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CASERA CREDIT UNION LIMITED

Financial StatementsFor the year ended December 31, 2014

CASERA CREDIT UNION LIMITED

Financial StatementsFor the year ended December 31, 2014

Contents

Independent Auditor's Report 2

Financial Statements

Balance Sheet 3

Statement of Comprehensive Income 4

Statement of Changes in Members' Equity 5

Statement of Cash Flows 6

Notes to Financial Statements

1. Nature of Operations and Summary of Significant Accounting Policies 7

2. Critical Accounting Estimates and Judgments 14

3. Funds on Hand and on Deposit 15

4. Other Assets 15

5. Investments 16

6. Loans to Members 17

7. Allowance for Impaired Loans 19

8. Property, Plant and Equipment 22

9. Intangible Assets 23

10. Borrowings 23

11. Other Liabilities 23

12. Members' Deposits 24

13. Pension Plan 24

14. Income Taxes 25

15. Members' Shares 26

16. Other Income 28

17. Personnel Expenses 28

18. Administrative Expenses 28

19. Related Party Transactions 29

20. Financial Instrument Classification 30

21. Fair Value Measurement 30

22. Financial Instrument Risk Management 33

23. Capital Management 39

24. Commitments 40

CASERA CREDIT UNION LIMITEDStatement of Comprehensive Income

For the year ended December 31 2014 2013

RevenueInterest on loans to members

Lines of credit $ 904,633 $ 819,023Term loans 1,835,813 1,872,827Real estate 8,768,085 8,963,910

Investment incomeLiquidity deposits 418,228 500,502CUCM shares 37,717 44,878Debenture 40,461 40,275

12,004,937 12,241,415

Cost of FundsInterest paid to members 6,254,557 6,396,780Interest on borrowings 124,950 456,664

6,379,507 6,853,444

Gross financial margin 5,625,430 5,387,971

Operating ExpensesPersonnel (Note 17) 2,577,593 2,497,872Administrative (Note 18) 1,831,010 1,761,588Occupancy 1,066,172 1,007,993Members' security 323,981 339,490Organizational 219,646 231,758Distributions to members (Note 15) 3,871 1,869

Gross operating expenses 6,022,273 5,840,570

Less other income (Note 16) 2,670,770 2,570,951

3,351,503 3,269,619

Gross operating income 2,273,927 2,118,352

Provision for impaired loans (Note 7) 80,043 64,268

Income before income taxes 2,193,884 2,054,084

Provision for income taxes (Note 14) 300,545 445,132

Net and total comprehensive income for the year $ 1,893,339 $ 1,608,952

The accompanying notes are an integral part of these financial statements. 4

CASERA CREDIT UNION LIMITEDStatement of Changes in Members' Equity

For the year ended December 31, 2014

Members'Shares

RetainedEarnings Total

Balance on December 31, 2012 $ 2,009,372 $ 13,697,223 $ 15,706,595

Net income for the year - 1,608,952 1,608,952

Distributions to members (Note 15) - (102,131) (102,131)

Issue of members' shares 1,000,277 - 1,000,277

Redemption of members' shares (387,951) - (387,951)

Transfer from liabilities 582,935 - 582,935

Balance on December 31, 2013 3,204,633 15,204,044 18,408,677

Net income for the year - 1,893,339 1,893,339

Distributions to members (Note 15) - (130,129) (130,129)

Issue of members' shares 1,051,693 - 1,051,693

Redemption of members' shares (273,461) - (273,461)

Transfer to liabilities (55,632) - (55,632)

Balance on December 31, 2014 $ 3,927,233 $ 16,967,254 $ 20,894,487


CASERA CREDIT UNION LIMITED Statement of Cash Flows

For the year ended December 31 2014 2013

Cash Flows from Operating ActivitiesNet income for the year $ 1,893,339 $ 1,608,952Adjustments for

Interest and investment revenue (12,004,937) (12,241,415)Interest expense 6,379,507 6,853,444Depreciation expense 399,595 397,524Provision for impaired loans 80,043 64,268Gain on disposal of property, plant and equipment (252) (400)Deferred taxes (9,000) 150,000

(3,261,705) (3,167,627)

Change in other assets and liabilities 61,560 (220,023)Change in income taxes payable (122,422) 277,167

(60,862) 57,144Changes in member activities (net)

Change in loans to members (9,918,594) (16,792,849)Change in members' deposits 17,226,312 11,253,632

7,307,718 (5,539,217)Cash flows related to interest, dividends, and income taxes

Interest received on loans to members 11,508,723 11,613,010Interest received on investments 477,322 605,970Interest paid on members' deposits (6,090,301) (6,622,463)Interest paid on borrowings (124,950) (456,664)Income taxes paid - (3,174)

5,770,794 5,136,679

Total cash flows from operating activities 9,755,945 (3,513,021)

Cash Flows from Investing ActivitiesRedemption of investments 18,915 329,670Purchase of property, plant and equipment (94,427) (203,646)Purchase of intangible assets (210,647) (87,629)Proceeds on disposal of property, plant and equipment 252 400

Total cash flows from investing activities (285,907) 38,795

Cash Flows from Financing ActivitiesIssue of common, surplus and preference shares 1,051,693 1,000,277Redemption of common and surplus shares (273,461) (387,951)Dividends on shares (130,129) (102,131)

Total cash flows from financing activities 648,103 510,195

Net increase (decrease) in cash and cash equivalents 10,118,141 (2,964,031)

Cash and cash equivalents, beginning of year 15,782,313 18,746,344

Cash and cash equivalents, end of year $ 25,900,454 $ 15,782,313

Comprised of the following:Funds on hand and on deposit $ 3,738,861 $ 3,563,248Credit Union Central of Manitoba Liquidity deposits 25,000,000 24,500,000Credit Union Central of Manitoba borrowings (2,838,407) (12,280,935)

$ 25,900,454 $ 15,782,313


CASERA CREDIT UNION LIMITEDNotes to Financial Statements


1. Nature of Operations and Summary of Significant Accounting Policies

Reporting Entity

Casera Credit Union Limited (the "Credit Union") is incorporated under The Credit Unions andCaisses Populaires Act of the Province of Manitoba ("The Act") and is a member of Credit UnionCentral of Manitoba ("CUCM"). The Credit Union operates as one operating segment in the loansand deposit taking industry in Manitoba. Products and services offered to its members includeconsumer and commercial loans and mortgages, chequing and savings accounts, term deposits,registered deposits, automated teller machines ("ATMs"), debit and credit cards, Internet bankingand the sale of mutual funds. The Credit Union has three branches located in Winnipeg. The CreditUnion's head office is located at 1300 Plessis Road, Winnipeg, Manitoba.

These financial statements have been authorized for issue by the Board of Directors on March 30,2015.

Basis of Presentation

These financial statements have been prepared in accordance with International Financial ReportingStandards ("IFRS") as issued by the International Accounting Standards Board (the "IASB").

These financial statements were prepared under the historical cost convention, as modified by therevaluation of available-for-sale financial assets and derivative financial instruments measured at fairvalue.

The Credit Union’s functional and presentation currency is the Canadian dollar.

The preparation of financial statements in compliance with IFRS requires management to makecertain critical accounting estimates. It also requires management to exercise judgment in applyingthe Credit Union’s accounting policies. The areas involving a higher degree of judgment orcomplexity, or areas where assumptions and estimates are significant to the financial statements aredisclosed in Note 2.

Significant Accounting Policies

Cash and Cash Equivalents

For the purpose of the statement of cash flows, cash and cash equivalents includes cash on handand current accounts with CUCM and term deposits held with CUCM for liquidity purposes lessborrowings that are repayable on demand.

Cash and cash equivalents are classified as loans and receivables and are carried at amortizedcost, which is equivalent to fair value.

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1. Nature of Operations and Summary of Significant Accounting Policies (continued)

Other Assets

Accounts receivable are classified as loans and receivables and are initially measured at fair valuenet of any transaction costs directly attributable to the issuance of the instrument and subsequentlycarried at amortized cost using the effective interest rate method, less any impairment losses, whichapproximates fair value.

Investments

CUCM - Liquidity Deposits

These deposit instruments are classified as loans and receivables and are initially measured at fairvalue plus transaction costs that are directly attributable to their acquisition. Subsequently they arecarried at amortized cost, which approximates fair value.

CUCM - Shares

These instruments are classified as available-for-sale and are initially recognized at fair value plustransaction costs that are directly attributable to their acquisition. Subsequently they are carried atfair value, unless they do not have a quoted market price in an active market and fair value is notreliably determinable in which case they are carried at cost.

Changes in fair value, except for those arising from interest calculated using the effective interestrate, are recognized as a separate component of other comprehensive income.

Where there is a significant or prolonged decline in the fair value of an equity instrument, whichconstitutes objective evidence of impairment, the full amount of the impairment, including anyamount previously recognized in other comprehensive income, is recognized in net income.

Purchases and sales of equity instruments are recognized on settlement date with any change in fairvalue between trade date and settlement date being recognized in accumulated othercomprehensive income.

On sale, the amount held in accumulated other comprehensive income associated with thatinstrument is removed from equity and recognized in net income.

Other

These investments are classified as held to maturity as they are considered non-derivative financialassets with fixed or determinable payments and fixed maturities that the Credit Union's managementhas the positive intention and ability to hold to maturity. These instruments are initially measured atfair value plus transaction costs that are directly attributable to their acquisition. Subsequently theyare carried at amortized cost, using the effective interest rate method.

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Loans to Members

All loans to members are non-derivative financial assets with fixed or determinable payments thatare not quoted in an active market and have been classified as loans and receivables.

Loans to members are initially measured at fair value, net of loan origination fees and inclusive oftransaction costs incurred.

Loans to members are subsequently measured at amortized cost, using the effective interest ratemethod, less any impairment losses.

Loans to members are reported at their recoverable amount representing the aggregate amount ofprincipal, less any allowance or provision for impaired loans plus accrued interest. Interest isaccounted for on the accrual basis for all loans.

If there is objective evidence that an impairment loss on loans to members carried at amortized costhas been incurred, the amount of the loss is measured as the difference between the loans carryingamount and the present value of expected cash flows discounted at the loans original effectiveinterest rate. Short-term balances are not discounted.

The Credit Union first assesses whether objective evidence of impairment exists individually forfinancial assets that are individually significant.

If it is determined that no objective evidence of impairment exists for an individually assessedfinancial asset, whether significant or not, the asset is included in a group of financial assets withsimilar credit risk characteristics and that group of financial assets is collectively assessed forimpairment. Assets that are individually assessed for impairment and for which an impairment loss isor continues to be recognized are not included in a collective assessment of impairment. Theexpected future cash outflows for a group of financial assets with similar credit risk characteristicsare estimated based on historical loss experience.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can berelated objectively to an event occurring after the impairment was recognized, the previouslyrecognized impairment loss is reversed. Any subsequent reversal of an impairment loss isrecognized in net income.

Bad Debts Written Off

Bad debts are written off from time to time as determined by management and approved by theBoard of Directors when it is reasonable to expect that the recovery of the debt is unlikely. Bad debtsare written off against the provisions for impairment, if a provision for impairment had previouslybeen recognized. If no provision had been recognized, the write offs are recognized as expensesagainst the current year net income.

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Loan Securitization

Loans are derecognized only when the contractual rights to receive the cash flows from these assetshave ceased to exist or substantially all the risks and rewards of the loans have been transferred.

Property, Plant and Equipment

Property, plant and equipment is initially recorded at cost and subsequently measured at cost lessaccumulated depreciation and any accumulated impairment losses, with the exception of land whichis not depreciated. Depreciation is recognized in net income and is provided on a straight-line basisover the estimated useful life of the assets as follows:

Buildings 40 yearsFurniture and equipment Up to 10 yearsComputer equipment 5 yearsSecurity equipment Up to 40 yearsSignage 10 yearsLeasehold improvements 15 years

Leasehold improvements are amortized over the remaining life of the lease.

Depreciation methods, useful lives and residual values are reviewed annually and adjusted ifnecessary.

Intangible Assets

Intangible assets consist of computer software which are not integral to the computer hardwareowned by the Credit Union. Software is initially recorded at cost and subsequently measured at costless accumulated amortization and any accumulated impairment losses. Software is amortized on astraight-line basis over its estimated useful life up to 10 years.

Impairment of Non-Financial Assets

Non-financial assets are subject to impairment tests whenever events or changes in circumstancesindicate that their carrying amount may not be recoverable. Where the carrying value of an assetexceeds its recoverable amount, which is the higher of value in use and fair value less costs to sell,the asset is written down accordingly.

Where it is not possible to estimate the recoverable amount of an individual asset, the impairmenttest is carried out on the asset's cash-generating unit, which is the lowest group of assets in whichthe asset belongs for which there are separately identifiable cash flows.

Impairment charges are included in net income, except to the extent they reverse gains previouslyrecognized in other comprehensive income.

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Income Taxes

Income tax expense comprises current and deferred income tax. Current and deferred income taxesare recognized in net income except to the extent that it relates to a business combination, or itemsrecognized directly in equity or in other comprehensive income.

Current income taxes are recognized for the estimated income taxes payable or receivable ontaxable income or loss for the current year and any adjustment to income taxes payable in respect ofprevious years. Current income taxes are measured at the amount expected to be recovered from orpaid to the taxation authorities. This amount is determined using tax rates and tax laws that havebeen enacted or substantively enacted by the year end date.

Deferred income tax assets and liabilities are recognized where the carrying amount of an asset orliability differs from its tax base.

Recognition of deferred income tax assets for unused tax losses, tax credits and deductibletemporary differences is restricted to those instances where it is probable that future taxable profitwill be available which allow the deferred income tax asset to be utilized. Deferred income tax assetsare reviewed at each reporting date and are reduced to the extent that it is no longer probable thatthe related tax benefit will be realized.

The amount of the deferred income tax asset or liability is measured at the amount expected to berecovered from or paid to the taxation authorities. This amount is determined using tax rates and taxlaws that have been enacted or substantively enacted by the year end date and are expected toapply when the liabilities / assets are settled / recovered.

Members' Deposits

All members' deposits are initially measured at fair value, net of any transaction costs directlyattributable to the issuance of the instrument.

Members' deposits are subsequently measured at amortized cost, using the effective interest ratemethod and have been classified as other liabilities.

Pension Plan

The Credit Union participates in a defined contribution pension plan recognizing contributions as anexpense in the year to which they relate as disclosed in Note 13.

Other Liabilities

Liabilities for trade creditors and other payables are classified as other financial liabilities and initiallymeasured at fair value net of any transaction costs directly attributable to the issuance of theinstrument and subsequently carried at amortized cost using the effective interest rate method,which approximates fair value.

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Provisions

Provisions are recognized for liabilities of uncertain timing or amount that have arisen as a result ofpast transactions, including legal or constructive obligations. The provision is measured at the bestestimate of the expenditure required to settle the obligation at the reporting date.

Members’ Shares

Members’ shares issued by the Credit Union are classified as equity only to the extent that they donot meet the definition of a financial liability or financial asset.

Shares that contain redemption features subject to the Credit Union maintaining adequate regulatorycapital are accounted for using the partial treatment requirements of the International FinancialReporting Interpretations Committee ("IFRIC") 2 - Members' Shares in Co-operative Entities andSimilar Instruments.

Revenue Recognition

Interest on loans is recorded using the effective interest method except for loans which areconsidered impaired. When a loan becomes impaired, recognition of interest income ceases whenthe carrying amount of the loan (including accrued interest) exceeds the estimated realizable amountof the underlying security. The amount of initial impairment and any subsequent changes arerecorded through the provision for impaired loans as an adjustment to the specific allowance.

Investment income is recorded using the effective interest method, except as it relates toadjustments in the rates received from CUCM, these are recorded when payment is received.

Commissions, service charges and other income are recognized as income when the related serviceis provided or entitlement to receive income is earned.

Leased Assets

Where substantially all of the risks and rewards incidental to ownership are not transferred to theCredit Union (an "operating lease"), the total rentals payable under the lease are charged to thestatement of comprehensive income on a straight-line basis over the lease term. The aggregatebenefit of lease incentives is recognized as a reduction of the rental expense over the lease term ona straight-line basis.

Where substantially all of the risks and rewards incidental to ownership of a leased asset have beentransferred to the Credit Union (a "finance lease"), the asset is treated as if it had been purchasedoutright.

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Foreign Currency Translation

Foreign currency accounts are translated into Canadian dollars as follows:

At the transaction date, each asset, liability, revenue and expense denominated in a foreign currencyis translated into Canadian dollars by the use of the exchange rate in effect at that date. At the yearend date, unsettled monetary assets and liabilities are translated into Canadian dollars by using theexchange rate in effect at the year end date and the related translation differences are recognized innet income. Exchange gains and losses arising on the translation of monetary available-for-salefinancial assets are treated as a separate component of the change in fair value and recognized innet income. Exchange gains and losses on non-monetary available-for-sale financial assets formpart of the overall gain or loss recognized in respect of that financial instrument.

Non-monetary assets and liabilities that are measured at historical cost are translated into Canadiandollars by using the exchange rate in effect at the date of the initial transaction and are notsubsequently restated. Non-monetary assets and liabilities that are measured at fair value or arevalued amount are translated into Canadian dollars by using the exchange rate in effect at thedate the value is determined and the related translation differences are recognized in net income orother comprehensive income consistent with where the gain or loss on the underlying non-monetaryasset or liability has been recognized.

Standards, Amendments and Interpretations Not Yet Effective

Accounting standards that have been issued but are not yet effective are listed below. The CreditUnion has not yet assessed the impact of these standards and amendments or determined whetherit will early adopt them.

i. Amendments to IAS 1 Presentation of Financial Statements

The amendments to IAS 1 are a part of a major initiative to improve disclosure requirements inIFRS financial statements. The amendments clarify the application of materiality to notedisclosure and the presentation of line items in the primary statements provide options on theordering of financial statements and additional guidance on the presentation of othercomprehensive income related to equity accounted investments. The effective date for theseamendments is January 1, 2016, with earlier application permitted.

ii. IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition andMeasurement

IFRS 9 amends the requirements for classification and measurement of financial assets,impairment, and hedge accounting. IFRS 9 introduces an expected loss model of impairment andretains but simplifies the mixed measurement model and establishes three primary measurementcategories for financial assets: amortized cost, fair value through profit or loss, and fair valuethrough other comprehensive income. The basis of classification depends on the entity'sbusiness model and the contractual cash flow characteristics of the financial asset. Entities arerequired to apply IFRS 9 for annual periods beginning on or after January 1, 2018, with earlierapplication permitted.

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Standards, Amendments and Interpretations Not Yet Effective (continued)

iii. Amendments to IFRS 7 Financial Instruments: Disclosures

This amendment aligns with the deferral of the effective date of IFRS 9. Instead of requiringrestatement of comparative financial statements, entities are either permitted or required toprovide modified disclosures on transition from IAS 39 to IFRS 9 on the basis of the entity's dateof adoption and if the entity chooses to restate prior periods. The amendment is effective forannual periods beginning on or after January 1, 2015.

iv. IFRS 15 Revenue from Contracts with Customers

IFRS 15 is based on the core principle to recognize revenue to depict the transfer of goods orservices to customers in an amount that reflects the consideration to which the entity expects tobe entitled in exchange for those goods or services. IFRS 15 focuses on the transfer of control.IFRS 15 replaces all of the revenue guidance that previously existed in IFRSs. Entities arerequired to apply IFRS 15 for annual periods beginning on or after January 1, 2017, with earlierapplication permitted.

2. Critical Accounting Estimates and Judgments

The Credit Union makes estimates and assumptions about the future that affect the reportedamounts of assets and liabilities. Estimates and judgments are continually evaluated based onhistorical experience and other factors, including expectations of future events that are believed tobe reasonable under the circumstances. In the future, actual experience may differ from theseestimates and assumptions.

The effect of a change in an accounting estimate is recognized prospectively by including it incomprehensive income in the period of the change, if the change affects that period only; or in theperiod of the change and future periods, if the change affects both.

The estimates and assumptions that have a significant risk of causing material adjustment to thecarrying amounts of assets and liabilities within the next financial year are discussed below.

Fair Value of Financial Instruments

The Credit Union determines the fair value of financial instruments that are not quoted in an activemarket, using valuation techniques. Those techniques are significantly affected by the assumptionsused, including discount rates and estimates of future cash flows. In that regard, the derived fairvalue estimates cannot always be substantiated by comparison with independent markets and, inmany cases, may not be capable of being realized immediately.

The methods and assumptions applied, and the valuation techniques used, are disclosed in Note 21.

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2. Critical Accounting Estimates and Judgments (continued)

Provision for Impaired Loans

In determining whether an impairment loss should be recorded in the statement of comprehensiveincome the Credit Union makes judgment on whether objective evidence of impairment existsindividually for financial assets that are individually significant. Where this does not exist the CreditUnion uses its judgment to group loans to members with similar credit risk characteristics to allow acollective assessment of the group to determine any impairment loss.

In determining the collective loan loss provision, management uses estimates based on historicalloss experience over a 5 year period for assets with similar credit risk characteristics and objectiveevidence of impairment. Further details on the estimates used to determine the allowance forimpaired loans collective provision are provided in Note 7.

Income Taxes

The Credit Union periodically assesses its liabilities and contingencies related to income taxes for allyears open to audit based on the latest information available. For matters where it is probable thatan adjustment will be made, the Credit Union records its best estimate of the income tax liabilityincluding the related interest and penalties in the current tax provision. Management believes theyhave adequately provided for the probable outcome of these matters; however, the final outcomemay result in a materially different outcome than the amount included in the tax liabilities.

Property, Plant and Equipment

The estimated useful life, residual value and depreciation method chosen are the Credit Union’s bestestimate of such and are based on industry norms, historical experience of management and otherestimates. These estimates also consider the period and distribution of future cash inflows.

Readers are cautioned that this list is not exhaustive and other items may also be affected byestimates and judgments.

3. Funds on Hand and on Deposit

The Credit Union's cash and current accounts are held with CUCM. The average yield on theaccounts at December 31, 2014 is 1.10% (2013 - 1.03%).

Included in funds on hand and on deposit is cash in CUCM of $2,005,134 (2013 - $2,062,446)denominated in US dollars.

4. Other Assets2014 2013

Accounts receivable $ 244,938 $ 198,222Prepaid expenses 932,411 1,005,191

$ 1,177,349 $ 1,203,413

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5. Investments

Credit Union Central of Manitoba

Liquidity Deposits2014 2013

Contract deposits $ 25,000,000 $ 24,500,000Accrued interest receivable 19,833 628

$ 25,019,833 $ 24,500,628

The term deposits with CUCM bear interest at rates ranging from 1.17% to 1.21% (2013 - 1.10% to1.12%) and have original maturity dates of 120 days or less.

Shares2014 2013

CUCM - Class 1 shares $ 1,189,175 $ 1,282,680CUCM - Class 2 shares 115,575 40,985Other investments 20 20

$ 1,304,770 $ 1,323,685

The shares in CUCM are required as a condition of membership and are redeemable uponwithdrawal of membership or at the discretion of the Board of Directors of CUCM. In addition, themember credit unions are subject to additional capital calls at the discretion of the Board of Directorsof CUCM.

Class 1 and 2 CUCM shares are subject to a rebalancing mechanism at least annually and areissued and redeemable at par value. There is no separately quoted market value for these shares.However, fair value is determined to be equivalent to par value due to the fact that transactionsoccur at par value on a regular and recurring basis.

The Credit Union is not intending to dispose of any CUCM shares as the services supplied by CUCMare relevant to the day to day activities of the Credit Union.

Dividends on these shares are at the discretion of the Board of Directors of CUCM.

Debenture2014 2013

Concentra Financial DebentureInterest at 4.05% payable quarterly, due November 15, 2022 $ 1,000,000 $ 1,000,000

Accrued interest receivable 3,218 3,333

$ 1,003,218 $ 1,003,333

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6. Loans to Members2014 2013

ConsumerTerm loans $ 27,871,086 $ 30,492,489Real estate 245,689,129 231,686,615Lines of credit 20,169,307 21,571,143

CommercialTerm loans 5,150,414 5,657,562Real estate 11,045,808 10,631,847

309,925,744 300,039,656

Accrued interest receivable 404,865 405,057

310,330,609 300,444,713

Allowance for impaired loans 182,411 134,867

Net loans to members $ 310,148,198 $ 300,309,846

Consumer real estate loans are loans secured by residential property and are generally repayablemonthly with either blended payments of principal and interest or interest only.

Consumer term loans consist of loans that are non real estate secured and, as such, have variousrepayment terms. They are secured by various types of collateral, including charges on specificequipment or personal property, investments and supported by personal guarantees.

Commercial loans consist of term loans, operating lines of credit and mortgages to individuals,partnerships and corporations, and have various repayment terms. They are secured by varioustypes of collateral, including mortgages on real property, general security agreements, charges onspecific equipment, investments, and supported by personal guarantees.

Credit Quality of Loans

It is not practical to value all collateral as at the balance sheet date due to the variety of assets andconditions. A breakdown of the loans by security held is shown as follows:

2014 2013

Unsecured loans $ 25,678,013 $ 29,102,226Loans secured by cash or members' deposits 614,379 464,379Loans secured by real property 191,668,587 183,561,442Loans secured by chattels 12,506,376 11,494,372Commercial loans insured by government 432,010 717,464Residential mortgages insured by government 79,026,379 74,699,773

$ 309,925,744 $ 300,039,656

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6. Loans to Members (continued)

Concentration of Risk

The Credit Union has an exposure to groupings of individual loans which concentrate risk and createexposure to particular segments as noted below.

Individual or related groups of loans to members which exceed 10% of members' equity as atDecember 31, 2014 or December 31, 2013:

2014 2013

Commercial loans $ 2,193,333 $ 5,942,623

As at December 31, 2014, the Credit Union held $9,404,909 (2013 - $9,208,880) in outstandingcommercial loans relating to the real estate, rental, and leasing industry and $4,207,142(2013 - $4,467,153) relating to the retail trade industry. The Credit Union also held $2,076,158(2013 - $2,034,240) in commercial loans relating to residential building construction. Various othercategories make up the remainder of $508,013.

The majority of loans to members are with members located in and around Winnipeg, Manitoba. Asizeable portfolio of the Credit Union's loan portfolio is secured by residential property in Winnipeg,Manitoba. Therefore, the Credit Union is exposed to the risks in reduction of the loan to valuationratio coverage should the property market be subject to a decline. The risk of losses from loansundertaken is primarily reduced by the nature and quality of the security taken.

Securitizations

During December 2013, the Credit Union transferred financial assets in their entirety, but hascontinuing involvement in those financial assets. Continuing involvement largely arises fromprocessing, administering, servicing and holding loans secured by real property in trust. Thecarrying amount of the loan portfolio derecognized is $18,591,310 (2013 - $24,687,556), whichwould be required to be paid should the Credit Union decide to repurchase the derecognizedfinancial assets. The fair market value of the loan portfolio derecognized is $18,728,823 atDecember 31, 2014 (2013 - $24,886,033).

In the current year, the Credit Union recognized income of $124,835 (2013 - $6,557) and a notionalexpense of $86,306 (2013 - $4,455) from the administration of the loan portfolio. Since inception, theCredit Union recognized, in aggregate, income of $131,392 and expense of $90,761.

The Credit Union is not exposed to significant loss as a result of the transfer of the financial assets.

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7. Allowance for Impaired Loans

Total allowance for impaired loans is comprised of:2014 2013

Collective allowance $ 76,794 $ 93,676Specific allowance 105,617 41,191

Total allowance $ 182,411 $ 134,867

During the years ended December 31, 2014 and 2013, the Credit Union did not acquire any assetsin respect of non-performing loans.

Movement in individual specific and collective allowance for impairment is as follows:

2014

Consumer Commercial Total

Balance at January 1, 2014 $ 81,419 $ 53,448 $ 134,867Provision for impaired loans (recovery) 87,768 (7,725) 80,043

169,187 45,723 214,910

Loans written off (32,499) - (32,499)

Balance at December 31, 2014 $ 136,688 $ 45,723 $ 182,411

Gross principal balance of individually impaired loans $ 438,269 $ - $ 438,269

2013

Consumer Commercial Total

Balance at January 1, 2013 $ 93,904 $ 124,503 $ 218,407Provision for impaired loans 8,652 55,616 64,268

102,556 180,119 282,675

Loans written off (21,137) (126,671) (147,808)

Balance at December 31, 2013 $ 81,419 $ 53,448 $ 134,867

Gross principal balance of individually impaired loans $ 676,072 $ - $ 676,072

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7. Allowance for Impaired Loans (continued)

An analysis of individual loans that are impaired or potentially impaired based on period ofdelinquency is as follows:

2014 2013Carrying

ValueSpecific

AllowanceCarrying

ValueSpecific

AllowancePeriod of delinquency

Less than 30 days $ 288,508 $ 43,836 $ - $ -31 to 90 days 34,928 28,085 15,067 8,912Greater than 90 days 114,833 33,696 661,005 32,279

Total impaired loans in arrears 438,269 105,617 676,072 41,191

Total impaired loans not in arrears - - - -

Total impaired loans $ 438,269 $ 105,617 $ 676,072 $ 41,191

Key Assumptions in Determining the Allowance for Impaired Loans Collective Allowance

The Credit Union has determined the likely impairment loss on loans which have not maintained theloan repayments in accordance with the loan contract, or where there is other evidence of potentialimpairment such as industrial restructuring, job losses or economic circumstances. In identifying theimpairment likely from these events the Credit Union estimates the potential impairment using theloan type, industry, geographical location, type of loan security, the length of time the loans are pastdue and the historical loss experience. The circumstances may vary for each loan over time,resulting in higher or lower impairment losses. The methodology and assumptions used forestimating future cash flows are reviewed regularly by the Credit Union to reduce any differencesbetween loss estimates and actual loss experience.

An estimate of the collective allowance is based on the period of repayments that are past due andhistorical write-offs over a 5 year period.

For purposes of the collective allowance, loans are classified into separate groups with similar riskcharacteristics, based on the type of product and type of security.

20



7. Allowance for Impaired Loans (continued)

Loans with repayments past due but not regarded as individually impaired and considered indetermining the collective allowance are as follows:

2014Consumer Commercial Total

1 to 30 days $ 6,382,627 $ 277,143 $ 6,659,77031 to 90 days 570,833 - 570,833Greater than 90 days - - -

Balance at December 31, 2014 $ 6,953,460 $ 277,143 $ 7,230,603

2013Consumer Commercial Total

1 to 30 days $ 4,731,080 $ - $ 4,731,08031 to 90 days 268,456 - 268,456Greater than 90 days 5,640 - 5,640

Balance at December 31, 2013 $ 5,005,176 $ - $ 5,005,176

21



8. Property, Plant and Equipment

Land Buildings

Furnitureand

EquipmentComputer

EquipmentSecurity

Equipment Signage

LeaseholdImprove-

mentsProjects in

process TotalCost

Balance on January 1, 2013 $ 40,724 $ 1,573,687 $ 1,293,499 $ 297,370 $ 336,673 $ 296,886 $ 1,032,501 $ - $ 4,871,340Additions - 43,114 1,718 8,082 2,657 - - 148,075 203,646Disposals - - - (6,430) - - - - (6,430)

Balance on December 31, 2013 40,724 1,616,801 1,295,217 299,022 339,330 296,886 1,032,501 148,075 5,068,556Additions - 35,757 - 4,146 1,882 - - 200,717 242,502Disposals / Transfers - - - - - - - (148,075) (148,075)

Balance on December 31, 2014 $ 40,724 $ 1,652,558 $ 1,295,217 $ 303,168 $ 341,212 $ 296,886 $ 1,032,501 $ 200,717 $ 5,162,983

Accumulated Depreciation

Balance on January 1, 2013 $ - $ 1,153,817 $ 710,579 $ 251,769 $ 183,569 $ 182,611 $ 555,157 $ - $ 3,037,502Depreciation expense - 56,187 97,666 23,377 10,949 29,467 59,261 - 276,907Disposals - - - (6,430) - - - - (6,430)

Balance on December 31, 2013 - 1,210,004 808,245 268,716 194,518 212,078 614,418 - 3,307,979Depreciation expense - 59,954 83,591 17,610 11,069 29,467 59,261 - 260,952

Balance on December 31, 2014 $ - $ 1,269,958 $ 891,836 $ 286,326 $ 205,587 $ 241,545 $ 673,679 $ - $ 3,568,931

Net Book Value

December 31, 2013 $ 40,724 $ 406,797 $ 486,972 $ 30,306 $ 144,812 $ 84,808 $ 418,083 $ 148,075 $ 1,760,577

December 31, 2014 $ 40,724 $ 382,600 $ 403,381 $ 16,842 $ 135,625 $ 55,341 $ 358,822 $ 200,717 $ 1,594,052

22



9. Intangible AssetsComputerSoftware

CostBalance on January 1, 2013 $ 1,074,204

Additions 87,629

Balance on December 31, 2013 1,161,833Additions 210,647

Balance on December 31, 2014 $ 1,372,480

Accumulated DepreciationBalance on January 1, 2013 $ 370,318

Depreciation expense 120,617

Balance on December 31, 2013 490,935Depreciation expense 138,643

Balance on December 31, 2014 $ 629,578

Net Book Value

December 31, 2013 $ 670,898

December 31, 2014 $ 742,902

10. Borrowings

The Credit Union has approved lines of credit with CUCM equal to 10% of its members' deposits thatbear interest at prime with effective rate of 3.00% at December 31, 2014. For the current year, thisamounts to $32.0 million. These accommodations are secured by an assignment of shares anddeposits in CUCM and a general assignment of loans receivable from members.

11. Other Liabilities2014 2013

Trade accounts and accrued expenses $ 624,109 $ 570,156Certified cheques, money orders

and travellers' cheques outstanding 1,689 20,146

$ 625,798 $ 590,302

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12. Members' Deposits2014 2013

Chequing accounts $ 32,650,997 $ 31,022,178Savings accounts 70,534,937 69,745,769Term deposits 114,965,189 109,559,289Registered retirement savings plans 50,049,062 47,519,602Registered retirement income funds 26,486,735 24,806,204Tax free savings account 22,347,559 17,155,125

317,034,479 299,808,167

Accrued interest payable 2,694,246 2,529,990

$ 319,728,725 $ 302,338,157

Included in chequing deposits is an amount of $2,115,171 to be settled in US dollars atDecember 31, 2014 (2013 - $2,226,460).

Concentration of Risk

The Credit Union has an exposure to groupings of individual deposits which concentrate risk andcreate exposure to particular segments.

There were no individual or related groups of members' deposits which exceed 2% of members'deposits as at December 31, 2014 or December 31, 2013.

The majority of members' deposits are with members located in and around Winnipeg, Manitoba.

13. Pension Plan

The Credit Union has a defined contribution pension plan for full-time employees. The contributionsare held in trust by the Cooperative Superannuation Society Limited and are not recorded in thesefinancial statements. The Credit Union matches employee contributions at a rate of 6% of theemployee salary. The expense for the year ended December 31, 2014 was $109,380 (2013 -$111,080). As a defined contribution pension plan, the Credit Union has no further liability orobligation for future contributions to fund benefits earned in 2014 for plan members.

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14. Income Taxes

The significant components of income tax expense included in net income are composed of:

2014 2013Current income tax expense

Based on current year taxable income $ 309,545 $ 295,132

Deferred income tax expenseOrigination and reversal of temporary differences (9,000) (36,000)Change in tax rate applied to deferred tax components - 186,000

(9,000) 150,000

Total income tax expense $ 300,545 $ 445,132

The total provision for income taxes in the statement of comprehensive income is at a rate less thanthe combined federal and provincial statutory income tax rates for the following reasons:

2014 2013% %

Combined federal and provincial statutory income tax rates 27.0 27.0Credit Union rate reduction (14.7) (15.5)Change in tax rate applied to deferred tax components - 9.1Provincial Profits tax 0.8 0.8Tax savings on distribution (0.8) (0.6)Non-deductible and other items 1.4 0.9

13.7 21.7

The tax effects of temporary differences which give rise to the net future income tax liability is relatedto the amortization of property, plant and equipment, mortgage cash back program and theallowance for impaired loans.

The movement in deferred income tax liabilities and assets are as follows:2014

Balance atDecember 31

2013

Recognize in Net

Income

Reclassifyfrom

Equity to Net Income


2014Deferred income tax liabilities

Property, plant and equipment $ 231,747 $ 35,730 $ - $ 267,477Mortgage cash back program 158,441 (42,526) 115,915Other 16,454 (921) - 15,533

406,642 (7,717) - 398,925Deferred income tax assets

Allowance for impaired loans 3,642 1,283 - 4,925

Net deferred income tax liability $ 403,000 $ (9,000) $ - $ 394,000

25



14. Income Taxes (continued)

2013

Balance atJanuary 1

2013

Recognizein Net

Income

Reclassifyfrom

Equity toNet Income


2013Deferred income tax liabilities

Property, plant and equipment $ 115,027 $ 116,720 $ - $ 231,747Mortgage cash back program 131,843 26,598 - 158,441Other 8,533 7,921 - 16,454

255,403 151,239 - 406,642Deferred income tax assets

Allowance for impaired loans 2,403 1,239 - 3,642

Net deferred income tax liability $ 253,000 $ 150,000 $ - $ 403,000

2014 2013

Deferred income tax liabilitiesDeferred income tax liabilities to be settled within 12 months $ 79,000 $ 71,018Deferred income tax liabilities to be settled after more than

12 months 320,000 335,624399,000 406,642

Deferred income tax assetsDeferred income tax assets to be recovered within 12 months 5,000 3,642

Net deferred income tax liability $ 394,000 $ 403,000

15. Members' Shares

2014 2013Shares Authorized Issued Equity Liability Equity Liability

Common Unlimited 384,520 $ 1,886,945 $ 35,654 $ 1,848,841 $ 37,505

Surplus Unlimited 866,175 777,868 88,307 796,292 86,775Class "A"

preference shares 1,000,000 137,837 1,262,420 55,950 559,500 -

$ 3,927,233 $ 179,911 $ 3,204,633 $ 124,280

Shares are recognized as a liability, equity or compound instrument based on the terms and inaccordance with IAS 32 - Financial Instrument Presentation and IFRIC 2 - Members' Shares in Co-operative Entities and Similar Instruments. If they are classified as members' equity, they arerecognized at cost. If they are recognized as liability, they are initially recognized at fair value net ofany transaction costs directly attributable to the issuance of the instrument and subsequently carriedat amortized cost using the effective interest rate method.

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15. Members' Shares (continued)

Terms and Conditions

Common Shares

As a condition of membership, which is required to use the services of the Credit Union, eachmember is required to hold a $5 members' share. These members' shares are redeemable at paronly when a membership is withdrawn. Dividends are at the discretion of the Board of Directors.

Funds invested by members in members' shares are not insured by Deposit Guarantee Corporationof Manitoba. The withdrawal of members' shares is subject to the Credit Union maintaining adequateregulatory capital. The total share balance will not be reduced below the previous year end balanceor below 2% of the Credit Union's assets, whichever is the lesser.

Members' shares that are available for redemption are classified as a liability. The differencebetween the total members' shares and the liability amount are classified as members' equity.

Surplus Shares

Surplus shares are issued as part of patronage rebates. They are non-voting, can be issued only tomembers of the Credit Union with an issue price of $1, and are redeemable at par at the option ofthe Credit Union. There is no limit on the number of shares which can be held by a member. Thewithdrawal of surplus shares is subject to the Credit Union maintaining adequate regulatory capital,as is the payment of any distributions on these shares. The total amount of surplus sharespurchased or redeemed by the Credit Union in a fiscal year shall not be greater than 10% of thenumber of shares of such class issued and outstanding as at the last fiscal year end or reduce theCredit Union's members' equity below 5% of assets.

Surplus shares that are available for redemption are classified as a liability. The difference betweenthe total surplus shares and the liability amount are classified as members' equity

Class "A" Preference Shares

All Class "A" preference shares must be issued to members of the Credit Union with an issue priceof $10. No member can hold more than 2,500 of the total number of issued and outstanding Class"A" preference shares. Dividends on the Class "A" preference shares are non-cumulative and will bedetermined by the Board of Directors at a rate not less than the first year rate of the latest issue ofCanada Savings Bonds at the dividend declaration date. The total amount of preference sharespurchased or redeemed by the Credit Union in a fiscal year shall not be greater than 10% of thenumber of shares of such class issued and outstanding as at the last fiscal year end or reduce theCredit Union's members' equity below 5% of assets.

Class "A" preference shares that are available for redemption are classified as a liability. Thedifference between the total class "A" preference shares and the liability amount are classified asmembers' equity

27



15. Members' Shares (continued)

Distributions to Members

The Board of Directors have declared dividends on common and Class "A" preference shares of$134,000 ($104,000 in 2013) of which $3,871 ($1,869 in 2013) has been presented as operatingexpenses on the statement of comprehensive income and $130,129 ($102,131 in 2013) has beenpresented as a reduction of equity on the statement of changes in members' equity. Tax savings of$17,532 ($13,131 in 2013) have been applied to reduce current income tax expense on thestatement of comprehensive income.

16. Other Income2014 2013

Commissions $ 768,202 $ 633,832Foreign exchange 101,496 91,288Prepayment penalty 143,848 289,802Rent (net) 36,028 37,525Service charges 1,131,048 1,166,377Other 490,148 352,127

$ 2,670,770 $ 2,570,951

17. Personnel Expenses

2014 2013

Salaries and wages $ 2,143,850 $ 2,043,472Employee benefits 355,200 352,070Other 78,543 102,330

$ 2,577,593 $ 2,497,872

18. Administrative Expenses2014 2013

Advertising and promotion $ 131,840 $ 131,680Chattel registration and mortgage expense 143,731 140,803Data processing fees, clearing and service charges 902,555 853,252Repairs and maintenance 55,376 44,090Printing, postage, supplies and stationery 156,962 159,078Professional fees 117,101 112,046Telephone 77,029 73,297Travel 11,292 10,402Other 235,124 236,940

$ 1,831,010 $ 1,761,588

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19. Related Party Transactions

Key management personnel are those persons having authority and responsibility for planning,directing and controlling the activities of the Credit Union, directly or indirectly. Key managementpersonnel have been taken to comprise the directors and members of management responsible forthe day to day financial and operational management of the Credit Union.

The aggregate compensation of key management personnel during the year was as follows:

2014 2013Compensation

Salaries, and other short-term employee benefits $ 608,412 $ 487,860Total pension and other post-employment benefits 32,321 25,590

$ 640,733 $ 513,450

Included in compensation above are the following payments to the directors and officers of theCredit Union for expenses associated with the performance of their duties:

2014 2013

Honouraria and per diems $ 42,108 $ 37,908Training and conference costs 20,745 11,765

$ 62,853 $ 49,673

Details of loans to key management personnel are as follows:2014 2013

Loans to key management personnelAggregate value of loans outstanding $ 1,445,110 $ 1,176,457Interest received on loans advanced 36,956 28,176Total value of lines of credit advanced 626,800 606,300Interest received on lines of credit advanced 6,343 7,228Unused value of lines of credit 299,278 349,047

The Credit Union’s policy for lending to key management personnel is that the loans are approvedwith a slightly preferential term than those applied to members for each class of loan.

Deposits from key management personnel are as follows:2014 2013

Deposits from key management personnelAggregate value of term and savings accounts $ 2,342,376 $ 2,924,239Interest paid on term and savings accounts 56,402 69,171

The Credit Union’s policy for receiving deposits from key management personnel is that alltransactions are approved and deposits accepted with a slightly preferential term than those appliedto members for each type of deposit.

29



20. Financial Instrument Classification

The carrying amount of the Credit Union's financial instruments by classification is as follows:

Available-for-Sale

Held toMaturity

Loans andReceivables

OtherFinancial

Liabilities Total(in thousands)December 31, 2014

Funds on hand and on deposit $ - $ - $ 3,739 $ - $ 3,739Accounts receivable - - 245 - 245Investments (Note 5) 1,305 1,003 25,020 - 27,328Loans to members - - 310,148 - 310,148Borrowings - - - (2,838) (2,838)Other liabilities - - - (626) (626)Members' deposits - - - (319,729) (319,729)Members' shares - - - (180) (180)

$ 1,305 $ 1,003 $ 339,152 $ (323,373)$ 18,087

December 31, 2013Funds on hand and on deposit $ - $ - $ 3,563 $ - $ 3,563Accounts receivable - - 198 - 198Investments (Note 5) 1,324 1,003 24,501 - 26,828Loans to members - - 300,310 - 300,310Borrowings - - - (12,281) (12,281)Other liabilities - - - (590) (590)Members' deposits - - - (302,338) (302,338)Members' shares - - - (124) (124)

$ 1,324 $ 1,003 $ 328,572 $ (315,333)$ 15,566

21. Fair Value Measurement

Assets and liabilities that are measured at fair value in the balance sheet are grouped into threelevels of a fair value hierarchy. Following is an analysis of assets and liabilities that are measuredsubsequent to initial recognition at fair value, grouped into levels 1 to 3 based on the degree towhich the fair value is observable:

Level 1 fair value measurements are those derived from quoted prices (unadjusted) in activemarkets for identical assets or liabilities using the last bid price. There are no assets or liabilitiesmeasured at fair value classified as Level 1.

Level 2 fair value measurements are those derived from inputs other than quoted pricesincluded within Level 1 that are observable for the asset or liability, either directly (i.e., asprices) or indirectly (i.e., derived from prices). Assets measured at fair value and classified asLevel 2 include investment in shares.

Level 3 fair value measurements are those derived from valuation techniques that includeinputs for the asset or liability that are not based on observable market data (unobservableinputs). There are no assets or liabilities measured at fair value classified as Level 3.

30



21. Fair Value Measurement (continued)

There were no transfers between levels for the years ended December 31, 2014 and 2013.

Valuation Process Applied

The following table sets out the valuation technique used in determination of fair values within level 2including the key inputs used:

Assets or Liabilities Valuation Approach and Inputs Used

CUCM and Concentrashares

Class 1 and 2 CUCM shares are subject to a rebalancing mechanism and areissued and redeemable at par value. There is no separately quoted market valuefor these shares. However, fair value is determined to be equivalent to the parvalue due to the fact that transactions occur at par value on a regular andrecurring basis.

Concentra shares are held at their carrying amount which is deemed toapproximate fair value.

The following table sets out the assets and liabilities for which fair values are disclosed in the notesto the financial statements as at December 31, 2014.

Assets or Liabilities Valuation Technique Significant Unobservable Inputs

Funds on hand and ondeposit

The carrying amount of the funds on hand andon deposit approximates their fair value.

-

Other assets The carrying amount of short-term tradereceivables (less than 12 months)approximates their fair value.

-

Liquidity deposits The fair value of liquidity deposits is calculatedbased on the present value of future cashflows. To determine present value, future cashflows are discounted by the current rate curveby which the asset or liability is originallypriced.

Discount spot rates vary between1.10% and 1.12% based onmaturity date of the deposits.

Concentra debenture The fair value of the Concentra debenture iscalculated using the discounted future cashflow model.

Market rate of 4.05%.

Loans to members The fair value of loans to members iscalculated based on the present value of futurecash flows. To determine present value, futurecash flows are discounted by the current ratecurve by which the asset or liability is originallypriced.

Discount spot rates range from2.70% to 18% based on maturitydate of the loans.

Borrowings The fair value of borrowings are calculatedusing the discounted cash flow model.

Discount rate of 3%.

31



21. Fair Value Measurement (continued)

Assets or Liabilities Valuation Technique Significant Unobservable Inputs

Other liabilities The carrying amount of short-term otherliabilities (less than 12 months) approximatestheir fair value.

-

Members' deposits The fair value of members' deposits iscalculated based on the present value of futurecash flows. To determine present value, futurecash flows are discounted by the current ratecurve by which the asset or liability is originallypriced.

Discount spot rates range from0.10% to 2.75% based on renewaldate of the deposits.

Members' shares The carrying amount of members' sharesapproximate their fair value.

-

The following table represents the fair values of on and off balance sheet financial instruments of theCredit Union. In addition, the value of intangibles such as long-term member relationships are notincluded in the fair value amounts. The Credit Union considers the value of intangibles to besignificant.

2014 2013

Book Value Fair ValueExcess over

Book Value Book Value Fair ValueExcess over

Book Value(in thousands)Assets

Funds on hand and ondeposit $ 3,739 $ 3,739 $ - $ 3,563 $ 3,563 $ -

Accounts receivable 245 245 - 198 198 -Investments 27,328 27,324 (4) 26,828 26,836 8Loans to members 310,148 312,626 2,478 300,310 302,865 2,555

$ 341,460 $ 343,934 $ 2,474 $ 330,899 $ 333,462 $ 2,563Liabilities

Borrowings $ 2,838 $ 2,835 $ (3) $ 12,281 $ 12,274 $ (7)Other liabilities 626 626 - 590 590 -Members' deposits 319,729 320,347 618 302,338 302,843 505Members' shares 180 180 - 124 124 -

$ 323,373 $ 323,988 $ 615 $ 315,333 $ 315,831 $ 498

Interest rate sensitivity is the main cause of changes in the fair value of the Credit Union's financialinstruments. The book values are generally not adjusted to reflect the fair value, as it is the CreditUnion's intention to realize their value over time by holding them to maturity.

32



22. Financial Instrument Risk Management

General Objectives, Policies and Processes

The Board of Directors has overall responsibility for the determination of the Credit Union's riskmanagement objectives and policies and, while retaining ultimate responsibility for them, it hasdelegated the authority for designing and operating processes that ensure effective implementationof the objectives and policies to the Credit Union's finance function. The Board of Directors receivesquarterly reports from the Credit Union's Chief Executive Officer through which it reviews theeffectiveness of the processes put in place and the appropriateness of the objectives and policies itsets.

Credit Risk

Credit risk is the risk of financial loss to the Credit Union if a counterparty to a financial instrumentfails to make payments of interest and principal when due. The Credit Union is exposed to credit riskfrom claims against a debtor or indirectly from claims against a guarantor of credit obligations.

Risk Measurement

Credit risk rating systems are designed to assess and quantify the risk inherent in credit activities inan accurate and consistent manner. To assess credit risk, the Credit Union takes into considerationthe member's character, ability to pay, and value of collateral available to secure the loan.

Objectives, Policies and Procedures

The Credit Union's credit risk policies set out the minimum requirements for management of creditrisk in a variety of transactional and portfolio management contexts. Its credit risk policies comprisethe following:

General loan policy statements including approval of lending policies, eligibility for loans,exceptions to policy, policy violations, liquidity, loan administration, credit concentration limits,and risk rating;

Loan lending limits including Board of Directors limits, schedule of assigned limits andexemptions from aggregate indebtedness;

Loan collateral security classifications which set loan classifications, advance ratios anddepreciation periods;

Procedures outlining loan overdrafts, release or substitution of collateral, temporary suspensionof payments and loan renegotiations;

Loan delinquency controls regarding procedures followed for loans in arrears; and

Audit procedures and processes are in existence for the Credit Union's lending activities.

With respect to credit risk, the Board of Directors receives monthly reports summarizing new loans,delinquent loans and overdraft utilization. The Board of Directors also receives an analysis of baddebts and allowance for impaired loans quarterly.

33



22. Financial Instrument Risk Management (continued)

Maximum Exposure to Credit Risk

The Credit Union's maximum exposure to credit risk without taking account of any collateral or othercredit enhancements is as follows:

2014 2013

Carrying Maximum MaximumValue Exposure Exposure

CUCM deposits $ 25,000,000 $ 25,000,000 $ 24,500,000Loans to members 310,148,198 310,148,198 300,309,846Undisbursed loans - 3,808,970 7,169,865Unutilized lines of credit - 17,680,157 17,686,250Unexpired letters of credit - 48,500 48,500

$ 335,148,198 $ 356,685,825 $ 349,714,461

Details regarding concentration of credit risk, collateral and other credit enhancements held andloans past due but not impaired are disclosed in Notes 6 and 7.

For the current year, the amount of financial assets that would otherwise be past due or impairedwhose terms have been renegotiated is $NIL.

There have been no significant changes from the previous year in the exposure to risk or policies,procedures and methods used to measure the risk.

Liquidity Risk

Liquidity risk is the risk that the Credit Union will not be able to meet all cash outflow obligations asthey come due. The Credit Union mitigates this risk by monitoring cash activities and expectedoutflows so as to meet all cash outflow obligations as they fall due.

Risk Measurement

The assessment of the Credit Union's liquidity position reflects management's estimates,assumptions and judgments pertaining to current and prospective firm specific and marketconditions and the related behaviour of its members and counterparties.

34





The Credit Union's liquidity management framework is designed to ensure that adequate sources ofreliable and cost effective cash or its equivalents are continually available to satisfy its current andprospective financial commitments under normal and contemplated stress conditions.

Provisions of The Act require the Credit Union to maintain liquid assets of at least 8% of members'deposits and borrowings in order to meet member withdrawals.

The Credit Union manages liquidity risk by:

Continuously monitoring actual daily cash flows and longer term forecasted cash flows;

Monitoring the maturity profiles of financial assets and liabilities;

Maintaining adequate reserves, liquidity support facilities and reserve borrowing facilities; and

Monitoring the liquidity ratios monthly.

The Board of Directors receives monthly liquidity reports as well as information regarding cashbalances in order for it to monitor the Credit Union's liquidity framework. The Credit Union was incompliance with the liquidity requirements throughout the fiscal year.

As at December 31, 2014, the position of the Credit Union is as follows:

Qualifying liquid assets on handFunds on hand and on deposit $ 3,738,861CUCM deposits 25,019,833

28,758,694

Total liquidity requirement 25,805,371

Excess liquidity $ 2,953,323

35




The following are the contractual maturities of financial liabilities, including estimated interestpayments:

2014

GrossNominal

Carrying Cash Less than Greater thanAmount Outflow 1 Year 1 - 3 years 4 - 5 years 5 years

(in thousands)

Borrowings $ 2,838 $ (2,838) $ (2,838) $ - $ - $ -Other liabilities 626 (626) (626) - - -Members' deposits 319,729 (325,114) (210,886) (104,699) (9,505) (24)Members' shares 180 (180) - - - (180)Undisbursed loans - (3,809) (3,809) - - -Unutilized lines of credit - (17,680) (17,680) - - -

$ 323,373 $ (350,247) $ (235,839) $ (104,699) $ (9,505) $ (204)

2013

GrossNominal

Carrying Cash Less than Greater thanAmount Outflow 1 Year 1 - 3 years 4 - 5 years 5 years

(in thousands)

Borrowings $ 12,281 $ (12,281) $ (12,281) $ - $ - $ -Other liabilities 590 (590) (590) - - -Members' deposits 302,338 (307,527) (214,731) (83,772) (8,708) (316)Members' shares 124 (124) - - - (124)Undisbursed loans - (7,170) (7,170) - - -Unutilized lines of credit - (17,686) (17,686) - - -

$ 315,333 $ (345,378) $ (252,458) $ (83,772) $ (8,708) $ (440)

Timing of unutilized lines of credit and undisbursed loan payments are uncertain. Since thesepayouts are at the discretion of the members the entire amount of potential payments has beenincluded in less than 1 month.

The Credit Union has no material commitments for capital expenditures and there is no need forsuch expenditures in the normal course of business.


Market Risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate asa result of market factors. Market factors include three types of risk: interest rate risk, currency risk,and equity risk.

36




Interest Rate Risk

Interest rate risk is the potential for financial loss caused by fluctuations in fair value or future cashflows of financial instruments because of changes in market interest rates. The Credit Union isexposed to this risk through traditional banking activities, such as deposit taking and lending.

The Credit Union's goal is to manage the interest rate risk of the balance sheet to a target level. TheCredit Union continually monitors the effectiveness of its interest rate mitigation activities.

Risk Measurement

The Credit Union's position is measured monthly. Measurement of risk is based on rates charged tomembers.


The Credit Union's major source of income is financial margin, the difference between interestearned on investments and loans to members and interest paid on members' deposits. The objectiveof asset/liability management is to match interest sensitive assets with interest sensitive liabilities asto amount and as to term to their interest rate repricing dates, thus minimizing fluctuations of incomeduring periods of changing interest rates.

Schedules of matching and interest rate vulnerability are prepared monthly and monitored by CreditUnion management and reported to the Board of Directors. A copy of the matching and interest ratevulnerability reports are provided to the Deposit Guarantee Corporation of Manitoba in accordancewith the Credit Union's matching policy. This policy has been approved by the Board of Directors asrequired by Regulations to The Act. For the years ended December 31, 2014 and 2013, the CreditUnion was in compliance with this policy.

The following schedule shows the Credit Union's sensitivity to interest rate changes. A significantamount of loans and deposits can be settled before maturity on payment of a penalty, but noadjustment has been made for repayments that may occur prior to maturity.

37




Maturity Dates Assets Yield (%) Liabilities Cost (%)Asset /

Liability Gap

(in thousands)Interest sensitive

Variable $ 51,931 4.39 $ 78,526 1.15 $ (26,595)0 - 6 months 62,705 2.74 93,600 2.38 (30,895)7 - 12 months 48,612 3.88 56,278 2.47 (7,666)1 - 2 years 50,479 3.91 38,824 1.28 11,6552 - 3 years 68,379 3.44 9,687 2.74 58,6923 - 4 years 47,239 3.41 10,070 2.95 37,169Greater than 5 years 7,781 3.75 210 2.76 7,571

Interest sensitive 337,126 287,195 49,931

Non-interest sensitive 7,603 57,534 (49,931)

Total $ 344,729 $ 344,729 $ -

Interest sensitive assets and liabilities cannot normally be perfectly matched by amount and term tomaturity. One of the roles of a credit union is to intermediate between the expectations of borrowersand depositors.

An analysis of the Credit Union's risk due to changes in interest rates was calculated using financialmodelling software and determined that an increase in interest rates of 1% could result in adecrease to net income of $548,473 while a decrease in interest rates of 1% could result in anincrease to net income of $141,894.


Currency Risk

Currency exchange risk relates to the Credit Union operating in different currencies and convertingnon Canadian earnings at different points in time at different foreign exchange levels when adversechanges in foreign currency exchange rates occur.

The Credit Union’s foreign exchange risk is related to US dollar deposits denominated in US dollars.Foreign currency changes are continually monitored by the Investment Committee for effectivenessof its foreign exchange mitigation activities and holdings are adjusted when offside of the investmentpolicy.

Risk Measurement

The Credit Union's position is measured weekly. Measurement of risk is based on rates charged tomembers as well as currency purchase costs.

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The Credit Union's exposure to changes in currency exchange rates shall be controlled by limitingthe unhedged foreign currency exposure to $250,000 in US funds.

For the year ended December 31, 2014, the Credit Union's exposure to currency risk is within policy.


23. Capital Management

The Credit Union’s objectives with respect to capital management are to maintain a capital base thatis structured to exceed regulatory requirements and to best utilize capital allocations.

Regulations under The Act require that the Credit Union establish and maintain a level of capital thatmeets or exceeds the following:

Total members' equity as shown on the balance sheet shall not be less than 5% of the bookvalue of all assets;

Retained earnings shall not be less than 3% of the book value of assets; and

Capital calculated in accordance with The Act shall not be less than 8% of the risk weightedvalue of its assets.

The Credit Union considers its capital to include members' shares (common shares and surplusshares), and retained earnings. There have been no changes in what the Credit Union considers tobe its capital since the previous period.

2014 2013

Members' shares $ 4,107,144 $ 3,328,913Retained earnings 16,967,254 15,204,044

$ 21,074,398 $ 18,532,957

The Credit Union establishes the risk weighted value of its assets in accordance with Regulations toThe Act which establishes the applicable percentage for each class of assets. The Credit Union'srisk weighted value of its assets as at December 31, 2014 was $127,988,943 (2013 - $127,840,023).

As at December 31, 2014, the Credit Union met the capital requirements of The Act with a calculatedmembers' equity ratio of 6.06% (2013 - 5.54%), a retained earnings ratio of 4.92% (2013 - 4.55%)and a risk weighted asset ratio of 15.96% (2013 - 14.23%).

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24. Commitments

Loans to Members

The Credit Union has the following commitments to its members at the year end date on account ofundisbursed loans, unused lines of credit and letters of credit:

Undisbursed loans $ 3,808,970Unutilized lines of credit 17,680,157Letters of credit 48,500

Contractual Obligations

Premises

The Credit Union has entered into operating leases for its premises. The following are the minimumlease payments for the next five years:

2015 $ 231,4192016 233,4232017 225,9422018 225,8512019 219,400

Other

Credit Union Central of Manitoba

The Credit Union is a member of CUCM, which provides banking and other services to CreditUnions in Manitoba. By nature of membership in CUCM, the Credit Union is obligated to payaffiliation dues which are based on membership and assets.

Deposit Guarantee Corporation of Manitoba

The Deposit Guarantee Corporation of Manitoba ("DGCM") is a deposit insurance corporation. Bylegal obligation under the Act, DGCM guarantees the deposits of all members of Manitoba CreditUnions/Caisse. By legislation, the Credit Union/Caisse pays a quarterly levy to DGCM based on apercentage of members' deposits.

Celero Solutions

The Credit Union has entered into an agreement with Celero Solutions to provide the delivery ofsome banking system services and the maintenance of the infrastructure needed to ensureuninterrupted delivery of such services. Celero Solutions is a company formed as a joint venture bythe Credit Union Centrals of Alberta, Saskatchewan and Manitoba along with Concentra Financialand Credit Union Electronic Transaction Services. The agreement has no fixed expiration date.

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