Annual Report 2010

www.cudgc.sk.ca MISSION

We instill public confidence in Saskatchewan credit unions by guaranteeing deposits. As the primary prudential and solvency regulator, we promote responsible governance by credit unions and advocate their strength and stability.

VALUES

Values guide individual and organizational behaviour. The Corporation’s values are reflected in its Code of Conduct which provides a common frame of reference for staff, management and the board in fulfilling the Corporation’s mission and strategic focus.

• Co-operation: As part of the co-operative financial services system, we respect co-operative principles and support credit unions in enhancing their strength and development by working together.

• Honesty and Integrity: We perform our duties conscientiously with the highest level of honesty and professional integrity.

• Fairness: We approach issues and decisions with common sense, sound judgement, fairness and consistency.

• Responsible Regulation: We strike an appropriate regulatory balance that effectively protects depositors without unduly impairing credit unions’ ability to compete in the market.

• Leadership: We use our knowledge of the credit union system and the financial services industry to anticipate future trends and proactively respond to our environment. We demonstrate leadership provincially and nationally by advocating positive change that contributes to the strength and stability of the credit union system.

• Teamwork and Respect: We work as a team to achieve goals and progress towards our common vision. We recognize that people are the key to success. We consistently treat people with dignity, respect, fairness and the highest standards of ethics. We demonstrate co-operation when working with others, encouraging questions that generate innovative ideas and creative solutions.

Credit Union Deposit Guarantee Corporation Phone: (306) 566-1286 P.O. Box 3030 Fax: (306) 566-1770 2055 Albert Street Public internet website: www.cudgc.sk.ca Regina, Saskatchewan E-mail: [email protected] S4P 3G8 TABLE OF CONTENTS

Report from the Chair. 2 Report from the CEO . 3 Corporate Governance Framework. 4 Board of Directors . 5 Executive Management. 6 Mandate. 7 Corporate Performance. 8 Corporate Performance Measurement. 10 Strategic Focus and Key Initiatives . 12 Financial Summary. 15 Management’s Responsibility . 17 Independent Auditor’s Report. 18 2010 Financial Statements . 19 Legislative and Governance Model. 28 Profile of Saskatchewan Credit Unions. 29 System Performance . 30 Saskatchewan Credit Unions. 32 REPORT FROM THE CHAIR

Saskatchewan credit unions are to be congratulated for their strong financial performance in 2010. Their success is due in large part to their positive response to today’s more complex regulatory environment. They have embraced the need for effective regulation and are making the changes necessary to ensure continued long-term strength and stability. This put credit unions in an even stronger capital position in 2010 and led to their most profitable year on record. With more rigorous regulatory requirements come increased expectations for how financial institutions are governed. The Corporation holds credit unions to high governance standards. Likewise, our board is dedicated to excellence in fulfilling its regulatory responsibilities. In 2010, we established an audit committee to oversee the integrity of our financial reporting and control. We also expanded the role of the internal audit function. An enhanced director orientation process will support recent changes in the composition of the Corporation’s board of directors. On behalf of the board, I thank outgoing director Doug Matthies for his valuable contributions over the years. As a new member of the board, I appreciate the effective stewardship that has helped to make the Corporation an industry leader. I look forward to learning from the experience of our returning board members and the fresh perspectives of new directors Karen Layng, Deputy Minister of Finance, and Daniel Ish, an independent director appointed by SaskCentral. I would like to thank the Corporation’s staff and management for the care and attention they put into helping Saskatchewan credit unions position themselves for success in turbulent times. The Corporation has always strived to build strong relationships with elected leaders and management. It has worked tirelessly to ensure a regulatory environment that puts credit unions on a level playing field with others in the financial services industry. This approach has set a strong foundation for the future success of Saskatchewan credit unions.

Ed Gebert

2 REPORT FROM THE CEO

For the Corporation and Saskatchewan credit unions alike, 2010 was another successful year. The Corporation continued to build on our investment in a prudential, industry-based regulatory framework, keeping us well-positioned to adapt to changes in the regulatory environment. We successfully prepared for the introduction of International Financial Reporting Standards (IFRS) and provided regulatory guidance to credit unions. The Corporation also took steps to ensure our financial monitoring systems and other core proprietary systems support compliance with IFRS. To carry out our mandate, the Corporation relies on a skilled, professional team that understands the environment and the industry, demonstrates leadership and effectively manages change. I would like to thank our talented and capable employees for the commitment that has helped the Corporation become a leader in financial services regulation. Despite the lingering effects of more challenging economic conditions, Saskatchewan credit unions demonstrated characteristic strength and stability in 2010. With the continued presence of very tight margins, credit unions reported strong financial results and their most profitable year on record. This, combined with slower growth, allowed credit unions to build up their capital positions, bolstering overall financial strength. The global economic crisis has highlighted the need for enhanced financial and business practices throughout our industry. As a mature and highly effective regulatory body, the Corporation is well positioned to meet these challenges. Saskatchewan credit unions are accustomed to high regulatory standards. Nevertheless, the direction of the industry will influence the Corporation and Saskatchewan credit unions, and some refinements to regulatory standards will be necessary. Saskatchewan credit unions remain among the strongest, most stable of financial institutions. However, media attention on the global financial crisis has dramatically heightened consumer awareness and shaken confidence in financial institutions around the world. The Corporation’s depositor awareness campaign is just one way we work to maintain well- deserved confidence in this province’s credit unions. For their part, credit unions continue to capably manage their operations and business risks, demonstrating strength through consistent financial results.

Garth Melle

3 CORPORATE GOVERNANCE FRAMEWORK

Our Corporate governance framework sets out Our framework identifies the four main roles how the organization is directed and controlled. in the governance process and outlines the Maintaining strong governance practices is one relationship between board and management. important way the Corporation demonstrates the strength of its regulatory regime.

Role Board Responsibilities Management Responsibilities

Leader Participates in setting strategic direction Leads development of strategic and provides strategic oversight options and implements strategy Setting corporate direction Functions independently from Presents continuous management improvement initiatives Approves corporate objectives Supports the board in and performance targets implementing governance processes to guide the work Approves business plan and policy of the board and its committees Selects and retains qualified and competent management

Steward Ensures adequate and effective risk Develops and implements management enterprise risk management Ensuring an strategies and processes effective control Ensures the effective allocation, use environment and protection of all resources, taking and allocation of the Corporation’s risks into account resources

Reporter Approves policies for communicating Develops appropriate information effectively with stakeholders for communicating with the board Presenting a fair and stakeholders and objective picture of the organization to stakeholders

Overseer Sets the “tone at the top” Develops an appropriate control environment including Exercising Monitors operating and financial the governance approach, effective control performance organizational structure, Ensures compliance with legislation management style, communication and code of conduct style and policies and procedures Ensures it receives appropriate information Monitors the internal control and management systems Obtains independent verification

4 BOARD OF DIRECTORS

Daniel Ish, Edward Gebert, Ken Anderson, Lyn Kristoff, Rod Crook, Karen Layng (missing)

Our board of directors governs the business AUDIT COMMITTEE and affairs of the Corporation. It helps set strategic direction and ensures our efforts In 2010, the board established an audit support the strength and stability committee, on a one year trial basis, to assist of Saskatchewan credit unions. the board in the oversight of the integrity of Our board includes: our financial reporting and control. The audit committee reports regularly to the board about • three directors appointed by Credit Union the Corporation’s: Central of Saskatchewan (SaskCentral) • financial reporting • the Chief Executive Officer of SaskCentral or nominee • internal control systems • the Deputy Minister of Justice or nominee • relationship with auditors • the Deputy Minister of Finance or nominee • adherence to policy and regulatory requirements • one director appointed by the government • legal and ethical conduct As of December 31, 2010, the following sat The committee also ensures the independence on the Corporation’s board: of external and internal auditors, and that the Corporation applies appropriate due diligence • Edward Gebert, (Chair), SaskCentral appointee in the areas of controls, accountability and • Lyn Kristoff, (Vice-Chair), SaskCentral appointee financial reporting. As of December 31, 2010, • Daniel Ish, SaskCentral appointee the following sat on the audit committee:

• Ken Anderson, Chief Executive Officer, • Lyn Kristoff, (Chair) SaskCentral • Ken Anderson • Rod Crook, Assistant Deputy Minister, Ministry • Rod Crook of Justice and Attorney General • Karen Layng, Deputy Minister, Ministry of Finance • Vacant, director appointed by government

5 EXECUTIVE MANAGEMENT

Linda Jacob, Garth Melle, Brent Schellenberg, C.A. Hatlelid

Our executive management team provides strategic vision, leadership and direction to the Corporation. Our executive team includes:

• Chief Executive Officer, Garth Melle

• Vice-President Regulatory Policy and Prevention, C.A. Hatlelid

• Vice-President Risk-Based Supervision, Brent Schellenberg

• Vice-President Corporate Operations, Linda Jacob

6 MANDATE

Credit Union Deposit Guarantee Corporation is STANDARDS OF SOUND BUSINESS PRACTICE the primary solvency and prudential regulator for Saskatchewan credit unions. We instill The Credit Union Act, 1998 empowers the confidence in credit unions by guaranteeing Corporation to establish sound business deposits and promoting responsible practices for Saskatchewan credit unions. governance, strength and stability. Our Standards of Sound Business Practice Our risk-based approach to regulation well set minimum requirements for effectively positions the Corporation and credit unions managing business risks and establishing for an increasingly complex future. We continue appropriate policies. Credit unions have long to enhance our policies, practices, operating shown a willingness to adopt industry best procedures and infrastructure in support of practices and each applies the Standards the following primary responsibilities: based on its size, complexity, structure, diversity, and product and service offerings. • guaranteeing the repayment of deposits in Saskatchewan credit unions The Standards are designed to:

• managing the Guarantee Fund consistent • define required financial and business with industry standards practice standards

• establishing prudential standards of sound • prescribe required policies and procedures business practice and monitoring credit union • define roles and responsibilities of credit union performance in relation to those standards directors and managers • directing credit unions to take immediate action The Standards outline required policies on any issue that might place depositors’ funds and procedures for: at risk • corporate governance Our strong focus on prevention and unique relationship with credit unions contribute to the • strategic management fact that no depositor has ever lost funds on • capital and profitability management deposit in a Saskatchewan credit union. The Corporation works closely with credit union • risk management boards, executives and employees. We depend In addition to establishing and communicating on their skills and experience to provide an the Standards, the Corporation: effective layer of deposit protection within individual credit unions. • monitors credit union performance relative to the Standards

• follows up with credit unions whose performance falls below the Standards

• intervenes directly with a credit union if necessary

7 CORPORATE PERFORMANCE

It is important to demonstrate that the Insolvency risk – The economic recovery, Corporation is well-managed with sound increasing capital levels and the strength of our policies and practices consistent with industry regulatory approach combined to reduce risks standards. Our regulatory regime is based on associated with depositors’ confidence in the strong governance, effective planning processes strength and stability of the credit union system and clear accountability. from moderate to low. Stakeholder relations – The Corporation enjoys ENTERPRISE RISK MANAGEMENT strong support from credit unions and other stakeholders. We regularly and proactively interact with all key stakeholders. Risk in this Enterprise risk management is central to our area has reduced to reasonable. governance and strategic planning processes. It helps us identify, assess and manage People – Given their importance to meeting the risks across the Corporation. This supports Corporation’s mandate, we continue to closely development of the goals, objectives and monitor people-related issues. In 2010, our staff strategies that guide our business plan. became direct employees of the Corporation, It also helps us establish priorities and giving us more flexibility in adopting personnel allocate resources. practices. These and other changes have led to increases in staff satisfaction, which has The Corporation’s enterprise risk management improved four years in a row, and decreases in framework outlines our principal risks, our staff turnover, which was only 3% in 2010. risk tolerances and the actions taken to effectively manage and monitor risk. Each Information management – We have made year, management analyzes the operating significant progress in this area, reducing environment, updates the risk assessment the risk from cautionary to reasonable. and communicates findings in a Corporate The introduction of a structured project Risk Report. development methodology has helped ensure success. New loan reporting standards and We track 20 principal risks divided into five an automated risk matr