Management's Discussion & Analysis December 31, 2019 Jump to table of contents Central 1 Credit Union | 2 2019 Highlights for the Year (line of business results shown are profit (loss) before tax, unless otherwise indicated) 33.3M Profit before tax ($34.2M profit after tax) 1 2 Mandatory Liquidity Pool Wholesale Financial Services Digital & Payment Services 27.5PROFIT M 61.4PROFIT M 10.4PROFIT M 3 4 Other Spending on Strategic Initiatives ( 8.5M) ( 57.5M) 5 Earnings per share Borrowing multiple Tier 1 Capital Ratio 7.9 C 13.5:1 33.5% 1 Mandatory Liquidity Pool operations are identified as being planned for segregation at the end of 2020. 2 Excludes strategic initiatives 3 Other includes System Affiliates and excludes strategic initiatives 4 Spending on strategic initiatives excludes MLP 5 Earnings per share is calculated by dividing profit after tax by the average number of shares of all classes that are outstanding Jump to table of contents Contents Management’s Discussion and Analysis Who We Are ....... 4 Off-Balance Sheet Arrangements ....... 29 Derivative Financial Instruments ........ 29 Our Strategic Priorities and our Progress in 2019 ....... 5 Guarantees, Commitments and Contingencies ........ 29 Overall Performance ....... 7 Assets under Administration ........ 30 Factors That May Affect Future Results ....... 10 Capital Management and Capital Resources ....... 31 Economic Conditions ........ 10 Capital Management Framework ........ 31 Industry Regulation ........ 11 Regulatory Capital ........ 32 System-Specific Factors ........ 11 Risk Review ....... 33 Corporate-Specific Factors ........ 11 Business and Operations Risk ........ 33 Other Factors ........ 11 Risk Management Framework ........ 34 Cautionary Note Regarding Forward-Looking Statements ....... 12 Risk Oversight and Management ........ 36 Economic Developments and Outlook ....... 13 Accounting and Control Matters ....... 46 Economic Environment ........ 13 Critical Accounting Policies and Estimates ........ 46 Financial Markets ........ 14 Changes in Accounting Policies ........ 46 Statement of Financial Position ....... 15 Controls and Procedures ........ 46 Cash and Liquid Assets ........ 15 Related Party Disclosures ....... 46 Loans ........ 17 Corporate Governance ....... 46 Funding ........ 17 Equity ........ 18 Glossary of Financial Terms ....... 47 Statement of Profit ....... 19 2019 vs 2018 ........ 19 Q4 2019 vs Q4 2018 ........ 20 Schedule A — Corporate Governance .......48 Income Tax ........ 21 Results by Segment ....... 21 2019 vs 2018 ........ 22 Q4 2019 vs Q4 2018 ........ 24 Summary of Quarterly Results ....... 26 System Performance ....... 27 British Columbia ........ 27 Ontario ........ 28 Management’s Discussion and Analysis Central 1 Credit Union | 4 As at February 21, 2020 In this Management’s Discussion and Analysis (MD&A), unless the context otherwise requires, references to “Central 1”, “we”, “us” and “our” refer to Central 1 Credit Union and its subsidiaries. This MD&A is dated February 21, 2020. The financial information included in this MD&A should be read in Management’s Discussion conjunction with our Consolidated Financial Statements for the years ended December 31, 2019 and 2018 (Consolidated and Analysis Financial Statements), which were authorized for issue by the Board of Directors (the Board) on February 21, 2020. The results presented in this MD&A and in the Consolidated Financial Statements are reported in Canadian dollars. Except Who We Are as otherwise indicated, financial information included in this At Central 1, we power financial institutions. We’ve been doing that for more than 75 MD&A has been prepared in accordance with International years. Our vision is to be a partner of choice for financial, digital banking and payment Financial Reporting Standards (IFRS) as described in Note 2 of products and services. Our role as that partner supports the success of credit unions the Consolidated Financial Statements. Additional information and by extension, the financial well-being of Canadians. may be found on the System for Electronic Document Our unique place in the cooperative banking ecosystem and our ability to meet Analysis and Retrieval (SEDAR) at www.sedar.com. challenges head on have helped us blaze a trail. That’s because we don’t keep up or catch up – we lead. We’ve created great financial technology and an amazing This MD&A also includes financial information about the mobile banking experience that millions count on. We were the first to bring Interac credit union systems in British Columbia (B.C.) and Ontario. e-Transfer® and cheque imaging to Canada. And now, with the Forge Digital Banking The B.C. credit union system is made up of all credit unions Platform (Forge), we’re transforming the banking experience for Canadians once in B.C. except one credit union that has elected to become again. a federal credit union, while the Ontario credit union system is made up of only those credit unions that have elected to We power financial, digital banking, and payment products and services for more than become our members. In the discussions presented in this 250 credit unions and clients across Canada. We fuel a strong and stable credit union system by managing the liquidity of British Columbia’s and Ontario’s credit unions. report, the two provincial systems are individually referred to This includes delivering a robust array of funding programs and investment products. as the “British Columbia (B.C.) credit union system” or “B.C. system” and the “Ontario credit union system” or “Ontario But we’re also about regular people, with over five million Canadians who use system”. Where the term “system” appears without regional our services every day. We are owned by 105 Class A member credit unions who designation, it refers to our total membership, encompassing collectively form a member-oriented, full-service retail financial system that credit unions in both provinces. Financial information for the collectively holds billions in assets. B.C. system has been provided by the B.C. Financial Services Authority (BCFSA) and by the Financial Services Regulatory Our products and services are delivered through two core lines of business: Treasury and Digital & Payment Services. The Mandatory Liquidity Pool (MLP), which is part of Authority (FSRA) for the Ontario system. The different Treasury, is presented separately from our results following the Board’s approval and provincial regulatory guidelines reduce the comparability BCFSA’s acceptance of the plan to legally segregate the B.C. and Ontario MLPs into of the information between the two systems. We have no contractual trusts by December 31, 2020. means of verifying the accuracy of such information. This information is provided purely to assist the reader with Central 1, alongside 2,000 other organizations around the world, is a signatory of the understanding our results and should be read in the proper UN supported Principles for Responsible Investment (PRI). We believe, as many in the context. This financial information was prepared using industry do, that addressing key environmental, social, and governance (ESG) factors the format and accounting principles developed by these is crucial to developing a sustainable financial system. ESG considerations are a core regulators and are not fully consistent with IFRS. For instance, part of our holistic approach to evaluating our investment holdings. the net operating income reported in this MD&A is not equivalent to income from continuing operations under IFRS. Jump to table of contents Management’s Discussion and Analysis Central 1 Credit Union | 5 As at February 21, 2020 Our Strategic Priorities and our Progress in 2019 Client Operational System Centricity Excellence Leadership Transform our client service to align Create an engaged and empowered Make change happen for the system more closely with differentiated culture that delivers results client needs • We understand the importance of creating a • We provide credit unions with the Treasury • We are an integral partner in the digital healthy organization. Our focus on continuing products and services they need to thrive. We transformation of credit unions. We launched to make Central 1 an inspiring place to work are a partner who is dedicated to keeping our our Forge platform that enables our clients to was reinforced by a significant increase in our clients strong, stable and successful. Central 1 design and customize their digital products and organizational health score. expanded our reach, delivering Treasury services and remain at the forefront of ever- products and services to new clients in other • We are progressing our vision to be an agile evolving digital banking expectations. provinces in Canada. organization where decisions are made by • Working in partnership with Forge champions, smaller teams and we work with our clients to • Central 1 received strong investor support the Forge Retail suite — comprising a public design and develop the best solutions. Our following a successful debt issuance in website, mobile banking app and online banking first Organizational Agility project successfully December 2019 that was almost four times capabilities — launched in August 2019. launched International Transfers, enabling credit oversubscribed. The positive response from We have 165 clients, nearly 50 per cent of union members to move money internationally existing and new investors is an indication of Canadian credit unions, committed to Forge. through online