SPARK THE TRANSFORMATION

2019 AN N UAL

R E P O R T

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“SPARK is going through a transformation right now. Like the wider Alberta economy, we are facing challenges. But with challenge, comes opportunity. We are expanding our audience. We want to reach more people in the energy community. And that is why we’ve embarked upon this transformation.”

LEO KYLE, Director, 2019 SPARK Board Members

Contents

02 Meeting minutes

04 Report of the Board of Directors

06 Message from the President & CEO

07 Report of the Audit Finance Committee

10 Report of the Credit Committee

12 About SPARK

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1. ROLL CALL by Board President, Adam Battistessa

119 members and 16 guests were present for the meeting.

2. DECLARATION OF QUORUM

Quorum was declared and the meeting was called to order at 6:01 PM by Adam Battistessa.

3. INTRODUCTIONS

The President(1), Adam Battistessa, welcomed all Members and guests and introduced the Board of Directors, staff and management.

The President & CEO(2), Badriea Taha welcomed and acknowledged the guests in attendance.

4. APPOINTMENT OF SCRUTINEERS

The following individuals volunteered to be Scrutineers: • Kirit Gohill and Jim Rivers

Motioned by Reginald Pankewitz, seconded by Danielle Gervais — CARRIED.

5. MINUTES OF LAST MEETING

Jennie Wolter moved that the Minutes of the Annual General Meeting of March 28, 2018 be accepted as presented, seconded by Danielle Gervais — CARRIED.

6. REPORT OF THE BOARD OF DIRECTORS

The President, Adam Battistessa, highlighted the Board of Director’s Report outlining SPARK's evolution and its strategic goals and progress to-date.

Guy Stuart made the motion to accept the Report of the Board of Directors, seconded by Linda Wilson — CARRIED.

7. MESSAGE FROM THE PRESIDENT AND CEO

Badriea Taha presented her message speaking to SPARK's evolution, five key pillars and its period of normalization. Ms. Taha also touched on SPARK's operational results and its strengths.

2019 AGM

Meeting Minutes

Spark The Energy Credit Union Limited Annual General Meeting March 13, 2019 Carriage House Inn

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8. REPORT OF THE AUDIT FINANCE COMMITTEE

Jason Anderson, Chair of the Audit Finance Committee, presented the highlights of the Report for the Audit Finance Committee.

Mustafa Siddiqui moved that the Report of the Audit Finance Committee be accepted as presented, seconded by Huntley O'Neill — CARRIED.

9. REPORT OF THE CREDIT COMMITTEE

On behalf of Badriea Taha, Chair of the Credit Committee, Darryl Hovanak, Manager, Member Solutions, presented the Report of the Credit Committee, highlighting the volume and dollar value of loans granted for 2018.

Belinda Simpson moved that the Report of the Credit Committee be accepted as presented, seconded by Patti Webber — CARRIED.

10. REPORT OF THE NOMINATING COMMITTEE

Charles DeLand announced the following maturing director terms:

• Jason Anderson 3-year term

• Theresa Acchione 3-year term

• Tim Rose 3-year term

• Leo Kyle 2-year Director Trainee term

Mr. DeLand announced the new Board of Directors elected by member vote:

• Theresa Acchione (Incumbent)

• Tim Rose (Incumbent)

• Leo Kyle (Director Trainee Graduate)

• Darlene Harris

Discussion ensued regarding future communication on voting, in particular the options available to members—clearly stated.

Danielle Gervais motioned that the ballots be destroyed, seconded by Dawn Middleton — CARRIED.

Mr. DeLand presented the by-law amendments for approval. Jennie Wolter moved that the by-law amendments be approved as presented, seconded by Pamela Avender — CARRIED.

11. AUDITOR’S REPORT & PRESENTATION OF FINANCIAL STATEMENTS

Doug Kroetsch, External Auditor with RSM, presented the Auditor’s Report, Balance Sheet, Income Statement, and Operating Expenses for the Fiscal Year ending October 31, 2018.

Darryl Hovanak moved that the Auditor’s Report and Financial Statements be accepted as presented, seconded by Badriea Taha — CARRIED.

12. GREETINGS FROM GUESTS

Adam Battistessa introduced Alexandra Frison, Director of Communications, who brought forward greetings from Alberta Central.

Next, the President introduced Wendy Ivey, AVP, Regulation & Risk Assessment, who brought forward greetings from Credit Union Deposit Guarantee Corporation.

13. ADJOURNMENT

On a motion by Randall Stroobant and seconded by Jim Corcoran the meeting was adjourned at 7:16 PM.

NOTES:(1) Board President – by member approval at the March 13, 2019

Annual General Meeting, the Board "President" designation has been amended to Board Chair and has been so reflected in the corporation's by-laws.

(2) President & CEO – the change to the above Board President descriptor was predicated on the appointment of SPARK's General Manager to President & CEO.

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Last year, in the first annual report since the rebranding of SPARK, we celebrated the Evolution of our organization with a new brand, outreach to a broader audience and the definition of a strategic plan to guide the next five years.

As we reflect on 2018-2019, we see that SPARK has entered a period of Transformation. This transformation is apparent in every aspect of our business, from enhanced products, technologies and services, to engaged people and a down-to-earth can-do culture.

SPARK has the good fortune to have good people—on the front lines serving our members, in leadership positions and on the Board. Our people will make our transformation possible.

I am particularly proud of the collaboration between the SPARK leadership team and the Board of Directors. Together, SPARK’s leaders and Board worked through the complex process of finalizing a detailed, five-year strategy.

Creating a five-year detailed strategy is always challenging; but the work was even more challenging while facing the backdrop of Alberta’s current stressed economy. Board

committee members also dedicated considerable effort to developing enhancements in the areas of governance and policy. This combined effort in strategy and improved governance will ensure SPARK’s business is sustainable and secure.

As our operating results describe, we’ve had a disappointing year in meeting some of our financial performance targets.

The inability of some members to meet their obligations due to the economic climate has led to unprecedented loan default write-offs. This trend, combined with a new accounting standard that came into effect this past fiscal year, requiring early recognition of possible future loan losses (IFRS 9), resulted in a significant increase to our credit loss provision in comparison to prior year and budget. The implementation of IFRS 9 also resulted in an increase of $226,148 to the credit loss allowance, an adjustment that was made to Retained Earnings at November 1, 2018. The Audit Finance Committee, along with SPARK’s finance team, deserve recognition for their efforts to implement the complex requirements of IFRS 9. This important change to the reporting for financial instruments required considerable effort, on top of day-to-day business requirements, to ensure SPARK has the processes and systems in place for reporting financial results.

Report of the Board of Directors

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As well, additional investments in personnel, infrastructure and technology related to pursuing our rebrand and growth strategy impacted our cost structure.

Despite these financial headwinds, I am confident the strategy approved by the Board in September provides SPARK with both the direction and flexibility needed to grow and thrive in the next five years.

We had to act quickly and decisively to rebrand and reposition our credit union to grow following Shell’s past oil sands divestment, and more recently the Foothills sour gas assets divestment, which has made taking our credit union in a new direction with our rebrand all the more timely.

We are well-positioned to take advantage of opportunities and to remain resilient in the face of economic challenges, and have maintained all our capital thresholds, both required and self-imposed. The Board has, in the past few months, repositioned our growth strategy to focus on shorter-term financial targets that will make the credit union more robust during these challenging times and fully support the growth strategy when more reasonable financial and economic conditions are sustained.

The Nominating Committee and staff have been busy attracting strong talent and experience to successfully realize our longer term strategy.

We want to applaud the membership for their support in broadening our governance with Directors outside of the Shell and oil and gas sphere of influence.

Throughout this year of transformation, SPARK employees continued to demonstrate service, resilience and tenacity in meeting their goals. These traits have been the hallmarks of our past success and are the foundations for our future growth and prosperity.

I am deeply grateful to my fellow Board members, the SPARK leadership team and all SPARK employees for your commitment to our vision. I am also grateful to our members—both those who have been with us through this period of transformation and to our new members who have chosen SPARK this year. We appreciate your trust and your business.

As we move into this first year of the 2020s, I am confident SPARK will continue to transform and thrive.

ADAM BATTISTESSA Chair SPARK The Energy Credit Union Board of Directors

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Even in a climate of economic uncertainty, it has been rewarding to witness the passion and purpose of our employees, management team and Board members as we transform SPARK together.

Our transformation continues. But even as we tackle new challenges and experience new volatility, we need to reflect on our accomplishments in the past year.

We continue to build a solid foundation of operational efficiency and effectiveness. This foundation is grounded with clear policies, sound business practices and disciplined execution by dedicated employees. We have delivered measurable progress against our scorecard, from member services, to marketing, to management.

Thanks to the commitment and collaboration of our leadership team and Board of Directors, SPARK now has a five-year strategy to guide our growth. With this strategy, approved in September, and our operational progress throughout the past year, we are prepared for the challenges of change. We won’t always know how the economy is going to perform, how the political landscape might shift or how the energy industry will respond, but we know SPARK can and will deliver value to our members.

Our members understand change. They know only too well the impact of change on their industry in the past decade. We thank them for choosing SPARK and for supporting our transformation. Their needs, hopes and dreams give us purpose; we will always strive to develop and offer products and services they want and need.

I also want to thank SPARK’s employees. We have an outstanding team. No matter their role, I count on our employees to provide exceptional service to our members and they deliver, every day. Similarly, our Board of Directors provides leadership, guidance and support, both on the big projects like our five-year strategy, and on countless smaller, but equally important, initiatives. I am grateful to you all.

SPARK’s achievements so far give us confidence for the future. We will continue to listen to our members and to transform our business to serve them better. Together we will grow and succeed.

BADRIEA TAHA President & CEO SPARK The Energy Credit Union

Message from the President & CEO

When SPARK launched with our rebrand in 2018, we eagerly anticipated change and growth, as we expanded our reach to a wider community of members in the energy industry.

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The purpose of the Audit Finance Committee (“the Committee”) is to provide an independent review of the Credit Union’s operations. Specifically, the Committee provides assurance for the integrity of the financial data, adequacy of financial controls and overall adherence to sound business practices. To fulfill this mandate, the Committee meets throughout the year to monitor and evaluate the financial reporting and performance of the business as well as to review internal and external audit results, including management’s responses to any reported deficiencies. The Committee reports its activities to the full Board as a part of every regular Board Meeting.

From an operating performance perspective, the Credit Union had a very difficult year in 2019. The continuing weak economic conditions within the Alberta energy sector have greatly affected our membership and have also heavily impacted the Credit Union’s financial performance in a year where we were also transitioning to a new brand, an open bond operation, and an updated financial accounting standard. These three factors have culminated in a pre-tax loss of $1.55M (after-tax loss of $1.20M) in 2019.

During 2019 we saw a continued tightening of the financial margin as increases in the prime rate during 2017-2018 led to higher deposit rates while the weak market and very competitive loan industry have not allowed matching rate increases with the lending side of the business. In addition, the three largest contributors to our loss were as follows:

• Inability of our members to meet their obligations due to the economic climate has led to unprecedented loan default write-offs totaling $1.07M. The Credit Union recorded $1.05M in credit loss provisions, which exceeded the budget by approximately $847k.

• Additional investments in personnel, infrastructure and technology related to pursuing our rebrand and growth strategy impacted our cost structure by approximately $600k.

• New accounting standard requirements for early recognition of possible future credit losses (IFRS 9) have required us to increase our credit loss allowance by approximately $226k compared to our previously reported 2018 year-end.

Report of the Audit Finance Committee

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Operating Results (Millions)

$-2.0

$-1.5

$-1.0

$-0.5

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

$4.5

$5.0

2015 2016 2017 2018 2019

Financial Margin   $3.68 $4.07 $3.99 $3.99 $3.53

Fn Mrgn After Ln Imp   $3.62 $3.80 $3.61 $3.69 $2.48

Operating Costs   $3.61 $4.11 $3.65 $4.22 $4.69

PreTax Profi t   $0.55 $0.26 $0.68 $0.09 $(1.55)

Profi t Sharing   $0.16 $0.18 $0.23 $0.17 $0.17

Despite the disappointing 2019 performance, the Board authorized a 3% common share dividend ($166k) refl ecting our confi dence in returning to profi table operations in 2021 by fully implementing our focused growth strategy.

Dividends Paid

2015 2016 2017 2018 2019

Dollar Value $161,154 $180,046 $229,697 $174,448 $166,203

Dividend Rate 3.00% 3.25% 4.00% 3.00% 3.00%

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

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Alberta Central Audit Services was engaged to perform internal audit activities for the Credit Union and completed two audits this past year. These internal audits typically concentrate on adherence to internal controls and procedures, and compliance with external policies and regulation. While these audits have confirmed that the Credit Union has strong controls in place, the audit findings have also identified areas for improvement in the implementation and operation of these controls. In addition, specific recommendations for improvements to processes associated with the compliance of Anti-Money Laundering regulations have been implemented during the year.

Looking forward to 2020, we will be implementing two additional new accounting standards. These are:

• International Financial Reporting Standard (IFRS) 16 Leases; and

• International Financial Reporting Interpretations Committee (IFRIC) 23 Uncertainty over Income Tax Treatments in 2020.

IFRS 16 requires lessees to recognize all long-term material leases on their balance sheet while IFRIC 23 provides guidance on the accounting for current and deferred tax liabilities and assets in circumstances where there is uncertainty over income tax treatments. The Credit Union is currently assessing the impact of both standards on its financial statements. These new standards are not expected to have as significant an impact as the IFRS 9 standard implemented this past year.

The Board and management are spending considerable effort in positioning the Credit Union to be able to successfully deliver on our growth targets and be prepared to nimbly modify our approaches to gain an advantage in a difficult environment. The Audit Finance Committee will be increasingly vigilant and proactive in the close monitoring of the business performance versus agreed targets.

In closing, I would like to thank the dedicated Credit Union management and staff for their efforts during this difficult year of operation. It is through their focus and commitment that our membership continues to enjoy the competitive financial products, personal service, and the benefit of the 100% deposit guarantee offered through the Credit Union Deposit Guarantee Corporation.

I would also like to thank the members of the Audit Finance Committee for their active participation and shared insights during their year of service on the Committee and for doing their part to maintain the continued viability of the Credit Union.

BELINDA SIMPSON GEDDES Chair Audit Finance Committee

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In 2019, SPARK The Energy Credit Union continued to weather the changes brought about by the oil and gas industry decline in Alberta.

The conditions faced during 2019 mirrored the trends of 2017 and 2018 as we saw the effects of job loss and income reduction directly affect our members and subsequently the demand for new loans and mortgages. Additionally, existing borrowers experienced challenges of their own, requiring closer monitoring and increased communication strategies to mitigate loan losses.

With the support of enhanced procedures, our employees worked diligently with members to support their financial needs.

Loan activity overall for the year was as follows:

TYPE APPROVED FUNDED

Personal Loans 72 $3,320,359.81

Mortgages 47 $15,142,244.62

Lines of Credit 39 $4,628,589.89

The Credit Union experienced a higher than average level of loan write-offs in 2019. The total write-offs, net of recoveries, were just over $957k, representing 0.47% of the total loan portfolio. To maximize recoveries on written off debts, we have worked closely with third party collection agencies and Trustees, for members who have claimed insolvency through consumer proposal or bankruptcy.

Report of the Credit Committee

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Write-offs – Net of Recoveries

2015 2016 2017 2018 2019 5 Year Average

Net Writeoffs  -$10,718 $204,766 $173,990 $303,470 $957,445 $300,130

Looking ahead, our focus will be growing the value, revenue, and overall quality of the loan portfolio to offset future loss potential while serving member needs.

I would like to thank our employees and the Credit Committee for their exemplary efforts throughout the year, and acknowledge the support provided by our Board of Directors.

BADRIEA TAHA Chair Credit Committee

-$100,000

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

$800,000

$900,000

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At SPARK, we’re made for the hard-working

Albertans who support our dynamic

energy industries.

We believe that energy connects us

all, and we celebrate the people who are

the driving force behind responsible

and sustainable energy production,

distribution and consumption.

We are a financial services institution

owned by the people who bank with us,

our member-owners.

sparkcu.caP

5018

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