diamond north credit union consolidated financial statements · pdf fileconsolidated financial...

Diamond North Credit UnionConsolidated Financial Statements

December 31, 2016

Diamond North Credit UnionContents

For the year ended December 31, 2016

Page

Management's Responsibility

Auditors' Report

Consolidated Financial Statements

Consolidated Statement of Financial Position................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................1

Consolidated Statement of Comprehensive Income................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................2

Consolidated Statement of Changes in Members’ Equity................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................3

Consolidated Statement of Cash Flows................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................4

Notes to the Consolidated Financial Statements................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................5

Management's Responsibility

To the Members of Diamond North Credit Union:

Management is responsible for the preparation and presentation of the accompanying consolidated financial statements, including

responsibility for significant accounting judgments and estimates in accordance with International Financial Reporting Standards and

ensuring that all information in the annual report is consistent with the statements. This responsibility includes selecting appropriate

accounting principles and methods, and making decisions affecting the measurement of transactions in which objective judgment is

required.

In discharging its responsibilities for the integrity and fairness of the consolidated financial statements, management designs and

maintains the necessary accounting systems and related internal controls to provide reasonable assurance that transactions are

authorized, assets are safeguarded and financial records are properly maintained to provide reliable information for the preparation of

consolidated financial statements.

The Board of Directors and Audit Committee are composed entirely of Directors who are neither management nor employees of the

Credit Union. The Board is responsible for overseeing management in the performance of its financial reporting responsibilities, and for

approving the financial information included in the annual report. The Audit Committee has the responsibility of meeting with

management, internal auditors, and external auditors to discuss the internal controls over the financial reporting process, auditing

matters and financial reporting issues. The Committee is also responsible for recommending the appointment of the Credit Union's

external auditors.

MNP LLP is appointed by the members to audit the consolidated financial statements and report directly to them; their report follows. The

external auditors have full and free access to, and meet periodically and separately with, both the Committee and management to

discuss their audit findings.

February 27, 2017

brittani.eng

Text Box

Independent Auditors’ Report

To the Members of Diamond North Credit Union:

We have audited the accompanying consolidated financial statements of Diamond North Credit Union, which comprise the consolidated

statement of financial position as at December 31, 2016, and the consolidated statements of comprehensive income, changes in

members' equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory

information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with

International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the

preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in

accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements

and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from

material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial

statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement

of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal

control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit

procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the

entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of

accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Diamond North Credit

Union as at December 31, 2016 and its financial performance and cash flows for the year then ended in accordance with International

Financial Reporting Standards.

Saskatoon, Saskatchewan

February 27, 2017 Chartered Professional Accountants

119 4th Ave South, Suite 800, Saskatoon, Saskatchewan, S7K 5X2, Phone: (306) 665-6766, 1 (877)500-0778

Diamond North Credit UnionConsolidated Statement of Financial Position

As at December 31, 2016

2016 2015(In thousands) (In thousands)

AssetsCash and cash equivalents (Note 5) 21,423 33,297Investments (Note 6) 55,817 46,723Member loans receivable (Note 7) 348,733 329,672Other assets (Note 8) 391 558Property, plant and equipment (Note 9) 7,871 4,386

434,235 414,636

LiabilitiesMember deposits (Note 11) 395,464 378,496Other liabilities (Note 13) 3,388 3,311Membership shares (Note 14) 49 49

398,901 381,856

Commitments (Note 20)

Members' equityRetained earnings 35,334 32,780

434,235 414,636

Approved on behalf of the Board

Director Director

The accompanying notes are an integral part of these financial statements

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Diamond North Credit UnionConsolidated Statement of Comprehensive Income



Interest incomeMember loans 14,630 14,555Investments 1,420 1,249

16,050 15,804

Interest expenseMember deposits 4,201 4,258Patronage allocation (Note 15) 338 -Borrowed money 2 2

4,541 4,260

Gross financial margin 11,509 11,544Other income 3,234 3,483

14,743 15,027

Operating ExpensesPersonnel 6,824 6,952Security 381 361Organizational 239 256Occupancy 843 725General business 2,827 3,303

11,114 11,597

Income before provision for impaired loans and provision for (recovery of)income taxes 3,629 3,430Provision for impaired loans 592 397

Income before income taxes 3,037 3,033

Provision for (recovery of) income taxes (Note 12)Current 503 460Deferred (20) 29

483 489

Comprehensive income 2,554 2,544


2

Diamond North Credit UnionConsolidated Statement of Changes in Members’ Equity


Retainedearnings

Total equity

(in thousands)

Balance December 31, 2014 30,236 30,236






3

Diamond North Credit UnionConsolidated Statement of Cash Flows



Cash provided by (used for) the following activitiesOperating activities

Interest received from member loans 14,514 14,647Interest received from investments 1,344 1,216Other income 3,234 3,483Cash paid to suppliers and employees (10,559) (10,651)Interest paid on deposits (4,137) (4,083)Patronage to members (Note 15) (338) -Interest paid on borrowings (2) (2)Income taxes paid (456) (483)

3,600 4,127

Financing activitiesNet change in member deposits 16,904 15,442Net change in membership shares (Note 14) - (298)

16,904 15,144

Investing activitiesNet change in investments (9,020) (5,943)Net change in member loans receivable (19,537) (12,262)Purchases of property, plant and equipment (Note 9) (3,821) (1,816)

(32,378) (20,021)

Decrease in cash and cash equivalents (11,874) (750)Cash and cash equivalents, beginning of year 33,297 34,047

Cash and cash equivalents, end of year 21,423 33,297


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Diamond North Credit UnionNotes to the Consolidated Financial Statements


1. Reporting entity

Diamond North Credit Union (the “Credit Union”) was formed pursuant to The Credit Union Act, 1998 of Saskatchewan (“theAct”) and operates eight Credit Union branches.

The Credit Union serves members and non-members in Albertville, Arborfield, Carrot River, Choiceland, Nipawin, PrinceAlbert, White Fox, Zenon Park, and the surrounding communities. The address of the Credit Union’s registered office is100, 1st Avenue West, Nipawin, Saskatchewan.

The consolidated financial statements of the Credit Union as at and for the year ended December 31, 2016 comprise theCredit Union and its wholly owned subsidiary Diamond North Management Ltd. Together, these entities are referred to asthe Credit Union.

The Credit Union operates as one segment principally in personal and commercial banking in Saskatchewan. Operatingbranches are similar in terms of products and services provided, methods used to distribute products and services, types ofcustomers and the nature of the regulatory environment.

The Credit Union conducts its principal operations through various branches, offering products and services includingdeposit business, individual lending, and independent business and commercial lending. The deposit business provides awide range of deposit and investment products and sundry financial services to all members. The lending business providesa variety of credit products and services designed specifically for each particular group of borrowers. Other businesscomprises business of a corporate nature such as insurance, investment, risk management, asset liability management,treasury operations and revenue and expenses not expressly attributed to the business units.

Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards(“IFRS”) and interpretations adopted by the International Accounting Standards Board (“IASB”).

The consolidated financial statements were approved by the Board of Directors and authorized for issue on February 27,2017.

2. Change in accounting policies

Standards and Interpretations effective in the current period

The Credit Union adopted amendments to the following standards, effective January 1, 2016. Adoption of theseamendments had no effect on the Credit Union’s consolidated financial statements.

• IFRS 11 Joint arrangements

• IAS 1 Presentation of financial statements

3. Basis of preparation

Basis of measurement

The consolidated financial statements have been prepared using the historical basis except for the revaluation of certainfinancial instruments.

Functional and presentation currency

These consolidated financial statements are presented in Canadian dollars, which is the Credit Union’s functional currency.All financial information presented in Canadian dollars has been rounded to the nearest thousand.

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3. Basis of preparation (Continued from previous page)

Significant accounting judgments, estimates and assumptions

The preparation of the Credit Union’s consolidated financial statements requires management to make judgments,estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and thedisclosure of contingent liabilities, at the reporting date. However, uncertainties about these assumptions and estimatescould result in outcomes that would require a material adjustment to the carrying amount of the asset or liability affected inthe future.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates arerecognized in comprehensive income in the period in which the estimate is revised if revision affects only that period, or inthe period of the revision and future periods if the revision affects both current and future periods.

Key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date are discussedbelow.

Allowance for impaired loans

The Credit Union reviews its individually significant loans at each reporting date to assess whether an impairment lossshould be recognized. In particular, judgment by management is required in the estimation of the amount and timing offuture cash flows when determining the impairment loss.

In estimating these cash flows, the Credit Union makes judgments about the borrower’s financial situation and the netrealizable value of collateral. These estimates are based on assumptions about a number of factors and actual results maydiffer, resulting in future changes to the allowance.

Member loans receivable that have been assessed individually and found not to be impaired and all individually insignificantloans are assessed collectively, in groups of assets with similar risk characteristics, to determine whether provision shouldbe made due to incurred loss events for which there is objective evidence but whose effects are not yet evident. Thecollective provision assessment takes account of data from the loan portfolio such as credit quality, delinquency, historicalperformance and industry economic outlook. The impairment loss on member loans receivable is disclosed in more detail inNote 7.

Key assumptions in determining the allowance for impaired loans collective provision

The Credit Union has determined the likely impairment loss on loans which have not maintained loan repayments inaccordance with the loan contract, or where there is other evidence of potential impairment such as industrial restructuring,job losses or economic circumstances. In identifying the impairment likely from these events the Credit Union estimates thepotential impairment using loan type, industry, geographical location, type of loan security, 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 lowerimpairment losses. The methodology and assumptions used for estimating future cash flows are reviewed regularly toreduce any differences between loss estimates and actual loss experience.

For purposes of the collective provision, loans are classified into separate groups with similar risk characteristics, based onthe type of product and type of security.

Financial instruments not traded on active markets

For financial instruments not traded in active markets, fair values are determined using valuation techniques such as thediscounted cash flow model that rely on assumptions that are based on observable active markets or rates. Certainassumptions take into consideration liquidity risk, credit risk and volatility.

Impairment of non-financial assets

At each reporting date, the Credit Union assesses whether there are any indicators of impairment for non-financial assets.Non-financial assets that have an indefinite useful life or are not subject to amortization, such as goodwill, are testedannually for impairment or more frequently if impairment indicators exist. Other non-financial assets are tested forimpairment if there are indicators that their carrying amounts may not be recoverable.

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3. Basis of preparation (Continued from previous page)

Income taxes

The Credit Union periodically assesses its liabilities and contingencies related to income taxes for all years open to auditbased on the latest information available. For matters where it is probable that an adjustment will be made, the Credit Unionrecords its best estimate of the tax liability including the related interest and penalties in the current tax provision.Management believes that they have adequately provided for the probable outcome of these matters; however, the finaloutcome may result in a materially different outcome than the amount included in the tax liabilities.

Impairment of available-for-sale financial assets

Management determines when an available-for-sale financial asset is impaired in accordance with IAS 39 FinancialInstruments: Recognition and Measurement. This determination requires significant judgment. Management evaluates theduration and extent to which the fair value of an investment is less than its cost; and the financial health of and short-termbusiness outlook for the investee, including factors such as industry and sector performance, changes in technology andoperational and financing cash flow.

When the fair value declines, management makes assumptions about the decline in value to determine if it is an impairmentto be recognized in net income.

At December 31, 2016, no impairment losses have been recognized for available-for-sale assets (2015 - $nil). The carryingamount of available-for-sale assets is $5,642 (2015 - $5,420).

Deferred income taxes

The calculation of deferred income tax is based on assumptions, which are subject to uncertainty as to timing and which taxrates are expected to apply when temporary differences reverse. Deferred income tax recorded is also subject touncertainty regarding the magnitude of non-capital losses available for carry forward and of the balances in various taxpools as the corporate tax returns have not been prepared as of the date of financial statement preparation. By their nature,these estimates are subject to measurement uncertainty, and the effect on the consolidated financial statements fromchanges in such estimates in future years could be material. Further details are in Note 12.

Type of joint arrangement

The Credit Union determined that Credit Union Electronic Account Management Services ("CEAMS") is a joint venturebecause the venturers have rights to the net assets of the arrangement if the venture was liquidated.

Useful lives of property, plant and equipment

Estimates must be utilized in evaluating the useful lives of all property, plant and equipment for calculation of thedepreciation for each class of assets. For further discussion of the estimation of useful lives, refer to the heading property,plant and equipment contained in Note 4.

4. Summary of significant accounting policies

The principle accounting policies adopted in the preparation of the consolidated financial statements are set out below. Thepolicies have been consistently applied to all the years presented, unless otherwise stated.

Regulations to the Act specify that certain items are required to be disclosed in the financial statements which arepresented at annual meetings of members. It is management's opinion that the disclosures in these consolidated financialstatements and notes comply, in all material respects, with the requirements of the Act. Where necessary, reasonableestimates and interpretations have been made in presenting this information.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Credit Union and its subsidiary.

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4. Summary of significant accounting policies (Continued from previous page)

A subsidiary is an entity controlled by the Credit Union. Control is achieved where the Credit Union is exposed, or hasrights, to variable returns from its involvement with the investee and it has the ability to affect those returns through itspower over the investee. In assessing control, only rights which give the Credit Union the current ability to direct the relevantactivities and that the Credit Union has the practical ability to exercise, are considered.

The results of subsidiaries acquired or disposed of during the year are included in these consolidated financial statementsfrom the effective date of acquisition or up to the effective date of disposal, as appropriate.

The consolidated financial statements have been prepared using uniform accounting policies for like transactions and otherevents in similar circumstances. Where necessary, adjustments are made to the financial statements of subsidiaries toensure consistency with those used by other members of the group.

Any balances, unrealized gains and losses or income and expenses arising from intra-company transactions, are eliminatedupon consolidation. Unrealized gains arising from transactions with equity accounted investees are eliminated against theinvestment to the extent the Credit Union's interest in the investee. Unrealized losses are eliminated in the same manner asunrealized gains, but only to the extent that there is no evidence of impairment.

Foreign currency translation

Transactions denominated in foreign currencies are translated into the functional currency of the Credit Union at exchangerates prevailing at the transaction dates (spot exchange rates). Monetary assets and liabilities are retranslated at theexchange rates at the statement of financial position date. Exchange gains and losses on translation or settlement arerecognized in net income for the current period.

Non-monetary items that are measured at historical cost are translated using the exchange rates at the date of thetransaction and non-monetary items that are measured at fair value are translated using the exchange rates at the datewhen the items’ fair value was determined. Translation gains and losses are included in net income.

Revenue recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Credit Union and therevenue can be reliably measured. The following specific recognition criteria must also be met before revenue isrecognized:

Interest income is recognized in net income for all financial assets measured at amortized cost using the effective interestrate method. The effective interest rate is the rate that discounts estimated future cash flows through the expected life of thefinancial instrument back to the net carrying amount of the financial asset. The application of the method has the effect ofrecognizing revenue of the financial instrument evenly in proportion to the amount outstanding over the period to maturity orrepayment.

Interest penalties received as a result of loan prepayments by members are recognized as income in the year in which theprepayment is made, unless only minor modifications (based on a present value of future cash flows test) were made to theloan in which case they are deferred and amortized using the effective interest method.

Fees related to the origination or renewal of a loan are considered an integral part of the yield earned on a loan and arerecognized using the effective interest method over the estimated repayment term of the related loan.

Investment income is recognized as interest is earned on interest-bearing investments, and when dividends are declared onshares.

Investment security gains and losses are recognized in accordance with the requirements of their classification as outlinedfurther under the Financial Instruments policy note.

Loan syndication fees are recognized on completion of the syndication arrangement. Incremental direct costs for originatingor acquiring a loan are netted against origination fees.

Commission revenue is recognized net of broker commission expense as earned on the effective date of each policy.

Other revenue is recognized as services are provided to members.

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Financial instruments

Classification and measurement

All financial instruments are initially recognized at fair value at acquisition. Measurement in subsequent periods depends onwhether the financial instrument has been classified as fair value through profit or loss, available-for-sale, held-to-maturity,loans and receivables, or other financial liabilities as described below. Transactions to purchase or sell these items arerecorded on the settlement date. During the year, there has been no reclassification of financial instruments.

Financial instruments classified as fair value through profit or loss are measured at fair value with unrealized gains andlosses recognized through profit or loss. The Credit Union's financial instruments classified as fair value through profit orloss include cash and cash equivalents, derivative assets and liabilities, and line of credit.

Available-for-sale financial assets are measured at fair value with unrealized gains and losses recognized in othercomprehensive income. Certain equity instruments which do not trade in an open market and whose fair value cannot bereliably measured are recorded at cost. The Credit Union’s financial instruments classified as available-for-sale includeshares in SaskCentral and Concentra Financial and other equity investments.

Financial assets classified as held-to-maturity are subsequently measured at amortized cost using the effective interest ratemethod. The Credit Union's financial instruments classified as held-to-maturity include SaskCentral and Concentra Financialdeposits.

Financial assets classified as loans and receivables are subsequently measured at amortized cost. The Credit Union'sfinancial instruments classified as loans and receivables include all member loans receivable and accrued interest thereon,and other receivable balances.

Financial instruments classified as other financial liabilities include member deposits, accounts payable, and membershipshares. Other financial liabilities are subsequently carried at amortized cost.

Derecognition of financial assets

Derecognition of a financial asset occurs when:

• The Credit Union does not have rights to receive cash flows from the asset;

• The Credit Union has transferred its rights to receive cash flows from the asset or has assumed an obligation to

pay the received cash flows in full without material delay to a third party under a “pass-through" arrangement; and

either:

• The Credit Union has transferred substantially all the risks and rewards of the asset, or

• The Credit Union has neither transferred nor retained substantially all the risks and rewards of the asset,

but has transferred control of the asset.

When the Credit Union has transferred its rights to receive cash flows from an asset or has entered into a pass-througharrangement, and has neither transferred or retained substantially all of the risks and rewards of the asset nor transferredcontrol of the asset, the asset is recognized to the extent of the Credit Union’s continuing involvement in the asset. In thatcase, the Credit Union also recognizes an associated liability. The transferred asset and the associated liability aremeasured on a basis that reflects the rights and obligations that the Credit Union has retained.

A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expires. Where anexisting financial liability is replaced by another from the same lender on substantially different terms, or the terms of theexisting liability are substantially modified, such an exchange or modification is treated as a derecognition of the originalliability and the recognition of a new liability, and the difference in the respective carrying amount is recognized incomprehensive income.

The Credit Union designates certain financial assets upon initial recognition as at fair value through profit or loss (fair valueoption). Financial instruments in this category are the embedded derivatives.

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Derivative financial instruments

Derivative instruments are recorded at fair value, including those derivatives that are embedded in financial or non financialcontracts that are not closely related to the host contracts. Changes in the fair values of derivative instruments are recordedin comprehensive income.

Fair value measurements

The Credit Union classifies fair value measurements recognized in the statement of financial position using a three-tier fairvalue hierarchy, which prioritizes the inputs used in measuring fair value as follows:

• Level 1: Quoted prices (unadjusted) are available in active markets for identical assets or liabilities;

• Level 2: Inputs other than quoted prices in active markets that are observable for the asset or liability, either

directly or indirectly; and

• Level 3: Unobservable inputs in which there is little or no market data, which require the Credit Union to develop its

own assumptions.

Fair value measurements are classified in the fair value hierarchy based on the lowest level input that is significant to thatfair value measurement. This assessment requires judgment, considering factors specific to an asset or a liability and mayaffect placement within the fair value hierarchy.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, demand deposits and short-term highly liquid investments with originalmaturities of three months or less that are readily convertible into known amounts of cash and which are subject to aninsignificant risk of change in value. Cash and cash equivalents are shown net of bank overdrafts that are repayable ondemand and form an integral part of the Credit Union’s cash management system. Cash subject to restrictions that preventits use for current purposes is included in restricted cash.

Investments

Each investment is classified into one of the categories described under financial instruments. The classification dictatesthe accounting treatment for the carrying value and changes in that value. All investments are adjusted to recognize otherthan a temporary impairment in the underlying value.

SaskCentral and Concentra Financial deposits and shares

SaskCentral and Concentra Financial deposits are accounted for as held-to-maturity, adjusted to recognize other than atemporary impairment in the underlying value. Shares are accounted for as available-for-sale at cost, as no market existsfor these investments.

Portfolio investments

Investments in other equity instruments that do not have a quoted market price in an active market are classified asavailable-for- sale and measured at cost.

Member loans receivable

Loans are initially recognized at their fair value and subsequently measured at amortized cost. Amortized cost is calculatedas the loans’ principal amount, less any allowance for anticipated losses, plus accrued interest. Interest revenue is recordedon the accrual basis using the effective interest method. Loan administration fees are amortized over the term of the loanusing the effective interest method. The effective interest rate is the rate that exactly discounts the estimated future cashreceipts through the expected life of the financial asset to the carrying amount of the financial asset.

Allowance for loan impairment

Allowance for loan impairment represents specific and collective provisions established as a result of reviews of individualloans and groups of loans. In particular, judgment by management is required in the estimation of the amount and timing offuture cash flows when determining the impairment loss. In estimating these cash flows, the Credit Union makes judgmentsabout the credit worthiness of the borrower’s financial situation and the net realizable value of collateral. These estimatesare based on assumptions about a number of factors and actual results may differ, resulting in future changes to theallowance.

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Member loans receivable that have been assessed individually and found not to be impaired are then assessed collectively,in groups of assets with similar risk characteristics, to determine whether provision should be made due to incurred lossevents for which there is objective evidence but whose effects are not yet evident. The collective provision takes account ofdata from the loan portfolio and based on analysis of historical data, such as credit quality, levels of arrears, historicalperformance and economic outlook.

Individual allowances are established by reviewing the credit worthiness of individual borrowers and the value of thecollateral underlying the loan. Collective allowances are established by reviewing specific arrears and current economicconditions.

Restructured loans are not considered impaired where reasonable assurance exists that the borrower will meet the terms ofthe modified debt agreement. Restructured loans are defined as loans greater than 90 days delinquent that have beenrestructured outside the Credit Union’s normal lending practices as it relates to extensions, amendments andconsolidations.

Loans are classified as impaired, and a provision for loss is established, when there is no longer reasonable assurance ofthe timely collection of the full amount of principal or interest. It is the Credit Union’s policy that whenever a payment is 90days past due, loans are classified as impaired unless they are fully secured or collection efforts are reasonably expected toresult in repayment of the debt.

In such cases, a specific provision is established to write down the loan to the estimated future net cash flows from the loandiscounted at the loans’ original effective interest rate. In cases where it is impractical to estimate the future cash flows, thecarrying amount of the loan is reduced to its fair value calculated based on an observable market price. Any previouslyaccrued but unpaid interest on the loan is charged to the allowance for loan impairment. Interest income after theimpairment is recognized using the rate of interest used to discount the future cash flows for the purpose of measuring theimpairment loss.

Impairment of financial assets

For financial assets carried at amortized cost, the Credit Union first assesses individually whether objective evidence ofimpairment exists for financial assets that are significant, or collectively for financial assets that are not individuallysignificant. If the Credit Union determines that no objective evidence of impairment exists for an individually assessedfinancial asset, it includes the financial asset in a group of financial assets with similar credit risk characteristics andcollectively assesses them for impairment. Financial assets that are individually assessed for impairment and for which animpairment loss is, or continues to be, recognized are not included in a collective assessment for impairment.

If there is objective evidence that an impairment loss has occurred, the amount of the loss is measured as the differencebetween the asset’s carrying amount and the present value of estimated future cash flows. The carrying amount of thefinancial asset is reduced through the use of the provision for impaired financial assets and the amount of the impairmentloss is recognized in net income.

The present value of the estimated future cash flows is discounted at the financial assets' original effective interest rate. Thecalculation of the present value of estimated future cash flows reflects the projected cash flows including provisions forimpaired financial assets, prepayment losses, and costs to securitize and service financial assets.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to anevent occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Anysubsequent reversal of an impairment loss is recognized in net income.

Impairment of non-financial assets

At the end of each reporting period, the Credit Union reviews the carrying amounts of its tangible assets to determinewhether there is any indication that those assets have suffered an impairment loss. If any such indication exists, therecoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is notpossible to estimate the recoverable amount of an individual asset, the Credit Union estimates the recoverable amount ofthe cash-generating units (“CGU”) to which the asset belongs. Where a reasonable and consistent basis of allocation canbe identified, corporate assets are also allocated to individual CGU’s, or otherwise they are allocated to the smallest groupof CGU’s for which a reasonable and consistent allocation basis can be identified.

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Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimatedfuture cash flows are discounted to their present value using a pre-tax discount rate that reflects current marketassessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows havenot been adjusted.

If the recoverable amount of an asset or CGU is estimated to be less than its carrying amount, the carrying amount of theasset or CGU is reduced to its recoverable amount. An impairment loss is recognized immediately in net income.

Where an impairment loss subsequently reverses, the carrying amount of the asset or CGU is increased to the revisedestimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount thatwould have been determined had no impairment loss been recognized for the asset or CGU in prior years. A reversal of animpairment loss is recognized immediately in net income.

Syndication

The Credit Union syndicates individual assets with various other financial institutions primarily to manage credit risk, createliquidity and manage regulatory capital for the Credit Union. Syndicated loans transfer substantially all the risks and rewardsrelated to the transferred financial assets and are derecognized from the Credit Union’s consolidated statement of financialposition. All loans syndicated by the Credit Union are on a fully serviced basis. The Credit Union receives fee income forservices provided in the servicing of the transferred financial assets. Fee income is recognized in other income on anaccrual basis in relation to the reporting period in which the costs of providing the services are incurred.

Foreclosed assets

Foreclosed assets held for sale are initially recorded at the lower of cost and fair value less costs to sell. Cost comprises thebalance of the loan at the date on which the Credit Union obtains title to the asset plus subsequent disbursements related tothe asset, less any revenues or lease payments received. Foreclosed assets held for sale are subsequently valued at thelower of their carrying amount and fair value less cost to sell. Foreclosed assets are recorded in member loans receivable.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Cost includesexpenditures that are directly attributable to the acquisition of the asset. When parts of an item of property, plant andequipment have different useful lives, they are accounted for as separate items of property, plant and equipment.

All assets having limited useful lives are depreciated using the straight-line method over their estimated useful lives. Landhas an unlimited useful life and is therefore not depreciated. Assets are depreciated from the date of acquisition. Internallyconstructed assets are depreciated from the time an asset is available for use.

The depreciation rates applicable for each class of asset during the current and comparative period are as follows:

RateBuildings 10 - 40 yearsVehicles 4 - 7 yearsFurniture and equipment 5 yearsCapital improvements 2 - 10 years

The residual value, useful life and depreciation method applied to each class of assets are reassessed at each reportingdate.

Gains or losses on the disposal of property, plant and equipment are determined as the difference between the net disposalproceeds and the carrying amount of the asset, and recognized in net income as other operating income or other operatingcosts, respectively.

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Income taxes

The Credit Union accounts for income taxes using the asset and liability method. Current and deferred tax are recognized innet income except to the extent that the tax is recognized either in other comprehensive income or directly in equity, or thetax arises from a business combination. Under this method, the provision for income taxes is based on the tax rates and taxlaws that have been enacted or substantively enacted by the end of the reporting period.

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recoveredfrom or paid to the taxation authorities.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the assets arerealized or the liabilities are settled.

Deferred tax assets and liabilities are recognized where the carrying amount of an asset or liability differs from its tax base,except for taxable temporary differences arising on the initial recognition of goodwill and temporary differences arising onthe initial recognition of an asset or liability in a transaction which is not a business combination and at the time of thetransaction affects neither accounting or taxable income.

Recognition of deferred tax assets for unused tax losses, tax credits and deductible temporary differences is restricted tothose instances where it is probable that future taxable profit will be available which allow the deferred tax asset to beutilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probablethat the related tax benefit will be realized.

Leases

A lease that transfers substantially all of the benefits and risks of ownership is classified as a finance lease. At the inceptionof a finance lease, an asset and a payment obligation are recorded at an amount equal to the lesser of the present value ofthe minimum lease payments and the asset’s fair market value at inception of the lease. Assets under finance leases areamortized on a straight-line basis, over their estimated useful lives. All other leases are accounted for as operating leasesand rental payments are expensed as incurred.

Employee benefits

The Credit Union’s post employment benefit programs consist of a defined contribution plan.

Credit Union contributions to the defined contribution plan are expensed as incurred. Pension benefits of $328 (2015 –$337) were paid to the defined contribution retirement plan during the year.

Accounts payable

Accounts payable are initially recorded at fair value and are subsequently carried at amortized cost, which approximates fairvalue due to the short term nature of these liabilities.

Member deposits

Member deposits are initially recognized at fair value, net of transaction costs directly attributable to the issuance of theinstrument, and are subsequently measured at amortized cost using the effective interest rate method.

Membership shares

Shares are classified as liabilities or member equity in accordance with their terms. Shares redeemable at the option of themember, either on demand or on withdrawal from membership, are classified as liabilities. Shares redeemable at thediscretion of the Credit Union Board of Directors are classified as equity. Shares redeemable subject to regulatoryrestrictions are accounted for using the criteria set out in IFRIC 2 Members' Shares in Cooperative Entities and SimilarInstruments.

Standards issued but not yet effective

The Credit Union has not yet applied the following new standards, interpretations and amendments to standards that havebeen issued as at December 31, 2016 but are not yet effective. Unless otherwise stated, the Credit Union does not plan toearly adopt any of these new or amended standards and interpretations.

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IFRS 9 Financial instruments

The final version of IFRS 9 (2014) was issued in July 2014 as a complete standard including the requirements forclassification and measurement of financial instruments, the new expected loss impairment model and the new hedgeaccounting model. IFRS 9 (2014) will replace IAS 39 Financial instruments: recognition and measurement. IFRS 9 (2014) iseffective for reporting periods beginning on or after January 1, 2018. The Credit Union is currently assessing the impact ofthe standard on its consolidated financial statements.

IFRS 15 Revenue from contracts with customers

IFRS 15, issued in May 2014, will specify how and when entities recognize, measure, and disclose revenue. The standardwill supersede all current standards dealing with revenue recognition, including IAS 11 Construction contracts, IAS 18Revenue, IFRIC 13 Customer loyalty programmes, IFRIC 15 Agreements for the construction of real estate, IFRIC 18Transfers of assets from customers, and SIC 31 Revenue – barter transactions involving advertising services.

Amendments to IFRS 15, issued in April 2016, clarify some requirements and provide additional transition relief for when anentity first applies IFRS 15.

IFRS 15 is effective for annual periods beginning on or after January 1, 2018. The Credit Union is currently assessing theimpact of this standard on its consolidated financial statements.

IFRS 16 Leases

IFRS 16, issued in January 2016, introduces a single lessee accounting model that requires a lessee to recognize assetsand liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. The standard

will supersede IAS 17 Leases, IFRIC 4 Determining Whether an Arrangement Contains a Lease, SIC-15 Operating Leases -

Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

IFRS 16 is effective for annual periods beginning on or after January 1, 2019. The Credit Union has not yet determined theimpact of this standard on its consolidated financial statements.

IAS 7 Statement of Cash Flows

Amendments to IAS 7, issued in January 2016, require entities to provide disclosures that enable users of the consolidatedfinancial statements to evaluate both cash flow and non-cash changes in liabilities arising from financing activities.

The amendments only affect financial disclosure and are effective for annual periods beginning on or after January 1, 2017.

IAS 12 Income Taxes

Amendments to IAS 12, issued in January 2016, provide clarification on how to account for deferred tax assets related todebt instruments measured at fair value.

IAS 12 is effective for annual periods beginning on or after January 1, 2017. The Credit Union has not yet determined theimpact of this standard on its consolidated financial statements.

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5. Cash and cash equivalents

2016 2015

Cash 17,423 25,847Cash equivalents 4,000 7,450

21,423 33,297

6. Investments

2016 2015

Available-for-saleSaskCentral and Concentra Financial shares 4,384 3,961Other equity investments 1,258 1,459

5,642 5,420

Held-to-maturitySaskCentral and Concentra Financial deposits 49,918 41,122

55,560 46,542

Accrued interest 257 181

55,817 46,723

Pursuant to Regulations, SaskCentral requires that the Credit Union maintain 10% of its total liabilities in specified liquiditydeposits. The provincial regulator for Credit Unions, Credit Union Deposit Guarantee Corporation ("CUDGC"), requires thatthe Credit Union adhere to these prescribed limits and restrictions. As of December 31, 2016 the Credit Union met therequirement.

The table below shows the credit risk exposure on investments, excluding liquidity reserves and balances on deposit withSaskCentral and Concentra Financial. Ratings are as provided by Dominion Bond Rating Services ("DBRS") unlessotherwise indicated.

2016 2015

Investment portfolio ratingUnrated 5,642 5,420

SaskCentral and Concentra Financial shares are included in the unrated category above.

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7. Member loans receivable

Principal and allowance by loan type:

2016

Principalperforming

Principalimpaired

Allowancespecific

Net carryingvalue

Agriculture loans 35,270 5 5 35,270Commercial loans 43,656 308 266 43,698Consumer loans 33,510 282 163 33,629Lines of credit 32,485 - - 32,485Mortgages 201,386 703 185 201,904

346,307 1,298 619 346,986

Foreclosed assets 798 - 414 384Accrued interest 1,363 71 71 1,363

Total 348,468 1,369 1,104 348,733

2015

Principalperforming

Principalimpaired

Allowancespecific

Net carryingvalue

Agriculture loans 31,238 - - 31,238Commercial loans 38,618 1,005 185 39,438Consumer loans 32,664 108 106 32,666Lines of credit 28,320 - - 28,320Mortgages 196,476 103 103 196,476

327,316 1,216 394 328,138

Foreclosed assets 382 - 106 276Accrued interest 1,258 60 60 1,258

Total 328,956 1,276 560 329,672

The allowance for loan impairment changed as follows:

2016 2015

Balance, beginning of year 560 1,480Provision for impaired loans 592 397

1,152 1,877Less: accounts written off, net of recoveries 48 1,317

Balance, end of year 1,104 560

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7. Member loans receivable (Continued from previous page)

A loan is considered past due when a counterparty has not made a payment by the contractual due date. The table thatfollows presents the carrying value of loans at year-end that are past due but not classified as impaired because they areeither i) less than 90 days past due, or ii) fully secured and collection efforts are reasonably expected to result in repayment.

December 31, 2016 1-30 days 31-60 days 61-90 days 91 days andgreater

Total

Personal 995 5,383 456 817 7,651Commercial mortgage 2,435 1,537 - 150 4,122Non-personal loans 43 462 172 803 1,480

Total 3,473 7,382 628 1,770 13,253

December 31, 2015 1-30 days 31-60 days 61-90 days 91 days andgreater

Total

Personal 466 1,604 260 794 3,124Commercial mortgage 2,108 158 - 2,502 4,768Non-personal loans 141 949 60 429 1,579

Total 2,715 2,711 320 3,725 9,471

The principal collateral and other credit enhancements the Credit Union holds as security for loans include (i) insurance,mortgages over residential lots and properties, (ii) recourse to business assets such as real estate, equipment, inventoryand accounts receivable, (iii) recourse to commercial real estate properties being financed, and (iv) recourse to liquidassets, guarantees and securities. Valuations of collateral are updated periodically depending on the nature of thecollateral. The Credit Union has policies in place to monitor the existence of undesirable concentration in the collateralsupporting its credit exposure. In management's estimation, the fair value of the collateral is sufficient to offset the risk ofloss on the loans past due but not impaired.

8. Other assets

2016 2015

Corporate income tax recoverable - 38Prepaid expenses and deposits 317 466Deferred tax asset 74 54

391 558

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9. Property, plant and equipment

Land Buildings

Furnitureand

equipmentCapital

improvements Vehicles Total

Cost

Balance at December 31, 2014 203 5,147 852 155 50 6,407

Additions 300 1,065 158 293 - 1,816

Disposals - - (162) - - (162)

Balance at December 31, 2015 503 6,212 848 448 50 8,061

Additions - - 250 3,571 - 3,821

Disposals - - (292) - - (292)

Balance at December 31, 2016 503 6,212 806 4,019 50 11,590

Accumulated depreciation

Balance at December 31, 2014 - 2,832 618 64 8 3,522

Depreciation - 170 122 13 10 315

Disposals - - (162) - - (162)


Depreciation - 186 127 13 10 336

Disposals - - (292) - - (292)


Net book value

At December 31, 2015 503 3,210 270 371 32 4,386

At December 31, 2016 503 3,024 393 3,929 22 7,871

During the current year certain capital improvements were under construction. Total construction costs included in thecarrying amount of property, plant and equipment is $3,912 (2015 – $341), and depreciation will be claimed when assetsare available for use.

10. Line of Credit

The Credit Union has an authorized line of credit due on demand, with no fixed repayment date, bearing interest at primeminus 0.5%, in the amount of $7,900 (2015 - $7,900) from SaskCentral.

Borrowings are secured by an assignment of book debts, financial services agreement, and on an operating accountagreement.

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11. Member deposits

2016 2015

Chequing, Savings, Plan 24 260,028 247,137Registered savings plans 46,840 46,288Term deposits 86,606 83,484Patronage allocation payable 338 -Accrued interest 1,652 1,587

395,464 378,496

Total deposits include $1,833 (2015 - $1,408) denominated in foreign currencies.

Member deposits are subject to the following terms:

Chequing, savings and plan 24 products are due on demand and bear interest at rates up to 3.00% (2015 - 2.70%).

Registered savings plans are subject to fixed and variable rates of interest up to 3.10% (2015 - 3.10%), with interestpayments due monthly, annually or on maturity.

Term deposits are subject to fixed and variable rates of interest up to 3.75% (2015 - 3.75%), with interest payments duemonthly, annually or on maturity.

12. Income tax

Income tax expense (recovery) recognized in comprehensive income

The applicable tax rate is the aggregate of the federal income tax rate of 14.10% (2015 - 13.40%) and the provincial tax rateof 2% (2015 - 2%). Subsidiary income is taxed at a combined rate of 27%.

Deferred income tax recovery recognized in comprehensive income

The deferred income tax recovery recognized in comprehensive income for the current year is a result of the followingchanges:

2016 2015Deferred tax liabilityTiming difference of expenses - (5)Deferred tax assetProperty, plant and equipment 47 40Future incentives 15 11Allowance for impaired loans 12 8

Net deferred tax asset 74 54

Net deferred tax asset is reflected in the statement of financial position asfollows:Deferred tax asset 74 54

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12. Income tax (Continued from previous page)

Reconciliation between average effective tax rate and the applicable tax rate2016 2015

Applicable tax rate %27.00 %27.00Credit Union deduction %(10.90) %(11.60)Non-deductible and other items %(0.20) %0.72

Average effective tax rate (tax expense divided by profit before tax) %15.90 %16.12

In October 2013, the government enacted a change in the federal tax rate from 11% to 15% that was introduced in theMarch 2013 budget. This increase in tax rate will impact income within the Credit Union with a phase in over the five yearperiod from 2013 to 2018. Further, in January 2016, the government enacted a reduction to the small business tax rate from11% to 10.5% that was introduced in the April 2015 budget. Federally, the result is 80% of the Credit Union’s taxableincome will be taxed at a rate of 15%, with the remaining income now being taxed at a rate of 10.5% for 2016. By 2018,100% of the Credit Union's taxable income will be taxed at a rate of 15%. No changes in provincial tax rates weresubstantially enacted in 2016.

No changes in susidiary tax rates were enacted during 2016.

13. Other liabilities

2016 2015

Accounts payable 3,379 3,311Corporate income tax payable 9 -

3,388 3,311

14. Membership shares

Authorized:

Unlimited number of Common shares, at an issue price of $5Unlimited number of Surplus shares, at an issue price of $1

Issued (in thousands):2016 2015

10 Common shares (2015 - 10) 49 49

All common shares are classified as liabilities.

When an individual becomes a member of the Credit Union, they are issued a common share at $5 per share. Eachmember of the Credit Union has one vote, regardless of the number of common shares held.

Surplus shares are established as a means of returning excess earnings to the members and at the same time increasingthe Credit Union's equity base. The Articles of Incorporation for the Credit Union disclose the conditions concerning surplusshares.

During the year, the Credit Union issued 701 (2015 - 306) and redeemed 550 (2015 - 1,180) common shares, and alsoissued 0 (2015 - 0) and redeemed 0 (2015 - 294,000) surplus shares (number of issued and redeemed shares not reportedin thousands) .

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15. Patronage

The Credit Union declared a patronage refund payable in the amount of $338 in 2016 (2015 - $nil). The patronage refundapproved by the Board of Directors was based on the amount of deposit interest earned on qualifying accounts and arebate of monthly service charges paid on chequing accounts by each member during the fiscal year.

The patronage refund has been reflected in the statement of financial position as deposits with the corresponding expensein the statement of comprehensive income.

16. Related party transactions

Key management compensation of the Credit Union

Key management personnel ("KMP") of the Credit Union consist of the Chief Executive Officer, Vice President of RetailServices, Vice President of Corporate Services, Vice President of Finance and members of the Board of Directors. KMPremuneration includes the following expenses:

2016 2015

Salaries and short-term benefits 780 747Termination benefits - 68

Total remuneration 780 815

Transactions with joint ventures of the Credit Union

CEAMS is an unincorporated entity that provides electronic account management and financial services systems for itsmembers. CEAMS was formed on June 1, 1997 and commenced operations immediately thereafter. The activities ofCEAMS are transacted in accordance with the terms and conditions of the Memorandum of Association, dated June 1,1997, as amended from time to time. The Credit Union owns a nominal interest in this joint venture.

Transactions with key management personnel

The Credit Union, in accordance with its policy, grants credit to its directors, management and staff. KMP may receiveconcessional rates of interest on their loans and facilities. These benefits are subject to tax with the total value of the benefitincluded in the compensation figures.

Loans made to KMP are approved under the same lending criteria applicable to members, and are included in thestatement of financial position. There are no loans to KMP that are impaired.

Directors, management and staff of the Credit Union hold deposit accounts. These accounts are maintained under thesame terms and conditions as accounts of other members, and are included in deposit accounts on the statement offinancial position.

There are no benefits or concessional terms and conditions applicable to the family members of KMP.

In the ordinary course of business, the Credit Union provided normal management services to its wholly-owned subsidiaryDiamond North Management Ltd. on terms similar to those offered to non-related parties.

These loans and deposits were made in the normal course of operations and are measured at the exchange amount, whichis the consideration established and agreed to by the related parties.

2016 2015

Aggregate loans to KMP 749 1,122Aggregate revolving credit facilities to KMP 257 369Less: approved and undrawn lines of credit (122) (149)

884 1,342

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16. Related party transactions (Continued from previous page)

2016 2015During the year the aggregate value of loans disbursed to KMP amounted to:

Loans 189 227

2016 2015

Interest earned on loans to KMP 23 55Interest paid on deposits to KMP 73 70

2016 2015The total value of member deposits to KMP as at the year-end:

Chequing and demand deposits 2,657 2,090Term deposits 1,056 961Registered plans 2,140 2,111

Total value of member deposits due to KMP 5,853 5,162

Directors’ fees and expenses2016 2015

Directors' fees and committee remuneration 61 53Directors' expenses 12 12Meeting, training and conference costs 14 18

SaskCentral and Concentra Financial

The Credit Union is a member of SaskCentral, which acts as a depository for surplus funds received from and loans madeto credit unions. SaskCentral also provides other services for a fee to the Credit Union and acts in an advisory capacity.

The Credit Union is related to Concentra Financial, which is owned in part by SaskCentral. Concentra Financial providesfinancial intermediation and trust services to Canadian credit unions and associated commercial and retail customers.

Interest earned on investments during the year ended December 31, 2016 amounted to $1,153 (2015 - $963).

Interest paid on borrowings during the year ended December 31, 2016 amounted to $2 (2015 - $2).

Payments made for affiliation dues for the year ended December 31, 2016 amounted to $108 (2015 - $125).

Celero Solutions

The Credit Union has entered into an agreement with Celero Solutions to provide the delivery of banking system servicesand the maintenance of the infrastructure needed to ensure uninterrupted delivery of such services. Celero Solutions wasformed as a joint venture by the Credit Union Centrals of Alberta, Saskatchewan and Manitoba along with ConcentraFinancial.

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17. Capital management

A capital management framework is included in policies and procedures established by the Board of Directors. The CreditUnion’s objectives when managing capital are to:

• Adhere to regulatory capital requirements as minimum benchmarks;

• Co-ordinate strategic risk management and capital management;

• Develop financial performance targets/budgets/goals;

• Administer a patronage program that is consistent with capital requirements;

• Administer an employee incentive program that is consistent with capital requirements; and

• Develop a growth strategy that is coordinated with capital management requirements.

CUDGC prescribes capital adequacy measures and minimum capital requirements. The capital adequacy rules issued byCUDGC have been based on the Basel III framework, consistent with the financial industry in general.

The Credit Union follows a risk-weighted asset calculation for credit and operational risk. Under this approach, credit unionsare required to measure capital adequacy in accordance with instructions for determining risk-adjusted capital and risk-weighted assets, including off-balance sheet commitments. Based on the prescribed risk of each type of asset, a weightingof 0% to 1,250% is assigned. The ratio of regulatory capital to risk-weighted assets is calculated and compared to thestandard outlined by CUDGC. Regulatory standards require credit unions to maintain a minimum total eligible capital to risk-weighted assets of 8%, a minimum tier 1 capital to risk-weighted assets of 6% and a minimum common equity tier 1 capitalto risk-weighted assets of 4.5%. Eligible capital consists of total tier 1 and tier 2 capital. In addition to the minimum capitalratios, the Credit Union is required to hold a capital conservation buffer of 2.5%. The capital conservation buffer is designedto avoid breaches of the minimum capital requirement.

Tier 1 capital is defined as a credit union’s primary capital and comprises the highest quality of capital elements while tier 2is secondary capital and falls short of meeting tier 1 requirements for permanence or freedom from mandatory charges. Tier1 capital consists of two components: common equity tier 1 capital and additional tier 1 capital. Common equity tier 1capital includes retained earnings, contributed surplus and accumulated other comprehensive income ("AOCI").Deductions from common equity tier 1 capital include goodwill, intangible assets, deferred tax assets (except those arisingfrom temporary differences), increases in equity capital resulting from securitization transactions, unconsolidated substantialinvestments and fair value gains/losses on own-use property. Additional tier 1 capital consists of qualifying membershipshares and other investment shares issued by the Credit Union that meet the criteria for inclusion in additional tier 1 capital.

Tier 2 capital includes a collective allowance for credit losses to a maximum of 1.25% of risk-weighted assets, subordinatedindebtedness, and qualifying membership shares or other investment shares issued by the Credit Union that meet thecriteria for inclusion in tier 2 capital and are not included in tier 1 capital.

Regulatory standards also require the Credit Union to maintain a minimum leverage ratio of 5%. This ratio is calculated bydividing eligible capital by total assets less deductions from capital plus specified off-balance sheet exposures. Based onthe type of off-balance sheet exposure, a conversion factor is applied to the leverage ratio.

The following table compares CUDGC regulatory standards to the Credit Union’s board policy for 2016:

Regulatorystandards

Boardstandards

Total eligible capital to risk weighted assets %10.50 %11.50Tier 1 capital to risk-weighted assets %8.50 %9.50Common equity tier 1 capital to risk-weighted assets %7.00 %9.50Leverage ratio %5.00 %6.00

During the year, the Credit Union complied with all internal and external capital requirements.

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17. Capital management (Continued from previous page)

The following table summarizes key capital information:

2016 2015Eligible capitalTotal tier 1 capital 35,334 32,780Total tier 2 capital 49 49

Total eligible capital 35,383 32,829

Risk-weighted assetsTotal eligible capital to risk weighted assets %12.61 %12.40Total tier 1 capital to risk-weighted assets %12.59 %12.38Common equity tier 1 capital to risk-weighted assets %12.59 %12.38Leverage ratio %7.94 %7.66

18. Financial instruments

The Credit Union as part of its operations carries a number of financial instruments. It is management's opinion that theCredit Union is not exposed to significant interest, currency or credit risks arising from these financial instruments except asotherwise disclosed.

Risk management policy

The Credit Union carries a number of financial instruments which result in exposure to the following risks: credit risk, marketrisk, and liquidity risk.

The Credit Union, as part of operations, has established avoidance of undue concentrations of risk, hedging of riskexposures, and requirements for collateral to mitigate credit risk as risk management objectives. In seeking to meet theseobjectives, the Credit Union follows risk management policies approved by its Board of Directors.

The Credit Union's risk management policies and procedures include the following:

• Ensure all activities are consistent with the mission, vision and values of the Credit Union;

• Balance risk and return;

• Manage credit, market and liquidity risk through preventative and detective controls;

• Ensure credit quality is maintained;

• Ensure credit, market, and liquidity risk is maintained at acceptable levels;

• Diversify risk in transactions, member relationships and loan portfolios;

• Price according to risk taken; and

• Using consistent credit risk exposure tools.

Various Board of Directors committees are involved in risk management oversight, including the Audit Committee andConduct Review Committee.

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

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18. Financial instruments (Continued from previous page)

Credit risk

Credit risk is the risk of loss resulting from the failure of a borrower or counterparty to honour its financial or contractualobligations to the Credit Union. Credit risk primarily arises from loans receivable. Management and the Board of Directorsreview and update the credit risk policy annually. The Credit Union's maximum credit risk exposure before taking intoaccount any collateral held is the carrying amount of loans as disclosed on the statement of financial position with additionaldetail reported in Note 7. For investment securities and derivative instruments, the Credit Union is exposed to the risk ofdefault by the counterparty for instruments reported in Note 6.

Concentration of credit risk exists if a number of borrowers are engaged in similar economic activities or are located in thesame geographical region, and indicate the relative sensitivity of the Credit Union's performance to developments affectinga particular segment of borrowers or geographical region. Geographical risk exists for the Credit Union due to its primaryservice area being Albertville, Arborfield, Carrot River, Choiceland, Nipawin, Prince Albert, White Fox, Zenon Park andsurrounding areas.

Credit risk management for loan portfolio

The Credit Union employs a risk measurement process for its loan portfolio which is designed to assess and quantify thelevel of risk inherent in credit granting activities. Risk is measured by reviewing qualitative and quantitative factors thatimpact the loan portfolio and starts at the time of a member credit application and continues until the loan is fully repaid.

Management of credit risk is established in policies and procedures by the Board of Directors.

The primary credit risk management policies and procedures include the following:

• Loan security (collateral) requirements;

• Security valuation processes, including method used to determine the value of real property and personal

property when that property is subject to a mortgage or other charge; and

• Maximum loan to value ratios where a mortgage or other charge on real or personal property is taken as

security.

• Borrowing member capacity (repayment ability) requirements;

• Borrowing member character requirements;

• Limits on aggregate credit exposure per individual and/or related parties;

• Limits on concentration to credit risk by loan type, industry and economic sector;

• Limits on types of credit facilities and services offered;

• Internal loan approval processes and loan documentation standards;

• Loan re-negotiation, extension and renewal processes;

• Processes that identify adverse situations and trends, including risks associated with economic, geographic and

industry sectors;

• Control and monitoring processes including portfolio risk identification and delinquency tolerances;

• Timely loan analysis processes to identify, assess and manage delinquent and impaired loans;

• Collection processes that include action plans for deteriorating loans;

• Overdraft control and administration processes; and

• Loan syndication processes.

Credit risk management for investments and derivative instruments

Management of risk in relation to investments and derivatives is performed as per board approved policies which set outeligible investment securities and limits on exposure to single entities, issuer groups and maximum terms of investment.Eligible derivatives are defined in policy which includes limits on approval for purchase and disposal of investments andderivatives. Credit risk within these portfolios is monitored and measured by reviewing exposure to individual counterpartiesand ensuring the Credit Union remains within policy limits by issuer weightings and by dollar amount. The quality of thecounterparty is assessed through published credit ratings which is outlined in Note 6.

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Credit commitments

To meet the needs of its members and manage its own exposure to fluctuations in interest rates, the Credit Unionparticipates in various commitments and contingent liability contracts. The primary purpose of these contracts is to makefunds available for the financing needs of members. These are subject to normal credit standards, financial controls, riskmanagement and monitoring procedures. The contractual amounts of these credit instruments represent the maximumcredit risk exposure without taking into account the fair value of any collateral, in the event other parties fail to perform theirobligations under these instruments.

The Credit Union makes the following instruments available to its members:

(a) guarantees and standby letters of credit representing irrevocable assurances that the Credit Union will pay if amember cannot meet their obligations to a third party; and

(b) commitments to extend credit representing unused portions of authorizations to extend credit in the form of loans,(including lines of credit and credit cards), guarantees or letters of credit.

The amounts shown on the table below do not necessarily represent future cash requirements since many commitments willexpire or terminate without being funded.

As at year-end, the Credit Union had the following outstanding financial instruments subject to credit risk:

2016 2015

Unadvanced lines of credit 43,440 42,171Guarantees and standby letters of credit 489 593Commitments to extend credit 3,698 4,907Undrawn quick loans 7,036 8,317

54,663 55,988

Market risk

Market risk is the risk of loss in value of financial instruments that may arise from changes in market factors such as interestrates, equity prices and credit spreads. The Credit Union's exposure changes depending on market conditions. Market risksthat have a significant impact on the Credit Union include fair value risk and interest rate risk.

Market risk arises from changes in interest rates that affect the Credit Union's net interest income. Exposure to this riskdirectly impacts the Credit Union's income from its loan and deposit portfolios. The Credit Union's objective is to earn anacceptable net return on these portfolios, without taking unreasonable risk, while meeting member owner needs.

Risk measurement

The Credit Union's risk position is measured and monitored each month to ensure compliance with policy. Managementprovides monthly reports on these matters to the Credit Union's Board of Directors.

Objectives, policies and processes

Management is responsible for managing the Credit Union's interest rate risk, monitoring approved limits and compliancewith policies. The Credit Union manages market risk by developing and implementing asset and liability managementpolicies, which are approved and periodically reviewed by the Board.

The Credit Union's goal is to achieve adequate levels of profitability, liquidity and safety. The Board of Directors reviews theCredit Union's investment and asset liability management policies periodically to ensure they remain relevant and effectivein managing and controlling risk.

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Interest rate risk

Interest rate risk is the sensitivity of the Credit Union’s financial condition to movements in interest rates. Cash flow interestrate risk is the risk that the future cash flows of the Credit Union’s financial instruments will fluctuate due to changes inmarket interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because ofchanges in prevailing market interest rates. Interest margins reported in the net income may increase or decrease inresponse to changes in market interest rates. The Credit Union incurs interest rate risk on its loans and other interestbearing financial instruments.

In managing interest rate risk, the Credit Union relies primarily upon use of asset - liability and interest rate sensitivitysimulation models, which is monitored by the Credit Union. Periodically, the Credit Union may enter into interest rate swapsto adjust the exposure to interest rate risk by modifying the re-pricing of the Credit Union’s financial instruments.

Sensitivity analysis is used to assess the change in value of the Credit Union’s financial instruments against a range ofincremental basis point changes in interest rates over a twelve month period. Interest rate shock analysis is calculated in asimilar manner to sensitivity analysis but involves a more significant change of 100 basis points or greater in interest rates.Sensitivity analysis and interest rate shock analysis are calculated on a monthly basis and are reported to the Board ofDirectors. Based on current differences between financial assets and financial liabilities as at year-end, the Credit Unionestimates that an immediate and sustained 100 basis point increase in interest rates would increase net interest margin by$333 over the next 12 months while an immediate and sustained 100 basis point decrease in interest rates would decreasenet interest margin by $471 over the next 12 months.

Other types of interest rate risk are basis risk (the risk of loss arising from changes in the relationship of interest rates whichhave similar but not identical characteristics; for example, the difference between prime rates and the Canadian DepositOffering Rate) and prepayment risk (the risk of loss of interest income arising from the early repayment of fixed ratemortgages and loans), both of which are monitored on a regular basis and are reported to the Board of Directors.

The Credit Union's major source of income is financial margin which is the difference between interest earned oninvestments and loans to members and interest paid to members on their deposits. The objective of managing the financialmargin is to match re-pricing or maturity dates of loans and investments and member deposits within policy limits. Theselimits are intended to limit the Credit Union's exposure to changing interest rates and to wide fluctuations of income duringperiods of changing interest rates. The differential represents the net mismatch between loans and investments andmembers' savings and deposits for those particular maturity dates. Certain items on the statement of financial position, suchas non-interest bearing member deposits and equity do not provide interest rate exposure to the Credit Union. These itemsare reported as non-interest rate sensitive in the table below.

Amounts with variable interest rates, or due on demand, are classified as on demand.

A significant amount of member loans receivable and member deposits can be settled before maturity on payment of apenalty. No adjustment has been made for repayments that may occur prior to maturity.

Interest rate sensitivity

In the table below, the carrying amounts of financial instruments are presented in the periods in which they next re-price tomarket rates or mature and are summed to show the net interest rate sensitivity gap.

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Contractual re-pricing and maturity

All financial instruments are reported in the schedule below based on the earlier of their contractual re-pricing date ormaturity date. The schedule below does not identify management's expectations of future events where re-pricing andmaturity dates differ from contractual dates.

2016 2015

On demandWithin 3months

Over 3 monthsto 1 year Over 1 year

Non-InterestSensitive Total Total

AssetsCash and cashequivalents 13,616 - - - 7,807 21,423 33,297

Average yield % 0.48 - - - - 0.31 0.39Investments - 11,000 5,068 35,108 4,641 55,817 46,723

Average yield % - 2.46 3.71 1.28 - 1.50 1.34Member loans receivable 139,166 14,100 72,872 121,161 1,434 348,733 329,672

Average yield % 4.42 4.14 4.21 4.12 - 4.27 4.36

Subtotal 152,782 25,100 77,940 156,269 13,882 425,973 409,692

LiabilitiesMember deposits 220,052 33,499 47,329 70,960 23,624 395,464 378,496

Average yield % 0.49 2.39 1.73 2.12 - 1.05 1.10Accounts payable - - - - 3,379 3,379 3,311Membership shares - - - - 49 49 49

Subtotal 220,052 33,499 47,329 70,960 27,052 398,892 381,856

Net sensitivity (67,270) (8,399) 30,611 85,309 (13,170) 27,081 27,836

Fair value risk

Fair value risk is the potential for loss from an adverse movement in the value of a financial instrument. The Credit Unionincurs fair value risk on its loans, certain deposit accounts and investments held. The Credit Union does not hedge its fairvalue risk. See Note 19 for further information on fair value of financial instruments.

Liquidity risk

Liquidity risk is the risk that the Credit Union cannot meet a demand for cash or fund its obligations as they come due. TheCredit Union's management oversees the Credit Union's liquidity risk to ensure the Credit Union has access to enoughreadily available funds to cover its financial obligations as they come due. The Credit Union's business requires such capitalfor operating and regulatory purposes. Refer to Note 17 for further information about the Credit Union's regulatoryrequirements.

Liquidity risk is managed through a three tiered structure consisting of the local Credit Union level, the provincial CreditUnion level and the national Credit Union level.

Locally, the Credit Union manages its liquidity position from three perspectives:

• Structural liquidity risk, which addresses the risk due to mismatches in effective maturities between assets and

liabilities, more specifically the risk of over reliance on short-term liabilities to fund long-term illiquid assets;

• Tactical liquidity risk, which addresses the day-to-day funding requirements that are managed by imposing

prudential limits on net fund outflows; and

• Contingent liquidity risk, which assess the impact of sudden stressful events and the Credit Union’s responses

thereto.

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The primary liquidity risk policies and procedures include the following:

• Liquidity risk management framework to measure and control liquidity risk exposure;

• Measurement of cashflows;

• Maintain a line of credit and borrowing facility with SaskCentral;

• Maintenance of a pool of high quality liquid assets;

• Monitoring of single deposits and sources of deposits;

• Monitoring of term deposits; and

• Contingency planning.

Provincially, SaskCentral manages a statutory liquidity pool of marketable investment securities on behalf of SaskatchewanCredit Unions to facilitate clearing and settlement, daily cash flow management and emergency liquidity support. Nationally,credit union centrals are represented by one central which acts as the Group Clearer, Central 1 Credit Union. The GroupClearer is a member of the Canadian Payments Association and pools provincial cash flows to settle with the Bank ofCanada.

The Credit Union manages the liquidity risk resulting from it’s trading derivatives by requiring collateral to be given if anadverse credit-related event occurs.

The following table details contractual maturities of financial liabilities:

As at December 31, 2016:

< 1 year 1-2 years > 3 years Total

Member deposits 324,504 31,496 39,464 395,464Accounts payable 3,379 - - 3,379Membership shares 49 - - 49

Total 327,932 31,496 39,464 398,892



Member deposits 284,318 60,938 33,240 378,496Accounts payable 3,311 - - 3,311Membership shares 49 - - 49

Total 287,678 60,938 33,240 381,856

The Credit Union manages liquidity risk on a net asset and liability basis. The following tables explain the contractualmaturities of financial assets held for the purpose of managing liquidity risk.



Cash and cash equivalents 21,423 - - 21,423Investments 16,325 8,000 31,492 55,817Member loans receivable 227,572 52,551 68,610 348,733

Total 265,320 60,551 100,102 425,973

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Cash and cash equivalents 33,297 - - 33,297Investments 25,723 7,000 14,000 46,723Member loans receivable 207,431 55,494 66,747 329,672

Total 266,451 62,494 80,747 409,692

The above tables were prepared using undiscounted contractual maturities of financial assets and liabilities includinginterest that will be earned or paid on these amounts.

Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because ofchanges in foreign exchange rates. In seeking to manage the risks from foreign exchange rate fluctuations, the CreditUnion maintains foreign cash balances to approximately offset deposits held in foreign funds.

Foreign currency risk is not considered significant at this time as the Credit Union does not engage in any active trading offoreign currency positions or hold significant excess foreign currency denominated financial investments for an extendedperiod.

19. Fair value measurements

Recurring fair value measurements

The Credit Union’s assets and liabilities measured at fair value on a recurring basis have been categorized into the fairvalue hierarchy as follows:

2016Fair Value Level 1 Level 2 Level 3

AssetsFinancial assets at fair value through profit or lossCash and cash equivalents 21,423 21,423 - -

Total recurring fair value measurements 21,423 21,423 - -


AssetsFinancial assets at fair value through profit or lossCash and cash equivalents 33,297 33,297 - -

Total recurring fair value measurements 33,297 33,297 - -

As outlined in Note 4 to the financial statements, the Credit Union's SaskCentral and Concentra Financial shares andinvestments in other equity instruments that do not have a quoted market price in an active market are classified asavailable-for-sale and measured at cost, therefore are not included in the above table. Amortized cost of these itemstotalled $5,642 (2015 - $5,420).

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19. Fair value measurements (Continued from previous page)

Asset and liabilities for which fair value is only disclosed

The following table analyses within the fair value hierarchy the Credit Union’s assets and liabilities (by class) not measuredat fair value at December 31, 2016 but for which fair value is disclosed:


AssetsInvestments 50,085 - 50,085 -Member loans receivable 350,304 - 350,304 -

Total assets 400,389 - 400,389 -

LiabilitiesMember deposits 397,655 - 397,655 -Accounts payable 3,379 - 3,379 -Membership shares 49 - - 49

Total liabilities 401,083 - 401,034 49


AssetsInvestments 42,095 - 42,095 -Member loans receivable 332,194 - 332,194 -

Total assets 374,289 - 374,289 -

LiabilitiesMember deposits 381,378 - 381,378 -Accounts payable 3,311 - 3,311 -Membership shares 49 - - 49

Total liabilities 384,738 - 384,689 49

All fair values disclosed and categorized within Level 2 of the hierarchy use a net present value valuation technique andinputs consisting of actual balances, actual rates, market rates (for similar instruments) and payment frequency.

As there is no observable market data for all fair values disclosed and categorized within Level 3 of the hierarchy, the CreditUnion has assumed that the fair value of the amounts is comparable to their amortized cost.

20. Commitments

In 2009, the Credit Union entered into a ten year commitment for the provision of retail banking services provided by Celerowith a five year contract renewal option. In 2016, the contract was renewed for an additional seven years. The annualoperating fee is calculated as a percentage of the aggregate fees paid by all Credit Unions using the new banking system.The annual operating fees to December 31, 2016 were $429 and recorded as an expense (2017 estimate of operating fees- $360).

The Credit Union has entered into a Project Development Agreement with NewGround Canada Corporation for the designand construction of alterations to an existing facility. As at December 31, 2016, the project is 73.5% complete and remainingcosts are estimated at $1, 251.

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21. Other legal and regulatory risk

Legal and regulatory risk is the risk that the Credit Union has not complied with requirements set out in terms of compliancesuch as standards of sound business practice, anti-money laundering legislation or their code of conduct/conflict of interestrequirements. In seeking to manage these risks, the Credit Union has established policies and procedures and monitors toensure ongoing compliance.

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