CAPITAL SECURITY BANK LIMITED & SUBSIDIARIES Financial Statements For the half year ended 30 June 2019
Report of the Directors to the Shareholders
Statement of Comprehensive Income
Statement of Changes in Equity
Cash Flow Statement
Notes to the Financial Statements
Chairman's Report Dear Stakeholders, While the Cook Islands remains one of the few countries in the World that has yet to have a case of COVID‐19, as a precautionary measure the bank’s Business Continuity Plan was enacted for a period with staff working remotely. Customer service continued and security protocols were instigated. As CSB does not undertake ‘at risk’ lending it has been spared the angst many financial institutions face with defaulting loans. On the other hand, as treasury yields reduced, the ability to provide customers with a return on their funds has become increasingly difficult. With the rush to better rated security, capital has fled to Treasury notes and triple A rated bonds. In the past the bank has had the freedom to carefully balance its portfolio between risk and return on investment. The ability to do this has been truncated as demand outstrips supply. This in turn has driven down interest rates. Consequently, the ability to continue to give clients a reasonable return on their cash, and shareholders a sound return on their equity, has been largely due to CSB’s sensible purchases on the bond market in the period between the recognition of the seriousness of COVID‐ 19 and the realisation of the magnitude of the impact it will likely have on nations’ economies. While last year was disruptive the coming year is uncertain. While all celebrate the vaccines now being administered in many countries the gestation time for economic recovery will exceed the period needed to get the virus under control. While many are focused on the U.S. Government’s decision to spend $1.9 trillion it must also be noted some estimate the increase in the money supply by the Federal Reserve at $7.5 trillion, a staggering 37% of GDP. The fear remains this will lead to inflation and then to stagflation which was the plague of nations in the 70’s and 80’s. For the moment Keynesian economics is to the fore. It remains the bank’s objective that security of investment is more important than return on investment – for both its shareholders and its customers ‐ although the need to maintain value in real terms is recognised. In 2021 the bank will focus on increasing its assets under management and utilising its new Qualified Intermediary status to improve the cash flow of its customers who are U.S. residents or citizens, or are beneficially owned by them. The principal objective remains the security of our clients’ investments with us. The bank is not prepared to substantially alter its investment profile if this may elevate the level of risk to client funds with us although to do so may improve returns. Gerard Field has completed his term as CEO of the bank and we welcome John Evans as the bank’s new CEO. Many of you will know John who has been our Chief Operating Officer. John brings to the role a wealth of banking experience acquired from his 17 years in banking with CSB and with the large Australian bank, Westpac Banking Corporation.
Brian Mason Chairman
CEO's Report Dear Clients and Stakeholders, The last 12 months have been unlike anything we have experienced at Capital Security Bank ‘CSB’.
The COVID‐19 pandemic has created disruption on a global scale while changing the smallest details of our everyday lives and I would like to express my deepest compassion to any of our clients or stakeholders who themselves or families have been affected by the virus. Throughout the year, we continued our commitment to delivering the highest standards of quality service to our clients with our values of being Secure, Trustworthy and Reliable sitting at the forefront of our decision making. We continued to implement new training, tools and technology in our pursuit of creating an ever‐higher quality of banking services for our clients. At the end of the fiscal year, despite the many unexpected challenges we faced together with our clients, CSB performed well. We generated profits of 2.4M USD and distributed 1.7M USD in dividends to Shareholders. Our capital position continues to strengthen year on year with over 7.5M USD in total capital and a tier‐1 ratio of above 20%. This performance will enable us to invest in our team members, technology and the innovations that will drive growth for the future. Most important, through all the challenges of fiscal year 2020, our culture as created and sustained by each of our team members at CSB was revealed to be our greatest strength. In the moment when we needed it most, our individual team members came together as one team, a community aligned to our shared values and committed to our shared future. We demonstrated our commitment to our values by truly making business more personal for our clients and people, and by building trust into every result. To Brian and the rest of the Board, although new into the Chief Executive Officer role I have very much appreciated your support and counsel during a highly unusual year in CSB’s history. I’d also like to acknowledge our shareholders and clients for their ongoing interest and engagement as we continue to build a strong platform for CSB’s long‐term growth and profitability. Sincerely
John Evans CEO
Report of the Directors to the Shareholders For the year ended 31 December 2020 The Directors are pleased to present the annual report and financial statement of Capital Security Bank Limited (the Bank) and its subsidiary Capital Security Bank Cook Islands Limited (the Group) for the year ended 31 December 2020. Results Consolidated results for the year were a profit after taxation of $2,508,495 (2019: $3,478,017). Dividends Dividends of $1,702,659 (2019: $2,168,256) have been paid during the year. Significant Changes in the State of Affair There have been no significant changes in the operation of the Group. Impact of COVID‐19 The COVID‐19 pandemic and the measures put in place domestically and globally to control the spread of the virus has had a significant impact on global economies and financial markets. Directors and management are carefully considering the impact of the COVID‐19 outbreak on the business and assessing the impact of border closures on the local economy. The Group was not affected directly by the pandemic. The Group activated its Business Continuity Plan during the period and had staff working remotely and maintained operations with no issues. The future economic impact of the pandemic is highly uncertain and cannot be estimated in any reasonable manner. There is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Group continues to adopt the going concern basis in preparing the financial statements. Auditor In 2020 the Directors appointed PricewaterhouseCoopers (Fiji) as auditors. It is proposed that PricewaterhouseCoopers continue in office. Directors Brian Mason, David Steens, Andrew Yiangou and Brendon Stone continue in office.
Brendon Stone Director 21 April 2021
Andrew Yiangou Director 21 April 2021
Independent Auditor’s Report To the Shareholders of Capital Security Bank Limited Report on the audit of the consolidated financial statements Opinion We have audited the accompanying consolidated financial statements of Capital Security Bank Limited (the ‘Company’) and its subsidiary (together the ‘Group’), which comprise the consolidated balance sheet of the Group as at 31 December 2020, and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements give a true and fair view of the financial position of the Group as at 31 December 2020, and of its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the ethical requirements of the International Ethics Standards Board for Accountant’s Code of Ethics for Professional Accountants (IESBA Code) that are relevant to our audit of the consolidated financial statements in Cook Islands, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. Emphasis of Matter We draw attention to Note 1 of the consolidated financial statements which relates to COVID-19 and its ongoing associated uncertainties. The Group continues to carefully monitor and assess its impact on the business operations. Our opinion is not modified in respect of this matter. Other Information Directors and management are responsible for the other information. The other information comprises the information included in the Group’s Financial Report for the year ended 31 December 2020 (but does not include the consolidated financial statements and our auditor’s report thereon). Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
PricewaterhouseCoopers, Level 8 Civic Tower, 272 Victoria Parade, Suva, Fiji. GPO Box 200, Suva, Fiji. T: (679)3313955 / 3315199, F: (679) 3300947 PricewaterhouseCoopers is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of Directors and Management for the Consolidated Financial Statements Directors and management are responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards and with the requirements of the Cook Islands International Companies Act 1981-82 and Cook Islands Banking Act 2011, and for such internal control as the directors and management determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the directors and management are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors and management either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. The directors and management are responsible for overseeing the Group’s financial reporting process. Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements. As part of an audit in accordance with the ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors and management. • Conclude on the appropriateness of the directors and management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represents the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion. We communicate with directors and management regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Report on Other Legal and Regulatory Requirements In our opinion the consolidated financial statements have been prepared in accordance with the requirements of the Cook Islands International Companies Act 1981-82 and Cook Islands Banking Act 2011 in all material respects, and; a) we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of the audit; b) proper book of accounts have been kept by the Group, so far as appears from our examination of those books; c) the balance sheet and statement of comprehensive income dealt with by this report are in agreement with the books of account; and d) in those cases, in which we have called for explanation or information from the offices or agents of the Group, these have been satisfactory.
Restriction on Use This report is made solely to the Company’s shareholders, as a body, in accordance with Section 124(2) of the Cook Islands International Companies Act 1981-82. Our audit work has been undertaken so that we might state to the Company’s shareholders those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s shareholders as a body, for our audit work, for this report, or for the opinions we have formed.
PricewaterhouseCoopers Chartered Accountants
Kaushick Chandra 22 April 2021 Suva, Fiji
Statement of Comprehensive Income For the year ended 31 December 2020 2020
Notes Interest income Interest expense Net interest income Net income from other financial instruments at fair value through profit or loss Other operating income Total operating income
587,674 2,068,733 (592,164) (1,572,214) (4,490) 496,519 3,031,280 1,880,017 4,906,807
3,903,628 1,422,306 5,822,453
Operating expenses Profit before income tax expense
2,398,312 2,344,436 2,508,495 3,478,017
Income tax expense Profit for the year
‐ ‐ 2,508,495 3,478,017
Other comprehensive income Movement in foreign currency translation reserve, net of income tax Total comprehensive income
The notes on pages 13 to 27 are an integral part of these financial statements.
Statement of Changes in Equity For the year ended 31 December 2020 Note
Balance at 1 January 2020
Profit After Taxation Movement in Foreign Currency Translation Reserve Total Comprehensive Income for the half year
‐ ‐ ‐
3,864,253 2,508,495 ‐ 2,508,495 (1,702,659)
Foreign Currency Translation Reserve
‐ 2,508,495 14,117 14,117 14,117 2,522,612 ‐
Balance at 31 December 2020
Balance at 1 January 2019
Profit After Taxation Movement in Foreign Currency Translation Reserve Total Comprehensive Income for the year
‐ ‐ ‐
3,478,017 ‐ 3,478,017
‐ 3,478,017 805 805 805 3,478,822
Balance at 31 December 2019
The notes on pages 13 to 27 are an integral part of these financial statements.
Balance Sheet As at 31 December 2020
Assets Cash and cash equivalents Investments Marketable securities and precious metals Loans and advances to customers Other assets Property, plant and equipment Right‐of‐use assets Intangibles Total assets Liabilities Other liabilities Income in advance Client Funds on Deposit at Amortised Cost Client Funds on Deposit at Fair Value Lease liability Amounts due to related entities Total liabilities Equity Share capital Foreign currency translation reserve Retained earnings Total equity Total equity and liabilities The notes on pages 13 to 27 are an integral part of these financial statements.
34,185,176 195,912,158 113,572,406 500,000 223,049 105,352 232,607 28,821 344,759,569
26,825,520 182,253,201 91,940,738 500,000 492,087 93,259 266,651 36,025 302,407,481
‐ 608,368 171,186 222,221,469 113,575,326 288,317 ‐ 336,864,666
‐ 1,121,703 145,579 201,782,793 91,941,033 324,824 16,599 295,332,531
3,218,400 6,414 4,670,089 7,894,903
3,218,400 (7,703) 3,864,253 7,074,950
Notes 8 9 10 11 12 5 i
14 15 15 5 v 16
Cash Flow Statement For the year ended 31 December 2020 2020
Notes Cash flow from operating activities Interest received Interest paid Treasury income received Fees and other income received Payments to suppliers and employees Net increase in investments Net increase in marketable securities Client loan repayments Net increase in client funds Net cash from / (used in) operating activities Cash flow from investing activities Purchase of intangibles and fixed assets Net cash (used in) investing activities Cash flow from financing activities Payment of lease liability Dividends paid Payment on intercompany account Net cash (used in) financing activities
Net increase / (decrease) in cash and cash equivalent Cash and cash equivalents at 1 January Effect of exchange rate fluctuations on cash and cash equivalent held Cash and cash equivalents at 31 December
830,624 (740,159) 2,125,025 1,939,800 (2,251,936) (12,752,702) (21,631,668) ‐ 41,627,673 9,146,657
2,096,410 (1,598,155) 2,029,062 1,362,695 (2,184,745) (45,334,354) (21,602,707) 2,987,033 28,141,035 (34,103,726)
(48,393) (1,702,659) (16,599) (1,767,651)
(49,376) (2,168,256) (121,626) (2,339,258)
26,825,520 14,117 34,185,176
63,270,282 805 26,825,520
The notes on pages 13 to 27 are an integral part of these financial statements.
Notes to the Financial Statements For the year ended 31 December 2020 Note 1 Principal Accounting Policies Reporting entity The financial statements presented are the consolidated financial statements comprising Capital Security Bank Limited (the Bank) and its wholly owned subsidiary, Capital Security Bank Cook Islands Limited (the Group). Refer to Note 13 Investment in Subsidiary for further details. The Group's principal activity is the provision of financial services. The Bank was incorporated on 22 October 1997 under the Cook Islands International Companies Act 1981‐82. The Group holds licenses to provide international and domestic banking services under the Banking Act 2011. The financial statements are prepared for the statutory purpose of filing with the Registrar under the Cook Islands Banking Act 2011. Basis of preparation The financial statements have been prepared under the historical cost convention, modified by the application of fair value measurements required or allowed by relevant accounting standards. Accounting policies have been consistently applied by the Group to all periods presented, unless otherwise stated.
The financial statements also comply with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The reporting currency of the financial statements is United States dollars which is the Bank's functional currency and the Group's presentation currency. The functional currency of the subsidiary is New Zealand dollars. Unless otherwise indicated, amounts are rounded to the nearest dollar. The financial statements have been prepared on a going concern basis after considering the Group's funding and liquidity position. Impact of COVID‐19 The COVID‐19 pandemic and the measures put in place domestically and globally to control the spread of the virus has had a significant impact on global economies and financial markets. Directors and management are carefully considering the impact of the COVID‐19 outbreak on the business and assessing the impact of border closures on the local economy. The Group was not affected directly by the pandemic. The Group activated its Business Continuity Plan during the period and had staff working remotely and maintained operations with no issues. The future economic impact of the pandemic is highly uncertain and cannot be estimated in any reasonable manner.
There is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Group continues to adopt the going concern basis in preparing the financial statements. Principles of consolidation The consolidated financial statements of the Group incorporate the assets, liabilities and results of all controlled entities. Controlled entities are all entities in which the Bank is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Intercompany transactions, balances and any unrealised income and expense (except for foreign currency transaction gains or losses) between controlled entities are eliminated. The assets and liabilities of entities whose functional currency is not the United States dollar, are translated at the exchange rates ruling at balance date. Revenue and expense items are translated at the average spot rate for the period reported. Exchange differences are taken to the foreign currency translation reserve. Assumptions and estimates The preparation of financial statements requires the use of certain critical accounting estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses and the disclosed amount of contingent liabilities. It also requires management to exercise judgement in the process of applying accounting policies. The notes to the financial statements include areas involving a higher degree of judgement or complexity, or areas where assumptions are significant to the Group. Refer to Note 18.
Assumptions made at each reporting date are based on best estimates at that date. Although the Group has internal control systems in place to ensure that estimates can be reliably measured, actual amounts may differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the reporting period in which the estimates are revised and in any future periods affected.
Notes to the Financial Statements For the year ended 31 December 2020 Note 1 Principal Accounting Policies continued Changes in accounting policies and disclosures Standards, amendments and interpretations issued Standards, amendments and interpretations effective in the year ended 31 December 2020 The following standards, amendments and interpretations to existing standards became applicable for the first time during the accounting period beginning 1 January 2020. • Amendments to IFRS 3 – definition of a business. This amendment revises the definition of a business. According to feedback received by the IASB, application of the current guidance is commonly thought to be too complex, and it results in too many transactions qualifying as business combinations. • Amendments to IAS 1 and IAS 8 on the definition of ‘material’. These amendments to IAS 1, ‘Presentation of financial statements’, and IAS 8, ‘Accounting policies, changes in accounting estimates and errors’, and consequential amendments to other IFRSs: ‐ use a consistent definition of materiality throughout IFRSs and the Conceptual Framework for Financial Reporting ‐ clarify the explanation of the definition of material; and ‐ incorporate some of the guidance in IAS 1 about immaterial information • Amendments to IFRS 9, IAS 39 and IFRS 7 – interest rate benchmark reform. These Phase 1 amendments provide reliefs in relation to hedge accounting and interest rate benchmark reform and have the effect that IBOR reform should not generally cause hedge accounting to terminate. However, any hedge ineffectiveness should continue to be recorded in the income statement. Given the pervasive nature of hedges involving IBOR based contracts, the reliefs will affect companies in all industries who do hedge accounting. • Amendment to IFRS 16, ‘Leases’ – Covid‐19 related rent concessions. As a result of the coronavirus (COVID‐19) pandemic, rent concessions have been granted to lessees. Such concessions might take a variety of forms, including payment holidays and deferral of lease payments. This amendment provides an optional practical expedient for lessees from assessing whether a rent concession related to COVID‐19 is a lease modification. Lessees can elect to account for such rent concessions in the same way as they would if they were not lease modifications. In many cases, this will result in accounting for the concession as variable lease payments in the period(s) in which the event or condition that triggers the reduced payment occurs. The above changes did not have any material impact on the Group. Standards, amendments and interpretations issued but not yet effective for the year ended 31 December 2020 or adopted early The following standards, amendments and interpretations to existing standards have been published and are mandatory for the entity’s accounting periods beginning on or after 1 January 2021 or later periods, but the Group has not early adopted them: • Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Reform – Phase 2 (effective 1.1.21) ‐ The Phase 2 amendments address issues that arise from the implementation of the reforms, including the replacement of one benchmark with an alternative one. • A number of narrow‐scope amendments to IFRS 3, IAS 16, IAS 37 and some annual improvements on IFRS 1, IFRS 9, IAS 41 and IFRS 16 (effective 1.1.22). ‐ Amendments to IFRS 3, ‘Business combinations’ update a reference in IFRS 3 to the Conceptual Framework for Financial Reporting without changing the accounting requirements for business combinations. ‐ Amendments to IAS 16, ‘Property, plant and equipment’ prohibit a company from deducting from the cost of property, plant and equipment amounts received from selling items produced while the company is preparing the asset for its intended use. Instead, a company will recognise such sales proceeds and related cost in profit or loss. ‐ Amendments to IAS 37, ‘Provisions, contingent liabilities and contingent assets’ specify which costs a company includes when assessing whether a contract will be loss‐making. Foreign currency translation Foreign currency transactions are recorded at the exchange rates in effect at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at balance date are translated at closing rates. Gains and losses due to currency fluctuations on these items are included in the statement of comprehensive income. The Bank owns one subsidiary, Capital Security Bank Cook Islands Limited, which has a functional currency of New Zealand dollars. The assets and liabilities of this subsidiary are translated into United States dollars at spot exchange rates at the reporting date. The income and expenses of this subsidiary are translated into United States dollars at the average spot rate for the period reported. Foreign currency differences on the translation of this subsidiary are recognised in the foreign currency translation reserve. If this subsidiary was disposed of, in part or in full, the relevant amount in the foreign currency translation reserve would be transferred to the statement of comprehensive income.
Notes to the Financial Statements For the year ended 31 December 2020 Note 1 Principal Accounting Policies continued Fair value measurement Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When available the Group measures the fair value of an instrument using the quoted price in an active market for that instrument. If there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The best evidence of the fair value of a financial instrument at initial recognition is normally the transaction price. The Group measures fair value using the following hierarchy: Level 1 : inputs that are quoted market prices (unadjusted) in active markets for identical instruments Level 2: inputs other than quoted prices included in Level 1 that are observable directly or indirectly Level 3: inputs that are unobservable Due to the nature of financial instruments that the Group holds, the fair value and carrying value of financial instruments are not materially different. The only financial instruments measured at fair value are Marketable Securities, Treasury Assets and a portion of Client Funds on Deposit. These are categorised into Level 2 in the fair value hierarchy. Refer fair value disclosures in note 18. Marketable securities and treasury assets consist of portfolios and assets managed by an external investment manager. These portfolios include cash, interest bearing deposits, bonds and shares. The fair value is determined based on the value obtained from the investment manager. The investment manager values the portfolio using standard market techniques such as cash valued at face value, interest bearing deposits based on discounted cash flows, shares based on listed prices. Assumptions and inputs used include benchmark interest rates, bond and equity prices, foreign currency exchange rates. Financial assets Financial assets comprise items such as Cash and cash equivalents, Investments, Marketable securities, Loans and advances to customers and Other assets. Financial assets are classified into the following measurement categories: • those to be measured at fair value through profit or loss; and • those to be measured at amortised cost. The classification depends on the Group's business model for managing financial assets and the contractual terms of the financial assets' cash flows. i) Financial assets measured at fair value through profit or loss Items at fair value through profit or loss include items held for trading, items specifically designated as fair value through profit or loss on initial recognition and debt instruments with contractual terms that do not represent solely payments of principal and interest.
Financial assets held at fair value through profit or loss are initially recognised at fair value, with transaction costs being recognised in the income statement as incurred. Subsequently, they are measured at fair value with gains and losses recognised in the income statement as they arise. Where a financial asset is held at fair value, the movement in fair value attributable to interest rate market movements is either an observable market value or calculated based on changes in observable market interest rates for swaps. Financial assets designated at fair value through profit or loss Upon initial recognition, financial assets may be designated at fair value through profit or loss. For a financial asset, the fair value option is only applied if it eliminates an accounting mismatch that would otherwise arise from measuring items on a different basis.
Notes to the Financial Statements For the year ended 31 December 2020 Note 1 Principal Accounting Policies continued ii) Financial assets measured at amortised cost A financial asset is measured at amortised cost only if: • it is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and • the contractual terms of the financial asset give rise to cash flows that are solely payments of principal and interest. These assets are initially recognised at fair value plus direct attributable transaction costs and subsequently measured at amortised cost. Financial liabilities Financial liabilities comprise items such as Client funds on deposit and Amounts due to related entities. Financial liabilities may be held at fair value through profit or loss or at amortised cost. i) Financial liabilities held at fair value through profit or loss Items held at fair value through profit or loss comprise both items held for trading and items specifically designated at fair value through profit or loss on initial recognition. A financial liability is classified as held for trading if it is incurred principally for the purpose of selling in the near term, it forms part of a portfolio of financial instruments that are managed together and for which there is evidence of short term profit taking, or it is a derivative (not in a qualifying hedge relationship). Financial liabilities held at fair value through profit or loss are initially recognised at fair value with transaction costs being recognised immediately in the income statement. Subsequently, they are measured at fair value and any gains and losses are recognised in the income statement as they arise. Liabilities may be designated at fair value through profit or loss if they meet the following criteria: • where designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets and liabilities (not only financial assets and liabilities) or recognising the gains and losses on them on different bases; or • those that are part of a group of financial assets, financial liabilities or both, that are managed and their performance is evaluated by management on fair value basis in accordance with the documented risk management or investment strategy Once a financial instrument has been designated at fair value through profit or loss upon initial recognition, the Group cannot subsequently change the designation. The carrying amount disclosed is considered to approximate the contractual amount due on maturity on the financial liabilities designated at fair value through profit or loss on initial recognition. ii) Financial liabilities held at amortised cost All other financial liabilities, Amounts due to related entities and certain amounts within Client funds on deposit are measured at amortised cost using the effective interest method. Derecognition of financial instruments The Group derecognises a financial asset when the contractual cash flows from the asset expire or it transfers its rights to receive contractual cash flows on the financial asset in a transaction in which substantially all risks and rewards of ownership are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability. A financial liability is derecognised from the balance sheet when the Group has discharged its obligation or the contract is cancelled or expired. Offsetting The Group offsets financial assets and financial liabilities and reports the net balance in the balance sheet when, and only when, there is currently a legally enforceable right to set off and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously. Cash Flow Statement The Cash Flow Statement has been prepared using the direct approach. Financing activities are those activities which result in changes to the size and composition of the capital structure of the Group. This includes both equity and debt not falling within the definition of cash. Dividends paid in relation to the capital structure are included in financing activities. Operating activities include all transactions and other events that are not investing or financing activities.
The composition of "Cash and cash equivalents" is described in Note 8.
Notes to the Financial Statements For the year ended 31 December 2020 Note 2 Net interest income Accounting policy Interest income and expense is recognised in profit or loss using the effective interest method. The effective interest rate is established on initial recognition of the financial assets and liabilities and is not revised subsequently. The calculation of the effective interest rate includes all yield related fees and commissions paid or received that are an integral part of the effective interest rate. Note 3 Other operating income Accounting policy Fees and commissions Unless included in the effective interest calculation, fees and commissions are recognised on an accrual basis as the service is provided. Fees and commissions not integral to the effective interest rate arising from negotiating, or participating in the negotiation of a transaction with a third party are recognised on completion of the underlying transaction. Funds management and other fiduciary activities Fees and commissions earned through the marketing of funds management products and other fiduciary activities are included in the income statement as they are earned. Note 4 Operating expenses Accounting policy Operating expenses are recognised as the underlying service is rendered or over the period in which an asset is consumed or once a liability is incurred. Employee entitlements Wages and salaries, annual leave and other employee entitlements expected to be paid or settled within 12 months of providing the service are measured at their nominal amounts using remuneration rates that the Group expects to pay when the liabilities are settled. 2020 Amortisation and depreciation Amortisation of intangible assets Depreciation on property, plant and equipment Depreciation on right‐of‐use assets Total amortisation and depreciation Personnel expenses Salaries and other staff expenses Total personnel expenses
2019 7,205 9,006 21,373 19,756 34,044 34,044 62,622 62,806
Auditor's fees Audit and review of financial statements Other assurance and risk related services Total auditor's fees
52,399 42,587 ‐ ‐ 52,399 42,587
Other Lease liability expense Other expenses Total other operating expenses Total operating expenses
11,886 1,450,040 1,461,926 2,398,312
16,805 1,411,964 1,428,769 2,344,436
Note 5 Leases Accounting policy IFRS 16 Leases was applied by the Group from 1 January 2019 using the modified retrospective approach, under which the cumulative effect of initial application was recognised in retained earnings at 1 January 2019. At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group uses the definition of a lease in IFRS 16.
Notes to the Financial Statements For the year ended 31 December 2020 Note 5 Leases continued For leases of office premises the Group has elected not to separate non‐lease components and accounts for the lease and non‐lease components as a single lease component. The right‐of‐use asset is subsequently depreciated using the straight‐line method from the commencement date to the end of the lease term. In addition, the right‐of‐use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the Group’s assumed NZD incremental borrowing rate of 4%. The Group determines its incremental borrowing rate by analysing various external sources and makes certain adjustments to reflect the terms of the lease and type of asset leased. Lease payments included in the measurement of the lease liability comprise the following: • fixed payments, including in‐substance fixed payments; • variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date; • amounts expected to be payable under a residual value guarantee; and • the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early. The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, if the Group changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in‐substance fixed lease payment.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right‐of‐use asset, or is recorded in profit or loss if the carrying amount of the right‐of‐use asset has been reduced to zero. The Group presents right‐of‐use assets and lease liability, individually in the statement of financial position. Leases as lessee The Group leases an office premises. The lease ran for an initial period of 5 years, with two options of 5 years to renew the lease after that date. Further, the Group has not entered into any new leases during the year ended 31 December 2020 (2019: Nil). Information about leases for which the Group is a lessee is presented below. i. Right‐of use assets Right‐of‐use assets relate to leased office premises. Balance at 1 January Less depreciation charge for the period Balance at period end ii. Amounts recognised in profit or loss Interest on lease liabilities Foreign exchange adjustment at 31 December 2019
2020 2019 266,651 300,695 34,044 34,044 232,607 266,651
11,886 13,437 ‐ 3,368 11,886 16,805
Notes to the Financial Statements For the year ended 31 December 2020 Note 5 Leases continued iii. Amounts recognised in statement of cash flows Total cash outflow for leases
iv. Extension options The lease of office premises contains extension options exercisable by the Group up to 120 days before the end of the non‐cancellable contract period. The Group has already exercised the renewal option for a further 5 years in 2017. The extension options held are exercisable only by the Group and not by the lessors. The Group assesses at lease commencement date whether it is reasonably certain to exercise the extension options. The Group reassesses whether it is reasonably certain to exercise the options if there is a significant event or significant changes in circumstances within its control. The Group has already included the potential future lease payments as it is likely to utilise the next and final extension options, therefore there is no resultant increase in lease liability. v. Lease liability The table below sets out the maturity analysis based on contractual discounted cash flows to a final expiry date of 31 October 2027. 40,039 36,034 Less than one year 41,669 37,503 One to two years 43,369 39,030 Two to three years 45,135 40,622 Four to five years 118,105 171,635 Over five years 288,317 324,824 Note 6 Income tax Accounting policy Under the terms of section 249(2) of the Cook Islands International Companies Act 1981‐82, the Bank is not subject to taxation in the Cook Islands. Capital Security Bank Cook Islands Limited is subject to income tax under the Income Tax Act 1997. Income tax on the profit for the year comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items recognised directly in other comprehensive income, in which case it is recognised in equity or other comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that the related tax benefit will be realised. 2020
Income tax on operating profit charged to the income statement Profit for the year before tax
less profit for tax‐exempt entity Taxable income/(loss)
Tax charge/(credit) at domestic company rate of 20% Accumulated domestic tax loss offset Income tax expense/(benefit)
7,141 4,637 (7,141) (4,637) ‐ ‐
Note 7 Capital and Reserves (a) Share Capital Balance 1 January 3,218,400 3,218,400 Balance period end 3,218,400 3,218,400 The authorised and paid up capital of the Company is 2,000,000 (2019: 2,000,000) Class A ordinary shares with a par value of NZ$1.00 each, and 2,000,000 (2019: 2,000,000) Class B ordinary shares with a par value of USD$1.00 each. All shares rank equally with respect to dividends and the Company's residual assets. (b) Reserves Foreign Currency Translation Reserve This contains all foreign currency differences arising from the translation of the financial statements of subsidiaries where the operating currency is NZD. Note 8 Cash and cash equivalents Accounting policy Cash and cash equivalents consists of cash, transaction balances with other institutions and deposits with an original term of 3 months or less to maturity.
Notes to the Financial Statements For the year ended 31 December 2020 Note 9 Investments Accounting policy The Group holds investments in bank deposits, bank bonds, floating rate notes, public securities, financial institution notes and multilateral development bank notes. Note 10 Marketable securities and precious metals The Group maintain investments on behalf of clients with third party institutions in segregated accounts. The Group bear no financial risk in relation to these accounts under the terms and conditions agreed with the clients. As any movement in Marketable securities and precious metals is directly attributable to Clients there is no affect to Profit or Loss. 2020 2019 Marketable Securities and precious metals at Fair Value 113,572,406 91,940,738 Included within marketable securities are portfolios made up of cash, interest bearing deposits, bonds and shares. Included within liabilities is client funds on deposit at fair value being the amount owed to clients for marketable securities and precious metals held on their behalf. Note 11 Loans and advances to customers Loans and advances are non‐derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money or services directly to a customer and has no intention of trading the loan. Loans and advances are measured at amortised cost using the effective interest method, net of any provision for credit impairment. Under the effective interest method, fee income and costs directly related to the origination of the loan are deferred over the expected life of the assets or, where appropriate, a shorter period. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument and excluding future credit losses. All loans and advances to customers require collateral in the form of cash, interest bearing deposits and marketable securities. There are no arrears (2019: nil) and nil credit impairment (2019: nil). The percentage of exposure that is subject to collateral requirements at period end was 100% (2019: 100%) Note 12 Other assets Accrued interest receivable Sundry debtors Prepayments Prepaid commission Total other assets
17,545 260,495 481 34,657 126,430 134,617 78,593 62,318 223,049 492,087
Note 13 Investment in subsidiary The Group consists of the Bank and its following subsidiary:
Capital Security Bank Cook Islands Limited
Country of Incorporation
Note 14 Other liabilities Accounting policy An accrual is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Employee entitlements Uncleared deposits Accrued interest payable Other accruals
Note 15 Client funds Client Funds on Deposit at Amortised Cost On demand and short‐term deposits Time deposits
Client Funds on Deposit at Fair Value
16,728 145,403 61,100 385,137 608,368
14,686 590,699 209,095 307,223 1,121,703
195,420,261 26,801,208 222,221,469
173,621,723 28,161,070 201,782,793
Notes to the Financial Statements For the year ended 31 December 2020 Note 16 Related entity transactions The ultimate parent company of the Bank is CSB Holdings Limited. During the period ended 31 December 2020, there were dealings between the Bank and its related entities as well as other related parties (including key management personnel). Details of these transactions are outlined below. Related entities Amounts due to ultimate parent Total amounts due to related entities
2020 ‐ ‐
2019 16,599 16,599
No provisions have been recognised in respect of loans provided to related entities (2019: nil). There were no debts with any of the above parties written off or forgiven during the period ended 31 December 2020 (2019: nil). During the period, the ultimate parent opened an account under standard terms and conditions with the balance at 31 December 2020 of $8,653 (2019: nil). Transactions with related entities The Group provides banking and other administrative services to related entities on normal terms and conditions. During the financial year, there have been dealings between the Bank and its controlled entities, and the Group and its related entities. The Bank provides a range of services to related entities including the provision of banking facilities. These transactions are subject to commercial terms and conditions. The Bank provides some accounting administration and banking services to controlled and related entities for which fees may not be charged. Dividends paid to shareholders are disclosed in the Statement of changes in equity. Loans have also been made to the following related companies by the Group: Caribbean Capital Lenders, LLC Bridging Management, LLC West Coast Home Facilities, LLC Pacific North Residential, LLC Southwest Housing Management, LLC Northern Facilities, LLC Royal Blue House, LLC Northport Management House, LLC OceanView Home Facilities, LLC Even Star Management, LLC Sunnyvale Management Homes, LLC
760,000 ‐ 1,890,500 2,090,000 ‐ 3,046,935 631,750 1,934,675 634,070 4,934,222 2,705,515 18,627,667
760,000 7,111,985 ‐ 2,090,000 3,092,250 3,616,935 631,750 1,934,675 ‐ ‐ ‐ 19,237,595
The Bank and Group have a right of set off in respect to client funds on deposit and loans made to clients of $18,627,667 (2019: $19,237,595). These balances are not recorded in the Balance Sheet. The terms of these loans require that security is held over a deposit with the Bank for the same amount of the loan and the Bank has the right and ability to settle both simultaneously and therefore loss given default is nil. Key management personnel Key management personnel are defined as being Directors and the executive team of the Bank. The information relating to key management personnel disclosed below includes transactions with those individuals, their close family members and their controlled entities. Deposits with both non‐executive and executive key management personnel of the Bank are made in the ordinary course of business on commercial terms and conditions.
Payments to key management personnel Deposits due to key management personnel
Note 17 Contingent liabilities and other commitments Accounting policy Contingent liabilities are possible obligations whose existence will only be confirmed by uncertain events or present obligations where the transfer of economic benefits is not probable or cannot be reliably measured. Where some loss is probable, provisions have been made. Contingent liabilities are not recognised in the balance sheet, but are disclosed unless the likelihood of payment is remote. There are no contingent liabilities for the Group as at balance date (2019: nil).
Notes to the Financial Statements For the year ended 31 December 2020 Note 17 Contingent liabilities and other commitments continued Credit related commitments For commitments to extend credit, the maximum credit exposure to the Group is the full amount of the commitment. Irrevocable commitments to extend credit are agreements to lend to a customer which can be drawn down at any time before the commitments expire as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiry dates or other termination clauses and may require payment of a fee by the customer. At 31 December 2020 there were no credit related commitments (2019: nil). Other commitments There are no other commitments for the Group as at balance date (2019: nil).
Note 18 Capital adequacy The Group's capital includes Share Capital, Reserves, and Retained earnings. The Group's policy is to exceed regulatory requirements for capital so as to maintain investor, creditor, and market confidence and to sustain the future development of the business. The Group is subject to the following prudential capital requirements by the regulator, Financial Supervisory Commission: ‐ Tier‐One Capital must be at least 10% of Risk‐Weighted Assets ‐ Total Capital and Reserves must be at least 15% of Risk‐Weighted Assets At balance date the Group's Tier‐One Capital represented 21% (2019: 20%) of Risk‐Weighted Assets. The Group's Total Capital and Reserves represented 21% (2019: 20%) of Risk‐Weighted Assets. The Group's policies in respect of the capital management are regularly reviewed by the Directors. Note 19 Classification of financial instruments and fair value measurement Categories of financial assets and financial liabilities Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. For the purposes of this note, carrying amount refers to amounts reflected in the balance sheet. The methodologies and assumptions used in the fair value estimates are described in the Fair value measurement part of this note. 2020 Carrying Amount
2019 Carrying Amount (USD 000's)
Financial Assets At amortised cost Cash and cash equivalents Investments Loans and advances to customers Other assets Fair Value through profit or loss Marketable securities Investments Financial Liabilities Fair Value through profit or loss Client Funds on Deposit At amortised Cost Client Funds on Deposit Amounts due to related entities Other financial liabilities
34,185 12,600 500 18
26,826 70,135 500 260
113,572 183,312 344,187
91,941 112,118 301,780
222,221 ‐ 608 336,404
201,783 17 1,122 294,863
The fair value estimates are based on the following methodologies and assumptions: Cash and cash equivalents These are liquid in nature and therefore equate to fair value. Investments These assets are primarily short term in nature or are receivable on demand. In such cases the carrying amounts approximate their fair value. Loans and advances to customers These are measured at amortised cost using the effective interest method, less any impairment. This is materially the same as fair value as the interest rate of these loans are not materially different to the current market rates.
Notes to the Financial Statements For the year ended 31 December 2020 Note 19 Classification of financial instruments and fair value measurement continued Other financial assets/liabilities These include accrued interest which is approximately equal to the carrying amounts on the balance sheet due to their short term nature. Investments, Marketable securities and Client funds on deposit at fair value These are valued at fair value based on the valuation performed by the investment manager. Amounts due to/from related entities These are short‐term liabilities/assets and therefore equate to fair value. Client funds on deposit at amortised cost The fair value of client funds on deposit at amortised cost is calculated using the effective interest method, and is materially the same as the carrying amount as these all mature within 12 months and there is no material difference between the interest rate of these liabilities and current market rates. Note 20 Risk management The Group's activities expose it to a variety of financial risks, including the effects of changes in foreign currency exchange rates and interest rates. The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance. Risk management evaluation is carried out by the Directors, which involves the identification and evaluation of financial risks.
Exposure to credit, liquidity, currency, price risk and interest rate risk arises in the normal course of the Group's business. Credit Risk The Group applies ECL model separately for each financial asset category measured at amortised cost. At period end there are no past due or impaired assets and no impairment provision has been recognised due to the following: Credit risk is the possibility that a loss may occur from the failure of a counterparty to perform according to the terms of contract. The Group deals with reputable financial institutions for investing and cash handling purposes and the probability of default is considered very low. The terms of Loans to clients require that security is held over balances invested with the Bank that cover the full amount of the loan facility made by the Bank and therefore loss given default is always nil (refer Note 11). The Group has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. The maximum exposure to credit risk approximates to the carrying amount of each financial asset in the balance sheet. Loans and deposits that have the right of set off (Note 11) and marketable securities (Note 10) do not carry risk. The Directors consider that none of the Bank's or Group's financial assets are impaired or past due. Standard & Poor's Credit rating Concentrations of credit risk: Cash and cash equivalents ‐ rated
AA‐ A+ A A‐
21,932,728 5,816,634 9,090,575 15,144,847 2,000,000 ‐ 59,653 34,043 33,082,956 20,995,524 1,102,220 5,829,996 34,185,176 26,825,520
12,600,000 45,523,200 ‐ 24,612,483 12,600,000 70,135,683
Cash and cash equivalents ‐ unrated
Investments due from other institutions ‐ rated
Notes to the Financial Statements For the year ended 31 December 2020 Note 20 Risk management continued The following table shows the credit quality of treasury assets included in Investments. Standard & Poor's Credit rating AAA AA+ AA AA‐ A+ A A‐ BBB+ BBB BBB‐
2020 66,884,774 33,969,707 2,097,206 13,096,817 20,416,841 6,735,384 10,722,421 8,587,136 18,511,344 2,290,528 183,312,158
2019 12,932,934 57,026,315 ‐ 19,333,783 2,524,653 1,086,583 3,316,591 9,362,637 4,900,578 1,633,444 112,117,518
0 0 Liquidity Risk Prudent liquidity risk management implies maintaining sufficient cash at bank and marketable securities and the ability to close out market positions. The Directors ensure that sufficient cash reserves are maintained at all times to meet any liquidity requirements deemed likely to arise, giving due consideration to historical experience as well as the prevailing market conditions. Where cash reserves are nevertheless found to be inadequate to meet client requirements the Group has the right to close out interest‐bearing deposits held at other financial institutions within 48 hours. The Bank’s documented investment strategy and practical management of treasury asset investments is based on the view and practical testing that the Bank has the ability to readily sell its treasury assets when required. Liquidity Maturity Analysis The following tables present the Group’s financial assets and liabilities by relevant maturity groupings based upon contractual maturity date. The amounts disclosed in the tables represent undiscounted principal only. As a result, the amounts in the tables below align with the amounts reported on the Balance Sheet. The cash flows presented below may differ significantly from actual cash flows. This occurs as a result of future actions by the Group and its counterparties, such as early repayment or refinancing of term loans and borrowings. Deposits include customer savings deposits and transactional accounts, which are at call. History demonstrates that such accounts provide a stable source of long term funding for the Group.
31 December 2020 (USD 000's) Financial Assets Cash and cash equivalents Investments Marketable securities at fair value Loans and advances to customers Other assets excluding prepayments Financial Liabilities Client Funds on Deposit at amortised cost Client Funds on Deposit at fair value Amounts due to related entities Other liabilities Total Gap
0 to 1 Month
2 to 12 Months
1 to 3 years
32,185 45,255 113,572 ‐ 6 191,018
2,000 56,183 ‐ ‐ 11 58,194
‐ 65,918 ‐ ‐ ‐ 65,918
‐ 28,556 ‐ 500 ‐ 29,056
34,185 195,912 113,572 500 17 344,186
34,185 195,912 113,572 500 17 344,186
181,624 113,575 ‐ 526 295,725 (104,707)
40,597 ‐ ‐ 82 40,679 17,515
‐ ‐ ‐ ‐ ‐ 65,918
‐ ‐ ‐ ‐ ‐ 29,056
222,221 113,575 ‐ 608 336,404 7,782
222,221 113,575 ‐ 608 336,404 7,782
Notes to the Financial Statements For the year ended 31 December 2020 Note 20 Risk management continued 31 December 2019 (USD 000's) Financial Assets Cash and cash equivalents Investments Marketable securities at fair value Loans and advances to customers Other assets excluding prepayments Financial Liabilities Client Funds on Deposit at amortised cost Client Funds on Deposit at fair value Amounts due to related entities Other liabilities Total Gap
0 to 1 Month
2 to 12 Months
1 to 3 years
26,826 33,987 91,941 ‐ 111 152,865
‐ 98,847 ‐ ‐ 183 99,030
‐ 44,448 ‐ ‐ ‐ 44,448
‐ 4,971 ‐ 500 ‐ 5,471
26,826 182,253 91,941 500 294 301,814
26,826 182,253 91,941 500 294 301,814
149,347 91,941 17 971 242,276 (89,411)
52,436 ‐ ‐ 151 52,587 46,443
‐ ‐ ‐ ‐ ‐ 44,448
‐ ‐ ‐ ‐ ‐ 5,471
201,783 91,941 17 1,122 294,863 6,951
201,783 91,941 17 1,122 294,863 6,951
Interest Rate Risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group's income and operating cash flows are substantially dependent on changes in market interest rates. All deposits received from customers are invested on comparable terms to minimise the impact on the Group's financial performance of adverse movements in market interest rates and exposures are monitored by the Directors on an ongoing basis. The following table below shows the potential impact of changes in yield on the Group's fixed income investment securities. The table uses the duration‐ convexity approach by which we assume a scenario consisting of a parallel shift in yield curve equivalent to 100 bps. Rate shift ‐100 b.p.
Rate shift +100 b.p.
31 December 2020 Investment securities
31 December 2019 Investment securities
Foreign Currency Risk The Group is exposed to currency risk through transactions in foreign currencies. These currencies include the New Zealand dollar, Australian dollar, Canadian dollar, Euro, British pound and other currencies which include Singapore dollar, Swedish krona, Norwegian krone, Japanese yen, Hong Kong dollar, Danish krone, Chinese yuan and Swiss franc that the Group deals in. As the currency in which the Group presents its financial statements is the United States dollar, the Group's financial statements are affected by movements in the exchange rates between these currencies and the United States dollar.
Significant gross exposures in USD are as follows: 31 December 2020 Assets Cash and cash equivalents Investments Marketable securities and precious metals Other assets Total assets
1,756,190 ‐ 1,214,707 ‐ 2,970,897
1,202,485 ‐ 7,385,238 ‐ 8,587,723
8,173,964 16,591,344 2,880,993 ‐ 27,646,301
2,272,391 ‐ 1,375,470 40,065 3,687,926
668,917 3,600,000 ‐ 21,968 4,290,885
1,840,667 ‐ 3,113,230 ‐ 4,953,897
Liabilities Other liabilities Client Funds on Deposit at Amortised Cost Client Funds on Deposit at Fair Value Lease liability Total liabilities Net statement of financial position exposure Reporting date spot rate
1,052 1,687,151 1,211,678 ‐ 2,899,881 71,016 0.7717
‐ 1,202,954 7,384,653 ‐ 8,587,607 116 0.7849
22,892 24,719,286 2,877,295 ‐ 27,619,473 26,828 1.2236
#REF! ‐ 2,283,058 1,370,641 ‐ 3,653,699 34,227 1.3670
#REF! 274,588 4,298,476 ‐ (25,821) 4,547,243 (256,358) 0.7200
‐ 1,849,497 3,101,061 ‐ 4,950,558 3,339
Notes to the Financial Statements For the year ended 31 December 2020 Note 20 Risk management continued Significant gross exposures in USD are as follows: 31 December 2019 Assets Cash and cash equivalents Investments Marketable securities and precious metals Other assets Total assets
17,188 1,716,726 577,208 1,803 2,312,925
2,126,486 385,700 6,010,149 1,007 8,523,342
1,898,504 ‐ 992,669 ‐ 2,891,173
2,184,910 ‐ 291,281 44,601 2,520,792
1,966,407 2,461,560 ‐ 27,200 4,455,167
1,160,414 1,457,397 96,840 990 2,715,641
Liabilities Other liabilities Client Funds on Deposit at Amortised Cost Client Funds on Deposit at Fair Value Lease liability Amounts due to related entities Total liabilities Net statement of financial position exposure Reporting date spot rate
4,139 1,700,118 577,142 ‐ ‐ 2,281,399 31,526 0.7030
538 2,490,341 6,010,143 ‐ ‐ 8,501,022 22,320 0.7714
‐ 1,878,611 992,442 ‐ ‐ 2,871,053 20,120 1.1227
#REF! 397,530 1,766,408 291,281 ‐ ‐ 2,455,219 65,573 1.3251
#REF! 241,829 4,813,480 ‐ ‐ ‐ 5,055,309 (600,142) 0.6744
94 2,572,115 96,840 ‐ ‐ 2,669,049 46,592
Sensitivity analysis: A 10 percent strengthening of the Australian dollar, Canadian dollar, Euro, British pound and New Zealand dollar against the United States dollar at 31 December would have increased (decreased) profit or loss by the amounts shown below. This assumes that all other variables, in particular interest rates, remain constant. Effect in USD Australian dollar Canadian dollar Euro British pound New Zealand dollar
2020 7,102 12 2,683 3,423 (25,636)
2019 3,153 2,232 2,012 6,557 (60,014)
Price Risk Price risk is the risk that changes in market prices will adversely affect the value of the Group's treasury assets. The objective of the Group's price risk management is to manage and control price risk by engaging multiple investment managers and specifying the range of investment grades in which they can invest. As detailed in note 10, the Group bear no financial risk in relation to marketable securities held at fair value. Any changes in value of these marketable securities (asset) is reflected in the client deposits held at fair value (liability).
Notes to the Financial Statements For the year ended 31 December 2020 Note 20 Risk management continued Interest Rate Repricing Analysis The following is a summary of the Group's interest rate gap position: Less than 3 months (USD 000)
3 to 6 months (USD 000)
7 months to 1 year (USD 000)
1 to 3 years (USD 000)
Over 3 years (USD 000)
Not bearing interest (USD 000)
At 31 December 2020 Assets Cash and cash equivalents Investments Marketable securities Loans and advances to customers Other assets Total assets
34,185 40,806 ‐ ‐ ‐ 74,991
‐ 5,793 ‐ ‐ ‐ 5,793
‐ 30,047 ‐ ‐ ‐ 30,047
‐ 63,491 ‐ ‐ ‐ 63,491
‐ 28,556 ‐ 500 ‐ 29,056
‐ 27,219 113,572 ‐ 17 140,808
Liabilities Client Funds on Deposit at Amortised Cost Client Funds on Deposit at Fair Value Other Liabilities Total Liabilities
195,420 ‐ ‐ 195,420
18,474 ‐ ‐ 18,474
8,327 ‐ ‐ 8,327
‐ ‐ ‐ ‐
‐ ‐ ‐ ‐
‐ 222,221 113,575 113,575 608 608 114,183 336,404
Interest Sensitivity Gap
Total (USD 000)
34,185 195,912 113,572 500 17 344,186
At 31 December 2019 Assets Cash and cash equivalents Investments Marketable securities Loans and advances to customers Other Assets Total Assets
26,826 112,007 ‐ ‐ ‐ 138,833
‐ 6,531 ‐ ‐ ‐ 6,531
‐ 24,318 ‐ ‐ ‐ 24,318
‐ 34,426 ‐ ‐ ‐ 34,426
‐ 4,971 ‐ 500 ‐ 5,471
‐ ‐ 91,941 ‐ 294 92,235
26,826 182,253 91,941 500 294 301,814
Liabilities Client Funds on Deposit at Amortised Cost Client Funds on Deposit at Fair Value Other Liabilities Total Liabilities Interest Sensitivity Gap
173,322 17,627 10,834 ‐ ‐ ‐ ‐ ‐ ‐ 173,322 17,627 10,834 (34,489) (11,096) 13,484
‐ ‐ ‐ ‐ 34,426
‐ ‐ 201,783 ‐ 91,941 91,941 ‐ 1,122 1,122 ‐ 93,063 294,846 5,471 (828) 6,968
Marketable securities are held for clients for trading and are not managed based on the individual maturities or interest rates. The corresponding client deposit at fair value liability is accounted for the in the same manner. Note 21 Subsequent events On 5 January 2021 approval was received from the Financial Supervisory Commission Cook Islands with regards to the appointment of John Evans as the succeeding CEO for the Group.
Other than the above, no matters or circumstances have arisen since the end of the financial year which would require adjustment to or disclosure in the financial statements.
Corporate directory Directors Brian Mason Chair and Independent Non‐Executive Director David Steens Non‐Executive Director Brendon Stone Independent Non‐Executive Director Andrew Yiangou Independent Non‐Executive Director Audit and risk committee Brendon Stone Chair Andrew Yiangou Member Senior management John Evans Chief Executive Officer Ian Haddow Chief Financial Officer Joe Horn‐Smith Chief Operations Officer Coral Erkkila Compliance and Risk Manager Registered office Centrepoint Avarua Rarotonga Cook Islands PO Box 906 Rarotonga Cook Islands P +682 22505 P (USA) +1 641 847 5077 E firstname.lastname@example.org W www.capitalsecuritybank.com Principal Bankers EFG Bank Bank of Montreal OCBC Bank Auditor PricewaterhouseCoopers Level 8, Civic Tower 272 Victoria Parade Suva Fiji