restructuring and aligning our organization for the …...The credit union’s Audit Committee and...

1 STABILIZATION CENTRAL CREDIT UNION • 2007 ANNUAL REPORT

Stabilization Central Credit Union of British Columbia

2007 ANNUAL REPORT

aligned for the future


04 Report of Chairperson & CEO 06 Stabilization Activities 07 Master Bond Program 08 Financial Review 26 Board of Directors, Staff & Committees

restructuring and aligning our organizationfor the future


Last year we reported on the operations review of Stabilization Central Credit Union and our decision

to restructure and align the organization for the future. We are pleased to report the restructuring was

successfully completed and the organization now operates in a more economical and efficient manner and

is aligned with our stakeholders. The changes have been extensive and include relocating to the Credit

Union Central of British Columbia (CUCBC) building and reducing our full time staff complement from five

to two. We continue to retain highly qualified former credit union executives on contract to assist with

Supervision Assignments, as required.

In conjunction with our move into the CUCBC building, we have outsourced and aligned most of our back

office administration functions to CUCBC, including:

Accounting •

Treasury Administration•

Human Resources•

The Risk Management Department of CUCBC continues to administer the Master Bond Program for

Stabilization Central.

Our move to the CUCBC building has had a positive impact on our relationship with CUCBC and we are

working in partnership with them on a number of credit union projects.

We are now positioned to take on the challenges we will face in the future. That future may include

opportunities beyond the BC border. Management is actively working to determine if, as a result of the

mergers between the Central Credit Union’s of Ontario and British Columbia, there is an opportunity to

provide Supervisory or Master Bond Services in Ontario on a fee for service basis.

At our strategic planning session, the directors made substantive changes to the organization’s Vision and

Mission Statements. The Statements set out below place emphasis on the organization partnering with

credit unions to assist in their business success.

vision statement

We are respected by all Canadian Credit Unions as a valued partner in their business success.

mission statement

We work in partnership with credit unions providing proactive, customized solutions and valuable

information so as to strengthen their business practices, with a focus on self sufficiency and sound financial

management.

Report of Chairperson & CEOre

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In terms of our current key roles and responsibilities, Stabilization Central continues to:

Accept Supervision assignments as the Supervisory Authority, as defined in the 1. Financial Institutions Act.

Work with credit unions under stress that could lead to Regulatory Action.2.

Provide value added services including: 3.

The ongoing publication of discussion papers on current issues relevant to credit union operations. •Recent publications include, Ready for the Rise and Early Warning Indicators;

Assist credit unions with Enterprise Risk Management (ERM); and•

Assist credit unions in the area of Information Technology Governance.•

summary

2007 has been busy and challenging for the directors and management. We have met those challenges

and we feel we now have an organization ready to meet our member needs in British Columbia and

positioned to expand into other jurisdictions.

Alan Bajkov Lorne Myhra Chief Executive Officer Chairperson


supervision and support activities

2007 began with four credit unions under Supervision: Khalsa, Enderby & District, Lakeview and Van/Tel

Safeway. During 2007, Greater Victoria Savings requested Voluntary Supervision, Enderby & District was

released by FICOM in May 2007 and Van/Tel Safeway merged with Vancity in April 2007. The members

of Greater Victoria Savings voted in favour of a merger with Vancity in December, with the effective date

of January 31, 2008. During the year, Stabilization Central worked with several other credit unions facing

potential regulatory intervention.

We were most pleased to have Enderby & District released and we acknowledge the hard work and

dedication of the directors and management for this success.

Stabilization Central provided modest financial assistance to facilitate the merger of Arrow Credit Union

with VantageOne Credit Union of Vernon. At the time of the merger, Arrow, operating in the Village of

Edgewood, provided service 3 days per week to its members with assets of $1.4 million. The merger will

result in expanded credit union services being provided to the residents of Edgewood.

financial activity

2007 was a year of strong financial performance for Stabilization Central. The results of our restructuring

are clearly evident in our Administrative Expenses which declined by $459,000 in 2007. Our 2008 Budget

target is a further reduction in Administrative Expenses of $376,000. The net result over a two year period

will be a reduction in Administrative Expense of $835,000 or 43.4%. This will be accomplished without

diminishing our service levels.

Stabilization Activitiesst

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Responsibility for the Master Bond Program was assigned to Stabilization Central by FICOM in 1991.

Stabilization Central contracts Credit Union Central of British Columbia for the day to day operations of the

program, but retains responsibility for strategic oversight and overall program delivery.

The Program is operated in accordance with several fundamental principles, which include:

The primary responsibility for the management of covered risks rests with each credit union. Each credit •

union’s claims experience influence its assessment and deductible limits The retained risk level within

the program is periodically actuarially reviewed to ensure that it is adequate to cover expected losses.

Excess insurance is in place for infrequently occurring large losses.

The Program is managed to achieve equity within the credit union system, and at the same time, be •

market competitive. In response to this, the assessments paid by credit unions, by asset size category,

are compared with claims experience.

The Master Bond Program provides ongoing education and ensures credit unions are aware of ongoing •

and emerging risks through regular bulletins, seminars, and visits to credit union premises.

2007 was a successful year for the Master Bond Program.

Reported claims in 2007 totaled $1.1 million, compared with $2.2 million reported in 2006. Forgery

losses were significantly reduced from $1.1 million to $430,000. The number of plastic card fraud claims

increased, but effective loss prevention limited the total amount claimed under the program to $610,000,

compared with $640,000 in 2006.

The reduction in reported claims resulted in the Master Bond Program being more attractive in the

insurance marketplace. And management was able to obtain competitive excess insurance from a new

insurer which provides higher limits with significant premium savings.

The Fraud Alert System had a major impact in containing losses from plastic card fraud. This system is

operated by Credit Union Central of British Columbia’s Risk Management Department and is used to detect

fraudulent plastic card use reduced the average loss per card for B.C. credit unions by 42% during the year.

Going forward, management will continue to focus resources to support credit unions in controlling losses

and claims, and will continue to ensure that the Master Bond Program provides good value to member

credit unions.

Master Bond Program


These financial statements have been prepared by the management of Stabilization Central Credit Union

of British Columbia, who is responsible for their reliability, completeness and integrity. They conform in

all material respects with generally accepted accounting principles and have been prepared in accordance

with the requirements of the Financial Institutions Act of British Columbia. The financial information

presented elsewhere in this Annual Report is consistent with the information in the financial statements.

The credit union’s systems of internal control and reporting procedures are designed to provide reasonable

assurance that financial records are complete and accurate, and to safeguard the assets of the organization.

These systems include establishment and communication of standards of business conduct throughout the

organization to prevent conflicts of interest and the unauthorized disclosure of information, as well as to

provide assurance that all transactions are authorized and that proper records are maintained.

The credit union’s Audit Committee and Board of Directors oversee management’s responsibilities for the

financial reporting and internal control systems.

KPMG LLP, the external independent auditors appointed by the membership, have examined these financial

statements in accordance with Canadian generally accepted auditing standards. They have full and

complete access to, and meet periodically with, the Audit Committee to discuss their audit and matters

arising therefrom. Their report appears herein.

Management’s Responsibility for Financial Reportingfin

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Alan Bajkov Chief Executive Officer


strong financial performancefor the future


To The Members of Stabilization Central Credit Union of British Columbia

We have audited the balance sheet of Stabilization Central Credit Union of British Columbia as at

December 31, 2007 and the statements of operations and retained earnings, comprehensive income,

accumulated other comprehensive income, and cash flows for the year then ended. These financial

statements are the responsibility of management. Our responsibility is to express an opinion 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 plan and perform an audit to obtain reasonable assurance whether the financial

statements are free of material misstatement. An audit includes examining, on a test basis, evidence

supporting the amounts and disclosures in the financial statements. An audit also includes assessing the

accounting principles used and significant estimates made by management, as well as evaluating the

overall financial statement presentation.

In our opinion, these financial statements present fairly, in all material respects, the financial position of

Stabilization Central as at December 31, 2007 and the results of its operations and its cash flows for the

year then ended in accordance with Canadian generally accepted accounting principles.

Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken

as a whole. The current year’s supplementary information included in Schedules 1, 2 and 3 is presented

for purposes of additional analysis and is not a required part of the basic financial statements. Such

supplementary information has been subjected to the auditing procedures applied in the audit of the basic

financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic

financial statements taken as a whole.

KPMG LLP

Chartered Accountants Vancouver, Canada March 5, 2008

Auditors’ Reportfin

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As at December 31 Notes 2007 2006

Assets

Cash 10 $ 88,981 —

Investments 4, 9(b) 45,330,251 $ 39,779,820

Credit union deposits 842,688 823,542

Prepaid insurance 380,942 439,051

Future income taxes — 49,570

Other assets 330,959 346,066

$ 46,973,821 $ 41,438,049

Liabilities and Members’ Equity

Bank indebtedness $ — $ 178,120

Accounts payable and accrued liabilities 591,023 604,409

Future income taxes 450,816 —

Unearned assessments 1,620,882 663,564

Provision for master bond claims 941,794 1,462,197

3,604,515 2,908,290

Members’ Equity

Share capital 6 42,573 $ 42,573

Contributed surplus 1,383,659 1,383,659

Retained earnings 39,003,861 37,103,527

Accumulated other comprehensive income 2,939,213 —

43,369,306 38,529,759

Commitments 9

$ 46,973,821 41,438,049

See accompanying notes to financial statements.

Approved on behalf of the Board,

Balance Sheet

Lorne Myhra Angela Kaiser Chairperson, Board of Directors Chairperson, Audit Committee


Years ended December 31 Notes 2007 2006

Revenue

Investment income $ 2,338,190 $ 2,852,524

Net gains on sale of investments 717,802

Assessments 2,270,491 1,368,842

5,326,483 4,221,366

Direct expenses (recoveries)

Bond claims and insurance 1,057,279 1,931,068

Provision for credit union financial assistance,net of recoveries 5 36,651 (28,126)

1,093,930 1,902,942

Administrative expenses

Salaries & benefits 10 1,403,887 1,730,576

Office 199,627 243,000

Professional services 154,419 234,135

Travel and meetings 135,788 168,886

Investment advisory fee 131,357 134,942

Directors remuneration 61,000 64,000

Data processing and systems development 43,736 49,390

Other 293,030 137,636

2,422,844 2,735,565

Total expenses 3,516,774 4,638,507

Earnings (loss) before income taxes 1,809,709 (417,141)

Income taxes (recovery) 7

Current (17,058) (48,777)

Future (73,567) (49,570)

(90,625) (98,347)

Net earnings (loss) 1,900,334 (318,794)

Retained earnings, beginning of year 37,103,527 37,422,321

Retained earnings, end of year $ 39,003,861 $ 37,103,527


Statements of Operations & Retained Earnings


Years ended December 31 2007 2006

Net earnings (loss) $ 1,900,334 $ (318,794)

Other comprehensive income, net of tax

Net unrealized losses on available-for-sale assets1 (894,421) —

Reclassification of gains on available-for-saleassets to net income2 (602,953) —

Other comprehensive income (1,497,374) —

Comprehensive income $ 402,960 $ (318,794)

Income taxes (recoveries) deducted from above items1Net unrealized losses on available-for-sale assets $ (170,363) $ —2Reclassification of gains on available-for-sale

assets to net income $ (114,848) $ —

Statements of Accumulated Other Comprehensive Income

Years ended December 31 Notes 2007 2006

Balance, beginning of year $ — —

Transition adjustments on adoption ofnew accounting standards 3 4,436,587 —

Other comprehensive income, net of relatedincome tax recovery of 285,211 (1,497,374) —

Balance, end of year $ 2,939,213 $ —


Statements of Comprehensive Income


Years ended December 31 2007 2006

Cash provided by (used in):

Operations

Net earnings (loss) $ 1,930,334 $ (318,794)

Items not involving cash:

Net change in bond amortization (85,941) 189,978

Net change in accrued interest 5,760 (138,942)

Gain on sale of investments (717,802) (758,410)

1,102,351 (1,026,168)

Changes in other non-cash working capital items

Prepaid insurance 58,109 (25,349)

Payable and accruals (13,386) 114,228

Provision for master bond claims (520,403) (457,700)

Unearned assessments 957,318 (40,979)

Future income tax assets and liabilities 479,414 (49,570)

Other 36,079 (119,116)

997,131 (578,486)

Investments

Net (purchase) disposition of investments (1,813,235) 1,490,630

Increase in credit union deposits (19,146) (19,526)

(1,832,381) 1,471,104

Increase in cash and cash equivalents 267,101 (133,550)

Cash and cash equivalents, beginning of year (178,120) (44,570)

Cash and cash equivalents, end of year $ 88,981 $ (178,120)

Supplemental cash flow information:

Income taxes (refunded) paid $ (101,083) $ 158,694

Cash and cash equivalents includes cash and bank indebtedness.


Statements of Cash Flows


Notes to Financial Statements Year ended December 31, 2007 and 2006

Governing legislation and operations1

The purpose of Stabilization Central Credit Union of British Columbia (Stabilization Central) is to

strengthen British Columbia’s credit unions, which are also required to be members. Stabilization

Central is incorporated under the Credit Union Incorporation Act and designated as the stabilization

authority under the Financial Institutions Act.

(a) Stabilization Fund:

Stabilization Central develops programs to promote credit union self discipline, monitors credit unions

for emerging risk, and works in co-operation with credit unions to ensure appropriate corrective

action is taken if weaknesses are identified. Stabilization Central may assume, by delegation from

the Financial Institutions Commission, responsibility for the supervision of credit unions and may also

provide management resources to act as the administrator of a credit union. Stabilization Central

maintains the Stabilization Fund and may provide or arrange stabilization and other assistance for

member credit unions that encounter problems, including financial assistance for deposit protection

purposes. Operations are financed by member assessments and earnings on Stabilization Fund equity.

An unrestricted letter of credit of $20 million, obtained from Credit Union Central of British Columbia

(CUCBC) was provided to the Credit Union Deposit Insurance Corporation of British Columbia (CUDIC) in

2005 on behalf of Stabilization Central. CUDIC, may, at its sole discretion, call on this facility to support

its deposit insurance obligations.

(b) Master Bond Fund:

The Master Bond Fund provides bonding protection for all British Columbia credit unions. The Fund

self-insures against limited risks and obtains insurance against major risks. Stabilization Central

assumes 100% of the risk for the first $1,025,000 of individual losses, less any applicable credit

union deductible, to a maximum annual aggregate assumed loss of $5.0 million. Stabilization Central

maintains the Master Bond Fund to settle claims within the retained self-insurance limits. A contract

with an insurance company insures against individual losses in excess of $1,025,000 up to a single

loss limit of $45 million and aggregate losses to an annual maximum loss limit of $90 million.

Operations are financed by risk based member assessments and by earnings on Master Bond Fund

equity.


Significant accounting policies2

(a) Basis of presentation:

These financial statements are prepared in accordance with Canadian generally accepted accounting

principles (GAAP) as determined by the Canadian Institute of Chartered Accountants (CICA). These

financial statements include the combined assets of the Stabilization Fund and the Master Bond Fund.

Accompanying schedules provide details as to the financial position and the operations for each fund.

(b) Use of estimates:

The preparation of financial statements in accordance with Canadian generally accepted accounting

principles requires management to make estimates and assumptions that affect the reported amount of

assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements, and

reported amounts of revenue and expenses during the reporting period.

Certain amounts recorded in the financial statements, including provisions for unpaid claims, provision

for credit union assistance and accounting for income taxes require management to make subjective or

complex judgments. Actual results could differ materially from those estimates.

(c) Investments:

Stabilization Central has classified or designated its investments available-for-sale and held-to-maturity.

Investments are recognized on a settlement date basis, with transaction costs added to cost base of

available-for-sale securities. Fair value changes between the trade date and settlement date are accounted

for in the same manner as recognized assets in the same classification/designation category.

Investments classified as available-for-sale are recognized at fair value with changes in fair value recorded

in other comprehensive income (OCI), net of tax. Equity securities, designated as available for sale in

respect of which market information is not readily available are recognized at cost in the balance sheet.

Investments that Stabilization Central has both the ability and the intent to hold until maturity are classified

as held-to–maturity and are recognized on the balance sheet at amortized cost using the effective interest

rate method.

Interest income on available-for-sale and held-to-maturity assets included in net earnings is determined

using the effective interest rate method. Realized gains and losses on disposal are credited or charged to

net earnings under net gains on sale of investments. Income on pooled fund investments is recorded at

the date of settlement of the distribution.

Where other than temporary impairment in the fair value of Stabilization Central’s securities exists,

Stabilization Central records a provision against the underlying asset, which is included in net earnings at

the time the impairment is identified.

Notes to the Financial Statements Year ended December 31, 2007 and 2006


(d) Credit union deposits:

Credit union deposits are designated as held-to-maturity and are recognized on the balance sheet at

amortized cost.

(e) Provision for credit union financial assistance:

Stabilization Central may provide financial assistance either directly to a credit union or to support an

acquisition by, or merger with, another credit union. Financial assistance may be in the form of a grant,

loan, deposit, guarantee of asset values, or the purchase of substandard loans.

Assistance offered to credit unions exposes Stabilization Central to possible financial obligations based on

the occurrence or non-occurrence of certain events after the reporting date. Where Stabilization Central has

issued financial guarantees which meet the definition of a derivative, such derivatives are recognized on

the balance sheet at fair value.

A provision for financial assistance is established which represents management’s estimate of the

fair value of Stabilization Central’s obligations under these agreements. Changes in the fair value of

Stabilization Central’s obligations related to credit union financial assistance are recognized in the

Statement of Operations under Provision for credit union financial assistance.

(f) Provision for master bond claims:

The provision for master bond claims includes an estimate of the costs of investigating and settling claims

discovered prior to the balance sheet date. Estimates are based on detailed review of claim files and on

claims settlement experience.

(g) Unearned assessments:

Assessments are recognized on a straight line basis over the term of the assessment period.

(h) Future income taxes:

Stabilization Central follows the asset and liability method of accounting for income taxes, whereby

future income tax assets and liabilities are recognized for the expected future income tax consequences

attributable to temporary differences between the financial statement carrying amount of existing assets

and liabilities and their respective tax bases. Future income tax assets and liabilities are measured during

enacted or substantively enacted tax rates expected to apply to taxable income in the years in which

those temporary differences are expected to be recovered or settled.

(i) Pension plan:

Stabilization Central is a participating member of the British Columbia Credit Union Employees’ Pension

Plan, a contributory defined-benefit multi-employer pension plan. Insufficient information is available to

apply defined benefit accounting. Therefore, this plan is accounted for on a defined contribution basis.


Significant accounting policies (continued)2

(j) Comparative figures:

Certain comparative figures have been reclassified to conform with the financial statement presentation

adopted for the current year.

Change in accounting policies3

(a) Current year changes:

Effective January 1, 2007 Stabilization Central adopted CICA Handbook sections 1530 - Comprehensive

Income and 3855, Financial Instruments - Recognition and Measurement.

Comprehensive Income

Comprehensive income includes net earnings and OCI. Stabilization Central recognizes changes in fair

value of its financial instruments in OCI, net of tax. The cumulative amount recorded in OCI is included in

accumulated other comprehensive income (AOCI) which is included in the balance sheet under

members’ equity.

Financial Instruments - Recognition and Measurement

Section 3855 establishes a framework for recognizing and measuring financial instruments, which includes

financial assets and financial liabilities as well as derivative instruments and embedded derivatives.

Measurement in subsequent periods depends on the classification or designation applied on initial

recognition of the financial instrument.

Prior to the adoption of these new standards, Stabilization Central’s securities were included in the balance

sheet at amortized cost.

Impact of adopting Sections 1530 and 3855

On adoption of these new standards, Stabilization Central increased the carrying value of its investment

portfolio by $5,281,650 recognized a future tax liability of $845,063 and recorded an adjustment to AOCI of

$4,436,587. Also on transition, credit union deposits were designated as held-to-maturity.

(b) Future accounting and reporting changes:

Effective January 1, 2008 Stabilization Central will adopt CICA Handbook Sections 1535 – Capital Disclosures,

3862 – Financial Instruments, Disclosures and 3863 – Financial Instruments, Presentation. These standards

will require Stabilization Central to provide additional information with respect to the management of

the capital of the organization as well as the risks that the organization is exposed to as a result of the

financial instruments it holds. These standards have no impact on the recognition and measurement of

amounts included in the financial statements.

Notes to the Financial Statements Year ended December 31, 2007 and 2006


Investments4

Investments classified as available for sale are as follows:

Effective interest rate

Maturity 2007 Total

2006 TotalLess than 1 year 1 to 5 years Over 5 years

Bonds

Government of Canada 3.99% $ 629,629 $ 6,755,670 $ 7,460,472 $ 14,845,780 $ 17,017,314

Provincial and municipal 4.71 — — 10,429,601 10,429,601 8,478,388

Corporate 4.76 — 65,247 411,002 476,249 413,328

629,629 6,820,926 18,301,075 25,751,630 25,974,030

Pooled bond funds — 9,413,909 6,950,906

Pooled equity funds — 6,312,168 6,826,234

Other investments — 353,480 26,650

Amortized cost 41,831,187 39,779,820

Unrealized gains 3,499,064 5,281,651

$ 45,330,251 $ 45,061,471

Securities are recognized on the balance sheet at fair value as at December 31, 2007. In 2006 securities

were recognized on the balance sheet at amortized cost, the fair value of which exceeded their amortized

cost by $5,281,650.

Stabilization Central is exposed to interest rate risk as changes in interest rates could have adverse

consequences on Stabilization Central’s cash flows, fixed income investments, financial position and

earnings. The fair value of Stabilization Central’s investments is affected by changes in interest rates.

Provision for credit union assistance5

(a) Chemainus Credit Union:

During 2004, Coastal Community Credit Union purchased all of the assets and assumed all the liabilities

of Chemainus Credit Union. Chemainus Credit Union was under the delegated supervision of Stabilization

Central at the time. In relation to this transaction, Stabilization Central has agreed to indemnify Coastal

Community in the event they experience losses for credit and contingent risks assumed in excess of a

specific amount. No provision has been made at this time, as it is considered by management to be

unlikely that there will be any payments made under this agreement.


Provision for credit union assistance (continued)5

(b) Other Financial Assistance Agreements:

In 1999, financial assistance was provided to arrange the acquisitions of Sointula Credit Union and of Alert

Bay and District Credit Union by Evergreen Savings Credit Union. In 2001, financial assistance was provided

to arrange the acquisition of K.C.P. Credit Union by Valley First Credit Union.

The estimated cost of these financial assistance agreements was recognized in the accounts of Stabilization

Central in 1999 and 2001. These agreements included the purchase of a portfolio of loans, the guarantee

of loans, and protection for contingent risks. Based on a current estimate of Stabilization Central’s

remaining obligations under these agreements, and the residual value of purchased loans, management

determined that no provision is required.

In 2007, limited financial assistance was provided for the acquisition of Arrow Credit Union by VantageOne

Credit Union. This agreement covered a portion of the costs required to upgrade the Arrow branch located

in Edgewood, BC. During the year, Stabilization Central recorded a charge to earnings of $60,000 related to

this agreement.

Share capital6

Authorized

Stabilization Central may issue an unlimited number of Class A voting shares of $1 each par value. Class A

shares are held by member credit unions only, with each member’s shareholding based on its total assets.

Class A voting rights are based on the number of members of that credit union and not the number of

Stabilization Central shares held.

Stabilization Central may issue an unlimited number of Class B non-voting shares of $1 each par value.

Each member’s Class B shareholding requirement is based on its proportionate participation in the Master

Bond Fund.

2007 2006

Issued:

Class A shares $ 32,301 $ 32,301

Class B shares 10,272 10,272

$ 42,573 $ 42,573

Notes to the Financial Statements


Income taxes7

Stabilization Central is a deposit insurance corporation for income tax purposes, and pays income taxes

on its taxable income at the applicable reduced rate. Income for tax purposes excludes Stabilization Fund

and Master Bond Fund assessments made against its member credit unions, as well as related financial

assistance given to or paid on behalf of member credit unions.

A reconciliation of the income tax recognized in the financial statements to that which would be

determined using the statutory rates is presented below.

2007 2006

Income taxes otherwise payable based on reportednet earnings using the statutory rate $ 307,651 17.00% $ (41,631) (9.98)%

Adjustments for effect of:

Assessments to members excluded fromincome for tax purposes (367,391) (20.30) (120,456) (28.88)

Assistance to members not deductible from income for tax purposes 23,702 1.31 109,060 26.14

Non-taxable dividend income (51,409) (2.84) (25,835) (6.19)

Effect of change in tax rates — — (22,896) (5.49)

Other differences (3,178) (0.17) 3,411 0.82

Income taxes per financial statements $ (90,625) (5.00)% $ (98,347) (23.58)%

Pension plan:8

As at December 31, 2006, the multi-employer plan actuary reported that the plan had an excess of

plan assets over actuarial liabilities for accrued pension benefits of $9.0 million. The plan actuary further

reported that, by making use of the actuarial surplus, no change would be required to be made to the

current level of employer contributions prior to January 1, 2010. During the year, Stabilization Central made

contributions to the plan in respect of its employees totalling $31,953 (2006 - $34,815). An actuarial

review, which would be effective as at December 31, 2009, is expected to be completed during 2010.


Commitments:9

(a) Lease commitments:

Stabilization Central leases premises, owned by CUCBC, with the lease extending until 2010. Annual

payments under the lease, including operating costs, approximate $14,000 per year.

(b) Collateral for credit facilities:

Certain investments have been pledged to CUCBC as security for credit facilities, which includes the special

line of credit of $20 million (note 1(a)) and an operating line of credit of $2 million.

The aggregate of the principal balances outstanding on these lines of credit and the undrawn amount

under all outstanding letters of credit shall not exceed 95% of the market value of the collateral.

Related party transactions:10

CUCBC provides services to Stabilization Central including the administration of claims for Master Bond

Fund, accounting services, human resources services and information systems management services under

various contractual arrangements. The total amounts paid to CUCBC under these agreements during the

year was $1,026,332 (2006 - $763,329)

Stabilization Central’s leases office space from CUCBC.

Cash balances are held with CUCBC.

Notes to the Financial Statements


Stabilization Fund Master Bond Fund Total

As at December 31 2007 2006 2007 2006 2007 2006

Assets

Cash $ 84,959 $ — $ 4,022 $ — $ 88,981 $ —

Investments 36,464,924 32,909,630 8,865,327 6,870,460 45,330,251 39,779,820

Credit union deposits 842,688 823,542 — — 842,688 823,542

Prepaid insurance — — 380,942 439,051 380,942 439,051

Future income taxes — 49,570 — — — 49,570

Other 139,610 89,421 191,349 256,645 330,959 346,066

$ 37,532,181 $ 33,871,893 $ 9,441,640 $ 7,566,156 $ 46,973,821 $ 41,438,049

Liabilities andMembers’ Equity

Bank indebtedness $ — $ 178,540 $ — $ (420) $ — $ 178,120

Accounts payables andaccrued liabilities 326,252 384,992 264,771 219,417 591,023 604,409

Future income taxes 558,660 — (107,844) — 450,816 —

Unearned assessments — — 1,620,882 663,564 1,620,882 663,564

Provision for masterbond claims — — 941,794 1,462,197 941,794 1,462,197

884,912 563,532 2,719,603 2,344,758 3,604,515 2,908,290

Members’ equity

Share capital 32,301 32,301 10,272 10,272 42,573 42,573

Contributed surplus — — 1,383,659 1,383,659 1,383,659 1,383,659

Retained earnings 34,176,972 33,276,060 4,826,889 3,827,467 39,003,861 37,103,527

Accumulated othercomprehensive income 2,437,996 — 501,217 — 2,939,213 —

36,647,269 33,308,361 6,722,037 5,221,398 43,369,306 38,529,759

$ 37,532,181 $ 33,871,393 $ 9,441,640 $ 7,566,156 $ 46,973,821 $ 41,438,049

Fund Assets, Liabilities & Members’ Equity Schedule 1



Year ended December 31 2007 2006 2007 2006 2007 2006

Operations

Revenue

Investment Income $ 1,924,331 $ 1,704,914 $ 413,859 $ 389,234 $ 2,338,190 $ 2,094,108

Trading Gains 590,751 627,433 127,051 130,977 717,802 758,410

Assessments — — 2,270,491 1,368,842 2,270,491 1,368,842

2,515,082 2,332,317 2,811,401 1,889,053 5,326,483 4,221,360

Direct expenses

Insurance and brokerage — — 830,109 810,160 830,109 810,160

Claims — — 227,170 1,120,908 227,170 1,120,908

— — 1,057,279 1,931,068 1,057,279 1,931,068

Credit union financialassistance (recovery) 36,651 (28,126) — — 36,651 (28,126)

36,651 (28,126) 1,057,279 1,931,068 1,093,930 1,902,942

Administrative expenses

Salaries and directorsremuneration 814,853 1,235,773 650,034 531,803 1,464,887 1,767,576

Office 181,970 170,170 17,657 16,916 199,627 187,086

Other 468,007 517,748 290,323 263,149 758,330 780,897

1,464,830 1,923,696 958,014 811,868 2,422,844 2,735,559

Earnings (loss) beforeincome taxes 1,013,601 436,746 796,108 (853,887) 1,809,709 (417,141)

Income taxes (recovery) 121,689 370 (203,314) (98,717) (90,625) (98,347)

Net earnings (loss) 900,912 436,376 999,422 (755,170) 1,900,334 (318,794)

Retained earnings,beginning of year 33,276,060 32,839,684 3,827,467 4,582,637 37,103,527 37,422,321

Retained earnings,end of year $ 34,176,972 $ 33,276,060 $ 4,826,889 $ 3,827,467 $ 39,003,861 $ 37,103,527

Fund Operations & Retained Earnings Schedule 2



December 31 2007 2006 2007 2006 2007 2006

Net Earnings $ 900,912 $ 436,376 $ 999,422 $ (755,170) $ 1,900,334 $ (318,794)

Other comprehensiveincome net of tax

Net unrealized losses onavailable-for-sale assets (736,409) — (158,012) — (894,421) —

Reclassification of losseson available-for-saleassets to net income (496,232) — (106,721) — (602,953) —

Other comprehensiveincome (1,232,641) — (261,879) — (1,479,547) —

Comprehensive income $ (331,729) $ 436,376 $ 734,689 $ (755,170) $ 402,960 $ (318,794)

Accumulated othercomprehensive income,beginning of year $ — $ — $ — $ — $ — $ —

Transition adjustments onadoption of newaccounting standards 3,670,637 — 765,950 — 4,436,587 —

Other comprehensiveincome (1,232,641) — (264,733) — (1,497,374) —

Accumulated othercomprehensive income,end of year $ 2,408,972 $ — $ 495,251 $ — $ 2,939,213 $ —

Comprehensive Income & Accumulated Other Comprehensive Income Schedule 3


Committee Members Functions

Audit Full Board

Angela Kaiser, Chairperson

The Audit Committee’s responsibilities include oversight

of the activities of the external auditor, assessment of

accounting policies and the adequacy of the internal controls.

Conduct Review Brian Bentley, Chairperson

Tony Clare

Lorne Myhra

The Conduct Review Committee is responsible for

establishing policies and procedures to address conflict of

interest, standards of conduct and to maintain sensitive

information confidential.

Investment

and Loan

Full Board, plus CEO

Jim Miller, Chairperson

The Investment and Loan Committee is responsible for

ensuring there is an appropriate, prudent policy to govern

the employment of the funds entrusted to the organization

and to oversee the employment of those funds.

Executive Lorne Myhra, Chairperson

Tony Clare, Vice-Chairperson

Brian Bentley

The Executive Committee discharges responsibilities of the

Board of Directors as delegated, and oversees the terms of

employment of the CEO.

Nominating Tony Clare, Chairperson

Gene Blishen

Jim Miller

The Nominating Committee oversees the director election

process, including ensuring that qualified candidates are

nominated for director positions.

Risk Assessment

Advisory

Full Board and CEO The Risk Assessment Advisory Committee oversees the

risk assessment activities of the organization, this includes

receiving reports on credit union system risk matters and

providing direction.

Board of Directors, Staff and Committees

Board of Directors & Terms of Office

Brian Bentley Director 2007 - 2010

Chief Executive Officer, Integris Credit Union

Gene Blishen Director 2007 - 2009

General Manager, Mount Lehman Credit Union

Tony Clare 1st Vice Chair 2007 - 2009

Director, Summerland & District Credit Union

Angela Kaiser Director 2007 - 2008

Director, Prospera Credit Union

Doug Lang Director 2007 - 2008

Director, Coastal Community Credit Union

Jim Miller Director 2007 - 2010

Chief Executive Officer, Creston & District Credit Union

Lorne Myhra Chairperson

Chief Executive Officer, Heritage Credit Union

Management & Staff

Alan Bajkov Chief Executive Officer

Paola Wilford Administrative Assistant/Board Secretary


our mission

We work in partnership with credit unions providing proactive, customized solutions and valuable information so as to strengthen their business practices, with a focus on self sufficiency and sound financial management.

corporate values

Recognize the independence and interdependence of our member • credit unions;

Show respect for the individuality of our member credit unions;•

Adopt solutions that are both long-term, cost-efficient and in the best interests of the •

credit union system;

Conduct ourselves in a professional manner;•

Approach problems proactively;•

Act decisively;•

Value our staff as a key corporate asset; and•

Promote a co-operative approach.•

Stabilization Central Credit Union of British Columbia

Second Floor - 1441 Creekside Drive • Vancouver BC • V6J 4S7 tel 604.730.5107 fax 604.730.5110 www.stabil.com

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