Dream Big. Vision. Peace. Budget Annual Report. Faith. Retirement. Strength. Goals. Be the change. Add Value. Discipline.

Transcription

1 Vision Goals Financial wellnes We are what we think Success your way Discipline Faith Retirement Peace Add Value Budget Courage Be the change Dream Big Strength 2014 Annual Report

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3 TABLE OF CONTENTS Agenda Pg Annual General Meeting Minutes Pg. 3 Report to Membership from the President and the CEO Pg. 8 Board Governance Report Pg. 10 Management s Responsibility for Financial Reporting Pg. 11 Financial Statements Pg. 12 Auditors Report Pg. 13 Statement of Financial Position Pg. 14 Statement of Income Pg. 15 Statement of Changes in Members Equity Pg. 16 Statement of Cashflows Pg. 17 Notes to Financial Statements Pg. 18 Schedule of Operating Expenses Pg. 45 Audit & Finance Committee Report Pg. 46 Credit Committee Report Pg. 47 Board Remuneration Resolution Pg. 48 The Great Team at River City Pg. 49

4 AGENDA 11th Annual General Meeting, March 10, 2015 Registration..5:00pm 6:00pm Meeting....6:00pm Dinner.. To follow formal meeting 1. Call to order 2. Declaration of quorum 3. Introduction of guests, head table, directors & staff 4. Greetings: a. Credit Union Deposit Guarantee Corporation b. Credit Union Central of Alberta 5. Appointment of scrutineers 6. Adoption of the minutes of the last meeting (March 20, 2014) 7. Report to the membership 8. Board Governance Report 9. Board elections 10. Presentation of financial statement and Auditors Report 11. Audit & Finance Committee Report 12. Board of Directors Credit Committee Report 13. Election results 14. New business: a. Board renumeration resolution 15. Staff services awards 16. Adjournment 17. Door prizes

5 MINUTES OF THE PREVIOUS AGM March 20, Call to Order: Meeting was called to order by President Kevin Moore at 6:03 P.M. 2. Declaration of Quorum: Total registrations at the commencement of the meeting consisted of 82 Members and 8 Guests. Having met the requirement that constitutes a quorum, all resulting business is legal and binding. 3. Introductions: Kevin Moore welcomed the members and guests to the 10th Annual Meeting of River City Credit Union Ltd. Kevin Moore introduced the head table as follows: Russ Morrow Phil Dirks Janice Webb Chief Executive Officer Auditor - Hawkings Epp Dumont LLP Recording Secretary Kevin Moore introduced the remaining Board of Directors in attendance: Bruce Ross Brenda Waluk Hill Bennett Joe DiNatale Edwin Ryl Terry Willson Richard Colwell Rob Kuziw Sandi Giesler Russ Morrow introduced the staff. Kevin Moore introduced the special guests: Sofie McCook Credit Union Deposit Guarantee Corporation Camille Berube Beaumont Credit Union Chuck McConnell Servus Credit Union Colin Kuefler Johnson Insurance Maria Farias CRI Canada Heather Mason CRI Canada

6 4. Greetings Kevin Moore called upon Sofie McCook, Assistant Executive Vice President, to bring greetings from Credit Union Deposit Guarantee Corporation. Roger Dery, Director, Technology & Innovation from Credit Union Central of Alberta was unable to attend; Russ Morrow read the greeting on his behalf. 5. Appointment of Scrutineers Kevin Moore recommended that the following individuals be accepted as Scrutineers, to be called upon if needed: Colin Kuefler Johnson Inc. Maria Farias CRI Inc. Camille Berube - Beaumont Credit Union Approved by show of hands 6. Adoption of 9th Annual Meeting Minutes Dated February 27, 201 a) Kevin Moore requested a motion to adopt the minutes of the 9th Annual General Meeting dated February 27, Moved by: Bernard Fuchs Second by: Andrea Buchanan Motion Carried b) Business Arising from the Minutes There was no business arising. 7. Report to Membership Kevin Moore presented the report on behalf of the Board of Directors and Management. Kevin Moore requested a motion to adopt the report. Moved by: Bernard Fuchs Second by: Sandi Giesler 8. Board Representation Motion Carried a) Nominating Committee Report Kevin Moore called upon Rick Colwell to present the Nominating Committee report on behalf of Chuck Van Deel Piepers, Chair of the Nominating Committee. Rick Colwell presented the report and noted the candidates who are up for re-election and those put forth by the Nominating Committee. It was acknowledged that 2 Directors have retired after long service to the Credit Union: Hill Bennett and Orest Kochan. One director also resigned during the year and the Board of Directors

7 requested Edwin Ryl to fill this position on an interim basis. Re election: Robert Kuziw and Terry Willson. New nominations: Edwin Ryl (interim Director), Leo Tang, Troy Shewchuk Nominations were requested from the floor. Rick called for nominations from the floor two more times no further nominations were received. Rick asked for a motion to cease nominations. Rick announced that the five members were elected to the Board of Directors. Member Harry Edge asked how the nominations were put forward to the membership and elected. Kevin Moore explained the process used by the Nominating Committee and also noted one candidate withdrew their name. Hill Bennett moved that the 5 members recommended by the Nominating Committee be elected to the River City Credit Union Board. Harry Edge seconded the motion. b) Election Not required. Motion Carried Kevin Moore resumed the chair and continued the meeting. 9. Presentation of Financial Statements & Auditors Report Kevin Moore introduced Phil Dirks, from the Accounting firm of Hawkings Epp Dumont LLP. Phil Dirks presented the financial statements and asked for questions. Member asked what made up the loan loss in value in intangible assets. Phil Dirks responded they were due to system software depreciation. Member asked how much money was saved from wages. As the detailed figure was not presently available, Julie Hunyh will provide the answer directly to the member. Kevin Moore called for a motion to adopt the report. Moved by: Harry Edge Second by: Chuck Motion Carried 10. Audit & Finance Committee Report Kevin Moore called upon Sandi Giesler, Chair of the Audit and Finance Committee, to present the report on behalf of the Committee. Member Bernard Fuchs asked about the audit deficiencies and how many were outstanding. Sandi provided an explanation and noted there are two outstanding deficiencies. Adoption of the report was: Moved by: Joe Di Natale Seconded by: Kayla Gibb Motion Carried

8 11. Credit Committee Report Kevin Moore called upon Russ Morrow to present the Credit Committee Management Report. Russ Morrow presented the report. Adoption of the report was: Moved by: Hill Bennett Seconded by: Bernard Fuchs Member asked that for next year s report, the percentage be provided for the number of loans. Member asked to see the membership number in the annual report. Member asked how much money was lost due to bad loans and how much was the biggest individual loss. Russ provided the dollar amount and Kevin provided the dollar value of the biggest loss. 12. Bylaw Resolution Motion Carried Kevin Moore presented changes to the Bylaw which are administrative and punctuation corrections. Kevin Moore called for a motion to adopt the changes to the Bylaw. Moved by: Bernard Fuchs Seconded by: Don Paterson Motion Carried Member raised a timing issue on communicating the agenda. Kevin noted the concern. 13. Director Recognition Kevin Moore thanked Hill Bennett for 25 years of service, read a proclamation and presented him with the proclamation. Kevin Moore also thanked Orest Kochan for 19 years of service. Orest was unable to attend. Sandi Geisler made a gift presentation to Kevin Moore to acknowledge all the extra time and efforts Kevin gave in Staff Recognition Kevin Moore called on Russ Morrow to present the staff recognition award. Russ presented the long service award to Amy McMurrary for 5 years. 15. Credit Committee Kevin Moore provided an update on the Credit Committee. At the last annual general meeting the bylaw was changed to dissolve the Credit Committee which was reported to the Provincial Government within 30 days of the AGM. The Provincial Government only provided a response at the end of January 2014 and there is a differing interpretation on the make up of the Credit Committee and it may have to be reestablished in due course. It will not be carried out until the Executive Committee and CEO determine the business process for the committee, to ensure the loan approval process does not get delayed and that

9 customer service levels are kept high. This will also give the government time to get a legal opinion on the intent of the legislations an how it will be interpreted. The role of the committee is to ensure policies and procedures are followed and not to approve loans. Should the committee need to be re-established, any member can put their name forward to be on the committee. Bernard Fuchs asked for put his name to be put forward for this committee. 16. Door Prizes Kevin Moore called upon the Directors and staff to assist with door prize draws and thanked all the donors of sponsored prizes. After all the prizes had been given, Kevin Moore thanked the following: Organizing Committee Receptionist and Registration Volunteers Management & Staff Board Members in attendance All members and guests for coming out Special thanks to Staff of the Chateau Louis for their excellent service, and for the food about to be served. 17. Adjournment Kevin Moore called for a motion to adjourn at 7:40 PM. Moved by: Bernard Fuchs Meeting Adjourned Kevin Moore, President Janice Webb, AGM Recording Secretary

10 REPORT TO THE MEMBERSHIP FROM THE PRESIDENT AND THE CHIEF EXECUTIVE OFFICER Welcome to the 11th Annual General Meeting of River City Credit Union. Last year we stated that 2014 would be our foundation year. This started through the hiring of a new CEO, Russ Morrow. The board outlined key expectations for changes to the operation to increase efficiency, manage expenses, and grow net income. Despite the turbulent economy for all credit unions, changes made to our operations in 2014 resulted in several key accomplishments. The asset base increased by $3.85 million or 4.5%. The asset growth was primarily related to a growth in deposits which shows confidence in our credit union, but this growth requires a corresponding increase in our capital requirements. The effect to our membership was the payment of a share dividend rather than a cash dividend to ensure we maintain the regulated capital requirements. Net income in 2014 was $147,765 and at first glance it appears our net income, after tax, decreased from $163,908 in However, in 2013 we received approximately $170,000 in dividends from Alberta Central Credit Union whereas in 2014 the same dividends were only $20,000. This year income from operations increased by $133,000. During the 2014 budget process the board challenged the Loans Department to increase loan growth from the normal 3% range to 7%. At the end of the year their hard work showed with an increase in loan growth of 13.6%. Loan write-offs were down compared to previous years; $167,000 in 2013 vs $40,000 in The board continues to work on developing its skills; ensuring we have the necessary skill sets and training to perform the role you have entrusted us. Currently there are two directors with the CUDA Level A training and we expect to have another eight members certified by the end of The board continues to build strategic plans for the future directly linked to the creation of the operating budget and capital plan. Yet the foundational journey we are on is not yet complete. We have more to do. We need to further focus on managing expenses and increasing operational efficiency, net income, and introducing new products to remain competitive and ensuring we have a strong compliance track record. Most importantly, we need to grow our membership! We would like to thank the members of the Board of Directors for their generous contributions of time. The work on the strategic planning takes many hours, and both the board and management stepped up to get the job done. The committees and sub-committees held regular meetings to ensure goals were met and the necessary information was provided to the board and management for discussion and decision making. As we continue to lay the foundational blocks in 2015 we are building a future for River City Credit Union with many possibilities for existing and new members.

11 The board would also like to thank the management and staff for their efforts this past year. They worked hard to increase operational efficiency, providing the best possible service to our members, while meeting regulatory requirements. To all our members, thank you for your continued support. Kevin Moore, President Russ Morrow, CEO

12 BOARD GOVERNANCE REPORT On behalf of the Nominating Committee, Robert Kuziw, Joe DiNatale, Bruce Ross, Terry Wilson and myself, I am pleased to present the following report. This year, we have four director positions up for re-election, leaving four Director positions vacant. All four directors whose terms have expired are willing to stand for re-election: Kevin Moore Brenda Waluk Sandra Giesler Richard Colwell Retired (Epcor) City of Edmonton City of Edmonton City of Edmonton Each of these individuals declaration of interest have been reviewed against the current bylaw and requirements which must be met to be considered for election. Each candidate has extensive experience on the board and has met the required criteria as per the bylaws. The nominating committee presents the following candidates to you and we recommend all of the individuals to the Board of Directors for River City Credit Union for a three (3) year term. Kevin Moore Brenda Waluk Sandra Giesler Richard Colwell Retired (Epcor) City of Edmonton City of Edmonton City of Edmonton Respectfully submitted, Chuck Van Deel Piepers Chairperson, Nominating Committee

13 MANAGEMENT S RESPONSIBLITY FOR FINANCIAL REPORTING To the Members River City Credit Union Ltd. Management has the responsibility for preparing the accompanying financial statements and ensuring that all information in the annual report is consistent with these statements. This responsibility includes selecting appropriate accounting principles and making objective judgments and estimates in accordance with International Financial Reporting Standards and the requirements of the Credit Union Act. In discharging its responsibility for the integrity and fairness of the financial statements, as well as for the accounting systems from which they are derived, management maintains the necessary systems of internal controls designed to provide assurance that transactions are authorized, assets are safeguarded and proper records are maintained. The ultimate responsibility to members for the financial statements lies with the Board of Directors. The board appoints an Audit and Finance Committee to review the financial statements with management in detail and to report to the board prior to its approval to publish the financial statements. The board appoints external auditors to audit the financial statements and to meet with both the Audit and Finance Committee and management to review their findings. The external auditors report directly to the members. The external auditors have full and free access to the Audit and Finance Committee to discuss their audit, as well as their findings concerning the integrity of the credit union s financial reporting and the adequacy of its systems of internal controls. Edmonton, Alberta January 22, 2015 Russ Morrow, MBA Chief Executive Officer Julie Huynh, CGA Controller

14 FINANCIAL STATEMENTS FOR THE YEAR ENDED OCTOBER 31, 2014

15 INDEPENDENT AUDITORS REPORT We have audited the accompanying financial statements of River City Credit Union Ltd., which comprise the statement of financial position as at October 31, 2014 and the statements of net income and comprehensive income, changes in members equity, and cash flows for the year then ended, and the related notes, which comprise a summary of significant accounting policies and other explanatory information. Managements 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 determines 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 perform the audit to obtain reasonable assurance about whether the financial statements are free from 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 auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controls relevant to the entity 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 entity s internal controls. 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 opinion. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of River City Credit Union Ltd. as at October 31, 2014 and its financial performance and cash flows for the year ended October 31, 2014 in accordance with International Financial Reporting Standards. Edmonton, Alberta January 22, 2015 HAWKINGS EPP DUMONT LLP Chartered Accountants

16 STATEMENT OF FINANCIAL POSITION AS AT OCTOBER 31, ASSETS Cash and cash equivalents $ 2,536,363 $ 1,913,929 Investments (Note 5) 17,380,759 23,499,312 Income taxes receivable 13,469 - Members' loans (Note 6) 67,750,047 58,405,284 Other assets (Note 7) 690, ,260 Intangible assets (Note 10) 263, ,552 Property and equipment (Note 9) 103,382 99,979 $ 88,737,727 $ 84,883,316 LIABILITIES Accounts payable and accrued liabilities $ 96,659 $ 159,613 Deferred income tax liabilities (Note 11) 32,283 34,102 Income taxes payable - 7,024 Members' deposits (Note 13) 84,276,386 80,485,588 84,405,328 80,686,327 MEMBERS' EQUITY Allocation distributable (Note 14) 35,136 93,693 Members' shares (Note 12) 636, ,323 Retained earnings 3,660,520 3,542,973 4,332,399 4,196,989 $ 88,737,727 $ 84,883,316 ON BEHALF OF THE BOARD: Director Director The accompanying notes are an integral part of these financial statements.

17 STATEMENT OF NET INCOME AND COMPREHENSIVE INCOME FOR THE YEAR ENDED OCTOBER 31, INTEREST INCOME Members' loans $ 2,575,830 $ 2,649,098 Investments 312, ,356 2,887,838 3,157,454 INTEREST EXPENSE Members' deposits 824, ,975 River City Savings - 6, , ,999 NET INTEREST INCOME BEFORE PROVISION FOR LOAN IMPAIRMENT 2,063,529 2,271,455 PROVISION FOR LOAN IMPAIRMENT (Note 6) 38,305 70,223 NET INTEREST INCOME AFTER PROVISION FOR LOAN IMPAIRMENT 2,025,224 2,201,232 SERVICE CHARGES AND OTHER INCOME 561, ,943 NET INTEREST AND OTHER INCOME 2,586,895 2,716,175 OPERATING EXPENSES (Schedule 1) 2,441,120 2,486,791 INCOME BEFORE LOAN RECOVERIES 145, ,384 CASH RECOVERIES ON LOANS PREVIOUSLY WRITTEN OFF 27,193 57,370 INCOME BEFORE PATRONAGE ALLOCATION AND INCOME TAXES 172, ,754 PATRONAGE ALLOCATION (Note 14) - 93,693 INCOME BEFORE INCOME TAXES 172, ,061 INCOME TAXES (Note 11) Current 27,022 36,251 Deferred (recovery) (1,819) (7,098) 25,203 29,153 NET INCOME AND COMPREHENSIVE INCOME $ 147,765 $ 163,908 The accompanying notes are an integral part of these financial statements.

18 STATEMENT OF CHANGES IN MEMBERS' EQUITY FOR THE YEAR ENDED OCTOBER 31, 2014 Allocation Member Retained Distributable Shares Earnings Total BALANCE, OCTOBER 31, , ,323 3,542,973 4,196,989 Net income and comprehensive income , ,765 Dividends (Note 14) 35,136 - (35,136) - Tax recovery on member shares - - 4,918 4,918 Previous year's patronage paid through issuance of member shares (93,693) 93, Issuance of member shares - 38,239-38,239 Redemption of member shares - (55,512) - (55,512) BALANCE, OCTOBER 31, 2014 $ 35,136 $ 636,743 $ 3,660,520 $ 4,332,399 The accompanying notes are an integral part of these financial statements.

19 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED OCTOBER 31, CASH PROVIDED BY (USED FOR) THE FOLLOWING ACTIVITIES: Operating Activities Interest received from members' loans $ 2,575,748 $ 2,652,470 Interest received from investments 172, ,034 Other income received 561, ,943 Interest paid to members (792,965) (1,038,623) Income taxes received (paid) (36,252) (15,218) Net operating expenses paid (2,423,721) (2,469,804) Dividends received 62, , , ,848 Investing Activities Net change in members' loans receivable (9,349,010) 1,314,529 Purchase of property and equipment (38,344) (63,957) Purchase of intangible assets (38,232) (1,703) Cash recoveries on loans previously written off 27,193 57,370 Net change in investments 6,131,198 (1,944,427) (3,267,195) (638,188) Financing Activities Issue of members' shares 38,239 49,858 Redemption of members' shares (55,512) (73,499) Net change in members' deposits 3,787, ,843 3,770, ,202 NET CASH AND CASH EQUIVALENTS INCREASE 622,434 63,862 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,913,929 1,850,067 CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,536,363 $ 1,913,929 The accompanying notes are an integral part of these financial statements.

20 NOTES TO FINANCIAL STATEMENTS OCTOBER 31, REPORTING ENTITY River City Credit Union Ltd. (the "Credit Union") is incorporated under the Credit Union Act of the Province of Alberta. The address of the Credit Union's registered office is 11715A Avenue Edmonton, Alberta T5H 1B8.The Credit Union provides financial services to its members primarily in the City of Edmonton. The Credit Union Deposit Guarantee Corporation (the "Corporation"), a Provincial Corporation, guarantees the repayment of all deposits with Alberta credit unions, including accrued interest. The Credit Union Act provides that the Province will ensure that the Corporation carries out this obligation. 2. BASIS OF PRESENTATION Statement of Compliance The financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ) as issued by the International Accounting Standards Board ( IASB ). The financial statements were authorized for issue by the Board of Directors on January 22, Basis of Measurement The financial statements have been prepared using the historical cost basis unless otherwise noted in the significant accounting policies. Functional Currency The financial statements are presented in Canadian dollars, which is the Credit Union s functional currency. This is the currency of the primary economic environment in which the Credit Union operates. Use of Estimates and Judgments The preparation of the financial statements in conformity with IFRSs requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying 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. Information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements are described in Notes 3 and 4.

21 NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 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. Cash and Cash Equivalents Cash and cash equivalents consist of cash on hand and operating accounts with Credit Union Central Alberta ("Central"). Investments Investments are initially measured at fair value and subsequently accounted for depending on their classification as either loans and receivables, held-to-maturity or available-for-sale financial assets. Member Loans Receivable Loans are measured initially at fair value plus transaction costs, and subsequently at amortized cost using the effective interest method, less any impairment losses. All loans are nonderivative financial assets with fixed or determinable payments that are not quoted in an active market and have been classified as loans and receivables. Allowance for Loan Impairment The Credit Union establishes an allowance for impairment which is reviewed at least annually. Allowance for loan impairment represents specific and general provisions established as a result of reviews of individual loans and groups of loans. The Credit Union records a specific individual allowance based on management s regular review and evaluation of individual loans and is based upon management s best estimate of the present value of the cash flows expected to be received, discounted at the loan s original effective interest rate. As a practical expedient, impairment 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 a collective allowance 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 and portfolio size. 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. As management identifies individually impaired loans, it assigns an individual allowance for impairment to that loan and adjusts the collective allowance accordingly. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognized, the previously recognized impairment loss is reversed either directly or by adjusting an allowance account. Write offs are generally recorded after all reasonable restructuring or collection efforts have taken place and there is no realistic prospect of recovery.

22 NOTES TO FINANCIAL STATEMENTS OCTOBER 31, SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Impairment of Financial Assets The Credit Union assesses, at each balance sheet date, whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are recorded only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a 'loss event') and the loss event(s) has (have) an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Objective evidence that financial assets are impaired can include significant financial difficulty of the borrower or issuer, default or delinquency by the borrower, restructuring of a loan or advance by the Credit Union on non-market terms that the Credit Union would not otherwise consider, indications that a borrower or issuer will enter bankruptcy, the disappearance of an active market for a security, or other observable data relating to a group of assets such as conditions that correlate with defaults in the group. Property and Equipment Property and equipment are measured at cost less accumulated depreciation and impairment losses with the exception of land which is measured at cost and is not depreciated. Depreciation of other items of property and equipment are calculated at the following annual rates and methods: Leasehold improvements 3 to 10 years Straight-line Computer equipment 3 years Straight-line Furniture and equipment 5 to 10 years Straight-line Security equipment 3 to 10 years Straight-line Gains and losses on disposal are recorded in the Statement of Comprehensive Income in the year of disposal. Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Intangible Assets Intangible assets consist of computer software which are not integral to the computer hardware owned by the Credit Union. Software is initially recorded at cost and subsequently measured at cost less accumulated amortization and any accumulated impairment (losses). Software is amortized on a straight-line basis over its estimated useful life of 10 years. Impairment of Non-Financial Assets Impairment reviews are performed when there are indicators that the recoverable amount of an asset may be less than the carrying value. The recoverable amount is determined as the higher of an asset s fair value less cost to sell and value in use. Impairment is recognized in the statement of net income, when there is an indication that an asset may be impaired. In the event that the value of previously impaired assets recovers, the previously recognized impairment loss is recovered in the statement of net income at that time.

23 NOTES TO FINANCIAL STATEMENTS OCTOBER 31, SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Accounts Payable Accounts payable are initially recognized at fair value net of any transaction costs directly attributable to the issuance of the instrument and subsequently carried at amortized cost using the effective interest rate method, which approximates fair value due to the short-term nature of these liabilities. Financial Liabilities Member deposits are initially recognized at fair value net of any transaction costs directly attributable to the issuance of the instrument, and subsequently measured at amortized cost using the effective interest rate method. Members' Shares Members' shares are classified as liabilities or members' equity in accordance with their terms. Shares redeemable at the option of the member, either on demand or on withdrawal from membership, are classified as liabilities. Shares redeemable at the discretion of the Credit Union Board of Directors are classified as equity. Shares are accounted for using the criteria set out in IFRIC 2 - Members' Shares in Co-operative Entities and Similar Instruments. Revenue Recognition Interest on member loans is recorded using the effective interest rate method except for loans which are considered 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 the initial impairment and any subsequent changes are recorded through the provision for impaired loans as an adjustment to the specific allowance. Investment income is recorded using the effective interest rate method, except as it relates to adjustments in the rates received from Central, which are recorded when the payment is received. Dividend income is recognized when the right to receive the dividend is established. Dividends are included in investment income. Commissions, service charges and other income are recognized as income when the related service is provided or entitlement to receive income is earned. Foreign Currency Translation Transaction amounts denominated in foreign currencies are translated into the Canadian dollar equivalents at exchange rates prevailing at the transaction dates. Carrying values of monetary assets and liabilities reflect exchange rates at the statement of financial position date. Translation gains and losses are included in other income. Patronage Refund Patronage refunds are recognized in income when circumstances indicate the Credit Union has a constructive obligation and has little or no discretion to avoid, and it can make a reasonable estimate of the amount required to settle the obligation.

24 NOTES TO FINANCIAL STATEMENTS OCTOBER 31, SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Income Taxes Tax expense for the period comprises current and deferred income tax. Current income tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred income taxes are provided for using the liability method. Under this method, temporary differences are recorded using tax rates that have been enacted or substantively enacted by the statement of financial position date and are expected to apply when the corresponding taxes will be paid or refunded. Temporary differences are comprised primarily of differences between the carrying amounts and the income tax bases of the Credit Union s loans outstanding and, property and equipment. Deferred income tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probably that the related tax benefit will be realized. Mortgage Pools Mortgage pools are accounted for as loans and receivables and are recorded at amortized cost. Premiums paid on these investments are amortized over the average maturity life of each mortgage within the pool. Interest received on mortgage pools are recorded into interest income when earned, net of service fees and other costs.

25 NOTES TO FINANCIAL STATEMENTS OCTOBER 31, SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Financial Instruments All financial instruments are initially recognized on the statement of financial position at fair value through acquisition. Measurement in subsequent periods depends on whether the financial instrument has been classified as fair value through profit or loss, available-for-sale, held-to-maturity, loans and receivables, or other financial liabilities. During the year there has been no reclassification of financial instruments. The financial instruments classified as fair value through profit or loss are measured at fair value with unrealized gains and losses recognized in income. The Credit Union's financial instruments classified as fair value through profit and loss include cash and cash equivalents. Available-for-sale financial assets are measured at fair value with unrealized gains and losses recognized in other comprehensive income. Available-for-sale investments are financial assets that are intended to be held for an indefinite period of time and are not classified as loans and receivables. The Credit Union's share in Credit Union Central of Alberta have been classified as available-for-sale. The Credit Union does not have an accumulated balance of other comprehensive income. The financial assets classified as loans and receivables are initially measured at fair value, then subsequently carried at amortized cost using the effective interest rate. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The Credit Union's financial instruments classified as loans and receivables include all members' loans receivable, accrued interest, and mortgage pool investments. The financial assets classified as held-to-maturity are initially measured at fair value, then subsequently carried at amortized cost. 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 its maturity date, and which are not designated as a fair value through profit or loss or as available-for-sale. The Credit Union's financial instruments classified as held-to-maturity include its term deposits. Financial instruments classified as other financial liabilities include accounts payable and members' deposits. Other financial liabilities are measured at fair value, then subsequently carried at amortized cost. De-recognition of a financial asset occurs when the contractual rights to receive the cash flows from these assets have ceased to exist or the assets have been transferred and substantially all the risks and rewards of ownership of the assets are also transferred. If the Credit Union has neither transferred nor retained substantially all the risks and rewards of the transferred financial asset, it assesses whether it has retained control over the transfer asset. If control has been retained, the Credit Union recognizes the transferred asset to the extent of its continuing involvement. If control has not been retained, the Credit Union derecognizes the transferred asset. A financial liability is derecognized when the obligation under the liability is discharged, cancelled, or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of the existing liability are substantially modified, such an exchange or modification is treated as a de-recognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amount is recognized in comprehensive income.

26 NOTES TO FINANCIAL STATEMENTS OCTOBER 31, SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Derivatives The Credit Union uses option contract derivatives to manage its exposure to Canadian equity indices. Derivatives are initially recognized at fair value at the date that the derivative contract is entered into and subsequently measured at fair value with changes in fair value recognized through profit and loss immediately, unless the derivative is designated in a qualifying hedging relationship. The Credit Union designates certain derivatives as hedging instruments in qualifying hedging relationships. On initial designation of the hedge, the Credit Union formally documents the relationship between the hedging instrument and hedged item, including the risk management objective and strategy in undertaking the hedge, together with the method that will be used to assess the effectiveness of the hedging relationship. Premiums paid to enter into these contracts are recorded in other assets and are amortized over the contract life. Future IFRS Standards and Interpretations The following revised standards and amendments may be applicable to the Credit Union: IFRS 9 Financial Instruments, addresses classification and measurement of financial assets. It replaces the multiple category and measurement models in IAS 39 for debt instruments with a new mixed measurement model having only two categories: amortized cost and fair value through profit or loss. IFRS 9 also replaces the models for measuring equity instruments. Such instruments are either recognized at fair value through profit or loss ( FVTPL ) or at fair value through other comprehensive income. When such equity instruments are measured at fair value through other comprehensive income, dividends are recognized in profit or loss to the extent that they do not clearly represent a return of investment; however, other gains and losses (including impairments) associated with such instruments remain in accumulated comprehensive income indefinitely. This standard is required to be applied for annual periods beginning on or after January 1, 2018, with earlier adoption permitted. The Credit Union is currently assessing the impact of this standard.

27 NOTES TO FINANCIAL STATEMENTS OCTOBER 31, USE OF ESTIMATES AND KEY JUDGMENTS The preparation of the financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses during the reporting year. Accordingly, actual results could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimate is revised if it affects only that period or in the period of revision and future periods if the revision affects both current and future years. The most significant uses of judgments, estimates and assumptions are as follows: Allowance for Impaired Loans The individual allowance component of the total allowance for impairment applies to financial assets evaluated individually for impairment. In particular, management judgment is required in the estimate of the amount and timing of the future cash flows the Credit Union expects to receive from these specific loans. 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 cannot yet be identified. In assessing the collective allowance, management considers factors such as credit quality, historical loss experience and current economic conditions. Fair Value of Financial Instruments The Credit Union determines the fair value of financial instruments that are not quoted in an active market, using valuation techniques. Those techniques are significantly affected by the assumptions used, including discount rates and estimates of future cash flows. In that regard, the derived fair value estimates cannot always be substantiated by comparison with independent markets and, in many cases, may not be capable of being realized immediately. The methods and assumptions applied, and the valuation techniques used, are disclosed in Note 21. Property and Equipment Depreciation methods, useful lives and residual values require estimation and are reviewed annually and adjusted if appropriate. Income Taxes The Credit Union periodically assesses its liabilities and contingencies related to income taxes for all years open to audit based on the latest information available. For matters where it is probable an adjustment will be made, the Credit Union records its best estimate of the tax liability including the related interest and penalties. Management believes they have adequately provided for the probable outcome of these matters; however, the final outcome may result in a materially different outcome than the amount included in the tax liabilities.

28 NOTES TO FINANCIAL STATEMENTS OCTOBER 31, INVESTMENTS Credit Union Central Alberta Term deposits $ 8,050,000 $ 12,550,000 Shares 1,000,000 1,000,000 Other Term deposits with other financial institutions 5,312,791 5,396,684 CMHC insured residential mortgage pool 2,954,083 4,501,389 Concentra Financial Shares 2,171 2,171 Accrued interest 61,714 49,068 $ 17,380,759 $ 23,499,312 Term deposits have maturity dates between November 3, 2014 to July 7, 2015 with interest rates ranging from 1.00% to 1.65%. As required by the Credit Union Act, the Credit Union holds investments in Central to maintain its statutory liquidity requirements. There is no separately quoted market value for the Credit Union Central Alberta and Concentra Financial shares and the fair value could not be measured reliably. Fair value cannot be measured reliably as the timing of redemption of these shares cannot be determined, therefore, the range of reasonable fair value estimates is significant and the probabilities of the various estimates cannot be reasonably assessed. Therefore, they are recorded at cost.

29 NOTES TO FINANCIAL STATEMENTS OCTOBER 31, MEMBERS' LOANS Principal Principal Individual Collective 2014 Performing Impaired Allowance Allowance Net Consumer loans $ 6,303,397 $ 22,516 $ 26,534 $ - $ 6,299,379 Residential mortgages 39,831, ,831,475 Commercial loans 9,280, ,280,271 Lines of credit 12,074,385 7,689 7,689-12,074,385 Foreclosed assets 174, ,652 67,664,180 30,205 34,223-67,660,162 Accrued interest 89,885 1,183 1,183-89,885 $ 67,754,065 $ 31,388 $ 35,406 $ - $ 67,750,047 Principal Principal Individual Collective 2013 Performing Impaired Allowance Allowance Net Consumer loans $ 6,784,157 $ 47,769 $ 36,516 $ - $ 6,795,410 Residential mortgages 28,406, ,406,774 Commercial loans 11,502, ,502,511 Lines of credit 11,610, ,610,485 58,303,927 47,769 36,516-58,315,180 Accrued interest 90, ,104 $ 58,394,031 $ 48,651 $ 37,398 $ - $ 58,405,284 During the year, the Credit Union obtained residential property with a carrying value of $174,652 by taking possession of collateral held as security. Repossessed property is sold as soon as practicable, with the proceeds used to reduce the outstanding indebtedness. Repossessed property is classified as foreclosed property and is included within loans on the statement of financial position. Allowance for Loan Impairment Details of the changes in the allowance for loan impairment are as follows: Balance, beginning of year $ 37,398 $ 134,084 Provision for impaired loans 38,305 70,223 Loans written off (40,297) (166,909) Balance, end of year $ 35,406 $ 37,398

30 NOTES TO FINANCIAL STATEMENTS OCTOBER 31, MEMBERS' LOANS (CONTINUED) Loans Past Due But Not Impaired A loan is considered past due when a counterparty has not made a payment by the contractual due date. The table that follows presents the carrying value of loans at year-end that are past due but not classified as impaired because they are either i) less than 90 days past due, or ii) fully secured and collection efforts are reasonably expected to result in repayment Days and 2014 Days Days Greater Total Consumer loans $ 34,143 $ 22,006 $ 8,766 $ 64,915 Residential mortgages 76, , ,128 $ 110,774 $ 22,006 $ 656,263 $ 789, Days and 2013 Days Days Greater Total Consumer loans $ - $ 1,440 $ 36,261 $ 37,701 Residential mortgages , ,665 $ - $ 1,440 $ 204,926 $ 206,366 Credit Quality of Loans The Credit Union holds collateral against loans to customers in the form of interests over property, other securities over assets, and guarantees. It is not practical to value all collateral as at the balance sheet date due to the variety of assets and conditions. Concentration of Risk The Credit Union has an exposure to groupings of individual loans which concentrate risk and create exposure to particular segments. As at October 31, 2014, the Credit Union has approximately $6,600,000 ( $8,600,000) of syndicated loans that are primarily related to the hospitality and office complex sector. There were no individual or related groups of loans to members which exceed 2% (2013-5%) of total assets at October 31, The majority of loans to members are with members located in and around Edmonton, Alberta. A significant portion of the Credit Union's loan portfolio is secured by residential property in and around Edmonton, Alberta. Therefore, the Credit Union is exposed to the risks in reduction of the loan to valuation ratio coverage should the property market by subject to a decline. The risk of loss from loans undertaken is primarily reduced by the nature and quality of the security taken.

31 NOTES TO FINANCIAL STATEMENTS OCTOBER 31, OTHER ASSETS Accounts receivable and prepaid expenses $ 104,491 $ 91,943 Options on equity-linked derivative contracts 305, ,610 Equity-linked derivative contracts 280, ,707 $ 690,357 $ 679,260 The Credit Union has $7,886,510 ( $7,058,727) of index-linked RRSP deposits to its members. These deposits mature in years 2015 to 2019 and pay bonus interest to the depositors, at the end of the term, based upon the performance of the index. The Credit Union has entered into option agreements with Central to offset the exposure on these deposits and, at the end of the term, the Credit Union will receive payments from Central which will offset the amounts that will be paid to the depositors. The option agreements are recorded in other assets at cost less accumulated amortization in the amount of $305,407 ( $322,610). Amortization in the amount of $181,695 ( $139,011) is calculated on a straight-line basis over the term of the deposits and is included in interest expense. 8. REVOLVING OPERATING DEMAND LOAN AND TERM LOAN The Credit Union has an approved revolving operating demand loan with Central which is secured by a general assignment of book debts and assignment of investments and deposits held at Central. The authorized limit on the revolving CDN dollar operating demand loan is $1,390,000 ( $1,390,000). The authorized limit on the revolving US dollar operating demand loan is $91,666 ( $103,250) CDN. The demand loan bears interest at Central's prime rate for CDN dollar advances and Central's US base rate on US advances, in both cases plus or minus Central's applicable discount or margin rates in effect from time to time. At October 31, 2014, the Credit Union had $NIL outstanding on its operating demand loan ( $NIL). The Credit Union has an approved revolving term loan with Central which is secured by a general assignment of book debts and assignment of investments and deposits held at Central. The authorized limit on the term loan is $1,000,000 ( $1,000,000). The term loan bears interest at (i) Central's prime rate plus or minus Central's applicable discount or margin rates in effect from time to time, or (ii) at the option of the Credit Union for terms of more than 30 days at a fixed rate equal to Central's money market deposit rate or the equivalent paid fixed swap rate for the term plus or minus the applicable discount or margin rate. At October 31, 2014, the Credit Union had $NIL outstanding on its term loan ( $NIL).