Kawartha Credit Union Limited...Payment of mortgage securitization liabilities (1,459) (33,531)...

Kawartha Credit Union LimitedFinancial Statements

At December 31, 2016

Contents Page

Independent Auditor's Report 2

Statement of Financial Position 3

Statement of Income 4

Statement of Comprehensive Income 5

Statement of Changes in Members' Equity 6

Statement of Cash Flows 7

Notes to the Financial Statements 8 - 36

IBDO

Independent Auditor's Report .

To the Members of Kawartha Credit Union Limited

Report on the Financial Statements

We have audited the accompanying financial statements of Kawartha Credit Union Limited, which comprise the statement of financial position as at December 31, 2016, and the statements of income and comprehensive income, changes in members' equity and cash flows for the year then ended and significant accounting policies and other explanatory information.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opm1on on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal 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 financial statements.

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

Opinion

In our opinion, the financial statements present fairly, in a ll material respects, the financial position of Kawartha Credit Union Limited as at December 31, 2016, and its financial performance and its cash flows for the y ear then ended in accordance with International Financial Reporting Standards.

Chartered Professional Accountants, Licensed Public Accountants Peterborough, Ontario February 22, 201 7

2

KAWARTHA CREDIT UNION LIMITEDStatement of Financial Position

December 31 2016 2015

(thousands of Canadian dollars)

AssetsCash resources (Note 7) $ 29,152 $ 19,814Liquidity deposits (Note 7) 80,062 72,677Investments (Note 10) 9,784 9,635Derivative financial instruments (Note 9) 1,021 1,173Members' loans (Note 3) 1,215,474 1,101,434Other assets (Note 14) 7,500 8,896Property and equipment (Note 18) 17,688 15,585

$ 1,360,681 $ 1,229,214

Liabilities and Members' Equity

LiabilitiesTerm loans (Note 13a) $ 4,000 $ 18,000Members' deposits (Note 4) 1,125,959 1,029,131Accounts payable and accrued liabilities 3,074 3,918Derivative financial instruments (Note 9) 1,777 1,918Securitized mortgages under administration (Note 11) 134,103 87,430Members' shares (Note 5) 1,191 1,181Employee future benefits (Note 17) 4,930 3,727

1,275,034 1,145,305

Members' EquityClass A Investment shares (Note 5) 25,782 25,830Class B Affinity shares (Note 5) 12,030 11,200Contributed surplus 382 350Retained earnings 46,967 44,765Accumulated other comprehensive income 486 1,764

85,647 83,909

$ 1,360,681 $ 1,229,214

Approved by the Board:

Director Director

The accompanying notes are an integral part of these financial statements.3

cpayne

Stamp

cpayne

Stamp

KAWARTHA CREDIT UNION LIMITEDStatement of Income

For the year ended December 31 2016 2015


Financial RevenueInterest on members' loans $ 44,971 $ 43,990Investment income 1,122 1,183

46,093 45,173

Financial ExpenseInterest on members' deposits 15,507 15,319Interest on borrowings 219 377

15,726 15,696

Financial Margin 30,367 29,477

Other Income 7,476 7,021

37,843 36,498

Operating ExpensesSalaries and employee benefits 17,992 17,171Loan loss expense (Note 3) 720 1,119Occupancy 4,529 4,203Banking costs 847 701Other expenses (Note 15) 3,505 3,455Information system costs 2,507 2,281Deposit insurance 720 675Promotion 1,338 1,351Directors' expenses 212 194

32,370 31,150

Operating Income 5,473 5,348

Increase in fair value of investments 39 119

Patronage distributions (887) (986)

Income before income taxes 4,625 4,481

Income tax expense (Note 16) 615 277

Net Income $ 4,010 $ 4,204


KAWARTHA CREDIT UNION LIMITEDStatement of Comprehensive Income



Net Income (Page 4) $ 4,010 $ 4,204

Other comprehensive income

Actuarial loss on remeasurement of defined benefit non-pension plans (Note 17) (1,028) -

Unrealized gains (losses) on financial derivatives designated as cash flow hedges (250) 412

Comprehensive income $ 2,732 $ 4,616


KAWARTHA CREDIT UNION LIMITEDStatement of Changes in Members' Equity

AccumulatedOther

ComprehensiveIncome

Class AInvestment

Shares

Class BAffinityShares

RetainedEarnings

andContributed

Surplus Total(thousands of Canadian dollars)

Balance on December 31, 2014 $ 1,352 $ 25,830 $ 10,276 $ 42,643 $ 80,101

Net income - - - 4,204 4,204

Dividends (Note 5) (1,766) (1,766)

Class B Affinity sharesNet share issuance - - 958 - 958Forfeitures - - (34) 34 -

Change in unrealized gains(losses) on cash flow hedges 412 - - - 412

Balance on December 31, 2015 1,764 25,830 11,200 45,115 83,909

Net income - - - 4,010 4,010

Dividends (Note 5) - - - (1,808) (1,808)

Class A share issuance costs - (48) - - (48)

Class B Affinity SharesNet share issuance - - 862 - 862Forfeitures - - (32) 32 -

Actuarial loss on remeasurement ofdefined benefit pension plans (1,028) - - - (1,028)

Change in unrealized gains(losses) on cash flow hedges (250) - - - (250)

Balance on December 31, 2016 $ 486 $ 25,782 $ 12,030 $ 47,349 $ 85,647


KAWARTHA CREDIT UNION LIMITEDStatement of Cash Flows



Operating activities Net income $ 4,010 $ 4,204Adjustments for:

Depreciation 1,783 1,675Unrealized gains on fair value adjustments of investments (39) (119)

5,754 5,760Changes in operating assets and liabilities:

Other assets 1,396 12,244Derivative financial instruments 11 380Accounts payable and accrued liabilities (844) 167Employee future benefits 175 175Changes in allowance for loan losses (1,520) (666)Increase in members' deposits 96,879 96,588Increase in accrued interest payable (51) 740Increase in members' loans (112,839) (86,245)Increase (decrease) in accrued interest receivable 319 (126)

Total cash inflows (outflows) from operating activities (10,720) 29,017

Financing ActivitiesIncrease in liquidity deposits (7,385) (4,520)Advances (repayments) of term loans (14,000) (36,700)Proceeds of mortgage securitization 48,132 53,205Payment of mortgage securitization liabilities (1,459) (33,531)Increase in Class B Affinity shares 862 958Increase in share issuance costs (48) -Increase in membership shares 10 (4)Dividends paid to members (1,808) (1,766)

Total cash inflows (outflows) from financing activities 24,304 (22,358)

Investing ActivitiesPurchases of property and equipment (net of disposals) (3,886) (1,806)Decrease (increase) in investments (net) (360) (633)

Total cash outflows from investing activities (4,246) (2,439)

Net increase in cash resources 9,338 4,220

Cash resources, beginning of year 19,814 15,594

Cash resources, end of year $ 29,152 $ 19,814

Refer to Note 20 for supplementary cash flow information.


KAWARTHA CREDIT UNION LIMITEDNotes to the Financial Statements


1. CORPORATE INFORMATION

Reporting EntityKawartha Credit Union Limited (the Credit Union) is incorporated under the Credit Unions and CaissesPopulaires Act, 1994 ("The Act") of Ontario and is a member of Central 1 Credit Union Limited(Central 1). The Credit Union operates as one operating segment in the loans and deposit takingindustry in Ontario. Products and services offered to its members include mortgages, personal,commercial and agricultural loans, chequing and savings accounts, term deposits, RRSPs, RRIFs, mutualfunds, automated banking machines ("ABMs"), debit and credit cards and internet banking. TheCredit Union head office is located at 1054 Monaghan Road, Peterborough, Ontario, Canada.

These financial statements were authorized for issue by the Board of Directors on February 22, 2017.

2. BASIS OF PRESENTATION

a) Statement of ComplianceThese financial statements have been prepared in accordance with International Financial ReportingStandards (IFRS) as issued by the International Accounting Standards Board (the IASB).

b) Basis of MeasurementThese financial statements were prepared under the historical cost convention, as modified by therevaluation of available-for-sale financial assets, fair value through profit and loss, and derivativefinancial instruments measured at fair value.

The Credit Union’s functional and presentation currency is the Canadian dollar. The financialstatements are presented in thousands of Canadian dollars.

c) Judgment and EstimatesThe preparation of financial statements in compliance with IFRS requires management to make certaincritical accounting estimates. It also requires management to exercise judgment in applying the CreditUnion’s accounting policies. The areas involving critical judgments and estimates in applying policiesthat have the most significant risk of causing material adjustment to the carrying amounts of assets andliabilities recognized in the financial statements within the next financial year are:

• Whether an impairment loss should be recorded relating to members' loans in the statement ofcomprehensive income (Note 3).

• The fair value of certain financial instruments using valuation techniques. Those techniques aresignificantly affected by the assumptions used, including discount rates and estimates of futurecash flows (Note 9 & 10).

In addition, in preparing the financial statements, the notes to the financial statements were orderedsuch that the most relevant information was presented earlier in the notes and the disclosures thatmanagement deemed to be immaterial were excluded from the notes to the financial statements. Thedetermination of the relevance and materiality of disclosures involved significant judgement.

8



3. MEMBERS' LOANS

All members' loans are non-derivative financial assets with fixed or determinable payments that arenot quoted in an active market and have been classified as loans and receivables.

Members' loans are initially measured at fair value, net of loan origination fees and inclusive oftransaction costs incurred.

Members' loans are subsequently measured at amortized cost, using the effective interest ratemethod, less any impairment losses.

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

Terms and Conditions

Members' loans can have either a variable or fixed rate of interest and mature within five years.

Variable rate loans are based on a "prime rate" formula, ranging from prime minus 1.30% to primeplus 20.00%. The rate is determined by the type of security offered and the members' creditworthiness. The Credit Union's prime rate at December 31, 2016 was 4.00%.

The interest rate offered on fixed rate loans being advanced at December 31, 2016 ranges from2.00% to 13.00%. The rate offered to a particular member varies with the type of security offeredand the member's credit worthiness.

Residential mortgages are loans and lines of credit secured by residential property and aregenerally repayable monthly with either blended payments of principal and interest or interest only.

Personal loans consist of term loans and lines of credit that are non-real estate secured and, as such,have various repayment terms. Some of the personal loans are secured by wage assignments andpersonal property or investments, and others are secured by wage assignments only.

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

2016 2015(thousands of Canadian dollars)

Residential mortgages $ 807,672 $ 710,794Personal Loans 124,702 129,107Commercial loans 286,502 266,137

1,218,876 1,106,038Accrued interest receivable 1,679 1,998

Allowance for impaired loans (5,081) (6,602)

Net members' loans $ 1,215,474 $ 1,101,434

9



3. MEMBERS' LOANS (continued)

Average Yields to MaturityLoans bear interest at both variable and fixed rates with the following average yields at:

2016 2015Principal Yield (%) Principal Yield (%)


Variable Rate $ 284,423 5.39 $ 298,345 5.35Fixed rate due less than one year 234,760 4.06 150,654 4.82Fixed rate due between one and five years 699,693 3.42 657,039 3.68

$1,218,876 $1,106,038

Credit Risk Management

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

The Credit Union's credit risk management principles are guided by its overall risk managementprinciples. The Board of Directors ensures that management has a framework, and policies, processesand procedures in place to manage credit risks and that the overall credit risk policies are compliedwith at the business and transaction level.

The Credit Union's credit risk policies set out the minimum requirements for management of credit riskin a variety of transactional and portfolio management contexts. Its credit risk policies comprise thefollowing:

• General loan policy statements including approval of lending policies, eligibility for loans,exceptions to policy, policy violations, liquidity, and loan administration;

• Loan lending limits including schedule of assigned limits; • Loan collateral security classifications which set loan classifications, advance ratios and

amortization periods;• Procedures outlining loan overdrafts, release or substitution of collateral, temporary suspension

of payments and loan renegotiations;• Loan delinquency controls regarding procedures followed for loans in arrears; and• Audit procedures and processes for the Credit Union's lending activities.

With respect to credit risk, the Board of Directors receives monthly reports summarizing new loans,delinquent loans and bad debts. The Board of Directors also receives an analysis of allowance fordoubtful loans quarterly.

A sizeable portfolio of the loan book is secured by residential property. Therefore, the Credit Unionis exposed to the risk of a reduction of the loan to value ratio (LVR) cover should the property marketdecline. The risk of losses from loans undertaken is primarily reduced by adhering to other lendingcriteria including a borrower's ability to pay.

There have been no significant changes from the previous year in the policies, procedures andmethods used to measure the risk.

10




Allowance for Impaired Loans

If there is objective evidence that an impairment loss on members' loans carried has been incurred, theamount of the loss is measured as the difference between the loans carrying amount and the presentvalue of expected cash flows discounted at the loans original effective interest rate; short-termbalances are not discounted.

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

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

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

Total allowance for impaired loan provision comprises:


Collective provision $ 2,580 $ 2,651Individual specific provision 2,501 3,951

Total provision $ 5,081 $ 6,602

11




Allowance for Impaired Loans (continued)

Movement in individual specific provision and collective provision for impairment:

Residential CommercialPersonal Loans Mortgages Loans Total

(thousands of Canadian dollars)December 31, 2016Balance as at December 31, 2015 $ 1,954 $ 507 $ 4,141 $ 6,602Recoveries 148 - - 148Loan loss expense 687 115 (82) 720

2,789 622 4,059 $ 7,470Write-offs (831) (327) (1,231) (2,389)

Balance as at December 31, 2016 $ 1,958 $ 295 $ 2,828 $ 5,081

Principal balance of impaired loans $ 1,882 $ 6,935 $ 11,375 $ 20,192

December 31, 2015Balance as at December 31, 2014 $ 1,765 $ 504 $ 4,999 $ 7,268Recoveries 112 - - 112Loan loss expense 727 325 67 1,119

2,604 829 5,066 8,499Write-offs (650) (322) (925) (1,897)

Balance as at December 31, 2015 $ 1,954 $ 507 $ 4,141 $ 6,602

Principal balanceof impaired loans $ 3,256 $ 10,955 $ 11,001 $ 25,212

12




Allowance for Impaired Loans (continued)

Past due status of loans and associated individual impairment provisions:

2016 2015

CarryingValue

IndividualSpecific

ProvisionCarrying

Value

IndividualSpecific

Provision(thousands of Canadian dollars)

Period of delinquencyLess than 90 Days $ 2,000 $ 114 $ 4,628 $ 45290 Days and Over 7,377 1,410 7,332 2,559

Total loans in arrears 9,377 1,524 11,960 3,011

Total loans not in arrears 10,815 977 13,252 940

Total loans $ 20,192 $ 2,501 $ 25,212 $ 3,951

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 theloan repayments in accordance with the loan contract, or where there is other evidence of potentialimpairment such as industrial restructuring, business losses, job losses or economic circumstances. Inidentifying the impairment likely from these events the Credit Union estimates the potential impairmentusing the loan type, industry, geographical location, type of loan security, the length of time the loansare past due and the historical loss experience. The circumstances may vary for each loan over time,resulting in higher or lower impairment losses. The methodology and assumptions used for estimatingfuture cash flows are reviewed regularly by the Credit Union to reduce any differences between lossestimates and actual loss experience.

For purposes of calculating the collective provision, loans are classified into separate groups withsimilar risk characteristics.

Credit Quality of Loans

It is not practical to value all collateral as at the balance sheet date due to the variety of assets andconditions. A breakdown of the security held on a portfolio basis is as follows:


Unsecured loans $ 124,831 $ 129,608Loans secured by cash, member deposits 76 116Loans secured by real property 776,424 706,286Residential mortgages insured by third party 48,760 45,867Residential mortgages insured by government 268,785 224,161

$ 1,218,876 $ 1,106,038

13




Concentration of Risk

There are no individual or related groups of members' loans which exceed 10% of members’ equity.

Fair Value

The estimated fair value of the variable rate loans is assumed to be equal to book value as theinterest rates on these loans re-price to market on a periodic basis. The estimated fair value of fixedrate loans is determined by discounting the expected future cash flows at current market rates forproducts with similar terms and credit risks.

For fixed rate loans, the weighted average market interest rate used in estimating fair value was4.91% and the weighted average term to maturity was 1.91 years.


Residential mortgages $ 770,234 $ 715,636Personal loans 183,232 129,074Commercial loans 265,512 267,110

$ 1,218,978 $ 1,111,820

4. MEMBERS' DEPOSITS

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

Member deposits are subsequently measured at amortized cost, using the effective interest ratemethod. Member deposits are broken down as follows:


Chequing accounts $ 229,938 $ 193,136Demand savings accounts 89,646 85,132Term deposits 455,802 427,672Registered retirement savings plans 152,958 153,296Registered retirement income funds 59,095 53,308Tax free savings account 130,178 108,194

1,117,617 1,020,738Accrued interest on member deposits 8,342 8,393

$ 1,125,959 $ 1,029,131

14



4. MEMBERS' DEPOSITS (continued)

Terms and ConditionsChequing deposits are due on demand and bear interest at a variable rate up to 0.25% atDecember 31, 2016. Interest is calculated daily and paid on the accounts monthly.

Demand savings accounts are due on demand and bear interest at a variable rate up to 0.50% atDecember 31, 2016. Interest is calculated daily and paid on the accounts monthly.

Term deposits bear fixed rates of interest for terms of up to five years. Interest can be paidannually, semi annually, monthly or upon maturity. The interest rates offered on term deposits onDecember 31, 2016 range from 0.50% to 2.00%.

The registered retirement savings plans (RRSP) accounts can be fixed or variable rate. The fixed rateRRSPs have terms and rates similar to the term deposit accounts described above. The variable rateRRSPs bear interest at a rate of 0.25% at December 31, 2016.

Registered retirement income funds (RRIFs) consist of both fixed and variable rate products with termsand conditions similar to those of the RRSPs described above. Members may make withdrawals froma RRIF account on a monthly, semiannual, or annual basis. The regular withdrawal amounts varyaccording to individual needs and statutory requirements.

The tax-free savings accounts can be fixed or variable rate with terms and conditions similar to thoseof the RRSPs described above. The variable rate tax-free savings accounts bear interest at a rate of1.10% at December 31, 2016.

Included in chequing deposits is an amount of $6,369,888 denominated in US dollars.

Average Yields to Maturity

Members’ deposits bear interest at both variable and fixed rates with the following average yields:

2016 2015

Principal Yield (%) Principal Yield (%)(thousands of Canadian dollars)

Variable rate $ 353,636 0.31 $ 297,202 0.29Fixed rate due less than one year 526,359 1.73 467,923 1.89Fixed rate due between one and five years 237,622 1.93 255,613 2.23

$1,117,617 $1,020,738

Concentration of Risk

The Credit Union does not have exposure to groupings of individual deposits that exceed 10% ofmembers' deposits which concentrate risk and create exposure to particular segments.

Member deposits are primarily with members located in Eastern Ontario.

15




Liquidity Risk

Liquidity risk is the risk that the Credit Union will not be able to meet all cash outflow obligations asthey come due. Liquidity risk primarily arises from the Credit Union's members' deposits, which are itsmost significant financial liability.

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

Provisions of the Credit Unions and Caisses Populaires Act require the Credit Union to maintain aprudent amount of liquid assets in order to meet member withdrawals. The credit union has set aminimum liquidity ratio of 7%.

The Credit Union manages liquidity risk by:

• Continuously monitoring cash flows and longer term forecasted cash flows;• Monitoring the maturity profiles of financial assets and liabilities; and• Maintaining adequate reserves, liquidity support facilities and reserve borrowing facilities.

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

As at December 31, 2016, the position of the Credit Union is as follows:MaximumExposure


Qualifying liquid assets on handCash resources $ 29,152Liquidity reserve deposit 80,062

109,214Total liquidity requirement 87,900

Excess liquidity requirement $ 21,314

The maturities of liabilities are shown below under market risk. The Credit Union has no materialcommitments for capital expenditures and there is no need for such expenditures in the normal courseof business.

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

16




Fair Value

The estimated fair value of the demand deposits and variable rate deposits are assumed to be equalto book value as the interest rates on these loans and deposits re-price to market on a periodic basis.The estimated fair value of fixed rate deposits is determined by discounting the expected future cashflows of these deposits at current market rates for products with similar terms and credit risks.


Chequing and demand savings accounts $ 319,583 $ 278,268Term deposits 452,592 425,048Registered plans 342,231 312,917

$ 1,114,406 $ 1,016,233

For fixed rate deposits, the weighted average market interest rate used in estimating fair value was1.95% and the weighted average term to maturity was 1.13 years.

5. MEMBERS' SHARES

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

Shares that contain redemption features subject to the Credit Union maintaining adequate regulatorycapital are accounted for using the partial treatment requirements of IFRIC 2, Members' Shares in Co-operative Entities and Similar Instruments

2016 2015Equity Liability Equity Liability


Membership Shares $ - $ 1,191 $ - $ 1,181

Class A Investment Shares (net of issuance costs) 25,782 - 25,830 -

Class B Affinity Shares 12,030 - 11,200 -

$ 37,812 $ 1,191 $ 37,030 $ 1,181

17



5. MEMBERS' SHARES (continued)

Terms and Conditions

Membership SharesThe credit union is authorized to issue an unlimited number of membership shares. As a condition ofmembership, which is required to use the services of the Credit Union, each member is required to hold5 member shares with a par value of $5 per share, with the exception of members under 18 yearsold who are only required to hold 1 member share. These membership shares are redeemable at paronly when a membership is withdrawn. Dividends are at the discretion of the Board of Directors. Asat December 31, 2016, there were 238,177 membership shares issued (2015 - 236,294).

Funds invested by members in member shares are not insured by DICO. The withdrawal of membershares is subject to the Credit Union maintaining adequate regulatory capital (see Note 6), as is thepayment of any dividends on these shares.

Class A Investment SharesThe Credit Union is authorized to issue an unlimited number of Class A Investment shares, in series, withrights, privileges, restrictions and conditions to be determined by the Board of Directors, subject tostatutory restrictions. As at December 31, 2016, there were 26,089,267 Class A shares issued (2015- 26,089,267). The Class A Series 1 shares pay dividends at the discretion of the Board of Directorsin the form of cash or additional shares. These shares are redeemable at the sole and absolutediscretion of the Board of Directors after five years, subject to a maximum of 10% of the sharesoutstanding at the end of the previous fiscal year. The redemption of these shares is also subject tothe Credit Union maintaining adequate regulatory capital (see Note 6), as is the payment of anydistributions on these shares. Class A shares that are available for redemption are classified as Tier 2capital. Class A shares available for redemption as of December 31, 2016 total 1,609,000.

On December 29, 2016, the Credit Union issued an offering statement to sell Class A InvestmentShares. The sale price of these shares is $1.00 per share and there is a minimum of 5,000 shares thatmay be subscribed for. The minimum offering for these shares is 10,000,000 and the maximumoffering is 15,000,000.

Class B Affinity SharesThe Credit Union is authorized to issue an unlimited number of Non-Cumulative Redeemable Non-Voting Non-Participating Class B Affinity shares. As at December 31, 2016, there were 12,030,403Class B Affinity shares issued (2015 - 11,200,456). The Class B shares pay dividends at the discretionof the Board of Directors in the form of cash or additional shares. These shares are redeemable at thesole and absolute discretion of the Board of Directors on a date commencing five years after the issuedate, subject to a maximum of 10% of the shares outstanding at the end of the previous fiscal year.The redemption of these shares is also subject to the Credit Union maintaining adequate regulatorycapital (see Note 6), as is the payment of any distributions on these shares. On February 23, 2016the Credit Union issued 862,277 Class B Series 2 Affinity Shares. Class B shares available forredemption as of December 31, 2016 total 575,000.

18



5. MEMBERS' SHARES (continued)

Distributions to MembersDividends recorded to Members' Equity are as follows:


Dividends on Class A shares $ 1,304 $ 1,304Dividends on Class B Affinity shares 504 462

$ 1,808 $ 1,766

In addition to the amounts paid above, the Credit Union recorded patronage allocations of $886,853(2015 - $986,184). These are recorded as an expense on the Statement of Income.

6. CAPITAL MANAGEMENT

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

Regulations to the Credit Unions and Caisses Populaires Act (“The Act”) require that the Credit Unionestablish and maintain a level of capital that meets or exceeds the following:

• Regulatory capital calculated in accordance with the Act shall not be less than 4% of the bookvalue of assets; and

• Regulatory capital calculated in accordance with the Act shall not be less than 8% of the riskweighted value of its assets.

The Credit Union maintains an internal policy that total members' capital as shown on the balancesheet shall not be less than 5.5% of the book value of all assets, and members' capital as shown onthe balance sheet shall not be less than 11% of the risk weighted value of its assets and anoperational risk requirement.

The Credit Union considers its capital to include membership shares (member shares, Class AInvestment shares, Class B Affinity shares), contributed surplus and retained earnings. There havebeen no changes in what the Credit Union considers to be capital since the previous period.

The Credit Union establishes the risk weighted value of its assets in accordance with the Regulations ofCredit Unions and Caisses Populaires Act of 1994 which establishes the applicable percentage foreach class of assets. The Credit Union's risk weighted value of its assets as at December 31, 2016was $642,955,479 (2015 - $598,529,004).

19



6. CAPITAL MANAGEMENT (continued)

Total regulatory capital is composed of Tier 1 and Tier 2 Capital as follows:


Tier 1 CapitalClass A Investment Shares $ 25,782 $ 25,830Class B Affinity Shares 12,030 11,200Less: Redeemable Portion of Class A and Class B Shares (1,941) (1,874)Membership Shares 1,191 1,181Contributed Surplus 382 350Retained Earnings 46,967 44,765

Total Tier 1 Capital 84,411 81,452Tier 2 Capital

Redeemable portion of Class A and Class B Shares 1,941 1,874Collective Loan Loss Provision 2,580 2,651

Total Tier 2 Capital 4,521 4,525Total regulatory capital $ 88,932 $ 85,977

The applicable capital ratios are as follows:Tier 1 Capital to Risk Weighted Assets %13.13 %13.61Total Regulatory Capital to Risk Weighted Assets %13.83 %14.37Total Regulatory Capital to Total Assets %6.54 %6.99

7. CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash resources and liquidity deposits. The Credit Union's currentaccounts are held with Central 1. The average yield on the accounts at December 31, 2016 is 0.90%(2015 - 0.90%).

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

The Credit Union must maintain liquidity reserves with Central 1 Credit Union (Central 1) at 6% oftotal assets at December 31 each year. The deposits can be withdrawn only if there is a sufficientreduction in the Credit Union's total assets or upon withdrawal of membership from Central 1. Theliquidity deposits have various maturities up to 5 years. They bear interest at rates ranging between0.55% and 2.30%.

20



8. FINANCIAL MARGIN AND INTEREST

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

Schedules of matching and interest rate vulnerability are regularly prepared and monitored byCredit Union management in accordance with the Credit Union's policy. For the year endedDecember 31, 2016, the Credit Union was in compliance with this policy.

The following schedule shows the Credit Union's sensitivity to interest rate changes. Amounts withfloating rates or due or payable on demand are classified as maturing within three months,regardless of maturity. A significant amount of loans and deposits can be settled before maturity. Anadjustment has been made for repayments that may occur prior to maturity based on recent memberactivity. Amounts that are not interest sensitive have been grouped together, regardless of maturity.The amounts shown are in thousands of dollars.

Maturity dates Assets Yield (%)

Liabilitiesand

Members'Equity Cost (%) Gap

Interest sensitive(thousands of Canadian dollars)

< 6 months $ 468,789 2.85 $ 579,621 1.02 $ (110,832)1 year 142,420 3.53 302,921 1.74 (160,501)2 years 176,663 3.46 135,192 2.27 41,4713 years 207,419 3.24 112,903 2.21 94,5164 years 177,030 3.00 74,457 2.01 102,5735 years 146,942 2.75 50,836 2.00 96,106

Interest sensitive $1,319,263 $1,255,930 $ 63,333

Non-interestsensitive $ 41,418 $ 104,751 $ (63,333)

Total $1,360,681 $1,360,681 $ -

Interest sensitive assets and liabilities cannot normally be perfectly matched by amount and term tomaturity. The credit union utilizes interest rate swaps to assist in managing this rate gap. One of theroles of a credit union is to intermediate between the expectations of borrowers and depositors.

21



8. FINANCIAL MARGIN AND INTEREST (continued)

An analysis of the Credit Union's risk due to changes in interest rates determined that an increase ininterest rates of 1% could result in an increase to net income of $1,376,000 while a decrease ininterest rates of 0.5% could result in an increase to net income of $278,000.

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

9. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING

The Credit Union utilizes derivative financial instruments to mitigate the risk on certain instruments.

The Credit Union does not hold or issue derivative financial instruments for speculative purposes andcontrols are in place to prevent and detect these activities. The tables below provide an overview ofthe Credit Unions's derivative portfolio.


December 31, 2016Maturities of Derivatives (Notional Amounts) Fair ValueWithin 1 year 1 to 5 years Total Asset Liability

Interest rate swaps:Receive fixed $ 40,000 $ 20,000 $ 60,000 $ 648 $ -Pay fixed - - - - -

Foreign exchange 4,000 - 4,000 - 1,404

Index-linked options - 5,932 5,932 373 373

Total $ 44,000 $ 25,932 $ 69,932 $ 1,021 $ 1,777

December 31, 2015Maturities of Derivatives (Notional Amounts) Fair ValueWithin 1 year 1 to 5 years Total Asset Liability

Interest rate swaps:Receive fixed $ 80,000 $ 60,000 $ 140,000 $ 1,114 $ -Pay fixed 10,000 - 10,000 - 109

Foreign exchange 4,500 - 4,500 - 1,750

Index-linked options 926 3,915 4,841 59 59

Total $ 95,426 $ 63,915 $ 159,341 $ 1,173 $ 1,918

22



9. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACCOUNTING (continued)

Interest Rate Swaps

As described in Note 3, the Credit Union issues loans with variable interest rates to its members, whichexposes the Credit Union to interest rate risk. The Credit Union has entered into 1 (2015 - 2)delayed start and 1 (2015 - 2) receive fixed interest rate swap contracts with Central 1 to hedge theCredit Union's exposure to interest rate risks. As at December 31, 2016, the Credit Union hadentered into an interest rate swap contract for a total of $60,000,000 of notional principal wherebyit has agreed to pay at variable interest rates based on Banker's Acceptance rates for one month andreceive at fixed interest rates. The swap contracts are for one year terms and have fixed interestrates ranging from 1.780% and 2.240% and will mature over the next two years.

The agreements are secured by a general security agreement covering all assets of the Credit Union.

Foreign Exchange Swaps

The Credit Union uses foreign exchange derivative instruments as a hedge to manage currency risk.These derivatives consist of US dollar swap transactions which are simultaneous sell/buy and buy/sellof an identical amount of US dollars over two different days at an agreed exchange rate. Boardpolicy governs the amount and term of these instruments.

Equity Index-Linked Deposits

The Credit Union has outstanding $5,960,526 (2015 - $5,039,066) in index linked term deposits toits members. The Index linked term deposits are three and five year deposits that pay interest at theend of the term, based on the performance of a variety of indices. The embedded derivativeassociated with these deposits are presented in assets and liabilities and have a fair value of$372,878 (2015 - $59,333).

The Credit Union has entered into hedge agreements with Central 1 to offset the exposure to theindices associated with this product, whereby the Credit Union pays a fixed rate of interest for theterm of each Index linked term deposits on the face value of the deposits sold. At the end of theterm, the Credit Union receives an amount equal to the amount that will be paid to the depositors,based on the performance of the indices. As at December 31, 2016, the Credit Union had enteredinto such contracts on index linked term deposits for a total of $5,931,501 (2015 - $4,841,439). Theagreements are secured by a general security agreement covering all assets of the Credit Union.

23




Hedge Accounting

Hedge accounting has been applied to the interest rate and foreign exchange swaps describedabove, as the criteria for hedge accounting are met:

• Formal designation and documentation of the hedging relationship has been made;• For cash flow hedges, the hedged item in a forecast transaction is highly probable and presents an

exposure to variations in cash flows that could ultimately affect profit or loss;• The effectiveness of the hedge can be reliably measured; and• The hedge is expected to be highly effective at inception and remains highly effective on each

date it is tested.

The Credit Union has chosen to test the effectiveness of its hedges on a quarterly basis.

The derivatives described above where hedge accounting has been applied are carried at fair valueand are reported as assets where they have a positive fair value and as liabilities where they have anegative fair value, in both cases shown on the statement of financial position. Gains and lossesresulting from changes in the fair value of the effective portion of the derivative instrument arerecorded in other comprehensive income until the hedged item is recognized in income, at which timesuch change is recognized as interest income. The ineffective portion is recognized immediately inincome as other income.

The derivative instruments acquired from Central 1 are cash flow hedges as they modify exposure tovariability in cash flows for variable rate interest bearing instruments and fluctuations in foreignexchange rates. The Credit Union's cash flow hedges are primarily hedges of floating ratecommercial and personal loans. The Credit Union does not currently enter into fair value hedgingrelationships.

Fair Value of Derivatives

The fair value of derivatives is calculated as the present value of the estimated future cash flowsbased on observable yield curves. The following table provides an analysis of derivatives that aremeasured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on thedegree to which the fair value is observable:

• Level 1 fair value measurements are those derived from quoted prices in active markets foridentical assets or liabilities using the last bid price;

• Level 2 fair value measurements are those derived from inputs other than quoted pricesincluded within Level 1 that are observable for the asset or liability, either directly (i.e. asprices) or indirectly (i.e. derived from prices); and

• Level 3 fair value measurements are those derived from valuation techniques that include inputsfor the asset or liability that are not based on observable market data.

24




The level in the fair value hierarchy within which the financial asset or financial liability is categorizedis determined on the basis of the lowest level of input that is significant to the fair value measurement.Financial assets and financial liabilities are classified in their entirety into only one of three levels.

All derivative valuations are Level 2 valuations and there were no transfers between any levels of thefair value hierarchy for the years ended December 31, 2016 and 2015.

10. INVESTMENTS

These instruments are classified as available for sale, except for the CUCO Co-operative Associationshares which are classified as fair value through profit and loss. Investments are initially recognized atfair value plus transaction costs that are directly attributable to their acquisition. Subsequently theyare carried at fair value, unless they do not have a quoted market price in an active market and fairvalue is not reliably determinable in which case they are carried at cost.

Changes in fair value of investments carried at available for sale, except for those arising frominterest calculated using the effective interest rate, are recognized in as a separate component ofother comprehensive income. Change in fair value of investments carried at fair value through profitand loss are recognized through net income as an increase in fair value of investments.

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

Purchases and sales of equity instruments are recognized on settlement date with any change in fairvalue between trade date and settlement date being recognized in accumulated other comprehensiveincome. On sale, the amount held in accumulated other comprehensive income associated with thatinstrument is removed from equity and recognized in net income.

The following tables provide information on the investments by type of security and issuer. Themaximum exposure to credit risk would be the fair value as detailed below.


2016 2015Central 1 Credit Union Limited

- Class A membership shares $ 4,832 $ 4,359- Class E membership shares 3,196 3,196

CUCO Co-operative Association- Class B investment shares 1,733 1,957

GIC - Toronto Dominion Bank - 100

Co-operators General Insurance 11 11

Credential Securities Inc., Debenture 5 5

Concentra Financial 7 7

$ 9,784 $ 9,635

25



10. INVESTMENTS (continued)

The shares in Central 1 are required as a condition of membership and are redeemable uponwithdrawal of membership or at the discretion of the Board of Directors of Central 1. In addition, themember credit unions are subject to additional capital calls at the discretion of the Board of Directorsof Central 1.

Class A Central 1 shares are subject to an annual rebalancing mechanism and are issued andredeemable at par value. There is no separately quoted market value for these shares however, fairvalue is determined to be equivalent to the par value due to the fact transactions occur at par valueon a regular and recurring basis. Fair value is determined based on the rebalancing mechanism usedby Central 1, which calculates the amount of shares a credit union must hold.

Class E Central 1 shares were issued to Ontario Credit Unions as part of the combination agreementbetween CUCO and CUCBC with a par value and are redeemable at the option of Central 1. Thereis no separately quoted market value for these shares. Fair value cannot be measured reliably as thetiming of redemption of these shares cannot be determined, therefore, the range of reasonable fairvalue estimates is significant and the probabilities of the various estimates cannot be reasonablyassessed. Therefore, they are recorded at cost.

The Credit Union is not intending to dispose of any Central 1 shares as the services supplied byCentral 1 are relevant to the day to day activities of the Credit Union.

Dividends on these shares are at the discretion of the Board of Directors of Central 1.

On August 17, 2011 Credit Union Central of Ontario Limited (CUCO) discontinued as a regulatedfinancial institution and continued as a co-operative known as CUCO Cooperative Association (CUCOCo-op). On August 31, 2011 CUCO Co-op purchased the investment portfolio of long term notesfrom ABCP LP in exchange for Class B investment shares which were distributed to the ABCP LP unitholders. At December 31, 2016, the Credit Union held 1,162,761,316 Class B investment shares.

At December 31, 2016 an independent valuation was completed on the underlying investments of theCUCO Cooperative Association and, based on this valuation, CUCO Co-operative provided a level 2estimate of fair value for this investment at $1,732,915 (2015 - $1,957,015).

26



11. MORTGAGE SECURITIZATIONS AND TRANSFERS

For securitization transactions, loans are derecognized only when the contractual rights to receive thecash flows from these assets have ceased to exist or substantially all the risks and rewards of theloans have been transferred. If the criteria for derecognition has not been met, the securitization isreflected as a financing transaction and the related liability is initially recorded at fair value andsubsequently measured at amortized cost, using the effective interest rate method.

During the year the Credit Union securitized residential mortgages of $48,132,300 (2015 -$53,205,319). The Credit Union retains mortgage servicing responsibilities but does not receive anexplicit servicing fee for its servicing responsibilities.

Transferred Financial Assets that are recognized in their entiretyThe table below sets out the carrying amounts and fair values related to transferred loans tomembers that are recognized in their entirety and any associated liabilities. All loans to members areclassified as loans and receivables and are measured at amortized cost in the Statement of FinancialPosition.

2016 2015Carrying amount of assets:

Members' loans $ 139,104 $ 87,341Other securitization assets (Note 14) 2,107 1,518

Carrying amount of associated liabilities: (134,103) (87,430)

Net position $ 7,108 $ 1,429

The Credit Union does not have the ability to use the transferred assets during the term of thearrangement.

12. FOREIGN EXCHANGE RISK

The Credit Union’s foreign exchange risk is related to United States dollar deposits and loansdenominated in United States dollars. The Credit Union limits its foreign currency exposure inaccordance with its exchange risk management policy. Foreign currency changes are continuallymonitored by the asset/liability committee for effectiveness of foreign exchange mitigation activitiesand holdings.

The Credit Union's exposure to changes in currency exchange rates shall be controlled by limiting theunhedged foreign currency exposure to $500,000 in U.S. funds.

For the year ended December 31, 2016, the Credit Union's exposure to foreign exchange risk is incompliance with policy.

There have been no significant changes from the previous year in the policies, procedures andmethods used to measure the risk.

27



13. COMMITMENTS

a) Credit FacilitiesThe Credit Union has a committed line of credit and term loan facilities with Central 1 Credit UnionLimited totaling $54,100,000. As of December 31, 2016 the Credit Union had unused credit facilitiestotaling $50,100,000. The authorized lines of credit bear interest at 1.26%. Security given is anassignment of loans receivable and a general security agreement covering all assets of the CreditUnion.

b) Loan CommitmentsAt December 31, 2016, the Credit Union is committed to advance approximately $6,143,055 onmortgage loans and 48,120,560 on commercial loans. In addition, lines of credit which had beenapproved but not used at year-end totaled approximately $152,412,949.

c) Lease AgreementsThe Credit Union has entered into lease agreements for branch offices. Rental payments for thesebranches for the year ended December 31, 2016 totaled $1,562,584, which is included in occupancyexpense on the Statement of Income.

The minimum future payments in each of the next five years are as follows:


2017 $ 1,5872018 1,5102019 1,4842020 1,4062021 948

d) ContingenciesThe nature of the Credit Union’s activities are such that there may be litigation pending or in progressat any time. With respect to claims at December 31, 2016 management believes the Credit Union hasvalid defences and appropriate insurance coverages in place. In the event any claims are successful,management believes that such claims are not expected to have a material effect on the CreditUnion’s financial position.

14. OTHER ASSETS


Interest receivable $ 481 $ 457Deferred income taxes (Note 16) 1,802 1,642Other securitization assets (Note 11) 2,107 1,518Other assets 3,110 5,279

$ 7,500 $ 8,896

28



15. OTHER EXPENSES2016 2015


Other supplies and postage $ 680 $ 737Equipment costs 550 482Central dues & regulatory assessments 150 152Savings and loan life insurance 81 39Education and staff development 848 897Bonding insurance 107 118Professional services 573 519Collection costs 115 123Telephone 187 175Miscellaneous 214 213

$ 3,505 $ 3,455

16. INCOME TAXES

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

The effects of temporary differences, which give rise to the deferred income tax assets reported inother assets on the balance sheet, are as follows:

Balance as at Balance as atDecember 31 Recognized in December 31

2015 Net Income 2016(thousands of Canadian dollars)

Employee future benefits $ 727 $ 235 962Allowance for impaired loans 595 (42) 553Property and equipment 263 (29) 234Other 57 (4) 53

$ 1,642 $ 160 1,802

29



16. INCOME TAXES (continued)

The provision for income taxes differs from the result which would be obtained by applying thecombined Canadian Federal and Provincial Statutory income tax rates to income before incometaxes. This difference results from the following items:


Income before income taxes $ 4,625 $ 4,481

Statutory income tax rate %26.50 %26.50

Expected income tax expense 1,226 1,187

Increase (decrease) in taxes resulting from:Available credit union small business deduction (234) (403)Tax savings on dividends (482) (471)Non-deductible expenses and other reconciling items 105 (36)

Income tax expense $ 615 $ 277 The income tax expense consists of the following:


Current provision $ 775 $ 139Deferred provision (160) 138

$ 615 $ 277

17. EMPLOYEE FUTURE BENEFITS

Defined Contribution Pension PlanThe Credit Union sponsors a defined contribution pension plan. Contributions to the plan during theyear ended December 31, 2016 were $875,395 (2015 - $826,913).

Defined Benefit Post-Retirement Non-Pension PlanThe Credit Union provides health and dental benefits for retired employees who were employed on afull time basis prior to November 1, 2003. The Credit Union recognizes these post retirement costs inthe period in which the employees render their services. The cost of employee future benefits earnedby employees is actuarially determined using the projected benefit method prorated on services andmanagement’s best estimate of retirement ages of employees, employee turnover and expectedhealth care costs. Gains or losses arising from actuarial assessments are recognized through OtherComprehensive Income. The most recent actuarial valuation of the obligation was performed as atDecember 31, 2016.

30



17. EMPLOYEE FUTURE BENEFITS (continued)

The accrued benefit obligation at December 31, 2016 of $4,930,028 (2015 - $3,726,649) and thenet periodic benefit cost for the year ending December 31, 2016 was determined by actuarialvaluation using a discount rate of 4.10% (2015 - 5.00%).

Information about the Credit Union’s defined benefit plans is as follows:


Accrued benefit obligationBalance at the beginning of the period $ 3,727 $ 3,552Service cost for the period 82 74Interest cost for the period 184 166Benefits cost for the period (91) (65)Actuarial loss 1,028 -

Accrued liability $ 4,930 $ 3,727

Components of net periodic benefit costService cost for the period $ 82 $ 74Interest cost for the period 184 166

Net periodic benefit cost $ 266 $ 240

The main actuarial assumptions employed for the valuations are as follows:

General Inflation (CPI rate) 2.00%Interest (discount) rate 4.10%

Medical costs were assumed to increase at the CPI rate plus 4.40% in 2016, decreasing by 0.21%each year until reaching the CPI rate plus 2.5% in 2022 and thereafter.

Dental costs were assumed to increase at the CPI rate plus 2.6% in 2016 and at the CPI rate plus2.5% thereafter.

Assumed health care cost trend rates have a significant effect on the amounts reported for the healthcare plans. A one-percentage-point change in assumed health care cost trend rates would have thefollowing effects for 2016:

Increase DecreaseTotal of service and interest cost $ 357,000 $ (236,000)Accrued benefit obligation $ 991,000 $ (776,000)

31



18. PROPERTY AND EQUIPMENT

Property and equipment is initially recorded at cost and subsequently measured at cost lessaccumulated depreciation and any accumulated impairment losses, with the exception of land which isnot depreciated. Depreciation is recognized in net income and is provided on a straight-line basisover the estimated useful life of the assets as follows:

Parking lot 25 yearsBuildings 25 - 50 yearsBuildings - interior renovations 10 yearsEquipment - computer 3 - 5 years

- furniture & other 5 - 10 yearsLeasehold improvements Remaining term of the lease

Where components of an item of buildings have different useful lives, they are accounted for asseparate items of buildings.

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

32



18. PROPERTY AND EQUIPMENT (Continued)


CostLand and

Parking Lots Buildings EquipmentLeasehold

Improvements Total

Balance at December 31, 2014 $ 3,677 $ 12,103 $ 8,447 $ 3,669 $ 27,896Additions - 432 951 423 1,806

Balance on December 31, 2015 3,677 12,535 9,398 4,092 29,702Additions 8 187 1,916 1,775 3,886Disposals - (233) (151) (1,096) (1,480)

Balance on December 31, 2016 $ 3,685 $ 12,489 $ 11,163 $ 4,771 $ 32,108

Accumulated DepreciationBalance at December 31, 2014 $ 51 $ 3,451 $ 6,387 $ 2,553 $ 12,442

Depreciation Expense 25 447 848 355 1,675

Balance on December 31, 2015 76 3,898 7,235 2,908 14,117Depreciation Expense 25 446 921 391 1,783Disposals - (233) (151) (1,096) (1,480)

Balance on December 31, 2016 $ 101 $ 4,111 $ 8,005 $ 2,203 $ 14,420

Net Book Value

December 31, 2015 $ 3,601 $ 8,637 $ 2,163 $ 1,184 $ 15,585

December 31, 2016 $ 3,584 $ 8,378 $ 3,158 $ 2,568 $ 17,688

33



19. RELATED PARTY TRANSACTIONS

The Credit Union entered into the following transactions with key management personnel, which aredefined by IAS 24, Related Party Disclosures, as those persons having authority and responsibility forplanning, directing and controlling the activities of the Credit Union, including directors andmanagement.


Compensation:Salaries, and other short-term employee benefits $ 1,193 $ 1,306


Loans to key management personnel:Aggregate value of loans advanced $ 470 $ 752Interest received on loans advanced 15 26Total value of lines of credit advanced 34 38Interest received on lines of credit advanced 1 1Unused value of lines of credit 56 58

The Credit Union’s policy for lending to key management personnel is that the loans are approvedand deposits accepted on the same terms and conditions which apply to Members for each class ofloan or deposit.


Deposits from key management personnel:Aggregate value of term and savings deposits $ 2,195 $ 1,956Total interest paid on term and savings deposits 51 43

The Credit Union’s policy for receiving deposits from key management personnel is that alltransactions are approved and deposits accepted on the same terms and conditions which apply toMembers for each type of deposit. There are no benefits or concessional terms and conditionsapplicable to key management personnel or close family members.

34



19. RELATED PARTY TRANSACTIONS (continued)

Regulatory Reporting

a) Remuneration of Officers and EmployeesThe Credit Unions and Caisses Populaires Act, 1994, requires credit unions to disclose remunerationpaid during the year to the officers and employees of a credit union whose total remuneration for theyear exceeded $150,000. If there are more than five officers and employees of a credit unionwhose total remuneration for the year was over $150,000, the five officers and employees with thehighest total remuneration for the year are disclosed. The table below provides this information forthe 2016 calendar year:

Monetary ValueTotal Salary of Benefits

Received Received

Robert Wellstood, CEO $ 357,602 $ 13,005Julian Sellers, CFO $ 246,948 $ 13,005Jennifer Mowry, VP Human Resources $ 161,488 $ 11,200Crystal Dayman, VP Marketing & Corporate Communications $ 158,133 $ 10,985

b) Restricted Party LoansThe Credit Union has enacted a policy requiring disclosure and Board approval of all restricted partytransactions. Restricted parties have been defined in the policy to include anyone who is, or has beenwithin the preceding twelve months, a Director or Officer of the Credit Union, their spouse or relativesresiding within the same house. The Credit Unions and Caisses Populaires Act, 1994, provides abroader definition of restricted parties which includes all relatives of Directors and Officers. Therewas 1 new loan advanced to restricted parties as defined by policy during the year, and there are14 loans outstanding to such parties with an aggregate value of $1,331,358 at December 31, 2016.

c) Other Statutory InformationPursuant to the requirements of the Credit Unions and Caisses Populaires Act, 1994, the followinginformation is provided:


Director remuneration paid $ 167 $ 164Deposit insurance premium paid $ 720 $ 675

20. STATEMENT OF CASH FLOWS

The following amounts are included in the cash provided by operations:


Interest received on loans to members $ 45,290 $ 43,870Interest paid on member deposits $ 15,558 $ 14,579

35



21. SUBSEQUENT EVENTS

On January 26, 2017, the Board of Directors of the Credit Union passed a resolution to declare adividend of 5% on the Class A Investment Shares, payable to the shareholders of record at December31, 2016.

On January 26, 2017, the Board of Directors of the Credit Union passed a resolution to declare adividend of 3.0% on the Class B Affinity Shares, payable to the shareholders of record at December31, 2016.

On February 22, 2017, the Board of Directors of the credit Union passed a resolution to issueapproximately 1,000,000 Class B Affinity Shares to members of record as at December 31, 2016.

The Class A share offering described in Note 5 closed on January 21, 2017. On February 22, 2017,the Board of Directors approved the issuance of 14,597,787 Class A shares effective as of March 21,2017.

22. STANDARDS, AMENDMENTS, AND INTERPRETATIONS NOT YET EFFECTIVE

Certain pronouncements were issued by the IASB or the IFRS Interpretations Committee that aremandatory for accounting years beginning after January 1, 2016 or later. As disclosed in Note 2under significant judgments and estimates, the Company applied judgments related to the order andexclusion of immaterial disclosures, consistent with the amendment to IAS 1, Presentation of FinancialStatements, which was adopted early.

The Credit Union has not yet determined the extent of the impact of the following new standards,interpretations and amendments, which have not been applied in these financial statements:

• IFRS 9 amends the requirements for classification and measurement of financial assets,impairment, and hedge accounting. IFRS 9 introduces an expected loss model of impairmentand retains but simplifies the mixed measurement model and establishes three primarymeasurement categories for financial assets: amortized cost, fair value through profit or loss,and fair value through other comprehensive income. The basis of classification depends on theentity's business model and the contractual cash flow characteristics of the financial asset. Theeffective date for IFRS 9 is January 1, 2018. The Credit Union is in the process of evaluatingthe impact of the new standard.

• IFRS 16 supersedes IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains aLease, SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the Substance ofTransactions Involving the Legal Form of a Lease. It eliminates the distinction betweenoperating and finance leases from the perspective of the lessee. All contracts that meet thedefinition of a lease will be recorded in the statement of financial position with a “right of use”asset and a corresponding liability. The asset is subsequently accounted for as property, plantand equipment or investment property and the liability is unwound using the interest rateinherent in the lease. The accounting requirements from the perspective of the lessor remainslargely in line with previous IAS 17 requirements. The effective date for IFRS 16 is January 1,2019. The Credit Union is in the process of evaluating the impact of the new standard.

There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected tohave a material impact on the Credit Union's future financial statements.

36

Date post:	15-Oct-2020
Category:	Documents
Upload:	others
View:	2 times
Download:	0 times

Kawartha Credit Union Limited...Payment of mortgage securitization liabilities (1,459) (33,531)...

Documents