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building our future



OUR VISION We are a leader in providing quality, innovative and full financial solutions to our members. We are known for our integrity and commitment to people and communities.

OUR MISSION Partnering in our members’ financial success, Enriching the communities we serve, demonstrating Excellence and Innovation in all we do.


Values are the high road that we take. Values are the cornerstone of our interactions, our decision making and our steps forward. We value trust, integrity, leadership, excellence, community and our cooperative principles. These values reflect who we are as a credit union. Helping each other to succeed is not just how we do things, it is who we are. We are a family and we work together for common goals and successes. We constantly learn. We grow from our experiences. We always take the high road.

TRUST We continue to earn the trust of our members, our communities and our staff. People are treated with honesty and respect. We are their trusted financial services provider.


Cornerstone Credit Union | 2013 Annual Report

INTEGRITY We have high standards, ethics and personal accountability. We adhere to our values.

LEADERSHIP We demonstrate and inspire leadership in our people. We are empowered to make decisions and are responsible and accountable in our actions.

EXCELLENCE We are recognized for our excellence. “Being good enough” is not acceptable. We add value to our members’ experience.

COMMUNITY Community creates a sense of belonging, regardless of geographical and tangible boundaries. We accept our responsibility for the economic and social well being of our communities. We are a good corporate citizen.

CO-OPERATIVE PRINCIPLES As a credit union we are distinct among financial institutions by our commitment to the co-operative principles. As a member-owned organization, we partner with our members, our community and the credit union system.

Cornerstone Credit Union | 2013 Annual Report



$1 billion

e m p l o y s o ve r



THIRTEEN Saskatchewan communities




PART OF A CREDIT UNION NETWORK that offers DING FREE® TRANSACTIONS to our members at any participating credit union ATM



$1 million dollars

back into the hands of

OUR MEMBERS & OWNERS FIRST CREDIT UNION IN THE COUNTRY to pilot Personal Financial Management (PFM);

personal budgeting tools INTEGRATED INTO ONLINE BANKING.


WE ARE EXCITED that members of Cornerstone Credit Union are the first to try out

credit union in the province

t h e s e i n n ovat i ve n e w to o l s !

CORNERSTONE PUTS OUR MEMBERS’ NEEDS FIRST. That means we understand your needs

and give real advice from our


staff invested over

5,200 HOURS of personal volunteer time

back to their

Cornerstone Credit Union supported over

440 community groups, EVENTS AND ORGANIZATIONS IN 2013 by investing over



Cornerstone Credit Union | 2013 Annual Report


P L U S staff volunteered

countless hours in the community of corporate time



t o t h e b r a n c h i n Yo r k t o n ; just another way to show

CO M M I T M E N T to providing service to members in our largest growing community


25,000 members



in order to be able to

reinvest back into


we continue to focus on


and elevating the member experience

Credit Unions CONNECT offers ser vice at credit unions



2013 was a remarkable year; Cornerstone Credit Union is very proud of our accomplishments and success over the past year. This success would not be possible without the loyalty and support of our many stakeholders. We thank our staff for the contributions, commitment and support they continue to provide to Cornerstone Credit Union day in and day out. To the Board of Directors, we thank them for the guidance and leadership they provide as they continue to build Cornerstone Credit Union for the future. And we thank you, our members, for your business and support throughout the past year – you continue to be the reason for our existence. It is the commitment and support of all these stakeholders that makes Cornerstone Credit Union the great organization that we are today. On behalf of Cornerstone Credit Union, we thank you for your business and look forward to working with you and for you in the future.

ACROSS SASKATCHEWAN with no additional costs


deposits are fully guaranteed

Cornerstone Credit Union | 2013 Annual Report



The governance of Cornerstone Credit Union is anchored in the co-operative principle of democratic member control. Cornerstone Credit Union’s philosophy on corporate governance is to practice transparency in operations and maintain a professional approach and accountability in dealing with our members. The Credit Union has always focused on maintaining the highest standards by conducting its affairs ethically and lawfully and by sustaining a culture of integrity and professionalism.


MANDATE AND RESPONSIBILITIES The Board of Directors of Cornerstone Credit Union is responsible for the strategic oversight, business direction and supervision of management of Cornerstone Credit Union. In acting in the best interests of the Credit Union and its members, the Board’s actions adhere to the standards set out in The Credit Union Act 1998; the Credit Union Regulations, 1999; Standards of Sound Business Practices; Credit Union bylaws and policy; and other applicable legislation. The Board directs the affairs of the Credit Union and maintains policies which are responsive to their needs and the needs of the Credit Union for sound operations. The key roles of the Board include formulation of strategic business plans; setting goals, evaluating the performance of the CEO; approving corporate mission, vision and values; monitoring corporate performance against strategic business plans; overseeing operations; ensuring compliance with laws and regulations; keeping members informed regarding plans, strategies and performance of the Credit Union; and other important matters. During the financial year 2013, the Board of Directors held eleven meetings.

BOARD COMPOSITION The Board is comprised of twelve individuals elected on a district governance structure. Terms are three years in duration. In accordance with the bylaws, the Governance Committee is responsible for the nomination process and election of directors. Voting is by paper ballot during in-branch elections and election results are announced at Cornerstone Credit Union’s annual general meeting.


Cornerstone Credit Union | 2013 Annual Report


Denesowych, Harold Sigfusson, Bonie Derkatz-

Pictured in the photo from left to right is: Jack Powell, Robert Wilson, David Bone, Cheryl

Olson, James Knudson, Lorne Tarasoff, Larry

The Board of Directors elected for the terms and districts in 2013, as set forth in the Credit Union bylaws, are as follows: DISTRICT ONE – Tisdale / Archerwill / Bjorkdale / Rose Valley David Bone Bonnie Derkatz-Olson Val Hvidston (Retired position March 2013) James Knudson Robert Wilson DISTRICT TWO – Wynyard / Lestock / Kelliher / Ituna / Elfros Orest Shular Harold Sigfusson Lorne Tarasoff

Malinowski, Lonnie Kaal, Orest Shular, Ken Sherwin

DISTRICT THREE – Yorkton / Theodore / Saltcoats / Springside Cheryl Denesowych Lonnie Kaal Jack Powell Ken Sherwin Larry Malinowski In 2010-2011, the Board of Directors reviewed the governance structure to determine the appropriate size of the board best suited to fulfill the board’s responsibilities. At the 2011 Annual General Meeting, the membership approved a revision to Cornerstone Credit Union bylaws, which included the reduction of 14 board members to 12 board members and a reallocation of district representation through a transition process in 2012-2013.



The responsibilities of the board of a modern financial services

Board Service 2013

organization involve an ever-growing list of duties. Cornerstone Credit


Board Meetings

Committee Meetings

partitioning of responsibilities enables a clear focus on specific areas of

David Bone

11 of 11 (100%)

16 of 16 (100%)

activity vital to the effective operation of the Credit Union.

Cheryl Denesowych - Governance Chair

10 of 11 (91%)

8 of 8 (100%)

Cornerstone Credit Union has four standing committees to assist in

Bonnie Derkatz-Olson

11 of 11 (100%)

8 of 8 (100%)

fulfilling board responsibilities:

Val Hvidston 1 of 2 (50%)

1 of 1 (100%)

11 of 11 (100%)

6 of 6(100%)

11 of 11 (100%)

10 of 11 (91%)

Union maintains a number of committees comprised of directors. This

*Retired March 2013 • The Audit and Risk Committee, which met six times in 2013, is

Lonnie Kaal

comprised of five members from the Board at large. The purpose of the

- Audit & Risk Chair

Audit and Risk Committee is to ensure an independent review of the

James Knudson

Credit Union’s operation on areas deemed necessary to maintain the

- Conduct Review Chair

integrity of financial data, adequacy of internal controls and adherence

Larry Malinowski

3 of 3 (100%)

- Board of Directors Chair

11 of 11 (100%)

Ex-Official 14 of 14 (100%)

Jack Powell

10 of 11 (91%)

4 of 6 (67%)

Ken Sherwin

10 of 11 (91%)

9 of 9 (100%)

*Appointed to the Board in March

8 of 9 (89%)

5 of 5 (100%)

• The Governance Committee, which met seven times in 2013, is

Harold Sigfusson

10 of 11 (91%)

6 of 8 (67%)

comprised of six members from the Board at large. The purpose of the

Lorne Tarasoff

9 of 11 (82%)

8 of 8 (100%)

Governance Committee is to ensure that an appropriate governance

Robert Wilson

11 of 11 (100%)

5 of 6 (83%)

system is in place through corporate governance policies, the

(NOTE: Re-organization of committees took place in March of 2013.)

to requirements of The Credit Union Act, 1998, The Credit Union Regulations, 1999, The Credit Union Insurance Business Regulations, and the Standards of Sound Business Practice. In addition, the Audit and Risk committee is responsible for the enterprise risk management regime.

nominations and election process, the board committees’ structure,

Orest Shular

and board assessment and development processes. • The Conduct Review Committee, which met once in 2013, is comprised of six members from the Board at large. The purpose of the Conduct Review Committee is to ensure that all proposed related party transactions with the Credit Union are fair to the Credit Union and that best judgment is exercised in all matters of related party relationships. This also includes approving the Code of Conduct annually. • The HR / Executive Committee, which met three times in 2013, is comprised of the President, the Vice-President, and two elected Board members at large. The purpose of the HR / Executive Committee is to assist the Board of Directors in discharging its oversight responsibilities relating to board stewardship; employment and performance management of the CEO; succession planning for the CEO and the Executive Management team; organizational culture

DIRECTOR TRAINING It is the policy of the Board of Directors to provide necessary opportunities for personal and professional self-development of the Board. Cornerstone Credit Union has a Director Development policy in place that pertains to the training, education, and development of directors. This may be obtained by attending meetings, conferences and educational sessions that will provide training and understanding of both broad and technical issues, which will assist in the development or operation of the Credit Union. In 2013, two board members attended the 2013 World Council of Credit Union Conference held in Ottawa, ON. A number of directors also completed Credit Union Director Achievement and CUSource courses.

and compensation; as well as assist with extended decision making


authority to act in the capacity of and on behalf of the Board of

The Board of Directors conducts an evaluation bi-annually to assess the effectiveness of board operations; there was a formal evaluation conducted in 2013.

Directors in times of emergency or if the business continuity plan is activated.

Cornerstone Credit Union | 2013 Annual Report


2013 GOVERNANCE REVIEW PROCESS In 2013, the Board of Directors conducted an extensive review of corporate governance that examined current practices and identified enhancements to the governance process for Cornerstone Credit Union. Emerging best practices were researched, documented and presented to the Governance Committee and Board of Directors as alternatives to improve governing capacity and to balance all aspects of governance to achieve good co-operative governance for Cornerstone Credit Union. The governance review was built on a principlebased framework, Bookers Twelve Principles for Good Governance, which enabled the Board to identify overarching principles of governance, and to evaluate and choose their own best practice using these principles as foundations and filters. The Board of Directors has adopted the Booker and Associates framework of twelve principles for good governance which include: clear roles and responsibilities; effective board membership; board orientation and development; expectations and involvement of board members; effective board structure; effective decision making; effective policy setting; setting organization culture; oversight of risk management; executive performance management; effective communications and board accountability. The recommendations from the 2013 governance review process have been approved by the Board and are being implemented in 2014.

EXECUTIVE MANAGEMENT Pictured in the photo from left to right: Doug Jones, Carissa Yaholnitsky, Cliff Trombley, Kevin Lukey, Corvyn Neufeld, Lori Walsh, Bryan Furber


Cornerstone Credit Union | 2013 Annual Report

EXECUTIVE MANAGEMENT Cornerstone Credit Union has an experienced executive management team. Executive management is responsible to oversee the operations of the Credit Union within the context of strategies and policies approved by the Board, and for developing processes that identify, measure, monitor and control risks. Management reports performance in key areas to the Board on a regular basis. The Executive Management team is comprised of the following: KEVIN LUKEY Chief Executive Officer

the Credit Union. The Committee ensures balance sheet activities and measures are within acceptable limits included, but not necessarily limited to capital adequacy; lending and investment limits; liquidity risks; and interest rate risk. Furthermore, the Committee sets and approves balance sheet operational strategies with a focus on achieving financial targets, managing market and liquidity risk and optimizing the use of capital. The ALCO met four times in 2013 and was provided quarterly reports which included trend analysis of all risk measures and policy comparisons.

CLIFF TROMBLEY Vice President of Corporate Services & Support The Information Technology Governance Committee (ITGC) is comprised of executive management and the AVP of Technology. CORVYN NEUFELD The ITGC plans, approves, prioritizes, and Vice President of Human Resources directs Cornerstone Credit Union information LORI WALSH technology (IT) initiatives to ensure that Vice President of Marketing & Strategic Solutions internal and external customer needs and DOUG JONES expectations for IT solutions are met; IT risks Vice President of Retail Services are identified and mitigated; and best value CARISSA YAHOLNITSKY/JANINE SULLY is secured as measured by functionality, Executive Assistant efficiency, timing, and cost to meet both business and IT needs. The Asset Liability Management Committee BRYAN FURBER Vice President of Finance

(ALCO) is comprised of executive management and select senior management of Cornerstone. The ALCO Committee is responsible for understanding and monitoring liquidity risk, interest rate risk, credit exposure and overall balance sheet structure of

The IT Governance Committee met once in 2013.



This Management Discussion & Analysis (MD&A) is presented to enable readers to assess material changes in the financial condition and operating results of Cornerstone Credit Union (the Credit Union) for the year ended December 31, 2013, compared with prior years. This MD&A is prepared in conjunction with the Consolidated Financial Statements and related Notes for the year ended December 31, 2013, and should be read together. Unless otherwise indicated, all amounts are expressed in Canadian dollars and have been primarily derived from the Credit Union’s annual Consolidated Financial Statements prepared in accordance with International Financial Reporting Standards (IFRS). Management is responsible for the underlying reliability of the information included in this MD&A and for the controls systems and procedures that help to ensure that reliability. This MD&A may contain future-looking statements concerning Cornerstone Credit Union’s future strategies. These statements involve uncertainties in relation to prevailing economic, legislative and regulatory conditions at the time of writing. Therefore, actual results may differ from the future-looking statements contained in this discussion.

Cornerstone Credit Union | 2013 Annual Report


OUR BUSINESS ENVIRONMENT Although Cornerstone Credit Union is focused on serving the needs of its members in Saskatchewan, the economic and business conditions in Canada and abroad can impact the trading area of the Credit Union and its financial position. National and international economic conditions can impact currency rates, interest rates, and monetary policy of the Bank of Canada. These factors, combined with fluctuations in capital markets and competition, can impact the market share and price for the Credit Union’s products and services and, in turn, affect its performance. The world economy continues to move at a very sluggish pace. Some improvement did occur over the course of 2013. While still not as strong as in the more distant past, growth in both China and Japan began to rebound. Economic struggles still exist in the Eurozone; however, there are indications that the worst may finally be passing. Canada is impacted not only because these countries are our trading partners, but also because international monetary policy has and is changing as a result and Canada, and its financial institutions, follow suit. The U.S. economy continues its slow-paced improvement. Unemployment fell over the course of the year from 7.7% to 6.7% and housing starts have been positive. In late 2013, a budget deal was finally reached that provides some breathing room and negates the possibility of another government shutdown for at least a two year window. Overall, the results provide a more optimistic outlook than has occurred for several years running. Nonetheless, it is anticipated that U.S. interest rates will remain low until well into 2015. Canada’s federal monetary policy continues to be greatly influenced both by what is happening in the global marketplace and what occurs at home. Canadian consumer debt levels continue to be of concern as does the low inflationary environment. While continued growth is anticipated, it will be at a relatively slow pace. As a result, the Canadian interest rate environment is also not anticipated to change until well into 2015.


Cornerstone Credit Union | 2013 Annual Report

Saskatchewan still continues to be somewhat insulated from the impact of the global woes. The province’s population continues to grow. Strong retail sales growth and low unemployment rates continue to make this province an attractive place to call home. While there has been some pull back / slowdown in the investment in potash mines due to lack of demand globally, it is still expected that natural resource commodity prices will remain at attractive levels and continue to support economic activity in Saskatchewan in the longer term. Favorable weather and growing conditions resulted in bumper crops in 2013. Even though prices have reduced as a result of the large supply of available grain, the net result was still a positive year for most of our farming members. This is welcome news for the Credit Union as agriculture is still a major driving factor in our trading areas.

2013 OPERATIONAL REVIEW Cornerstone Credit Union is focused on providing superior member service to our members, and in order to remain competitive we must do so in a high cost, low margin environment. The success of Cornerstone Credit Union is impacted by our ability to move to a highly effective service organization; an organization that flourishes in the new service paradigm of high member expectations and the needs for a high degree of specialization. Service delivery channels have changed dramatically; we are doing increasingly more business through channels other than branch structures which requires more non-public facing retail and support staff. Cornerstone Credit Union implemented changes to the branch structure in 2013, closing the Rhein and Wishart branches and reducing the hours of service in the Bjorkdale, Elfros and Lestock branches. The main reason was to deploy our people more effectively, and to meet the new service expectations of members and potential members by directing the right resources to the right places at the right time. The City of Yorkton and region continues to experience economic growth. It is the opinion of board and management that economic growth will continue in this region and we are confident that our credit union will continue to capture a growing market share. In 2013, our organization was faced with having to make difficult choices that balance the need to make sizable strategic investments for the future, right sizing our service delivery channels and

managing our operating costs for greater efficiencies. After much research and debate over the advantages and disadvantages to renovate, relocate, lease, buy or build, we felt the best long-term option was to build an addition and reconfigure our existing facility in Yorkton. Investing into our existing facility was the best long-term strategic solution to meet the needs of our corporate objectives well into the future. Construction began in April 2013, with the new facility expected to be complete in November 2014. Electronic channels continue to be a focus and priority for Cornerstone Credit Union as they are a preferred means to conduct business and offer convenience to our members. In 2013, Cornerstone Credit Union became the pilot credit union for Personal Financial Management (PFM) tools offered through MemberDirect online banking. With PFM, members will be able to track their spending, set budgets and see their full financial picture by linking accounts from other financial institutions within MemberDirect online banking. PFM was launched to members in January 2014. Cornerstone Credit Union partnered with credit unions from across the country to launch a national program called ding free®. Ding free® is an awareness campaign to inform existing and potential credit union members that they can conduct transactions at credit union ATMs across Canada without any additional fees. The ding free® campaign is another great example of credit unions working together to improve service to credit union members across the country. At Cornerstone Credit Union contributing to the communities we serve is a big part of who we are. This year, in addition to our existing community investment programs in which we provide support to hundreds of local groups, events and organizations each year, we launched an Employee Volunteer Program at the request of our staff as another way we can contribute back to our communities. As a community credit union it only makes sense that we roll up our sleeves and get involved in the communities we serve. In 2013, employees of Cornerstone Credit Union donated over 5,200 hours of their personal time to volunteer for the benefit of their local communities.

2013 PERFORMANCE MEASUREMENT Cornerstone Credit Union uses a balanced scorecard framework to measure and monitor our progress towards achieving our strategic objectives. The scorecard utilizes both financial and non-financial measures along four strategic themes: Culture, People and Community; Member and Client Solutions; Organizational and Financial Strength; and Business and Management Processes.


Culture, People and Community

Member & Client Solutions

Organizational and Financial Strength

Business and Management Processes



• Be recognized as the employer of choice • Develop an organizational constructive culture that fosters innovation and diversity • Provide an environment where members are able to succeed • Develop people (members, employees, board) • Empower people and support leadership • Instill a sense of engagement, ownership and pride in the work we do for the benefit of our members • Contribute to and strengthen our communities

Community Investment (% Pretax)





Volunteer Time Hours Employee Engagement Cultural Assessment



• Constructive culture – Avg % of 4 constructive behaviours



• Less passive defensive culture – Avg % of passive defensive behaviours



• Be the financial solutions service provider of choice • Ensure that we demonstrate a member-centric approach through service excellence and providing solutions that fit the member • Build and strengthen relationships with our members and clients • Ensure the organization is proactively positioned to pursue emerging business lines

Deposit Growth %



Loan Growth %



Retail Off Balance Sheet Growth %



• Ensure a balanced approach for the long term growth and viability of Cornerstone Credit Union • Manage enterprise risk • Ensure the organization has a capital position that enables it to implement the business plan

Operating Return on Average Assets %



Tier 1 Capital %



Delinquency %



• Ensure service excellence • Demonstrate management excellence • Ensure corporate effectiveness • Ensure organizational competencies are in place to implement the business plan

Efficiency Ratio



Employee understanding of direction & effective internal communication



(Actual calculations are performed by using internal financial reporting.)

Total assets under administration by the credit union at December 31, 2013 were approximately

$1.06 billion. 11

Cornerstone Credit Union | 2013 Annual Report Cornerstone Credit Union | 2013 Annual Report



Cornerstone Credit Union ended December 31, 2013 with on book assets of $855 million compared to $807 million in 2012, representing growth of 5.94%.

The Credit Unionâ&#x20AC;&#x2122;s liabilities consist primarily of member deposits. Deposits totaled $758 million at December 31, 2013, an increase of 4% from prior year. Deposit growth lagged expectation due to delays in agricultural related deposits and a slower than anticipated commercial growth rate. Consumers grew term type deposits due to a strong desire to keep investments safe in the current economic environment. The slower than average on book growth can also be attributed to the improved market for off-balance sheet deposits.

Total assets under administration by the Credit Union at December 31, 2013 were approximately $1.06 billion, representing annual growth of approximately 8%. This includes on book assets, wealth management assets, credit union owned investments managed through our branch of Credential Securities and interest rate swaps. Off book wealth management assets grew at an annual rate of 21% to $141 million and the notional value of interest rate swaps increased from $50 million to $65 million.

The Credit Unionâ&#x20AC;&#x2122;s on book deposits are 100% guaranteed by the regulator of credit unions in Saskatchewan, Credit Union Deposit Guarantee Corporation (CUDGC).


Asset Growth $1066m

Accounting for more than 84% of total on book assets, loans amounted to $720 million at December 31, 2013; an increase of $96 million or approximately 15% over prior year. The following illustrations show the breakdown of our total loan portfolio by sector.


$1000m $912m $900m $800m $800m


Consolidated Loans by Sector




$720m $625m

$500m $568m


Commercial Non-Mortgage 2009


On Book Assets





Off Book Assets

Consumer Non-Mortgage


Ag Non-Mortgage


Commercial Mortgage Consumer Mortgage Ag Mortgage


Loans totaled

$720 million at December 31, 2013,

an increase of $96 million from prior year. 12

Cornerstone Credit Union | 2013 Annual Report

2009 2010





while considering current economic

increase its loan to asset ratio, Cornerstone’s

Investments totaled $118 million at December

conditions and historical losses. The quality

liquidity ratio continued to fall in 2013. At

31, 2012, a decrease of $14 million or 10%

of the credit portfolio was also confirmed by

December 31, 2013, the ratio was 19%; for

from prior year. The decrease was due to

both internal and external audit processes

2012 fiscal year end it was 74%. Throughout

strong loan demand. The majority of the

conducted in 2013.

2013, loan demand was funded primarily by deposits from Credit Union members and,

Credit Union’s investments are held with SaskCentral or Concentra Financial Services


to a lesser extent, by maturing investments

(a credit union company). Credit unions are

One of Cornerstone Credit Union’s primary

and the additional issuance under the NHA

required by CUDGC to maintain on deposit

objectives is to prudently manage liquidity

MBS program. The Credit Union maintains

with SaskCentral for the Provincial Liquidity

to ensure that the Credit Union is able to

a line of credit with SaskCentral in the

program an amount equal to 10% of their

generate or obtain sufficient cash or cash

amount of $15 million to manage clearing

member deposit liabilities. In addition to

equivalents in a timely manner and at a

and settlement and unforeseen funding

these Statutory Liquidity Investments, the

reasonable price, to meet commitments

needs and an additional $10 million revolving

Credit Union maintains a high quality, liquid

as they come due, even under stressed

credit facility with Concentra Financial. At

pool of investments to satisfy payment


December 31, 2013 both of these credit facilities were in use.

obligations and protect against unforeseen liquidity events. In addition to its securities

The Credit Union maintains a liquidity plan in

held with SaskCentral and Concentra

support of its liquidity policy and regulatory

Cornerstone’s liquidity position was lower at

Financial Services, investments are also

guidance. The liquidity plan undergoes

the end of 2013 than would be acceptable on

largely held in securities that are guaranteed

regular reviews and is approved by the Board

a long term basis. The lower than anticipated

by the “big five” chartered banks.

of Directors. As per the plan, the Credit

ratio resulted from lower than anticipated

Union maintains a stock of liquid assets

deposits and higher than anticipated short


while regularly measuring and monitoring

term loans in the last quarter of 2013.

As a credit granting organization, credit

its available liquidity, and performs stress

Historically, deposit balances grew in the

quality is a key risk management area of

tests to identify sources of potential liquidity

last quarter of the year as farmers marketed

Cornerstone Credit Union. Despite the

strain. The Credit Union also maintains

their crops. In 2013, farmers delayed

potential impacts of the ongoing financial

external borrowing facilities to complement

marketing – both because of lower prices

crises and economic conditions, the Credit

its liquidity management process. An

and transportation issues. Some farmers also

Union’s standard credit quality measures have

additional source of liquidity for the Credit

chose to defer payments in order to optimize

remained very strong. Delinquency greater

Union is the sale of mortgage pools under

their personal taxation positions. This

than 90 days was 0.16% of loans at December

the National Housing Authority Mortgage

resulted in fewer deposits and more short

31, 2013, a 0.01% increase from the prior

Backed Securities (NHA MBS) program.

term financing than had normally been the

year. This compares favorably to the levels

During 2013, one issuance was completed

case. The Credit Union did see a significant

anticipated by credit granting organizations

under the NHA MBS program. This increased

upswing in its liquidity position in January

and our peer group in Saskatchewan. The

the Credit Union’s securitization debt

2014. Nonetheless, with a plan to maintain a

Credit Union monitors its exposure to

balance to $14 million at December 31, 2013

higher loan to asset ratio than Cornerstone’s

potential credit losses and maintains both

compared with $10 million at the end of 2012.

historical position, liquidity will continue to be an area the Credit Union will monitor

specific and collective loan allowances accordingly. Specific allowances are reviewed

The Credit Union’s liquidity is measured by

closely. The Credit Union has developed a

regularly by examining the individual loans

an operating liquidity ratio which considers

strategy to grow its deposit base and will be

and estimating the likelihood of realizing the

projected cash inflows as a percentage of

focusing on this strategy throughout 2014.

full carrying value. Collective allowances are

projected cash outflows. As a result of the

calculated using management’s judgment

concerted effort made by the Credit Union to

Cornerstone Credit Union | 2013 Annual Report



increasing the minimum requirement by 2.5%

One of the primary measures of financial

for each individual ratio. In addition, credit

strength of any financial institution is its

unions are currently required to maintain

capital position. Credit unions measure capital

a minimum ratio of 5% for total eligible

adequacy using both risk-weighted and

capital divided by total assets, with

leverage tests.

total assets adjusted for deductions from capital and the addition of

Credit unions operate in a highly regulated

certain off balance sheet items.

environment where CUDGC sets regulatory

There is no increase regulated

guidelines to which credit unions must adhere.

for this measure in January

Effective July 1, 2013, CUDGC published new guidelines, changing both the measures to be monitored and the limits to be maintained. The current guideline segregates between two types of capital – tier 1 and tier 2, with tier 1 capital being the primary capital and having the highest quality. The standards require that each credit union hold a minimum common equity tier 1 capital ratio of 4.5% of risk weighted assets, a total tier 1 capital ratio of 6.0% of risk weighted assets and a total eligible capital ratio of 8.0% of risk weighted assets. Starting in 2016, CUDGC will also require a further 2.5% buffer to be added to each of the risk weighted measures – effectively

statutory requirements with a common eligible tier 1 capital ratio of 9.41%, a total tier 1 ratio of 9.41%, a


$4.2m $4m


$3m $2m $1m






Cornerstone Credit Union manages capital in accordance with its capital management plan and Board approved capital policies, both of which were updated as a result of

earnings to members’ equity accounts

the revisions to the guidelines. The capital

based on usage of services. Member equity

plan is developed in accordance with the

accounts are included in the determination of

regulatory capital framework and is regularly

capital adequacy for internal and regulatory

reviewed and approved by the Board of

purposes; however, member equity accounts

Directors. Capital is managed in accordance

are now included as tier 2 capital. For this reason, the Credit Union will be reviewing its member equity program in 2014.

requirements, absorb unexpected losses, implement long term strategic plans and

Retained Earnings

signal financial strength.

(Including Contributed Surplus & Member Held Equity)

9.41% 7.52%




a capital leverage ratio of 7.52%.

an optimal level of capital, meet operational





total eligible capital ratio of 10.94% and

and exceed regulatory minimums, maintain



2016. Cornerstone exceeded the

with the capital plan with a goal to achieve

2013 Capital Measures

Income Before allocations

The Credit Union relies on profitability


to grow its capital position and


holds the majority of its total


capital in retained earnings.



Both balance sheet growth



and profitability affect the Credit Union’s capital ratios.


$51.0m $50m

The Credit Union retains a 0%




Cornerstone Capital Regulatory Requirements: Minimum Standard Buffer Requirement

portion of its annual earnings in order to meet its capital


objectives. Once these capital objectives are met,


additional earnings are allocated to members through the Credit Union’s member equity program. The member equity program allocates



Retained Earnings


Cornerstone Credit Union | 2013 Annual Report




Member Equity



to be lower as a result of the sale of the

Income before allocations (Income

total interest revenue less total interest

real estate subsidiaries. Member security

Tax & Member Patronage) and other

expense. For 2013, financial margin was

costs increased as a function of growth.

comprehensive income for the year was $6.9

2.90% compared to 2.89% in 2012.

As deposits and membership grow, the

million, an increase from $5.8 million in 2012.

fees assessed to ensure the overall health

For 2012 our return on assets (ROA) before

The Credit Union’s profitability is largely

of the Saskatchewan credit union system

income tax and patronage allocations was

dependent on interest margins. The Credit

also grow. Organization costs were slightly

.81%, compared to .71% in 2012.

Union continues to be asset-sensitive, which

lower in 2013 than in 2012. Occupancy

ultimately means that profitability will

costs decreased as a result of reduction


increase as interest rates rise. It is expected that interest rates will remain relatively

in property taxes due to changes in the

The Board of Directors declared a patronage allocation of $1 million to be credited to

unchanged throughout 2014 and into 2015.

members’ equity and deposit accounts. The distribution of patronage will be based on

OTHER INCOME – includes fixed asset

the amount of loan interest paid, deposit

revenue, commissions and service charges

interest earned and eligible service fees paid

as well as gross commissions from real estate

by each member during the year. Members

and insurance subsidiaries. Non-interest

will receive a 3.0% rebate or bonus on

revenue ended 2013 at $7.0 million compared

interest paid and interest earned. They will

to $6.9 million in 2012. Although total non-

also receive a refund of 10.0% of eligible

interest revenue remained approximately

service fees paid. Payments will be made to

the same in 2013 in terms of dollars, as a

member equity accounts in April 2014.

percentage of assets, it dropped from .86% in 2012 to .82% in 2013. The Credit Union anticipates that non-interest revenue will decrease in 2014 as a result of both the

The Board of Directors declared a patronage allocation of $1 million to be credited to members’ equity and deposit accounts.

sale of the real estate subsidiaries and the introduction of a service free personal chequing product. OPERATING EXPENSES – includes various operating expenses such as personnel, occupancy, security, governance, community development and general business. Operating expenses ended 2013 at 2.89% of assets or $24.7 million compared to 3.04% of assets or $24.5 million in 2012. Small increases occurred in personnel, security and general business costs in 2013; however, it should be noted that operating costs in relation to total assets improved during 2013

tax assessment system provincially and mill rates for the various communities in which we operate. The Credit Union is anticipating that occupancy costs will be higher in 2014, both as a result of the building addition in Yorkton which is anticipated to be completed in late 2014 and because we anticipate a significant increase in property taxes in 2014. The slight increase in general business cost resulted primarily from the Credit Union’s strategic desire to contain discretionary spending offsetting the costs associated with the growth experienced. INCOME TAX EXPENSE – After years of a relatively stable tax regime, the federal government changed the way in which it taxes credit unions. The 2013 federal budget removed a special deduction for credit unions over a five year phase in period for current taxes payable. The impact will be to increase the credit union’s tax rate over that five year period. Therefore, a higher percentage of earnings were expensed as tax in 2013 than in prior years. The provincial government is still assessing the tax change and Cornerstone anticipates that some decision will be

as evidenced by the decrease in operating

reflected in the 2014 provincial budget.

expense ratio noted above. The increase in

If the provincial government follows the

personnel costs related mainly to an increase

federal government’s change (or institutes

in the cost of benefits. Salary levels increased

a smaller increase), then the Credit Union’s

for cost of living adjustments; however,

tax percentages will further increase in

efficiencies allowed the staff complement

2014, leaving the Credit Union with less

of the Credit Union to shrink slightly in 2013.

potential earnings to add to its capital base.

Cornerstone expects 2014 personnel costs

Cornerstone Credit Union | 2013 Annual Report


ENTERPRISE RISK MANAGEMENT Each year Cornerstone Credit Union spends significant resources measuring and assessing risks and ensuring we are adequately prepared to serve our communities now and in the future. This process is called enterprise risk management (ERM) and is mandated by CUDGC as a requirement of all credit unions in Saskatchewan. As a financial institution, Cornerstone Credit Union is exposed to a variety of risk. Risk is the downside that exists in almost every component of the Credit Union’s activities. Risk represents the potential negative impact to the Credit Union’s ability to achieve important goals. Risk can also cause financial loss and harm to a credit union’s reputation. Managing, or appropriately balancing, risk with business opportunities is the top priority for the Board of Directors and Management of Cornerstone Credit Union. Building sound policies and operational processes, risk based audit practices and capital and liquidity management strategies, all supported by strong human resources, is the heart of our strategic objectives. The following risk categories form part of the Credit Union’s overall ERM approach:

CREDIT RISK Cornerstone Credit Union is exposed to credit risk, which is the risk of financial loss resulting from a borrower or counterparty’s inability to meet its obligations. Due to the relative size of our internal loan portfolio, the majority of this risk derives from our direct lending activities. We are also exposed to credit risk through our holdings of investment securities and purchased loans (credit product purchased, but not administered by the Credit Union). Lending and credit risk management is performed in accordance with approved policies, procedures, standards and controls. Risk concentration limits have been designed to reflect our risk tolerance. Surplus liquidity is invested in accordance with investment policy and regulatory approved investment


Cornerstone Credit Union | 2013 Annual Report

criteria. Credit risk is further mitigated through in-depth and ongoing training of loans personnel and independent adjudication of larger, potentially higher risk loan applications and regular monitoring and reporting. The Credit Union’s credit portfolio and lending practices undergo regular and ongoing independent assessment through external audit, internal audit and regulatory reviews. Reports are provided to Management and the Board of Directors through the Audit and Risk Committee.

LIQUIDITY RISK Liquidity risk is the risk of having insufficient cash resources or equivalents to meet demand for loans or depletion of deposits. Liquidity risk arises from general funding activities and through managing assets and liabilities. The Credit Union’s liquidity risk management strategies seek to maintain sufficient liquid resources to continually fund our balance sheet commitments and to ensure we can meet the day to day cash needs and growing loan demands of our members. Liquidity risk management requirements are defined by policies and regulatory standards and limits. The Asset Liability Management Committee and the finance team oversee liquidity risk exposure and management. Cornerstone’s liquidity risk management framework operates under approved policies and processes. We monitor actual and anticipated inflows and outflows of funds daily. We assess the adequacy of liquidity using potential outflow modeling and stress testing and report results to management and the Board of Directors monthly. We hold a portfolio of liquid assets and have established borrowing facilities with SaskCentral and Concentra Financial. We also research, make recommendations and enter into alternative sources of funding when appropriate.

MARKET RISK Market risk is the risk that financial position or earnings will be adversely affected by changes in market conditions such as interest and foreign exchange rates. Cornerstone’s market risk arises primarily from movements in interest rates. The Credit Union employs comprehensive management processes around our market exposures and risk taking activities. We have defined policy around numerous risk measures which we actively monitor and upon which we regularly report to ALCO, the Board of Directors and system regulators. We employ dynamic modeling and income simulation for scenario and stress testing based on changes in interest rates. We implement mitigation strategies, including the use of interest rate swaps, where and when deemed necessary to strategically manage risks.

STRATEGIC RISK Strategic risk is the risk that adverse decisions, ineffective or inappropriate business plans or failure to respond to changes in the competitive environment, customer preferences, product obsolescence or resource allocation will impede the ability of the Credit Union to meet its business objectives. The Credit Union has formal planning processes which result in a strategic business plan and a balanced scorecard that focus on strategic objectives. The Credit Union also uses a comprehensive reporting process to monitor performance relative to plans.



Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or external events. Exposure to this risk arises from deficiencies in internal controls or employee integrity, technology failures, human error or natural disasters.

Capital risk is the risk that the Credit Union maintains insufficient capital to satisfy regulatory requirements, absorb unexpected losses, implement long term strategic plans and signal financial strength. Capital levels can be negatively impacted by high levels of growth, accompanied by insufficient profitability to sustain adequate capital or through losses incurred in any of the other key risk areas.

Operational risk is managed through the use of policies and procedures, controls and monitoring. The Credit Union mitigates operational risk through internal audit programs, business continuity planning, appropriate insurance coverage and secure technology solutions.


In the event that a credit union does not maintain adequate capital, the regulator, CUDGC, can intervene and oversee the operations of that credit union to ensure capital adequacy is restored.

The Credit Union maintains a capital management plan and establishes capital policies to ensure capital adequacy is maintained. Capital measures are regularly reported to and reviewed by the Board of Directors, Audit and Risk Committee and ALCO. Annual and long term operating forecasts are developed and reviewed regularly with results stress tested and compared to capital plans and policies to ensure proactive management and capital planning is ongoing. The Credit Unionâ&#x20AC;&#x2122;s operations undergo regular independent assessment through external audit, internal audit and regulatory reviews to ensure that key risks are being mitigated and any potential impacts to capital are reported accordingly.

Legal and regulatory risk is the risk of loss arising from potential violation of, or nonconformance with, laws, rules, regulations, prescribed practices, or ethical standards. Cornerstone Credit Union operates in a heavily regulated environment. Our structure, policies, and procedures aid us in complying with laws and regulations. Compliance managers are in place to manage and report on compliance on a regular basis. We also undergo regular review by internal, external and regulatory audit.

Cornerstone Credit Union | 2013 Annual Report


SUMMARY 2013 was a challenging year and we are proud of the accomplishments of Cornerstone Credit Union. While we

services agreement. • Financial planning process to advise member/clients on the risks and benefits associated with financial planning services.

continue to focus on serving the needs of

• Privacy to protect the interests of those who

our members, the economic and business

do business with Cornerstone Credit Union.

conditions we face have an impact to the

Privacy is the practice to ensure all member/

performance of our Credit Union. Despite

client information is kept confidential

the challenges we encountered throughout

and used only for the purpose for which

the past year, we were still able to grow our organization, expand the service delivery

it was gathered. • Professional standards to preserve a positive

provided to our members and make an

image of Cornerstone Credit Union among

allocation to member patronage.

our members, clients and communities. • Capital management to ensure our capital

Thank you to our Board of Directors and

structure aligns with our risk philosophy.

Staff for the commitment and hard work

• Financial reporting to adhere to business

put forth over the past year. We also wish to acknowledge and show appreciation to

and industry standards. • Governance practices to adhere to the

our members for their continued support as

intent and stipulation of our corporate

our organization evolves. We look forward

bylaws, which are approved by the

to meeting all of your financial needs in the

membership of Cornerstone Credit Union.


• Risk management to ensure all risks are measured and managed in an

CREDIT UNION MARKET CODE Cornerstone Credit Union voluntarily adheres to the Credit Union Market Code. This code has been jointly developed by Saskatchewan credit unions, SaskCentral and Credit Union Deposit Guarantee Corporation to ensure the protection of credit union members. The code sets forth guidelines for the following areas: • Complaint handling, which outlines the process for dealing with all complaints regarding the service, products, fees or charges of Cornerstone Credit Union. • Fair sales by outlining the roles and relationship of staff to all member/clients and in accordance with the financial


Cornerstone Credit Union | 2013 Annual Report

acceptable fashion.


with the co-operative; and supporting other

Co-operation among Co-operatives

As a true co-operative financial institution,

activities approved by the membership.

Co-operatives serve their members most effectively and strengthen the co-operative

Cornerstone Credit Union acts in accordance with internationally recognized principles

Autonomy and Independence

movement by working together through

of co-operation:

Co-operatives are autonomous, self-help

local, national, regional and international

organizations controlled by their members.


Voluntary and Open Membership

If they enter into agreements with other

Co-operatives are voluntary organizations,

organizations, including governments,

Concern for Community

open to all persons able to use their services

or raise capital from external sources, they

Co-operatives work for the sustainable

and willing to accept the responsibilities

do so on terms that ensure democratic

development of their communities through

of membership, without gender, social, racial,

control by their members and maintain

policies approved by their members.

political or religious discrimination.

their co-operative autonomy.

Democratic Member Control

Education, Training and Information

Co-operatives are democratic organizations

Co-operatives provide education and training

controlled by their members, who actively

for their members, elected representatives,

participate in setting their policies and

managers, and employees so they can

making decisions. Men and women serving

contribute effectively to the development

as elected representatives are accountable

of their co-operatives. They inform the

to the membership. In primary co-operatives

general public - particularly young people

members have equal voting rights (one

and opinion leaders - about the nature and

member, one vote) and co-operatives

benefits of co-operation.

at other levels are also organized in a democratic manner. Member Economic Participation Members contribute equitably to, and democratically control, the capital of their co-operative. At least part of that capital is usually the common property of the co-operative. Members usually receive limited compensation, if any, on capital subscribed as a condition of membership. Members allocate surpluses for any or all of the following purposes: developing their co-operative, possibly by setting up reserves, part of which at least would be indivisible; benefiting members in proportion to their transactions

As a true co-operative financial institution, Cornerstone Credit Union acts in accordance with internationally recognized principles of co-operation.

Cornerstone Credit Union | 2013 Annual Report


AUDITORSâ&#x20AC;&#x2122; REPORT ON SUMMARIZED F I N A N C I A L S TAT E M E N T S T O T H E M E M B E R S of Cornerstone Credit Union Financial Group Limited


Cornerstone Credit Union | 2013 Annual Report

REPORT OF THE INDEPENDENT AUDITORS’ ON THE SUMMARY CONSOLIDATED FINANCIAL STATEMENT To the members of Cornerstone Credit Union Financial Group Limited, The accompanying summary consolidated financial statements of Cornerstone Credit Union Financial Group Limited and its subsidiaries, which comprise the summary consolidated statement of financial position as at December 31, 2013, the summary consolidated statements of income and comprehensive income, changes in members’ equity and cash flows for the year then ended are derived from the audited consolidated financial statements of Cornerstone Credit Union Financial Group Limited for the year ended December 31, 2013. We expressed an unmodified audit opinion on those consolidated financial statements in our report dated February 13, 2014. The summary consolidated financial statements do not contain all disclosures required by International Financial Reporting Standards. Reading the summary consolidated financial statements, therefore, is not a substitute for reading the audited consolidated financial statements of Cornerstone Credit Union Financial Group Limited. Management’s Responsibility for the Summary Financial Statements Management is responsible for the preparation of a summary of the audited consolidated financial statements in accordance with International Financial Reporting Standards. Auditors’ Responsibility Our responsibility is to express an opinion on the summary consolidated financial statements based on our procedures, which were conducted in accordance with Canadian Auditing Standard (CAS) 810, “Engagements to Report on Summary Financial Statements.” Opinion In our opinion, the summary consolidated financial statements derived from the audited consolidated financial statements of Cornerstone Credit Union Financial Group Limited for the year ended December 31, 2013 are a fair summary of those consolidated financial statements, in accordance with International Financial Reporting Standards.

February 13, 2014 800 - 119 4th Avenue South Saskatoon, Saskatchewan S7K 5X2

Chartered Accountants

Full financial statements can be obtained upon request from any branch of Cornerstone Credit Union or by visiting

Cornerstone Credit Union | 2013 Annual Report



2013 2012

Assets Cash and cash equivalents Investments Member loans receivable Other assets Property, plant & equipment











Intangible assets














Other liabilities



Membership shares







Liabilities Loan payable Member deposits Securitization debt

Membersâ&#x20AC;&#x2122; equity Retained earnings Contributed surplus Accumulated other comprehensive income

2,379 2,379 256




SUMMARY CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME Year Ended December 31 ($ thousands) Interest income Interest expense Gross financial margin Provision for (recovery of) impaired loans







191 (41) 24,599




Net interest and other income



Operating expenses



Net financial margin Other income

Patronage refund



Income before income taxes



Provision for income taxes Net income


2013 2012

831 666 5,053


Total other comprehensive loss for the year

(349) (7)

Total comprehensive income for the year

4,704 4,100

Cornerstone Credit Union | 2013 Annual Report

SUMMARY CONSOLIDATED STATEMENT OF CHANGES IN MEMBERSâ&#x20AC;&#x2122; EQUITY Year Ended December 31 ($ thousands) Accumulated Other Retained Contributed Comprehensive Earnings Surplus Income Total Balance January 1, 2012





4,107 -







Balance, December 31, 2012





Profit for the year













Profit for the year Other comprehensive loss

Other comprehensive loss Balance, December 31, 2013

SUMMARY CONSOLIDATED STATEMENT OF CASH FLOWS 2013 2012 Year Ended December 31 ($ thousands) Cash flows provided by (used in) the following activities: Operating activities



Financing activities


Investing activities



Decrease in cash resources



Cash resources, beginning of year



Cash resources, end of year




Cornerstone Credit Union | 2013 Annual Report


CORNERSTONE CREDIT UNION 2013 annual report c o r n e r s t o n e c u . c o m

Cornerstone Credit Union 2013 Annual Report  

Attached is Cornerstone Credit Union's 2013 Annual Report highlighting the year in review.

Cornerstone Credit Union 2013 Annual Report  

Attached is Cornerstone Credit Union's 2013 Annual Report highlighting the year in review.