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ACCESS CREDIT UNION LIMITED

Consolidated Financial StatementsFor the year ended December 31, 2016

ACCESS CREDIT UNION LIMITED

Consolidated Financial StatementsFor the year ended December 31, 2016

Contents

Independent Auditor's Report 2

Consolidated Financial Statements

Consolidated Balance Sheet 3

Consolidated Statement of Comprehensive Income 4

Consolidated Statement of Changes in Members' Equity 5

Consolidated Statement of Cash Flows 6

Notes to Consolidated Financial Statements

1. Corporation Information 7

2. Basis of Presentation 7

3. Loans to Members 8

4. Members' Deposits 13

5. Members' Shares 15

6. Capital Management 16

7. Cash and Cash Equivalents 16

8. Funds on Hand and on Deposit 17

9. Financial Margin and Interest 17

10. Investments 18

11. Foreign Exchange Risk 20

12. Commitments 21

13. Income Taxes 22

14. Pension Plan 23

15. Property, Plant and Equipment, Intangible Assets & Investment Property 23

16. Securitized Borrowings 25

17. Related Party Transactions 26

18. Personnel Expenses 27

19. Investments in Associates 27

20. Contingencies 28

21. Standards, Amendments and Interpretations Net Yet Effective 28

ACCESS CREDIT UNION LIMITEDConsolidated Statement of Comprehensive Income

For the year ended December 31 2016 2015

RevenueInterest on loans to members $ 64,045,259 $ 62,678,849Investment income

Profit from associates 816,078 762,201Liquidity deposits 3,637,995 2,928,850Shares and debentures 893,200 831,339

69,392,532 67,201,239

Cost of funds 34,087,094 31,608,121

Gross financial margin 35,305,438 35,593,118

Operating ExpensesPersonnel (Note 18) 17,216,184 17,038,131Administrative 7,602,132 7,055,033Occupancy 3,005,830 2,894,589Members' security 1,874,421 1,755,475Organizational 1,092,361 947,924

Gross operating expenses 30,790,928 29,691,152

Less other income 10,176,481 9,079,164

20,614,447 20,611,988

Gross operating income 14,690,991 14,981,130

Provision for impaired loans 275,508 42,930

Income before income taxes 14,415,483 14,938,200

Provision for Income Taxes (Note 13)Current 2,119,237 2,025,176Deferred (148,000) 29,476

1,971,237 2,054,652

Net income for the year 12,444,246 12,883,548

Change in unrealized losses onavailable-for-sale investments net of tax (90,190) (52,552)

Total comprehensive income for the year $ 12,354,056 $ 12,830,996

The accompanying notes are an integral part of these consolidated financial statements. 4

ACCESS CREDIT UNION LIMITEDConsolidated Statement of Changes in Members' Equity

For the year ended December 31

AccumulatedOther

ComprehensiveIncome

Members' Shares

Retained Earnings Total

Balance at December 31, 2014 $ 230,582 $ 9,276,898 $ 121,225,285 $ 130,732,765

Net income for the year - - 12,883,548 12,883,548

Issue of members' shares - 12,425 - 12,425

Redemption of members' shares - (4,544,072) - (4,544,072)

Change in unrealized losses onavailable-for-sale investments (52,552) - - (52,552)

Balance at December 31, 2015 178,030 4,745,251 134,108,833 139,032,114

Net income for the year - - 12,444,246 12,444,246

Issue of members' shares - 13,805 - 13,805

Redemption of members' shares - (4,504,471) - (4,504,471)

Change in unrealized losses onavailable-for-sale investments (90,190) - - (90,190)

Balance at December 31, 2016 $ 87,840 $ 254,585 $ 146,553,079 $ 146,895,504


ACCESS CREDIT UNION LIMITED Consolidated Statement of Cash Flows

For the year ended December 31 2016 2015

Cash Flows from Operating ActivitiesNet income for the year $ 12,444,246 $ 12,883,548Adjustments for

Interest and investment revenue (69,392,532) (67,201,239)Interest expense 34,087,094 31,608,121Depreciation expense 1,326,746 1,222,620Provision for impaired loans 275,508 42,930Loss on disposal of property, plant and equipment 16,103 39,920Deferred income taxes (148,000) 55,000

(21,390,835) (21,349,100)

Change in other assets and liabilities (2,998,291) (755,917)Change in income taxes payable 679,135 (1,057,884)

(2,319,156) (1,813,801)Changes in member activities (net)

Change in loans to members (127,639,495) (110,446,054)Change in members' deposits 178,350,399 144,389,286

50,710,904 33,943,232Cash flows related to interest, dividends, and income taxes

Interest received on loans to members 63,947,527 62,682,597Interest received on investments 4,502,296 3,798,494Dividends received on investments in associates 633,000 672,000Interest paid on members' deposits (35,426,722) (31,198,776)

33,656,101 35,954,315

Total cash flows from operating activities 60,657,014 46,734,646

Cash Flows from Investing ActivitiesPurchase of investment property (131,664) (6,311)Redemption of investments 1,641,544 6,653,664Purchase of property, plant and equipment (686,774) (899,787)Purchase of intangibles (190,570) (68,840)Purchase of investments (1,696,660) (7,721,285)

Total cash flows from investing activities (1,064,124) (2,042,559)

Cash Flows from Financing ActivitiesProceeds from securitized borrowings 15,293,151 -Issue of common and surplus shares 13,805 12,425Redemption of common and surplus shares (4,504,471) (4,544,072)

Total cash flows from financing activities 10,802,485 (4,531,647)

Net increase in cash and cash equivalents 70,395,375 40,160,440

Cash and cash equivalents, beginning of year 185,977,592 145,817,152

Cash and cash equivalents, end of year $ 256,372,967 $ 185,977,592

Comprised of the followingFunds on hand and on deposit $ 32,922,967 $ 39,051,342Credit Union Central of Manitoba term deposits 223,450,000 146,926,250

$ 256,372,967 $ 185,977,592


ACCESS CREDIT UNION LIMITEDNotes to Consolidated Financial Statements

For the year ended December 31, 2016

1. Corporation Information

Reporting Entity

Access Credit Union Limited (the "Credit Union") is incorporated under the Credit Unions andCaisses Populaires Act of the Province of Manitoba ("the Act") and is a member of Credit UnionCentral of Manitoba ("CUCM"). The Credit Union operates as one operating segment in the loansand deposit taking industry in Manitoba. Products and services offered to its members includeconsumer, commercial, agricultural loans and mortgages, chequing and savings accounts, termdeposits, registered deposits, mutual funds, automated banking machines ("ABMs"), debit and creditcards and internet banking. The Credit Union has seventeen branches located throughout SouthernManitoba. The Credit Union's head office is located at Stanley Business Centre unit #2 - 23111 PTH#14, Winkler, Manitoba.

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

2. Basis of Presentation

(a) Statement of Compliance

These financial statements have been prepared in accordance with International FinancialReporting Standards ("IFRS") as issued by the International Accounting Standards Board (the"IASB").

(b) Basis of Measurement

These financial statements were prepared under the historical cost convention, as modified bythe revaluation of available-for-sale financial assets and derivative financial instrumentsmeasured at fair value.

The Credit Union’s functional and presentation currency is the Canadian dollar.

(c) Judgement and Estimates

The preparation of financial statements in compliance with IFRS requires management to makecertain critical accounting estimates. It also requires management to exercise judgment inapplying the Credit Union’s accounting policies. The areas involving critical judgements andestimates in applying accounting policies that have the most significant risk of causing materialadjustment to the carrying amounts of assets and liabilities recognized in the financialstatements with the next financial year are:

• In determining whether an impairment loss should be recorded relating to loans to membersin the statement of comprehensive income (Note 3).

• The Credit Union determines the fair value of certain financial instruments using valuationtechniques. Those techniques are significantly affected by the assumptions used, includingdiscount rates and estimates of future cash flows (Notes 3, 4 and 10).

In addition, in preparing the financial statements, the notes to the financial statements wereordered such that the most relevant information was presented earlier in the notes and thedisclosures that management deemed to be immaterial were excluded from the notes to thefinancial statements. The determination of the relevance and materiality of disclosures involvedsignificant judgement.

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2. Basis of Presentation (continued)

Basis of Consolidation

These financial statements include the accounts of the Credit Union and its wholly-ownedsubsidiaries, 5033179 Manitoba Ltd. and 6009655 Manitoba Ltd.

3. Loans to Members

All loans to members are non-derivative financial assets with fixed or determinable payments thatare not quoted in an active market and have been classified as loans and receivables.

Loans to members are initially measured at fair value, net of loan origination fees and inclusive oftransaction costs incurred.

Loans to members are subsequently measured at amortized cost, using the effective interest ratemethod, less any impairment (losses).

Loans to members 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.

Interest on loans is recorded using the effective interest method except for loans which areconsidered impaired. When a loan becomes impaired, recognition of interest income ceases whenthe carrying amount of the loan (including accrued interest) exceeds the estimated realizable amountof the underlying security. The amount of initial impairment and any subsequent changes arerecorded through the provision for impaired loans as an adjustment to the specific allowance.

Bad debts are written off from time to time as determined by management and approved by theBoard of Directors when it is reasonable to expect that the recovery of the debt is unlikely. Bad debtsare written off against the provisions for impairment, if a provision for impairment had previouslybeen recognized. If no provision had been recognized, the write offs are recognized as expenses innet income.

Property held for resale is valued at the lower of cost and fair market value.

Consumer real estate loans are loans secured by residential property and are generally repayablemonthly with either blended payments of principal and interest or interest only.

Consumer non-real estate loans consist of term loans and lines of credit that are non-real estatesecured and, as such, have various repayment terms. They are secured by various types ofcollateral, including charges on specific equipment or personal property, investments, and personalguarantees.

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 varioustypes of collateral, including mortgages on real property, general security agreements, charges onspecific equipment, investments, and personal guarantees.

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3. Loans to Members (continued)

Agricultural loans consist of term loans, operating lines of credit and mortgages to individuals,partnerships, and corporations for agricultural purposes and have various repayment terms. Theyare secured by various types of collateral, including mortgages on real property, general securityagreements, charges on specific equipment, assignments of crops and livestock, investments, andpersonal guarantees.

2016 2015

ConsumerNon-real estate $ 106,669,295 $ 101,692,406Real estate 858,034,456 779,298,076

CommercialNon-real estate 161,584,779 161,501,775Real estate 433,288,951 415,136,111

AgriculturalNon-real estate 159,249,319 157,536,260Real estate 234,975,029 211,112,250

1,953,801,829 1,826,276,878

Accrued interest receivable 3,771,052 3,673,320

1,957,572,881 1,829,950,198

Allowance for impaired loans (4,164,687) (4,003,723)

Net loans to members $ 1,953,408,194 $ 1,825,946,475

Credit Risk Management

Credit risk rating systems are designed to assess and quantify the risk inherent in credit activities inan accurate and consistent manner. To assess credit risk, the Credit Union takes into considerationthe member'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,processes and procedures in place to manage credit risk and that the overall credit risk policies arecomplied with at the business and transaction level.

The Credit Union's credit risk policies set out the minimum requirements for management of creditrisk in a variety of transactional and portfolio management contexts. Its credit risk policies comprisethe following:

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

• Loan lending limits including Board of Directors limits, schedule of assigned limits andexemptions from aggregate indebtedness;

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Credit Risk Management (continued)

• Loan collateral security classifications which set loan classifications, advance ratios anddepreciation periods;

• Procedures outlining loan overdrafts, release or substitution of collateral, temporary suspensionof payments and loan renegotiations;

• Loan delinquency controls regarding procedures followed for loans in arrears; and

• Audit procedures and processes are in existence 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 overdraft utilization. The Board of Directors also receives an analysis of baddebts and allowance for impaired loans quarterly.

The amount of financial assets that would otherwise be past due or impaired whose terms havebeen renegotiated is $1,039,413 (December 31, 2015 - $346,290).

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.

Concentration of Risk

The Credit Union has an exposure to groupings of individual loans which concentrate risk and createexposure to particular segments as follows:

No individual or related groups of loans to members exceed 5% of members' deposits and capital asat December 31, 2016.

As at December 31, 2016, the Credit Union held $275,520,696 (2015 - $286,795,731) in outstandingagricultural loans relating to the crop farming industry and $56,821,865 (2015 - $47,258,580) relatingto the livestock farming industry, $78,348,016 (2015 - $72,142,007) in outstanding commercial loansrelating to the construction industry, $174,240,249 (2015 - $154,927,294) relating to the real estate,rental and leasing industry, $65,468,169 (2015 - $54,296,039) relating to the health care and socialassistance industry and $45,610,719 (2015 - $46,882,897) relating to the accommodation and foodservices industry.

The majority of loans to members are with members located in southern Manitoba. A sizeableportfolio of the Credit Union's loan portfolio is secured by residential property in southern Manitoba.Therefore, the Credit Union is exposed to the risks in reduction of the loan to valuation ratiocoverage should the property market be subject to a decline. The risk of losses from loansundertaken is primarily reduced by the nature and quality of the security taken.

Allowance for Impaired Loans

If there is objective evidence that an impairment loss on loans to members carried at amortized costhas incurred, the amount of the loss is measured as the difference between the loans carryingamount and the present value of expected cash flows discounted at the loan's original effectiveinterest rate. Short-term balances are not discounted.

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Allowance for Impaired Loans (continued)

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. Theexpected future cash outflows for a group of financial assets with similar credit risk characteristicsare estimated based 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 isrecognized in net income.

Total allowance for impaired loans is comprised of:2016 2015

Collective allowance $ 2,985,597 $ 3,032,123Individual specific allowance 1,179,090 971,600

Total allowance $ 4,164,687 $ 4,003,723

During the year ended December 31, 2016, the Credit Union acquired $1,244,825 (December 31,2015 - $307,000) of assets in respect of problem loans.

Movement in individual specific and collective allowance for impairment is as follows:2016

Consumer Agricultural Commercial Total

Balance at December 31, 2015 $ 826,346 $ 1,023,859 $ 2,153,518 $ 4,003,723Provision for impaired loans (recovery) 632,414 116,462 (473,368) 275,508

1,458,760 1,140,321 1,680,150 4,279,231Loans written off (net) (84,147) - (30,397) (114,544)

Balance at December 31, 2016 $ 1,374,613 $ 1,140,321 $ 1,649,753 $ 4,164,687Gross principal balance of individually impaired loans $ 5,937,894 $ 1,916,549 $ 6,086,369 $ 13,940,812

2015 Consumer Agricultural Commercial Total

Balance at December 31, 2014 $ 808,407 $ 1,001,440 $ 2,358,798 $ 4,168,645Provision for impaired loans (recovery) 207,857 22,419 (187,346) 42,930

1,016,264 1,023,859 2,171,452 4,211,575Loans written off (net) (189,918) - (17,934) (207,852)

Balance at December 31, 2015 $ 826,346 $ 1,023,859 $ 2,153,518 $ 4,003,723Gross principal balance of individually impaired loans $ 4,473,722 $ 1,465,218 $ 3,396,478 $ 9,335,418

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An analysis of individual loans that are impaired or potentially impaired based on period ofdelinquency is as follows:

2016 2015

Carrying Value

Individual Specific

Allowance Carrying

Value

Individual Specific

Allowance Period of delinquency

Less than 30 days $ 17,508 $ 17,508 $ 1,194,880 $ 1,52731 to 90 days 743,277 11,126 887,088 62,720Greater than 90 days 4,084,136 964,679 2,548,813 374,419

Total impaired loans in arrears 4,844,921 993,313 4,630,781 438,666

Total impaired loans not in arrears 9,095,891 185,777 4,704,637 532,934

Total impaired loans $ 13,940,812 $ 1,179,090 $ 9,335,418 $ 971,600

Key Assumptions in Determining the Allowance for Impaired Loans Collective Allowance

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, job losses or economic circumstances. In identifying theimpairment likely from these events the Credit Union estimates the potential impairment using theloan type, industry, geographical location, type of loan security, the length of time the loans are pastdue and the historical loss experience. The circumstances may vary for each loan over time,resulting in higher or lower impairment losses. The methodology and assumptions used forestimating future cash flows are reviewed regularly by the Credit Union to reduce any differencesbetween loss estimates and actual loss experience.

An estimate of the collective allowance is based on the period of repayments that are past due,historical write-offs, and losses that have occurred in the agriculture and manufacturing sectors.

For purposes of the collective allowance, loans are classified into separate groups with similar riskcharacteristics, based on the type of product and type of security.

Loans with repayments past due but not regarded as individually impaired and considered indetermining the collective allowance are as follows:

2016 Consumer Agricultural Commercial Total

1 to 30 days $ 11,839,845 $ 798,119 $ 6,451,254 $ 19,089,21831 to 90 days 1,618,928 548,096 601,910 2,768,934

Balance at December 31, 2016 $ 13,458,773 $ 1,346,215 $ 7,053,164 $ 21,858,152

2015Consumer Agricultural Commercial Total

1 to 30 days $ 7,947,607 $ 2,077,454 $ 4,072,774 $ 14,097,83531 to 90 days 1,161,489 226,071 730,606 2,118,166

Balance at December 31, 2015 $ 9,109,096 $ 2,303,525 $ 4,803,380 $ 16,216,001

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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:

2016 2015

Unsecured loans $ 65,681,203 $ 95,937,041Loans secured by assignment of members' deposits 13,492,790 13,120,062Loans secured by real property 1,609,992,771 1,454,566,944Loans secured by chattels 268,406,117 266,326,151

$ 1,957,572,881 $ 1,829,950,198

No individual or related groups of loans to members exceed 5% of members' deposits and capital asat December 31, 2016.

Fair Value

The fair value of the loans to members at December 31, 2016 was $1,966,763,782 (2015 -$1,839,408,680).

The fair market value of loans to members is calculated based on the present value of future cashflows. To determine present value, future cash flows are discounted by the current rate curve bywhich the asset or liability is originally priced. Discount spot rates vary from 2.39% to 3.49% basedon maturity date and type of deposit.

4. Members' Deposits

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

Members' deposits are subsequently measured at amortized cost, using the effective interest ratemethod and have been classified as other liabilities.

Members deposits are broken down as follows:2016 2015

Chequing $ 400,625,239$ 365,326,832Savings 648,889,306 486,789,634Term deposits 614,459,818 652,588,645Registered plans 415,338,424 396,250,649Unclaimed and inactive accounts 28,579 35,207

2,079,341,366 1,900,990,967Accrued interest payable 11,915,682 13,255,310

$ 2,091,257,048$ 1,914,246,277

Included in chequing deposits is an amount of $25,647,080 to be settled in US dollars (2015 -$24,485,406).

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4. Members' Deposits (continued)

Concentration of Risk

The Credit Union has an exposure to groupings of individual deposits which concentrate risk andcreate exposure to particular segments.

No individual or related groups of members' deposits exceed 5% of members' deposits and capitalas at December 31, 2016.

The majority of members' deposits are with members located in and around southern Manitoba.

Liquidity Risk

Liquidity risk is the risk that the Credit Union will not be able to meet all cash outflow obligations asthey come due. The Credit Union mitigates this risk by monitoring cash activities and expectedoutflows so as to meet all cash outflow obligations as they fall due.

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 Act require the Credit Union to maintain liquid assets of at least 8% of members'deposits and borrowings in order to meet member withdrawals.

The Credit Union manages liquidity risk by:

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

The Board of Directors receives monthly 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 year.

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

Qualifying liquid assets on hand $ 256,372,967Total liquidity requirement 167,300,564

Excess liquidity $ 89,072,403

The maturities of liabilities are shown in Note 9. The Credit Union has no material commitments forcapital expenditures and there is no need for such expenditures in the normal course of business.


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4. Members' Deposits (continued)

Fair Value

The fair value of members' deposits at December 31, 2016 was $2,095,830,400 (2015 -$1,923,327,870).

The fair market value of members' deposits is calculated based on the present value of future cashflows. To determine present value, future cash flows are discounted by the current rate curve bywhich the asset or liability is originally priced. Discount spot rates vary from 0.70% to 2.35% basedon renewal date of the deposit.

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 or financial asset.

2016 2015

Common $ 254,585 $ 240,780

Surplus - 4,504,471

$ 254,585 $ 4,745,251Terms and Conditions

Each member must purchase one common share. No member may hold more than 10% of theissued shares of any class. Each member of the Credit Union has one vote, regardless of thenumber of shares that a member holds. Funds invested by members in members' shares are notinsured by Deposit Guarantee Corporation of Manitoba.

Authorized Shares

Common SharesAuthorized common share capital consists of an unlimited number of common shares, issued andredeemable at $5 each. The total amount of common shares purchased or redeemed by the CreditUnion in a fiscal year shall not exceed the total amount of common shares issued in that year if theCredit Union’s equity is, or would by such purchase or redemption be, less than the level of capitalas prescribed by the Act.

Surplus SharesAuthorized surplus share capital consists of an unlimited number of surplus shares, issued andredeemable at $1 each. The total amount of surplus shares purchased or redeemed by the CreditUnion in a year shall not exceed 5% of the amount of surplus shares outstanding at the last year-end of the Credit Union if the Credit Union’s equity is, or would by such purchase or redemption be,less than the level of capital as prescribed by the Act.

The withdrawal is also subject to terms of the Credit Union's VIP program which restrict redemptionto certain situations: member is deceased, member ceases to reside inside the Credit Union'strading area, wind-up or dissolution of a business or corporation, bankruptcies, legal claim, hardship,member reaching the age of 65. All such payouts are at the discretion of the Board of Directors.

During the year, the Credit Union redeemed all its surplus shares.

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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 Act require that the Credit Union establish and maintain a level of capital thatmeets or exceeds the following:

• Total members' capital as shown on the balance sheet shall not be less than 5% of the bookvalue of all assets;

• Retained earnings shall not be less than 3% of the book value of assets; and

• Capital calculated in accordance with the Act shall not be less than 8% of the risk weighted valueof its assets.

The Credit Union considers its capital to include members' shares (common shares and surplusshares), and retained earnings. There have been no changes in what the Credit Union considers tobe its capital since the previous period.

The Credit Union establishes the risk weighted value of its assets in accordance with theRegulations of the Act which establishes the applicable percentage for each class of assets. TheCredit Union's risk weighted value of its assets as at December 31, 2016 - $1,216,748,876 (2015 -$1,152,553,720).

As at December 31, 2016, the Credit Union met the capital requirements of The Act with a calculatedmembers' capital ratio of 6.50% (2015 - 6.74%), a retained surplus ratio of 6.49% (2015 - 6.51%)and a risk weighted asset ratio of 11.92% (2015 - 11.92%).

Regulatory Capital consists of the following:2016 2015

Tier I CapitalMembers' shares $ 254,585 $ 4,745,251Retained earnings 146,553,079 134,108,833Deferred income tax liability 247,000 395,000Intangible assets (1,224,416) (1,309,680)Collective allowance 2,985,597 3,032,123

148,815,845 140,971,527Tier II Capital

Redeemable portion of other member shares 254,585 4,745,251

Total regulatory capital $ 149,070,430 $ 145,716,778

7. Cash and Cash Equivalents

For the purpose of the statement of cash flows, cash and cash equivalents includes cash on handand current accounts with CUCM and term deposits held with CUCM for liquidity purposes lessborrowings that are repayable on demand.

Cash and cash equivalents are classified as loans and receivables and are carried at amortizedcost, which is equivalent to fair value.

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8. Funds on Hand and on Deposit

The Credit Union's cash and current accounts are held with CUCM. The average yield on theaccounts at December 31, 2016 is 0.50% (2015 - 0.50%).

Included in the balance of funds on hand and on deposit is $12,449,532 (2015 - $23,168,987)denominated in US dollars.

The carrying amount of the funds on hand and on deposit approximates their fair value.

9. Financial Margin and Interest

The Credit Union's major source of income is financial margin, the difference between interestearned on investments and loans to members and interest paid on members' deposits. The objectiveof asset/liability management is to match interest sensitive assets with interest sensitive liabilities asto amount 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 by CreditUnion management and reported to the Deposit Guarantee Corporation of Manitoba in accordancewith the Credit Union's structural interest rate risk management policy. This policy has beenapproved by the Board of Directors as required by Regulations to the Act. 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. A significantamount of loans and deposits can be settled before maturity on payment of a penalty, but noadjustment has been made for repayments that may occur prior to maturity.

Maturity Dates Assets LiabilitiesAsset/

Liability Gap(in thousands)Interest sensitive

Variable $ 951,484 $ 797,602 $ 153,8820-6 months 287,214 216,495 70,7197-12 months 98,688 263,697 (165,009)1 - 2 years 201,705 181,591 20,1142 - 3 years 180,719 172,598 8,1213 - 4 years 195,955 98,094 97,8614 - 5 years 261,011 61,336 199,675Greater than 5 years 49,024 473 48,551

Interest sensitive 2,225,800 1,791,886 433,914

Non-interest sensitive 33,797 467,711 (433,914)

Total $ 2,259,597 $ 2,259,597 $ -

As at December 31, 2016, the weighted average rate for interest bearing assets is 3.07% andinterest bearing liabilities is 1.65%.

Interest sensitive assets and liabilities cannot normally be perfectly matched by amount and term tomaturity. One of the roles of a credit union is to intermediate between the expectations of borrowersand depositors.

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9. Financial Margin and Interest (continued)

An analysis of the Credit Union's risk due to changes in interest rates was calculated using financialmodelling software and determined that an increase in interest rates of 1% could result in anincrease to net income of $4,495,010 while a decrease in interest rates of 1% could result in adecrease to net income of $3,224,110.


10. Investments

Liquidity Deposits

These 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.

2016 2015CUCM Contract and daily interest deposits $ 223,450,000 $ 146,926,250 Accrued interest receivable 296,718 264,496

$ 223,746,718 $ 147,190,746

The term deposits with CUCM bear interest at rates ranging from 0.60% to 2.91% and have originalmaturity date from 3 months to 6 months.

Included in the balance of liquidity deposits is $13,462,935 (2015 - $1,534,402) denominated in USdollars.

The fair value of the liquidity deposits at December 31, 2016 was $224,175,910 (2015 -$147,800,070).

The fair market value of liquidity deposits is calculated based on the present value of future cashflows. To determine present value, future cash flows are discounted by the current rate curve bywhich the asset or liability is originally priced. Discount spot rates vary from 1.55% to 3.33% basedon maturity date and type of deposit.

Shares

These instruments are classified as available-for-sale and are initially recognized at fair value plustransaction costs that are directly attributable to their acquisition. Subsequently they are carried atfair value, unless they do not have a quoted market price in an active market and fair value is notreliably determinable in which case they are carried at cost.

Changes in fair value, except for those arising from interest calculated using the effective interestrate, are recognized as a separate component of other comprehensive income.

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 anyamount previously recognized in other comprehensive income, is recognized in net income.

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10. Investments (continued)

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 othercomprehensive income.

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 2015

CUCM - Class 1 shares $ 10,070,155 $ 10,262,200CUCM - Class 2 shares 2,240,350 351,645Concentra Financial Services Association - Class A shares 62,568 62,568Concentra Financial Services Association - Class D shares 6,000,000 6,000,000

$ 18,373,073 $ 16,676,413

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

Class 1 and 2 CUCM shares are subject to a rebalancing mechanism at least annually and areissued and redeemable at par value. There is no separately quoted market value for these shares.However, fair value is determined to be equivalent to the par value due to the fact that transactionsoccur at par value on a regular and recurring basis.

The Credit Union is not intending to dispose of any CUCM shares as the services supplied by CUCMare 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 CUCM.

The Class A shares of Concentra Financial Services Association are required as a condition ofmembership and are redeemable upon withdrawal of membership subject to the approval of theBoard of Directors of the Association.

Concentra shares are held at their carrying amount which is deemed to approximate fair value.

Bonds and Debentures

These investment instruments are classified as available-for-sale and are initially measured at fairvalue plus transaction costs that are directly attributable to their acquisition. Subsequently they arecarried at fair value.

Changes in fair value, except for those arising from interest calculated using the effective interestrate, are recognized as a separate component of other comprehensive income.

On sale, the amount held in accumulated other comprehensive income associated with thatinstrument is removed from equity and recognized in net income.

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10. Investments (continued)

Bonds and Debentures (continued)2016 2015

Concentra Financial ServicesDebenture (5.82% due December 31, 2016) $ - $ 1,051,559

Co-operators subordinated notes (1.60% dueNovember 30, 2017) 250,000 250,000

Municipal debentures (various 4.20% to 6.87% due April 1, 2017 to December 1, 2024) 4,786,497 5,466,673

5,036,497 6,768,232Accrued interest receivable 108,228 111,551

$ 5,144,725 $ 6,879,783

Bonds and debentures are valued using the discounted cash flow model using observable inputs fora market rate of 4.25%.

Fair Value of Investments

The following provides an analysis of investments that are measured subsequently to initialrecognition at fair value, grouped into Levels 1 to 3 based on degree to which the fair value isobservable.

• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in activemarkets for identical assets or liabilities using the last bid price. There are no assets or liabilitiesmeasured at fair value classified as Level 1.

• Level 2 fair value measurements are those derived from inputs other than quoted prices includedwithin Level 1 that are observable for the asset or liability, either directly (i.e., as prices) orindirectly (i.e., derived from prices). Assets and liabilities measured at fair value and classified asLevel 2 include investments in shares, bonds and debentures.

• 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 (unobservable inputs).There are no assets or liabilities measured at fair value classified as Level 3.

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 valuemeasurement. Financial assets and financial liabilities are classified in their entirety into only one ofthree levels.

There were no transfers between levels for the year ended December 31, 2016.

11. Foreign Exchange Risk

The Credit Union’s foreign exchange risk is related to US dollar deposits denominated in US dollars.Foreign currency changes are continually monitored by the investment committee for effectivenessof its foreign exchange mitigation activities and holdings are adjusted when offside of the investmentpolicy.

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11. Foreign Exchange Risk (continued)

The Credit Union's exposure to changes in currency exchange rates shall be controlled by limitingthe unhedged foreign currency exposure to $350,000 in US funds.

For the year ended December 31, 2016, the Credit Union's exposure to currency risk is within policy.


12. Commitments

Credit Facilities

The Credit Union has approved lines of credit with CUCM equal to 10% of its members' deposits andbears interest at 2% above the variable current account rate (effective rate of 2.50% at December31, 2016). For the current year, this amounts to $209.1 million. These accommodations are securedby an assignment of shares and deposits in CUCM and a general assignment of loans receivablefrom members. The balance outstanding at December 31, 2016 was $Nil (2015 - $Nil).

Loans to Members

The Credit Union has the following commitments to its members at the year end date on account ofloans, unused lines of credit and letters of credit:

Unadvanced loans $ 85,000,897Unused lines of credit 167,814,126Letters of credit 3,246,738

Contractual Obligations

Credit Union Central of Manitoba

The Credit Union is a member of CUCM, which provides banking and other services to CreditUnions in Manitoba. By nature of membership in CUCM, the Credit Union is obligated to payaffiliation dues which are based on membership and assets.

Deposit Guarantee Corporation of Manitoba

The Deposit Guarantee Corporation of Manitoba (DGCM) is a deposit insurance corporation. Bylegal obligation under the Act, DGCM guarantees the deposits of all members of Manitoba creditunions/caisse. By legislation, the credit union/caisse pays a quarterly levy to DGCM based on apercentage of members’ deposits.

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12. Commitments (continued)

Contractual Obligations (continued)

Celero Solutions

The Credit Union has entered into an agreement with Celero Solutions to provide the delivery ofsome banking system services and the maintenance of the infrastructure needed to ensureuninterrupted delivery of such services. Celero Solutions is a company formed as a joint venture bythe Credit Union Centrals of Alberta, Saskatchewan and Manitoba along with Concentra Financialand Credit Union Electronic Transaction Services. The agreement expires December 31, 2022.

13. Income Taxes

Income tax expense comprises current and deferred income tax. Current and deferred income taxesare recognized 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 significant components of income tax expense included in net income are composed of:

2016 2015Current Tax Expense

Based on current year taxable income $ 2,119,237 $ 2,025,176

Deferred Tax Expense(Recovery)Origination and reversal of temporary differences (148,000) 29,476

Total income tax expense $ 1,971,237 $ 2,054,652

The tax effect of the amount recognized in other comprehensive income is the change in unrealizedlosses on available-for-sale investment.

The total provision for income taxes in the consolidated statement of comprehensive income is at arate less than the combined federal and provincial statutory income tax rates for the followingreasons:

2016 2015% %

Combined federal and provincial statutory income tax rates 27.0 27.0Credit Union rate reduction (12.9) (13.0)Non taxable earnings from associates (0.8) (0.7)Change in tax rate applied to deferred tax components (1.1) -Provincial profits tax 0.9 -Non-deductible and other items 0.6 0.5

13.7 13.8

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13. Income Taxes (continued)

The components of deferred income tax liabilities and assets are as follows:

2016 2015Deferred income tax liabilities

Property, plant and equipment $ 351,000 $ 625,000Investment property 61,000 37,000Fair value adjustment on debentures 24,000 66,000

436,000 728,000

Deferred income tax assetsGoodwill 29,000 54,000Non-deductible pension expense 93,000 171,000Allowance for impaired loans 67,000 108,000

189,000 333,000

Net deferred income tax liability $ 247,000 $ 395,000

14. Pension Plan

The Credit Union participates in a multi-employer defined contribution pension plan recognizingcontributions as an expense in the year to which they relate.

The Credit Union has a multi-employer defined contribution pension plan for full-time employees.The contributions are held in trust by the Cooperative Superannuation Society Limited and are notrecorded in these financial statements. The Credit Union matches employee contributions at anaverage rate of 6% of the employee salary. The expense and payments for the year endedDecember 31, 2016 were $798,269 (2015 - $763,527). As a defined contribution pension plan, theCredit Union has no further liability or obligation for future contributions to fund future benefits to planmembers.

15. Property, Plant and Equipment

Property, Plant and Equipment

Property, plant and equipment is initially recorded at cost and subsequently measured at cost lessaccumulated depreciation and any accumulated impairment (losses), with the exception of landwhich is not depreciated. Depreciation is recognized in net income and is provided on a straight-linebasis over the estimated useful life of the assets as follows:

Buildings 35 - 40 yearsFurniture and equipment 5 - 20 yearsComputer equipment 5 yearsAutomated teller machines 10 yearsParking lots 10 - 23 yearsLeasehold improvements 15 yearsVehicles 5 - 7 years

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15. Property, Plant and Equipment (continued)

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

Where it is not possible to estimate the recoverable amount of an individual asset, the impairmenttest is carried out on the asset's cash-generating unit, which is the lowest group of assets in whichthe asset belongs for which there are separately identifiable cash flows.

Impairment charges are included in net income, except to the extent they reverse gains previouslyrecognized in other comprehensive income.

2016 2015

Accumulated Net Book Net Book Cost Depreciation Value Value

Land $ 1,676,290 $ - $ 1,676,290 $ 1,676,290Buildings 18,880,921 7,692,526 11,188,395 11,604,855Furniture and equipment 5,343,254 3,804,525 1,538,729 1,514,384Computer equipment 1,434,133 917,612 516,521 415,712Automated teller machines 974,712 501,192 473,520 489,681Parking lots 345,113 278,823 66,290 70,685Leasehold improvements 466,116 408,712 57,404 71,550Vehicles 98,983 80,459 18,524 19,948

$ 29,219,522 $ 13,683,849 $ 15,535,673 $ 15,863,105

Intangible Assets

Intangible assets consist of computer software which are not integral to the computer hardwareowned by the Credit Union. Software is initially recorded at cost and subsequently measured at costless accumulated amortization and any accumulated impairment (losses). Software is amortized ona straight-line basis over its estimated useful life of 10 years.

2016 2015


Computer software $ 3,195,576 $ 1,971,160 $ 1,224,416 $ 1,309,680

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15. Property, Plant and Equipment (continued)

Investment Property

The Credit Union's investment property consists of land and building held to earn rental income.Investment property is initially recorded at cost and subsequently measured at cost lessaccumulated depreciation and accumulated impairment (losses). Land is not depreciated. Buildingsare depreciated on a straight-line basis over their estimated useful life of 40 years.

Rent receivable is recognized in net income and is spread on a straight-line basis over the period ofthe lease. Where an incentive, such as a rent free period is given to a tenant, the carrying value ofthe investment property excludes any amount reported as a separate asset as a result ofrecognizing rental income on this basis.

2016 2015


Land $ 237,338 $ - $ 237,338 $ 105,674Building 2,112,314 263,523 1,848,791 1,901,599

$ 2,349,652 $ 263,523 $ 2,086,129 $ 2,007,273

The fair value of the investment property is $2,370,000. Investment properties were subject toexternal valuation on March 10, 2016, performed by, Colliers International, qualified professionalvaluers adhering to the generally accepted Standards of Professional Practice (CUSPAP) and theCode of Ethics of the Appraisal Institute of Canada. The fair value of investment property isdetermined by discounting the expected cash flows of the properties based upon internal plans andassumptions and comparable market transactions. There are no indicators that would create adifference in fair value of the investment property from the date of its valuation.

During the year, the Credit Union earned revenue of $262,609 through the lease of the InvestmentProperty.

Investment Property held by the Credit Union is leased out under operating leases. The futureminimum lease payments under non-cancelable leases are as follows:

Less than 1 year $ 156,444Between 1 and 5 years 625,779More than 5 years 273,778

$ 1,056,001

16. Securitized Borrowings

As a complement to its existing capital, liquidity and interest rate risk management strategies, theCredit Union periodically enters into asset transfer agreements with third parities, which includesecuritization of insured residential mortgages through its participation in the National Housing ActMortgage-Backed Securities (NHA MBS) program.

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16. Securitized Borrowings (continued)

The Credit Union has determined the funds raised from securitization transactions during the yearshould be accounted for as securitized borrowings as the Credit Union did not transfer substantiallyall of the risks and regards of ownership, including principal prepayments, interest rate and creditrisk of the mortgages in the securitization transaction. As at December 31, 2016, the carryingamount of the associated residential mortgages held as security and the related liability are asfollows:

2016 2015

Securitized consumer mortgages $ 15,293,151 $ -Securitized borrowings 15,293,151 -

Net position $ - $ -

Securitized borrowings represent the funding secured by insured mortgages assigned under theNHA MBS program. As the securitization of mortgages does not lead to derecognition of themortgages under accounting standards, proceeds received through securitization of thesemortgages are recorded as securitized borrowings on the consolidated balance sheet.

The breakdown of the securitized borrowings is as follows:

2016 2015

Current $ 425,687 $ -Non-current 14,867,464 -

$ 15,293,151 $ -

NHA MBS mortgage pools consists of two mortgage pools bearing interest rates from 1.538% to1.544% (2015 - Nil). Mortgage pool maturities range from November 1, 2020 to December 1, 2020.

17. Related Party Transactions

Key management personnel are those persons having authority and responsibility for planning,directing and controlling the activities of the Credit Union, directly or indirectly. Key managementpersonnel have been taken to comprise the directors and members of management responsible forthe day to day financial and operational management of the Credit Union.

The aggregate compensation of key management personnel during the year was as follows:

2016 2015Compensation

Salaries, and other short-term employee benefits $ 1,734,768 $ 1,599,868Total pension and other post-employment benefits 168,750 158,018

$ 1,903,518 $ 1,757,886

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17. Related Party Transactions (continued)

Compensation to the directors and officers of the Credit Union for expenses associated with theperformance of their duties during the year was as follows:

2016 2015

Honouraria and per diems $ 153,434 $ 90,154Meeting, training and conference costs 62,794 52,128

$ 216,228 $ 142,282

The Credit Union’s policy for lending to and receiving deposits from key management personnel isthat the loans are approved and deposits accepted on the same terms and conditions which apply tomembers for each class of loan or deposit. There are no benefits or concessional terms andconditions applicable to key management personnel or close family members. Loans and deposits tokey management personnel as at December 31 are as follows:

2016 2015Loans to key management personnel

Aggregate value of loans advanced $ 4,208,795 $ 4,724,957Interest received on loans advanced 57,508 82,022

Deposits from key management personnelAggregate value of term and savings accounts 959,307 1,093,252Interest paid on term and savings accounts 8,464 10,721

18. Personnel Expenses2016 2015

Salaries and wages $ 12,894,884 $ 12,846,213Employee benefits 3,877,890 3,691,115Training 443,410 500,803

$ 17,216,184 $ 17,038,131

19. Investments in Associates

The equity method of accounting is used to account for investments in associates in which the CreditUnion has an ownership interest which results in it having significant influence to participate in thefinancial and operating policy decisions of the investee but not control. Under this method, theinvestment is initially recorded at cost and is adjusted thereafter for the post-acquisition change inthe Credit Union's share of net assets of the investee.

The carrying value of investments accounted for using the equity method are based on the initialinvestment in these companies adjusted for the Credit Union's share of profit or loss of the investee.

The fiscal year end for all associates is September 30.

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20. Contingencies

The Credit Union, in the course of its operations, is subject to lawsuits. As a policy, the Credit Unionwill accrue for losses in instances where it is probable the liabilities will be incurred and where suchliabilities can be reasonably estimated. At present, the Credit Union has no reason to believe thatthere are any lawsuits which will have a significant impact on the Credit Union's financial position.

21. 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 judgements and estimates, the Credit Union applied judgements related to the order andexclusion of immaterial disclosures, consistent with the amendment to IAS 1, Presentation ofFinancial Statements, 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 15 Revenue from Contracts with Customers is based on the core principle to recognizerevenue to depict the transfer of goods or services to customers in an amount that reflects theconsideration to which the entity expects to be entitled in exchange for those goods or services.IFRS 15 focuses on the transfer of control. IFRS 15 replaces all of the revenue guidance thatpreviously existed in IFRSs. Entities are required to apply IFRS 15 for annual periods beginningon or after January 1, 2018, with earlier application permitted. The Credit Union is in the processof evaluating the impact of the new standard.

• IFRS 9 Financial Instruments amends the requirements for classification and measurement offinancial assets, impairment, and hedge accounting. IFRS 9 introduces an expected loss modelof impairment and retains but simplifies the mixed measurement model and establishes threeprimary measurement categories for financial assets: amortized cost, fair value through profit orloss, and fair value through other comprehensive income. The basis of classification depends onthe entity's business model and the contractual cash flow characteristics of the financial asset.The effective date of IFRS 9 is January 1, 2018.

• IFRS 16 Leases supersedes IAS 17, Leases, IFRIC 4, Determining whether an Arrangementcontains a Lease, SIC-15, Operating Leases - Incentives and SIC-27, Evaluating the Substanceof Transactions Involving the Legal Form of a Lease. It eliminates the distinction betweenoperating and finance lease from the perspective of a 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 rate inherentin the lease. The accounting requirements from the perspective of the lessor remains largely inline with previous IAS 17 requirements. The effective date for IFRS 16 is January 1, 2019. TheCredit Union is in the process of evaluating the impact of the new standard.

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