits for Capital Adequacy Ratios, and Leverage Ratio.

Management takes the risk appetite statement and establishes risk limits and tolerances for approved business strategies, taking into account risk measures and monitoring activities that are defined within Board and Management Policies. In addition to setting limits, these policies detail responsibilities of the Board of Directors and Management.

The Board of Directors reviews and approves the bank’s budget and capital plan annually, or more often, as necessary with the President/CEO responsible for protecting the bank’s long term capital adequacy. The CFO is charged with monitoring and reporting the bank’s capital position on an ongoing basis to ensure compliance.

As part of the ICAAP process, multiple stress tests including economic capital modeling are integrated into the capital planning process to determine capital requirements. Stress testing can be defined as “the examination of the potential effects on a firm’s financial condition of a set of specified changes in risk factors, corresponding to exceptional but plausible events” and looks at what might happen when the assumptions underlying established models break down. Stress testing must identify possible events or future changes in economic conditions that could have unfavourable effects on the bank’s exposures and assess the bank’s ability to withstand such changes. As a result of stress testing, management is informed about potential risks and their impact and considers these risks in capital planning and risk management practices.

The bank has a maturing risk management program to help mitigate known risks and avoid future negative economic events (i.e. risk management policies that quantify risk tolerance via limits). Oversight committees like the Asset/Liability Committee and Risk Management Committee are in a strong position to monitor operations utilizing various policies and frameworks. A summary of the bank’s ICAAP is submitted annually to OSFI for review and is periodically audited by the bank’s internal audit team.

Quantitative disclosures

The bank’s capital, risk weighted assets, and capital adequacy ratios are published by OSFI and are available through the following hyperlink:
Financial Data – Banks

4: Credit

Credit risk management

Credit risk is the risk of financial loss to the bank if a customer or counterparty to a financial transaction fails to meet its contractual obligations. Credit risk arises primarily from the the bank’s business activities from foreign exchange, credit and prepaid cards, and commercial lending syndication. The bank is also exposed to other credit risks arising from investments in debt securities and other exposures arising from its investment activities (‘investment exposures’), including non-equity investment portfolio assets, derivatives and settlement balances with market counterparties.

The bank manages, limits and controls concentrations of credit risk, where identified, to individual counterparties. The Board, through the Risk Management Committee, places limits on the amount of credit risk accepted in relation to one customer.

Impairment of financial assets

The bank assesses, at each financial reporting date, whether there is objective evidence that a financial asset or group of financial assets is impaired. For the purposes of an individual evaluation of impairment, the amount of the impairment loss on a fixed rate financial instrument is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows 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 recognized in the consolidated statement of operations. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.

For the purposes of a collective evaluation of impairment, financial assets are categorized on the basis of similar credit risk characteristics. Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the counterparties’ ability to pay all amounts due according to the contractual terms of the assets being evaluated. Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group, taking into account cure rates, work out costs, and discount factors.

On an ongoing basis, the bank adjusts the inputs on its collective allowance, taking into account factors such as historical loss experience, and adjusting for current observable data that did not impact the period which the historical loss experience was based on. Estimates of changes in future cash flows for groups of assets reflects and is directionally consistent with changes in related observable data from period to period (for example, changes in unemployment rates, real estate prices, payment status, or other factors indicative of changes in the probability of losses by the bank and their magnitude).

The methodology and assumptions used for estimating future cash flows are reviewed regularly by the bank to reduce any differences between loss estimates and actual loss experience. When a loan is uncollectible, it is 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 recognized, the previously recognized impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognized in the consolidated statement of operations in loan impairment expense.

Accounting treatment securitized loans

Currently the bank does not have any securitized loans. The bank does however have accounting policies in place should securitization be required.

Financial assets are derecognized when the contractual rights to receive the cash flows from these assets have ceased to exist or the assets have been transferred and substantially all the risks and rewards of ownership of the assets are also transferred. If the bank has neither transferred nor retained substantially all the risks and rewards of the transferred financial asset, it assesses whether it has retained control over the transferred asset. If control has been retained, the bank recognizes the transferred asset to the extent of its continuing involvement. If control has not been retained, the bank derecognizes the transferred asset.

Quantitative credit disclosures

A breakdown of the bank’s loan portfolio by loan type, its credit risk weighted assets, and impaired loans are published by OSFI and are available through the following hyperlink:
Financial Data – Banks

5: Liquidity

Liquidity risk describes the risk that the bank will not be able to meet its current and future cash flow and collateral needs, both expected and unexpected, without materially affecting daily operations or our overall financial condition. Liquidity risk is inherent in any financial institution and could result from entity level circumstances and/or market events.

Accordingly, the bank has policies and procedures in place to manage its liquidity position, both to comply with regulatory requirements and adhere to sound business practices.

(i) Liquidity risk management:

The bank’s liquidity risk is subject to extensive risk management controls and is managed within the framework, policies and limits approved by the Board. On an annual basis, the Board, through the Audit Committee, reviews and approves the liquidity policy presented by management to ensure adherence to regulatory requirements. The Asset Liability Committee (“ALCO”) oversees the operational adherence to the liquidity policy. ALCO approves liquidity management processes and strategies presented by treasury and finance management in addition to overseeing adherence to minimum liquidity limits, eligibility requirements for liquid assets, investments with counterparties, funding diversification, deposit concentration and diversification limits.

Stress testing on liquidity is conducted annually as part of its risk oversight and the results would be used to inform and ensure adequate liquidity risk limits are in place and current.

Contingency plans exist for liquidity to satisfy funding requirements in the case of a general market disruption or adverse economic conditions. Proper execution of the contingency plan is the responsibility of the treasury department. The liquidity contingency plan outlines the appropriate steps to follow and stakeholders to notify. It is scenario tested annually, and the results are presented to the Board.

(ii) Liquidity risk exposure:

The key measure used by the bank for managing liquidity risk is the ratio of liquid assets to total assets. For the purpose of measuring liquidity risk, liquid assets may comprise the total market value of cash, Government of Canada or provincial treasury bills, debt securities with a government guarantee and a minimum DBRS Limited (“DBRS”) investment rating of A, government guaranteed mortgage backed securities, banker’s acceptances and bearer deposit notes from Schedule I and II banks with a DBRS rating of R-1 low or higher, and corporate commercial paper with a DBRS rating of R-1 low or higher.

6: Operational risk

Operational Risk Disclosure:

Operational risk is the combination of three principle risks: Business Risk, Talent Risk, and Technology Risk.

Business Risk refers to the level of risk inherent in the way we do business. Innovation that creates community impact requires that the bank be able to quickly translate cooperative member and community insights into opportunities that will meet the needs of the real economy. This requires the ability to be flexible, to test and learn, and adapt what the bank is doing as it gains further insight into the drivers of banking services aligned to real economic issues, with appropriate controls.

Talent Risk describes the risk that the bank will not have the right people in place at the right time to achieve our objectives. Our people play the biggest role in our transformation and day-to-day operations. We have a transformational vision for the bank that invites transformational leadership that is also able to execute strategies and achieve results.

Technology Risk describes the risk that the bank will not have the technology infrastructure required to deliver a differentiated experience for its customers and for its single shareholder cooperative members. While the bank does not lead with technology, without an integrated technology platform the bank cannot release the full capability and capacity of the organization to achieve impact at scale.

The primary responsibility for the development and implementation of controls to address operational risk is assigned to the senior executive management team of the bank with clear lines of operating with each business unit. This operating responsibility of the bank is supported by the development of explicit risk policies and procedures for the management of operational risk.

The bank benefits from the scale and expertise of its single shareholder, Vancity Credit Union through market based service level agreements (in accordance with the bank’s outsourcing policies), which enable the bank to manage these operational risks at sufficient scale and sophistication.

Compliance with the bank’s policies and procedures is supported by a program of periodic reviews undertaken by Internal Audit. The results of Internal Audit reviews are discussed with the management of the business unit to which they relate, with summaries submitted to senior management and the Audit Committee of the board of directors of the bank.

The Operational Risk Management Policy is reviewed periodically by the Chief Risk Officer. The results of these reviews are discussed with management, with summaries submitted to senior management and the Risk and Conduct Review Committee of the board of directors of the bank.

The bank uses the basic indicator approach for operational risk, which is based on the gross income of the most recent 3 years. Operational Risk is part of the formula for the Risk Based Capital Ratio.

7: Remuneration

Oversight and governance of the remuneration policies and compensation structure for Vancity Community Investment Bank’s (“the Bank”) senior management is provided by the Governance & Executive Compensation Committee (“GECC”) of the Board. GECC meets on a quarterly basis.

The Bank is a subsidiary of Vancouver City Savings Credit Union (“Vancity”). Vancity retains an independent compensation expert to provide advice on the various elements of total rewards programs, including that of the Bank, where necessary.

The policy and competitiveness of total reward programs is reviewed annually to ensure changing market conditions are considered and that the Bank has the ability to attract and retain employees needed to deliver on its business objectives. Total rewards program positioning is market competitive when target level performance results are achieved and could increase when stretch targets are achieved. The market for assessing competitiveness is a blend of credit unions, banks, and other local employers with which the Bank competes for talent.

The Bank endeavours to ensure that the remuneration policy is consistent with the business model. The senior management team’s total rewards package consists of base salary and an annual variable incentive plan aligned with organizational objectives. Performance measurements used to calculate variable remuneration are adjusted to take into account current or potential risks to the company and is comprised of both individual and organizational performance objectives.

For 2016, the total amount of fixed and variable remuneration for 13 key management and risk-takers was $1,081,967. An additional $262,246 was remunerated in severance payments. We do not break down the total between key management and other risk takers as all employees who hold material risk positions are considered to be in key management roles.

Total value of remuneration for 2016

Unrestricted

Deferred

Fixed remuneration

Cash-based

$818,077

n/a

Share and share-linked instruments

n/a

n/a

Other (severance)

$262,246

n/a

Variable remuneration

Cash-based

$263,890

n/a

Shares and share-linked instruments

n/a

n/a

Other

n/a

n/a

Total

$1,344,213

 

8: Leverage ratio

Quantitative disclosures

 

Item

Leverage Ratio Framework

On-balance sheet exposures

1.00

On-balance sheet items (excluding derivatives, SFTs and grandfathered securitization exposures but including collateral)

104,779.00

2.00

(Asset amounts deducted in determining Basel III “all-in” Tier 1 capital)

– 318.00

3.00

Total on-balance sheet exposures (excluding derivatives and SFTs) (sum of lines 1 and 2)

104,461.00

Derivative exposures

4.00

Replacement cost associated with all derivative transactions (i.e. net of eligible cash variation margin)

954.00

5.00

Add-on amounts for PFE associated with all derivative transactions

1,307.4

6.00

Gross up for derivatives collateral provided where deducted from the balance sheet assets pursuant to the operative accounting framework

 

7.00

(Deductions of receivables assets for cash variation margin provided in derivative transactions)

 

8.00

(Exempted CCP-leg of client cleared trade exposures)

 

9.00

Adjusted effective notional amount of written credit derivatives

 

10.00

(Adjusted effective notional offsets and add-on deductions for written credit derivatives)

 

11.00

Total derivative exposures (sum of lines 4 to 10)

2,261.4

Securities financing transaction exposures

12.00

Gross SFT assets recognised for accounting purposes (with no recognition of netting), after adjusting for sale accounting transactions

 

13.00

(Netted amounts of cash payables and cash receivables of gross SFT assets)

 

14.00

Counterparty credit risk (CCR) exposure for SFTs

 

15.00

Agent transaction exposures

 

16.00

Total securities financing transaction exposures (sum of lines 12 to 15)

 

Other off-balance sheet exposures

17.00

Off-balance sheet exposure at gross notional amount

38,047.00

18.00

(Adjustments for conversion to credit equivalent amounts)

– 34,152.3.30

19.00

Off-balance sheet items (sum of lines 17 and 18)

3,894.7

Capital and Total Exposures

20.00

Tier 1 capital

26,693.00

21.00

Total Exposures (sum of lines 3, 11, 16 and 19)

110,617.1

Leverage Ratios

22

Basel III leverage ratio

24.13