2014 deposit guarantee corporation of manitoba annual report

2014

Deposit Guarantee Corporation of Manitoba

Annual Report

Vision

The Deposit Guarantee Corporation of Manitoba is respected as a proactive and effective regulator and deposit guarantor.

Mission

To maintain confidence in the strength and sustainability of the Manitoba credit union and caisse systems.

Corporate Values

We consider our staff our most important asset.

We employ best practices.

We communicate openly with our stakeholders.

We conduct our activities with a high level of integrity and accountability.

We treat everyone with respect and fairness.

We exercise sound judgment.

We adjust our regulatory approach in an evolving environment.

Employee Statement of Intent

We are a team of professionals that proactively and effectively oversees and assists in the management of risk within the Manitoba credit union and caisse Systems.

Operational Report

03 Message from the Board

04 ReportfromtheChiefExecutiveOfficer

06 Corporate Governance

06 Board of Directors

07 Framework

07 Committees

08 Management Discussion and Analysis

08 Mandate

09 DGCM Financial Overview

12 Systems’ Financial Overview

14 Standards of Sound Business Practice

15 Managing Risk

16 Key Initiatives and Achievements

17 A Vibrant Network

Financial Statements

18 Management’s Responsibility

19 Independent Auditor’s Report

20 Consolidated Statements:

20 Financial Position

21 Comprehensive Income

22 Changes in Equity

23 Cash Flows

24 Notes

46 Schedule of Consolidated Operating Expenses

47 The Public Interest Disclosure Act

Table of Contents

Rem

ember

ingSheryl Feller On November 25, 2014, Deposit Guarantee Corporation of Manitoba

was advised of the accidental passing of its Chair, Sheryl Feller. We were

greatly saddened by this loss and will miss her and the vast areas of

expertise she brought to our Board table. Sheryl had boundless energy

and was a great supporter of the credit union and caisse Systems. She

served on Sanford Credit Union’s Board from 1994 through 2009 (eight

years as President) and four years on our Board at the time of her passing;

the last two as Chair.

Sheryl’s academic and personal achievements were impressive with an

Alumni of Distinction Award from the University of Manitoba, an MBA,

and Manitoba Horse Council 2014 Coach of the Year Award. She was past

Chair of the Board of Governors for Red River College and was recently

elected as the first woman in 130 years to sit on the Board of Portage

Mutual Insurance Company.

We e x pre s s our s inc e re con d ol e nc e s to th e fami ly.

2014 ANNUAL REPORT 05

Message from the Board

The year 2014 will be remembered as a year of farewells.

After ten years on Deposit Guarantee Corporation of Manitoba’s (DGCM) Board, we will say goodbye to John Klassen on January 1, 2015. John’s considerable wisdom, insight, and experience within the credit union System will be missed.

Jim Scalena, Superintendent of Financial Institutions Regulations Branch(FIRB)hasannouncedhisretirementeffectiveDecember31,2014. Mr. Scalena has been a key stakeholder with the credit union and caisse Systems. We will miss the strong working relationship we cultivated with him over the last 14 or so years and wish him good luck in his future endeavours.

Everyone on this Board continues to be committed to providing and developing excellence in our governance processes and activities. In 2014, we undertook a review of our regulatory oversight processes. We will continue to review and adjust our processes to address key recommendations that enhance our governance responsibilities.

Setting the direction for DGCM is a primary Board responsibility and the annual strategic planning session is a major event in our calendar andworkplan.In2014,were-affirmedthreestrategicgoalsandidentifiedwaystomeasuresuccessineacharea:• ensuringDGCMoperateseffectivelyandefficiently• ensuring credit union and caisse Systems appropriately

manage risk• ensuring the Guarantee Fund is strong and secure

The 2014 planning session included presentations from Wilma van Norden,OfficeoftheSuperintendentofFinancialInstitutions(OSFI),Jim Scalena, FIRB, and Garth Manness, Credit Union Central of Manitoba (CUCM).

Two Board members participated in the Institute of Corporate Directors (ICD) Directors Education Program and we received a number of informative presentations in 2014 from ICD, Celero Solutions, and CUMIS representatives to further director development.

The International Credit Union Regulators Network (ICURN) Conferenceidentifiedcybersecurityasauniversalconcernamongstfinancialinstitutionsaroundtheworld.DGCM’soversightpracticesinclude reviews on this area of concern.

We welcome Dale Ward to our Board on January 1, 2015. Dale comes with considerable experience through his long career with the System and CUCM. His Corporate Secretary and Management experience furtherincreasesourgovernanceproficiency.

The Board would like to express sincere appreciation to our competentandcommittedexecutiveteamandstaff.Theirefforts,engagement, and accomplishments all complement our vision of beingrespectedasaproactiveandeffectiveregulatoranddepositguarantor.

John Klassen, Vice-Chair Board of Directors

In 2014, we undertook a review of our regulatory oversight processes. We will continue to review and adjust our processes to address key recommendations that enhance our governance responsibilities.

Operational Report

06 DEPOSIT GUARANTEE CORPORATION OF MANITOBA

I am pleased to present DGCM’s 2014 Annual Report. This report coversourfinancialperformanceinformationandsummarizestheintroduction of a number of regulatory initiatives undertaken in the past year.

DGCM enjoyed another successful year in 2014 with comprehensive income of $27.9 million, an increase of $12.6 million over the previous year.TheGuarenteeFundsizeisnow$251.6millionwhichrepresents107.1 basis points (bps) of Systems’ deposits, well within our policy range of 95 bps to 115 bps.

Assessment rates to the credit unions and caisse decreased from 10 bps to 9 bps, as growth in deposits moderated in 2014 and our Guarantee Fund was operating comfortably within the policy range.

Totaloperatingexpensesincreased$320,600or7.0%,primarilyduetoincreasedsalariesandemployeebenefits.DGCMcontinuestobeoneofthemostefficientlyrundepositguaranteecorporationsinCanada. The Board and Senior Management take expense control veryseriously,whilestillfulfillingourlegislatedmandate.

Competition, volatility, and change are forces every credit union and caisse are compelled to deal with on a daily basis; however, we are extremely pleased with the results of our regulated entities this pastyear.Totalassetsgrewby$1.5billionor6.2%to$25.3billion.

Report from the Chief Executive Officer

DGCMrecognizestheimportanceof surveying its regulated entities on a consistent basis; the most recent survey was completed in 2014. This profileprovidesavaluabletoolforDGCM to hear from the credit union andcaisseSystems,inaconfidentialmanner,ontheeffectivenessofourstaffandprograms.

Vernon MacNeill Chief Executive Officer

Comprehensiveincomeremainsstrongat$133.7millionor0.53%,even in an environment of tightening margins and more competition for deposits. Delinquency remains very low and well-controlled, and the loan portfolio remains strong. The regulatory capital, on a leverage basis, has improved by 18 bps. Regulatory capital now stands at 6.33%with86%ofthecreditunionandcaissecapitalbaseinthehighest form of capital; that being retained earnings.

DGCM worked on a number of initiatives that were released to the Systems in 2014 for consultation or implementation. The three major initiatives were an updated intervention policy, new capital standards aligned with Basel III, and a new regulatory reporting platform called the Business Intelligence & System Oversight Network (BISON). Additionally, we greatly appreciated the feedback provided by stakeholders prior to the release of the intervention framework and also those institutions that piloted the BISON reporting platform for us.

The intervention policy was approved by DGCM’s Board and implemented January 1, 2015 with a one-year phase-in period. The policy is a four-step intervention program that allows DGCM to be proactive in mitigating any negative trends being experienced by our regulated entities.

Ourofficecontinuestoworkwithstakeholderstoreviewrevisedcapital standards that will closely align with the Basel III framework


recognizedgloballyforitssafetyandsoundnessoffinancialinstitutions.Oncethefinalframeworkisdetermined,therewillbelegislative changes required as well as a phase-in period to allow a credit union or caisse to meet the higher capital requirements.

DGCM is a member of the Credit Union Prudential Supervisors Association(CUPSA).ThisorganizationiscomprisedofCanadiancredit unions and caisses populaires, deposit protection agencies, and prudential supervisors. CUPSA’s purpose is to cooperatively pursueeffectiveregulationandsupervisionofthecreditunionandcaisses populaires sectors in Canada.

We also continue to support ICURN, a network of global credit union and caisses populaires regulators formed for the purpose of sharing information and experience.

Regardless of whether we are speaking to our counterparts nationally, or internationally, the same themes have emerged: the necessity of higher capital standards, access to stable liquidity, governance of credit unions and caisses populaires, and the increasing threat of cyberattacksagainstfinancialinstitutions.

DGCMrecognizestheimportanceofsurveyingitsregulatedentitieson a consistent basis; the most recent survey was completed in 2014.ThisprofileprovidesavaluabletoolforDGCMtohearfromthecreditunionandcaisseSystems,inaconfidentialmanner,ontheeffectivenessofourstaffandprograms.Inaddition,wealsoconductedourfirst“TownHall”meeting,whichprovideduswithanopportunity to interact directly with senior management and directors of the credit unions and caisse. This initiative will continue into 2015 with an expanded agenda.

We greatly value the open working relationship we enjoy with CUCM and FIRB. We schedule quarterly meetings to share information and consult on major issues within the credit union and caisse sectors. ThethemeofCUCM’s2015AnnualConventionis“Collaboration:WordstoActions”andwebelievethethreeorganizationslivethismodel each day.

JimScalena,ofFIRB,retiredonDecember31,2014andhiswisdom,knowledge, and respectful consideration of the opinions of others will be greatly missed at our joint meetings. We wish him all the best in his retirement.

Although the credit union and caisse Systems are currently performing very well, there are many challenges and emerging risks to address going forward. As mentioned earlier, competition has never been greater for retail deposits and liquidity, and we are continuing to see new entrants into the world of payments. Technology will be anareathatfinancialinstitutionsusetodifferentiatethemselves;however, new technology is expensive and the credit union and caisse Systems will need to look at how to best collaborate to satisfy member needs.

Wehavebeenadvisedthatthefirstapplicationtotransitiontothefederal corporate model was made by Atlantic Canada Caisse; we will watch with great interest to see if this option is taken up by other credit unions or caisses populaires across the country.

OurorganizationwasdeeplysaddenedbythesuddenpassingofourChair in late November. Sheryl’s time as Chair was short; however, shedefinitelylefthermarkonDGCMandwillbemissedbyourstaffand stakeholders within the Systems. We expect to have a new Chair inplacebytheendofthefirstquarterin2015.BryanRempelwillactas interim Chair until a formal appointment is made by Government.

As a stalwart member of our Board, John Klassen’s term expired and hehasretiredafter10years.John’screditunionknowledge,financialacumen, and concern for credit union and caisse members will be greatly missed. We wish John all the best. We are very pleased that John’s replacement is Dale Ward, who brings tremendous credit union knowledge and governance expertise to the Board.

The engagement and support of our Board of Directors is invaluable to me, and I would like to sincerely thank our dedicated employees foralltheireffortsagainthispastyear.Itisaprivilegeformetowork with such a talented team. I look forward to the challenges that lie ahead in this ever expanding and complicated regulatory environment.

Vernon MacNeill,ChiefExecutiveOfficer

Operational Report


DGCM is administered by a Board of seven directors, all of whom are formally appointed by the Lieutenant Governor in Council, Province of Manitoba. Four directors are nominated by Government, two directors by CUCM, and one director by the caisse System.

TheBoardgovernsthebusinessaffairsofDGCMandhelpssetthe strategic direction that oversees the safety and stability of the Guarantee Fund as mandated by The Credit Union and Caisses Populaires Act. The directors operate under formal Terms of Reference for both the Board and its Committees. A Code of Conduct

Corporate Governance

is acknowledged annually by directors and employees. The Board and Senior Management, as a team, complement each other’s skills ineffectivelydirectingtheuseofDGCM’sresourcestoaccomplishitspurposes.

It is the duty of the Board to establish strategic direction, and to set thefoundationforongoingeffectivegovernanceofDGCM.ThedutyoftheChiefExecutiveOfficer(CEO)istoplan,communicate,andsetinmotiontheactionundertakenbytheorganizationtomeettheBoard’s strategic direction.

Board of Directors Back row left to right: Chuck Golfman, Paul Gilmore, Bryan Rempel, Brian Mayes Front seated: John Klassen (Vice-Chair), Sheryl Feller (Chair), Monica Girouard


FRAMEWORK

DGCMbeganoperatingin1965asTheCreditUnionStabilizationFund. Since 1968, legislation has required that every Manitoba credit union and caisse be covered by a deposit guarantee entity.

DGCM has established a governance framework that closely follows bestpracticesinthefinancialindustry.Ourframeworkisbasedon the legal, regulatory, institutional, and ethical environment that addressestheadministrationandcontrolsinourorganization.

DGCM regularly reviews its objectives to ensure we remain focused on our mandate to fully guarantee the safety of member deposits. There are internal programs in place to closely monitor the Manitoba credit union and caisse environment and keep DGCM apprised of changes and trends. Our proactive risk-based approach to regulation allows us to become involved earlier to mitigate potential risks to the Guarantee Fund.

COMMITTEES

BoardCommitteesaredesignedtoutilizedirectors’strengthstoenhance our governance practices and address key responsibilities and activities.

Finance & Audit Committee

The Finance & Audit Committee reports quarterly to the Board and meets independently with the Auditors to verify external and internalduediligenceinDGCM’scontrolsandfinancialreporting.ThisreportingincludesconfirmingtheactivitiesoutlinedinitsTermsof Reference to ensure that the fundamental activities are being conducted.

The Finance & Audit Committee is subject to the following legislative requirements:• reviewtheannualauditedfinancialstatements• review the changes in the accounting principles and practices• recommend the appointment of an auditor• review the scope, timing, and coordination of the external and

internal audit plans• reviewallsignificantrecommendationsmadebytheauditor

The Finance & Audit Committee is also responsible for oversight of:• compliance and regulatory practices• financialperformance• financialreportingandaccountingpractices• operational and internal control practices• investment policy reporting and compliance

Governance & Human Resources Committee

The Governance & Human Resources Committee reports quarterly to the Board. The Committee oversees DGCM’s corporate governance practicesandconfirmsitoperatesunderaformalTermsofReference,satisfactorilyfulfillingitsfunctionsduringtheyear.

The Governance & Human Resources Committee is responsible for:• corporate governance• board orientation and education• succession planning• CEO performance and compensation• stakeholder communication

Operational Report


MANDATE

Our mission and vision, coupled with our corporate values, keeps us focusedonfulfillingourmandate.

Manitoba legislation prescribes DGCM’s mandate to:• guarantee deposits in credit unions and the caisse• promote credit union and caisse development of sound business

practicestoprotectthemfromfinanciallosses• ensure that credit unions and the caisse operate under sound

business practices

Management Discussion and Analysis

DGCMbelievesthatefficientandeffectiveoperationsfacilitatetheexecutionofourmandatetomaintaindepositorconfidenceintheguarantee. To maintain focus on the mandate, a comprehensive strategicplanisinplaceandrefinedonanannualbasistoremaincurrent. As well, the accompanying employee statement of intent reflectsastaff-levelcommitmenttofulfillingourmandate.

Senior Management Team Back row left to right: Vernon MacNeill (CEO), Zach Zahradnik (COO) Front seated: Ray Braun (CRO), Joe Nowicky (CFO), Heather Shaw (Corporate Secretary)


DGCM FINANCIAL OVERVIEW

FINANCIAL POSITION HIGHLIGHTS

OnDecember31,2014,ourassetstotaled$252.4million,anincreaseof$28.2million,or13%over2013.Theincreasewasderivedprincipally from comprehensive income of $27.9 million for the year. Ourinvestmentportfolio,whichrepresents97%ofourassets,isconservatively invested in treasury bills, government and corporate bonds,andguaranteedinvestmentcertificates(GICs).Themajorityofthese securities are quality rated at the equivalent of AAA or higher.

Composition of Marketable Securities by Issuer Type

Composition of Marketable Securities by Credit Quality

Total Equity Position

The Guarantee Fund, DGCM’s equity totaling $251.6 million, is comprised of retained earnings and accumulated other comprehensive income (AOCI). The Guarantee Fund represents the currentinternalfinancialresourcesavailabletoprotectManitoba’scredit union and caisse Systems.

Retained earnings are DGCM’s net income accumulated over time. At year-end, retained earnings totaled $251.5 million, an increase of$21.2millionor9%over2013.Thisincreasewasduetoannualnetincomefromregularoperations,plusrealizedgainsontherealignment of the investment portfolio.

AOCIisaccumulatedunrealizedgainsandlosses,drivenbyfluctuationsinthefairmarketvalueoftheinvestmentportfolio.Atyear-end,AOCIwasinanunrealizedgainpositionof$86,000,netofdeferred taxes.

When AOCI is combined with retained earnings, the total equity position in absolute dollars and relative to all credit union and caisse deposits,reflectsthefairmarketvalueofourGuaranteeFund.Atyear-end, total equity was 107.1 bps of Systems’ deposits.

38.9% Treasury Bills

27.5%Government Bonds

29.5%Corporate Bonds

4.1%GICs

66.5%AAA

14.8%AA

14.6%A

4.1%Unrated (CUCM)

39+27+30+4L65+15+15+5+L

AOCI Retained Earnings bps Deposits

200

110

300 115

150

105

250

50

95

85

100

100

0

90

MIL

LIO

NS

BASI

S PO

INTS

2010

2012

2011

2013

2014

Operational Report


COMPREHENSIVE INCOME HIGHLIGHTS

Comprehensive Income

Comprehensive income is the total income over the course of the year from regular operations (net income) and changes in the fair market value of its investment portfolio (other comprehensive income). Comprehensive income for the year totaled $27.9 million.

Revenuefortheyeartotaled$26.2million,offsetbyoperatingexpenses and taxes of $5.0 million. The result was a net income of $21.2 million. Other comprehensive income for 2014 was $6.7 million.

Assessments

DGCM charges quarterly assessments to every credit union and caisse to maintain the Guarantee Fund. This Guarantee Fund is available to offsetcreditunionorcaisseshortfallstoreimbursedepositorsintheeventoffailure.In2014,DGCMchargedanannualizedrateof9.0bpsof average Systems’ deposits, generating $20.6 million in revenue.

Investment Revenue

DGCM earns revenue on its investments through interest revenue andrealizedgains/lossesonsalesofinvestments.Totalinvestmentrevenue was $5.6 million, comprised of $4.4 million of interest revenue, and $1.2 million in gains on sales of investments due to realignmentoftheportfolio.Totalinvestmentrevenueisusedtooffsetoperating expenses and provides some relief on the assessment rate charged to maintain the Guarantee Fund.

Total Investment Revenue Operating Expenses

Assessments Assessment Rate (bps of Average Systems’ Deposits)

MIL

LIO

NS

10

8

12

4

0

6

2

2010

2012

2011

2013

2014

MIL

LIO

NS

25 11

20 10

10 8

0 6

15 9

5 7

2010

2012

2011

2013

2014

MIL

LIO

NS

25

20

30

10

0

15

5

2010

2012

2011

2013

2014


OPERATING EXPENSES

Profile of Operating Expenses Trends

DGCM remains committed to managing expenses. While expenses in absolute dollars have increased, costs have remained controlled relative to the Systems’ assets.

69.2%Salaries, Other Personnel,

and Board Costs

5.1%CUCM Funding

5.2%Professional Service Fees

12.8%GeneralOffice

7.7%Occupancy 69+5+5+13+8+L

DGCMincursoperatingexpensesinfulfillingitslegislatedmandate.The total operating expenses for 2014 were $4.9 million, an increase of$320,600or7%over2013.Thisincreasewaslargelyattributedtosalariesandpersonnelcosts,whichmakeupalmost70%ofDGCM’sannual operating expenses.

BASI

S PO

INTS

Operating Expenses bps of Systems’ Assets

MIL

LIO

NS

5

6 3.0

4

2.5

2 1.0

0 0

3

2.0

1.5

1 .5

2010

2012

2011

2013

2014

2010

2012

2011

2013

2014

2010

2012

2011

2013

2014

Operational Report


GFM, GOE, and Net Income

GFM and Net Income have remained relatively constant over the past several years. The drop in GOE has not had the expected positive effectonnetincomeduetoadeclineinotherrevenueandanincreasein patronage allocations and dividends.

Gross Financial Margin Gross Operating Expenses Net Income

Share Capital Retained Earnings

Regulatory Capital Composition

Retained earnings, as a percentage of total capital, continues to grow.Thistrendisduetoacombinationofreasonableprofitability,moderategrowth,andastabletrendinnewshareofferings.

Asset Growth Loan Growth Deposit Growth

SYSTEMS’ FINANCIAL OVERVIEW

Growth

The Systems demonstrated moderate growth in 2014. While asset and deposit growth were similar to the previous year, loan growth dropped due to decreased demand combined with a greater focus on maintaining liquidity.

Assets and Regulatory Capital

Systems’assetsagaingrewby$1.5billion,to$25.3billion.Moderateasset growth, combined with stable net income, resulted in a further improvement to capital as a percentage of assets.

Systems’ Assets in $ Billions RegulatoryCapitalas%ofSystems’Assets

PERC

ENTA

GE

1.21.0

2.01.81.61.4

0.60.4

0.0

0.8

0.2

2010

2012

2011

2013

2014

PERC

ENTA

GE

5.0

4.0

6.0

7.0

2.0

0.0

3.0

1.0

PERC

ENTA

GE

10

8

12

4

0

6

2

2010

2012

2011

2013

2014

BILL

ION

S

PERC

ENTA

GE

256.3

206.2

30 6.4

105.9

6.0

0

15

6.1

5

5.60

5.7

5.8

2010

2012

2011

2013

2014

2014

2010

2012

2011

2013


Systems’ Profile by Asset Size and Number of Institutions

Thetotalnumberofinstitutionsdroppedfrom38to37duetoonemerger in 2014. The number of institutions under $250 million has declined over the past two years as a result of mergers and growth.

Delinquency

Loan delinquency continues to be well controlled and has shown a moderate decrease over the past few years. This is due to prudent lending and collection practices, combined with a stable economy.

Greaterthan30Days Greater than $1 Billion Between $250 Million – $1 Billion Less than $250 Million

PERC

ENTA

GE 0.5

0.4

0.3

0.8

0.7

0.6

0.1

0

0.2

BILL

ION

S

25

20

30

10

0

15

5

66 7 8

7 8 7 10

28 28 28 21 19

8

9

Operational Report


STANDARDS OF SOUND BUSINESS PRACTICE

The Standards of Sound Business Practice (Standards) are a set of principles that assists DGCM to direct and manage itself in a prudent,effective,andappropriatemanner.

TheprudenceexhibitedbyDGCM’sDirectorsandSeniorManagementTeamhavecriticalinfluenceonDGCM’sviability,safety,and soundness, and its ability to achieve its mandated objectives.

DGCM’s four Standards are:1. Corporate Governance–DGCMmusteffectivelydirect,oversee,andmanageitsbusinessactivitiesandensurethat

performance, accountability, and integrity are achieved.

2. Strategic Management–DGCMmustensurethatbusinessoperationsareeffectivelyplanned,executed,andmonitored.

3. Risk Management – DGCM must have a comprehensive approach to identifying, managing, and controlling business and operating risks.

4. Internal Control Structure–DGCMmustestablishandmaintaineffectivesystemsforinternalcontrol,andensurethesesystems are reviewed and validated on a regular basis.

ThecreditunionandcaisseSystemsalsousethesamefourStandardstooperateinaprudent,effective,andappropriatemanner.


ERMResidual Risk –definesresidualrisk,consideringinherent risks and existing risk mitigation strategies, on the basis of likelihood and impact

DGCM maintains five broad risk categories:• DepositGuarantee/SolvencyRisk – risk to the strength and stability of every credit union and caisse, and the adequacy of the

Guarantee Fund• Strategic Risk–riskthatimpairstheeffectivenessofDGCM’sBoardandSeniorManagementTeam,orcanhaveamaterialeffecton

thereputationoftheorganization• Regulatory Risk–riskwithamaterialeffectonDGCM’scompliancewithitslegislatedmandate,alongwithotherapplicablelawsand

regulations• Financial Risk–riskwithamaterialeffectontheGuaranteeFund’svalue,liquidity,andinvestmentyield• Operational Risk–riskwithamaterialeffectonDGCM’sbusinessoperationsandfunctionalprocesses

MANAGING RISK

DGCMutilizesaformalEnterpriseRiskManagement(ERM)frameworkforidentifying,evaluating,andmanagingriskspresentinouroperatingenvironment. The Board and Management maintain policies and guidelines governing the framework, ensuring appropriate risk tolerance, and understandingofriskexposure.Acorporatecross-functionalcommitteereviewsthecomprehensiveriskprofileonasemi-annualbasis.ThecomprehensiveriskprofileisacriticalinputintoDGCM’sstrategicplanningprocess,drivingtheannualbusinessplanandbudget.TheERMframeworkiscontinuallyrefinedtoleverageemergingbestpractices,withpracticalapplication,advancingtheframeworktoanappropriatelevel of maturity.

ERM is broken down into the following distinct stages:

DGCM’s Risk Tolerance – establishes DGCM’s comfort or acceptable level of risk

61

34

52

ComprehensiveRiskProfile – consolidates all principal residual risks relative to DGCM’s accepted risk tolerance level in the form of a risk map

ERM

RiskIdentification – identifiesbroadriskcategories and principal inherent risks within each category

Current Mitigation Strategies – determines existing risk management strategies and evaluateseffectiveness

Residual Risk–definesresidualrisk,consideringinherent risks and existing risk mitigationstrategies, on the basis of likelihood and impact

Risk Management & Monitoring–identifiesand implements risk management strategies to avoid, accept, transfer, or mitigate principal residual risks approaching or exceeding DGCM’s accepted risk tolerancelevel;alsoreviewstheeffectivenessofriskmanagement strategies in controlling principal risks to DGCM

Operational Report


Corporate Strategy #1 2014 Results 2015-2016 Planned Key Initiatives

EffectiveandefficientoperationsWewillfulfillourlegislatedmandatethrough the engagement of a dedicated team of knowledgeable staff,usinganeffectiveinventoryoftools and resources to satisfy the needs of key stakeholders, while aligning operations to support our strategicgoals.Theseeffortswillbeexecuted prudently to achieve the required results.

Creditunion/caisseSystemsSurvey Obtained valuable stakeholder input on DGCM’s operations, identifying opportunities for enhancement. Businesscontinuity/disasterrecoveryplanning Refinedexistingplanstoensureoperationalresiliency.Compensation/performancereview Refinedframeworkstoenhancemarketequality,transparency,and consistency to employees and leaders.Monitoring program audit Ensuredconsistentandeffectiveapplicationoftherevisedprocesses enacted earlier in the year.Succession planning Improvedorganizationalpreparednessforemployeedevelopmentandchangesinstaffing.Reporting platform Improved interactions and exchanges between DGCM and the credit unions and caisse through an updated reporting platform.

¾ Implement balanced scorecard methodology to measure corporate performance ¾ Develop formal policy on external communications ¾ Implement updated compensation/performanceframeworks ¾ Examination program audit ¾ Review operations against international best practices


Credit union and caisse Systems appropriately manage risk We will oversee the credit union and caisse Systems, ensuring that risks are managed appropriately through active monitoring and examination programs, and appropriate intervention measures that protect the interests of depositors.

Riskprofilesystem–Phase2Enhanced the integrity of the new system and the relationship with the Monitoring, Examination, and Intervention programs.Intervention programEnhancedtoimproveclaritytostakeholdersandflexibilitytoappropriately address the dynamic environment.National and provincial liquidity protocols.Worked with stakeholders to enhance protocols, increasing preparednessintheunlikelyeventofsignificantstressonSystems’ liquidity.Capital adequacy standardsDrafted revised standards, inspired by Basel III, and consulted with Systems’ stakeholders.

¾ Enhance information technology risk oversight ¾ Review merger, acquisition, and takeover policies ¾ Refinesupervision,liquidation,and payout modelling ¾ Continuerefinementofnationaland provincial liquidity protocols ¾ Finalizerevisedcapitaladequacystandards ¾ Communicate ERM guidance


Strong and secure Guarantee FundWe continue to build and maintain a GuaranteeFundthatissufficientinsizeand mix to meet the anticipated risk management needs of the credit union and caisse Systems. The Guarantee Fund will provide a revenue stream for our operations and will contribute to publicconfidenceinDGCM.

Guarantee Fund adequacyWorkedtowardharmonizingtheframeworkforassessingtheadequacy of the Guarantee Fund, increasing integrity and credibility of the actuarial measurement.

¾ Conduct actuarial study of the Guarantee Fund’s adequacy usingharmonizedframework ¾ Review investment policy ¾ Review internal controls over financialreporting

KEY INITIATIVES AND ACHIEVEMENTS

DGCM’s2014businessplanre-affirmedthreecorestrategiestofulfillitsmandate.Tosupportthesestrategies,anumberofstrategicinitiativeswereidentifiedandscheduledforimplementationduringtheyear.Thetablebelowsummarizesthecorestrategiesandresultsfortheyear,along with key initiatives planned over the next two years.


DGCMregulatesandguaranteesthedepositsofManitoba’svibrantnetworkof36creditunionsand1caisse.(Virtual deposit taking institutions are identified in italics.)

Access Credit Union

Amaranth Credit Union

Assiniboine Credit Union (Outlook Financial)

Austin Credit Union

Beautiful Plains Credit Union

Belgian-Alliance Credit Union

Caisse Financial Group

Cambrian Credit Union (Achieva Financial)

Carpathia Credit Union

Casera Credit Union

Catalyst Credit Union

Crocus Credit Union

Crosstown Civic Credit Union (AcceleRate Financial)

Entegra Credit Union (Implicity Financial)

Erickson Credit Union

Flin Flon Credit Union

Grandview Credit Union

La Salle Credit Union

A Vibrant Network

Me-Dian Credit Union

Minnedosa Credit Union

Niverville Credit Union

North Winnipeg Credit Union

Noventis Credit Union

Oak Bank Credit Union

Portage Credit Union

Prairie Mountain Credit Union

Rorketon and District Credit Union

Rosenort Credit Union

Starbuck Credit Union

Steinbach Credit Union

Strathclair Credit Union

Sunova Credit Union (Hubert Financial)

Sunrise Credit Union

Swan Valley Credit Union

Vanguard Credit Union

Westoba Credit Union (Maxa Financial)

Winnipeg Police Credit Union


Management of the Deposit Guarantee Corporation of Manitoba (DGCM) is responsible for the integrity and fair presentation of the consolidated financialstatementsincludedintheannualreport.TheconsolidatedfinancialstatementshavebeenpreparedinaccordancewithInternationalFinancial Reporting Standards.

In discharging its responsibility, management designs and maintains the necessary accounting systems and related internal controls to provide reasonableassurancethattransactionsareauthorized,properrecordsaremaintained,andassetssafeguarded.

TheBoardofDirectorsofDGCMoverseesmanagement’sresponsibilitiesforthefinancialreportingproceduresandinternalcontrolsystems.TheBoardreviewstheconsolidatedfinancialstatementsindetailpriortoapprovingthestatementsforpublication.

The Board’s Finance & Audit Committee recommends the appointment of the external auditor and reviews the terms of the external audit engagement, annual fees, audit plans and scope, and management letter recommendations.

Management’s Responsibility

Vernon MacNeill, MBA S. Joe Nowicky, CMAChiefExecutiveOfficer ChiefFinancialOfficer

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Independent Auditor’s Report

To the Board of Directors of Deposit Guarantee Corporation of Manitoba

WehaveauditedtheaccompanyingconsolidatedfinancialstatementsoftheDepositGuaranteeCorporationofManitoba,whichcomprisetheconsolidatedstatementoffinancialpositionasatDecember31,2014,andtheconsolidatedstatementsofcomprehensiveincome,changesinequityandcashflowsfortheyearendedDecember31,2014,andnotestotheconsolidatedfinancialstatements.

Management’s Responsibility for the Consolidated Financial Statements Managementisresponsibleforthepreparationandfairpresentationoftheseconsolidatedfinancialstatementsinaccordance with International Financial Reporting Standards, and for such internal control as management determines is necessarytoenablethepreparationofconsolidatedfinancialstatementsthatarefreefrommaterialmisstatement,whetherdue to fraud or error.

Auditor’s Responsibility Ourresponsibilityistoexpressanopinionontheseconsolidatedfinancialstatementsbasedonouraudit.Weconductedour 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 consolidated financialstatementsarefreefrommaterialmisstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financialstatements.Theproceduresselecteddependontheauditor’sjudgment,includingtheassessmentoftherisksofmaterialmisstatementoftheconsolidatedfinancialstatements,whetherduetofraudorerror.Inmakingthoserisk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidatedfinancialstatementsinordertodesignauditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheentity’sinternalcontrol.Anauditalsoincludesevaluatingthe appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, aswellasevaluatingtheoverallpresentationoftheconsolidatedfinancialstatements.

Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforourauditopinion.

Opinion Inouropinion,theconsolidatedfinancialstatementspresentfairly,inallmaterialrespects,thefinancialpositionoftheDepositGuaranteeCorporationofManitobaasatDecember31,2014,anditsfinancialperformanceanditscashflowsfortheyearendedDecember31,2014inaccordancewithInternationalFinancialReportingStandards.

Chartered AccountantsFebruary 27, 2015 Winnipeg, Manitoba

Deloitte LLP

360MainStreet,Suite2300 Winnipeg,MB R3C3Z3Canada

Tel:(204)942-0051 Fax:(204)947-9390 www.deloitte.ca



As at December 31 2014 2013

ASSETS Cash(Note5) $1,014,932 $732,739Marketablesecurities(Note6) 245,553,973 216,382,357Assessmentsreceivable(Note7) 5,272,172 5,546,307Current tax receivable (Note 11) – 84,975 Prepaidexpensesandotherassets(Note8) 45,339 49,091Other investments (Note 9) 72,260 72,260 Property and equipment (Note 10) 412,096 540,625 Deferredtaxassets(Note11) 43,000 854,000

$252,413,772 $224,262,354 LIABILITIES Accountspayableandaccruedliabilities(Note12) $302,160 $287,623Definedbenefitplanobligation(Note13) 421,940 321,020Currenttaxpayable(Note11) 85,382 –Deferred tax liability (Note 11) 11,000 –

Totalliabilities 820,482 608,643

Contingent liabilities (Note 14) CORPORATION EQUITY Retainedearnings 251,507,029 230,309,467Accumulated other comprehensive income (loss) 86,261 (6,655,756)

Totalcorporationequity 251,593,290 223,653,711

$252,413,772 $224,262,354

Approved by the Board February 27, 2015

Bryan Rempel, Director Paul Gilmore, Director

Consolidated Statement of Financial Position(in Canadian dollars)


Consolidated Statement of Comprehensive Income(in Canadian dollars)

Year Ended December 31 2014 2013

Revenues Regularassessments(Note15) $20,603,410 $21,649,037Investment revenue (Note 15) 5,576,018 4,458,251

26,179,428 26,107,288

Expenses Operating expense (Note 16) 4,906,718 4,586,072Credit union merger expense (Note 16) 1,766 2,084

4,908,484 4,588,156 INCOME BEFORE INCOME TAXES 21,270,944 21,519,132

Incometaxexpense(recovery)(Note11) 73,382 (86,975)

NET INCOME 21,197,562 21,606,107 OTHER COMPREHENSIVE INCOME (LOSS) Items that may be reclassified subsequently to profit and loss Unrealizedgains(losses)onavailable-for-saleassets 8,759,849 (7,215,658)Incometax(expense)benefit (963,583) 787,574Realized(gains)lossesonavailable-for-saleassets (1,184,550) 209,943

Incometaxbenefit(expense) 130,301 (23,094)

Total items that may be reclassified 6,742,017 (6,241,235)

OTHER COMPREHENSIVE INCOME (LOSS), NET OF INCOME TAX 6,742,017 (6,241,235)

COMPREHENSIVE INCOME $27,939,579 $15,364,872



Consolidated Statement of Changes in Equity(in Canadian dollars)

Accumulated Other Comprehensive Income (Loss)

[Unrealized Gains (Losses) Available-For-Sale Retained Earnings Financial Assets] Total

BalanceatJanuary1,2013 $208,703,360 $(414,521) $208,288,839

Net income 21,606,107 – 21,606,107

Othercomprehensiveloss – (6,241,235) (6,241,235)

Totalcomprehensiveincome(loss) 21,606,107 (6,241,235) 15,364,872

BalanceatDecember31,2013 $230,309,467 $(6,655,756) $223,653,711 BalanceatJanuary1,2014 $230,309,467 $(6,655,756) $223,653,711

Net Income 21,197,562 – 21,197,562

Other comprehensive income – 6,742,017 6,742,017

Totalcomprehensiveincome 21,197,562 6,742,017 27,939,579

BalanceatDecember31,2014 $251,507,029 $86,261 $251,593,290


Consolidated Statement of Cash Flows(in Canadian dollars)


OPERATING ACTIVITIES Net income $ 21,197,562 $ 21,606,107Non-cash expense (recovery) – deferred income taxes 822,000 (766,480)Non-cashexpense–depreciation 192,825 190,533Netdecrease(increase)inassessmentsreceivable 274,135 (349,606)Netdecreaseinprepaidexpensesandotherassets 3,752 85,929Netincrease(decrease)intaxreceivableandpayable 170,357 (840,834)Net increase (decrease) in accounts payable and accruedliabilities 14,537 (35,299)Netincreaseindefinedbenefitobligation 100,920 22,800

Cash flows generated by operating activities 22,776,088 19,913,150

INVESTING ACTIVITIES Net increase in marketable securities, net of deferred tax liability (22,429,599) (20,788,799)Purchase of property and equipment, net of disposal proceeds (64,296) (272,542)

Cash flows used in investing activities (22,493,895) (21,061,341)

INCREASE (DECREASE) IN CASH 282,193 (1,148,191)CASH, BEGINNING OF YEAR 732,739 1,880,930

CASH, END OF YEAR $1,014,932 $732,739

SUPPLEMENTARY CASH FLOW INFORMATION

Income taxes paid $ – $ –



1.0 Nature of organizationThe Deposit Guarantee Corporation of Manitoba (DGCM) is a deposit guarantee corporation established under The Credit Unions and Caisses Populaires Act of Manitoba (The Act). All of the operational activities of DGCM are focused on achieving its legislated objectives:• Guarantee deposits in Manitoba credit unions and caisses populaires (thereafter credit unions)• Promotecredituniondevelopmentofsoundbusinesspracticestoprotectthemfromfinanciallosses• Ensure the credit unions operate under sound business practices

Without limiting the generality of the foregoing, DGCM shall do such things as are necessary to enable a credit union assigned to it to satisfy the claims of the members of the credit union for withdrawals of deposits. The registered address ofDGCMis390-200GrahamAvenue,Winnipeg,Manitoba,Canada.

2.0 Statement of complianceTheconsolidatedfinancialstatementshavebeenpreparedinaccordancewithInternationalFinancialReportingStandards(IFRS). TheconsolidatedfinancialstatementswereauthorizedforissuebytheBoardofDirectorsonFebruary27,2015.

3.0 Significant accounting policiesThe accounting policies set out below have been applied consistently to all periods presented in these consolidated financialstatementsinaccordancewithIFRS.

3.1 Basis of consolidationTheconsolidatedfinancialstatementsincludetheaccountsofT.S.F.HoldingsLimited,awholly-ownedsubsidiary, which was incorporated for the purpose of purchasing and collecting loans guaranteed by DGCM under merger and liquidation agreements.

3.2 Basis of measurementTheconsolidatedfinancialstatementshavebeenpreparedonthehistoricalcostbasis,exceptforavailable-for-salefinancialassets,whicharemeasuredatfairvalueinthestatementoffinancialposition.

3.3 CashCash consists of cash on hand, and chequing and demand balances with Credit Union Central of Manitoba (CUCM) and chartered banks.

Notes to Consolidated Financial Statements(in Canadian dollars, unless otherwise noted)


3.4 Property and equipmentPropertyandequipmentarestatedinthestatementoffinancialpositionathistoricalcost,lessaccumulateddepreciation and accumulated impairment losses.

Cost includes the expenditure that is directly attributable to the acquisition of the asset. When parts of an itemofpropertyandequipmenthavemateriallydifferentusefullives,theyareaccountedforasseparateitems(major components) of property and equipment.

Depreciationandimpairmentarerecognizedinnetincome.Depreciationhasbeencalculatedonthefollowingbasis: Automobiles 30%declining-balance Furnitureandequipment 20%declining-balance Computer hardware 2½ years straight-line Leasehold improvements Term of lease straight-line

Gains and losses on disposal of an item of property and equipment are determined by comparing the proceedsfromdisposalwiththecarryingamountofthepropertyandequipment,andarerecognizedwithindepreciation of operating expenses.

3.5 Regular assessments, special assessments, and financial assistance repayments

Regularassessments,specialassessments,andfinancialassistancerepaymentsaremeasuredatthefairvalue of the consideration received or receivable.

Creditunionregularassessments,specialassessments,andfinancialassistancerepaymentsarerecognizedas follows:• Creditunionregularassessmentsarerecognizedwhenearned.Regularassessmentsaredetermined

quarterly, and accrued for monthly. Credit union payments are received quarterly.• Specialassessmentsarerecognizedwhenearned.Specialassessmentsareonlychargedif,intheopinion

of DGCM’s Board, the Guarantee Fund is, or is about to be, impaired.• Financialassistancerepaymentsarerecognizedwhenreceived.

3.6 Financial assetsAllfinancialassetsarerecognizedandderecognizedontradedatewherethepurchaseorsaleofafinancialassetisunderacontractwhosetermsrequiredeliveryofthefinancialassetwithinthetimeframeestablishedby the market concerned, and are initially measured at fair value, plus transaction costs, except for those financialassetsclassifiedasatfairvaluethroughprofitandloss(FVTPL),whichareinitiallymeasuredatfairvalue.

Financialassetsareclassifiedintothefollowingspecifiedcategories:financialassets‘atFVTPL’,‘available-for-sale’(AFS)financialassets,and‘loansandreceivables’.Theclassificationdependsonthenatureandpurposeofthefinancialassetsandisdeterminedatthetimeofinitialrecognition.

3.6.1 ClassificationCash Loans and receivablesMarketable securities Available-for-saleAssessments receivable Loans and receivablesOther investments Available-for-sale



3.6.2 Fair value through profit and loss (FVTPL)FVTPLfinancialassetsarethoseclassifiedasheld-for-tradingoraredesignatedassuchuponinitialrecognition.Held-for-tradingfinancialassetsarefinancialassetstypicallyacquiredforresalepriorto maturity or that are designated as held-for-trading. They are measured at fair value at the balance sheetdate.Fairvaluefluctuationsincludinginterestearned,interestaccrued,gainsandlossesrealizedondisposal,andunrealizedgainsandlossesareincludedinincome.DGCMdoesnotholdanyfinancialassetsclassifiedasFVTPL.

3.6.3 Available-for-sale (AFS)AFSfinancialassetsarethosenon-derivativefinancialassetsthataredesignatedasavailable-for-sale,orthatarenotclassifiedasloansandreceivables,held-to-maturityorheld-for-tradinginvestments.Exceptasmentionedbelow,AFSfinancialassetsarecarriedatfairvaluewithunrealizedgainsandlossesincludedinaccumulatedothercomprehensiveincomeuntilrealizedwhen the cumulative gain or loss is transferred to income.

AFSfinancialassetsthatdonothavequotedmarketpricesinanactivemarketarerecordedatcost.

Interestoninterest-bearingavailable-for-salefinancialassetsiscalculatedusingtheeffectiveinterest method and recorded in investment revenue.

3.6.4 Loans and receivablesCash,prepaidexpensesandotherassets,andassessmentsreceivableswithfixedordeterminablepaymentsareclassifiedasloansandreceivables.Loansandreceivablesareaccountedforatamortizedcostusingtheeffectiveinterestmethod,lessanyimpairment.Interestincomeisrecognizedbyapplyingtheeffectiveinterestrate,exceptforshort-termreceivableswhentherecognition of interest would be immaterial.

3.6.5 Impairment of financial assetsFinancial assets, other than those designated as FVTPL, are regularly assessed on an individual basis for indicators of impairment at each balance sheet date. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after theinitialrecognitionofthefinancialasset,theestimatedfuturecashflowsoftheinvestmenthavebeenaffected.

Objective evidence of impairment could include but is not limited to:• significantfinancialdifficultyoftheissuerorcounterparty• default or delinquency in interest or principal payments• itbecomingprobablethattheborrowerwillenterbankruptcyorfinancialre-organization

Forfinancialassetscarriedatamortizedcost,theamountoftheimpairmentlossrecognizedisthedifferencebetweentheasset’scarryingamountandthepresentvalueofestimatedfuturecashflows,discountedatthefinancialasset’soriginaleffectiveinterestrate.

Thecarryingamountofthefinancialassetisreducedbytheimpairmentlossdirectlyforallfinancialassets.

WhenanAFSfinancialassetisconsideredtobeimpaired,cumulativelossespreviouslyrecognizedinothercomprehensiveincomearereclassifiedtonetincomeintheperiod.If,inasubsequentperiod, the amount of the impairment loss decreases and the decrease can be related objectively toaneventoccurringaftertheimpairmentwasrecognized,thepreviouslyrecognizedimpairmentloss is reversed through net income to the extent that the carrying amount of the investment at the datetheimpairmentisreverseddoesnotexceedwhattheamortizedcostwouldhavebeenhadtheimpairmentnotbeenrecognized.


3.6.6 Derecognition of financial assetsDGCMderecognizesafinancialassetonlywhenthecontractualrightstothecashflowsfromtheassetexpire,orwhenittransfersthefinancialassetandsubstantiallyalltherisksandrewardsofownershipofthe asset to another entity. If DGCM neither transfers nor retains substantially all the risks and rewards of ownershipandcontinuestocontrolthetransferredasset,DGCMrecognizesitsretainedinterestintheasset and an associated liability for amounts it may have to pay. If DGCM retains substantially all the risks andrewardsofownershipofatransferredfinancialasset,DGCMcontinuestorecognizethefinancialassetandalsorecognizesacollateralizedborrowingforproceedsreceived.

3.7 Financial liabilitiesFinancialliabilitiesareclassifiedaseitherfinancialliabilitiesatFVTPLor‘otherfinancialliabilities’.

3.7.1 ClassificationAccountspayableandaccruedliabilities Otherfinancialliabilities

3.7.2 Liabilities at FVTPLFinancialliabilitiesareclassifiedasFVTPLwhenthefinancialliabilityiseitherheld-for-tradingoritisdesignatedasatFVTPL.DGCMhasnotdesignatedanynon-derivativefinancialliabilitiesasheld-for-trading or FVTPL.

Financialliabilitiesdesignatedasheld-for-tradingarethosenon-derivativefinancialliabilitiesthatDGCMelects to designate on initial recognition as instruments that it will measure at fair value, netted against interest on investments. Historically, these are short-term liabilities when the recognition of interest would be immaterial. These are accounted for in the same manner as held-for-trading assets.

3.7.3 Other financial liabilitiesAccountspayableandaccruedliabilitiesareclassifiedasotherfinancialliabilities.Otherfinancialliabilitiesarerecordedatamortizedcostusingtheeffectiveinterestmethodandincludeallfinancialliabilities, other than derivative instruments.

3.8 Effective interest methodDGCMusestheeffectiveinterestmethodtorecognizeinterestincomeorexpensewhichincludestransactioncostsorfees,premiumsordiscountsearnedorincurredforfinancialinstruments.

Theeffectiveinterestmethodisamethodofcalculatingtheamortizedcostofadebtinstrumentandofallocatinginterestincomeovertherelevantperiod.Theeffectiveinterestrateistheratethatexactlydiscountsestimatedfuturecashreceipts(includingallfeesonpointspaidorreceivedthatformanintegralpartoftheeffectiveinterestrate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.

3.9 Transaction CostsTransactioncostsareexpensedasincurredforfinancialinstrumentsclassifiedasFVTPL.Transactioncostsforfinancialassetsclassifiedasavailable-for-sale,loansandreceivables,andotherfinancialliabilitiesarenettedagainstthecarryingvalueoftheassetorliabilityandarethenrecognizedovertheexpectedlifeoftheinstrumentusingtheeffectiveinterestmethod.

3.10 LeasingLeasesareclassifiedasfinanceleaseswheneverthetermsoftheleasetransfersubstantiallyalltherisksandrewardsofownershiptothelessee.Allotherleasesareclassifiedasoperatingleases.DGCMdoesnothavefinanceleases.

Operatingleasepaymentsarerecognizedasanexpenseonastraight-linebasisovertheleaseterm.



3.11 Employee benefits3.11.1 Defined contribution plan

Adefinedcontributionplanisapost-employmentbenefitplanunderwhichanentitypaysfixedcontributions into a separate entity and will have no legal or constructive obligation to pay further amounts.Obligationsforcontributionstodefinedcontributionplansarerecognizedasanemployeebenefitexpenseinnetincomeintheperiodsduringwhichservicesarerenderedbyemployees.

3.11.2 Defined benefit planAdefinedbenefitplanisapost-employmentbenefitplanotherthanadefinedcontributionplan.DGCM’sdefinedbenefitplanisaretirementallowance,limitedtoasinglefutureobligation,asaproportion of an employee’s annual salary. DGCM’s net obligation is calculated by estimating the amountoffuturebenefitthatemployeeshaveearnedinreturnfortheirserviceinthecurrentandpriorperiods;thatbenefitisdiscountedtodetermineitspresentvalue.Therateusedtodiscountpost-employmentbenefitobligationsisdeterminedbyreferencetomarketyieldsattheendofthereportingperiodonhigh-qualitycorporatebonds.Thecalculationisperformedannuallybyaqualifiedactuaryusingtheprojectedunitcreditmethod.Terminationbenefitsarerecognizedasanexpenseatthe earlier of the following dates:• whenDGCMrecognizescostsforarestructuringwithinthescopeofIAS37thatincludesthe

paymentofterminationbenefits,or• whenDGCMcannolongerwithdrawtheofferofthosebenefits

Ifbenefitsarepayablemorethan12monthsafterthereportingperiod,thentheyarediscountedtotheir present value.

3.11.3 Short-term employee benefitsShort-termemployeebenefitsareobligationsthatareexpectedtobesettledwhollywithin12monthsof the end of the annual reporting period in which the employees render related services. These obligations are measured on an undiscounted basis.

3.12 Provision for financial assistance to credit unionsTheprovisionforfinancialassistancetocreditunionsisbasedonpotentiallossesthatmayariseduetomerger,liquidation arrangements, or dissolution. The provision is established based on an individual credit union’s probability of requirement for assistance and an assessment of the aggregate risk in the credit union Systems.

3.13 Assets acquired from merger/dissolution of credit unionsLoans and real property acquired as a result of merger or dissolution proceedings are recorded at estimated net realizablevalue.

3.14 TaxationIncometaxexpenserepresentsthesumofthecurrenttaxanddeferredtax.Taxisrecognizedasanexpenseorrecoveryinnetincomeexcepttotheextentthatitrelatestoitemsthatarerecognizedoutsidenetincome.

3.14.1 Current income taxCurrentincometaxisbasedontaxableincomefortheyear.Taxableincomediffersfromincomeasreported in the consolidated statements of comprehensive income because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. DGCM’s current tax liabilities are measured at the amount expected to be paid to (recovered from) the taxation authorities using the tax rates that have been enacted or substantively enacted at the balance sheet date.


3.14.2 Deferred TaxDeferredtaxisthetaxexpectedtobepayableorrecoverableontemporarydifferencesbetweenthecarryingamountsofassetsandliabilitiesinthefinancialstatementsandthecorrespondingtaxbasesusedinthecomputationoftaxableincome.Deferredtaxliabilitiesaregenerallyrecognizedforalltaxabletemporarydifferences.Deferredtaxassetsaregenerallyrecognizedforalldeductibletemporarydifferencesto the extent that it is probable that taxable income will be available against which those deductible temporarydifferencescanbeutilized.

Deferredtaxliabilitiesarerecognizedfortaxabletemporarydifferencesassociatedwithinvestmentsinitssubsidiaryexceptwhereitisprobablethatthetemporarydifferencewillnotreverseintheforeseeablefuture.Deferredtaxassetsarisingfromdeductibletemporarydifferencesassociatedwithsuchinvestmentsandinterestsareonlyrecognizedtotheextentthatitisprobablethattherewillbesufficienttaxableincomeagainstwhichtoutilizethebenefitsofthetemporarydifferencesandtheyareexpectedto reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extentthatitisnolongerprobablethatsufficienttaxableincomewillbeavailabletoallowallorpartofthe asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period inwhichtheliabilityissettledortheassetrealized,basedontaxrates(andtaxlaws)thathavebeenenacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilitiesandassetsreflectsthetaxconsequencesthatwouldfollowfromthemannerinwhichDGCMexpects, at each balance sheet date, to recover or settle the carrying amount of its assets and liabilities.

Deferredtaxassetsandliabilitiesareoffsetwhenthereisalegallyenforceablerighttosetoffcurrenttaxassets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and DGCM intends to settle its current tax assets and liabilities on a net basis.

3.15 Changes in accounting policiesAnumberofnewstandards,amendments,andinterpretationsbecameeffectivein2014;thefollowingarerelevantto DGCM.

Amendments to IAS 32 – Offsetting Financial Assets and Liabilities –EffectiveJanuary1,2014,thisstandardwasamendedtoclarifytherequirementsrelatingtotheoffsetoffinancialassetsandliabilities.Specifically,theamendmentclarifiesthemeaningof“currentlyhasalegallyenforceablerighttoset-off,andsimultaneousrealizationandsettlement”.

Amendments to IAS 36 – Recoverable Amount Disclosures for Non-Financial Assets – The amendments toIAS36removetherequirementtodisclosetherecoverableamountofacash-generatingunit(CGU)towhichgoodwillorotherintangibleassetswithindefiniteusefulliveshadbeenallocatedwhentherehasbeennoimpairment or reversal of impairment of the related CGU. Furthermore, the amendments introduce additional disclosure requirements applicable to when the recoverable amount of an asset or a CGU is measured at fair value less costs of disposal. These new disclosures include the fair value hierarchy, key assumptions, and valuation techniquesusedwhichareinlinewiththedisclosurerequiredbyIFRS13–Fair Value Measurements.

Amendments to IAS 39 – Novation of Derivatives and Continuation of Hedge Accounting – The amendments tolAS39providerelieffromtherequirementtodiscontinuehedgeaccountingwhenaderivativedesignatedasahedging instrument is novated under certain circumstances. The amendments also clarify that any change to the fair value of the derivative designated as a hedging instrument arising from the novation should be included in the assessmentandmeasurementofhedgeeffectiveness.

IFRIC 21 – Levies–Thisinterpretationaddressestheissueofwhentorecognizealiabilitytopayalevy.Theinterpretationdefinesalevy,andspecifiesthattheobligatingeventthatgivesrisetotheliabilityistheactivitythattriggersthepaymentofthelevy,asidentifiedbylegislation.Theinterpretationprovidesguidanceonhowdifferentlevyarrangementsshouldbeaccountedfor,inparticular,itclarifiesthatneithereconomiccompulsionnorthegoingconcernbasisoffinancialstatementspreparationimpliesthatanentityhasapresentobligationtopayalevythatwillbe triggered by operating in a future period.

Theadoptionofthesestandards,amendments,andinterpretationsdidnothaveasignificantimpactonDGCM’sconsolidatedfinancialstatements.



3.16 New standards and interpretations not yet adopted

Anumberofnewstandards,andamendmentstostandardsandinterpretations,arenotyeteffectivefortheyearendedDecember31,2014,andhavenotbeenappliedinpreparingtheseconsolidatedfinancialstatements.

IFRS 9 – Financial Instruments

InJuly2014,theInternationalAccountingStandardsBoard(IASB)finalizedthereformoffinancialinstrumentsaccountingandissuedIFRS9(asrevisedin2014),whichwillsupersedeIAS39–Financial instruments: Recognition and Measurement in its entirety. Key requirements of IFRS 9 are:

Financial Assets –AllrecognizedfinancialassetsthatarewithinthescopeoflAS39–Financial Instruments: Recognition and Measurementarerequiredtobesubsequentlymeasuredatamortizedcostorfairvalue.Specifically,debtinvestmentsthatareheldwithinabusinessmodelwhoseobjectiveistocollectthecontractualcashflows,andthathavecontractualcashflowsthataresolelypaymentsofprincipalandinterestontheprincipaloutstandingaregenerallymeasuredatamortizedcostattheendofsubsequentaccountingperiods.Debtinstrumentsthatareheldwithinabusinessmodelwhoseobjectiveisachievedbothbycollectingcontractualcashflowsandsellingfinancialassets,andthathavecontractualtermsofthefinancialassetgiveriseonspecifieddatestocashflowsthataresolelypayments of principal and interest on the principal amount outstanding, are measured at fair value through other comprehensive income. All other debt investments and equity investments are measured at their fair value at the end of subsequent accounting periods. In addition, under IFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held-for-trading) in other comprehensive income,withonlydividendincomegenerallyrecognizedinprofitorloss.

Financial Liabilities –WithregardtothemeasurementoffinancialliabilitiesdesignatedasFVTPL,IFRS9requiresthattheamountofchangeinthefairvalueofthefinancialliabilitythatisattributabletochangesinthecreditriskofthatliabilityispresentedinothercomprehensiveincome,unlesstherecognitionoftheeffectsofchangesintheliability’screditriskinothercomprehensiveincomewouldcreateorenlargeanaccountingmismatchinprofitorloss.Changesinfairvalueattributabletoafinancialliability’screditriskarenotsubsequentlyreclassifiedtoprofitorloss.UnderIAS39,theentireamountofthechangeinthefairvalueofthefinancialliabilitydesignatedasFVTPLispresentedinprofitorloss.

Impairment Methodology – Inrelationtotheimpairmentoffinancialassets,IFRS9requiresanexpectedcreditlossmodel,asopposedtoanincurredcreditlossmodelunderlAS39.Theexpectedcreditlossmodelrequiresanentitytoaccountforexpectedcreditlossesandchangesinthoseexpectedcreditlossesateachreportingdatetoreflectchanges in credit risk since initial recognition. In other words, it is no longer necessary for a credit event to have occurredbeforecreditlossesarerecognized.

Hedge Accounting –InNovember2013,astandardwasissuedonanewgeneralhedgeaccountingmodel,togetherwith corresponding disclosures about risk management activity for those applying hedge accounting. The new model representsasubstantialoverhaulofhedgeaccountingthatwillenableentitiestobetterreflecttheirriskmanagementactivitiesintheirfinancialstatements.

ThestandardiseffectiveJanuary1,2018.DGCMisevaluatingtheimpactthisstandardwillhaveonitsfinancialstatements.

IFRS 15 – Revenue from Contracts with Customers

In May 2014, the IASB issued IFRS 15 – Revenue from Contracts with Customers which provides a single revenue recognitionstandardtoalignthefinancialreportingofrevenuefromcontractswithcustomers(creditunionassessments)and related costs.

TherevenuearisingfromfinancialinstrumentsisnotrequiredtoapplytherevenuerecognitionrequirementsinIFRS15.Acompanywouldrecognizerevenuewhenittransfersgoodsorservicestoacustomerintheamountofconsiderationthe company expects to receive from the customer.

ThestandardiseffectiveJanuary1,2017.DGCMisevaluatingtheimpactoftheadoptionofthisstandard.

2014 ANNUAL REPORT 33FINANCIAL STATEMENTS

4.0 Critical accounting judgments and key sources of estimation uncertaintyIntheapplicationofDGCM’saccountingpolicies,whicharedescribedinNote3,managementisrequiredtomakejudgments, estimates, and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that areconsideredtoberelevant.Actualresultsmaydifferfromtheseestimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognizedintheperiodinwhichtheestimateisrevisediftherevisionaffectsonlythatperiod,orintheperiodoftherevisionandfutureperiodsiftherevisionaffectsbothcurrentandfutureperiods.

4.1 Critical judgments in applying accounting policiesThere are no critical judgments, apart from those involving estimations, that management has made in the processofapplyingDGCM’saccountingpoliciesandthathavethemostsignificanteffectontheamountsrecognizedintheconsolidatedfinancialstatements.

4.2 Key sources of estimation uncertaintyThe following are the key assumptions concerning the future, and other key sources of estimation uncertainty attheendofthereportingperiod,thathaveasignificantriskofcausingamaterialadjustmenttothecarryingamountsofassetsandliabilitieswithinthenextfinancialyear.

4.2.1 Provision for financial assistance to credit unions4.2.1.1 Individual provisions for credit union assistance

IndividualprovisionsandcontingenciesforfinancialassistancearerecognizedinaccordancewithIFRS.Theprocessdefinedbelowwillbeappliedquarterlyatminimum,and more frequently if required. Credit union analysis will consider:• an individual credit union’s risk rating as established by DGCM• anindividualcreditunion’sfinancialstrength,includingcapitalstrengthtoabsorb

potential losses and earning trends• whether a credit union appears to have appropriately valued assets• whether levels of collective and individual allowances appear reasonable• provisions and contingencies related to assisted mergers and arrangements

DGCM has determined that there are no individual provisions for credit union assistance required.

4.2.1.2 Collective provision for credit union assistanceThecollectiveaccrualforfinancialassistanceisbasedonfive-year,ten-year,andtwenty-year averages of loss experience and other components that consider capital shortfalls andinsufficientcapitallevels.Thiswillincludemanagement’sjudgmentbasedonhistorical information and other factors.

In addition, a collective provision may be deemed necessary based on DGCM’s best estimate of current aggregate risk to DGCM as determined by evaluating the following conditions:• market and economic conditions• credit union analysis• historic loss experience

DGCM has determined that there is no collective provision for credit union assistance required.



4.2.2 Estimates of fair valuesFinancialinstrumentcarryingvaluesreflecttheprevailingmarketandtheliquiditypremiumsembedded within the market pricing methods DGCM relies upon.

Fairvaluesofmarketablesecuritiesandotherinvestmentsclassifiedasavailable-for-salearedeterminedwithreferencetoquotedmarketprice,withinthebid/askspread,primarilyprovidedbythirdpartyindependent pricing sources. Where prices are not quoted in a normally active market, fair values are determinedbyvaluationmodels.DGCMmaximizestheuseofobservableinputsandminimizestheuse of unobservable inputs when measuring fair value. DGCM obtains quoted prices in active markets, when available, for identical assets at the balance sheet date to measure marketable securities and other investments at fair value.

5.0 CashCash includes cash on hand, and current accounts with CUCM, CIBC Mellon, and Scotiabank. Cash at the end of the reportingperiodasshowninthestatementofcashflowscanbereconciledtotherelateditemsintheconsolidatedstatementoffinancialpositionasfollows:


Cash on hand 500 500CUCM 925,111 556,196Scotiabank 126 218CIBC Mellon 89,195 175,825

1,014,932 732,739

6.0 Marketable securitiesMarketablesecuritiesincludeguaranteedinvestmentcertificates,treasurybills,governmentbonds,andcorporatebonds.Asummaryofmarketablesecuritiesasreflectedintheconsolidatedstatementoffinancialpositionisasfollows:


Guaranteedinvestmentcertificates 10,106,583 10,059,048Treasury bills 95,524,896 –Governmentbonds 67,538,602 160,998,986Corporatebonds 72,383,892 45,324,323

245,553,973 216,382,357

6.1 Assets pledged as securityGuaranteedinvestmentcertificateswithCUCMwithacarryingamountof$10,000,000(2013:$10,000,000)have been pledged to secure an operating line of credit for DGCM. The pledge agreement is renewed annually. DGCM is not permitted to pledge these assets as security for other borrowings or to sell them to another entity.


7.0 Assessments receivableAssessmentsreceivableareclassifiedas‘loansandreceivables’andthereforemeasuredatamortizedcost.

Assessments receivable refer to the outstanding balance, owed by credit unions, for the fourth quarter assessment, or anyspecialassessment,chargedbyDGCM.Significantlyalloftheoutstandingbalancesarecollectedwithin31daysofyear-end.


Assessments receivable 5,272,172 5,546,307

8.0 Prepaid expenses and other assetsPrepaidexpensesandotherassetsareclassifiedas‘loansandreceivables’andthereforemeasuredatamortizedcost.


Prepaidofficeexpenses 15,159 16,492 Prepaid occupancy expenses 28,119 27,851 Accounts receivable – 14 Employeeloans 2,061 4,734

45,339 49,091

9.0 Other investmentsAs at December 31 2014 2013

CUCM shares, at cost 68,000 68,000 Concentra Trust shares, at cost 4,260 4,260

72,260 72,260

These shares are not readily marketable, and there are no contractual or guaranteed rates of return on these investments. The yields earned on these shares have approximated rates earned by DGCM on other investments, and in management’s opinion,fairvalueoftheshareswillnotdiffersignificantlyfromtheabovestatedcost.Thecreditriskinherentinthesharesisconsideredtobeinsignificant.Therearenointentionstodisposeofthesesharesintheforeseeablefuture.



10.0 Property and equipmentAs at December 31 2014 2013

Net carrying amounts of: Automobiles – 2,896 Furnitureandequipment 182,936 211,149 Computerhardware 88,365 150,586 Leasehold improvements 140,795 175,994

412,096 540,625

Furniture Computer Leasehold Automobiles and equipment hardware improvements Total

Cost BalanceatDecember31,2013 4,152 378,325 531,976 468,630 1,383,083

Additions – 15,046 49,250 – 64,296Retirements/disposals – – (27,699) – (27,699)

BalanceatDecember31,2014 4,152 393,371 553,527 468,630 1,419,680

Accumulated depreciation BalanceatDecember31,2013 1,256 167,176 381,390 292,636 842,458

Depreciationexpense 2,896 43,259 111,471 35,199 192,825Retirements/disposals – – (27,699) – (27,699)

Balance at December31,2014 4,152 210,435 465,162 327,835 1,007,584

Net carrying amount – 182,936 88,365 140,795 412,096


11.0 Income taxes11.1 Income tax recognized in net income

Year ended December 31 2014 2013

Current tax Currenttaxexpense(recovery)inrespectofthecurrentyear 85,382 (16,000)Adjustmentsrecognizedinthecurrentyearinrelation to the current tax of previous years – (68,975)

85,382 (84,975) Deferred tax Deferredtaxrecoveryrecognizedinthecurrentyear (12,000) (2,000)

Total tax expense (recovery) relating to continuing operations 73,382 (86,975)

The expense for the year can be reconciled to the accounting income as follows:


Incomefromcontinuingoperations 21,270,944 21,519,132

Incometaxexpenseatstatutoryrate 2,339,804 2,367,105Non-taxablecreditunionassessments (2,266,375) (2,381,394)Non-deductibleoperatingexpenses (738) 1,589Change in income tax rates – (68,975) Adjustmentsrecognizedinthecurrentyearin relation to the current tax of previous years 691 (2,850)

73,382 (84,525)

Adjustmentsrecognizedinthecurrentyearin relation to the deferred tax of prior years – (2,450)

Incometaxexpense(recovery)recognizedinnetincome 73,382 (86,975)

Thetaxrateusedforthe2014and2013reconciliationsaboveisthecorporaterateof11%and11%respectively payable on taxable income under tax law in Manitoba.

11.2 Income tax recognized in other comprehensive incomeYear ended December 31 2014 2013

Deferred tax Fairvaluere-measurementofavailable-for-salefinancialassets 11,000 (787,574)

Total income taxexpense(recovery)recognizedin other comprehensive income 11,000 (787,574)

11.3 Current tax assets and liabilitiesAs at December 31 2014 2013

Current tax assets Tax refund receivable – 84,975Current tax liability Incometaxpayable (85,382) –

(85,382) 84,975



11.4 Deferred tax balancesThefollowingistheanalysisofdeferredtaxassets/(liabilities)presentedintheconsolidatedstatementoffinancialposition: As at December 31 2014 2013

Deferredtaxassets 43,000 854,000Deferred tax liability 11,000 –

Opening Recognized in Recognized in 2013 balance net income OCI Closing balance

Deferred tax assets/ (liabilities) in relation to:Propertyandequipment (6,786) 2,486 – (4,300)Definedbenefitobligation 35,786 (486) – 35,300 AFSfinancialassets 58,520 (23,094) 787,574 823,000

87,520 (21,094) 787,574 854,000

Tax losses – – – – Other – – – –

87,520 (21,094) 787,574 854,000

Opening Recognized in Recognized in 2014 balance net income OCI Closing balance

Deferred tax assets/ (liabilities) in relation to:Propertyandequipment (4,300) 400 – (3,900)Definedbenefitobligation 35,300 11,600 – 46,900AFSfinancialassets 823,000 (823,000) (11,000) (11,000)

854,000 (811,000) (11,000) 32,000

Tax losses – – – – Other – – – –

854,000 (811,000) (11,000) 32,000

12.0 Accounts payable and accrued liabilitiesAccountspayableandaccruedliabilitiesareclassifiedasotherfinancialliabilitiesandthereforemeasuredatamortizedcost.

Accounts payable refers to trades payable and insured savings accounts. Trades payable are outstanding invoices to vendors, payable upon receipt. Insured savings accounts are deposits acquired through mergers of credit unions. Accrued liabilities refer to obligations to vendors where no invoice has been received.


Accountspayable 51,496 55,823 Insuredsavingsaccounts 15,000 21,031 Accruedliabilities 235,664 210,769

302,160 287,623


13.0 Post-employment plans13.1 Defined contribution plans

DGCMcontributestotwodefinedcontributionretirementbenefitplansforallqualifyingemployees.ThesebenefitplansareoperatedbytheCo-operativeSuperannuationSocietyandGreat-WestLifeAssuranceCompany.DGCMisrequiredtomatchemployee’scontributionsofaspecifiedpercentageofearningstothebenefitplans.TheonlyobligationofDGCMwithrespecttotheretirementbenefitplansistomakespecifiedcontributions.

Thetotalexpenserecognizedintheincomestatementof$147,641(2013:$137,039)representscontributionspayabletotheseplansbyDGCMatratesspecifiedintherulesoftheplans.AsatDecember31,2014,allcontributionsdueinrespectofthe2014and2013reportingperiodshadbeenremittedtotheplans.

13.2 Defined benefit planDGCMoperatesanunfundeddefinedbenefitplan,referredtoasaretirementallowance,forqualifyingemployees.Undertheplan,employeesareentitledtoaone-timeretirementbenefitvaryingbetween17%and50%ofthefinalsalaryonattainmentofaminimumretirementageof55.Nootherpost-retirementbenefitsareprovided to these employees.

Thisbenefitisself-insured,withnoplantextsbetweenDGCMandanythird-party.Thebenefitexistsoutsidethe scope of provincial and federal legislation, and is not subject to any regulatory framework. DGCM is solely responsibleforthegovernanceofthebenefit.

Therisksassociatedwiththebenefitarestrictlyfinancialinnature,primarilydrivenbyanyconcentrationinagegroupsofemployees.CurrentevaluationsshownomaterialconcentrationofagegroupingsatDecember31,2014.

ThemostrecentactuarialvaluationofthedefinedbenefitobligationwascarriedoutatDecember31,2014byEcklerLtd.,theactuary.Thepresentvalueofthedefinedbenefitobligation,andrelatedcurrentservicecostandpast service cost, were measured using the projected unit credit method.

The principal assumptions used for the purposes of the actuarial valuations were as follows:


Discountrate(s) 3.50% 4.40% Expectedrate(s)ofsalaryincrease 4.50% 4.50% Assumed retirement age 62 62 Amountsrecognizedinnetincomeinrespecttothisdefinedbenefitplanareasfollows:


Current service cost 48,570 49,924Actuariallosses(gains)recognizedintheyear 60,680 (14,254)Past service costs – – Interest costs 15,220 10,680

124,470 46,350



Actuarialgainsandlosses,andservicecosts,includingcurtailmentsandsettlements,arerecognizedimmediatelythroughnetincome,andrecordedinsalariesandemployeebenefitsinthescheduleofconsolidated operating expenses.

TheamountincludedinthestatementoffinancialpositionarisingfromDGCM’sobligationinrespectofitsdefinedbenefitplanisthepresentvalueoftheunfundeddefinedbenefitobligation.

Movementsinthepresentvalueofthedefinedbenefitobligationinthecurrentperiodwereasfollows:


Openingdefinedbenefitobligation 321,020 298,220 Current service cost 48,570 49,924Actuariallosses(gains)recognizedintheyear 60,680 (14,254) Past service costs – –Interest costs 15,220 10,680Benefitspaid (23,550) (23,550)

Closingdefinedbenefitobligation 421,940 321,020

DGCMdoesnotholdplanassetstooffsetthedefinedbenefitobligation.Fundingisprovidedfromcashaccountstopaybenefitsoveraperiodofupto24monthsfollowingemployeeretirement.

Thematurityprofileoftheobligationisoutlinedasfollows:


Nolaterthanoneyear – 23,550Laterthanoneyearandnotlaterthanfiveyears 112,475 87,331 Laterthanfiveyears 309,465 210,139

421,940 321,020

14.0 Contingent liabilitiesAsatDecember31,2014,DGCMguaranteed$23.498billion(2013:$22.195billion)incredituniondeposits.Basedonits ongoing monitoring procedures, DGCM has concluded that a provision for such contingencies does not need to be established at this time.

AsatDecember31,2014,DGCMhasprovidedaloanindemnificationwithamaximumexposureof$669,718(2013:$729,564). DGCM has concluded that a provision for loss does not need to be established at this time.

15.0 RevenueYear ended December 31 2014 2013

Assessment revenue Regularassessments 20,603,410 21,649,037

Investment revenue Interest income – loans and receivables 47,677 49,480 Investmentincome–available-for-sale 4,341,647 4,616,272Realizedgainsandlossesondisposalofmarketablesecurities 1,184,550 (209,943)Dividends received 2,144 2,442

5,576,018 4,458,251

26,179,428 26,107,288


16.0 Expenses16.1 Operating expense

An analysis of DGCM’s operating expense from continuing operations can be found on page 46 in the schedule of consolidated operating expenses.

16.2 Credit union merger expenseThis expense represents operating costs for T.S.F. Holdings Limited. The following is an analysis of the expense from continuing operations:


Professionalservices – 358 Insured savings premiums 1,766 1,726

1,766 2,084

17.0 Financial instruments

17.1 Class disclosureThefollowingisthedisclosureoffinancialassetsbyclass:


Loans and receivables Cash 1,014,932 732,739 Assessmentsreceivable 5,272,172 5,546,307 Prepaidexpensesandotherassets 45,339 49,091

6,332,443 6,328,137

Available-for-sale Marketablesecurities 245,553,973 216,382,357 Other investments 72,260 72,260

245,626,233 216,454,617

251,958,676 222,782,754

Thefollowingisthedisclosureoffinancialliabilitiesbyclass:


Other financial liabilities

Accounts payable and accrued liabilities 302,160 287,623

17.2 Capital risk management

DGCMmanagesitscapitaltomaintainacapitalstructurethatprovidestheflexibilitytoprovideliquiditytosupport its obligation to guarantee deposits in credit unions.

The capital structure consists of DGCM equity. In order to maintain or adjust its capital structure, DGCM has a$10,000,000lineofcreditagreementwithCUCM.Thefacilitybearsaninterestrateof3.00%,payableondemand,subjecttoannualreviewonorbeforeMarch31,2015.

DGCM’s capital management objective is to maintain total equity (retained earnings and accumulated other comprehensive income) within a range of 95 to 115 basis points (bps) of deposits in credit unions. This equity target range has been approved by the Superintendent of Financial Institutions Regulations Branch. The Board of Directors reviews DGCM’s equity position quarterly to ensure prudent positioning within the target range. Where the aggregate shortfall of credit union capital exceeds one-sixteenth of one percent of total deposits and accrued interest, DGCM shall net the shortfall against its equity for this calculation.



17.3 Financial risk managementDGCMisexposedtorisksofvaryingdegreesofsignificancewhichcouldaffectitsabilitytosupportitsobligation to guarantee deposits in credit unions. The main objectives of DGCM’s risk management processes aretoensurethatrisksareproperlyidentifiedandthatthecapitalbaseisadequateinrelationtotheserisks.TheprincipalfinancialriskstowhichDGCMisexposedincludeinterestraterisk,creditrisk,andliquidityrisk.

DGCMseekstominimizetheeffectsoftheserisksbyutilizingaconservativeinvestmentpolicy.Theinvestmentpolicy contains written principles, addressing interest rate risk, credit risk, and liquidity risk. The investment policy is approved by the Registrar, in compliance with subsection 144(h) of The Act. Compliance with policy is monitored by the external investment manager on a continuous basis.

The Finance department reports quarterly to the Board of Directors on policy compliance and risk exposures.

17.3.1 Interest rate risk managementDGCMisexposedtofluctuationsininterestratesthatcouldaffectthecashflowsfromguaranteedinvestmentcertificatesandmarketablesecuritiesatthetimeofmaturityandreinvestmentofindividualinstruments.Thesefluctuationscouldaffectthefairvaluesoffinancialassetsandliabilities,andDGCM’s ability to support its obligation to guarantee deposits in credit unions.

To manage interest rate risk, DGCM’s investment policy restricts duration of the portfolio to within 0.25 years of the FTSE TMX Canada Universe Bond Index. To further mitigate interest rate risk, the policy permits the allocation of some or all of the portfolio into cash and short-term investments with an aggregate duration within 0.10 years of the FTSE TMX Canada 60-day T-Bill Index for protection fromlossofprincipalandensuresufficientcashisheldtofinancetheoperationsofDGCM.

DGCMmayusederivativefinancialinstrumentstomanageinterestraterisk.Noderivativefinancialinstruments were used during the year.

17.3.1.1 Interest rate sensitivity analysisThe sensitivity analyses below have been determined based on the exposure to interest ratesforfinancialinstrumentsattheendofthereportingperiod.A50bpsincreaseordecrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the possible change in interest rates.

Ifinterestrateshadbeen50bpshigher/lowerandallothervariableswereheldconstant,DGCM’s:• netincomefortheyearendedDecember31,2014,wouldincrease/decreaseby

$802,862/$802,463(2013:increase/decreaseby$12,200/$11,323).Thisisattributableto DGCM’s exposure to interest rates on current accounts and maturing investments, and

• othercomprehensiveincomefortheyearwoulddecrease/increaseby$240,061(2013:decrease/increaseby$7,080,556)mainlyasaresultofthechangesinthefairvalueofavailable-for-salefixedrateinstruments.

DGCM’s net income sensitivity to interest rates has increased, and other comprehensive income sensitivity to interest rates has decreased, during the current period mainly due toshorteningthedurationoftheinvestmentportfolioto0.2years(2013:6.7years).


17.3.2 Credit risk managementCredit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financiallosstoDGCM.DGCM’sexposuretocreditriskconsistsprincipallyof:• fixedincomesecuritieswithfederal,provincialandmunicipalgovernments,andcorporations• guaranteedinvestmentcertificateswithCUCM• assessments receivable from credit unions

Measures are taken to mitigate each exposure to credit risk:• DGCM’s investment policy only permits holding marketable securities of counterparties with

an investment grade rating of at least A(low), or its equivalent. This information is supplied by independent rating agencies.

• DGCM’s policy is to limit investments in CUCM, to those, pledged as security for the line of credit agreement($10,000,000asatDecember31,2014).

• DGCMmonitorsthefinancialstrengthofindividualcreditunionsonamonthlybasis.

The table below shows the credit risk exposure, by credit rating, at the end of the reporting period using DBRS’ credit rating symbols:


Credit rating AAA 163,342,243 101,065,450 AA 36,245,316 56,139,912 A 35,859,831 49,117,947

235,447,390 206,323,309

Unrated CUCM 10,106,583 10,059,048

245,553,973 216,382,357

Assessmentsreceivablefromcreditunionsareunrated.Significantlyalloftheoutstandingbalancesarecollectedwithin31daysofyear-end.Historically,DGCMhasnotexperiencedbaddebtsrelatedtoany of these counterparties.

The table below shows the credit risk exposure, by issuer, at the end of the reporting period:


Government 163,063,498 160,998,986 Corporate 82,490,475 55,383,371

245,553,973 216,382,357



17.3.3 Liquidity risk managementLiquidityriskistheriskofhavinginsufficientfinancialresourcestomeetDGCM’scashandfundingrequirementsin support of the guarantee of deposits in credit unions. DGCM’s approach to manage its liquidity risk is to ensure, asfaraspossible,thatitwillhavecash,demandandguaranteedinvestmentcertificates,andmarketablesecuritieswhich meet its annual capital target.

• Management expects that DGCM’s principal sources of funds will be cash generated from credit union regular assessmentsandinterestearnedonitsinvestmentstosupportitsfinancialobligationtoguaranteedepositsincredit unions.

• A$10,000,000lineofcreditissecuredwithCUCMtomeetanyshort-termdeficienciesinregularassessmentsand interest earned.

• In the event that the investment portfolio must be drawn upon, DGCM’s policy is that all investments are easily disposable in the secondary bond market.

ThefollowingtabledetailsDGCM’sexpectedmaturityforitsfinancialassetsandfinancialliabilities.Thetablehasbeendrawnupbasedontheundiscountedcontractualmaturitiesofthefinancialassetsandfinancialliabilitiesincluding interest that will be earned on those assets and liabilities.


Financial assets Lessthanthreemonths 174,804,160 732,739| Threetosixmonths 28,471,167 2,522,031 Sixmonthstooneyear 20,327,311 1,005,106 Onetofiveyears 22,966,267 103,801,951 Overfiveyears – 109,053,269

246,568,905 217,115,096

Financial liabilities Allfinancialliabilitiesareduewithinoneyear.


17.3.4 Fair value of financial instruments17.3.4.1 Fair value of financial instruments carried at amortized cost

DGCMconsidersthatthecarryingamountsoffinancialassetsandfinancialliabilitiesrecognizedatamortizedcostinthefinancialstatementsapproximatetheirfairvalues.

17.3.4.2 Valuation techniques and assumptions applied for the purposes of measuring fair valueDGCMhascategorizeditsassetsandliabilitiesthatarecarriedatfairvalueonarecurringbasis,based on the priority of the inputs to the valuation techniques used to measure fair value, into a threelevelfairvaluehierarchy.Financialassetsandfinanacialliabilitiesmeasuredatfairvalueonarecurringbasisonthebalancesheetarecategorizedasfollows:

Level 1:Fairvaluemeasurementsutilizeobservable,quotedprices(unadjusted)inactivemarketsforidenticalassetsorliabilitiesthatDGCMhastheabilitytoaccess.AssetsutilizingLevel1inputsinclude cash and treasury bills.

Level 2:FairvaluemeasurementsutilizeinputsotherthanquotedpricesincludedinLevel1thatareobservable for the asset or liability, either directly or indirectly. Level 2 assets include government bonds and corporate bonds, which use quoted prices for similar assets and liabilities in active markets as inputsforvaluation.Level2assetsalsoincludeguaranteedinvestmentcertificates,whichuseinterestrates and yield curves that are observed at commonly quoted intervals as inputs for valuations.

Level 3:Fairvaluemeasurementsutilizeoneormoresignificantinputsthatarenotbasedonobservable market inputs and include situations where there is little, if any, market activity for the assetorliability.AssetsutilizingLevel3arelimitedtootherinvestmentsandareheldatcost,whichhave been determined as representing fair value at the end of the reporting period.

The following table presents DGCM’s assets and liabilities that are carried at fair value on a recurringbasis.TherewerenotransfersbetweenLevel1,Level2,andLevel3,norweretherechangestotheLevel3assetsinthecurrentyear;thereforeacontinuityschedulehasnotbeenprovided.

As at December 31, 2013 Level 1 Level 2 Level 3 Total

Assets measured at fair value Cash 732,739 – – 732,739 Government bonds – 160,998,986 – 160,998,986 Corporatebonds – 45,324,323 – 45,324,323 Guaranteedinvestmentcertificates – 10,059,048 – 10,059,048 Other investments – – 72,260 72,260

Total assets measured at fair value on a recurring basis 732,739 216,382,357 72,260 217,187,356 As at December 31, 2014 Level 1 Level 2 Level 3 Total

Assets measured at fair value Cash 1,014,932 – – 1,014,932 Treasury Bills 95,524,896 – – 95,524,896 Governmentbonds – 67,538,602 – 67,538,602 Corporatebonds – 72,383,892 – 72,383,892 Guaranteedinvestmentcertificates – 10,106,583 – 10,106,583 Other investments – – 72,260 72,260

Total assets measured at fair value on a recurring basis 96,539,828 150,029,077 72,260 246,641,165 Liabilities measured at fair value There are no liabilities carried at fair value on a recurring basis.



18.0 Related party transactions18.1 Loans to related parties

KeymanagementpersonnelaredefinedastheChiefExecutiveOfficer,ChiefRiskOfficer,ChiefFinancialOfficer,andChiefOperationsOfficer.

DGCM provides interest free loans to employees for:• medicalequipmentnotcoveredundertheinsuredbenefitspackageandnecessaryforeffectiveperformance

of their duties• computerequipmentfortheemployee’sownuseandconsistentwiththetechnologyutilizedbyDGCM

Themaximumloansizeis$7,500,repayablebypayrolldeductionoveramaximumperiodofthreeyears.

Outstandingloanstokeymanagementpersonnelattheendof2014were$1,846(2013:$3,289).

18.2 Compensation of key management personnelThe remuneration of key management personnel is determined by the Board of Directors. The aggregate remuneration of key management personnel during the year was as follows:


Salaries 722,192 690,371 Short-termbenefits 37,693 36,668 Post-employmentbenefits 98,035 59,058

857,920 786,097

18.3 Board members’ remuneration and expenses

The remuneration of the Board of Directors is determined by the Lieutenant Governor in Council. The remuneration of board members during the year was as follows:


Board member remuneration 116,796 128,926 Expenses 67,816 85,932

184,612 214,858

19.0 Operating lease arrangements19.1 Lease arrangements

DGCMisthelesseeonanoperatingleaserelatedtoasix-yearagreementforofficespace.ThisagreementexpiresonDecember31,2018.DGCMhastheoptiontorenewtheleaseforoneadditionaltermoffiveyearsatthe expiration of the existing term.

DGCM is the lessee on operating leases related to four-year agreements for two corporate vehicles. The leases willexpireFebruary5,2016andFebruary23,2017.DGCMhastheoptiontopurchasetheleasedvehicles.


19.2 Payments recognized as an expenseDGCMrecognized$185,017(2013:$173,812)inleasepaymentsfortheyear.

19.3 Non-cancellable operating lease commitmentsAs at December 31 2014 2013

No later than one year 189,197 179,822 Laterthanoneyearandnotlaterthanfiveyears 551,598 740,279 Laterthanfiveyears – –

740,795 920,101

Noliabilitieshavebeenrecognizedinrespectofnon-cancellableoperatingleasecommitments.



Schedule of Consolidated Operating Expenses (in Canadian dollars)


Salariesandemployeebenefits 3,081,528 2,766,444

Contractstaff 41,409 72,110

CUCM – program funding 250,425 246,929

Stafftravel 192,067 171,990

Stafftraining 110,296 76,109

Occupancy 343,278 326,552

Office 216,556 248,142

Professional services 111,971 133,690

Investment management fees 146,475 121,989

Special projects 67,706 23,563

Board members’ remuneration and expenses (Note 18) 184,612 214,858

Depreciation 192,825 190,533

4,939,148 4,592,909

Bonding administration recovery (32,430) (6,837 )

4,906,718 4,586,072


The Public Interest Disclosure Act

Information Required Annually (per Section 18 of the Act)

Fiscal Year 2014

The number of disclosures received, and the number acted on and not acted on. Subsection 18(2)(a)

Nil

The number of investigations commenced as a result of a disclosure. Subsection 18(2)(b)

Nil

Inthecaseofaninvestigationthatresultsinafindingofwrongdoing,adescriptionofthewrongdoing and any recommendations or corrective actions taken in relation to the wrongdoing, or the reasons why no corrective action was taken. Subsection 18(2)(c)

Nil

The Deposit Guarantee Corporation of Manitoba (DGCM) is designated as a government body for purposes of the Public Interest Disclosure (Whistleblower Protection) Act (the Act). The Act requires that government bodies disclose, in their annual reports, any activities regulated by this legislation.The Act cameintoeffectinApril2007.Thislawgivesemployeesaclearprocessfordisclosingconcernsaboutsignificantandserious matters (wrongdoing) in the Manitoba public service sector, and strengthens protection from reprisal. The Act builds on protections already in place under other statutes, as well as collective bargaining rights, policies, practices and processes in the Manitoba public service.

Wrongdoing under the Act may be: contravention of federal or provincial legislation; an act or omission that endangers public safety, public health, or the environment; gross mismanagement; or, knowingly directing or counseling a person to commit a wrongdoing. The Act is not intended to deal with routine operational or administrative matters.

A disclosure made by an employee in good faith, in accordance with the Act, and with a reasonable belief that wrongdoing has been or is about to be committed is considered to be a disclosure under the Act, whether or not the subject matter constitutes wrongdoing. All disclosures receive careful and thorough review to determine if action is required under the Act, and must be reported in a department’s annual report in accordance with Section 18 of the Act.

ThefollowingisasummaryofdisclosuresreceivedbyDGCMforthefiscalyearendedDecember31,2014:

The Public Interest Disclosure (Whistleblower Protection) Act

DEPOSIT GUARANTEE CORPORATION OF MANITOBA 390–200GrahamAvenue Winnipeg,ManitobaR3C4L5 Phone: (204) 942-8480 Fax:(204)947-1723 Toll Free: 1 (800) 697-4447 www.depositguarantee.mb.ca

2014 deposit guarantee corporation of manitoba annual report

Documents