WEYBURN CREDIT UNION LIMITED WEYBURN, SASKATCHEWAN INDEPENDENT AUDITORS' REPORT AND FINANCIAL STATEMENTS DECEMBER 31, 2017 A VIRTUS V GROUP

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1 WEYBURN, SASKATCHEWAN INDEPENDENT AUDITORS' REPORT AND FINANCIAL STATEMENTS DECEMBER 31, A VIRTUS V GROUP

2 To the Members, Weyburn Credit Union Limited MANAGEMENT'S RESPONSIBILITY COMMUNICATION Management has responsibility for preparing the accompanying financial statements and ensuring that all information in the annual report is consistent with the statements. This responsibility includes selecting appropriate accounting principles and making objective judgements and estimates in accordance with International Financial Reporting Standards. In discharging its responsibilities for the integrity and fairness of the financial statements and for the accounting systems from which they are derived, management maintains the necessary system of internal controls designed to provide assurance that transactions are authorized, assets are safeguarded and proper records are maintained. Ultimate responsibility for financial statements to members lies with the Board of Directors. An Audit & Risk Committee of Directors is appointed by the Board to review financial statements in detail with management and to report to the Board of Directors prior to their approval of the fmancial statements for publication. Independent auditors appointed by the members audit the financial statements and meet separately with both the Audit & Risk Committee and management to review their findings. The independent auditors report directly to the members and their report follows. The independent auditors have full and free access to the Audit & Risk Committee to discuss their audit and their findings as to the integrity of the Credit Union's financial reporting and the adequacy of the system of internal controls. Don Shumlich Chief Executive Officer Krista Hayward, CPA, CA Chief Financial Officer A VIRTUS V GROUP

3 V VIRTUS GROUP Chartered Profession al Accountants & Business Advisors LLP To the Members, Weyburn Credit Union Limited INDEPENDENT AUDITORS' REPORT We have audited the accompanying financial statements of Weyburn Credit Union Limited which comprise the statement of financial position as at December 31, and the statements of comprehensive income, changes in members' equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and for such internal control as management detennines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perforn1 the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those assessments, the auditor considers internal control relevant to the Credit Union's preparation and fair presentation of the financial statements 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 Credit Union's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit Opl11lOn. Opinion In our opinion, these financial statements present fairly, in all material respects, the financial position of the Credit Union as at December 31, and its financial perfonnance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. February 28, 2018 Regina, Saskatchewan V ;..A.,. try, n,,. Chartered Professional Accountants I SASKATOON I I I Suite nd Ave North I Saskatoon, SK S7K 2A Suite Scarth Street I Regina, SK S4P 2J 6 t f e.virtus.saskatoon@virtusgroup.ca t f e.virtus.regina@virtusgroup.ca TOLL FREE REGINA

4 STATEMENT OF FINANCIAL POSITION AS AT DECEMBER 31, (with comparative figures for ) ASSETS Cash and cash equivalents (Note 4) Investments (Note 5) Loans receivable (Note 6) Other assets (Note 7) Property and equipment (Note 8) 2,756,966 78,865, ,942, , ,157,015 16,175,036 90,722, ,661, , ,351,080 LIABILITIES Deposits (Note 9) Other liabilities (Note 11) Shares (Note 12) 452,774,284 2,193, ,057,956 2,449, MEMBERS' EQUITY Equity accounts (Note 12) Retained earnings Accumulated other comprehensive income 4,012,498 42,137, ,157,015 4,209,451 39,173, ,351,080 APPROVED BY THE BOARD: Director Director "See Accompanying Notes A VIRTUS V GROUP

5 STATEMENT OF CHANGES IN MEMBERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, (with comparative figures for the year ended December 31, ) EQUITY ACCOUNTS Equity accounts - beginning of year 4,209,451 4,362,444 Decrease in member equity accounts (196,953) (152,993) Equity accounts - end of year RETAINED EARNINGS Retained earnings - beginning of year 39,173,525 Net income 2,714,639 36,370,901 2,802,624 Reclassification - other comprehensive income Retained earnings - end of year 42,137,216 39,173,525 ACCUMULATED OTHER COMPREHENSIVE INCOME Accumulated other comprehensive income - beginning of year 421,562 Other comprehensive income (loss) (421,562) Accumulated other comprehensive income - end of year 568,948 (147,386) TOTAL EQUITY "See Accompanying Notes" A VIRTUS "V GROUP

6 STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, (with comparative figures for the year ended December 31, ) Interest revenue Loan 14,722,749 Investment Interest expense Borrowed money 8,599 Member deposits Net interest 12,558,418 Provision for credit losses Net interest after provision for credit losses Other income Operating expenses General business 2,559,418 Occupancy 698,170 Organizational 224,882 Personnel 7,756,462 Security Income before income taxes 3,489,834 Income taxes (Note 18) Current 814,395 Deferred (recovery) (39,200) Net income before other comprehensive income 2,714,639 Other comprehensive income (net of tax) Net unrealized gains (losses) on: Available for sale financial assets (172,510) Reclassification adjustment to income (249,052) Other comprehensive income (loss) (421,562) Total comprehensive income 2,293,077 14,306, , ,091, ,561, , ,745 7,378, ,684, ,814 (46,900) 2,802,624 (147,386) (147,386) 2,655,238 "See Accompanying Notes" A VIRTUS "V GROUP

7 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, (with comparative figures for the year ended December 31, ) Cash provided by (used in) operating activities: Net income 2,714,639 Items not involving cash: - Amortization on property, plant and equipment 628,069 - Amortization on naming rights 22,383 - Provision for credit losses 127,751 - Other comprehensive income 249,052 Equity patronage allocation (196,953) Net change in other assets and other liabilities (228,042) Cash provided by (used in) investing activities: Investments 11,435,635 Loans receivable (22,408,527) Property and equipment (478,756) (11,451,648) Cash provided by (used in) financing activities: Deposits (5,283,672) Shares 350 (5,283,322) Increase (decrease) in cash (13,418,071) Cash position - beginning of year Cash position - end of year ,802, ,382 22, ,125 (152,993) (577,667) ,346,704 (19,976,613) (467,026) (2,096,935) 336,949 (10) 336,939 1,108, "See Accompanying Notes" A VIRTUS "V GROUP

8 FOR THE YEAR ENDED DECEMBER 31, (with comparative figures for the year ended December 31, ) 1. Incorporation and governing legislation Weybum Credit Union Limited is a for profit corporation governed by The Credit Union Act, 1998 in the Province of Saskatchewan, Canada. The Credit Union's registered office is located in Weyburn, Saskatchewan. The Credit Union provides financial services to members through branches in Weybum, Yellow Grass, Lang, and the surrounding area. In accordance with The Credit Union Act, 1998, Credit Union Deposit Guarantee Corporation (CUDGC) regulates all credit unions in Saskatchewan. CUDGC establishes Standards of Sound Business Practices, provides regulatory guidance and guarantees the repayment of all deposits, including accrued interest. If a credit union is not in compliance with the standards or regulatory guidance, CUDGC has the authority to take necessary action, which may include reducing or restricting the credit union's authorities and limits, taking preventative actions, issuing a compliance order, placing the credit union under supervision or administration, or issuing an amalgamation order. 2. Basis of preparation and statement of compliance The financial statements have been prepared in accordance with Part I of the CPA Canada Handbook - International Financial Reporting Standards (IFRS). The financial statements comply with IFRS adopted by the International Accounting Standards Board (IASB). The financial statements were approved by the Board of Directors on February 28, The financial statements have been prepared on the historical cost basis, except for certain investments which are measured at fair value. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. 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, regardless of whether that price is directly observable or estimated using another valuation teclmique. In estimating the fair value of an asset or liability the Credit Union takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these financial statements is determined on such a basis, except for measurements that have some similarities to fair value, but are not fair value, such as value in use on impairment. The Credit Union follows a fair value hierarchy to categorize the inputs used to measure fair value into Level 1, 2 or 3 based on the degree to which inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirely, which are described as follows: Level 1 inputs are quoted prices (unadjusted) for identical assets or liabilities that the entity can access at the measurement date. Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly: and Level 3 inputs are unobservable inputs for the asset or liability. The financial statements are presented in Canadian dollars, which is the Credit Union's functional currency A VIRTUS V GROUP

9 FOR THE YEAR ENDED DECEMBER 31, (with comparative figures for the year ended December 31, ) 3. Summary of significant accounting policies The significant accounting policies used in the preparation of these financial statements are summarized below. These accounting policies have been applied consistently to all periods presented in these financial statements. Use of estimates and judgments The preparation of the financial statements required management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities at the date of the financial statements, as well as, the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates. Estimates and assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected. The most significant uses of judgments and estimates are as follows: (i) Valuation of Financial Instruments The Credit Union determines the fair value of financial instruments for which there is no observable market price using a variety of valuation techniques as described further in Note 3. The inputs to these models are derived from observable market data where possible, but where observable market data is not available, judgment is required to establish fair values. The judgments include consideration of liquidity and other risks affecting the specific instrument. (ii) Allowances for Credit Losses The individual allowance component of the total allowance for impairment applies to financial assets evaluated individually for impaim1ent. In particular, management judgment is required to estimate the amount and timing of cash flows the Credit Union expects to receive. These estimates are based on a number of factors, including the net realizable value of any underlying collateral. The collective allowance component covers credit losses in portfolios of loans with similar credit risk characteristics when there is objective evidence to suggest that a loss has been incurred but the individual impaired items can not yet be identified. In assessing the collective allowance, management considers factors such as credit quality, historical loss experience and current economic conditions A VIRTUS V GROUP

10 FOR THE YEAR ENDED DECEMBER 31, (with comparative figures for the year ended December 31, ) 3. Summary of significant accounting policies continued Financial instruments All financial instruments are initially recognized at fair value plus transaction costs, except in the case of financial assets and liabilities classified as fair value through profit or loss. The classification of financial instruments at initial recognition depends on the purpose and management's intention for which the instruments were acquired and the item's characteristics. The Credit Union uses settlement date accounting for regular way contracts when recording financial asset transactions. All financial instruments are classified as fair value through profit or loss, loans and receivables, held to maturity, available for sale or other financial liabilities. Fair value through profit or loss Financial assets and financial liabilities are classified as fair value through profit or loss (FVTPL) when the instrument is held for trading or is designated as FVTPL by management. A financial asset or financial liability is held for trading if: It has been acquired principally for the purpose of selling it in the near term, or On initial recognition, it is part of a portfolio of identified financial instruments that the Credit Union manages together and has a recent actual pattern of short term profit taking, or It is a derivative that is not designated (or designated but not effective) as a hedging instrument. A financial asset or financial liability other than a financial asset or financial liability held for trading may be designated as at FVTPL upon initial recognition if: Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise, or The financial asset or financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Credit Union's documented risk management or investment strategy, and information about the grouping is provided internally on that basis, or It forms part of a contract containing one or more embedded derivatives. Financial assets and financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognized immediately in profit or loss. The Credit Union has classified the following financial assets and liabilities as FVTPL: Cash SaskCentral investments with less than 90 days to maturity Loans and receivables Loans and receivables include non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and that the Credit Union does not intend to sell immediately or in the near term. Loans and receivables are subsequently measured at amortized cost using the effective interest method, less any impairment. Interest income, calculated using the effective interest rate method, is recognized in profit or loss A VIRTUS V GROUP

11 FOR THE YEAR ENDED DECEMBER 31, (with comparative figures for the year ended December 31, ) 3. Summary of significant accounting policies continued The Credit Union has classified the following financial assets as loans and receivables: Held to maturity Loans receivable Accrued interest Accounts receivable Held to maturity financial assets are non-derivative assets with fixed or determinable payments and fixed maturity dates that the Credit Union has the positive intention and ability to hold until the maturity date, and which are not designated as another category. Held to maturity financial assets are subsequently measured at amortized cost using the effective interest method less any impainnent, with interest revenue recognized in profit or loss. The Credit Union has classified the following financial assets as held to maturity: Available for sale SaskCentral deposits SaskCentral investments Other investments Available for sale financial assets are non-derivative financial assets that are designated as available for sale and are not classified in any of the previous categories. Unquoted equity securities whose fair value cannot be reliably measured are carried at cost. All other available for sale financial assets are subsequently measured at fair value. Interest income is recognized in profit or loss using the effective interest method. Dividend income is recognized in profit or loss when the Credit Union becomes entitled to the dividend. Fair value changes are recognized in other comprehensive income until the investment is sold or impaired. Once sold or impaired, the cumulative gains and losses previously recognized in other comprehensive income are reclassified to profit or loss as a reclassification adjustment. The Credit Union has classified the following financial assets as available for sale: SaskCentral shares Concentra shares Other investments Other financial liabilities Other financial liabilities are those liabilities which have not been classified as FVTPL. Other financial liabilities are subsequently measured at an1ortized cost using the effective interest method. Interest expense, calculated using the effective interest rate method, is recognized in profit or loss. The Credit Union has classified the following financial liabilities as other financial liabilities: Member deposits Accounts payable A VIRTUS V GROUP

12 FOR THE YEAR ENDED DECEMBER 31, (with comparative figures for the year ended December 31, ) 3. Summary of significant accounting policies continued Derivative financial instruments Derivative financial instruments are financial contracts whose value is derived from an underlying interest rate, foreign exchange rate, equity, commodity instrument or index. In the ordinary course of business, the Credit Union enters into derivative contracts for asset/liability management. The Credit Union enters into derivative financial instruments to manage its exposure to interest rate risk, including interest rate swaps. Derivatives are initially recognized at fair value at the date that the derivative contract is entered into. It is subsequently measured at fair value with changes in fair value recognized in profit or loss, unless it is designated in a qualifying hedging relationship. Derivatives may include contracts which are designated as and effective as hedges, and/or contracts which reposition the Credit Union's overall interest rate risk, credit risk and foreign exchange risk profile. The Credit Union does not use hedge accounting for derivatives. Embedded derivatives Derivatives embedded in other non-derivative financial instruments or other host contracts are separated from their host contracts and accounted for as separate derivatives when certain conditions are met. These conditions include: the economic characteristics and risks are not closely related to those of the host contract, a separate instrument with the same tenns would meet the definition of a derivative and the combined instrument or contract is not measured at FVTPL. Embedded derivatives that are accounted for as separate derivatives are measured at fair value with changes in fair value recognized in profit or loss immediately. The Credit Union does not have any outstanding contracts or financial instruments with embedded derivatives that require separate recognition. Effective interest method The effective interest method is a method of calculating the amortized cost of a financial asset or financial liability and allocating interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial instrument, or when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. Transaction costs Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or financial liability. Transaction costs include fees and commissions paid to agents, advisors, brokers and dealers, levies by regulatory agencies and securities exchanges, transfer taxes and duties. Transaction costs do not include debt premiums or discounts, financing costs or internal administrative or holding costs. The Credit Union recognizes transaction costs as part of the carrying amount of all financial instruments except those classified as at FVTPL. Financial asset impairment The Credit Union assesses financial assets, other than those recorded at FVTPL, for indicators of impairment at each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after initial recognition, the estin1ated future cash flows of the asset have been negatively affected A VIRTUS V GROUP

13 FOR THE YEAR ENDED DECEMBER 31, (with comparative figures for the year ended December 31, ) 3. Summary of significant accounting policies continued Objective evidence of impairment could include significant financial difficulty of the issuer or counterparty, default or delinquency by the borrower, indications that the borrower will enter bankruptcy, disappearance of an active market for the security, prolonged decline in fair value of a security, or other observable data relating to a portfolio of assets such as adverse changes in the payment status of borrowers in the portfolio, or national or local economic conditions that correlate with defaults on the assets in the portfolio. For certain categories of financial assets, such as loans, assets that are assessed not to be impaired individually are, in addition, assessed for impainnent on a collective basis. In assessing collective impairment, the Credit Union considers historical experience on similar assets in similar economic conditions. Impairment losses on financial assets carried at amortized cost are measured as the difference between the financial 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 financial asset is reduced by the impairment loss directly for all financial assets with the exception of loans, which is reduced through the use of allowance accounts. Impairment losses are recognized in profit or loss. When available for sale financial assets are considered impaired, cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss in the period. With the exception of available for sale equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be objectively related to an event occurring after the impairment loss was recognized, the previously recognized in1paim1ent loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impainnent is reversed does not exceed what the amortized cost would have been had the impairment not been recognized. Any subsequent recovery in the fair value of an impaired available for sale equity instrument is recognized in other comprehensive income. Cash and cash equivalents Cash and cash equivalents consist of cash and highly liquid securities with a maturity date within 90 days of the year end date. They are subject to insignificant risk of changes in fair value and are used to manage short term cash commitments. Investments Investments are initially measured at fair value. For investments not classified as FVTPL, incremental transaction costs are added to the initial measurement. Subsequent measurement is detennined based on the classification of the instrument 'V GROUP

14 FOR THE YEAR ENDED DECEMBER 31, (with comparative figures for the year ended December 31, ) 3. Summary of significant accounting policies continued Loans receivable Loans are initially measured at fair value plus transaction costs and subsequently at amortized cost using the effective interest method, less any impairment. A loan is classified as impaired (doubtful) when there is no longer reasonable assurance that the principal and interest will be collected in full. The allowance is comprised of two components - individual allowances and collective allowances, calculated as follows: (i) (ii) The Credit Union records specific individual allowances based on management's regular review and evaluation of individual loans. The estimated realizable amount represents management's best estimate of the present value of future cash flows expected to be received, discounted at the loan's effective contractual interest rate. As a practical expedient, impainnent may be measured on the basis of the instrument's fair value using an observable market price. 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. The Credit Union records collective allowances for loans with similar credit risk characteristics, that have not been individually assessed as impaired when objective evidence of impairment within the groups of loans exists, but the individually impaired loans cannot be identified. In assessing the need for collective allowances, management considers factors such as credit quality, portfolio size and economic factors. The Credit Union estimates the collective allowance for impairment using a formula based on its historical loss experience for similar groups of loans in similar economic circumstances and current economic conditions. As management identifies individually impaired loans, it assigns an individual allowance for impairment to that loan and adjusts the collective allowance accordingly. Assets held for sale Assets are considered held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is met only when the sale is highly probable and the asset is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to be completed within one year from the date of classification. Property and equipment Property and equipment are recorded at cost less accumulated amortization and accumulated impairment losses. Property and equipment are amortized over their estimated useful lives using the following rates and methods, with the exception of land which is not amortized: Building Computer, communications equipment Furnishings, equipment Naming rights 4% straight-line 20% /3% straight-line 10% straight-line 7% - 20% straight-line The estimated useful lives, residual values and depreciation methods are reviewed at each year end and adjusted if appropriate 'V GROUP

15 FOR THE YEAR ENDED DECEMBER 31, (with comparative figures for the year ended December 31, ) 3. Summary of significant accounting policies continued Gains and losses on the disposal or retirement of property and equipment are determined as the difference between the sales proceeds and the carrying amount of the asset and are recorded in the statement of comprehensive income in the year of disposal. Membership shares Shares are classified as financial liabilities in accordance with their terms. Shares are redeemable at the option of the member, either on demand or on withdrawal from membership. Impairment of tangible and intangible assets other than goodwill At least annually, the Credit Union reviews its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated to determine the ea'tent of impairment loss, if any. Where it is not possible to estimate the recoverable amount of an individual asset, the Credit Union estimates the recoverable an10unt of a group of assets (or cash generating unit) to which the asset belongs. A cash generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash generating units, or otherwise they are allocated to the smallest group of cash generating units for which a reasonable and consistent allocation basis can be identified. Recoverable amount is defined as the higher of fair value less costs to sell and value in use. In assessing value in use, the Credit Union estimates future cash flows it expects to derive from the asset or group of assets along with the expectations about possible variations in the amount and timing of those cash flows. The estimated foture cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset or group of assets (or cash generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset or cash generating unit is reduced to its recoverable amount. An impainnent loss is recognized in profit or loss. Where an impainnent loss subsequently reverses, the carrying amount of the asset or group of assets is increased to the revised estimate of the recoverable amount. The increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset or group of assets in prior years. A reversal of an impairment loss is recognized in profit or loss. Loan interest revenue Loan and lease interest revenue is recognized on the accrual basis using the effective interest rate method for all loans not classified as impaired. When a loan becomes impaired, recognition of interest income ceases when the carrying amount of the loan ( including accrued interest) exceeds the estimated realizable amount of the underlying security. The amount of initial impaim1ent and any subsequent changes are recorded through the provision for credit losses as an adjustment of the specific allowance. Fees that are an integral part of the effective interest rate of the financial instrument, including loan origination, commitment, restructuring and renegotiation fees, are capitalized as part of the related asset and amortized to interest income over the term of the loan using the effective interest method AIVIRTUS V GROUP

16 FOR THE YEAR ENDED DECEMBER 31, (with comparative figures for the year ended December 31, ) 3. Summary of significant accounting policies continued Investment interest revenue Investment interest income is recognized on the accrual basis using the effective interest method. Purchase premiums and discounts are amortized using the effective interest method over the term to maturity of the applicable investment. Swap interest revenue and expenses Swap interest revenue and expenses are calculated on an accrual basis on fair value and the result netted for reporting purposes. Other income Other revenue is recognized in the fiscal period in which the related service is provided. Foreign currency translation Transaction amounts denominated in foreign currencies are translated into Canadian dollar equivalents at exchange rates prevailing at the transaction dates. Carrying values of monetary assets and liabilities reflect the exchange rates at the reporting date. Carrying values of non-monetary assets and liabilities measured at historical cost reflect the exchange rates at the date of the transaction. Non-monetary assets and liabilities that are measured at fair value are translated to Canadian dollars at the exchange rate at the date the fair value was determined. Translation gains and losses are included in profit or loss, except for available for sale equity instruments which are recognized in other comprehensive income. In come taxes Income tax expense is comprised of current and deferred taxes which are recognized in profit or loss except to the ex.1ent that it relates to items recognized directly in equity or in other comprehensive income. Current income tax is the expected tax payable or receivable on the ta,'<able income or loss for the year, using tax rates enacted or substantially enacted at the reporting date, and any adjustments to tax payable in respect of previous years. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between financial statement carrying amounts and amounts used for tax purposes. These amounts are measured using enacted or substantially enacted tax rates at the reporting date and re-measured annually for rate changes. Deferred income tax assets are recognized for the benefit of deductions available to be carried forward to future periods for tax purposes to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilized. Deferred income ta,'< assets are reviewed at each reporting date and are reduced to the ex.1ent that is no longer probable that the related tax benefit will be realized. Any effect of the re-measurement or re-assessment is recognized in the period of change, except when they relate to items recognized directly in other comprehensive income. The Credit Union is taxed at an effective rate of 12.5% on taxable earnings eligible for that rate and at 27% on the excess balance V GROUP

17 FOR THE YEAR ENDED DECEMBER 31, (with comparative figures for the year ended December 31, ) 3. Summary of significant accounting policies continued Deferred taxes are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority on the same taxable entity, or for different tax entities where the Credit Union intends to settle its current tax assets and liabilities on a net basis or simultaneously. Future accounting and reporting changes The Canadian Accounting Standards Board (AcSB) has issued new and amended IFRS standards under Part I of the CPA Canada Handbook which are not yet effective for the Credit Union. None of the new or amended standards have been implemented in these financial statements. The significant changes to the standards are as follows: IFRS 9 Financial Instruments: The amended standard provides revised guidance on classification and measurement of financial assets, reducing the classification categories from four to three. The standard also provides a new requirement to calculate the impairment of financial assets using the expected loss model, and changes to simplify hedge accounting. The effective adoption date is January 1, The Credit Union expects that the in1pact will not be significant impact as a result of the changes to the classification categories. IFRS 15 Revenue from Contracts with Customers: The new standard requires that revenue be recognized as goods and services are transferred to customers, in amounts that reflect the consideration the credit union is expected to be entitled. This standard replaces current guidance on revenue recognition. The effective adoption date is January 1, The Credit Union expects there will be no impact as a result of adopting the new standard. IFRS 16 Leases: The new standard replaces previous guidance on leases. The most significant change is that a "right of use" asset and lease liability will be recognized on the statement of financial position for lessees with operating leases. The guidance for lessors, and lessees with capital leases, has not been changed. The effective adoption date is January 1, The Credit Union expects there will be no impact as a result of adopting the new standard. The Credit Union has not determined the effect, if any, of the above standards on the financial statements. 4. Cash and cash equivalents Cash balances Investments with maturities < 90 days High interest savings accounts (3,743,034) 6,500,000 7,175,036 7,000, V GROUP

18 FOR THE YEAR ENDED DECEMBER 31, (with comparative figures for the year ended December 31, ) 5. Investments Loans and receivables: Accrued interest Held to maturity: Corporate bonds 12,126,850 SaskCentral term deposits 4,000,000 SaskCentral money market terms 4,000,000 Provincial bonds and other ,026,850 Available for sale: SaskCentral liquidity terms 30,975,000 SaskCentral liquidity deposits 16,406,407 SaskCentral demand deposit SaskCentral shares 5,000,000 Concentra shares 4,000,010 Other investments (1,709) ,172,650 11,000,000 2,000, ,572,650 24,375,000 22,247,706 12,000,000 5,000,000 4,000, , At December 31,, the market value of investments classified as held to maturity is 23,023,411 ( - 22, 708,951). At December 31,, 22,225,000 (- 20,275,000) of investments are expected to be recovered more than 12 months after the reporting date. Pursuant to Regulation 18(l)(a), credit unions must maintain 10% of total liabilities, using a prescribed formula, in specified liquidity deposits in SaskCentral, in addition to liquidity required to meet their normal cash flow requirements. As of December 31,, the Credit Union met the requirement. 6. Loans receivable Performing Allowances Impaired Individual Net Personal loans Agricultural loans Commercial loans Finance lease Foreclosed property Lines of credit and overdrafts Accrued interest 156,373,933 56,415, ,524,804 5,087, ,818 24,088, (251,629)156, 122,304 56,415, ,524,804 5,087, ,818 24,088, ,194,150 (251,629) 413,942, V GROUP

19 FOR THE YEAR ENDED DECEMBER 31, (with comparative figures for the year ended December 31, ) 6. Loans receivable continued Allowances Performing Impaired Individual Net Personal loans Agricultural loans Commercial loans Finance lease Lines of credit and overdrafts Accrued interest 151,486,335 55,675, ,284,556 5,879,500 21,759, ,075,824 61,154 (193,352)151,354,137 55,675, , ,969,597 5,879,500 21,759, ,273 (193,352) 391,661,745 At December 31,, 329,978,857 ( - 281,733,942) of loans are expected to be recovered more than 12 months after the reporting date. Allowance for impaired loans The aging of loans, including those past due but not impaired, as at December 31, was: Current days days days 327, ,099 92, ,956, , Total The Credit Union holds collateral against loans provided property, chattel property, securities and guarantees. to customers in the form of interests in real 7. Other assets Accounts receivable 67,802 Naming rights 225,250 Namings rights - accmnulated amortization (158,583) Deferred income tax assets 355,100 Prepaid expenses , ,250 (136,200) 315, V GROUP

20 FOR THE YEAR ENDED DECEMBER 31, (with comparative figures for the year ended December 31, ) 8. Prouert and eguiument Banking and Furnishings, Land Computer Equip Building Equipment Total Cost Balance at January 1, 634,595 4,568,678 8,925,594 1,622,286 15,751,153 Additions 328, ,466 26, ,546 Disposals (543,215) (24,250) (567,465) Balance at December 31, 634,595 4,353,857 9,028,810 1,648,972 15,666,234 Balance at January 1, 634,595 4,353,857 9,028,810 1,648,972 15,666,234 Additions Balance at December 31, 634,595 4,518,246 9,320,940 1,671,208 16,144,989 Depreciation and impairment losses Balance at January 1, 4,075,177 4,941,671 1,383,307 10,400,155 Depreciation expense 247, ,165 46, ,382 Disposals (543,215) (8,730) (551,945) Balance at December 31, Balance at January 1, 3,779,733 5,248,106 1,429,753 10,457,592 Depreciation expense Balance at December 31, Net book value Balance at December 31, 634, ,124 3,780, ,219 5,208,642 Balance at December 31, 634, ,139 3,753, ,486 5,059, The banking and computer equipment category includes computer software with cost of 899,683 ( - 899,683), accumulated depreciation of 809,532 ( - 719,563) and net book value of 90,151 ( - 180,120). Deuosits Chequing 117,610, ,166,577 Savings 113,165, ,931,454 Term deposits 127,848, ,287,912 Registered accounts 66,681,690 63,501,229 Other 26,067,931 27,602,128 Accrued interest 'V GROUP

21 FOR THE YEAR ENDED DECEMBER 31, (with comparative figures for the year ended December 31, ) 9. Deposits continued At December 31,, 107,067,938 ( - 104,878,034) of deposits are expected to be settled more than 12 months after the reporting date. 10. Loans payable The Credit Union has an authorized line of credit with SaskCentral in the amount of 10,000,000. This line of credit bears interest at 2.7% and is secured by an assignment of book debts and funds on deposit with a tiered interest rate structure based on a ninety day T-Bill rate and bank prime. At the end of the year, the amount outstanding was 8,192,392 ( - NIL). 11. Other liabilities Accounts payable Deferred revenue - leases Income taxes payable 1,907, ,646 (122,905) 2,224, ,779 (212,250) Membership shares & equity accounts Membership shares Membership shares are as provided for by The Credit Union Act, 1998 and administered according to the terms of the Credit Union bylaws which sets out the rights, privileges, restrictions and conditions. The authorized share capital is unlimited in amount and consists of fully paid shares with a par value of 5 per share. These accounts are not guaranteed by CUDGC. Characteristics include permanence, freedom from mandatory charge and subordination to the rights of creditors and depositors. The value of outstanding membership shares consists of: Issued at January 1 Issued Redeemed 39,555 2,445 (2,095) 39,565 2,275 (2,285) Issued at December Equity accounts Member equity accounts are provided based on credit union policies, are non-appreciating, bear no rate of return, and are subject to specific restrictions for withdrawal by the member V GROUP

22 FOR THE YEAR ENDED DECEMBER 31, (with comparative figures for the year ended December 31, ) 13. Capital management Credit Union Deposit Guarantee Corporation ( CUDGC) prescribes capital adequacy measures and minimum capital requirements. The capital adequacy rules issued by CUDGC have been based on the Basel III framework, consistent with the financial industry in general. CUDGC's Standards of Sound Business Practice (SSBP) that incorporate the Basel III framework took effect on July 1, The Credit Union follows a risk-weighted asset calculation for credit and operational risk. Under this approach, Credit Unions are required to measure capital adequacy in accordance with instructions for determining riskadjusted capital and risk-weighted assets, including off-balance sheet commitments. Based on the prescribed risk of each type of asset, a weighting of 0% to 150% is assigned. The ratio of regulatory capital to risk-weighted assets is calculated and compared to the standard outlined by CUDGC. Regulatory standards require Credit Unions to maintain a minimum total eligible capital to risk-weighted assets of 8%, a minimum total tier 1 capital to riskweighted assets of 6% and a minimum conunon equity tier 1 capital to risk-weighted assets of 4.5%. Eligible capital consists of total tier 1 and tier 2 capital. In addition to the mini.i11m11 capital ratios, the Credit Union is required to hold a capital conservation buffer of 2.5% effective January 1,. The capital conservation buffer is designed to avoid breaches of the mi.i1imm11 capital requirement. Tier 1 capital is defined as a Credit Union's primary capital and comprises the highest quality of capital elements while tier 2 is secondary capital and falls short of meeting the tier 1 requirements for permanence or freedom from mandatory charges. Tier 1 capital consists of two components: common equity tier 1 capital and additional tier 1 capital. Conunon equity tier 1 capital includes retained earnings, contributed surplus and accumulated other comprehensive income. Deductions from common equity tier 1 capital include goodwill, intangible assets, deferred tax assets (except those arising from temporary differences), increases in equity capital resulting from securitization transactions, unconsolidated substantial investments and fair value gains/losses on own-use property. Additional tier 1 capital consists of qualifying membership shares and other investment shares issued by the Credit Union that meet the criteria for inclusion in additional tier 1 capital. Tier 2 capital includes a collective allowance for credit losses to a maxi.inum of 1.25% of risk weighted assets, subordinated indebtedness, and qualifying membership shares or other mvestment shares issued by the Credit Union that meet the criteria for inclusion ill tier 2 capital and are not included in tier 1 capital. Regulatory standards also require the Credit Union to maintain a minimum leverage ratio of 5%. This ratio is calculated by dividing eligible capital by total assets less deductions from capital plus specified off-balance sheet exposures. Based on the type of off-balance sheet exposure, a conversion factor is applied to the leverage ratio. All items deducted from capital are excluded from total assets. The Credit Union may also exclude from total assets mortgages securitized through Canada Mortgage and Housing Corporate (CMHC) programs up to and including March 31, 2010 and all existing and future reinvestments related to Canada Mortgage Bonds (CMB) Insured Mortgage Purchase Program transactions completed up to and including March 31, The Credit Union has adopted a capital plan that conforms to the capital framework and is regularly reviewed and approved by the Board of Directors. The following table compares CUDGC regulatory standards to the Credit Union's Board policy for : Total eligible capital to risk-weighted assets Total tier 1 capital to risk-weighted assets Common equity tier 1 capital to risk-weighted assets Leverage ratio Regulatory Standards 8% 6% 4.5% 5% Board Minimum 10.75% 8.75% 7.25% 7.00% 7AIVIRTUS V GROUP

23 FOR THE YEAR ENDED DECEMBER 31, (with comparative figures for the year ended December 31, ) 13. Capital management continued During the year, the Credit Union complied with all internal and eaiemal capital requirements. The following table summarizes key capital information: Eligible capital: Common equity tier 1 capital 41,899,000 39,316,000 Additional tier 1 capital Total tier 1 capital 41,899,000 39,316,000 Total tier 2 capital Total eligible capital Risk-weighted assets 342,730, ,382,000 Total eligible capital to risk-weighted assets 13.41% 13.23% Total tier 1 capital to risk-weighted assets 12.23% 11.94% Common equity tier 1 capital to risk-weighted assets 12.23% 11.94% Leverage ratio 8.71% 8.36% 14. Related party transactions Related parties exist when one party has the ability to directly or indirectly exercise control, joint control or significant influence over the other or is a member, or close family member of a member, of the key management perso1mel of the Credit Union. Related party transactions are in the nom1al course of operations and are measured at the consideration established and agreed to by the parties. Loans receivable: At December 31,, certain members of the board of directors and key management personnel were indebted to the Credit Union for amounts totaling 5,169,043 ( - 5,082,369). These loans were granted under the same lending policies applicable to other members, and are included in loans receivable on the statement of fmancial position. Deposit accounts: Directors and key management personnel may hold deposit accounts. These accounts are maintained under the same terms and conditions applicable to other members, and are included in member deposits on the statement of financial position V GROUP