Brand

Living OurBrandCredit Union Central of Nova Scotia

Annual Report

06

Living Our Brand

VisionTo be an innovative leader contributing to a strong and effective network of credit unions.

MissionThrough our leadership and the excellence of our people, products and services, we support credit unions in becoming the financial institution of choice.

ValuesStewardshipWe accept the roles of support and leadership defined for us by the credit unions of Nova Scotia and Newfoundland and Labrador, and with them, support the well-being of the credit union network and the communities it serves. We will operate in a socially responsible and profitable manner for the common good of our stakeholders.

ServiceWe are committed to providing professional service to our stakeholders who include credit unions and their employees, our affiliates and their employees, and to each other.

RespectWe will conduct ourselves respectfully – respectful of diversity, respectful of ourselves and respectful of others in order to build and sustain a productive workplace.

AccountabilityWe choose to be accountable for our actions and the results we deliver to our stakeholders. We share responsibility for the well-being and success of Credit Union Central of Nova Scotia and the credit unions it serves.

Continuous Growth and DevelopmentWe commit to continually strengthening our organization and services. We will initiate learning and improve personally, departmentally and corporately to enhance our contributions for the well-being of our stakeholders and the communities we serve.

Chair of the Board’s Message

President and Chief Executive Officer’s Message

Charitable Giving

Getting Us There – The Initiatives6 Project

Providing Options – The Microcredit Program

Getting You There – Building Our Brand

Management Discussion and Analysis

Consolidated Financial Statements

CUCNS and Affiliate Boards

ContentsMiSSioN & TAble of

($ Thousands)NSNL

2003

169

55

224

169

55

2004

224

169

57

2005

226

169

59

2006

228

NS & NL Credit Union Membership

Table of Contents

($ Millions)NSNL

2003

1469

597

2006

2066

1389

536

2005

1925

1318

489

2004

1807

1254

452

1706

NS & NL Credit Union Assets

1- 3- 5- 6- 9-

11- 13- 17- 32-

Message

1

ChAiR of The boARd’S

I n 2005, the credit unions of Nova Scotia and Newfoundland and Labrador made a major decision to fundamentally change our culture and the way we do business. We called this new direction Getting Us There. The achievement of significant advances toward the Getting Us There vision remained a top priority in 2006. Put simply, the Getting Us There vision is about creating a strong credit union network capability that will enable us to meet our brand promise to customer-owners, Getting You There TM. It’s about learning to truly live our brand. It means providing customer-owners access to a full range of financial products and services and giving wise financial guidance. It also means developing rewarding careers for our employees and living up to our commitment to community development.

We are working to achieve this vision through the Initiatives6 Project. Initiatives6 will enhance our capabilities and programs in the areas of Human Resources, Products and Services, Youth, Financial Planning, Small Business, and Member & System Development. The transition from vision to reality is not without challenges. Over the past year, we have worked to find the best way to transform our vision into a step-by-step, achievable plan for success. The seven co-operative principles provide a common guidepost for our credit unions but there is recognition that our individual needs often vary. Initiatives6 acknowledges the credit union differences while illustrating the many similar requirements throughout our network. The Board understands that to achieve our Getting Us There vision, the tasks will not be the same for all credit unions.

The most ambitious work with regard to the Initiatives6 Project in 2006 was the readiness assessment interviews. These face-to-face meetings provided the first real opportunity to formally introduce Central and League Savings’ Initiatives6 Project Team to the implementation team at each credit union. It positioned credit unions to develop an implementation plan that will ensure credit union staff, management and boards, as well as the Initiatives6 Project Team, have a clear understanding of the credit union’s commitment to and timeline for implementing the Initiatives6 Project.

Completion of the readiness assessments was a crucial step in the development of credit union implementation plans. Since these meetings, which were held in August and September, Central has continued to work one-on-one with credit unions toward development of implementation plans. It is our goal to help every credit union develop its own individual implementation plan by June 2007. Central and League Savings will continue playing a crucial support role, but it will ultimately be up to each credit union to

It’s about learning to truly live our brand.“ ”Credit Union Central of Nova Scotia

06

2Living Our Brand

ANNUAl RepoRT

execute their own plans. Having spent the past year preparing to implement, we understand what credit unions are undertaking is no small task. We are now reaching the point where credit unions, with their ownership over the Initiatives6 Project, will drive it to success.

The Initiatives6 Project has had a number of successes. Progress has been achieved on all fronts. Indeed, implementation of the Human Resources Initiative’s Behavioural Competency Framework is now underway at the majority of our credit unions. Standard Core Products and Services were approved by credit unions with final amendments approved early in 2007. A Financial Planning Manager was hired and most recently individual project teams were created to lead implementation plan development in each area.

Effecting cultural change is an extremely ambitious and challenging undertaking. As credit unions enter into what may prove to be a most challenging year, we must not lose sight of our goal. Through this period of evolution, we must also remember to hold fast to the co-operative values that must always remain the heart of who we are and how we conduct our business. To quote anthropologist Charles Darwin, “It is not the strongest species that survive, nor the most intelligent; it is the species that are most responsive to change.”

The Board of Directors of Central strongly supports and endorses the direction and vision developed by credit unions in Nova Scotia and Newfoundland and Labrador. I would like to thank the management team under the strong leadership of President and CEO Bernie O’Neil for their commitment to understanding and responding to the needs of our credit union network. We look forward to working with you on moving our vision into reality in the coming years.

David MacLeanChair of the Board

($ Millions)NSNL

2003

1332

563

2006

1895

1276

505

2005

1781

1214

466

2004

1680

1156

430

1586

NS & NL Credit Union Deposits

($ Millions)NSNL

2003

9.6

2.9

2006

12.5

8.1

2.6

2005

10.7

8.0

2.7

2004

10.7

10.3

2.7

13

NS & NL Credit Union Surplus

($ Millions)NSNL

2003

1086

466

2006

1552

1019

434

2005

1453

971

404

2004

1375

899

359

1258

NS & NL Credit Union Loans

3

I t seems as though we’ve been talking about change for so long in our credit union network, it’s getting hard to remember what life was like before the Initiatives6 Project. In an effort to move this project forward, we put extremely heavy demands on our staff in 2006. We asked them to take on new roles with regard to the Initiatives6 Project, while offering little or no relief from regular duties. It gives me great pride to report that our employees not only rose to the occasion, we managed to improve our satisfaction rating with credit unions. Central’s overall rating increased from 81.4 per cent in 2005 to an 85.7 per cent satisfaction rate in 2006. This is a tremendous accomplishment, but I also know we cannot continue to expect this level of effort.

Despite our focus on the Initiatives6 Project, we must not lose sight of the many other vital services Central provides to credit unions. Enhanced services and innovations in many areas resulted in cost savings and better service to credit unions. I would like to share some examples of our other activities and achievements.

Treasury and Payment Services implemented a new web-based money transfer system that allows authorized users to create, view, send and receive wires with credit unions and other financial institutions in Canada and internationally. This new system gives credit unions the advantage and security of sending and receiving wires directly from their desktops as well as reducing their wire transfer fees.

All of the traditional accounting functions for Central, League Savings and League Data are now being processed on Exact Software called Globe Enterprise. This includes processing accounts receivable, accounts payable, general ledger, asset management and financial reporting. Globe is also being implemented at Central Printing to process sales orders and invoicing, and to manage inventory. Globe will enable us to achieve significant efficiencies throughout the coming year.

MessagepReSideNT & Chief exeCUTive offiCeR’S

“”

It gives me great pride to report that our employees not only rose to the occasion, we managed to improve our

satisfaction rating with credit unions.

Credit Union Central of Nova Scotia

Risk Management organized and facilitated a sold-out Money Laundering Forum for Atlantic Credit Unions, while Corporate Services worked directly with the United Nations to ensure that meeting logistics went smoothly for a UN Advisory Meeting that took place at Central in November. In addition, new digital equipment at Central Printing resulted in a profitable year with sales close to $1 million.

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4Living Our Brand

ANNUAl RepoRT

We also underwent major renovations of our building on Lady Hammond Road in Halifax to accommodate new staff and changes within departments. The renovations resulted in the complete relocation of a number of departments including Accounting, Asset and Liability Management, Human Resources, Lending Services, Marketing, and League Savings and Mortgage Corporate.

Credit Union Central of Nova Scotia is pleased to have shared in the successes of credit unions over the past year. Credit union assets reached approximately $2.1 billion in Nova Scotia and Newfoundland and Labrador. The number of customer-owners remained constant at 228 thousand between the two provinces. Our own Central’s non-consolidated equity was $30.6 million in 2006.

We anticipate that 2007 will be every bit as challenging at Central. In addition to the Initiatives6 Project implementation, there will be continued pressure on our financial margin. This pressure is a result of the flat or sometimes inverted interest rate yield curve and limited investment opportunities, while maintaining competitive pricing on loans and deposits to our credit unions. At the same time, our costs of delivering services to credit unions are increasing and the regulatory demands and risk management requirements continue to grow. We will actively seek opportunities to increase income and control costs. In 2007 it will be necessary to carefully review our priorities. However, the Initiatives6 Project and providing credit unions with excellent service in all areas of operations will remain our top priorities.

I would like to thank Central’s Board and Chair David MacLean for their leadership, support and commitment to the success of Central and the activities that strengthen our credit union network. I would also like to acknowledge the efforts and leadership demonstrated by Central’s management, and all employees for their professionalism and dedication to the credit union network. Finally, I would like to acknowledge the support and commitment of credit unions to strengthen our network and to improve services to our customer-owners and communities.

Bernie O’NeilPresident & CEO

($ Millions)

2003

30.6

2006

33.4

2005

33.4

2004

32.9

Credit Union Central of Nova Scotia Equity (Non-consolidated)

($ Millions)

2003

39.6

2006

37.5

2005

35.2

2004

33.6

Transactions CUCNS - Treasury & Payments Services

($ Millions)NSNL

2003

113

24

2006

137

97

22

2005

119

90

17

2004

107

81

15

96

NS & NL Credit Union Equity

Canadian Blood Services

For the past two years, Atlantic Canadian credit unions have taken part in the Canadian Blood Services “Investing in Life” Financial Institution Blood/Plasma Donor Challenge. In 2005, we took first place in the challenge with the largest number of donors amongst all participating financial institutions. We will attempt to reclaim that title in the 2007 competition.

Kids Eat Smart Foundation of Newfoundland and Labrador

Kids Eat Smart Foundation of Newfoundland and Labrador is a charitable organization that supports the education, health, and well-being of school children throughout Newfoundland and Labrador through support of quality nutrition programs. The goal is to provide children with the nutrition they need to learn, to grow, and to be their best.

The credit unions of Newfoundland and Labrador are community partners, working to support this program throughout the province. In addition to making monetary donations to the foundation or Kids Eat Smart Clubs in their communities, many credit unions also hold food drives and visit local schools to help serve nutritional meals.

Nova Scotia Credit Unions Charitable Foundation

The Nova Scotia Credit Unions Charitable Foundation provided more than $80,000 in grants to almost 30 organizations in 2006. Focusing on supporting provincial charitable organizations with a focus on health care, education, the environment and the arts, the foundation supported organizations including Junior Achievement, Ducks Unlimited, the Maritime Conservatory of Performing Arts, Emily Fund, Kids Help Phone, many health organizations, and all provincial transition houses. For the past ten years Nova Scotia credit unions, through the Nova Scotia Credit Unions Charitable Foundation, have partnered with the Nova Scotia Community College (NSCC), providing up to $13,000 in bursaries annually to NSCC students. Through this long-term relationship with the NSCC, the charitable foundation annually provides more support to community college students through bursaries than any other financial institution.

Nova Scotia Hearing and Speech Golf Charity Classic

For the past three years, Nova Scotia credit unions have participated in the largest annual golf tournament in the province, the Charity Classic Golf Tournament. With our help and annual donation, the Nova Scotia Hearing and Speech Foundation raises approximately $50,000 annually at this event for Hearing and Speech Centres in Nova Scotia.

Nova Scotia Hearing and Speech Centres are committed to providing effective, efficient, comprehensive and quality speech-language and hearing services that encompass prevention, promotion, identification, intervention and education. There are 29 centres located in communities throughout the province, serving over 100,000 Nova Scotians of all ages who face communication difficulties due to hearing, speech or language impairment.

Relay For Life

As the Provincial Event Sponsor of the Nova Scotia Division of the Canadian Cancer Society’s Relay For Life, Nova Scotia credit unions brought their four-year fundraising total to more than $350,000 in June 2006. With our support, the Nova Scotia Division raised almost $1.5 million to support cancer research in 2006. Credit unions participated in all 18 events across the province in 2006, with approximately 50 per cent of our staff joining relay teams.

Relay For Life is the Canadian Cancer Society’s unique, hope-filled community event. It is a major fundraising event for the society to fund the most promising research projects in the country, provide information services and support programs in the community, and advocate for public policies that prevent cancer and help those living with it.

Giving

5 Credit Union Central of Nova Scotia

ChARiTAble

Relay For Life

Getting Us There

Despite the work that lies ahead, we are positioned to successfully implement the Initiatives6 and achieve the Getting Us There vision. This ambitious vision, articulated through the Initiatives6 Project, establishes a strategic direction, success indicators and critical actions with timeframes for the implementation of six specific initiatives at credit unions by 2009. The overall goal is a credit union network working in unison, capable of meeting all the financial service requirements of our customer-owners, supported by a dynamic process for ongoing innovative development.

Human Resources Initiative

Significant progress was made in 2006 with the development of comprehensive Human Resources programs to support credit unions: Phase I and II of the Model Policies; Competency Based Recruitment and Selection; and development of several programs to support and enhance the continued success of the Competency Based Performance Management implementation.

Moving into 2007, more than half of the credit unions in Nova Scotia and Newfoundland and Labrador are in the process of implementing Competency Based Performance Management. This program is much broader than performance appraisals and may involve a significant culture shift at the credit union level. This takes time and sustained commitment from management, and employee involvement to reach full implementation. As a result, Central is focusing its efforts on developing credit union managers and other employees to provide coaching and development assistance to staff. Coaching and mentoring are also critical in supporting Relationship Management and Succession Planning. In 2006, 16 credit unions and 25 managers participated in the Behaviour Event Interviewing Workshop, which enables credit unions to develop a competency-based Recruitment and Selection process. Central will offer more Behaviour Event Interviewing Workshops in 2007.

Products & Services Initiative

Standard Core Phase 1 of the Products & Services Initiative was approved in June 2006 and final amendments to this phase (based on a competitive update of the chequing and savings accounts) were approved in January 2007. The Products & Services Project Team is developing support programs to implement these products and services at credit unions during 2007.

In 2007, the Products & Services Advisory Committee will begin work required to define Phase II Standard Core Products & Services for the Youth, Financial Planning and Small Business initiatives. They will also investigate and recommend an effective process to make changes to standard core products and services.

Small Business Initiative

The Small Business Initiative for small to medium enterprise (SME) assessed a commercial loans origination system in 2006 and is in the final stages of making a decision to purchase. Working with regulators, the SME Initiative identified significant changes required in the regulatory environment. These changes will allow credit unions to enter into, or enlarge their presence in the SME market.

A new project team was established early in 2007, and this team will be responsible for developing a comprehensive tactical program to establish the necessary infrastructure to support the implementation of a SME Initiative at League Savings and Mortgage. This implementation plan will be developed with significant input and support from credit unions.

Financial Planning

Since the creation of the Financial Planning Department in October 2006, many Atlantic Canadian credit unions have expressed keen interest in developing a business case for the implementation of a financial planning solution. A business case has been successfully completed for one credit union, which is now taking steps to implement a full time financial planning solution. The Financial Planning Department is now about to engage a second group of credit unions for similar discussions with plans to engage four more groups of credit unions throughout the Atlantic region.

A financial planning project team is being put in place with credit union participation to maximize the effectiveness and value of the program for credit unions. Relationships with system partners, including Credential and Concentra Financial, were also initiated and will continue in 2007.The focus of the Financial Planning Department will be to function as an effective partner to credit unions, further strengthening their relationship with customer-owners by enhancing their financial services capabilities.

6Living Our Brand

ProjectThe iNiTiATiveS6

Youth Initiative

The Youth Forum was successfully piloted at Central’s Annual General Meeting in April 2006. The Youth Initiative also took on the sponsorship of several events. In October 2006, credit unions supported the Success Summit, an interactive conference aimed at ambitious young entrepreneurs. In early 2007, the Entrepreneurship Olympics – a fun and challenging business competition for Grade 12 Entrepreneurship students – launched in Nova Scotia. Credit unions played an integral role in the program acting as judges and developing the credit union marketing competition.

Formal support was given by the Nova Scotia Department of Education to roll out the US National Endowment for Financial Education (NEFE) financial literacy program to English-speaking schools across the province. Permission for distribution of the program in Newfoundland and Labrador is anticipated early in 2007. Work has also begun on translating materials into French with the goal of making the program available to all schools in both provinces for September 2007.

A program specialist will begin work in 2007 with the newly formed Youth Project Team to develop credit union implementation plans for all aspects of this initiative.

Member & System Development

A formal system decision-making process was approved by credit unions at our Special General Meeting in October, 2005. This was a significant step towards our system’s maturity as we recognized the need for binding decisions for all credit unions within the context of each credit union’s local autonomy. The decision-making process has been used for considering each of the strategic initiatives including the Standard Core Products & Services (Phase I) and provincial sponsorship support within Nova Scotia.

Our communication strategy includes annual consultation with credit unions, quarterly updates, a dedicated Initiatives6 section on our website and email address, workshops, and interaction at Annual General Meetings and Special General Meetings. We will further develop our communication strategy for Initiatives6 as we implement each initiative. The Member & System Development Initiative will also provide a business proposal with options for services to Newfoundland and Labrador credit unions by the end of March, 2007.

Valley Credit Union In the fall of 2005, Valley Credit Union’s Board of Directors approved its credit union’s participation in Competency Based Performance Management. Valley was the first credit union to begin implementation of the Human Resources Initiative, and has made significant progress since that time.

“If you don’t have well trained staff you can bring people in the front door of your credit union, but they will simply step out the back door,” says Mike Wark, President and CEO of Valley Credit Union. “When Central introduced Competency Based Performance Management to the credit unions, we felt Valley was in a position to get started right away. We successfully went through the process of developing a sales culture about five years ago and felt the competency program would help us raise the bar.”

Competency Based Performance Management is a method of identifying and encouraging the behaviours that all employees across an organization need to demonstrate in order to achieve success. Success can be measured in a number of ways including the ability to attract and retain quality employees, live up to credit union values, provide consistently excellent service to customer-owners, as well as reach financial goals.

Wark says that Valley Credit Union has always supported employee training. Valley has a strong relationship with CUSOURCE and several employees have received Fellow of the Credit Union Institute of Canada designations. The competency program has enabled the credit union to identify specific skills and training required by individual employees instead of doing a broad sweep.

“Our management team is very supportive of the Human Resources Initiative and as a result staff are also very keen and supportive,” says Wark. “Succession planning is crucial for us right now. We’ve identified big gaps at the supervisory level in the next five years. The competency program is helping us identify and train existing employees to be ready to move into new positions.”

As part of their ongoing strategic planning, Valley Credit Union set a goal to have 85 per cent of employees display level 2 behaviours for the Results Orientation Competency by December 31, 2007. Valley reached this objective a year ahead of schedule, and as a result added two new competency goals for 2007 - Customer Service Orientation


ProjectThe iNiTiATiveS6

and Listening, Understanding & Responding. In addition, 90 per cent of Valley’s employees completed Competency Assessment Questionnaires, identifying where they are meeting target levels and where further development is required. For the first time this year, all employees are also completing learning plans to help them work toward achieving their target levels.

Valley Credit Union is no stranger to projects that require cultural change. Eight years ago, they developed a variable compensation program with the primary purpose of creating a sales culture.

“The program has undergone constant refinements over this period, but it works and we can see that our efforts have paid off,” says Bill Falconer, Valley Credit Union’s VP, Organizational Development. “We expect similar results with Competency Based Performance Management.”

As part of its succession planning, Valley Credit Union now includes questions in their interview process for new hires that help ensure incoming employees understand and support the behavioural competencies.

Valley’s next step is to integrate the Behavioural Competencies into the performance management process so employee progress in these areas are addressed as part of quarterly performance reviews. At the same time, care will be taken to ensure assessments aren’t confused with performance evaluations.

“While we have made reasonable progress, we recognize this is somewhat of a journey and will require continuous improvement along the way,” adds Falconer. “Anything worthwhile takes hard work and commitment to accomplish.”

8Living Our Brand

06ANNUAl RepoRT

“

”

If you don’t have well trained staff you can

bring people in the front door of your credit union, but they will simply step

out the back door.

Funding DiversityGrowing up in a mixed race household and now raising her own children in a multi-racial household, Grace Jefferies-Aldridge knows well the importance of living in peace and respecting other people’s differences. This passion led her to develop a unique business idea for a home-based e-commerce company with the sole purpose of celebrating and promoting ethnic diversity.

Mosaic Diverse Retail Products offers customers a large selection of merchandise reflecting a broad range of ethnic, multi-racial and inter-racial families. Everything from dolls, toys, clothing, books, multimedia, educational tools, home décor, and greeting cards that represent people of diverse background can be purchased online.

“The idea was always in the back of my mind, but I started making it into something real after my second maternity leave,” says Jefferies-Aldridge. “I wanted to work from home and to find a way to pursue my personal passion regarding issues of diversity.”

Jefferies-Aldridge drew up a business plan and began looking for funding. Despite having a solid plan in place, she found that many doors to traditional financing were closed to her.

“No one seemed very interested in funding an e-commerce business. They also weren’t crazy about giving a hand to someone who would be working from home full-time with no other source of income.”

Upon advice from a colleague, Jefferies-Aldridge approached iNova Credit Union about a microcredit loan.

ProgramThe MiCRoCRediT

Providing Options

The Microcredit Program is a joint initiative of the Nova Scotia Co-operative Council, the Federal Rural Secretariat, Acadia University, Credit Union Central of Nova Scotia and Nova Scotia credit unions. Three Nova Scotia credit unions began piloting the Microcredit Program in the fall of 2006: Bergengren Credit Union, Community Credit Union and iNova Credit Union. The program received much media attention at both the local and national level, as thousands of delegates traveled to Halifax to take part in the Global Microcredit Summit held in November 2006. Credit unions showed their support for microcredit as major sponsors of this event.

“The goal of the Microcredit Program is to put the tools and financial resources into the hands of our customer-owners so that they can achieve their business goals,” says Willy Robinson, General Manager of iNova Credit Union. “It’s about reaching out to the community to raise awareness of the program amongst those who do not have access to traditional funding and help people turn a good idea into a successful business venture.”

The project is aimed at providing those most in need of credit for small business development with access to existing financial services. The program specifically targets rural communications and groups facing the greatest difficulty in securing traditional loans - immigrants, women, people with disabilities and youth - to foster growth of new and existing businesses within Nova Scotia.

The Microcredit Program assists Nova Scotian entrepreneurs with small amounts of funding ($1,000 to $10,000) for a variety of businesses including home-based, seasonal or part time and experimental start-ups.


Photos by: Michael Creagan

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10Living Our Brand

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“They weren’t just looking at the numbers on the page of my business plan,” says Jefferies-Aldridge, in regard to iNova Credit Union. “They took a genuine interest in me and in the concepts of peaceful co-existence I wanted to promote through my business.”

She received a microcredit loan from iNova Credit Union for her company Mosaic Diverse Retail Products. With the funding she received, she was able to purchase stock and develop an e-commerce website. The site launched in November 2006, and Jefferies-Aldridge says business has been steady ever since.

“When I launched the business, I thought it would be an independent online site through which I would mainly sell to individuals. I am now finding that there is a growing interest from local stores and retailers to purchase items for re-sale in their own businesses. Lots of schools, daycares and even hair salons have contacted me. Moving forward, I see myself diversifying and becoming a small-scale distributor in addition to maintaining the e-commerce site.”

In addition to personal success, Jefferies-Aldridge says her business is impacting her family in a real and significant way.

“As the mother of two girls who are growing up in an inter-racial family, I found it challenging to locate products that helped give my daughters a feeling of being represented in the world at large. There are multi-racial and inter-racial families across Canada and yet when it came to toys, games, room decorations and more, there was little available that reflected our situation. I feel it is important for children to know that they are normal and this is helped, in part, by feeling represented.”

www.mosaicproducts.com

MICROCREDITSUMMIT

Getting You There

In September 2004, Atlantic Canadian credit unions joined together to launch a new regional Brand Initiative, Getting You There. The new Brand Initiative brought credit unions together to form an alluring “bigger picture” in the eyes of consumers, speaking to the right audience in a relevant way. In an industry that experiences frequent change with competitors of near-limitless resources, a strong, consistent brand is needed to instill consumer confidence. It is our ability to move forward as a united entity that will determine our future – both individually, and as a whole.

Credit unions have always been innovative: both in our relationship with those we serve and in the products and services we provide. Over the past three years, the credit union brand has evolved to better address the needs of those we serve and we’ve matched this evolution in our approach to marketing and our interaction with the public.

As we evolve our external profile through our marketing efforts, we also look inward to ensure that our internal practices are also progressive and reflect the same strengths. We want to ensure that every interaction with credit unions leaves a lasting, positive impression. When we are successful in this endeavour, we call this living the brand.

Living the Brand

Our brand, in its simplest form, is how we define ourselves. It’s what we stand for and how we stand apart from other service providers, and it’s what we aspire to be in the future. More broadly, our brand is every element that touches and influences someone leading to a quality, trusted, valued relationship with their credit union. The objective being all elements of the brand - from signage to living the brand values - would be in place consistently at all credit unions in the region, because the comfort of consistency is required for people to take the first step in establishing a relationship with credit unions.

Eagle River Credit UnionHow do you get a credit union to embrace a new brand initiative? The same way you initiate any other major change, you start with the General Manager and work your way down. When the new Atlantic Brand Initiative was launched in the fall of 2004, Eagle River General Manager Alvina O’Brien went branch-to-branch introducing every single employee to the new brand. As a result, employees quickly embraced the brand and their commitment played a large part in its success.

“It sent a powerful message that we were very serious about the new brand and that head office was not only committing to the changes, we were taking a leadership role,” says Marketing & Communications Manager Laquita Normore. “We needed to sell the brand to staff the same way we expected them to sell the brand to our customer-owners.”

Using a PowerPoint presentation provided by the Atlantic Marketing Group, O’Brien led every employee through a comprehensive introduction to the new brand.

“It wasn’t just about the new posters, corporate colours and logo. She talked about our brand values and how our actions either support or take away from these values,” says Normore. “Successful brands become part of the corporate culture and she illustrated how we could live the brand in our everyday activities.”

Normore, a self-proclaimed brand cop, says the time spent by upper management to explain all aspects of the brand has paid off. Policies and procedures were also updated to emphasize the brand values such as professionalism, further strengthening the credit union’s commitment to its success.

“We followed up with a lot of staff coaching to get everyone used to on-brand versus off-brand language. For example, everyone updated their voicemail replacing ‘friendly staff’ with ‘knowledgeable and professional’. Our employees have truly embraced the new brand. You see them living the brand every day and they hold each other accountable.”

Physical changes started taking place at all of Eagle River’s branches almost immediately. Outside signage was updated, and with several branches already slated for renovations, Eagle River took the opportunity to re-brand these locations inside and out.

11

BrandbUildiNg oUR


07ANNUAL GENERALMeeting

23 rd

April 20 th, 2007

Location – Northern Light Inn

L’Anse au ClairRegistration – 6:00PM

“We mounted large posters displaying Your Money, Your Finance, Your Business and Your Future and placed these in each of our branches so employees and customer-owners are reminded of the major elements of the brand every day,” says Normore. “We utilize all campaign materials provided through the Atlantic Marketing Group and are preparing to implement the MemberDirect integrated website, which will further enhance our brand online.”

Normore said one of the biggest indicators of the success of their brand in reaching customer-owners took place in the fall of 2006. Eagle River created a book for grade school children that introduced them to the fundamentals of saving money. They ran an illustration contest for the book, asking children to draw pictures that matched the text provided. It was a huge success with more than 1,500 students participating.

“You could see the branding on almost every child’s entry,” recalls Normore. “The hands and the globe were very prominent, which we expected, but there was one six-year old whose picture inside a branch included our branding posters. They were in the background, but you could recognize them as he had used our brand colours green, red, blue and purple.

“He may not have figured out exactly what the brand meant at age six, but it caught his attention and he understood the importance. When you see kids picking up on it, it draws home the fact that the brand is making a real impact on people.”

www.eaglerivercu.com

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12Living Our Brand

ANNUAl RepoRT

We needed to sell the brand to staff the same way we expected them to sell the brand to our

customer-owners.

“”

Key Performance Indicators

One of the key pillars in Central’s mission is to achieve financial success – by ensuring the long term financial stability of Central and by contributing to the financial success of the credit union network. In 2006, Central’s results met most financial targets, including equity requirements, paying competitive rates to our credit union partners, and continuing significant returns to credit unions.

While financial margin was less than the prior year, this can be largely attributed to two key factors, paying higher rates on credit union deposits, and League Savings offering more competitive rates on both mortgages and deposits referred by credit unions.

While the distributions to credit unions by League Savings in 2006 were about the same as the prior year (and the highest ever), Central’s rebates were $400,000 lower than in 2005, and the Central dividend was reduced from 5 per cent to 3 per cent. These payments over the past five years were:

In addition to the system wide initiatives, we continue to provide the leadership, products and services to support credit unions in being the financial institution of choice. Examples in 2006 include the rollout of a new money transfer system, and a significant consultation process with credit unions as part of the development of the League Savings Business Model.

Central also continues to offer a number of flexible intermediation programs, including loan syndications and the mortgage administration programs in League Savings. Total assets under administration by Central over the past five years are as follows:

With a focus on customer service and sound financial risk management, we remain committed to the well-being and success of Credit Union Central of Nova Scotia, and the credit unions, affiliates, employees and communities it serves.

Risk Management

Risk management is one of the most important responsibilities of Credit Union Central of Nova Scotia. Risk management objectives are reflected within the comprehensive risk management strategies and policies.

Central’s risk management strategies and policies are governed by the principle of optimizing risk for the protection and creation of shareholder value, and are designed to ensure that the company’s risk-taking is consistent with its business objectives and risk tolerance.

Credit Union Central of Nova Scotia has an enterprise-wide capability to recognize, understand, measure, assess and manage risks taken across the organization. Authority for all risk taking activities rests with the Board of Directors, which approves risk management policies, delegates limits and regularly reviews management’s risk assessments and compliance with approved policies. Qualified professionals throughout Central manage these risks through comprehensive and integrated control processes and models, including regular review and assessment of risk measurement and reporting processes. The various processes within Central’s risk management framework are designed to ensure that risks in the various business activities are properly identified, measured, assessed and controlled. Internal Audit reports independently to the Audit and Conduct Review Committee of the Board on the effectiveness of the risk management policies and the extent to which internal controls are in place and operating effectively.

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AnalysisMANAgeMeNT diSCUSSioN ANd


1000 -

800 -

600 -

400 -

200 -

0 -

($ Millions)Off Balance SheetOn Balance Sheet

Assets Under Administration

20062002 2003 2004 2005

FinanceLSMDividends and Sub Debt InterestTrade

7,000 -

6,000 -

5,000 -

4,000 -

3,000 -

2,000 -

1,000 -

0 -

Payments to Credit Unions

20062002 2003 2004 2005

(Including Subordinate Debit Interest and Dividends in Thouands)

The risks are summarized into the following categories: capital adequacy, credit, market, liquidity, corporate governance, operational, legal and regulatory, and strategic. The specific risk areas are described in further detail below.

Capital Adequacy Risk

Capital adequacy risk is the risk of financial loss or regulatory intervention due to the failure of Central to raise the necessary capital to support its business plans.

Central has established capital management policies, which govern the quantity and quality of capital the company will maintain. In addition, a capital plan is prepared annually which forecasts the amount of capital required throughout the year and the sources that will be used to fund those requirements. The capital policies and plans are reviewed and approved annually by the Board of Directors.

Management regularly monitors the company’s capital position and reports to the Board on a quarterly basis.

Credit Risk

Credit risk is the potential for loss due to the failure of a borrower or counterparty to meet its financial or contractual obligation. Credit risk arises in Central’s lending operations and in its investment activities.

To ensure effective credit risk management, the company has established policies and procedures for credit risk. Credit policies are reviewed and approved annually by the Board of Directors. Management regularly reviews its credit procedures to ensure they provide extensive, up-to-date guidance for the underwriting and administration of all types of loans.

Procedures are in place governing credit activities: • Application of stringent criteria to all assets prior to

their acquisition• The use of qualified personnel and the clear

delegation of decision-making authority• Portfolio diversification to mitigate credit exposure

by establishing concentration limits• Appropriate pricing of approved credits to ensure

adequate compensation is received for the risk incurred

• Oversight by the Board and management committees before funding is permitted, and once approved, ongoing credit risk evaluation and assessment

Central maintains both specific and general allowances for credit losses. Specific allowances are established based on management’s knowledge of the property and prevailing conditions. General allowances are maintained to cover any impairment in the loan portfolio that cannot yet be associated with specific loans. The minimum general allowance is determined based on Central’s risk weighted assets, and may be increased if management feels the allowance is insufficient based on a number of factors including the level of specific allowances, portfolio quality and concentration, and other economic and market conditions.

Management regularly monitors Central’s credit risk and reports to the Board on a quarterly basis.

Market Risk

Market risk is the risk of loss that results from changes in interest rates, foreign exchange rates, equity prices and commodity prices. Market risk exposures are managed through policies, standards and limits established by the Board of Directors, which are formally reviewed and approved annually.

Central uses a variety of techniques to identify, measure and control market risk. Derivatives may be used only to offset clearly identified risks. The Company has developed standards regarding the use of derivative products.

Interest rate risk is the potential impact on Central’s earnings due to changes in interest rates. This risk comes mainly from differences in the maturities or re-pricing dates of assets and liabilities, both on and off-balance sheet. Credit union liquidity investments are re-priced on a monthly basis. Mortgage and deposit products often have maturities that extend one or more years into the future. Central has developed standards with respect to the matching of assets and liabilities. In addition, Central uses a combination of static gap and income simulation models to measure and monitor interest rate exposure under various interest rate scenarios.

Sensitivity analysis of an interest rate increase and decrease of 100 basis points is disclosed in the table below.

Earnings at Risk over the next 12 months as at (Dec 31, 2006) (Dollars) 2006 2005100 basis point increase $ (538,000) $ (455,000)100 basis point decrease 528,000 444,000

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Foreign exchange risk is the potential impact on Central’s earnings due to currency movements. Central’s foreign exchange policies and procedures outline permissible types of transactions, authorizations, limits, and monitoring and reporting requirements. Central is authorized to hold up to $250,000 CAD in excess of, or short of its foreign currency liabilities. Central’s exposure to foreign exchange fluctuations is monitored on a daily basis.

Equity and commodity risk is the potential impact on Central’s earnings due to movements in equity and commodity prices. Central does not have significant business activities in equities or commodities and, as such, is not exposed to material risk in these areas.

Management provides quarterly reports to the Board on market risk.

Liquidity Risk

Liquidity risk is the risk of being unable to meet financial commitments without having to raise funds at unreasonable prices or sell assets on a forced basis.

Central has established policies to ensure the company is able to generate sufficient funds to meet all of its financial commitments in a timely and cost-effective manner. These policies are annually reviewed and approved by the Board of Directors.

Central’s liquidity management practices include:• Ensuring the quality of investments acquired for

liquidity purposes meet very high standards• Matching the maturities of assets and liabilities• Diversifying funding sources• Establishing and maintaining minimum liquidity

reserves• Monitoring actual cash flows on a daily basis• Forecasting future cash flow requirements• Utilizing lines of credit to fund temporary needs

and selling or securitizing mortgage pools to meet longer term requirements

• Scenario testing and contingency planning

Management monitors Central’s liquidity position daily and reports to the Board on a quarterly basis.

Corporate Governance Risk

Corporate governance risk is the risk of financial and/or reputational loss due to failure of the Board of Directors and senior management to comply with their legislative and fiduciary obligations, as well as a loss due to the inability

of the Board to exercise the leadership required by the organization. This risk is mitigated through the nomination and election process, extensive orientation program, ongoing director development and training, regular Board and committee meetings, the annual strategic planning process and an annual Board evaluation process.

Operational Risk

Operational risk is the risk of direct or indirect loss resulting from inadequate or failed processes, technology or human performance, or from external events. Its impact can be financial loss, loss of reputation, loss of competitive position or regulatory censure.

While operational risk can never be fully eliminated, Central manages this type of risk through implementation of a comprehensive set of procedures and policies. Elements include:

• Developing and maintaining a comprehensive system of internal controls, encompassing segregation of functional activities, managerial reporting and delegation of authority

• Striving to maintain industry best practices in the area of operational risk management through continued monitoring and evaluation of our practices

• Selection and training of highly qualified staff, supported by policies that provide for skills upgrading, clear authorization levels and adherence to an employee code of conduct

• Maintaining adequate insurance to reduce the impact of any potential losses, supported by a detailed business continuity plan

Legal and Regulatory Risk

Legal and regulatory risk is the risk of loss due to the failure to adhere to legal and regulatory standards.

Central is governed under the Canadian Co-operative Associations Act of Canada and the Credit Union Act of Nova Scotia, and is regulated federally by the Office of the Superintendent of Financial Institutions (OSFI) and provincially by the Superintendent of Credit Unions. League Savings is governed by the Trust and Loan Companies Act of Canada and regulated by OSFI. OSFI regularly reviews the activities of Central and League Savings and periodically carries out on-site examinations. All correspondence to and from OSFI is reported to the Board of Directors by management. League Savings is also a member of the Canada Deposit Insurance Corporation.


AnalysisMANAgeMeNT diSCUSSioN ANd

Central maintains a legislative and policy compliance management system in which all legislative and policy requirements are regularly reviewed and reported on. New policies and procedures are developed to address legislative requirements as appropriate.

The Board of Directors receives a quarterly compliance report in which any deficiencies and corresponding action plans are identified.

Strategic Risk

Strategic risk is the risk of loss due to failure to create, implement and monitor an effective strategic plan, including procedures for the development and review of new business initiatives and changing business circumstances.

In 2004, Central began holding regular consultation meetings with credit union representatives throughout Nova Scotia and Newfoundland and Labrador. Later in that year, credit unions approved a three-year vision. Subsequently, the Board of Directors approved six strategic initiatives (Initiatives6) necessary to achieve this vision. Business plans and budgets which include the strategic initiatives have been developed by management and are approved by the Board annually.

Management reports to the Board on the progress towards achieving the annual business plan at each regular Board meeting. Credit unions are also provided with regular progress reports.

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Management’s Responsibility For Financial Statements

Management has the responsibility of preparing the accompanying consolidated financial statements and ensuring that all information in the annual report is consistent with the financial statements. This responsibility includes selecting appropriate accounting principles and making objective judgements and estimates in accordance with Canadian generally accepted accounting principles.

In discharging its responsibility for the integrity and fairness of the financial statement, management designs and maintains the necessary accounting systems and related internal controls to provide reasonable assurance that transactions are authorized, assets safeguarded and proper records maintained. The board of directors has appointed an audit committee to review the annual consolidated financial statements with management and auditors before final approval by the board.

Bernie O’Neil President and CEO

Both the federal and provincial regulators of financial institutions may conduct examinations and makes such enquiries into the affairs of Central and its subsidiary as they deem necessary to ensure the safety of depositors and members of Central and to ensure that Central is in sound financial condition. Their findings are reported directly to management.

Grant Thornton LLP, the independent auditors, have examined the consolidated financial statements of Central in accordance with Canadian generally accepted auditing standards and have expressed their opinion in the following report to shareholders.

Sharon Arnold, CA Vice-President Finance

Auditors’ Report

To the Members of Credit Union Central of Nova Scotia

We have audited the consolidated balance sheet of Credit Union Central of Nova Scotia as at December 31, 2006 and the consolidated statements of income, retained earnings and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by

management, as well as evaluating the overall financial statement presentation.

In our opinion, these financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2006, and the results of its operations and the changes in its cash flows for the year then ended in accordance with Canadian generally accepted accounting principles.

Grant Thornton LLP Halifax, Nova Scotia Chartered Accountants January 26, 2007

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StatementsCoNSolidATed fiNANCiAl


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Balance Sheet

December 312006 2005

Assets

Cash and cash equivalents $ 9,732,203 $ 28,096,693

Investments (Note 2) 309,340,652 263,437,466

Loans and mortgages (Note 4) 481,556,163 462,341,259

Accrued interest 4,394,100 3,684,877

Fixed assets (Note 3) 3,382,852 3,015,232

Other assets 2,821,949 2,413,508

$ 811,227,919 $ 762,989,035

Liabilities

Borrowings (Note 5) $ 4,425,000 $ -

Deposits (Note 6) 733,692,937 687,307,520

Accrued interest 8,231,998 6,865,932

Income tax payable - 88,838

Other liabilities 3,653,205 5,045,804

Minority interest in subsidiary (Note 7) 13,945,329 13,945,329

Obligations related to mortgages (Note 8) 411,771 1,081,525

764,360,240 714,334,948

Subordinated debentures (Note 9) 7,434,000 7,434,000

Members' equity

Capital (Note 10) 24,048,280 26,952,700

Retained earnings 15,385,399 14,267,387

39,433,679 41,220,087

$ 811,227,919 $ 762,989,035

Commitments and contractual obligations (Note 12)

Approved: On Behalf of the Board:

Bernie O’Neil President and CEO

Dave MacLean Chair

Doug Dewling Director

See accompanying notes to the consolidated financial statements




Statements of Income and Retained Earnings

Year Ended December 312006 2005

Financial incomeInterest on investments $ 11,448,026 $ 8,804,815Interest on loans and mortgages 27,804,888 27,963,820

39,252,914 36,768,635Financial expense 27,020,676 23,098,157Gross financial margin 12,232,238 13,670,478Provision for losses 134,431 (205,000)Net financial margin 12,097,807 13,875,478Other financial income 408,493 697,840Net financial income 12,506,300 14,573,318Other Income (Note 18) 6,951,097 6,204,893

19,457,397 20,778,211ExpensesSalaries and staff related 8,402,430 7,805,300Bank charges and brokerage 1,607,954 1,587,681Property 1,069,833 1,031,324Democracy 771,480 746,298Computer services and communications 688,783 672,515Distributions to credit unions 1,273,900 1,279,612Other expenses (Note 18) 1,650,354 1,673,089Initiatives (Note 19) 167,068 853,211

15,631,802 15,649,030Income before income taxes and minority interest 3,825,595 5,129,181Income taxes (Note 17) 1,453,144 1,930,029Net income before minority interest 2,372,451 3,199,152Minority interest in earnings of subsidiary 697,266 697,266

Net income $ 1,675,185 $ 2,501,886

Retained earnings, beginning of year $ 14,267,387 $ 12,720,908Net income 1,675,185 2,501,886Dividends (net of income tax recovery of $228,906; (557,173) (955,407) 2005 -$392,515)

Retained earnings, end of year $ 15,385,399 $ 14,267,387


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Statements of Income and Retained Earnings


Financial incomeInterest on investments $ 11,448,026 $ 8,804,815Interest on loans and mortgages 27,804,888 27,963,820

39,252,914 36,768,635Financial expense 27,020,676 23,098,157Gross financial margin 12,232,238 13,670,478Provision for losses 134,431 (205,000)Net financial margin 12,097,807 13,875,478Other financial income 408,493 697,840Net financial income 12,506,300 14,573,318Other Income (Note 18) 6,951,097 6,204,893

19,457,397 20,778,211ExpensesSalaries and staff related 8,402,430 7,805,300Bank charges and brokerage 1,607,954 1,587,681Property 1,069,833 1,031,324Democracy 771,480 746,298Computer services and communications 688,783 672,515Distributions to credit unions 1,273,900 1,279,612Other expenses (Note 18) 1,650,354 1,673,089Initiatives (Note 19) 167,068 853,211

15,631,802 15,649,030Income before income taxes and minority interest 3,825,595 5,129,181Income taxes (Note 17) 1,453,144 1,930,029Net income before minority interest 2,372,451 3,199,152Minority interest in earnings of subsidiary 697,266 697,266

Net income $ 1,675,185 $ 2,501,886

Retained earnings, beginning of year $ 14,267,387 $ 12,720,908Net income 1,675,185 2,501,886Dividends (net of income tax recovery of $228,906; (557,173) (955,407) 2005 -$392,515)

Retained earnings, end of year $ 15,385,399 $ 14,267,387


Statement of Cash Flows


Increase (decrease) in cash and cash equivalents

Operating activities

Net income $ 1,675,185 $ 2,501,886

Adjustments:

Depreciation 516,395 419,995

Future income taxes (1,949) 55,841

Increase (decrease) in interest payable 1,366,066 (470,936)

Increase (decrease) in income taxes payable (88,838) 88,838

Other items, net (2,508,314) 544,061

958,545 3,139,685

Financing activities

Obligations related to mortgages, net (669,754) 141,085

Net increase in deposits 46,385,417 27,368,548

Net proceeds from issuance of capital (2,904,420) (31,990)

Dividends paid (557,173) (955,407)

42,254,070 26,522,236

Investing activities

Net decrease (increase) in investments (45,903,186) (366,944)

Net decrease (increase) in loans and mortgages (19,214,904) (1,907,104)

Purchase of fixed assets (884,015) (513,420)

(66,002,105) (2,787,468)

Net increase (decrease) in cash and cash equivalents (22,789,490) 26,874,453

Cash and cash equivalents (net)

Beginning of year 28,096,693 1,222,240

End of year $ 5,307,203 $ 28,096,693

Includes:

Cash on hand and balances with Financial Institutions 9,732,203 28,096,693

Borrowings (4,425,000) -

$ 5,307,203 $ 28,096,693

Supplemental disclosure of cash flow information

Amount of interest paid in year $ 25,654,610 $ 23,569,093

Amount of income taxes paid in year 1,258,922 1,646,630




Notes to Financial Statements – December 31, 2006

1. Summary of significant accounting policies

The financial statements have been prepared in accordance with accounting practices generally accepted in Canada.

Consolidation

The consolidated financial statements include the accounts of the subsidiary, League Savings and Mortgage Company.

Significant inter-company transactions and account balances have been eliminated from the consolidated accounts.

Cash and cash equivalents

Cash and cash equivalents include cash on hand, and balances with financial institutions.

Investments

Investments in co-operative and corporate shares are carried at the lower of cost or market. Bonds and debentures are carried at cost. Premiums or discounts are amortized to maturity. Investment income is recognized on an accrual basis. Gains and losses on disposals of securities are included in investment income in the year realized. All investments are held for investment purposes.

Loans and mortgages

Loans and mortgages are carried at the principal amount less allowances established to recognize anticipated losses. The amount provided for anticipated loan losses is determined by reference to specific loans and mortgages in arrears and by the judgement of management.

A general allowance has been established to provide for losses on loans and mortgages where past experience and existing economic and portfolio conditions indicate that losses have occurred, but where such losses cannot be specifically identified on an account-by-account basis. The general allowance is determined based on a calculation of risk-weighted assets.

Real estate held for resale is carried at the lower of the carrying value of the loan foreclosed, adjusted for revenues received and costs incurred subsequent to foreclosure, and the estimated net proceeds from sale of the assets.

Fixed assets

Land is carried at cost. Buildings, equipment and improvements are carried at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets as follows:

Buildings and improvements 2-20% Equipment 20-33%

Revenue recognition

Interest accrued on loans and mortgages is recognized in earnings except where a loan is classified as impaired. Loans and mortgages are classified as impaired at the earlier of when, in the opinion of management, there is reasonable doubt as to collectibility of principal or interest, or when interest or principal is contractually past due 90 days, unless the loan is both well secured and in the process of collection.

Interest received on an impaired loan is recognized in earnings only if there is no longer doubt as to the collectibility of principal. The subsidiary company periodically sells mortgages. Gains or losses, net of a servicing fee, are recognized on transfers of mortgage loans to other parties when the company has transferred the significant risks and rewards of ownership.

Servicing fees are calculated as a percentage of the carrying value of the mortgages as at the date of sale. A servicing liability is recognized as a deferred administration fee and is recorded on the balance sheet under Obligations related to mortgages. This deferred administration fee is amortized to other income over the average term of the mortgages sold.

Mortgage securitization

The Central’s mortgage securitization program expands the lending capacity of its subsidiary company, League Savings and Mortgage Company, whereby eligible mortgages are financed by external investors through an independent securitization vehicle.

These transactions are accounted for as sales when the significant risks and rewards of ownership have been transferred and there is reasonable assurance regarding the measurement of the consideration derived from the sale. No gain or loss has been recorded as a result of these transactions.

Fees earned to service the securitized mortgages are recognized as services are provided and reported in earnings in other income.

The Securitization Agreement provides for the payment to the Company of the deferred proceeds of sale when the interest collected from borrowers exceeds the yield paid to investors on the assets, credit losses, and other costs.

Income taxes

Future tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities, and measured using the substantially enacted tax rates and laws that will be in effect when the differences are expected to reverse.

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Use of estimates

In preparing these consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the period. Actual results could differ from those estimates.

New Accounting Standards

On January 1, 2007 the Company is required to and will adopt the following CICA Handbook Sections:

Section 3855 – Financial Instruments – Recognition and Measurement Section 3865 – Hedges Section 1530 – Comprehensive Income

The standards require that all financial assets be classified as trading, available for sale, held-to-maturity or loans and receivables. The standards also require that all financial assets, including all derivatives, be measured at fair value on

the balance sheet with the exception of loans, receivables, and held-to-maturity investments, which will be measured at amortized cost.

Changes in fair values of financial assets classified as trading are reported in earnings, while the changes in value of available for sale financial assets are reported within Other Comprehensive Income (OCI) until the financial asset is disposed of, or becomes impaired. Accumulated OCI is reported on the balance sheet as a separate component of Shareholders’ Equity. It will include, on a net of taxes basis, the net unrealized gains and losses on available-for-sale financial assets.

Similarly, the standards require that all financial liabilities be measured at fair value on the balance sheet when they are held for trading or are derivatives. Other financial liabilities are measured at amortized cost.

Transition adjustments arising due to revaluing financial assets classified as available for sale will be recognized in the opening balance of accumulated other comprehensive income as at January 1, 2007.

2. Investments 2006 2006 2005 2005

Carrying Value Market Value Carrying Value Market Value Short term investments $ 193,235,408 $ 193,096,845 $ 170,191,372 $ 169,421,273Federal and federally guaranteed bonds 21,441,042 21,322,362 19,495,474 19,361,324Provincial and provincially guaranteed bonds 26,288,175 26,828,810 31,284,130 31,875,199Corporate bonds and deposits 41,102,704 41,033,712 31,271,549 31,172,679Co-operative shares and deposits 27,160,762 27,349,104 11,082,380 11,160,668Corporate shares 112,561 1,163,900 112,561 1,041,020

$ 309,340,652 $ 310,794,733 $ 263,437,466 $ 264,032,163

3. Fixed Assets2006 2005

Accumulated Net Net Cost Depreciation Book Value Book Value

Land $ 401,522 $ - $ 401,522 $ 401,522Buildings and improvements 4,433,034 2,435,826 1,997,208 1,883,374Furniture and equipment 6,157,132 5,173,010 984,122 730,336

$ 10,991,688 $ 7,608,836 $ 3,382,852 $ 3,015,232



4. Loans and Mortgages

Total Impaired Total Specific Net Loans Loans Allowance Allowance Loans

2006 (included intotal allowance)

Insured residential mortgages $ 256,287,832 $ - $ - $ - $ 256,287,832Uninsured residential mortgages 127,285,678 160,384 851,285 - 126,434,393Loans & non-residential mortgages 112,483,943 749,500 1,398,568 - 111,085,375Credit unions and affiliates 19,474,238 - - - 19,474,238Real estate held for sale 243,792 40,000 40,000 40,000 203,792

515,775,483 949,884 2,289,853 40,000 513,485,630Less: mortgages under administration: Insured residential mortgages 22,630,287 22,630,287 Uninsured residential mortgages 9,299,180 9,299,180

31,929,467 - - - 31,929,467$ 483,846,016 $ 949,884 $ 2,289,853 $ 40,000 $ 481,556,163

2005Insured residential mortgages $ 244,686,577 $ - $ - $ - $ 244,686,577Uninsured residential mortgages 141,189,488 318,998 938,498 - 140,250,990Loans & non-residential mortgages 101,255,578 1,781,395 1,214,085 - 100,041,493Credit unions and afffiliates 10,804,268 - - - 10,804,268Real estate held for sale 648,784 409,609 221,341 221,341 427,443

498,584,695 2,510,002 2,373,924 221,341 496,210,771Less: mortgages under administration: Insured residential mortgages 22,880,160 22,880,160 Uninsured residential mortgages 10,989,353 10,989,353 Non-residential mortgages (0) (0)

33,869,512 - - - 33,869,512$ 464,715,183 $ 2,510,002 $ 2,373,924 $ 221,341 $ 462,341,259

Continuity of allowance for loan losses 2006 2005 Allowance, beginning of year $ 2,373,924 $ 2,594,700Write-offs (242,402) (55,264)Recoveries 23,900 39,488Provisions for loan losses 134,431 (205,000)Allowance, end of year $ 2,289,853 $ 2,373,924

5. Credit facilities

Credit Union Central of Nova Scotia has established an operating line of credit of $12,000,000 with the Bank of Nova Scotia and a $10,000,000 operating line of credit with a total exposure limit of $108,438,000 with Credit Union Central of Canada. Both lines of credit bear interest at the bank’s prime lending rate.

As security the Central has provided a general assignment of receivables, an assignment of securities having a carrying value of $9,900,000 (2005 - $9,900,000), and an assignment of its share capital held in Credit Union Central of Canada.

League Savings and Mortgage Company, a subsidiary company, has an additional operating line of credit of $5,000,000 with the Bank of Nova Scotia, bearing interest at the Bank’s prime lending rate secured by a general assignment of book debts. In addition, the bank charges a standby fee of 0.15% per annum calculated on the daily unused portion of the credit line.

At December 31, 2006, the amount outstanding on these operating lines of credit was $4,425,000 (2005 - nil).

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6. Deposits

2006 2005Credit union current accounts $ 10,632,449 $ 7,931,191Credit union liquidity deposits 253,419,143 242,249,554Registered deposits 176,960,207 180,788,477Term deposits and debentures 286,012,680 249,060,327Other deposits 6,668,458 7,277,971

$ 733,692,937 $ 687,307,520

7. Minority interest

The minority interest represents the value of the preferred A shares of League Savings and Mortgage Company.

8. Obligations related to mortgages

Obligations related to mortgages consist of the deferred administration fee on mortgage sales and monthly remittances due to the purchaser.

The balances outstanding at December 31 are as follows:

Deferred Income due in: 2006 20052005 $ - $ 228,5362006 122,796 122,7962007 122,796 122,7962008 98,419 98,4192009 - -

344,011 572,547Monthly Remittances Due 67,759 508,978Obligations Related to Mortgages $ 411,771 $ 1,081,525

9. Subordinated debentures

Series A and Series B debentures are unsecured and subordinated to all other indebtedness of the Company. The interest rate is equal to 1.5 times the dividend rate on the preferred A shares. Both Series A and Series B debentures are convertible into preferred A shares at the option of the holder and redeemable at the option of the Company after the fifth anniversary of the date of issue, subject to the approval of the Office of the Superintendent of Financial Institutions.

Maturity Earliest Date Redemption 2006 2005

Issued Amount Issued Amount Series A December 31, 2007 December 31, 2002 332 $ 332,000 332 $ 332,000Series B December 31, 2024 December 31, 2009 7,102 7,102,000 7,102 7,102,000

7,434 $ 7,434,000 7,434 $ 7,434,000

During the year there were no subordinated debentures issued or redeemed.



10. Capital

Authorized: Issued: 2006 2005Unlimited common shares 2,075,532 (2005 - 2,115,753) with no par value Common shares $ 20,755,320 $ 21,157,53010,000,000 Class A non-voting shares 329,296 (2005 - 579,517) with no par value Class A shares 3,292,960 5,795,170

$ 24,048,280 $ 26,952,700During the year, the following transactions took place: (a) 2,678 common shares were issued for $26,780 cash. (c) 20,533 Class A shares were issued for $205,330 cash. (b) 42,899 common shares were redeemed for $428,990 cash. (d) 270,754 Class A shares were redeemed for $2,707,540 cash.

11. Related party transactions

During the normal course of operations the Company and subsidiary, League Savings and Mortgage Company, transact business with League Data Limited, a company subject to significant influence as a result of common credit union ownership. These transactions are measured at the exchange amount and are as follows:

2006 2005

Income and fees related to the management contract $ 60,000 $ 60,000Rental and other income 110,388 170,581Computer services and equipment purchased from League Data 347,351 344,629Deposits held by Central 6,268,472 5,413,785Accounts receivable from League Data 23,746 25,930Accounts payable to League Data 22,353 22,219

12. Commitments and contractual obligations

a) Letter of credit

The Central has issued a letter of credit in the amount of $500,000 (2005 - $500,000) in favour of Credit Union Central of Ontario.

b) Approved mortgages

At December 31, 2006, the subsidiary company had approved mortgages in the amount of $14,623,220 (2005 - $13,745,396) which have not been advanced.

c) Interest rate swap agreements

The Central, as intermediary for certain credit unions, has entered into various interest rate swap agreements in order that the credit unions may manage their exposure to interest rate fluctuations.

The terms of the agreements provide that the Central pay a fixed interest rate on notional principal amounts due to mature in the future in exchange for variable or short term interest rate returns on these same amounts.

In turn, reciprocal interest rate swap agreements have been entered into with the respective credit unions. The Company has no interest rate swap agreements under this program outstanding at December 31, 2006.

d) Foreign exchange forward agreements

The Central, as intermediary for certain credit unions, has entered into various forward agreements in order that the credit unions may manage their exposure to foreign currency fluctuations. The terms of the agreements provide that the Central buy or sell a fixed amount of foreign currency, at a fixed exchange rate, on a specified future date. In turn, a reciprocal agreement is entered into with the credit unions, to sell or buy the same amount of foreign currency on the same dates.

The following forward rate agreements were outstanding at December 31, 2006:

Amount Currency Settlement$ 300,000 USD January 2007$ 200,000 USD February 2007

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13. Financial instruments

a) Interest rate risk

The table below summarizes carrying amounts of balance sheet and off-balance sheet derivative instruments by the earlier of the contractual repricing or maturity dates:

Within 3 Months 1 Year Over 5 Non-Interest Average(Reported in $000's) 3 Months to 1 Year to 5 Years Years Sensitive Total Rate2006AssetsCash and investments $ 170,157 $ 105,474 $ 29,632 $ 1,261 $ 12,549 $ 319,073 4.16Loans and mortgages 52,105 88,587 343,154 - (2,290) 481,556 6.17Other assets - - - - 10,599 10,599

$ 222,262 $ 194,061 $ 372,786 $ 1,261 $ 20,858 $ 811,228Liabilities and equityBorrowings $ 4,425 $ - $ - $ - $ - $ 4,425 6.00Deposits 331,895 228,324 162,842 - 10,632 733,693 3.95Other liabilities - - - - 25,830 25,830Obligations related to mortgages - - - - 412 412Equity - - - - 46,868 46,868

$ 336,320 $ 228,324 $ 162,842 $ - $ 83,742 $ 811,228

Subtotal $ (114,058) (34,263) 209,944 1,261 (62,884) 0Derivatives 10,000 (10,000) - - - -Prepayment estimate 12,868 38,605 (51,473) - - -Excess (deficiency) $ (91,190) (5,658) 158,471 1,261 (62,884) 0

2005AssetsCash and investments $ 128,585 $ 101,639 $ 20,851 $ 6,142 $ 34,317 $ 291,534 3.51Loans and mortgages 38,112 87,655 338,948 - (2,374) 462,341 6.03Other assets - - - - 9,114 9,114

$ 166,697 $ 189,294 $ 359,799 $ 6,142 $ 41,057 $ 762,989Liabilities and equityBorrowings $ - $ - $ - $ - $ - $ - -Deposits 306,724 167,366 201,175 - 12,043 687,308 3.38Other liabilities - - - - 25,945 25,945Obligations related to mortgages - - - - 1,082 1,082Equity - - - - 48,654 48,654

$ 306,724 $ 167,366 $ 201,175 $ - $ 87,724 $ 762,989

Subtotal $ (140,027) 21,928 158,624 6,142 (46,667) -Derivatives 10,000 - (10,000) - - -Prepayment estimate 12,711 38,131 (50,842) - - -Excess (deficiency) $ (117,316) 60,059 97,782 6,142 (46,667) -

An estimate of prepayments has been determined by management and includes the estimated principal portion of regular mortgage payments and full payouts of mortgage loans during their term based upon historical trends for these types of payments.



b) Interest rate swap agreements

The Company enters into interest rate swap agreements as a component of its overall risk management strategy. These agreements are contractual arrangements between two parties to exchange a series of cash flows.

In an interest rate swap agreement, counterparties generally exchange fixed and floating rate interest payments based on a notional value. The primary risks associated with these contracts are the exposure to movements in interest rates

and the ability of the counterparties to meet the terms of the contract.

Interest rate swap agreements are used to manage interest rate risk by modifying the repricing or maturities of assets and liabilities. Income and expenses on interest rate swap agreements are recognized over the life of the contract as an adjustment to interest expense. Accrued expenses are recorded in accrued interest payable.

Interest rate contracts outstanding at December 31 are as follows:

(Reported in $000's)Total Total

Notional Market Notional MarketValue Value Value Value

rate rate rate rate% % % %

Interest rate contractsFixed / floating swaps Pay fixed $ 10,000 4.93 $ - - $ - - $ - - $ 10,000 $ 15 $ 10,000 $ 125 Receive fixed $ - - $ - - $ - - $ - - $ - $ - $ - $ -

Term to maturity 2006 2005

Within Over 5Years3 Months

3 Monthsto 1 Year

1 Yearto 5 Years

c) Fair value

The following table presents the fair value of on and off-balance sheet financial instruments of the Company based on the valuation methods and assumptions as set out below. Fair value represents the amount at which a financial instrument could be exchanged in an arm’s length transaction between willing parties under no compulsion to act and is best evidenced by a quoted market price, if one exists.

Quoted market prices are not available for a significant portion of the Company’s financial instruments. Consequently, the fair values presented are estimates derived using present value or other valuation techniques and may not be indicative of the net realizable value.

The fair values disclosed exclude the values of assets and liabilities that are not considered financial instruments such as land, buildings and equipment. In addition, items such as the value of intangible assets such as customer relationships which, in management’s opinion add significant value to the Company, are not included in the disclosures below.

Due to the judgement used in applying a wide range of acceptable valuation techniques and estimations in calculating fair value amounts, fair values are not necessarily comparable among financial institutions. The calculation of estimated fair values is based on market conditions at a specific point in time and may not be reflective of future fair values.

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c) Fair value (continued)

2006 2005Estimated Estimated

Book Value Fair Value Book Value Fair Value AssetsCash and cash equivalents $ 9,732,203 $ 9,732,203 $ 28,096,693 $ 28,096,693Investments 309,340,652 310,794,733 263,437,466 264,032,163Loans and mortgages 481,556,163 484,168,892 462,341,259 464,233,642Accrued interest 4,394,100 4,394,100 3,684,877 3,684,877

LiabilitiesBorrowing $ 4,425,000 $ 4,425,000 $ - $ -Deposits 733,692,937 742,242,169 687,307,520 694,274,214Accrued interest 8,222,305 8,222,305 6,836,781 6,836,781Obligations related to mortgages 411,771 411,771 1,081,525 1,081,525Derivatives 9,693 14,691 29,151 124,898

14. Capital requirements

The Central and League Savings and Mortgage Company are required to maintain a capital ratio that is adequate in relation to their level of business activities.

The Office of the Superintendent of Financial Institutions prescribed the following:

(i) The Central maintains a liabilities to capital borrowing multiple not to exceed 20 times capital. At December 31, 2006, the Central had a borrowing multiple of 13.6 (2005 – 11.5) times capital.

(ii) League Savings and Mortgage Company maintains a minimum required capital ratio of 10% of the risk-weighted value of assets and a maximum allowable assets to capital multiple of 20 times capital. At December 31, 2006, the Company had a capital ratio of 23.2% (2005 – 22.90%) and a capital multiple of 13.84 (2005 – 13.46) times capital.

15. Assets under administration

(a) Mortgages and Mutual Funds Assets under administration include mortgages under administration and a mutual fund portfolio, which are not the property of the Company and are not reflected in the balance sheet.

(b) Syndicated loans The Company provides a loan syndication program for Credit Unions. These loans, which are under Central’s administration, are not the property of the Company and are not reflected on the balance sheet. Although most of the loan syndications are purchased by Credit Unions, the Central can be a participant if a loan is not fully subscribed to by Credit Unions.

When Central participates in the loan syndication the amount is included on the balance sheet as “Co-operative and other loans”. Where a fully subscribed loan syndication has not been distributed to Credit Unions, the undistributed amount is also included on the balance sheet as “Co-operative and other loans”.

Assets under administration at December 31: 2006 2005

Mortgages $ 31,021,273 $ 33,869,512Mutual Funds 12,119,885 12,130,496Syndicated Loans 22,066,331 23,412,505 Included in Co-operative and other loans 1,208,255 2,836,351



16. Segmented information

Credit Union Central of Nova Scotia provides services to credit unions through two divisions, Financial Services and Trade. Results for the Central’s major segments are based on the Central’s internal financial reporting systems.

FinancialServices Trade LS&M Total

2006Net financial income $ 1,777,431 $ - $ 10,728,869 $ 12,506,300Other income 5,960,135 (484,372) 1,475,334 6,951,097

7,737,566 (484,372) 12,204,203 19,457,397Expenses 6,276,272 (7,893) 9,363,423 15,631,802Income (loss) before income taxes $ 1,461,294 $ (476,479) $ 2,840,780 $ 3,825,595

Assets, December 31 $ 374,755,223 $ 4,441,700 $ 432,030,996 $ 811,227,919

2005Net financial income $ 3,133,237 $ - $ 11,440,081 $ 14,573,318Other income 1,986,301 3,065,612 1,152,980 6,204,893

5,119,538 3,065,612 12,593,061 20,778,211Expenses 1,953,361 4,346,939 9,348,730 15,649,030Income (loss) before income taxes $ 3,166,177 $ (1,281,327) $ 3,244,331 $ 5,129,181

Assets, December 31 $ 360,461,938 $ 4,159,369 $ 398,367,728 $ 762,989,035

17. Income taxes

The components of income tax expense (recoveries) are as follows: 2006 2005

Current income taxes $ 1,455,093 $ 1,874,188Future income taxes (recovery) (1,949) 55,841Income taxes $ 1,453,144 $ 1,930,029

The components of the future income tax asset are as follows:2006 2005

Future income tax assetsProperty, plant and equipment $ 165,174 $ 172,394Allowance for impaired loans 819,746 798,583Allowance for investments 49,172 49,172Unrealized gain on investments 315,155 278,671Other 32,593 81,071

Total future income tax assets (included in Other Assets) $ 1,381,840 $ 1,379,891

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16. Segmented information

Credit Union Central of Nova Scotia provides services to credit unions through two divisions, Financial Services and Trade. Results for the Central’s major segments are based on the Central’s internal financial reporting systems.

FinancialServices Trade LS&M Total

2006Net financial income $ 1,777,431 $ - $ 10,728,869 $ 12,506,300Other income 5,960,135 (484,372) 1,475,334 6,951,097

7,737,566 (484,372) 12,204,203 19,457,397Expenses 6,276,272 (7,893) 9,363,423 15,631,802Income (loss) before income taxes $ 1,461,294 $ (476,479) $ 2,840,780 $ 3,825,595

Assets, December 31 $ 374,755,223 $ 4,441,700 $ 432,030,996 $ 811,227,919

2005Net financial income $ 3,133,237 $ - $ 11,440,081 $ 14,573,318Other income 1,986,301 3,065,612 1,152,980 6,204,893

5,119,538 3,065,612 12,593,061 20,778,211Expenses 1,953,361 4,346,939 9,348,730 15,649,030Income (loss) before income taxes $ 3,166,177 $ (1,281,327) $ 3,244,331 $ 5,129,181

Assets, December 31 $ 360,461,938 $ 4,159,369 $ 398,367,728 $ 762,989,035

17. Income taxes

The components of income tax expense (recoveries) are as follows: 2006 2005

Current income taxes $ 1,455,093 $ 1,874,188Future income taxes (recovery) (1,949) 55,841Income taxes $ 1,453,144 $ 1,930,029

The components of the future income tax asset are as follows:2006 2005

Future income tax assetsProperty, plant and equipment $ 165,174 $ 172,394Allowance for impaired loans 819,746 798,583Allowance for investments 49,172 49,172Unrealized gain on investments 315,155 278,671Other 32,593 81,071

Total future income tax assets (included in Other Assets) $ 1,381,840 $ 1,379,891

17. Income taxes (continued)

The provision for income taxes differs from the result which would be obtained by applying the combined Canadian Federal and Provincial statutory income tax rates to income before taxes. This difference results from the following:

2006 2005

Income before income taxes $ 3,825,595 $ 5,129,181Statutory income tax rate 43.69% 44.65%Expected income tax 1,671,226 2,289,954Effect on income tax of:

Capital taxes 38,734 150,862New Brunswick Capital Taxes 44,877 -Credit union abatement - -General rate reduction credit (148,751) (256,099)Non-taxable dividends and non-capital losses (77,391) (68,887)Tax deductible dividends (125,773) (215,667)Permanent tax differences 41,093 22,222Recognition of general reserves and temporary differences 11,077 (55,307)Other - 7,110

Future income tax recoveryEffect of change in temporary differences (1,948) 55,841

Total income tax expense $ 1,453,144 $ 1,930,029

18. Other Income and Expenses

Other Income and Expenses include the following:

2006 2005

Other incomeFinancial service fees $ 1,276,561 $ 1,296,867Member assessments 2,236,474 1,766,425Management fees 60,000 60,000Printing sales 191,031 140,853Rental income 136,277 209,338Mortgage Fees 1,044,354 802,983Fee for service 889,027 1,032,556Miscellaneous 1,117,373 895,871

$ 6,951,097 $ 6,204,893

Other expensesConsulting and legal $ 379,089 $ 392,574Development 76,680 37,092Marketing and promotion 437,964 482,351Office 175,511 84,808Miscellaneous 581,110 676,264

$ 1,650,354 $ 1,673,089



19. Initiatives

Balances relating to the Initiatives include the following:

2006 2005 Assessments Received $ 1,658,577 $ - Assessments Deferred (in Other Liabilities) 782,024 - Assessments 876,553 - Fee for Service 60,255 - Total Income 936,808 - Salaries and Staff Related 425,518 - Management Fees 583,004 430,000 Other Expenses 95,354 423,211 Total Expenses 1,103,876 853,211 Net Initiatives $ (167,068) $ (853,211)

20. Reclassification of comparative figures

Certain of the 2005 comparative figures have been reclassified to conform with the financial statement presentation adopted for 2006.

Central Board

Effective corporate governance remains a priority at Credit Union Central of Nova Scotia. Sound governance and ethical behaviour benefits not only our shareholders, but all stakeholders including credit unions, credit union customer-owners and our employees.

Our Board of Directors is responsible for overseeing the management of the business and affairs of Central and for providing effective leadership to the credit union network with the objective of enhancing both shareholder and stakeholder value. The directors are responsible for maintaining a high standard of governance and ensuring the ongoing review and assessment of our governance system. In 2006, Central reduced its board from 12 to 11 members, completed several training and development programs, began the review of the corporate code of conduct and began a long term project to review the governance structure of Central, including a comprehensive by-law review.

Board Composition

Effective October 2006, the Board of Directors of Credit Union Central of Nova Scotia was reduced from 12 to 11 representatives, elected by delegates in each of the seven credit union districts. One delegate is elected from the following districts: District 2 (Inverness and Richmond Counties); District 3 (Antigonish, Guysborough, Cumberland and Pictou Counties); District 7 (Credit Union Central of Newfoundland and Labrador); and District 6 (Newfoundland and Labrador Central Alliance). District 1 (Cape Breton County) and District 5 (Annapolis, Kings, Lunenburg, Queens, West Hants, Digby and Yarmouth Counties) elect two directors and District 4 (Halifax and East Hants Counties) elects 3 directors. None of the directors are members of Central’s management. The following individuals serve as the Board of Directors:

The Board meets at least once each fiscal quarter. It also meets at other times when matters requiring its approval are raised and cannot wait for the next quarterly meeting. The Board of Directors met 10 times in 2006.

Committees of the Board

The Board has established four standing committees: Executive, Audit and Conduct Review, Governance and System Credit.

Executive Committee: Its six members include the Board Chair, Vice-Chair and 2nd Vice-Chair and three directors elected by a vote of the Board. This committee is responsible for addressing matters between scheduled Board meetings that require immediate attention. The committee also acts as a Compensation Committee. In this capacity, the committee makes recommendations to the Board on the President and CEO’s compensation and evaluation and for the annual approval of the variable compensation plan.

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BoardsCUCNS ANd AffiliATe

James GannonMargaret Harvey2nd, Vice-Chair

Angela Hickey

Doug Dewling Earl Goski

Raymond Surette James MacFarlane Joseph MacNeil

Robert McVeigh

James JohnsonVice-Chair

David MacLeanChair

19. Initiatives

Balances relating to the Initiatives include the following:

2006 2005 Assessments Received $ 1,658,577 $ - Assessments Deferred (in Other Liabilities) 782,024 - Assessments 876,553 - Fee for Service 60,255 - Total Income 936,808 - Salaries and Staff Related 425,518 - Management Fees 583,004 430,000 Other Expenses 95,354 423,211 Total Expenses 1,103,876 853,211 Net Initiatives $ (167,068) $ (853,211)

20. Reclassification of comparative figures

Certain of the 2005 comparative figures have been reclassified to conform with the financial statement presentation adopted for 2006.

Committee Members: David MacLean (Chair), James Johnson, James MacFarlane, Margaret Harvey, Raymond Surette and James Gannon.

Audit and Conduct Review Committee: It has four members. As an Audit Committee, it is responsible to ensure that management has designed and implemented an effective system of financial management and related internal controls. It reviews and reports on the audited financial statements and ensures compliance with certain regulatory and statutory requirements. It is also responsible to meet periodically with internal and external auditors. As a Conduct Review Committee, it is responsible to ensure that management has developed and adheres to conflict of interest and related party procedures.

Committee Members: Doug Dewling (Chair), James MacFarlane, Earl Goski and Angela Hickey.

Governance Committee: Its five members are responsible for reviewing and recommending changes, as appropriate, to the governance structure of Central. In addition, this committee ensures Board decisions and positions are appropriately translated into documented policies. The committee reviews minutes of meetings, interprets the Board’s position on issues and uses management resources in the development of Board policies. Policies developed by the committee are forwarded to the Board for its consideration and approval. The committee is responsible for overseeing the director evaluation process and for establishing and monitoring the orientation program for new directors, as well as the monitoring of ongoing training and development of Board members.

Committee Members: James Johnson (Chair), Joseph MacNeil, Robert McVeigh, Margaret Harvey and Raymond Surette.

System Credit Committee

The committee has three members and is responsible for evaluating and approving all loans above the lending limits of management.

Committee Members: James Gannon (Chair), James Johnson and James MacFarlane.

Mandate of the Board of Directors

While the Board’s fundamental responsibility is to supervise the management of the business and affairs of Central, any responsibility that is not specifically delegated to the President and CEO remains with the Board. In particular, the Board oversees Central’s strategic direction

to ensure it serves the organization, its member credit unions, employees and communities of Nova Scotia and Newfoundland and Labrador. The Board assumes overall stewardship with respect to Central’s mission and values, its long term objectives and the approval of corporate strategies, including the Getting Us There vision. Specifically, the Board is responsible for the following:

• The selection, succession and evaluation of the President and CEO, as well as compensation and employment conditions

• Establishing and approving Board policies• Overseeing Central’s internal control framework• Developing and approving strategic plans for

Central• Providing advice to the President and CEO• Evaluating the Board’s performance and overseeing

the ethical, legal and social conduct of the organization

• Reviewing the financial performance and condition of the organization

Attendance at Board and Committee Meetings

The Board of Directors recognizes the importance of each individual director’s participation at Board and committee meetings. Every director is expected to attend all Board and committee meetings unless specifically exempted by the Chair. The table below sets out the attendance of each Board member at Board and committee meetings throughout 2006:

1 Elected as member of the Audit/Conduct Review Committee in April 2006.2 Elected as member of the Audit/Conduct Review Committee in April 2006.3 Elected as member of the Executive Committee in April 2006.4 Elected as member of the Audit/Conduct Review Committee in April 2006.5 Elected as member of the Governance Committee in April 2006.6 Elected as member of the Governance Committee in April 2006.7 Elected as member of the Governance Committee in April 2006.


Name Board and Planning Session

Audit/Conduct Review

Commitee

ExecutiveCommittee

GovernanceCommittee

System Credit

Committee

Angela Hickey1 8/10 3/3 - 1/1 -

David MacLean 10/10 - 5/5 - -

Doug Dewling 10/10 4/4 - - -

Earl Goski2 9/10 3/3 - 0/1 -

James Gannon3 9/10 1/1 4/4 - 2/2

James Johnson 8/10 - 5/5 4/4 2/2

James MacFarlane4 8/10 3/3 4/5 - 2/2

Joseph MacNeil 10/10 - - 4/4 -

Margaret Harvey5 10/10 1/1 5/5 3/3 -

Raymond Surette6 10/10 1/1 5/5 3/3 -

Robert McVeigh7 10/10 - - 2/3 -

BoardsCUCNS ANd AffiliATe

Evolving Governance ProcessesAt Credit Union Central of Nova Scotia, we recognize that our governance standards must evolve to respond to changes in our company, the credit union network, stakeholder expectations and regulatory requirements. The Board monitors ongoing developments in corporate governance practices to ensure that it continues to implement best practices in Central and provide effective governance to the credit union network in Nova Scotia and Newfoundland and Labrador.

Affiliate Boards

The following are the terms and expiration dates for appointments to affiliate Boards of Directors.

Canadian Co-operative Association

The Chair of Credit Union Central of Nova Scotia appoints two delegates. The Atlantic delegates elect two directors. James Johnson from the Credit Union Central of Nova Scotia was elected director on the CCA Board representing the Maritimes, and will serve until 2007.

Concentra Financial

The Atlantic Provinces fall under the “minority shareholders” category and are entitled to elect one director to Concentra’s Board of Directors. The minority shareholders consist of Credit Union Central of British Columbia, Credit Union Central of Nova Scotia, Credit Union Central of New Brunswick, Credit Union Central of Prince Edward Island and La Federation des Caisses Populaires du Manitoba. The current director representing the minority shareholders is Robert McVeigh (term expires 2008).

The Co-operators

The Credit Union Central of Nova Scotia appoints two delegates. The Atlantic Canadian delegates elect three directors to the Co-operators’ Board to represent the Atlantic Region. The present directors are James MacConnell (term expires April 2008), Connie Doucette from the Credit Union Central of Prince Edward Island (term expires 2009) and Gilles Menard of the Acadian Federation (term expires 2007).

Credit Union Central of Canada (CUCC)

The Atlantic Provinces are entitled to elect two members to CUCC’s Board of Directors. The present directors are Robert McVeigh from our Central (term expires 2009) and Richard

Gill from the Credit Union Central of Prince Edward Island (term expires 2007).

CUMIS

Credit Union Central of Nova Scotia is a minority shareholder of CUMIS. Shareholders are entitled to nominate directors; however directors are elected at large by all shareholders.

Ethical Funds Inc. (EFI)

The Credit Union Central of Nova Scotia and Credit Union Central of Prince Edward Island jointly own one common voting share of EFI. Nova Scotia, New Brunswick and Prince Edward Island are entitled to nominate one director to the Board. The current director for the Maritime Provinces is Bernie O’Neil.

League Data

The Nova Scotia directors on the League Data Board are elected from each of the five provincial credit union districts. The President and CEO of Credit Union Central of Nova Scotia is a dedicated seat on the League Data Board.

League Savings and Mortgage Company

Credit Union Central of Nova Scotia is entitled to appoint six members to the League Savings Board. Its current directors are: Marion Garlick, James Gannon, James MacFarlane, Raymond Surrette, Angela Hickey and Joseph MacNeil.

Nova Scotia Co-operative Council

The director to the Nova Scotia Co-operative Council Board is appointed by the Chair of the Board, Credit Union Central of Nova Scotia. Nova Scotia Central Director is Joseph MacNeil.

Nova Scotia Credit Unions Charitable FoundationAll five credit union districts elect one Board member to the Charitable Foundation. Central’s Board appoints two additional members, and Central’s President and CEO selects one additional member. Board members serve for one-year terms. Current members are: James King, District 1, Phyllis Cote (Secretary), District 2, John R. MacDougall (Treasurer), District 3, Terry Moore, District 4, David Fancy (Vice-Chair), District 5 and Robert McVeigh (Chair), James Johnson, and Bernie O’Neil from the Credit Union Central of Nova Scotia.

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PO Box 92006074 Lady Hammond RoadHalifax, NS B3K 5N3

Telephone: 1-902-453-0680Toll Free: 1-800-668-2879

Intranet: www.cucns.caWebsite: www.nscreditunions.caEmail: [email protected]

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