connections2010 Annual Summary

Alter-Banking

Who is Alterna, and what makes us different? We’re a member-owned credit union with more than a century of putting people and communities first. Alterna Savings and our wholly-owned subsidiary, Alterna Bank, provide full financial services including personal and business banking, to over 120,000 people in Ontario and Quebec.

What makes us truly different are the strong values we uphold and our devotion to the communities we serve. Our goal is to empower our members through financial planning, education, personal money management, micro-lending, and much more.

With 22 branches in Ontario and two in Gatineau, Quebec, we’re sure to be nearby. Or, bank with us 24/7 wherever you are with our online or telephone banking service. And, we’re part of THE EXCHANGE NETWORK®, giving you access to over 2,100 ABMs nationwide. When you have a question or need to speak with a live person, our knowledgeable and friendly TeleService staff are glad to help.

Whether you have a little money or a lot, we can always help you find a smarter way to make your money work for you.

Call Us 1.877.560.0100

Toronto 416.252.5621

Ottawa 613.560.0100

Visit Us alterna.ca

Alterna Savings alter-banking@alterna.ca

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When you put your money in a credit union, it moves. Imagine a gigantic savings and lending circle of 120,000 members spread across Ontario. When one member deposits funds to save for retirement, those funds are loaned to another member to get their first home. So money moves in a circle to benefit everyone.

But it doesn’t stop there. A good portion of the profits Alterna and its members realize are moved again, from the credit union to projects that benefit the communities where members live.

It’s all about connections - between members, communities and the world.

Call Us 1.877.560.0100

Toronto 416.252.5621

Ottawa 613.560.0100

Gatineau 819.595.6980

Visit Us alterna.ca

Alterna Savings alter-banking@alterna.ca

Alterna Bank alter-ideas@alterna.ca

Making connections

Alterna Savings is Ontario’s second-largest, full-service, member-focused financial co-operative, serving over 120,000 members. Clients in Quebec are served through our wholly-owned subsidiary, Alterna Bank.

Alterna provides affordable and reliable personal and commercial banking services to our members. Building on that foundation, our goal is to empower our members through financial planning services, education, personal money management, micro-lending and much more.

We’re proud to provide affordable financial solutions to non-profit organizations and small- to medium-sized businesses. And, we support our local communities in various ways, including donations and sponsorships.

Providing superior member service, coupled with being part of the fabric of the communities we serve, ensures that Alterna Savings has a strong financial future. That future is supported and demonstrated by solid financial results and increasingly rising member loyalty levels.

We’re dedicated to building and maintaining strong connections to our members and communities – for now, and the years to come.

AlternaAbout

Savings

Values and Commitments

VisionTo be the leader of co-operative financial services

MissionDevelop and share an exceptional level of financial expertise that is:• tailored to member needs• accessible to all• supportive of local communities• delivered by caring, professional employees

ValuesPeople First Excellence Integrity

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fromthe Board Chair, and President & CEOFor Alterna Savings, 2010 proved to be a year of solid financial results. Our membership’s stable employment base, our bedrock of stringent risk management and our keen focus on expense control helped us to weather the previous two years of global financial upheaval and uncertainty.

For many, 2010 was a year of restructuring and recovery as organizations rebuilt, patched and reinforced their foundations. As for Alterna, we continued to offer very competitive mortgage rates despite the challenge of dealing with ever-tightening margins. Paid return on investments were within or above market.

Alterna continues to be mindful of the impact our actions, whether large or small, have on the environment. We’ve moved to eco-friendly printed material for our marketing campaigns and we’ve taken steps to offset our carbon footprint for the Annual General Meeting.

We’re confident in the direction we’ve set for Alterna for the next year, and the years to come, and we appreciate the opportunity you’ve given us to serve you and your families.

We sincerely appreciate the trust you’ve placed in us as we continue to work as the community-based and eco-minded financial institution of which youcan be proud.

Richard Neville, ChairMarch 23, 2011

John Lahey,President & CEOMarch 23, 2011

Report

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Connec t ingwithyou2010 was the year of making new connections – with communities, members, governments, and further developing key partnerships.

In Our CommunityWe understand the importance of small businesses and entrepreneurs, and the contributions they make to our local communities. We also believe it’s never too early to learn the ins and outs of starting and running a business.

In the winter of 2010, Alterna sponsored a unique after-school activity for teens, Alterna Biz Camp. Hosted in partnership with the Learning Enrichment Foundation, Biz Camp gave 15 youth the opportunity to learn about running their own business. Over a two-month period, the participants were educated about marketing, accounting, business planning and more.

At the end of Biz Camp, the group held a very successful ‘garage sale’. After just two hours, the students walked away with a $200 profit and tons of pride.

Continuing our involvement with local youth, Alterna was proud to be a partner in the Youth Micro-loan Program along with the City of Toronto and other community partners. Launched in July, the program helps under-privileged youth in the GTA develop sound business plans and launch small businesses.

For a more detailed look at our community involvement in 2010, please visit alterna.caor read our 2010Community Report.

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OurMe mbersWe’ve been working hard behind the scenes to clarify our brand and how it relates to our core values. In fact, for over a year, we’ve been seeking feedback from members, non-members, employees and the Board on our brand through AlternaSphere and other channels. Thanks to all of you who took part in this important exercise. We launched our new look in November to kudos and compliments from our membership. The evolution of Alterna Savings’ brand is an organic and ongoing process that will eventually touch every aspect of our operations.

To serve our members better in the Kingston area, we opened a bright, new branch, with teller services, more staff, and expanded hours. Now located in a high-traffic area with great exposure, we’re more convenient to existing and prospective members. Our annual member survey revealed that members appreciate the way Alterna staff treat them with respect and dignity, and deal with them one-on-one. After all, the Alterna brand is about making connections – our members are more than just a number to us.

The member survey also uncovered some shortcomings in the way we do business, largely focused around online banking and e-services, much of which we’ll address with a new website and online banking launch in 2011. We’re confident our members will love the new website and e-banking service, and eagerly await the next survey.

Bank fresh.Bank local.Our brand promise.Fresh ideas, freshattitudes, freshperspectives, freshsolutions – that’swhat it means to bankfresh at Alterna.

Our Alterna branches are an intrinsic part of the neighbourhood; every member of Alterna is a member of the local community. To bank at Alterna really is to bank local.

New Kingston branch, opened in July 2010.

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Helping

Consumers discover the harsh realities of meddling Money Villains in the form of bad credit or financial decisions every day. We’re out to help them stomp out their Money Villain and conquer their credit, and that’s why we launched our Money Management Program in 2010. Working with a Personal Money Coach not only helps our members overcome their financial hurdles,

but helps us create lasting connections with our members. In 2010 Alterna Savings was invited to participate in the consultation phase of the Government of Canada’s Task Force on Financial Literacy. The final document included recommendations regarding a national strategy to help Canadians make better financial decisions for themselves and their families.

We’re pleased and very excited to see a number of our recommendations included in the final strategy document. We’re now determining how Alterna can play a meaningful role and contribute to the intent of the recommendations. Educating our members and others in handling finances, improving credit and effective budgeting are one of our strengths, and we firmly believe everyone benefits.

‘ ‘

One of our members came to me after the passing of one of her parents. Years of being a primary caregiver for her elderly parents had taken its toll – with so many other things to take care of and worry about, she hadn’t looked after herself. Ready for a new beginning in control of her finances, she jumped into the Money Management Program. After meeting with her and discussing her goals, I came up with a realistic, easy-to-follow plan that considered both her short- and long-term objectives, some of which she never thought she’d be able to accomplish. She couldn’t believe she could reduce her debt while still saving money and achieve some of her dreams. She was so impressed by our Money Management Program, she’s since told her family and friends about it. Knowing that I can make that difference in a member’s life as a Personal Money Coach makes me extremely proud of what I do. AlternA PersonAl Money CoACh

Government Partnerships

Meeting our members’ needs with innovative, effective products and services is at the forefront of everything we do. In 2010, we enhanced our partnership with Qtrade Financial Group to allow us to do just that. The Qtrade experts bring top skills and knowledge in wealth management and insurance services to the Alterna table, helping members build the future they want and make the best decisions for their investments.

Qtrade Investor has been ranked Canada’s #1 online brokerage by The Globe and Mail for the 5th consecutive year (2006-2010). Qtrade Investor was also ranked “The Best Discount Brokerage” at the Canadian Investments Awards in December 2010.

Qtrade Investor is a division of Qtrade Securities Inc., member IIROC and CIFP.

Here’s how one of our Personal Money Coaches is helping members every day

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Financial Group

Accoun t abilitySummary

Alterna’s commitment to our members goes beyond living our core values every day and making connections with our communities. We’re also committed to sharing our performance, accomplishments, opportunities and challenges we’ve conquered - and those that lie ahead.

Alterna is committed to producing a full accountability report every three years. In addition to this, the Board of Directors has identified three areas of focus that the organization will report on annually. These include our performance related to our member loyalty, employee engagement, and our environmental footprint.

Member Loyalty

At Alterna we’re about connections, not just transactions. Our members are our neighbours, friends, and family. That’s why it’s so important we have your feedback, input and comments on what we’re doing well, and areas for improvement. One of the main indicators of our performance in this regard is an index we use that determines how many members are loyal to our organization. The index is composed of survey questions related to overall member satisfaction, our members’ willingness to refer us to others, and our members’ future intentions (whether they will increase or decrease their business with us in the coming year).

We’re looking for new and exciting ways to grow this number in 2011, including a new, easy-to-use website and online banking platform.

Our member loyalty index score in 2010 remained fairly flat year-over-year.

Employee Engagement

Of course, without caring and loyal staff, we can’t deliver our best to our members. Over the last couple of years we’ve worked diligently to improve life at Alterna for our employees. The employee index score is made up of seven survey questions related to:

How Alterna is as a place to work and their satisfaction

Employees’ optimism about the future of the organization

Their pride in the company

Whether they would recommend Alterna as a place to work and

Whether or not they intend to continue working with Alterna

Our employee engagement is moving in the right direction and has improved substantively since 2006.

200538%

200649%

200753%

200849%

200955% 53%

2010

47%2006

51%2008

56%2010

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Environment

2009 marked the first year that Alterna measured aspects of its environmental footprint. Over the past year our environmental committee was re-formed, and we’ve made a conscious effort to raise awareness among our employees regarding ways in which they can reduce our consumption, particularly as it relates to our use of paper.

Plus, we’ve switched to an eco-friendly printing company for our printed material to further reduce the environmental impact of our activities. The report you’re reading was produced by a printer that operates with renewable and sustainable power generation, stringent water conservation methods, as well as reduced air emissions and solid waste. And, they used 24 fewer trees than traditional printing. Our specific environmental indicators andperformance are illustrated below:

Accountability Sum

mary &

Attestation

Alterna Savings Corporate Social Responsibility Department

2010 Accountability Summary – Internal Audit AttestationAs specifically agreed with management, we have performed the following procedures in connection with the credit union’s 2010 Accountability Summary.

Employee Engagement

• Employee Engagement Index data was obtained from Organizational Excellence and Human Resources departments.• We contacted the survey vendor and confirmed scores directly with the vendor as follows:

2010 - 56%There were no exceptions noted

Member Loyalty Scores

• Member Loyalty Scores were obtained from the Marketing Department• We contacted the survey vendor to ensure that the same criteria was used to measure each year’s member loyalty score. The survey vendor advised that the Member Loyalty Scores accurately represent scores for data collected. We confirmed the scores directly with the vendor as follows:

2010 - 53%There were no exceptions noted

Environmental Indicators

Natural Gas Consumption

• Energy consumption report was obtained from the Facilities Department• Copies of natural gas suppliers’ invoices were supplied by the Facilities Department • We verified that natural gas consumption was for the period from January 1, 2010 to December 31, 2010, and based on supplier invoices as presented to and paid by the company.

87,866 pounds of paper was recycled in 2010 in our corporate offices and branches, keeping it out of landfills – equal to saving 747 mature trees*

Indicator 2010 Comments and Definitions

Fuel consumed for heating/cooling or on site electricity generated

147,955 Cubic Metres Natural gas consumed by Alterna for the Ottawa and Toronto corporate office locations and 11 of 24 branches where gas is paid directly by Alterna. This comprises approximately 78% of the space used by Alterna for its operations. Branches where the landlord pays for this expense are excluded.

Electricity consumption

3,686,362 kwh Electricity Consumed by Alterna Savings for the Ottawa and Toronto corporate office locations and 15 of 24 branches where electricity is paid directly by Alterna. This comprises approximately 86% of the total space used by Alterna for its operations. Electricity used by branches where the landlord pays for this expense and standalone ABMs at separate locations are excluded.

Paper used 6,258 Reams Paper Used represents the paper that was purchased by Alterna Savings and Alterna Bank as copier paper, computer, printout and stationery. Excludes suppliers where paper is purchased as part of printing (eg. letterhead, forms, brochures, etc.)

Paper Recycled (measured in lbs)

87,866 pounds All paper processed for shredding and recycling by Alterna’s paper recycling service provider for all Alterna Savings and Alterna Bank East corporate and branch locations. Alterna West locations are excluded due to lack of data availability from supplier.

Kimberley Ney Senior V.P. Marketing, Communications & Corporate Social ResponsibilityMarch 23, 2011

Susan Henry Manager, Corporate Social ResponsibilityMarch 23, 2011

* This information was provided to Alterna Savings by Earth Day Canada (www.earthdaycanada.ca)

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Natural Gas consumption of 147,955 cubic metres reflects the total consumption for Alterna’s corporate offices and branches where consumption can be verified through payments and separate meter readings. Natural gas consumed by Alterna for the Ottawa and Toronto corporate office locations and 11 of 24 branches where gas is paid directly by Alterna comprises approximately 78% of the space used by Alterna for its operations. Branches where the landlord pays for this expense are excluded.

Floor area is based on the rental square footage as stipulated in the leases for each location. Where the property is owned by Alterna square footage is obtained from appraisals done on the property.

We have excluded branches where payments made to the landlord are inclusive of Natural Gas Consumption since the amount specifically attributable to Alterna operations cannot be reasonably determined.

Electrical Consumption

• Energy consumption report was obtained from the Facilities Department• Copies of electrical energy suppliers’ invoices were provided by the Facilities Department• We verified that electrical consumption was for the period from January 1, 2010 to December 31, 2010

Electrical energy consumption of 3,686,362 kilowatt hours reflects the total consumption by Alterna Savings for the Ottawa and Toronto corporate office locations and 15 of 24 branches where electricity is paid directly by Alterna. Branches where the landlord pays for this expense are excluded. This comprises approximately 86% of the total space used by Alterna for its operations. It does not include electricity used by stand-alone ABMs at separate locations.

Floor area is based on the rental square footage as stipulated in the leases for each location. Where the property is owned by Alterna square footage is obtained from appraisals done on the property.

We have excluded branches where payments made to the landlord are inclusive of electrical energy consumption, since the amount specifically attributable to Alterna operations cannot be reasonably determined.2010 A

ccountability Summ

ary –Internal Audit A

ttestation

Paper Consumption

• Paper consumption spreadsheet was obtained from the Facilities Department and calculations were verified • We interviewed the Office Services Supervisor to establish if adequate controls exist over paper purchases to ensure that paper purchases are completely and accurately recorded in all material respects• Invoice sampling was obtained from Office Services and traced back to the general ledger

Paper usage of 6,258 reams represents Alterna’s paper purchases fromJanuary 1, 2010 to December 31, 2010. It excludes suppliers where paper is purchased as part of printing (e.g. letterhead, forms, brochures, etc.).

Paper Shredding and Recycling

We verified the certificate of paper recycling from the vendor, and confirmed that 87,866 pounds of paper were shredded and recycled directly with the vendor. The 87,866 pounds of paper does not represent all of the paper recycled. It represents the vendor only, Iron Mountain, which services the Ottawa Corporate Offices and eastern branches. Information from the recycling provided for Toronto Corporate Offices and western branches was not available.

2010 Accountability Sum

mary –Internal A

udit Attestation

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Overall Conclusion

As a result of applying the above procedures, we found no exceptions. However these procedures do not constitute an audit of the credit union’s 2010 Accountability Summary and therefore we express no opinion on the report as a whole.

This letter is only for use of management and members of the credit union as it relates to the credit union’s 2010 Accountability Summary dated March 23, 2011.

Comparative numbers for Member Loyalty and Employee Engagement, have been previously reported on by independent accountants. Their opinion is not repeated here but is available on our website at: alterna.ca.

Alterna Savings Internal Audit Department

John Peddle Frank GriggInternal Auditor Vice President and Chief Internal AuditorMarch 23, 2011 March 23, 2011

Financial Highlights

Our members continue to take advantage of our competitive Tax-Free SavingsAccounts and attractive term deposit rates, as reflected by our deposit growth of $93 million and asset growth of 3.3%.

Loans grew by $85 million comparable to 2009, with Alterna’s Fair RatePricing ensuring members get our best, competitive price on residential mortgages without haggling. Commercial borrowers also gain from our competitive pricing and the benefit of local decision-making.

Operating income increased by $2.2 million in 2010, reaching $7.6 million. Despite continuing competitive pressure on pricing, net interest income increased through careful management of our investment portfolio, growth in loans and deposits, and competitive positioning of our interest rates.

Alterna’s prudent credit policies and screening processes continue to position our delinquency well below the provincial average, keeping loan losses and collection costs low. We also continue to demonstrate fiscal responsibility through successful management of expenses, keeping the overall rate of increase for 2010 expenses below that of inflation.

After accounting for unrealized losses on financial instruments due to market ratefluctuations, and provisioning for income tax, 2010 net income increased slightly from the previous year to $4.4 million.

Overall, Alterna had a stable year, delivering positive net income and asset growth, which will aid in our ongoing quest to improve member products and services and meaningful investment in our communities.

We’re proud to continue to meet or - in most cases - exceed regulatory requirements, providing peace-of-mind to our members as a financial institution with integrity and transparency.

Alterna continued to deliver solid financial results in 2010 and enjoy healthy levels of liquidity, along with a strong, high-quality capital base.

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Consolidated FinancialStatements

2010 2009

ASSETS

Cash and cash equivalents $ 81,933 $ 166,222

Investments 232,560 165,393

Loans, net of allowance for impaired loans 1,812,897 1,727,649

Property and equipment 10,898 9,736

Intangible assets 4,058 5,926

Derivative financial instruments 7,300 8,736

Future income tax asset 121 -

Other assets 17,751 15,557

$ 2,167,518 $ 2,099,219

LIABILITIES AND MEMBERS’ EQUITY

Liabilities:

Deposits $ 1,997,139 $ 1,904,609

Borrowings - 30,000

Future income tax liability - 719

Derivative financial instruments 3,503 4,732

Other liabilities 32,524 29,016

Membership shares 1,578 1,779

2,034,744 1,970,855

Members’ equity:

Special shares 23,960 24,019

Contributed surplus 19,282 19,282

Retained earnings 92,525 89,148

Accumulated other comprehensive loss (2,993) (4,085)

132,774 128,364

$ 2,167,518 $ 2,099,219

ALTERNA SAVINGSConsolidated Balance Sheet (in thousands of dollars)As at December 31

2010 2009Interest income $ 90,115 $ 88,926 Investment income 3,211 3,665

93,326 92,591

Interest expense 34,482 40,018 Net interest income 58,844 52,573 Loan costs 1,313 1,362

57,531 51,211 Other income 12,852 16,690

70,383 67,901

Operating expenses 62,777 62,485 Operating income 7,606 5,416

Unrealized losses on financial instruments (1,702) (1,476)

Income before income taxes 5,904 3,940 Provision for (recovery of) income taxes Current 2,642 1,016 Future (1,164) (1,214)

1,478 (198)

Net income $ 4,426 $ 4,138

Special shares:

Balance, beginning of year $ 24,019 $ 24,545

Net shares redeemed (59) (526)

Balance, end of year 23,960 24,019

Contributed surplus:

Balance, beginning of year 19,282 19,282

Balance, end of year 19,282 19,282

Retained earnings, net of tax:

Balance at beginning of year, as previously reported 89,148 86,459

Transitional adjustment on adoption of new accounting policies - (411)

Balance at beginning of year, as restated 89,148 86,048

Net income 4,426 4,138

Dividend on special shares (1,049) (1,035)

Issuance costs - (3)

Balance, end of year 92,525 89,148

Accumulated other comprehensive income (loss), net of tax:

Balance at beginning of year (4,085) (72)

Other comprehensive income (loss) 1,092 (4,013)

Balance, end of year (2,993) (4,085)

Members’ equity $ 132,774 $ 128,364

Net income $ 4,426 $ 4,138

Other comprehensive (loss) income, net of tax:

Change in unrealized gains and losses on available-for-sale securities (1,312) (281)

Change in gains and losses on derivatives designated as cash flow hedges 1,935 (4,488)

Net losses on derivatives designated as cash flow hedges transferred

to net income 469 756

1,092 (4,013)

Comprehensive income $ 5,518 $ 125

Consolidated Statement Of Income (in thousands of dollars) Year ended December 31

Consolidated Statement of Comprehensive Income (in thousands of dollars) Year ended December 31

The complete audited Consolidated Financial Statements of Alterna Savings are available at alterna.ca

Consolidated Statement of Changes in Members’ Equity (in thousands of dollars) Year ended December 31

2010 Boardof DirectorsName Title Committee Attendance Remuneration Other Boards that Director Serves On

Richard Neville Chair Governance Nominating

19/19 $28,045 The St-John's Ambulance Society Board, Accounting Standards Oversight Council

Johanne Charbonneau

Vice Chair GovernanceHuman Resources

13/13 $14,174 Alterna Bank, Certified General Accountants of Ontario, Royal Ottawa Mental Health Center

Don Altman Director Finance & AuditMember Relations

21/21 $17,144 Ontario Natural Food Co-operative, Church-Isabella Residents Co-operative, Co-operative Resources Pool of Ontario

Ruth Baumann Director GovernanceFinance & AuditHuman ResourcesNominating

22/22 $17,369 Wychwood Barns Community Association

Ian Bennett Director Finance & AuditMember RelationsNominating

19/19 $12,293

Penny Bethke Director Human ResourcesMember Relations

14/14 $10,993 Home Ownership Alternatives

Faren Bogach Director Human ResourcesMember Relations

17/17 $14,059

Bill Burleigh Director GovernanceFinance & AuditNominating

30/30 $22,903 Brenyon Way Charitable Foundation, Burnleigh Property Management Limited, Ridgeford Charitable Foundation, W G Burleigh Management Services Inc.; Thorncliffe Chapel Housing Corporation

Earl Campbell Director GovernanceMember Relations

15/15 $14,274 Alterna Bank, Province of Ontario Consent and Capacity Board, Bloorview School Authority Board of Trustees, Ontario Public School Boards' Association Board of Directors, Ontario Credit Union Chari-table Foundation Board, Parish Council-St. Dunstan of Canterbury Anglican Church, Scarborough Walk of Fame

Fred Gorbet Director GovernanceHuman ResourcesNominating

18/23 $14,559 Assuris, LawPro (Lawyers Professional Indemnity Company), North American Electric Reliability Corporation, Covenant House Toronto, Institute for Research in Public Policy, Central 1 Credit Union.

Raj Kapoor Director Finance and AuditMember Relations

16/16 $11,643 The Whitestone Group, Whitestone Properties, Carleton Condominium Corporation 204

Kevin Lindsey Director Finance and Audit 14/15 $15,369 Alterna Bank

Jeff May Director Finance & AuditHuman ResourcesNominating

16/16 $16,224 Alterna Bank

Duncan Munn Director Finance and AuditMember Relations

15/16 $10,993 Youth Challenge International

Peter Ostapchuk Director Human Resources 9/10 $9,693 Alterna Bank, icorp.ca inc.

Senior Management TeamJohn Lahey President & CEO

Madeleine Brillant Vice President, Corporate Affairs

Colin Brown Vice President, Centre for Business Excellence & Project Management Office

José Gallant Senior Vice President & Chief Financial Officer

Josette Gauthier Senior Vice President, Human Resources

Frank Grigg Vice President & Chief Internal Auditor

Kimberley Ney Senior Vice President Marketing, Communications & Corporate Social Responsibility

Stéphane Pleau Vice President, Operations, Alterna Bank

Carl Ramkerrysingh Senior Vice President, Personal & Business Services

Rebecca Robinson Vice President, Information Technology

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