Olympia Financial Group Inc.
Annual Report 2019

Plain-text annual report

ANNUAL REPORT 20 19 WITH US IT’S PERSONAL 2 2019 Annual Report | Olympia Financial Group Inc. TABLE OF CONTENTS 03. President’s Message 05. Management’s Discussion and Analysis 17. Analysis of Results by Segment 35. 36. Management’s Responsibility for the Consolidated Financial Statements Independent Auditor’s Report for the Consolidated Financial Statements 39. Consolidated Financial Statements 43. Notes to the Consolidated Financial Statements 73. Corporate Information 2019 Annual Report | Olympia Financial Group Inc. 1 TOTAL REVENUE BY DIVISION (%) 2019 2018 • Registered Plans 64.4% 61% • Private Health Services 17.1% 17% • Foreign Exchange 16.4% 20% • Corporate Shareholder Services • Exempt Edge • Other 0.4% 1.5% 0.2% 0% 1% 1% FINANCIAL HIGHLIGHTS from continuing operations Results the year ended December 31, 2019, when compared to continuing operations for the year ended December 31, 2018. for • Total net earnings and comprehensive income decreased 6% to $9.33 million from $9.90 million. • Total revenue decreased 2% to $49.08 million from $50.03 million mainly due to a decrease in spot trade volume and transaction sizes in the Foreign Exchange division. • Service revenue decreased 8% to $35.58 million from $38.60 million mainly due to a decrease in Foreign Exchange spot trade volume and transaction sizes. • Other gains and losses, net, amounted to $3.10 million for the year ended December 31, 2019, compared to ($1.43) million, mainly due to Olympia Trust’s Foreign Exchange division recording a $2.23 million unrealized foreign exchange forward contract gain stemming from an increase in the number and sizes of forward exchange contracts. This compares to a ($1.38) million foreign exchange forward contract loss in the prior year. In addition, Olympia also recognized an insurance settlement of $0.84 million from the cyber incident claim. • Olympia’s interest revenue and trust income is subject to fluctuations depending on account balances and changes in the Canadian prime rate. Interest revenue and trust income increased 18% to $13.50 million from $11.43 million, mainly due to the average Canadian prime rate for the year being higher at 3.95% compared to an average of 3.58% in 2018. • Direct and administrative expenses (excluding depreciation and amortization) increased 10% to $37.79 million from $34.26 million, mainly due to increases in salaries and wages, enhanced cyber security measures, computer consultant fees and computer maintenance fees. • Income tax expense is recognized based on the estimated average annual income tax rate for the full financial year. A change in the Alberta corporate tax rate resulted in a rate of 26.5% being used for the year ended December 31, 2019. The rate used as at December 31, 2018 was 27%. • Earnings before income tax decreased 5% to $12.86 million from $13.59 million. • Basic and diluted earnings per share attributable to shareholders of Olympia decreased 5% to $3.92 per share from $4.14 per share. 2 2019 Annual Report | Olympia Financial Group Inc. PRESIDENT’S MESSAGE Last year I noted that Olympia’s pre-tax earnings had increased by 40% and that was after a 20% increase in pre-tax earnings the previous year. Obviously, we would have all liked that trend to continue but to have earnings similar to last year is an achievement. Much of our increase in earnings in the two previous years was attributable to increases in the prime interest rate and there were no increases in the prime interest rate this past year. Shareholders did very well in 2019. The share price at the beginning of the year was $38.50 and closed out the year at $51.27. Those shareholders who owned shares at the beginning of 2019 earned a 7% dividend and had share appreciation of 33%. It is always easy to look at the bottom line of an income statement to compare one year with another. What I find interesting is that this simple assessment does not usually provide a measure of financial performance. For example, a simple look at Olympia’s pre-tax earnings for the year would indicate that we are down around $700,000. What should be noted is that included in this $700,000 of lower earnings is $1,800,000 of losses in our two newest divisions (Corporate and Shareholder Services and Exempt Edge) This $1,800,000 in losses could easily be described as investments. You may recall that in 2013 we sold our Shareholder Services Division for $43 million and just restarted the Division after the expiry of a 5 year non-compete contract. We planned to lose a $1,000,000 in 2019 to start the new division. Exempt Edge was started with the goal of providing the exempt market (non- prospectus security offerings) with a digital back office. It now has a substantial presence in that market and by midyear should have its systems fully integrated with Olympia Trust Company. When the integration is completed, Exempt Edge will be in a position to reduce its development expenditures and move toward profitability. Olympia started out the year with a fabulous January only to be hit with a major cyber-attack in early February. Our entire computer system was frozen. Our efforts to protect us from a major cyber-attack had failed. What we did learn is that our employees in our IT department will work 24/7 when the chips are down. They were fantastic!!! What we did learn is that the work we had done planning for a cyber-attack helped us reduce the impact and we also learned that the good insurance work done by our Finance Department had us adequately covered for our losses. There was no loss of customer information and all of our Divisions did a great job in meeting our customer’s expectations and needs even though they had to learn how to go back to writing cheques and using paper. As a consequence of the cyber-attack, the Board of Directors was joined by Tony Balasubramanian who is an expert in computer science. Tony is an active Director who meets regularly with IT senior management. We also hired a specialist well versed in the newest developments in cyber security to keep our IT systems as safe as possible. While it is possible that we may be impacted again, the processes and technology in place will help to greatly reduce the impact and also provide much earlier detection. Yes, it costs us more money, but we are already experiencing benefits from our new system. Olympia’s Registered Plans Division continues to be the company’s major income earner. The Division has spent a considerable amount of money developing a new phone and computer application that allows customers to perform many of the tasks that previously required the assistance of one of our employees. Customers can now open accounts, transfer funds, make contributions, check their accounts and purchase exempt securities using their phone or personal computer. Now that the app has been completed we do expect to see some administrative cost savings while providing a better service experience to our customers. Olympia Benefits continued growing its business in 2019 and introduced two new products. Telemedicine can now be added to an employee health plan at a very affordable cost of $8 per month. This product virtually gives you a doctor in your pocket. You can call and get medical advice no matter where you are in the world or what time of day it is. It is a great service for all of us who carry our cell phones and hate line ups. The second product is a wellness product. The customer decides the dollar amount of the benefit and specifically what items are covered but generally the emphasis is on supporting your employee’s good health and wellness by having the company pay for green fees, lift tickets for skiing, gym memberships, etc. Olympia Benefits manages the program for employers. This Division has tremendous potential. They have spent years developing their presence online and are enjoying very good success even with a very low conversion rate. They are now focusing on improving the conversion rate. Foreign Exchange had an excellent year with its earnings for the year up 50%. While not trying to be too negative about the prospects of the Division repeating the results in 2020, Shareholders should be aware that some of these earnings were attributable to the excitement in the Cannabis and Agriculture sectors which have significantly slowed down. Earnings in this Division are very dependent on what is happening in the local economy. Neil McCullagh, who has been with Olympia Foreign Exchange for 10 years, became Vice President of this Division at midyear. Neil is very excited about the opportunity to develop this Division. We are very excited to be back in the shareholder services and corporate trustee business. Much of our old team have rejoined Olympia and we now have offices in Vancouver and Calgary. As previously stated, we did plan to lose (invest) around $1,000,000 this first year in business but hope to be profitable on a monthly 2019 Annual Report | Olympia Financial Group Inc. 3 basis by late 2020. There continues to be a great need for personal professional service in this area and we are very able to provide that. Exempt Edge had a great year. It ended the year by getting commitments from two major companies. The Division has exceeded our expectations and once it has completed its integration with Olympia Trust Company it will provide the exempt market with a truly revolutionary service. It has done a great job of getting most of the Independent Exempt Market Dealers many major issuers as customers. The entire industry benefits from using Issuers Edge and Dealer’s Edge. If any of the dealers see a need to change the system, chances are they would all like the change and instead of having to each have their own expensive proprietary system, they all save time and money by using the Exempt Edge System. In 2019 Craig Skauge, President of Olympia Trust Company and Exempt Edge was named one of Canada’s Top 40 Under 40. This prestigious Award has been won by many very recognizable “who’s who” in the Canadian business community and I, as his father am very proud of him as well. Craig has shown his leadership skills in a number of ways. He is the founder of the Western Exempt Market Association which later changed its name to the National Exempt Market Association and then with the help of Craig’s stick handling merged with the eastern Canadian counterpart The Private Capital Markets Association of which he is currently Vice-Chair. Craig was previously a member of the Ontario Securities Commission Exempt Market Advisory Committee, the Ontario Securities Commission Small and Medium Enterprises Committee and is currently a member of the Alberta Securities Exempt Market Dealer Advisory Committee. Craig is also the President of Olympia Charitable Foundation and has organized our Charity Golf Tournament for the past 15 years. Well connected, often quoted in Canada’s top business newspapers, we are fortunate to have him lead Olympia Trust Company. An instant success after 16 years of being with Olympia. Olympia Charitable Foundation was created to have our giving be more personal than just signing a cheque. Our employees are involved in contributing money that is matched by Olympia and they are also involved in picking the Charities we donate to. Many of the charities we donate to are small and really appreciate the $5,000 we give them. We have been so successful at raising money that we now have several charities that we give $25,000 or more per year. Our most supported charities are Dreams Take Flight and Stephen’s Backpack Society. In 2019 we raised $67,000 from the golf tournament and $221,000 from employee matched contributions for a total of $288,000. We are proud of the contributions our employees make to the community. Success has to be defined by more than just the bottom line. One of the awards I most like to earn is being named one of the Top 70 Employer for the Province of Alberta. We did it again in 2019 which was the seventh year in a row that we have won this award. What it says is Olympia is a good place to work. We care about our people. With us “it’s personal!!” There are two main areas we would like to get Canadians to focus on in the next few years. We currently administer about 20,000 registered accounts where the registered plan invests in mortgages. The default rate is low for most of the mortgages and the plan holder is earning a very good interest rate. Our goal is to further educate the general public that this is another option in which they can invest their cash and retirement savings. In order to make mortgage investing easier, Olympia has created a mortgage administration company that will look after all the dirty work of investing in mortgages. We will chase down the bounced cheques, make sure the insurance is in force, make sure the taxes have been paid, and if need be foreclose on a delinquent borrower. We believe that by taking care of these things that many more individuals and mortgage brokers will participate in this market space. The other idea we would like to share with Canada’s business owners is that if they are looking to raise money from private sources, one of the first places they should look for cash if from individual’s registered plans. Tax and securities laws in Canada allow for many private companies to issue securities such as preferred shares to a registered plan but it’s a fairly well-kept secret. We intend to share that secret with entrepreneurs across the country in multiple different ways. We look forward to another good year. 4 2019 Annual Report | Olympia Financial Group Inc. CRAIG SKAUGE AND RICK SKAUGECongratulations Craig on being one of Canada’s Top 40 Under 40MANAGEMENT’S DISCUSSION AND ANALYSIS This Management’s Discussion and Analysis (“MD&A”) is provided to enable a reader to assess the financial position and results of operations of Olympia Financial Group Inc. (“Olympia”) for the year ended December 31, 2019. This MD&A should be read in conjunction with Olympia’s audited consolidated financial statements (“consolidated financial statements”) for the year ended December 31, 2019, as well as the MD&A found in Olympia’s 2018 Annual Report, together with the audited consolidated financial statements and accompanying notes found therein. Olympia’s audited consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). Amounts are presented in Canadian dollars, Olympia’s functional currency. All references to $ are to Canadian dollars and references to US$ are to United States dollars. This report, and the information provided herein, is dated as at February 27, 2020. Additional information about Olympia, including quarterly and annual reports, is available on Olympia’s website at www.olympiafinancial.com and on SEDAR at www.sedar.com. Cautionary note regarding forward-looking statements Certain statements contained in this MD&A may constitute forward-looking statements. These statements relate to future events or Olympia’s future performance. All statements, other than statements of historical fact, may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as “seek,” “anticipate,” “plan,” “continue,” “estimate,” “expect,” “may,” “will,” “project,” “predict,” “propose,” “potential,” “targeting,” “intend,” “could,” “might,” “should,” “believe,” and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Olympia believes that the expectations reflected in those forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct. Any forward-looking statements included in this MD&A should not be unduly relied upon by investors, as actual results may vary. These statements speak only as of the date of this MD&A and are expressly qualified, in their entirety, by this cautionary statement. With respect to forward-looking statements contained herein, Olympia has made assumptions regarding, among other things: • general business and economic conditions in Canada; • fluctuations in interest rates and currency values; • changes in monetary policy; • changes in economic and political conditions; • legislative and regulatory developments; • results from legal proceedings and disputes; • the level of competition in Olympia’s markets; • the occurrence of weather related and other natural catastrophes; • changes in accounting standards and policies; • the accuracy and completeness of information Olympia receives about customers and counterparties; • the ability to attract and retain key personnel; • changes in tax laws; • technological developments; • cyber security risks; • costs related to operations remaining consistent with historical experiences; • management’s ability to anticipate and manage risks associated with these factors; and • insurance claim payouts. Olympia’s actual results could differ materially from those anticipated in the forward-looking statements contained herein as a result of the risk factors set forth herein. Although Olympia’s management has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results to not be as anticipated, estimated or intended. Forward-looking statements contained herein are made as of the date of this MD&A and Olympia disclaims any obligation to update any forward- looking statements if circumstances or management’s beliefs, expectations or opinions should change, whether as a result of new information, future events or otherwise, unless required by applicable securities laws. 2019 Annual Report | Olympia Financial Group Inc. 5 Olympia’s business Olympia was formed under the Business Corporations Act (Alberta) and is headquartered in Calgary, Alberta. Olympia is a reporting issuer in British Columbia, Alberta, and Ontario and its common shares are listed on the Toronto Stock Exchange (“TSX”). The majority of Olympia’s business is conducted through its wholly owned subsidiary Olympia Trust Company (“Olympia Trust”), a non-deposit taking trust corporation. Olympia Trust received its letters patent on September 6, 1995, authorizing the formation of a trust corporation to be registered under the Loan and Trust Corporations Act (Alberta). Olympia Trust is licensed to conduct trust activities in Alberta, British Columbia, Saskatchewan, Manitoba, Québec, Newfoundland and Labrador, Prince Edward Island, New Brunswick, and Nova Scotia. The Registered Plans division, Foreign Exchange division, and Corporate and Shareholder Services division conduct business under Olympia Trust. The Private Health Services Plan division conducts business under Olympia Benefits Inc. (“OBI”), a wholly owned subsidiary of Olympia. Olympia Benefits Inc. was incorporated on May 4, 2006, under the Business Corporations Act (Alberta). The Exempt Edge division (“EEI”) conducts business under Exempt Edge Inc. Exempt Edge Inc. was incorporated under the Business Corporations Act (Alberta) on November 28, 2016. Olympia holds an 80% controlling interest in Exempt Edge Inc. and a third party holds a non-controlling interest of 20%. The non-controlling interest is presented separately in the statements of net earnings and comprehensive income and within equity in the balance sheets, but separately from Olympia’s equity. 6 2019 Annual Report | Olympia Financial Group Inc. SARA KING, JOHN HORTON, KALIE COX AND PIERRE WHALENOlympians taking part in the 2019 Corporate ChallengeSummary of financial results Overview and financial highlights from continuing operations for the year ended December 31, 2019, when compared to the year ended December 31, 2018. • Total net earnings and comprehensive income decreased 6% to $9.33 million from $9.90 million. • Total revenue decreased 2% to $49.08 million from $50.03 million mainly due to a decrease in spot trade volume and transaction sizes in the Foreign Exchange division. • Service revenue decreased 8% to $35.58 million from $38.60 million mainly due to a decrease in Foreign Exchange spot trade volume and transaction sizes. • Other gains and losses, net, amounted to $3.10 million from ($1.43) million, mainly due to Olympia Trust’s Foreign Exchange division recording a $2.23 million unrealized foreign exchange forward contract gain stemming from an increase in the number and sizes of forward exchange contracts. This compares to a ($1.38) million foreign exchange forward contract loss in the prior year. In addition, Olympia also recognized an insurance settlement of $0.84 million from the cyber incident claim. • Olympia’s interest revenue and trust income is subject to fluctuations depending on account balances and changes in the Canadian prime rate. Interest revenue and trust income increased 18% to $13.50 million from $11.43 million, mainly due to the average Canadian prime rate for the year being higher at 3.95% compared to an average of 3.58% in 2018. • Direct and administrative expenses (excluding depreciation and amortization) increased 10% to $37.79 million from $34.26 million, mainly due to increases in salaries and wages, enhanced cyber security measures, computer consultant fees and computer maintenance fees. • Income tax expense is recognized based on the estimated average annual income tax rate for the full financial year. A change in the Alberta corporate tax rate resulted in a rate of 26.5% being used for the year ended December 31, 2019. The rate used as at December 31, 2018 was 27%. • Earnings before income tax decreased 5% to $12.86 million from $13.59 million. • Basic and diluted earnings per share attributable to shareholders of Olympia decreased 5% to $3.92 per share from $4.14 per share. COMBINED NET EARNINGS PER QUARTER ($ '000) EPS PER QUARTER ($) 3,000 2,500 2,000 1,500 1,000 500 0 Q4 – 2019 Q3 – 2019 Q2 – 2019 Q1 – 2019 Q4 – 2018 1.25 1.00 0.75 0.50 0.25 0 Q4 – 2019 Q3 – 2019 Q2 – 2019 Q1 – 2019 Q4 – 2018 2019 Annual Report | Olympia Financial Group Inc. 7 SUMMARY OF QUARTERLY RESULTS The following table sets forth a summary of Olympia’s quarterly results for each of the last eight quarters. The quarterly results have been derived from financial information prepared in accordance with IFRS. Quarterly Summary ($ thousands) Service revenue Interest revenue and trust income Dec. 31 2019 Sep. 30 2019 Jun. 30 2019 Mar. 31 2019 Dec. 31 2018 Sep. 30 2018 Jun. 30 2018 Mar. 31 2018 9,192 3,589 8,670 9,188 8,530 * 9,738 9,452 10,308 9,099 3,424 3,441 3,048 2,966 2,963 2,874 2,630 Expenses (10,066 ) (9,315 ) (9,556 ) (10,393 ) (8,831 ) (8,584 ) (9,268 ) (8,327 ) Other gains/(losses), net 85 489 (74 ) 2,604 * (310 ) (809 ) (189 ) (122 ) Earnings before income taxes Earnings from continuing operations Earnings/(loss) from discontinued operations Net earnings Per share attributable to shareholders 2,800 1,998 3,268 2,999 3,789 2,294 2,295 2,739 3,563 2,591 3,022 3,725 3,280 2,200 2,725 2,386 - - - - 30 25 (199 ) (244 ) 1,998 2,294 2,295 2,739 2,621 2,225 2,526 2,142 of Olympia from continuing operations 0.85 0.96 0.97 1.14 1.09 0.92 1.14 0.99 – basic and diluted ($) Per share attributable to discontinued operations – basic and diluted ($) - - - - 0.01 0.01 (0.08 ) (0.09 ) Dividends per share ($) 0.69 0.69 0.69 0.63 0.60 0.6 0.54 0.51 *Presentation of Q1 2019 has been adjusted for the reclassification of the insurance settlement to align with the Q4 2019 presentation. Quarterly results in 2019 Olympia’s total quarterly revenue for 2019 was, on average, 1% lower than Olympia’s quarterly revenue for 2018. This decrease is largely due to a decrease in service revenue, but is partially offset by an increase in interest revenue and trust income earned. Service revenue had the largest year-over- year decreases in the second and third quarters of 2019 when compared to 2018. This was mainly due to a decrease in spot trade volume and transaction sizes in the Foreign Exchange division. Increases in quarterly interest and trust income are attributable to the Canadian prime rate being at 3.95% throughout 2019, whereas in 2018 the average rate was 3.58%. (including Quarterly direct and administrative expenses depreciation and amortization) increased by an average of 10%, mainly due to an increase in enhanced cyber security measures, computer consultant fees and salaries and wages. Fourth quarter results Service revenue in the fourth quarter was $9.19 million, down from $9.74 million in the fourth quarter of 2018, mainly due to a decrease in spot trade volume and transaction sizes in the Foreign Exchange division. Interest revenue and trust income was $3.59 million, up from $2.97 million in the fourth quarter of 2018, due to interest being earned at a higher rate. Total revenue in the fourth quarter for the Private Health Services Plan division increased 4% to $2.29 million from $2.21 million when compared to the fourth quarter of 2018. Total expenses and depreciation remained the same at $1.39 million when compared to the fourth quarter of 2018. 8 2019 Annual Report | Olympia Financial Group Inc. Total revenue for the Registered Plans division increased 5% to $8.28 million from $7.87 million when compared to the fourth quarter of 2018. Total expenses and depreciation increased 14% to $5.77 million from $5.06 million when compared to the fourth quarter of 2018. The increase in expenses is primarily due to an increase in bonus expense as a result of higher revenue, as well as an increase in allowance for bad debts. The Foreign Exchange division’s total revenue decreased by 10% to $1.91 million from $2.13 million when compared to the fourth quarter of 2018. Expenses, commissions, depreciation and amortization increased by 7% to $1.91 million from $1.78 million when compared to the fourth quarter of 2018, due to an increase in enhanced cyber security, bank charges and an accrual for a Canada Revenue Agency (“CRA”) employee tax assessment. The Exempt Edge division’s total revenue increased by 13% to $0.17 million from $0.15 million when compared to the fourth including depreciation, quarter of 2018. Total expenses, increased to $0.49 million from $0.30 million when compared to the fourth quarter of 2018, due to an increase in computer maintenance costs and development expenses as the Exempt Edge division continues development of its software services. 2019 Annual Report | Olympia Financial Group Inc. The Corporate and Shareholder Services division’s total revenue was $0.10 million for the fourth quarter of 2019. Total expense, including depreciation was $0.37 million. These costs relate to salaries and wages and startup cost. Objectives for 2020 Management has set the following major objectives for 2020: • Grow the Corporate and Shareholder Services division; • Continue to invest in Olympia’s online presence; • Implement operational changes to the Foreign Exchange division; • Transition from cost reduction to revenue expansion in the Health Services Plan division; • Continue to grow the Exempt Edge division; and • Further develop the Registered Plans division’s app and online platform. 9 LISA CHIANG, JONATHAN LAWRENCE, SAMANTHA JOHNSON, KALIE COX AND GERHARD BARNARDOlympians taking part in the 2019 Corporate Challenge 10km runFinally, to keep pace with the competitive market, the division will place an emphasis on advancing its core technology infrastructure. The customer platform “My Olympia,” database system, and mobile App will be refined to provide a sturdy and flexible foundation for future growth. Continue to grow the Exempt Edge division The Exempt Edge division ended the 2019 fiscal year strongly with the adoption of its Dealer’s Edge platform by one of the largest exempt market dealers in Canada. In 2020, the Exempt Edge division will continue to promote the adoption of its Issuer’s Edge and Dealer’s Edge platforms and encourage the conduct of transaction of exempt market securities through the Edgelink ecosystem. Development efforts in 2020 will be focused on the integration of the Dealer’s Edge and Issuer’s Edge platforms with the trust services provided by the Registered Plan division and the transfer agency services provided by the Corporate and Shareholders Services division. Further develop the Registered Plans division’s app and online platform The Registered Plans division has deployed and is marketing version three of its app. Management believes this product enhances the customer experience for those who prefer online banking. In 2020, Olympia will continue to implement technological integrations of the Registered Plans division’s online platform and app, in addition to the integration of the primary back office system with certain platforms of the Exempt Edge division. This will create efficiencies for both end user and Olympia entities. Outlook for 2020 Olympia is confident that its current operations will be able to generate sufficient amounts of cash and cash equivalents in the short and long term to maintain and meet Olympia’s planned growth and development activities. Olympia is well diversified, with its Registered Plans, Private Health Services Plan, Foreign Exchange, Exempt Edge, and Corporate and Shareholder Services divisions. Grow the Corporate and Shareholder Services division In 2020, the Corporate and Shareholder Services division will continue to promote its transfer agent and corporate trust services across Western Canada, with specific focus on growing its market presence in Vancouver. The corporate and shareholder division will also work on the integration of its transfer agency services with the Issuer’s Edge platform developed by the Exempt Edge division. Continue to invest in Olympia’s online presence Olympia continues to enhance its online platforms to better serve its customers with performance and usability improvements. Olympia has devoted specialized resources to application development for the purpose of enhancing its online presence. Olympia continues to invest in its cyber security initiatives to ensure the safety and security of client information and prevent malicious activity. Implement operational changes to the Foreign Exchange division The focus for the Foreign Exchange division (to be renamed “Currency & Global Payments” in 2020) is to improve operational efficiency to increase client experience and retention. This will include a focus on introducing new currency hedging and risk mitigation products, as well as increasing available settlement and payment options. As part of the strategy for 2020, Olympia wants to optimize the PayFX online trading platform to allow clients to self-service their currency transactions and payments. Account managers will continue to work with clients to develop customized currency and global payments solutions that fit their business needs. Transition from cost reduction to revenue expansion in the Health Service Plan division Olympia’s Private Health Services Plan division has three strategic objectives for 2020 and beyond – increase sales, strengthen the customer base, and advance technology infrastructure. 2019 saw an increase of more than 100% in website traffic and lead generation. Understanding the customer journey and the conversion of leads is a top priority for improving sales. A new website and an extension of current marketing endeavors is anticipated to increase lead generation. Customer success is crucial given the division’s transition to a subscription model. The division will deepen its understanding of the customer experience. A new customer model will be developed to encourage customers not only renew their plan, but purchase additional products such as the Wellness Spending Account and Telemedicine. 10 2019 Annual Report | Olympia Financial Group Inc. FINANCIAL ANALYSIS Consolidated Balance Sheets as at ($) ASSETS Current assets Cash & cash equivalents Trade & other receivables Inventory Prepaid expenses Derivative financial instruments Total current assets Non-current assets Restricted cash & investments Equipment & other Intangible assets Right-of-use assets Financial asset at fair value through other comprehensive income Long-term lease receivable Promissory note receivable Derivative financial instruments Deferred tax assets Total non-current assets Total assets LIABILITIES Current liabilities Trade & other payables Deferred revenue Other liabilities & charges Revolving credit facility Lease liabilities Derivative financial instruments Current tax liability Total current liabilities Other liabilities Lease liabilities Derivative financial instruments Total liabilities EQUITY Share capital Contributed surplus Retained earnings Equity attributable to owners of Olympia Non-controlling interests Total equity Total equity & liabilities December 31, 2019 December 31, 2018 $ $ $ $ $ $ 13,754,089 3,105,766 56,518 1,270,284 2,177,020 20,363,677 2,500,000 1,120,955 2,748,214 1,073,064 38,574 55,156 1,400,000 1,840,389 786,200 11,562,552 31,926,229 1,456,166 486,655 1,732,886 6,655,347 907,066 657,259 176,795 12,072,174 - 1,038,286 887,020 13,997,480 7,886,989 86,373 10,164,595 18,137,957 (209,208 ) 17,928,749 31,926,229 $ $ $ $ $ $ 12,834,906 2,272,037 49,127 783,370 406,082 16,345,522 707,000 1,239,533 2,508,262 - 43,714 - 1,428,539 - 1,243,256 7,170,304 23,515,826 1,341,892 399,820 1,528,078 4,207,347 - 160,480 5,637 7,643,254 791,705 - - 8,434,959 7,886,989 86,373 7,214,540 15,187,902 (107,035 ) 15,080,867 23,515,826 2019 Annual Report | Olympia Financial Group Inc. 11 Cash, cash equivalents and restricted cash and investments Olympia continues to generate cash from its core businesses. As at December 31, 2019, cash reserves increased by 7% to $13.75 million (December 31, 2018 – $12.83 million). This increase is mainly due to Olympia having a higher interest receivable balance than the prior year due to the average interest rate being higher than 2018. Restricted cash and investments as at December 31, 2019, of $2.50 million (December 31, 2018 – $0.71 million), consist of cash held by a financial institution as collateral for the performance of Olympia’s foreign exchange trading platform obligations. Restricted cash and investments are not readily accessible for use in operations and are reported separately from cash and cash equivalents on the balance sheet. Olympia used its revolving credit facility to fund the increased collateral requirements. Olympia’s cash is placed with a Canadian financial institution where it generates interest. Cash and cash equivalents comprise 67% of the total current assets of Olympia at December 31, 2019, compared to 79% at December 31, 2018. Trade and other receivables Trade and other receivables are comprised largely of receivables from the Registered Plans division’s clients. The increase in trade receivables is mainly due to annual administration fees charged by the Registered Plans division, which were billed on January 1, 2019. Olympia has made allowances for doubtful accounts of $0.98 million, compared to $0.57 million as at December 31, 2018. Management is committed to a policy of closely monitoring risk and exposure in this area and is actively pursuing past due accounts through its internal collection process. Included within receivables is the current portion of a lease receivable of $0.04 million recognized based on the present value of sublet property as required by the newly adopted IFRS 16. Promissory note receivable On June 5, 2018, Olympia announced the sale to Tarman ATM Inc. (“Tarman”) of the ATM business operated by Olympia ATM Inc., as a going concern, for an amount equal to then current net book value of all assets used in the ATM business less all assumed liabilities; an amount estimated to be $1.4 million. The sale of the ATM business to Tarman, a corporation owned and controlled by Rick Skauge, was a related party transaction, as defined in Multilateral Instrument 61-101 – [Protection of Minority Security Holders in Special Transactions], but was exempted from Olympia obtaining disinterested shareholder approval and a formal valuation as the fair market value of the proposed transaction was less than 25% of Olympia’s market capitalization. An ad hoc committee composed solely of the independent members of Olympia’s Board of Directors was constituted to consider and approve the sale of the ATM business to Tarman. As part of its deliberations, the ad hoc committee of the Board of Directors noted the continuing losses of approximately $120,000 per month in the ATM business and acknowledged that while the ATM business still had the potential to grow and expand, it was unlikely to become profitable in the near future. Given the immediate financial benefits that the sale of the ATM business would have for Olympia and the uncertain timelines to profitability, the ad hoc committee believed the sale of the ATM business to be in the best interest of Olympia. The ad hoc committee of the Board of Directors obtained a fairness comfort letter stating that the proposed transaction was fair to the disinterested shareholders of Olympia. In addition, following the public disclosure of the transaction, Olympia received an unsolicited expression of interest in the ATM business from a third-party. Olympia permitted the third-party to conduct a due diligence review and valuation of the ATM business and received an offer to purchase the ATM business from the third-party that was economically comparable to the offer made by Tarman. In conjunction with the sale of substantially all the assets of Olympia ATM Inc. to a related party in 2018, the purchase price was paid by the delivery of a secured demand promissory note (the “promissory note”) for $1.40 million by Tarman. The outstanding principal amount of the promissory note bears interest at prime plus 0.25%. Subject to Canadian Western Bank’s (“CWB”) consent (as discussed below), all interest accrued under the promissory note shall be paid on an annual basis on or before the 30th day of June of each calendar year and, commencing June 30, 2020, Tarman is required to repay the outstanding principal amount of the promissory note in annual installments of $140,000 on or before the 30th day of June of each calendar year, with the outstanding balance of the principal amount to be repaid in full on or before June 30, 2023. As at December 31, 2019, all interest has been fully paid. Interest earned for the year ended December 31, 2019 was $58,800. In connection with the financing of the vault cash used by Tarman, Olympia agreed to postpone to CWB the receipt of all amounts owed to it by Tarman and is required to obtain CWB’s consent prior to accepting any amounts from Tarman. Olympia has obtained the required consent. Olympia also agreed to subordinate to CWB all security interests granted to Olympia by Tarman. Olympia has assessed the expected credit loss as it relates to the promissory note and has determined it to be nominal. Forward foreign exchange contracts Olympia purchases forward exchange contracts when its Foreign Exchange division enters into a transaction to buy or sell foreign currency in the future. These contracts are both short term and long term in nature, are in the normal course of 12 2019 Annual Report | Olympia Financial Group Inc. business, and are used to manage foreign exchange exposure. Forward foreign exchange contracts are not designated as hedges and they are recorded at fair market value through profit and loss. Forward foreign exchange contracts are recorded on Olympia’s balance sheet as either an asset or liability, with changes in fair value included in net earnings. This accounting treatment resulted in the recognition of a forward foreign exchange contract asset of $4.02 million as at December 31, 2019, compared to $0.41 million as at December 31, 2018, and a forward foreign exchange contract liability of $1.54 million as at December 31, 2019, compared to $0.16 million as at December 31, 2018. The movement in the derivative financial instruments asset and liability is mainly due to the fluctuation of the Canadian and United States dollar exchange rates, as the vast majority of the Foreign Exchange division’s trades are in Canadian and United States dollars. The number and size of outstanding forward foreign exchange contracts largely impacts the movement in the derivative financial instrument assets and liabilities, with the resultant change to fair value being recorded in the statement of earnings and comprehensive income. Intangible assets The capital additions of $0.78 million relates to the continued development and enhancement of the Issuer’s Edge, Dealer’s Edge and Edgelink systems by the Exempt Edge division and the continued development of the Registered Plans division’s mobile application. Current liabilities The breakdown of Olympia’s trade and other payables consists of trade and other payables (57%), government taxes (21%), amounts due to agents, clients and commission payable (13%) and amounts due to related parties (9%). Other liabilities and charges consists of bonus accruals, deferred commissions and bonuses, professional fees payable, and employee benefits payable. Deferred revenue At December 31, 2019, deferred revenue totaled $0.49 million compared to $0.40 million as at December 31, 2018. This is comprised of annual fees received by the Private Health Service Plan division, the Corporate and Shareholder Services division and the Registered Plans division. The unearned portion of these annual fees is recognized as deferred revenue at the time of billing and revenue is recognized on a straight-line basis in relation to Olympia rendering these services. Employee Share Ownership Plan (ESOP) Olympia has established an Employee Share Ownership Plan (“ESOP”). Under this plan, Olympia contributes $1 for each $1 contributed by an employee up to a maximum that is based on the employee’s earnings and years of service. The employee and Olympia’s contributions are used to purchase common shares of Olympia through the facilities of the TSX. Olympia’s contribution is included as an administrative expense in the statements of net earnings and comprehensive income and amounted to $0.28 million for the year ended December 31, 2019 (December 31, 2018 – $0.24 million). Contingencies Olympia is not a money lender, nor does it guarantee or participate in loans or mortgages of any type, except in its capacity as trustee of mortgages held on behalf of its clients. Olympia is a defendant and plaintiff in a number of legal actions that arise in the normal course of business, the losses or gains from which, if any, are not anticipated to have a material effect on the consolidated financial statements. Related party transactions Olympia’s president and CEO owns and controls 29.28% of Olympia’s shares. During the year, Olympia entered into transactions with the following related parties: • Companies and businesses controlled by the president and CEO of Olympia; • Companies and businesses associated with the directors of Olympia; • Companies and businesses controlled by management of Olympia; • Family members of the president, management and directors; and • Key management and directors. The following transactions with related parties were measured at the exchange amount, which is the amount of consideration agreed to by the parties: Service revenue Companies and businesses controlled by the president and CEO December 31, 2019 December 31, 2018 $ $ 34,330 34,330 $ $ 11,639 11,639 Revenue from associated entities totaled $34,330 for the year ended December 31, 2019 (December 31, 2018 – $11,639). This mainly consisted of revenue from legal services provided by Olympia’s in-house general counsel to Tarman ATM Inc. (“Tarman”), a company controlled by the president and CEO, as well as sublease income ($24,000) from Exempt Experts Inc., a company controlled by the president and CEO. 2019 Annual Report | Olympia Financial Group Inc. 13 Interest revenue Companies and businesses controlled by the president and CEO December 31, 2019 December 31, 2018 $ $ 58,800 58,800 $ $ 37,335 37,335 Interest revenue from associated entities totaled $58,800 for the year ended December 31, 2019, (December 31, 2018 – $37,335), and consists of interest earned from the promissory note receivable. Administrative expenses December 31, 2019 December 31, 2018 Companies and businesses controlled by the president and CEO (management fee) Olympia Charitable Foundation Companies and businesses controlled by the president and CEO $ $ 3,734,826 68,155 38,379 3,841,360 $ $ 3,594,972 98,432 - 3,693,404 Administrative expenses paid to associated entities totaled $3.84 million for the year ended December 31, 2019 (December 31, 2018 – $3.69 million), and consisted of the following: • The Olympia Charitable Foundation is funded by Olympia and the employees of Olympia. Olympia’s matched donation totaled $68,155 for the year ended December 31, 2019 (December 31, 2018 – $98,432). • Management fees are paid to Tarman based on a percentage of pre-tax profits of Olympia’s divisions, except for the Private Health Services Plan division, where the management fee is based on a percentage of health claims administered. These fees are for services provided as president and CEO of Olympia. For the year ended December 31, 2019, this amounted to $3.73 million (December 31, 2018 – $3.59 million). Fees paid to Olympia ATM Ltd., a company owned and controlled by Olympia’s president and CEO, of $38,379 relate to maintenance services provided with respect to the Foreign Exchange ATMs. Trade and other receivables include amounts receivable from related parties Companies and businesses controlled by the president and CEO (current) Companies and businesses controlled by the president and CEO (non-current) December 31, 2019 December 31, 2018 $ $ 49,966 1,400,000 1,449,966 $ $ 57,522 1,428,539 1,486,061 Receivables from associated entities totaled $1.45 million for the year ended December 31, 2019 (December 31, 2018 – $1.49 million) and consisted mainly of the following: • A receivable in the amount of $34,421 (December 31, 2018 – $57,488) from Tarman, a company controlled by Olympia’s president and CEO, reflects legal services provided and cost recoveries relating to accounting and other administration services provided. • A receivable in the amount of $15,545 (December 31, 2018 – $nil) from Olympia ATM Ltd., a company controlled by the president and CEO of Olympia, for expense recoveries relating to accounting and other administration services provided. • On June 5, 2018, Olympia announced the sale to Tarman ATM Inc. (“Tarman”) of the ATM business operated by Olympia ATM Inc., as a going concern, for an amount equal to then current net book value of all assets used in the ATM business less all assumed liabilities; an amount estimated to be $1.4 million. • The sale of the ATM business to Tarman, a corporation owned and controlled by Rick Skauge, was a related party transaction, as defined in Multilateral Instrument 61-101 – [Protection of Minority Security Holders in Special Transactions], but was exempted from Olympia obtaining disinterested shareholder approval and a formal valuation as the fair market value of the proposed transaction was less than 25% of Olympia’s market capitalization. 14 2019 Annual Report | Olympia Financial Group Inc. • An ad hoc committee composed solely of the independent members of Olympia’s Board of Directors was constituted to consider and approve the sale of the ATM business to Tarman. As part of its deliberations, the ad hoc committee of the Board of Directors noted the continuing losses of approximately $120,000 per month in the ATM Business and acknowledged that while the ATM business still had the potential to grow and expand, it was unlikely to become profitable in the near future. Given the immediate financial benefits that the sale of the ATM business would have for Olympia and the uncertain timelines to profitability, the ad hoc committee believed the sale of the ATM business to be in the best interest of Olympia. The ad hoc committee of the Board of Directors obtained a fairness comfort letter stating that the proposed transaction was fair to the disinterested shareholders of Olympia. In addition, following the public disclosure of the transaction, Olympia received an unsolicited expression of interest in the ATM business from a third-party. Olympia permitted the third-party to conduct a due diligence review and valuation of the ATM business and received an offer to purchase the ATM business from the third-party that was economically comparable to the offer made by Tarman. • In conjunction with the sale of substantially all assets of Olympia ATM Inc. in 2018, the purchase price paid by Tarman was equal to the aggregate net book value of the assets used by the ATM division. The assets’ book value at June 5, 2018, was estimated to be $1.40 million. The purchase price was paid by the delivery of a secured demand promissory note (the “promissory note”) for $1.40 million by Tarman. The outstanding principal amount of the promissory note bears interest at prime plus 0.25%. All interest accrued under the promissory note the shall be paid on an annual basis on or before 30th day of June of each calendar year. Subject to Canadian Western Bank’s consent, which Olympia has obtained, commencing June 30, 2020, Tarman is required to repay the outstanding principal amount of the promissory note in annual installments of $140,000 on or before the 30th day of June of each calendar year, with the outstanding balance of the principal amount to be repaid in full on or before June 30, 2023. As at December 31, 2019, all interest has been fully paid. Interest earned for the year ended December 31, 2019 was $58,800. • Olympia has assessed the expected credit loss as it relates to the promissory note and has determined it to be nominal. Trade and other payables and provision for other liabilities and charges include amounts payable to related parties Companies and businesses controlled by the president and CEO Directors’ fees December 31, 2019 December 31, 2018 $ $ 151,939 83,291 235,230 $ $ 153,502 69,776 223,278 Payables to associated entities totaled $235,230 for the year ended December 31, 2019 (December 31, 2018 – $223,278), and consisted mainly of the following: • A payable in the amount of $39,994 (December 31, 2018 – $37,070) to Tarman, a company controlled by the past president and CEO of Olympia, for commissions related to the sale of health plans offered by OBI. and CEO of Olympia, for services provided to maintain Foreign Exchange ATMs. • A management fee payable in the amount of $108,850 (December 31, 2018 – $115,739) to Tarman, a company controlled by the president and CEO of Olympia, based on a percentage of pre-tax profits of Olympia’s divisions. • A payable for directors’ fees of $83,291 (December 31, 2018 • A payable in the amount of $3,095 (December 31, 2018 – $nil) to Olympia ATM Ltd, a company controlled by the president – $69,776). These payables are all current. 2019 Annual Report | Olympia Financial Group Inc. 15 Key management compensation Compensation paid to key management is included in notes 22 and 32 of the consolidated financial statements. Key management includes the Board of Directors and executive team members from OBI, Olympia Trust, Exempt Edge Inc., and Olympia. Olympia uses management or employment contracts as a means to incent certain executives to maximize the profitability of their applicable business units and the profitability of Olympia as a whole. The compensation paid or payable to key management is shown in the following table: Salaries, bonuses and profit sharing Management fees Directors’ fees Short-term employee benefits December 31, 2019 December 31, 2018 $ $ 5,322,684 3,734,826 285,001 250,978 9,593,489 $ $ 4,583,106 3,594,972 262,163 233,604 8,673,845 The increase in salaries, bonuses and profit sharing and management fees in the current year is attributable to an increase in divisional earnings, resulting in higher management profit sharing entitlements to executive management. Shareholders’ equity As at December 31, 2019, Olympia had 2,406,336 outstanding shares (December 31, 2018 – 2,406,352), with a carrying value of $7.89 million. In April 2019, Olympia repurchased fractional shares from former shareholders at $50 per share. The repurchase was allocated to retained earnings. Income taxes Deferred income tax assets are recognized for loss carry-forward and other deductible temporary differences to the extent that the realization of the related tax benefit is probable through future taxable profits or other tax planning opportunities. The average corporate rate used for the year ended December 31, 2019, was 26.5% (December 31, 2018 – 27%). On May 28, 2019, the Alberta government introduced Bill 3, reducing the corporate income tax rate to 11% (from 12%) effective July 1, 2019. 16 2019 Annual Report | Olympia Financial Group Inc. ANALYSIS OF RESULTS BY SEGMENT Registered Plans Division Summary of divisional results for the year ended December 31 ($ thousands) Service revenue Interest revenue and trust income Direct expenses Administrative expenses Depreciation and amortization Other gains/(losses), net Earnings before income tax Income taxes Net earnings 2019 18,784 12,812 (51 ) 31,545 (20,814 ) (982 ) 95 9,844 (2,627 ) 7,217 The Registered Plans division (“RRSP”) specializes in the administration of registered plan accounts, including RRSPs, RRIFs, LIRAs, LIFs and TFSAs. In contrast to traditional registered plan account administrators, Olympia’s focus is on exempt market securities and arm’s length mortgages. The holder of a registered plan account with Olympia will typically hold multiple exempt market securities or mortgages in their Olympia registered plan account. RRSP’s service revenue decreased 6% to $18.78 million from $20.00 million when compared to the year ended December 31, 2018. The decrease is a result of a decrease in the number of account transactions due to a prior year one-time fee charged in connection with the restructuring of a large exempt market issuer. Interest revenue and trust income increased 20% to $12.81 million from $10.69 million when compared to the year ended December 31, 2018, reflecting the average Canadian prime rate of 3.95% for the year compared to an average rate of 3.58% in 2018. Direct, administrative, depreciation and amortization expenses increased 7% to $21.85 million from $20.50 million when compared to the year ended December 31, 2018. This increase is due to an increase in operating expenses, such as enhanced cyber security measures and computer maintenance. The increase in depreciation relates to the adoption of IFRS 16, and the recognition of right-of-use assets. This increase is offset by a decrease in rent expense. Earnings before income tax decreased 3% to $9.84 million from $10.14 million in 2018. RRSP net earnings decreased 3% to $7.22 million from $7.45 million when compared to the year ended December 31, 2018. RRSP is responsible for 64% of Olympia’s total revenue (including interest), an increase from 61% when compared to the year ended December 31, 2018. 2018 Variation 20,004 10,694 (36 ) 30,662 (19,951 ) (514 ) (54 ) 10,143 (2,695 ) 7,448 Service revenue decreased to $18.78 million from $20.00 million -6% 20% 42% 3% 4% 91% >100% -3% -2% -3% 6% Interest revenue and trust income increased to $12.81 million from $10.69 million 20% Direct, administrative, depreciation and amortization expenses increased to $21.85 million from $20.50 million Earnings before income tax decreased to $9.84 million from $10.14 million RRSP’s net earnings decreased to $7.22 million from $7.45 million 7% 3% 3% 2019 Annual Report | Olympia Financial Group Inc. 17 ANALYSIS OF RESULTS BY SEGMENT Private Health Services Plan Division Summary of divisional results for the year ended December 31 ($ thousands) Service revenue Interest revenue and trust income Direct expenses Administrative expenses Depreciation and amortization Other gains/(losses), net Earnings before income tax Income taxes Net earnings 2019 8,079 335 (1,708 ) 6,706 (3,745 ) (153 ) 13 2,821 (748 ) 2,073 2018 7,959 234 (1,801 ) 6,392 (3,745 ) (75 ) (2 ) 2,570 (658 ) 1,912 The Private Health Services Plan division (“Health”) markets, sells and administers health and wellness benefits to business owners through OBI, a wholly owned subsidiary of Olympia. Health’s current objectives are to improve sales, increase the value of their customer base, and advance technology infrastructure. While the business model shift from 2014 to 2019 focused on cost reduction and streamlining operations, the next period will emphasize growth through revenue expansion. The division is continuing to deepen its understanding of the digital consumer and marketplace. The division is well positioned to compete, with new digital assets, streamlined and reorganized operations, and two exciting new products. Health’s service revenue increased 2% to $8.08 million from $7.96 million when compared to the year ended December 31, 2018. Direct, administrative, depreciation and amortization expenses remained unchanged at $5.61 million. Included in the current year are expenses for cyber security enhancement and computer maintenance. Earnings before income tax increased 10% to $2.82 million from $2.57 million when compared to the year ended December 31, 2018. Health’s net earnings increased 8% to $2.07 million from $1.91 million when compared to the year ended December 31, 2018. Health is responsible for 17% of Olympia’s total revenue (including interest), an increase from 16% when compared to the year ended December 31, 2018. Service revenue increased to $8.08 million from $7.96 million Direct, administrative, depreciation and amortization expenses remained unchanged $5.61 million. Earnings before income tax increased to $2.82 million from $2.57 million 10% Health’s net earnings increased to $2.07 million from $1.91 million 8% Variation 2% 43% -5% 5% 0% >100% >100% 10% 14% 8% 2% 0% 18 2019 Annual Report | Olympia Financial Group Inc. ANALYSIS OF RESULTS BY SEGMENT Foreign Exchange Division Summary of divisional results for the year ended December 31 ($ thousands) Service revenue Interest revenue and trust income Direct expenses Administrative expenses Depreciation and amortization Other gains/(losses), net Earnings before income tax Income taxes Net earnings 2019 7,779 253 (1,376 ) 6,656 (7,308 ) (286 ) 2,999 2,061 (542 ) 1,519 The Foreign Exchange division (“FX”) allows corporations and private clients to buy and sell foreign currencies at competitive rates. The division offers its clients same-day transactions, as well as long-term forward contracts. With offices in Vancouver, Calgary, Edmonton and Winnipeg, the FX division is well situated to service Western Canada. FX’s service revenue decreased 22% to $7.78 million from $9.92 million when compared to the year ended December 31, 2018. The decrease is largely due to a decrease in spot trade volume and transaction sizes. Other gains/(losses), net, increased more than 100% to $3.00 million from ($1.38) million, mainly due to the recording of unrealized foreign exchange forward contract gains arising from an increase in the number and sizes of forward exchange contracts. The increase is also attributable to a settlement amount received relating to an insurance claim. The insurance claim stems from the cyber incident disclosed in the press release on February 2, 2019. Direct, administrative, depreciation and amortization expenses increased 22% to $8.97 million from $7.37 million when compared to the year ended December 31, 2018. The increase is mainly due to increases in cyber security enhancements and computer maintenance. Earnings before income tax increased 49% to $2.06 million from $1.38 million when compared to the year ended December 31, 2018. FX’s net earnings increased 50% to $1.52 million from $1.01 million when compared to the year ended December 31, 2018. FX is responsible for 16% of Olympia’s total revenue (including interest), a decrease from 20% when compared to the year ended December 31, 2018. 2018 9,922 207 (1,109 ) 9,020 (6,177 ) (80 ) (1,384 ) 1,379 (366 ) 1,013 Variation -22% 22% 24% -26% 18% >100% >100% 49% 48% 50% Service revenue decreased to $7.78 million from $9.92 million 22% Direct, administrative, depreciation and amortization expenses increased to $8.97 million from $7.37 million 22% Earnings before income tax increased to $2.06 million from $1.38 million 49% FX’s net earnings increased to $1.52 million from $1.01 million 50% 2019 Annual Report | Olympia Financial Group Inc. 19 ANALYSIS OF RESULTS BY SEGMENT Exempt Edge Division Summary of divisional results for the year ended December 31 ($ thousands) Service revenue Interest revenue and trust income Direct expenses Administrative expenses Depreciation and amortization Other gains, net Loss before income tax Income taxes Net loss Non-controlling interest Loss attributable to shareholders of Olympia 2019 731 1 (51 ) 681 (1,297 ) (82 ) 3 (695 ) 183 (512 ) 102 (410 ) 2018 Variation 518 1 (166 ) 353 (743 ) (75 ) - (465 ) 136 (329 ) 66 (263 ) 41% 0% -69% 93% 75% 9% 100% 49% 35% 56% 55% 56% The Exempt Edge division (“EEI”) focuses on the provision of information technology services to exempt market dealers, registrants and issuers. Service revenue increased 41% to $0.73 million from $0.52 million when compared to the year ended December 31, 2018. This increase is largely due to growth in EEI’s client base. Direct, administrative, depreciation and amortization expenses increased 46% to $1.43 million from $0.98 million when compared to the year ended December 31, 2018. This increase is mainly due to an increase in operating expenses such as salaries, computer consultants fees, and promotion costs to facilitate the growth in clients. Loss before income tax for the year ended December 31, 2019, increased 49% to ($0.70) million from ($0.47) million when compared to the year ended December 31, 2018. EEI’s net loss attributable to shareholders of Olympia increased 56% to ($0.41) million from ($0.26) million when compared to the year ended December 31, 2018. Service revenue increased to $0.73 million from $0.52 million 41% Direct, administrative, depreciation and amortization expenses increased to $1.43 million from $0.98 million 46% Loss before income tax increased to ($0.70) million from ($0.47) million 49% EEI’s net loss attributable to shareholders increased to ($0.41) million from ($0.26) million 56% 20 2019 Annual Report | Olympia Financial Group Inc. ANALYSIS OF RESULTS BY SEGMENT Corporate and Shareholder Services Division Summary of divisional results for the year ended December 31 ($ thousands) Service revenue Interest revenue and trust income Direct expenses Administrative expenses Depreciation and amortization Loss before income tax Income taxes Net loss 2019 180 3 (3 ) 180 (1,265 ) (33 ) (1,118 ) 294 (824 ) 2018 Variation - - - - (257 ) (1 ) (258 ) 69 (189 ) 100% 100% 100% 100% >100% >100% >100% >100% >100% The Corporate and Shareholder Services division (“CSS”) provides transfer agent and registrar services to public and private issuers across Canada. CSS is positioned as an alternative to the large trust companies that are principally focused on Eastern Canada. The services provided by CSS include administering dividend reinvestment, acting as depository and disbursing agent for corporate reorganizations, assisting with shareholder solicitations, and scrutineering shareholder meetings. The CSS management team comprises highly respected and experienced individuals with a track record of success in the provision of transfer agency and corporate trust services. Service revenue was $0.18 million, which relates to client set-up charges and the monthly portion of annual retainer fees. Direct, administrative, depreciation and amortization expenses were $1.30 million. These relate mainly to employee salaries, computer maintenance, consulting fees and depreciation and amortization. Loss before income tax for the year ended December 31, 2019 was ($1.12) million. CSS’s net loss was ($0.82) million for the year ended December 31, 2019. 2019 Annual Report | Olympia Financial Group Inc. 21 SARAH FOX, MATTHEW KELLY AND DEAN NAUGLER ANALYSIS OF RESULTS BY SEGMENT Corporate Division Summary of divisional results for the year ended December 31 ($ thousands) Service revenue Interest revenue and trust income Administrative expenses Depreciation and amortization Other (losses)/gains, net (Loss)/earnings before income tax Income taxes Net (loss)/earnings 2019 27 98 125 (175 ) - (6 ) (56 ) (91 ) (147 ) 2018 Variation 194 296 490 (278 ) (2 ) 10 220 (173 ) 47 -86% -67% -74% -37% -100% >100% >100% -47% >100% The Corporate division carries out support functions in the areas of accounting, information technology, legal services, human resources, payroll and internal audit. Support function remuneration is allocated, based on usage, to the various divisions. Total revenue earned is incidental to Olympia’s activities. The decrease in service revenue is due to the Corporate division receiving indemnification payments in the prior year from customers involved in the previously reported Canadian Revenue Agency dispute. Interest revenue decreased from the prior year because the interest earned on Olympia’s loan to its discontinued ATM division in the prior year was not eliminated. Administrative, depreciation and amortization expenses for the year ended December 31, 2019, decreased 36% to $0.18 million from $0.28 million when compared to the year ended December 31, 2018. The Corporate division’s net loss was ($0.15) million for the year ended December 31, 2019. 22 2019 Annual Report | Olympia Financial Group Inc. Off-balance sheet arrangements During the normal course of operations, Olympia administers client assets that are not reported on its balance sheet. The cash component of these off-balance sheet arrangements represents the cash and cash equivalents held in trust. Off-balance sheet arrangements under administration December 31, 2019 December 31, 2018 ($ thousands) Cash & public securities at estimated fair value Private securities, mortgages and mutual funds at cost Cash & public securities at estimated fair value Private securities, mortgages and mutual funds at cost Registered Plans $ 599,171 * $ 4,380,533 $ 530,238 $ 4,139,064 Private Health Services Plan Corporate and Shareholder Services Foreign Exchange 11,462 15,228 15,727 - - - 11,018 - 6,281 - - - $ 641,588 $ 4,380,533 $ 547,537 $ 4,139,064 *The cash portion included in Registered Plans is $569.60 million. Registered Plans division (“RRSP”) At December 31, 2019, RRSP administered self-directed registered plans consisting of private company securities and mortgages with a cost value of $4.38 billion (December 31, 2018 – $4.14 billion) plus cash, public securities, term deposits and outstanding cheques with an estimated fair value of $599.17 million (December 31, 2018 – $530.24 million). These assets are the property of the account holders and Olympia Trust does not maintain effective control over the assets. Therefore, the assets are not reflected in the consolidated financial statements. Olympia earned trust income from the cash portion of the assets held in trust of $12.16 million for the year ended December 31, 2019 (December 31, 2018 – $10.28 million). Private Health Services Plan division (“Health”) At December 31, 2019, Health held funds in trust of $11.46 million (December 31, 2018 – $11.02 million) on behalf of its self-insured private health clients. These assets are the property of the plan holders and OBI does not maintain effective control over the assets. Therefore, the assets are not reflected in the consolidated financial statements. Foreign Exchange division (“FX”) At December 31, 2019, FX held funds in trust of $3.69 million (December 31, 2018 – $1.22 million) for clients who have paid margin requirements on forward foreign exchange contracts, and $12.04 million (December 31, 2018 – $5.06 million) of outstanding payments. These assets are the property of the contract holders and Olympia Trust does not maintain effective control over the assets. Therefore, the assets are not reflected in the consolidated financial statements. Corporate and Shareholder Services division (“CSS”) At December 31, 2019, CSS held funds in trust and outstanding cheques of approximately $15.23 million (December 31, 2018 – $nil) for clients who have hired Olympia Trust to provide trustee services. These assets are the property of the trust clients and Olympia Trust does not maintain effective control over the assets. Therefore, the assets are not reflected in the consolidated financial statements. Management of capital resources Olympia includes shareholders’ equity, which comprises share capital, contributed surplus, non-controlling interest and retained earnings, in the definition of capital. Olympia’s main objectives when managing its capital structure are to: • Maintain sufficient cash and cash equivalents over the short and medium term in order to finance its growth and development, including capital expenditures; • Maintain investor and creditor confidence to sustain future development of the business; • Maintain regulatory capital for Olympia Trust as required by the Loan and Trust Corporations Act (Alberta) ($2 million). Similar 2019 Annual Report | Olympia Financial Group Inc. 23 regulatory capital is required by legislation in Nova Scotia ($5 million) and Saskatchewan ($5 million). Regulatory capital is defined as share capital and retained earnings. Olympia Trust has maintained these minimum capital requirements throughout the year ended December 31, 2019; and cash, its terms and availability, whether to issue equity and the creation of value for the shareholders. Olympia works towards managing its capital objectives to the extent possible while facing the challenges of market conditions and the public’s assessment of Olympia’s risk profile. • Maintain compliance with financial covenants, which includes maintaining a minimum equity of $12 million. The financial covenants are reviewed, and controls are in place to maintain compliance with the covenants. Olympia complied with its financial covenants for the year ended December 31, 2018, and for the year ended December 31, 2019. In managing capital, Olympia estimates its future dividend payments and capital expenditures, which are compared to planned business growth for purposes of sustainability. The capital structure of Olympia is managed and adjusted to reflect changes in economic conditions. In order to maintain or adjust the capital structure, adjustments may be made to the amount of dividends (if any) to shareholders, in addition to the number of new common shares issued or common shares repurchased. Management reviews the financial position of Olympia on a monthly and cumulative basis. Financing decisions are set based on the timing and extent of expected operating and capital cash outlays. Factors considered when determining capital and the amount of operational cash required are weighed against the costs associated with excess Olympia maintains a strong capital base to maintain investor and creditor confidence and to sustain future development of the business. Olympia has committed capital resources to its 2020 Objectives (set out previously) and has sufficient capital through internally generated cash flows and its credit facility to meet these spending objectives. Completing and fulfilling its 2020 Objectives will help Olympia meet its growth and development activities. No other significant expenditure is required to maintain growth and development activities. Olympia’s FX division maintains various foreign currency bank accounts of which Canadian dollar and United States dollar bank accounts are the most significant. It is Olympia Trust’s policy to limit the amount of foreign currencies on hand to $1.50 million to reduce exposure to foreign currency risk. Olympia’s capital management objectives have remained substantially unchanged over the years presented. 24 2019 Annual Report | Olympia Financial Group Inc. CRAIG SKAUGE, ANDREA GILLIS, JASON WAGNER AND KELLY REVOLCelebrating 3 years of dedicated serviceLiquidity Liquidity risk is the risk that Olympia will encounter difficulties in meeting its financial obligations. Olympia manages its liquidity risk by keeping surplus cash with a highly rated financial institution. This allows Olympia to earn interest on surplus cash while having access to it within a short time. Olympia seeks to ensure the security and liquidity of these investments. Olympia has a current ratio (current assets: current liabilities) of 1.70:1 as at December 31, 2019, compared to 2.14:1 as at December 31, 2018. The ratio indicates that Olympia should not have difficulty in meeting working capital requirements. There are no legal or practical restrictions on the ability of subsidiaries to transfer cash to Olympia. Cash flows Operating activities The movement in cash flow from operating activities for the year ended December 31, 2019, is mainly attributable to the movement in foreign exchange (gain)/loss when compared to 2018. Investing activities The movement in cash used in investing activities during the year ended December 31, 2019, is mainly attributable to additional collateral requirements for the FX division and capital asset expenditure in the RRSP and EEI divisions when compared to 2018. Financing activities Cash used in financing activities during the year ended December 31, 2019, increased, mainly due to the discontinued operation cash outflow in the previous year. Cash Cash is placed with a Canadian financial institution where it generates interest. Cash and cash equivalents comprise 67% of the total current assets of Olympia, compared to 79% as at December 31, 2018. One factor that affects Olympia’s profitability is effective interest rates. Although Olympia Trust is a non-deposit taking trust corporation, it does earn trust income on cash held in trust. Cash held in trust generated trust income of $12.16 million, an 18% increase from $10.28 million when compared to the year ended December 31, 2018, due to the average Canadian prime rate being higher in 2019 than in 2018. The Canadian prime rate was 3.95% on December 31, 2019, and December 31, 2018. Olympia, through its operational cash flow and line of credit, has sufficient funds to meet its Objectives for 2020. Liquidity risks associated with financial instruments are addressed in the notes to the accompanying consolidated financial statements. Management understands that currency markets are volatile and therefore subject to higher risk. Olympia’s FX division mitigates currency risk through its policy of limiting the amount of foreign currencies on hand to $1.50 million. Commitments Olympia leases various offices under lease agreements. The initial lease terms are between twelve months and fifty months and the majority of lease agreements are renewable at market rates when the lease period ends. Future aggregate contractual minimum lease payments are listed in the table below: 2020 2021 2022 December 31, 2019 $ $ 1,013,885 923,397 147,932 2,085,214 Credit facility As at December 31, 2019, Olympia has drawn $6.66 million on its credit facility, compared to $4.21 million as at December 31, 2018. On March 15, 2019, Olympia increased the credit facility amount from $8.50 million to $15 million. Amounts drawn in the current year have been used to facilitate the additional trading collateral requirements for the FX division and to finance the growth of the Exempt Edge division. The credit facility provides a maximum of $15 million and bears interest at the Canadian prime rate plus 0.25%. The Canadian prime rate at December 31, 2019 and December 31, 2018 , was 3.95%. The credit facility is subject to review at any time. The credit facility contains a number of affirmative covenants, including maintaining specific security, maintaining a specific financial ratio, and maintaining a total equity of $12 million. The financial ratio is a quarterly cash flow coverage ratio of not less than 1.50:1. At December 31, 2019, Olympia’s cash flow coverage ratio under the terms of the credit facility was calculated to be 1.99:1 (December 31, 2018 – 3.23:1). Total equity as at December 31, 2019 was $17.93 million, compared to total equity of $15.08 million at December 31, 2018. The cash flow coverage calculation is based on Olympia’s previous four quarters’ revolving Earnings Before Interest, Tax, and Depreciation and Amortization (“EBITDA”) less cash taxes paid. This revolving EBITDA for the year ended December 31, 2019, has been calculated at $11.47 million (December 31, 2018 – $10.79 million) after adjusting for finance expenses of $0.34 million (December 31, 2018 – $0.15 million). The coverage required is based on an annualized average of the scheduled facility principal of $15 million and interest payments calculated at 5.13% (December 31, 2018 – 5.99%) over a period of 36 2019 Annual Report | Olympia Financial Group Inc. 25 months. As at December 31, 2019, this was calculated to be $5.77 million (December 31, 2018 – $3.34 million). Should the covenants and other limitations be breached, it could cause a default, which might result in a requirement for immediate repayment of all amounts outstanding. Security for the credit facility includes a general security agreement providing a first security charge over all present and after acquired property. Subsequent to year end, the credit facility was amended to divide the facility between Olympia and Olympia Trust. The new agreements provides Olympia with a $9 million facility and Olympia Trust with a $6 million facility. On May 16, 2016, Olympia Trust entered into a contingent credit facility to be used only by the FX division. The contingent credit facility had a maximum of $5 million, which was only to be used to enter into spot, forward or foreign exchange transactions with the issuing financial institution. For the year ended December 31, 2019, the agreement has been replaced with a new demand credit facility with a US$6 million limit. As as December 31, 2019, no amounts have been drawn on this facility. Credit facility Available balance at January 1 Drawn Available at the end of the year December 31, 2019 December 31, 2018 $ $ 15,000,000 (6,655,347 ) 8,344,653 $ $ 8,500,000 (4,207,347 ) 4,292,653 Risk framework Olympia is exposed to various types of risks owing to the nature of the commercial activities it pursues. Management has identified the following risks: Liquidity risk Liquidity risk is the risk that Olympia will encounter difficulties in meeting its financial obligations. Olympia manages its liquidity risk by keeping surplus cash in liquid investments with a highly rated financial institution. This allows Olympia to earn interest on surplus cash while having access to it within a very short time. Liquidity risk is associated with Olympia’s credit facility. The credit facility is available to finance day-to-day operations to a maximum principal amount of $15 million (December 31, 2018 – $8.50 million) and bears interest at the Canadian prime rate plus 0.25%. For the year ended December 31, 2019, a balance of $6.66 million is outstanding (December 31, 2018 – $4.21 million). Olympia has determined the principal and interest to be current. Security for the credit facility includes a general security agreement providing a first security interest in all present and subsequently acquired property. The timing of cash outflows is outlined in the following tables: At December 31, 2019 Current 31 to 60 days 61 to 90 days Over 90 days Total Trade and other payables $ 1,388,733 $ 67,433 $ Other liabilities and charges Lease liabilities Total At December 31, 2018 Trade and other payables Other liabilities and charges Total 1,732,886 73,616 - $ - - - - 73,984 74,353 685,113 $ 1,456,166 1,732,886 907,066 $ 3,195,235 $ 141,417 $ 74,353 $ 685,113 $ 4,096,118 $ 1,341,291 1,259,435 $ 2,600,726 $ $ - - - $ $ - - - $ $ 601 - 601 $ 1,341,892 1,259,435 $ 2,601,327 At December 31, 2019, trade and other payables totaled $1.46 million (December 31, 2018 – $1.34 million). Olympia continues to meet all of the obligations associated with its financial liabilities. Other liabilities and charges with a cash outflow are identified in Note 19 of the consolidated financial statements, except for leasehold inducement, straight-line rent and onerous contract obligations in the prior year. Olympia continues to meet all of the obligations associated with its financial liabilities. 26 2019 Annual Report | Olympia Financial Group Inc. The aging of the undiscounted lease payments is outlined in the following table: At December 31, 2019 Lease payments Less than one year One to two years Two to three years More than three years Total undiscounted lease payments $ 1,013,885 $ 1,013,885 $ $ 923,397 923,397 $ $ 147,932 147,932 $ $ - - $ 2,085,214 $ 2,085,214 The liquidity risk relating to derivative financial instruments payable is outlined in the following table: Current 31 to 60 days 61 to 90 days Over 90 days Non-current (1–3 years) Market risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices, following variations in the parameters underlying their evaluation, such as interest rates, exchange rates or quoted stock market prices, and is comprised of foreign currency exchange risk, interest rate risk, management’s assessment and operational risks. Foreign currency exchange risk Olympia is exposed to changes in foreign exchange rates when, and if, revenues or financial instruments fluctuate because of changing rates. Transactions in the applicable financial market are executed consistent with established risk management policies. Olympia purchases forward contracts whenever it enters into a transaction to buy or sell foreign currency in the future. These contracts are both short term and long term in nature and are in the normal course of business. Management understands that the currency markets are volatile and therefore subject to higher risk. Olympia applies the following policy to mitigate the currency risk: • For forward contracts, a margin of 5% is payable on signature of the contract; • Olympia sets up a corresponding position with its currency supplier; and • If market rates vary by 4% or more, the client is required to adjust their margin to match the variance by the end of the trading day. December 31, 2019 December 31, 2018 $ $ $ 7,766 32,175 11,733 605,585 657,259 887,020 $ $ $ 15,210 19,473 16,849 108,948 160,480 - Olympia’s FX division maintains various foreign currency bank accounts of which Canadian dollar and United States dollar bank accounts are the most significant. It is Olympia Trust’s policy to limit the amount of foreign currencies on hand to $1.50 million to reduce exposure to foreign currency risk. If the United States dollar to Canadian dollar exchange rate at December 31, 2019, were to have increased by $0.10, it is estimated that Olympia’s after-tax earnings for the year ended December 31, 2019, based on amounts shown in Notes 11 and 13 of the consoidated financial statements, would have decreased by approximately $232,876 (December 31, 2018 – $91,464). A $0.10 decrease in the United States dollar to Canadian dollar exchange rate would have had an equal but opposite effect. The vast majority of Olympia’s Foreign Exchange division’s trades are Canadian dollars traded for United States dollars and vice versa, although it trades in various other currencies. This sensitivity analysis assumes that all other variables remain constant. Interest rate risk Interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. Olympia is exposed to interest rate risk as the cash flows generated from Olympia’s own cash ($13.75 million) and the cash portion of the off-balance sheet arrangements ($569.60 million), from which Olympia Trust earns trust income, are held in interest bearing instruments that fluctuate in response to changes in market interest rates. If the interest rates were to have increased by 1%, it is estimated that Olympia’s after-tax earnings for the year ended December 31, 2019, would have increased by approximately 2019 Annual Report | Olympia Financial Group Inc. 27 $4.14 million (December 31, 2018 – $3.76 million). A 1% decrease in interest rates would have had an equal but opposite effect. This sensitivity analysis assumes that all other variables remain constant. Credit risk Credit risk is the risk that the counterparty to a financial asset will default, resulting in Olympia incurring a financial loss. Before transactions begin with a new customer or counterparty, the counterparty’s creditworthiness is assessed by the FX division. The assessment practice considers both quantitative and qualitative factors. Olympia constantly monitors the exposure to any single customer or counterparty along with the financial position of the customer or counterparty. If it is deemed that a customer or counterparty has become materially weaker, Olympia will work to reduce the credit exposure and lower the credit limit allocated. Olympia is exposed to credit risk on its cash and cash equivalents, restricted cash and investments, trade and other receivables and derivative financial instruments receivable. The maximum exposure to credit risk of Olympia at the end of the year is the carrying value of cash and cash equivalents, restricted cash and investments, trade and other receivables and derivative financial instruments receivable. Cash and cash equivalents Olympia mitigates its exposure to credit risk by maintaining its bank accounts with a highly rated financial institution. Trade and other receivables Olympia has policies and procedures in place to govern the credit risk it will assume. Trade receivables over 90 days are considered past due. As of December 31, 2019, net trade receivables of $2.83 million (December 31, 2018 – $2.04 million) were past due but deemed not impaired. The aging of trade and other receivables is as follows: Current 31 to 60 days 61 to 90 days Over 90 days Allowance for doubtful accounts December 31, 2019 December 31, 2018 $ $ 247,890 $ 19,093 7,337 3,813,030 (981,584 ) 3,105,766 $ 196,911 12,657 24,234 2,609,598 (571,363 ) 2,272,037 The allowance for doubtful accounts is based on an account portfolio analysis. Movements on Olympia’s provision for impairment of trade receivables are as follows: At January 1 Increase in provision Receivables written off Allowance for doubtful accounts December 31, 2019 December 31, 2018 $ $ 571,363 478,930 (68,709 ) 981,584 $ $ 613,822 269,437 (311,896 ) 571,363 Included within receivables is the current portion of a lease receivable of $0.04 million recognized based on the present value of sublet property, as required by the newly adopted IFRS 16. The balance relates to a number of independent clients which Olympia is actively pursuing through its internal collection process. As a result, management considers the outstanding amounts to be recoverable. The provision for impaired receivables has been included in administrative expenses in the consolidated statements of net earnings and comprehensive income. Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash. Capital risk management Olympia’s objectives when managing capital are to safeguard Olympia’s ability to continue as a going concern in order to provide returns and benefits to shareholders and to maintain an optimal capital structure to reduce the cost of capital and to meet minimum regulatory capital requirements. In order to maintain or adjust the capital structure, Olympia may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, repurchase shares, sell assets or make further use of its credit facility. Olympia includes shareholders’ equity of $17.93 million (December 31, 2018 – $15.08 million) in the definition of capital. Shareholders’ equity comprises share capital, contributed surplus, non-controlling interest and retained earnings. 28 2019 Annual Report | Olympia Financial Group Inc. Olympia’s main objectives when managing its capital structure are to: • The occurrence of weather related and other natural catastrophes; • Maintain sufficient cash and cash equivalents over the short and medium term in order to finance its growth and development, including capital expenditures; • Maintain investor and creditor confidence to sustain future development of the business. Olympia’s objective when managing capital is to maintain adequate financial flexibility to preserve its ability to meet financial obligations. In managing capital, Olympia estimates its future dividend payments and capital expenditures, which is compared to planned business growth for purposes of sustainability; • Maintain regulatory capital for Olympia Trust as required by the Loan and Trust Corporations Act (Alberta) ($2 million). Similar regulatory capital in Nova Scotia ($5 million) and Saskatchewan ($5 million). is defined as share capital and Regulatory capital retained earnings. Olympia Trust has maintained these minimum capital requirements throughout the year ended December 31, 2019; and is required by legislation • Maintain compliance with financial covenants, which includes maintaining a minimum equity of $12 million. The financial covenants are reviewed quarterly, and controls are in place to maintain compliance with the covenants. Olympia complied with its financial covenants for the year ended December 31, 2019. The capital structure of Olympia is managed and adjusted to reflect changes in economic conditions. Capital structure adjustments could include adjusting the level of dividends and/or issuance or repurchase of common shares. In support thereof, management reviews the financial position of Olympia on a monthly and cumulative basis. Financing decisions are set based on the timing and extent of expected operating and capital cash outlays. Factors considered when determining capital and the amount of operational cash requirements are weighed against the costs associated with excess cash, its terms and availability and whether to issue equity. Olympia works towards managing its capital objectives to the extent possible while facing the challenges of market conditions and the public’s assessment of Olympia’s risk profile. Olympia’s capital management objectives have remained substantively unchanged over the periods presented. Operational risks Management has identified the following major operational risks which could negatively affect Olympia’s future strategies and objectives: • The risk of fluctuations in interest rates and currency values negatively affecting Olympia’s business; • Legal developments and changes in tax laws; • The risk that the regulatory environment in which Olympia carries out commercial activities may change; • The level of competition in Olympia’s markets; • The risk that new markets may fail to produce estimated revenues; • The risk of changes in accounting standards and policies; • The risk that negative stakeholder impressions about Olympia’s business practices, actions or inaction, whether true or not, could cause deterioration in Olympia’s value, brand, liquidity, or customer base; • The risk that general economic conditions could deteriorate and any significant downturn in capital markets or the general economy could negatively affect financial results; • The cybersecurity risk that failure of computer hardware, data processing systems, network access and software could interrupt operations or materially impact Olympia’s ability to deliver its services; and • The accuracy and completeness of information Olympia receives about customers and counterparties. Olympia’s corporate insurance program further mitigates certain operational risk exposures. Olympia looks to industry benchmarks as well as legal, regulatory and contractual requirements when deciding on types of coverage and limits. Coverage is placed at limits considered appropriate for Olympia’s size, structure and type of operations. Olympia reviews the insurance program annually to ensure it remains well suited and compliant with regulations and requirements. Accounting policies The financial information contained in the accompanying financial statements and this MD&A is prepared in accordance with IFRS as issued by the IASB. The accounting policies adopted are consistent with those in the prior years except as noted below. In addition, some accounting policies, due to their nature, require further explanation. A new amended standard became applicable for the current reporting year and Olympia had to change its accounting policies as a result of adopting the following standards: • IFRS 16 “Leases” The impact of the adoption of this standard and the new accounting policy is disclosed as follows. IFRS 16 “Leases” – impact of adoption Effective January 1, 2019, Olympia adopted IFRS 16, “Leases” (“IFRS 16”). Olympia has applied the new standard using the modified retrospective approach. The modified retrospective 2019 Annual Report | Olympia Financial Group Inc. 29 approach does not require restatement of prior year financial information, as it recognizes the cumulative effect as an adjustment to opening retained earnings and applies the standard prospectively. Therefore, comparative information in the consolidated balance sheets, consolidated statements of net earnings and comprehensive income and statements of cash flows has not been restated. On adoption, management elected to use the following practical expedients permitted under the standard: • Apply a single discount rate to a portfolio of leases with similar characteristics; • Account for leases with a remaining term of less than twelve months as at January 1, 2019, as short-term leases; • Account for lease payments as an expense and not recognize a right-of-use asset if the underlying asset is of a low dollar value (less than $8,000); and • Use Olympia’s previous assessment under IAS 37, “Provisions, Contingent Liabilities and Contingent Assets” (“IAS 37”) for onerous contracts instead of reassessing the right-of-use assets for impairment on January 1, 2019. Impacts of the adoption of IFRS 16 Notes As reported at December 31, 2018 Adjustments Balance on adoption as at January 1, 2019 Assets Trade and other receivables Right-of-use assets, net Long-term lease receivable Liabilities and shareholders’ equity Current portion of lease liabilities Non-current lease liabilities Other liabilities Non-current other liabilities Retained earnings i ii iii iv i v v iv iv ii Notes: i. Sublease contract On transition, Olympia reassessed the classification of its sublease contracts previously classified as operating leases under IAS 17. Olympia concluded that its sublease is a finance lease under IFRS 16, and as a result, $0.14 million net investment in finance lease was recognized on adoption of IFRS 16. ii. Right-of-use assets The associated right-of-use assets were measured at the amount equal to the lease liability on January 1, 2019, less any amount previously recognized under IAS 37 for onerous contract provisions, lease inducement liabilities. This resulted in a $19,977 adjustment to retained earnings. less previously recognized 2,272,037 - - - - - - (1,528,078 ) (791,705 ) (7,214,540 ) (7,262,286 ) 41,741 2,680,497 (73,635 ) (999,876 ) 99,467 (855,387 ) (1,946,341 ) 281,806 791,705 (19,977 ) - 2,313,778 1,606,986 99,467 (855,387 ) (1,946,341 ) (1,246,272 ) - (7,234,517 ) (7,262,286 ) iii. Onerous contract provisions On initial adoption, management applied the practical expedient to use Olympia’s previous assessment under IAS 37 for onerous contracts. This resulted in a reduction of $0.07 million to other liabilities and charges. iv. Other liabilities On transition, Olympia applied the remaining balance of the previously recognized lease inducements provision and straight- line rent liability against the right-of-use assets. This resulted in a reduction of $0.28 million in other liabilities and charges, and an adjustment of $0.79 million to non-current other liabilities. v. Lease liabilities On adoption of IFRS 16, Olympia recognized lease liabilities in relation to leases which had previously been classified as operating leases under the principles of IAS 17, “Leases” 30 2019 Annual Report | Olympia Financial Group Inc. (“IAS 17”). Under the principles of the new standard, these leases have been measured at the present value of the remaining lease payments, discounted using Olympia’s incremental borrowing rate at January 1, 2019. The incremental borrowing rate as at January 1, 2019 was 5.99%. Leases with a remaining term of less than twelve months and low-value leases were excluded. Total lease liabilities of $2.8 million were recorded as at January 1, 2019. Reconciliation of commitments to lease liability The following table provides a reconciliation of the commitments as at December 31, 2018, to Olympia’s lease liabilities as at January 1, 2019: Reconciliation of lease liabilities Office space $ Less: Short-term leases Lease liabilities commitments as at December 31, 2018 Impact of discounting Lease liabilities as at January 1, 2019 Total 3,105,795 (44,440 ) 3,061,355 (259,627 ) $ 2,801,728 Update to significant accounting policies Leases Olympia applied IFRS 16 using the modified retrospective approach; therefore, the comparative information provided continues to be accounted for in accordance with Olympia’s previous accounting policy found in the annual consolidated financial statements for the year ended December 31, 2018. The following accounting policy is applicable from January 1, 2019: Olympia assesses whether a contract is a lease based on whether the contract conveys the right to control the use of an underlying asset for a period of time in exchange for consideration. Lease payments are allocated between the liability and finance costs. The finance cost is charged to net earnings over the lease term. The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in the future lease payments arising from a change in an index or rate. When the lease liability is remeasured, a corresponding adjustment is made to the carrying amount of the right-of-use asset or an adjustment is recorded in the consolidated statement of earnings if the carrying amount of the right-of-use asset has been reduced to zero. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability and any initial direct costs incurred, less any lease payments made at or before the commencement date. The right-of-use asset is depreciated, on a straight-line basis, over the shorter of the estimated useful life of the asset or the lease term. The right-of-use asset may be adjusted for certain remeasurements of the lease liability and impairment losses. Leases that have terms of less than twelve months or leases on which the underlying asset is of low value are recognized as an expense in the statements of net earnings and comprehensive income on a straight-line basis over the lease term. A lease modification will be accounted for as a separate lease if the modification increases the scope of the lease and if the consideration for the lease increases by an amount commensurate with the stand-alone price for the increase in scope. For a modification that is not a separate lease or where the increase in consideration is not commensurate, Olympia will, at the effective date of the lease modification, remeasure the lease liability. Olympia will use its incremental borrowing rate when the rate implicit to the lease is not readily available, and will make a corresponding adjustment to the right-of-use asset. A modification that decreases the scope of the lease will be accounted for by decreasing the carrying amount of the right- of-use asset and recognizing a gain or loss in net earnings that reflects the proportionate decrease in scope. As lessee As lessor Leases are recognized as a right-of-use asset and a corresponding lease liability at the date on which the leased asset is available for use by Olympia. Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of fixed payments and payments of penalties for terminating the lease, less any lease incentives receivable. These payments are discounted using Olympia’s incremental borrowing rate when the rate implicit in the lease is not readily available. Olympia uses a single discount rate for a portfolio of leases with reasonably similar characteristics. As a lessor, Olympia assesses at inception whether a lease is a finance or operating lease. Leases where Olympia transfers substantially all of the risk and rewards incidental to ownership of the underlying asset are classified as financing leases. Under a finance lease, Olympia recognizes a receivable at an amount equal to the net investment in the lease, which is the present value of the aggregate of lease payments receivable by the lessor. If substantially all the risks and rewards of ownership of an asset are not transferred, the lease is classified as an operating lease. Olympia recognizes lease payments received under operating leases as other income on a straight-line basis over the lease term. 2019 Annual Report | Olympia Financial Group Inc. 31 When Olympia is an intermediate lessor, it accounts for its interest in the head lease and the sublease separately. It assesses the lease classification of a sublease with reference to the right-of-use asset from the head lease, not with reference to the underlying assets. If the head lease is a short-term lease to which Olympia applies the exemption for lease accounting, the sublease is classified as an operating lease. Impacts on financial statement Impacts for the year In relation to leases under IFRS 16, Olympia has recognized depreciation and interest costs instead of recognizing an operating lease expense. During the year ended December 31, 2019, Olympia recognized $0.53 million of depreciation charge related to the right-of-use assets and $0.14 million in interest costs related to the lease liabilities from these leases. Critical accounting judgments and estimate uncertainty Critical judgments in determining the lease term In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment. Critical accounting estimates The preparation of financial statements requires management to make judgments, estimates and assumptions based on currently available information that affects the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Estimates and judgments are evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, actual results could differ from these estimates. By their very nature, these estimates are subject to measurement uncertainty, and the effect on the financial statements of future periods could be material. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. In the process of applying Olympia’s accounting policies, management has made the following judgments, estimates and assumptions which have the most significant effect on the amounts recognized in the consolidated financial statements. (i) Discontinued operations Olympia presents discontinued operations on a separate line in the consolidated statements of net earnings and comprehensive income if a major line of business has been disposed of or is classified as held for sale. 32 Net loss from discontinued operations includes the net total of operating profit and loss before tax. Net loss includes, net gain or loss on sale before tax or measurement to fair value, less costs to sell and tax expense. A major line of business comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of Olympia’s operations and cash flows. If a major line of business is classified as a discontinued operation, Olympia restates prior periods in the consolidated statements of net earnings. Non-current assets classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. These measurement provisions do not apply to deferred tax assets and liabilities, or financial assets. Non-current assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition, subject to terms that are usual and customary for sales of such assets. Management must be committed to the sale and must actively market the business for sale at a price that is reasonable in relation to the current fair value. The sale should be expected to qualify for recognition as a completed sale within one year from the date of classification. (ii) Allowance for doubtful accounts (Note 7) Olympia regularly performs a review of outstanding accounts receivable balances to determine eventual collectability. A provision for bad debt is recorded based on historical information or if an account is deemed uncollectable. Olympia analyzes the bad debt provision regularly to determine if any of the accounts provided for should be written off. Those accounts which are deemed uncollectable could materially change as a result of changes in a customer’s financial situation. This includes risks associated with the gross receivable position on foreign exchange forward contracts, which are all assessed regularly for impairment. (iii) Depreciation and amortization methods (Notes 14 and 15) Olympia estimates the useful lives of property, plant and equipment and intangible assets, based on the period over which the assets are expected to be available for use. The estimated useful lives are reviewed periodically and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the relevant assets. In addition, the estimation of the useful lives is based on internal technical evaluation, current facts and past experience with similar assets, and takes into consideration the anticipated expected life of the asset, existing long-term agreements and contracts, current and forecasted demand and the potential for technological obsolescence. It is possible, however, that future results of operations could be materially affected by changes in estimates brought about in turn by changes in the factors mentioned above. The amounts and timing of recorded 2019 Annual Report | Olympia Financial Group Inc. expenses for any period would also be affected by changes in these factors and circumstances. (iv) Impairments (Note 15) Olympia performs impairment tests of assets when indications of impairment exist. Application of judgment is required in determining whether an impairment test is warranted. Impairment exists when the carrying value of an asset or Cash- Generating Unit (“CGU”) exceeds its recoverable amount, which is the higher of (a) its fair value less costs of disposal and (b) its value in use. The fair value less costs of disposal calculation is estimated using valuation techniques such as a discounted cash flow model adjusted to reflect the considerations of any prospective third-party buyer. The value in use calculation is based on the present value of expected cash flows. The cash flows are derived from internal budgets and do not include restructuring activities that Olympia is not yet committed to or significant future investments that will enhance the asset’s performance or the CGU being tested. The recoverable amount is most sensitive to the discount rate used for the present value of expected cash flows. It is also sensitive to expected transaction volumes, future operating costs, tax rates, margins and the growth rate used for extrapolation purposes. There is a certain amount of subjectivity and judgment in the determination of the recoverable amount calculation. Judgments and assumptions, described in notes 7, 14 and 15, are subject to measurement uncertainty, and the impact of differences between actual and estimated amounts on the consolidated financial statements of future periods could be material. When indicators support that the asset is no longer impaired, Olympia will reverse impairment losses. Similar to the impairment, application of judgment is required to determine whether a reversal should be considered. (v) Income taxes (Note 21) Olympia calculates an income tax provision in each of the jurisdictions in which it operates. Estimation of income taxes includes evaluating the recoverability of deferred tax assets based on an assessment of the ability to use the underlying future tax deductions against future taxable income before the deductions expire. The assessment is based on existing tax laws and estimates of future taxable income. Further, there are transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Provisions are made using the best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors. Olympia reviews the adequacy of these provisions at each reporting period. However, it is possible that at some future date an additional liability could result from audits by taxation authorities. Where the final outcome of these tax-related matters is different from the amounts that were initially recorded, such differences will affect the tax provisions in the period in which such determination is made. (vi) Revenue Olympia applies judgment to determine whether fee revenue should be recognized on a gross basis or net of fees paid to the merchant or insurer for providing, processing, and maintaining the service to a customer. Pursuant to the guidance in IFRS 15, Olympia has assessed whether to record such payments as a reduction of associated service revenues or as a direct expense. Olympia determines whether the nature of its promise to customers is a performance obligation to provide the service itself or to arrange for that service to be provided by another party. Specific factors considered are, whether Olympia acts as the principal and is the primary obligor in performance obligations, provides the processing for the performance obligations, has significant influence over pricing and has the risks and rewards of ownership, including a variable earnings component and the risk of loss for collection. Olympia has full discretion over the price of the services and therefore has no unfulfilled obligations that could affect clients acceptance of the service. Olympia recognizes insurance fees on a net basis. As a result, for agreements under which Olympia acts as the principal, Olympia records the total amounts earned from the underlying performance obligations as service revenues and records the related merchant expense as a direct expense of operating revenues. However, for those agreements in which Olympia does not meet the criteria to qualify as the principal in a performance obligation, Olympia does not record the related fee revenue, as the rights associated with this revenue stream are attributable to the benefit of the merchant. Olympia records fee revenue under these arrangements on a net basis. Whether Olympia is considered to be the principal or an agent in a performance obligation depends on analysis by management of both the legal form and substance of the agreement between Olympia and the merchant. Such the amount of reported revenue and judgments expenses, but do not impact reported assets, liabilities or cash flows. impact (vii) Lease term In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment. Future accounting pronouncements There are no new or amended accounting standards issued during the year ended December 31, 2019, that are applicable to Olympia in future periods. 2019 Annual Report | Olympia Financial Group Inc. 33 Evaluation of disclosure controls and procedures and internal control over financial reporting The President and Chief Executive Officer (“CEO”) and Vice President, Finance and Chief Financial Officer (“CFO”) of Olympia are responsible for establishing and maintaining Disclosure Controls and Procedures (“DC&P”) and Internal Control over Financial Reporting (“ICFR”) for Olympia. DC&P are designed to provide reasonable assurance that material information relating to Olympia is made known to the CEO and CFO by others, particularly in the period in which the annual filings are being prepared, and that information required to be disclosed in documents filed with securities regulatory authorities is recorded, processed, summarized and reported within the time periods specified in securities legislation, and includes controls and procedures designed to ensure that such information is accumulated and communicated to Olympia’s management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. ICFR is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. In accordance with the requirements of National Instrument 52-109 “Certification of Disclosures in Issuer’s Annual and Interim Filings,” an evaluation of the effectiveness of DC&P and ICFR was carried out under the supervision of the CEO and CFO at December 31, 2019. Based on this evaluation, the CEO and CFO have concluded that, Olympia’s DC&P and ICFR are effective and operating as intended. Olympia’s management, including the CEO and CFO, does not expect that Olympia’s DC&P and ICFR will prevent or detect all misstatements or instances of fraud. The inherent limitations in all control systems are such that they can provide only reasonable, not absolute, assurance that all control issues, misstatements or instances of fraud, if any, within Olympia have been detected. There was no change to Olympia’s ICFR during the most recent annual period that has materially affected, or is reasonably likely to materially affect, Olympia’s ICFR. Outstanding share data As at February 27, 2020, Olympia has an aggregate of 2,406,336 common shares issued and outstanding. Additional information Further information regarding Olympia can be accessed under Olympia’s public filings found at www.sedar.com. to contact Olympia’s Shareholders seeking independent directors may do so by calling Rick Skauge, Olympia’s President and CEO, at 403-261-7501 or by email at ricks@olympiafinancial.com. 34 2019 Annual Report | Olympia Financial Group Inc. MANAGEMENT’S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2019, and December 31, 2018 The accompanying consolidated financial statements and all the data included in this report have been prepared by and are the responsibility of the Board of Directors and management of Olympia Financial Group Inc. (“Olympia”). The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as set out in the Handbook of the Chartered Professional Accountants of Canada and reflect management’s best estimates and judgments based on currently available information. In the opinion of management, the consolidated financial statements have been prepared within acceptable limits of materiality and are in accordance with International Financial Reporting Standards appropriate in the circumstances. The Board of Directors has reviewed and approved the accompanying consolidated financial statements for the years ended December 31, 2019, and December 31, 2018. The Audit Committee, comprised of non-management directors, acts on behalf of the Board of Directors to ensure that management fulfills its financial reporting and internal control responsibilities. Management maintains appropriate systems of internal control. Policies and procedures are designed to give reasonable assurance that transactions are properly authorized, records properly assets are safeguarded and financial maintained to provide reliable information for the preparation of the consolidated financial statements. Internal controls are further supported by an internal audit function which conducts periodic audits of Olympia’s financial reporting and internal controls. The internal audit function reports to the Audit Committee. In performing its duties, the Audit Committee acts only in an oversight capacity and necessarily relies on the work and assurances of Olympia’s management. Olympia’s independent auditor, PricewaterhouseCoopers LLP, has performed an audit on these consolidated financial statements in accordance with the standards established by the Chartered Professional Accountants of Canada. Their report outlines the scope of their examination and opinion. Signed Rick Skauge Signed Gerhard Barnard Rick Skauge President and Chief Executive Officer Gerhard Barnard, CPA, CMA Chief Financial Officer Calgary, Canada, February 27, 2020 2019 Annual Report | Olympia Financial Group Inc. 35 Independent auditor’s report To the Shareholders of Olympia Financial Group Inc. Our opinion In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of Olympia Financial Group Inc. and its subsidiaries (together, the Company) as at December 31, 2019 and 2018, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRS). What we have audited The Company’s consolidated financial statements comprise: ● ● ● ● ● the consolidated balance sheets as at December 31, 2019 and 2018; the consolidated statements of net earnings and comprehensive income for the years then ended; the consolidated statements of changes in equity for the years then ended; the consolidated statements of cash flows for the years then ended; and the notes to the consolidated financial statements, which include a summary of significant accounting policies. Basis for opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance with these requirements. Other information Management is responsible for the other information. The other information comprises the Management’s Discussion and Analysis and the information, other than the consolidated financial statements and our auditor’s report thereon, included in the Annual Report. PricewaterhouseCoopers LLP 111-5th Avenue SW, Suite 3100, Calgary, Alberta, Canada T2P 5L3 T: +1 403 509 7500, F: +1 403 781 1825 “PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership. 36 2019 Annual Report | Olympia Financial Group Inc. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of management and those charged with governance for the consolidated financial statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company’s financial reporting process. Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: ● Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of management and those charged with governance for the consolidated financial statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company’s financial reporting process. Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: ● Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. 2019 Annual Report | Olympia Financial Group Inc. 37 ● ● ● ● ● Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related We communicate with those charged with governance regarding, among other matters, the planned scope safeguards. and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. The engagement partner on the audit resulting in this independent auditor’s report is Peter Harris. (Signed) “PricewaterhouseCoopers LLP” Chartered Professional Accountants Chartered Professional Accountants Calgary, Alberta Calgary, Alberta February 27, 2020 February 27, 2020 38 2019 Annual Report | Olympia Financial Group Inc. CONSOLIDATED BALANCE SHEETS ($) ASSETS Current assets Cash & cash equivalents (note 11) Trade & other receivables (note 7) Inventory Prepaid expenses Derivative financial instruments (notes 7 and 13) Total current assets Non-current assets Restricted cash & investments (note 10) Equipment & other (note 14) Intangible assets (note 15) Right-of-use assets (note 16) Financial asset at fair value through other comprehensive income Long-term lease receivable (note 7) Promissory note receivable (note 5) Derivative financial instruments (notes 7 and 13) Deferred tax assets (note 21) Total non-current assets Total assets LIABILITIES Current liabilities Trade & other payables (notes 7 and 17) Deferred revenue (note 18) Other liabilities & charges (note 19) Revolving credit facility (notes 12 and 29) Lease liabilities (note 8) Derivative financial instruments (notes 7 and 13) Current tax liability Total current liabilities Other liabilities (note 19) Lease liabilities (note 8) Derivative financial instruments (notes 7 and 13) Total liabilities EQUITY Share capital (note 20) Contributed surplus (note 20) Retained earnings Equity attributable to owners of Olympia Non-controlling interests Total equity Total equity & liabilities Commitments and contingencies (notes 30 and 31) December 31, 2019 December 31, 2018 $ $ $ $ $ $ 13,754,089 3,105,766 56,518 1,270,284 2,177,020 20,363,677 2,500,000 1,120,955 2,748,214 1,073,064 38,574 55,156 1,400,000 1,840,389 786,200 11,562,552 31,926,229 1,456,166 486,655 1,732,886 6,655,347 907,066 657,259 176,795 12,072,174 - 1,038,286 887,020 13,997,480 7,886,989 86,373 10,164,595 18,137,957 (209,208 ) 17,928,749 31,926,229 $ $ $ $ $ $ 12,834,906 2,272,037 49,127 783,370 406,082 16,345,522 707,000 1,239,533 2,508,262 - 43,714 - 1,428,539 - 1,243,256 7,170,304 23,515,826 1,341,892 399,820 1,528,078 4,207,347 - 160,480 5,637 7,643,254 791,705 - - 8,434,959 7,886,989 86,373 7,214,540 15,187,902 (107,035 ) 15,080,867 23,515,826 See accompanying notes to the consolidated financial statements Approved on behalf of the Board of Directors Signed Rick Skauge Rick Skauge Director February 27, 2020 Signed Brian Newman Brian Newman, CPA, CA Director 2019 Annual Report | Olympia Financial Group Inc. 39 CONSOLIDATED STATEMENTS OF NET EARNINGS AND COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31 2019 2018 $ 35,580,126 $ Revenue Service revenue (note 9) Trust income (note 9) Interest (note 9) Expenses Direct expenses (notes 9 & 23) Administrative expenses (notes 9 & 22) Depreciation and amortization (notes 9, 14, 15, & 16) Other (gains)/losses, net (notes 9 & 25) Earnings before income tax Income tax expense (notes 9 & 21) Current Deferred tax expense Total income tax expense Net earnings and comprehensive income from continuing operations attributable to: Shareholders of Olympia Non-controlling interests Net loss and comprehensive loss from discontinued operations Net earnings and comprehensive income from combined operations for the year Earnings per share attributable to shareholders of Olympia – continuing operations Basic and diluted (note 26) Loss per share attributable to shareholders of Olympia – discontinued operations Basic and diluted (note 26) Earnings per share attributable to shareholders of Olympia – combined operations Basic and diluted (note 26) $ $ $ $ $ $ $ 12,164,528 1,338,320 49,082,974 3,189,334 34,603,617 1,537,686 (3,104,741 ) 36,225,896 12,857,078 3,074,041 457,056 3,531,097 9,428,154 (102,173 ) - 9,325,981 3.92 - 3.92 $ $ $ $ $ $ $ 38,597,248 10,276,949 1,155,384 50,029,581 3,112,075 31,150,889 746,967 1,430,616 36,440,547 13,589,034 3,353,276 333,544 3,686,820 9,967,821 (65,607 ) (388,022 ) 9,514,192 4.14 (0.16 ) 3.98 See accompanying notes to the consolidated financial statements 40 2019 Annual Report | Olympia Financial Group Inc. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Attributable to owners of Olympia Share Capital Contributed Surplus Retained Earnings Non-controlling Interest Total Equity Balance at January 1, 2018 $ 7,886,989 $ 86,373 $ 3,048,996 $ (41,428 ) $ 10,980,930 Net earnings and comprehensive income from combined operations Dividends (note 27) - - - - 9,579,799 (65,607 ) 9,514,192 (5,414,255 ) - (5,414,255 ) Balance as at December 31, 2018 $ 7,886,989 $ 86,373 $ 7,214,540 $ (107,035 ) $ 15,080,867 Balance as at January 1, 2019 $ 7,886,989 $ 86,373 $ 7,214,540 $ (107,035 ) $ 15,080,867 Adjustment on initial application of IFRS 16 (note 3) - - 19,977 - 19,977 Adjusted balance as at January 1, 2019 7,886,989 86,373 7,234,517 (107,035 ) 15,100,844 Share repurchase (note 20) Net earnings and comprehensive income from combined operations Dividends (note 27) - - - - - - (800 ) - (800 ) 9,428,154 (102,173 ) 9,325,981 (6,497,276 ) - (6,497,276 ) Balance as at December 31, 2019 $ 7,886,989 $ 86,373 $ 10,164,595 $ (209,208 ) $ 17,928,749 See accompanying notes to the consolidated financial statements 2019 Annual Report | Olympia Financial Group Inc. 41 CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31 Cash flows from operating activities Net earnings from continuing operations Items not affecting cash Depreciation of equipment & other (note 14) Amortization of intangible assets (note 15) Amortization of right-of-use assets (note 16) Other Loss on disposal of assets Deferred income tax expense Foreign exchange (gain)/loss (note 25) Changes in non-cash working capital balances (note 28a) Cash flows from operating activities from continuing operations Cash flows used in operating activities from discontinued operations Net cash from operating activities Cash flows from investing activities Purchase of equipment & other (note 14) Purchase of intangible assets (note 15) Purchase of restricted investment for collateral, net (note 10) Cash flows used in investing activities from continuing operations Cash flows used in investing activities from discontinued operation Net cash used investing activities Cash flows from financing activities Borrowing/(repayment) on revolving credit facility Loan repayment from discontinued operation Receipt of lease receivable Payment of lease liabilities (note 8) Sale of assets for issuance of promissory note Dividends (note 27) Cash flows used in financing activities from continuing operations Cash flows used in financing activities from discontinued operations Net change in cash position Cash, beginning of year Cash, end of year Cash is represented by: Cash & cash equivalents (note 11) Other information for continuing operations Interest earned and received as trustee Interest received Income taxes paid Non-cash financing and investing activities (note 28b) $ $ $ $ $ $ 2019 2018 $ 9,325,981 $ 9,902,214 461,097 542,667 533,922 (16,389 ) 5,197 457,056 (2,227,529 ) (367,976 ) 8,714,026 - 8,714,026 (355,313 ) (782,619 ) (1,793,000 ) (2,930,932 ) - (2,930,932 ) 2,448,000 - 41,741 (856,376 ) - (6,497,276 ) (4,863,911 ) - 919,183 12,834,906 13,754,089 13,754,089 13,754,089 10,873,379 1,588,427 2,883,000 $ $ $ $ $ $ 410,240 336,726 - (27,998 ) 59,948 333,544 1,381,682 (1,147,657 ) 11,248,699 (637,292 ) 10,611,407 (573,029 ) (1,080,139 ) (207,000 ) (1,860,168 ) - (1,860,168 ) (605,000 ) 325,000 - - (37,601 ) (5,414,255 ) (5,731,856 ) (4,148,110 ) (1,128,727 ) 13,963,633 12,834,906 12,834,906 12,834,906 7,421,105 1,021,666 3,348,000 See accompanying notes to the consolidated financial statements 42 2019 Annual Report | Olympia Financial Group Inc. 1. NATURE OF BUSINESS Olympia Financial Group Inc. (“Olympia”) is governed by the Business Corporations Act (Alberta). Olympia is a reporting issuer in British Columbia, Alberta and Ontario, and its common shares are listed on the Toronto Stock Exchange (“TSX”). Olympia’s registered and head office is 2300, 125 – 9th Avenue SE, Calgary, Alberta T2G 0P6. The majority of Olympia’s business is conducted through its wholly owned subsidiary Olympia Trust Company (“Olympia Trust”), a non-deposit taking trust corporation. Olympia Trust received its letters patent on September 6, 1995, authorizing the formation of a trust corporation to be registered under the Loan and Trust Corporations Act (Alberta). Olympia Trust acts as a trustee for self-directed registered plans and provides foreign currency exchange services as well as corporate and shareholder services. Olympia Trust is licensed to conduct trust activities in Alberta, British Columbia, Saskatchewan, Manitoba, Quebec, Newfoundland and Labrador, Prince Edward Island, New Brunswick and Nova Scotia. The Private Health Services Plan division conducts its business through Olympia Benefits Inc. (“OBI”), a wholly owned subsidiary of Olympia. Exempt Edge Inc. (“EEI”) was incorporated under the Business Corporations Act (Alberta) on November 28, 2016, as a subsidiary of Olympia. 2. BASIS OF PREPARATION These consolidated financial statements for the year ended December 31, 2019, have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) applicable to the preparation of the consolidated financial statements. The accounting policies adopted are consistent with those of the previous year, except as identified in Note 3. These consolidated financial statements have been approved and authorized for issuance by the Board of Directors on February 27, 2020. The policies applied in these consolidated financial statements are based on IFRS, issued, effective and outstanding as of December 31, 2019. Olympia’s consolidated financial statements are presented in Canadian dollars, Olympia’s primary operating currency. All references to $ are in Canadian dollars and references to US$ are in United States dollars. The preparation of the consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. Certain of the prior year comparative figures have been reclassified to conform to the presentation adopted for the current year. 2019 Annual Report | Olympia Financial Group Inc. 3. SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies used in the preparation of these consolidated financial statements are described below. Basis of measurement The consolidated financial statements have been prepared under the historical cost convention, except for the revaluation of certain financial assets and financial liabilities to fair value, including derivative instruments and financial assets at fair value through Other Comprehensive Income. Critical accounting estimates The preparation of financial statements requires management to make judgments, estimates and assumptions based on currently available information that affects the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Estimates and judgments are evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, actual results could differ from these estimates. By their very nature, these estimates are subject to measurement uncertainty, and the effect on the financial statements of future periods could be material. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected. In the process of applying Olympia’s accounting policies, management has made the following judgments, estimates and assumptions which have the most significant effect on the amounts recognized in the consolidated financial statements. (i) Discontinued operations Olympia presents discontinued operations on a separate line in the consolidated statements of net earnings and comprehensive income if a major line of business has been disposed of or is classified as held for sale. Net loss from discontinued operations includes the net total of operating profit and loss before tax. Net loss includes net gain or loss on sale before tax or measurement to fair value, less costs to sell and tax expense. A major line of business comprises operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of Olympia’s operations and cash flows. If a major line of business is classified as a discontinued operation, Olympia restates prior periods in the consolidated statements of net earnings. Non-current assets classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. These measurement provisions do not apply to deferred tax assets and liabilities, or financial assets. Non-current assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through 43 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTScontinuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition, subject to terms that are usual and customary for sales of such assets. Management must be committed to the sale and must actively market the business for sale at a price that is reasonable in relation to the current fair value. The sale should be expected to qualify for recognition as a completed sale within one year from the date of classification. (ii) Allowance for doubtful accounts (Note 7) Olympia regularly performs a review of outstanding accounts receivable balances to determine eventual collectability. A provision for bad debt is recorded based on historical information or if an account is deemed uncollectable. Olympia applies the IFRS 9 simplified approach to measuring Expected Credit Losses (“ECL”), which uses a lifetime expected loss allowance for all trade and other receivables. Olympia holds trade receivables that do not have a significant financing component. To determine the amount of the ECL to be recognized in the financial statements, Olympia has set up a provision matrix based on its historically observed default rates. Olympia adjusts the matrix for forward-looking estimates and has established that the expected credit loss should be calculated as follows: • less than 90 days: nominal; • more than 90 days but less than two years past due: 20% of carrying value; • more than two years but less than three years past due: 65% of carrying value; and • three or more years past due: 100% of carrying value. Those accounts which are deemed uncollectable could materially change as a result of changes in a customer’s financial situation. This includes risks associated with the gross receivable position on foreign exchange forward contracts, all assessed regularly for impairment. (iii) Depreciation and amortization methods (Notes 14 and 15) Olympia estimates the useful lives of property, plant and equipment and intangible assets, based on the period over which the assets are expected to be available for use. The estimated useful lives are reviewed periodically and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the relevant assets. In addition, the estimation of the useful lives is based on internal technical evaluation, current facts and past experience with similar assets, and takes into consideration the anticipated expected life of the asset, existing long-term agreements and contracts, current and forecasted demand and the potential for technological obsolescence. It is possible, however, that future results of operations could be materially affected by changes in the estimates brought about in turn by changes in the factors mentioned above. The amounts and timing of recorded expenses for any period would be affected by changes in these factors and circumstances. (iv) Impairments (Note 15) Olympia performs impairment tests of assets when indications of impairment exist. Application of judgment is required in determining whether an impairment test is warranted. Impairment exists when the carrying value of an asset or Cash- Generating Unit (“CGU”) exceeds its recoverable amount, which is the higher of (a) its fair value less costs of disposal and (b) its value in use. The fair value less costs of disposal calculation is estimated using valuation techniques such as a discounted cash flow model adjusted to reflect the considerations of a prospective third-party buyer. The value in use calculation is based on the present value of expected cash flows. The cash flows are derived from internal budgets and do not include restructuring activities that Olympia is not yet committed to or significant future investments that will enhance the asset’s performance or the CGU being tested. The recoverable amount is most sensitive to the discount rate used for the present value of expected cash flows. It is also sensitive to expected transaction volumes, future operating costs, tax rates, margins and the growth rate used for extrapolation purposes. There is a certain amount of subjectivity and judgment in the determination of the recoverable amount calculation. Judgments and assumptions, described in notes 7, 14 and 15, are subject to measurement uncertainty, and the impact of differences between actual and estimated amounts on the consolidated financial statements of future periods could be material. When indicators support that the asset is no longer impaired, Olympia will reverse impairment losses. Similar to the impairment, application of judgment is required to determine whether a reversal should be considered. (v) Income taxes (Note 21) Olympia calculates an income tax provision in each of the jurisdictions in which it operates. Estimation of income taxes includes evaluating the recoverability of deferred tax assets based on a more likely than not assessment to use the underlying future tax deductions against future taxable income before the deductions expire. The assessment is based on existing tax laws and estimates of future taxable income. Further, there are transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Provisions are made using the best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors. Olympia reviews the adequacy of these provisions at each reporting period. However, it is possible that 44 2019 Annual Report | Olympia Financial Group Inc. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSat some future date an additional liability could result from audits by taxation authorities. Where the final outcome of these tax- related matters is different from the amounts that were initially recorded, such differences will affect the tax provisions in the period in which such determination is made. (vi) Revenue Olympia applies judgment to determine whether fee revenue should be recognized on a gross basis or net of fees paid to the merchant or insurer for providing, processing, and maintaining the service to a customer. Pursuant to the guidance in IFRS 15, Olympia has assessed whether to record such payments as a reduction of associated service revenues or as a direct expense. Olympia determines whether the nature of its promise to customers is a performance obligation to provide the service itself or to arrange for that service to be provided by another party. Specific factors considered were, whether Olympia acts as the principal and is the primary obligor in performance obligations, provides the processing for the performance obligations, has significant influence over pricing and has the risks and rewards of ownership, including a variable earnings component and the risk of loss for collection. Olympia has full discretion over the price of the services and therefore has no unfulfilled obligations that could affect clients acceptance of the service. Olympia recognizes insurance fees on a net basis. As a result, for agreements under which Olympia acts as the principal, Olympia records the total amounts earned from the underlying performance obligations as service revenues and records the related merchant expense as a direct expense of operating revenues. However, for those agreements in which Olympia does not meet the criteria to qualify as the principal in a performance obligation, Olympia does not record the related fee revenue, as the rights associated with this revenue stream are attributable to the benefit of the merchant. Olympia records fee revenue under these arrangements on a net basis. Whether Olympia is considered to be the principal or an agent in a performance obligation depends on analysis by management of both the legal form and substance of the agreement between Olympia and the merchant. Such judgments impact the amount of reported revenue and expenses, but do not impact reported assets, liabilities or cash flows. (vii) Lease term In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. The assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment. Functional and presentation currency These consolidated financial statements are presented in Canadian dollars, which is the functional currency of Olympia and its subsidiaries. Transactions denominated in foreign currencies are translated into Canadian dollars using the exchange rates prevailing at the dates of the transactions. Under this method, monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at the rates in effect at the consolidated balance sheet dates. Revenues and expenses are translated at the rates prevailing at the respective transaction dates. Basis of consolidation The consolidated financial statements include the accounts of Olympia and its subsidiaries. All inter-company balances and unrealized income and expenses arising from inter-company transactions have been eliminated. The subsidiaries consist of Olympia Trust, OBI and EEI. Olympia holds an 80% controlling interest in EEI and a third party holds a non-controlling interest of 20%. The non-controlling interest is presented separately in the consolidated statement of net earnings and comprehensive income and within equity in the consolidated balance sheets, but separately from Olympia’s equity. Losses applicable to the non-controlling interest in excess of their interest in the subsidiary’s equity is allocated against the non-controlling interest, even if that results in a deficit balance. Segment reporting Management has determined Olympia’s operating segments based on reports reviewed by the president and other executive management to make strategic decisions. An operating segment is a component of Olympia that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of Olympia’s other components. Operating results are regularly reviewed by the president and other executive management to make decisions about resources to be allocated to the segment and to assess its performance. Discrete financial information is available for each operating segment. Segment results that are reported to the president and other executive management include items directly attributable to a segment, as well as those that can be allocated on a reasonable basis. the business Considering from a product and service perspective, Olympia has identified six operating segments. The Private Health Services Plan division, operated through OBI, markets, sells and administers health and dental benefits to business owners. The Registered Plans division, operated through Olympia Trust, specializes in self-directed registered plans administration. Exempt market securities and arm’s- length mortgages continue to be the main focus of many of the Registered Plans division’s clients. The Foreign Exchange 2019 Annual Report | Olympia Financial Group Inc. 45 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSThe annual depreciation rates and methods are as follows: • Trademarks division, operated through Olympia Trust, provides corporations and private clients a personalized service for buying and selling foreign currencies. The Corporate and Shareholder Services division, operated through Olympia Trust, provides transfer agency and corporate trust services to public and private issuers across Canada. The Exempt Edge division, operated through EEI, focuses on the provision of information technology to exempt market dealers, registrants and issuers. The Corporate division is a cost centre and earns incidental revenue. Equipment and other Equipment and other is measured and accounted for at cost less accumulated depreciation. Additions and subsequent expenditures are capitalized only in the event that they enhance the future economic benefits to be derived from the assets. is provided on Depreciation the depreciable amount of equipment and other on a straight-line basis over the estimated useful economic life of each asset. The depreciable amount is the gross carrying amount less the estimated residual value at the end of its useful economic life. • Furniture and fixtures Straight-line over 5 years • Leasehold improvements Straight-line over the lease term • Computer equipment Straight-line over 3 years • FX ATM equipment Straight-line over 5 years Depreciation rates, methods and residual values used to calculate depreciation of items of equipment and other are kept under review for any change in circumstances. The principal factors Olympia takes into account when deciding on rates and methods of depreciation are the pattern of usage for each asset, the lease term, the expected rate of developments in technology and expected market requirements. When reviewing residual values, Olympia estimates the amount that it would currently obtain for the disposal of the asset after deducting the estimated cost of disposal if the asset were already of the age and condition expected at the end of its useful economic life. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized in the statements of net earnings and comprehensive income. Assets are derecognized on disposal or when no future economic benefits are expected from their use. Intangible assets Intangible assets consist primarily of internally developed trademark software, purchased computer software, and agreements. Internally developed software is stated at cost, less accumulated amortization and impairment, if any. The identifiable and directly associated external and internal costs of acquiring and developing software are capitalized where the software is controlled by Olympia and where it is probable that future economic benefits will flow from its use over more than one year. The cost of purchase of computer software that is separable from an item of related hardware is capitalized separately. Trademark agreements are recognized at fair value at the acquisition date. These agreements have a finite useful life and are carried at cost less accumulated amortization. Amortization is calculated using the straight-line method over the expected term of the agreement. Impairments are recorded if the carrying amount of an asset exceeds the recoverable amount. The annual amortization rates and methods are as follows: • Purchased computer software • Internally developed software Straight-line over 3 to 5 years Straight-line over 3 to 7 years Straight-line over the term of the agreements Research costs and costs associated with maintaining software are recognized as an expense when incurred. Development costs are capitalized under intangible assets if they can be identified as an intangible asset that is expected to generate probable future economic benefit and if the costs of this asset can be reliably calculated. Development costs include those costs directly attributable to the development of the asset. Impairment of non-financial assets Non-financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal, or value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows. Non-financial assets that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. Olympia assesses all non-financial assets on an ongoing basis for indications of impairment and to determine whether a previously recognized impairment loss should be reversed. If such indicators are found to exist, then detailed impairment testing is carried out. Impairments and the reversal of previously recognized impairments are recognized in the statement of net earnings and comprehensive income. 46 2019 Annual Report | Olympia Financial Group Inc. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSInventory Inventory consists primarily of Foreign Exchange ATMs not in service. Inventory is measured at the lower of cost and net realizable value. The cost of inventory is based on the first-in first-out valuation method and includes expenditures incurred in acquiring the inventory, as well as other costs incurred in bringing them to their existing location and condition. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. Financial instruments Olympia’s financial instruments included in the consolidated balance sheets are comprised of cash and cash equivalents, restricted cash and investments, trade and other receivables, promissory note receivable, derivative financial instruments, financial assets at fair value through other comprehensive income, trade and other payables, revolving credit facility and other liabilities and charges. A derivative is a financial instrument whose value changes in response to a specified variable, requires little or no net investment and is settled at a future date. An embedded derivative is a derivative that is a part of a non-derivative contract and not directly related to that contract. Under this standard, embedded derivatives must be accounted for as a separate financial instrument. A non-financial derivative is a contract that can be settled net in cash or by other financial instruments. Olympia does not apply hedge accounting to the derivative financial instruments. investments, restricted cash and Non-derivative financial instruments include cash and cash equivalents, restricted cash in circulation, trade and other receivables, promissory note receivable, financial assets at fair value through other comprehensive income, revolving credit facility, trade and other payables and other liabilities and charges. Non-derivative financial instruments are recognized initially at fair value, plus any directly attributable transaction costs, except for financial assets at fair value through profit or loss, whereby any directly attributable transaction costs are expensed as incurred. to Subsequent initial recognition, non-derivative financial instruments are designated into one of the following categories and measured as described below: (i) Financial assets and liabilities at fair value through profit or loss Financial assets and liabilities at fair value through profit or loss are financial assets or financial liabilities held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. A financial liability is classified in this category if acquired principally for the purpose of repurchasing in the short term. Olympia’s derivative financial instruments are designated as financial assets and liabilities at fair value through profit and loss as they are not designated as hedges for accounting purposes. (ii) Financial assets measured at amortized cost Financial assets measured at amortized cost are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Financial assets measured at amortized cost are initially recognized at fair value, including direct and incremental transaction costs. They are subsequently valued at amortized cost, using the effective interest method where applicable, for impairment. Assets in this category include restricted cash and investments, trade and other receivables and promissory note receivable. less allowances and write-downs (iii) Financial assets at fair value through Other Comprehensive Income (“OCI”) Financial assets at fair value through OCI are non-derivative financial assets that are not categorized into any of the categories described previously. The classification depends on Olympia’s business model for managing the financial assets and the contractual terms of the cash flows. Financial assets at fair value through other comprehensive income are initially recognized at fair value, including direct and incremental transaction costs. They are subsequently recognized at fair value. Gains and losses arising from changes in fair value are recorded in profit or loss or OCI. For investments in equity instruments that are not held for trading, this will depend on whether Olympia has made an irrevocable election at the time of initial recognition to account for the equity investment at Fair Value Through Other Comprehensive Income (“FVOCI”). Olympia has elected to recognize its investment in a private issuer at FVOCI. (iv) Other financial liabilities Items classified as other financial liabilities on Olympia’s consolidated financial statements are accounted for at amortized cost using the effective interest method. Any gains or losses in the realization of other financial liabilities are included in earnings. Olympia’s trade and other payables, other liabilities and charges and revolving credit facility are designated as other financial liabilities. The fair value and charges approximate their carrying values, due the short-term nature of to these instruments. Cash and cash equivalents Cash and cash equivalents are comprised of cash on hand, non-restricted cash in circulation, interest on term deposits held with banks and other short-term highly liquid investments with original maturities of three months or less. Non-restricted cash in circulation refers to the aggregate amount of non-restricted vault cash (cash in FX ATM cassettes) plus cash inventory (cash in 2019 Annual Report | Olympia Financial Group Inc. 47 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTStransit from armoured car carriers). Cash and cash equivalents are measured at amortized cost, which approximates fair value. Cash and cash equivalents are reported separately from restricted cash and investments. Recognition and measurement Regular purchases and sales of financial assets are recognized on the trade date on which Olympia commits to purchase or sell the asset. Investments are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognized at fair value and transaction costs are expensed in the statement of net earnings and comprehensive income. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and Olympia has substantially transferred all risks and rewards of ownership. Financial assets at fair value through profit or loss and financial assets at amortized cost are subsequently carried at fair value. Loans and receivables are subsequently carried at amortized cost using the effective interest method. Gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss are presented in the statement of net earnings and comprehensive income within the period in which they arise. When securities classified as financial assets at fair value through other comprehensive income are sold or impaired, the accumulated fair value adjustments recognized in equity are included in the statement of net earnings and comprehensive income as gains and losses. Impairment of financial assets Assets carried at amortized cost At each balance sheet date, Olympia assesses whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or group of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event), and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. If a financial asset measured at fair value through OCI or through profit or loss or at amortized cost has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. For practical reasons, Olympia may measure impairment of an instrument’s fair value using an observable market price. Calculation of the present value of estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure, less cost for obtaining and selling the collateral, whether or not foreclosure is probable. Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, among others, the failure of a customer to make contractual payments for a period of greater than 365 days past due, and the value of a customer’s asset being assessed as close to nil. Evidence of impairment The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses) discounted at the financial asset’s original effective interest rate. The asset’s carrying amount is reduced and the amount of the loss is recognized in the statement of net earnings and comprehensive income. If a loan or investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. For practical reasons, Olympia may measure impairment on the basis of an instrument’s fair value, using an observable market price. Offsetting financial instrument Financial assets and liabilities are offset and the net amount reported in the balance sheet where there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously. Foreign currency exchange forward contracts Olympia Trust purchases forward contracts when it enters into a transaction to buy or sell foreign currency in the future. These contracts are in the normal course of business and are used to manage foreign exchange exposures. Foreign exchange forward contracts are not designated as hedges for accounting purposes. They are initially recorded at fair value based on Bank of Canada published rates and subsequently measured at fair value based on published foreign currency curves. They are recorded in Olympia’s balance sheet as either an asset or liability, with changes in fair value recorded to net earnings. The estimated fair value of all derivative instruments is based on quoted market prices, or, in their absence, third-party indications and forecasts. Foreign exchange translation gains and losses on these instruments are recognized within the consolidated statements of net earnings and comprehensive income when the contract is signed. Revenue recognition Olympia has six operating segments, of which five are business segments. Revenue is recognized through these five business segments. The revenue of each business segment is distinctly unique to that segment. Each business segment in return has revenue streams that originate from different product and service offerings. Olympia earns interest income and trust income from 48 2019 Annual Report | Olympia Financial Group Inc. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfunds held with financial institutions and from term deposits and balances held in trust. Interest income and trust income is recorded on an accrual basis. (A) Self-Directed Registered Plans division (i) Account set-up fees Client set-up fees are recognized upon creation of a client account in Olympia Trust’s records. (ii) Annual administration fees Annual fees for maintaining registered plan services are billed once a year. The annual fees are recognized as deferred revenue and recognized as revenue on a straight-line basis in relation to Olympia Trust’s expenditure for rendering these services. Where contractual services are terminated by the customer, the unearned deferred revenue is recognized as revenue. (iii) Transactional fees Certain services are provided and billed on an ongoing basis. Such fees are recognized when services are rendered. (B) Private Health Services Plan division (i) Travel medical benefit insurance brokerage fees Commissions earned on the selling of short-term medical insurance are recognized in full, on the basis that no underwriting risks remain with OBI. (ii) Monthly fees Certain services are provided and billed on an ongoing monthly basis. Such fees are recognized monthly at the time of billing, subsequent to the completion of services. (iii) Life insurance brokerage fees Commissions earned on the selling of long-term insurance related products are recognized in full, on the basis that no underwriting risks remain with OBI. (iv) Annual health spending account fees (“HSA fees”) Fees for maintaining health spending accounts are billed annually. The annual fees are recognized as deferred revenue and recognized as revenue on a straight-line basis in relation to OBI rendering these services. Where contractual services are terminated by the customer, the unearned deferred revenue is recognized as revenue. (C) Foreign Exchange division (i) Trading profits and losses Trading profits and losses from spot trading are recognized at the time the trade transaction settles. Transaction fees from spot trading are recognized at the time the transaction is entered into. (ii) Unrealized profits and losses Unrealized profits and losses in foreign exchange forward contracts are recognized on a net basis at each period end, are measured at fair value and are recorded in the consolidated statement of net earnings and comprehensive income as other gains, net. (D) Exempt Edge division (i) Onboarding fees Client set-up fees are recognized upon creation of a client account in EEI’s records. (ii) Non-contractual service maintenance fee Certain services are provided and billed on an ongoing basis. Such fees are recognized at the time services are rendered. (E) Corporate and Shareholder Services division (i) Annual administrative fees Certain services are invoiced on an annual basis. Such fees are levied once a year on the contract anniversary date. The annual fees are recognized as deferred revenue and recognized as revenue on a straight-line basis in relation to service terms performed by Olympia Trust. Where contractual services are terminated, the unearned deferred revenue is recognized as revenue. (ii) Monthly program fees Certain services are invoiced on a monthly basis over a one-year period. These fees are recognized monthly. (iii) Monthly basic fees Certain services are provided and billed on an ongoing monthly basis. Such fees are recognized monthly at the time of billing. Finance costs the principal interest expense on borrowings Finance costs comprise from credit facilities, accrual of differences between amounts advanced and (i.e. discounted obligations) and impairment losses recognized on financial assets. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognized in profit or loss using the effective interest method. repayable Common shares Common shares are classified as equity. Incremental costs directly attributable to the issue of common shares and share options are recognized as a deduction from equity, net of any tax effects. When Olympia repurchases its own common shares, share capital is reduced by the average carrying value of the shares purchased. The excess of the purchase price over the average carrying value is recognized as a deduction from retained earnings. Shares are cancelled upon repurchase. 2019 Annual Report | Olympia Financial Group Inc. 49 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSRestricted cash and investments Restricted cash and investments are not readily accessible for use in operations and are reported separately from cash and cash equivalents on the balance sheet. Restricted cash and investments consist of a restricted bond investment, which is held as collateral securing Olympia Trust’s foreign exchange trading platform. Provisions and contingencies Provisions are recognized for present obligations arising as a consequence of past events where it is more likely than not that a transfer of economic benefit will be necessary to settle the obligation and it can be reliably estimated. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessment of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as a finance cost. Contingent liabilities are possible obligations whose existence will be confirmed only by uncertain future events or present obligations where the transfer of economic benefit is uncertain or cannot be reliably measured. Contingent liabilities are not recognized, but are disclosed unless they are remote. Employee benefits (i) Short-term employee benefits Wages, salaries, employment insurance premiums, Canada Pension Plan contributions, paid annual leave and sick leave, bonuses, profit sharing and non-monetary benefits are accrued for pursuant to contractual arrangements and in accordance with the nature of the constructive benefits Olympia provides in addition to remuneration upon an employee joining or in the year in which the associated services are rendered by employees of Olympia. The accruals of such constructive benefits are derecognized pursuant the contractual arrangements and in accordance with the nature of constructive benefits when employee services terminate or as provided for in employee contracts. to (ii) Other long-term employee benefits All employees are entitled to long-term service monetary awards based on the number of years of service with Olympia. Olympia recognizes long service award obligations on a straight-line basis in accordance with the number of completed years of service and in accordance with the qualifying criteria attached to having earned these awards. The award expense is therefore accrued and recognized in profit or loss based on completed years of service. Taxation (i) Taxation and deferred taxation Taxes, including deferred taxes, are income tax payable on taxable profits (tax reporting), and are recognized as an 50 expense in the period in which the profits arise. Deferred income tax on tax allowable losses is recognized as an asset only to the extent that it is regarded as probable that taxable profit or tax planning opportunities will be available in the future against which the unused tax losses can be utilized before they expire. Deferred income tax is provided in full, using the liability method, on temporary differences arising from the differences between the tax basis of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined using tax rates and legislation enacted or substantively enacted by the balance sheet date that is expected to apply when the deferred tax asset is realized or the deferred tax liability is settled. Deferred and current tax assets and liabilities are only offset when they arise in the same tax reporting group and where there is both the legal right and the intention to settle on a net basis or to realize the asset and settle the liability simultaneously. (ii) Investment tax credits for Certain expenditures qualify Investment Tax Credits (“ITCs”) pursuant to the Scientific Research and Experimental Development program, which is a federal tax incentive program to encourage Canadian businesses of all sizes and in all sectors to conduct research and development in Canada that will lead to new, improved, or technologically advanced products or processes. Based on this, Olympia could be entitled to ITCs on certain research and experimental development costs incurred, which currently consist of internally generated software. Refundable cash credits stemming from the ITCs are in respect of credits recognized in prior years when there is reasonable assurance of their recovery using the cost reduction method. ITCs are subject to assessment and approval by the CRA. Adjustments required, if any, are reflected in the year when such assessments are received. Investment tax credits and other cost recoveries related to computer and equipment and intangible assets are credited against the book value of such assets. The credit is released to income on a straight-line basis as a reduction of depreciation or as an amortization expense over the previously mentioned estimated useful economic lives of the relevant assets. Leases Olympia applied IFRS 16 using the modified retrospective approach; therefore, the comparative information provided continues to be accounted for in accordance with Olympia’s previous accounting policy found in the annual consolidated financial statements for the year ended December 31, 2018. following accounting policy The January 1, 2019: is applicable from Olympia assesses whether a contract is a lease based on whether the contract conveys the right to control the use of an underlying asset for a period of time in exchange for consideration. 2019 Annual Report | Olympia Financial Group Inc. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSAs lessee As lessor Leases are recognized as a right-of-use asset and a corresponding lease liability at the date on which the leased asset is available for use by Olympia. Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of fixed payments and payments of penalties for terminating the lease, less any lease incentives receivable. These payments are discounted using Olympia’s incremental borrowing rate when the rate implicit in the lease is not readily available. Olympia uses a single discount rate for a portfolio of leases with reasonably similar characteristics. Lease payments are allocated against both the liability and finance costs. The finance cost is charged to net earnings over the lease term. The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate. When the lease liability is remeasured, a corresponding adjustment is made to the carrying amount of the right-of-use asset or an adjustment is recorded in the consolidated statement of earnings if the carrying amount of the right-of-use asset has been reduced to zero. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability and any initial direct costs incurred, less any lease payments made at or before the commencement date. The right-of-use asset is depreciated, on a straight-line basis, over the shorter of the estimated useful life of the asset or the lease term. The right-of-use asset may be adjusted for certain remeasurements of the lease liability and impairment losses. Leases that have terms of less than twelve months or leases on which the underlying asset is of low value are recognized as an expense in the statements of net earnings and comprehensive income on a straight-line basis over the lease term. A lease modification will be accounted for as a separate lease if the modification increases the scope of the lease and if the consideration for the lease increases by an amount commensurate with the stand-alone price for the increase in scope. For a modification that is not a separate lease or where the increase in consideration is not commensurate, Olympia will, at the effective date of the lease modification, remeasure the lease liability. Olympia will use its incremental borrowing rate when the rate implicit to the lease is not readily available, and will make a corresponding adjustment to the right-of-use asset. A modification that decreases the scope of the lease will be accounted for by decreasing the carrying amount of the right- of-use asset and recognizing a gain or loss in net earnings that reflects the proportionate decrease in scope. 2019 Annual Report | Olympia Financial Group Inc. As a lessor, Olympia assesses at inception whether a lease is a finance or operating lease. Leases where Olympia transfers substantially all of the risk and rewards incidental to ownership of the underlying asset are classified as financing leases. Under a finance lease, Olympia recognizes a receivable at an amount equal to the net investment in the lease, which is the present value of the aggregate of lease payments receivable by the lessor. If substantially all the risks and rewards of ownership of an asset are not transferred, the lease is classified as an operating lease. Olympia recognizes lease payments received under operating leases as other income on a straight-line basis over the lease term. When Olympia is an intermediate lessor, it accounts for its interest in the head lease and the sublease separately. It assesses the lease classification of a sublease with reference to the right-of-use asset from the head lease, not with reference to the underlying assets. If the head lease is a short-term lease to which Olympia applies the exemption for lease accounting, the sublease is classified as an operating lease. Related parties Olympia enters into transactions with related parties, including key management compensation, in the normal course of business, except as otherwise noted in Note 32. Related party transactions are recognized at the exchange amount. Olympia considers the following as related parties: • Directors, president, vice presidents and key management (and post-employment benefit plans where personnel applicable); • Associated entities; • An entity controlled, jointly controlled or significantly being influenced by any of the aforementioned; and • Children, spouses or dependents related to any of the aforementioned persons or entities. Earnings per share (“EPS”) The calculation of basic earnings per share is based on net earnings attributable to shareholders of Olympia divided by the weighted average number of common shares outstanding during the period. For the calculation of diluted EPS, the weighted average number of common shares is the same as for basic EPS, with the addition of the weighted average number of common shares that would be issued on conversion of all the dilutive potential common shares. Dilutive potential common shares are deemed to have been converted at the start of the period or at the date of their issue, if later. The number of common shares that would be issued on conversion of dilutive potential common shares is determined from their terms of conversion. Where the terms could vary, it is deemed that they would be exercised at the rate or exercise price that would be most advantageous to the holder of such potentially dilutive common shares. 51 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSDividends Dividends on common shares are recognized in equity in the period in which they are declared or approved by Olympia’s Board of Directors. Changes in Accounting Policies Except as noted previously regarding IFRS 16, there were no further new accounting policy changes made by Olympia in 2019. The impact of this adoption is disclosed below. IFRS 16 “Leases” – impact of adoption Effective January 1, 2019, Olympia adopted IFRS 16, “Leases” (“IFRS 16”). Olympia has applied the new standard using the modified retrospective approach. The modified retrospective approach does not require restatement of prior year financial information, as it recognizes the cumulative effect as an adjustment to opening retained earnings and applies the standard prospectively. Therefore, comparative information in the consolidated balance sheets, consolidated statements of net earnings and comprehensive income and statements of cash flows have not been restated. On adoption, management elected to use the following practical expedients permitted under the standard: • Apply a single discount rate to a portfolio of leases with similar characteristics; • Account for leases with a remaining term of less than twelve months as at January 1, 2019, as short-term leases; • Account for lease payments as an expense and not recognize a right-of-use asset if the underlying asset is of a low dollar value (less than $8,000); and • Use Olympia’s previous assessment under IAS 37, “Provisions, Contingent Liabilities and Contingent Assets” (“IAS 37”) for onerous contracts instead of reassessing the right-of-use assets for impairment on January 1, 2019. Impacts of the adoption of IFRS 16 Notes As reported at December 31, 2018 Adjustments Balance on adoption as at January 1, 2019 Assets Trade and other receivables Right-of-use assets, net Long-term lease receivable Liabilities and shareholders’ equity Current portion of lease liabilities Non-current lease liabilities Other liabilities Non-current other liabilities Retained earnings i ii iii iv i v v iv iv ii Notes: i. Sublease contract On transition, Olympia reassessed the classification of its sublease contracts previously classified as operating leases under IAS 17. Olympia concluded that its sublease is a finance lease under IFRS 16, and as a result, a $0.14 million net investment in finance lease was recognized on adoption of IFRS 16. 2,272,037 - - - - - - (1,528,078 ) (791,705 ) (7,214,540 ) (7,262,286 ) 41,741 2,680,497 (73,635 ) (999,876 ) 99,467 (855,387 ) (1,946,341 ) 281,806 791,705 (19,977 ) - ii. Right-of-use assets 2,313,778 1,606,986 99,467 (855,387 ) (1,946,341 ) (1,246,272 ) - (7,234,517 ) (7,262,286 ) The associated right-of-use assets were measured at the amount equal to the lease liability on January 1, 2019, less any amount previously recognized under IAS 37 for onerous contract provisions, inducement liabilities. This resulted in a $19,977 adjustment to retained earnings. less previously recognized lease 52 2019 Annual Report | Olympia Financial Group Inc. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS iii. Onerous contract provisions On initial adoption, management applied the practical expedient to use Olympia’s previous assessment under IAS 37 for onerous contracts. This resulted in a reduction of $0.07 million to other liabilities and charges. iv. Other liabilities On transition, Olympia applied the remaining balance of the previously recognized lease inducements provision and straight- line rent liability against the right-of-use assets. This resulted in a reduction of $0.28 million in other liabilities and charges, and an adjustment of $0.79 million to non-current other liabilities. v. Lease liabilities On adoption of IFRS 16, Olympia recognized lease liabilities in relation to leases which had previously been classified as operating leases under the principles of IAS 17, “Leases” (“IAS 17”). Under the principles of the new standard, these leases have been measured at the present value of the remaining lease payments, discounted using Olympia’s incremental borrowing rate at January 1, 2019. The incremental borrowing rate as at January 1, 2019 was 5.99%. Leases with a remaining term of less than twelve months and low-value leases were excluded. Total lease liabilities of $2.8 million were recorded as at January 1, 2019. Reconciliation of commitments to lease liability The following table provides a reconciliation of the commitments as at December 31, 2018, to Olympia’s lease liabilities as at January 1, 2019: Reconciliation of lease liabilities Office space $ Less: Short-term leases Lease liabilities commitments as at December 31, 2018 Impact of discounting Lease liabilities as at January 1, 2019 Total 3,105,795 (44,440 ) 3,061,355 (259,627 ) $ 2,801,728 Impacts on financial statement Impacts for the year In relation to leases under IFRS 16, Olympia has recognized depreciation and interest costs instead of recognizing an operating lease expense. During the year ended December 31, 2019, Olympia recognized $0.53 million of depreciation charge related to the right-of-use assets and $0.14 million in interest costs related to the lease liabilities from these leases. 4. FUTURE ACCOUNTING PRONOUNCEMENTS There were no new or amended accounting standards issued during the year ended December 31, 2019, that are applicable to Olympia in future periods. 5. PROMISSORY NOTE RECEIVABLE On June 5, 2018, Olympia announced the sale to Tarman ATM Inc. (“Tarman”) of the ATM business operated by Olympia ATM Inc., as a going concern, for an amount equal to then current net book value of all assets used in the ATM business less all assumed liabilities; an amount estimated to be $1.4 million. The sale of the ATM business to Tarman, a corporation owned and controlled by Rick Skauge, was a related party transaction, as defined in Multilateral Instrument 61-101 – [Protection of Minority Security Holders in Special Transactions], but was exempted from Olympia obtaining disinterested shareholder approval and a formal valuation as the fair market value of the proposed transaction was less than 25% of Olympia’s market capitalization. An ad hoc committee composed solely of the independent members of Olympia’s Board of Directors was constituted to consider and approve the sale of the ATM business to Tarman. As part of its deliberations, the ad hoc committee of the Board of Directors noted the continuing losses of approximately $120,000 per month in the ATM business and acknowledged that while the ATM business still had the potential to grow and expand, it was unlikely to become profitable in the near future. Given the immediate financial benefits that the sale of the ATM business would have for Olympia and the uncertain timelines to profitability, the ad hoc committee believed the sale of the ATM business to be in the best interest of Olympia. The ad hoc committee of the Board of Directors obtained a fairness comfort letter stating that the proposed transaction was fair to the disinterested shareholders of Olympia. In addition, following the public disclosure of the transaction, Olympia received an unsolicited expression of interest in the ATM business from a third-party. Olympia permitted the third-party to conduct a due diligence review and valuation of the ATM business and received an offer to purchase the ATM business from the third-party that was economically comparable to the offer made by Tarman. In conjunction with the sale of substantially all the assets of Olympia ATM Inc. to a related party in 2018, the purchase price was paid by the delivery of a secured demand promissory note (the “promissory note”) for $1.40 million by Tarman. The outstanding principal amount of the promissory note bears interest at prime plus 0.25%. Subject to Canadian Western Bank’s (“CWB”) consent (as discussed below), all interest accrued under the promissory note shall be paid on an annual basis on or before the 30th day of June of each calendar year and, commencing June 30, 2020, Tarman is required to repay 2019 Annual Report | Olympia Financial Group Inc. 53 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS the outstanding principal amount of the promissory note in annual installments of $140,000 on or before the 30th day of June of each calendar year, with the outstanding balance of the principal amount to be repaid in full on or before June 30, 2023. As at December 31, 2019, all interest has been fully paid. Interest earned for the year ended December 31, 2019 was $58,800. In connection with the financing of the vault cash used by Tarman, Olympia agreed to postpone to CWB the receipt of all amounts owed to it by Tarman and is required to obtain CWB’s consent prior to accepting any amounts from Tarman. Olympia has obtained the required consent. Olympia also agreed to subordinate to CWB all security interests granted to Olympia by Tarman. 6. FUNDS IN TRUST Registered Plans division (“RRSP”) At December 31, 2019, RRSP administered self-directed registered plans consisting of private company securities and mortgages with a cost value of $4.38 billion (December 31, 2018 – $4.14 billion) plus cash, public securities, term deposits and outstanding cheques with an estimated fair value of $599.17 million (December 31, 2018 – $530.24 million). These assets are the property of the account holders and Olympia Trust does not maintain effective control over the assets. Therefore, the assets are not reflected in these consolidated financial statements. Olympia earned trust income from the cash portion of the assets held in trust of $12.16 million for the year ended December 31, 2019 (December 31, 2018 – $10.28 million). Private Health Services Plan division (“Health”) At December 31, 2019, Health held funds in trust of $11.46 million (December 31, 2018 – $11.02 million) on behalf of its self-insured private health clients. These assets are the property of the plan holders and OBI does not maintain effective control over the assets. Therefore, the assets are not reflected in these consolidated financial statements. Foreign Exchange division (“FX”) At December 31, 2019, FX held funds in trust of $3.69 million (December 31, 2018 – $1.22 million) for clients who have paid margin requirements on forward foreign exchange contracts, and $12.04 million (December 31, 2018 – $5.06 million) of outstanding payments. These assets are the property of the contract holders and Olympia Trust does not maintain effective control over the assets. Therefore, the assets are not reflected in these consolidated financial statements. Corporate and Shareholder Services division (“CSS”) At December 31, 2019, CSS held funds in trust and outstanding cheques of approximately $15.23 million (December 31, 2018 – $nil) for clients who have hired Olympia Trust to provide trustee services. These assets are the property of the trust clients and Olympia Trust does not maintain effective control over the assets. Therefore, the assets are not reflected in these consolidated financial statements. 7. FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS Fair value of financial instruments investments, trade and other receivables, The fair value of cash and cash equivalents, restricted cash and long-term lease receivable, promissory note receivable, trade and other payables, lease liabilities, revolving credit facility and other liabilities and charges approximate their carrying amounts. Derivative financial instruments are measured at fair value through profit or loss. The fair value of all forward foreign exchange contracts is based on current bid prices for their respective terms to maturity in an active market. Risks associated with financial instruments Olympia is exposed to financial risks arising from normal course business operations and its financial assets and liabilities. The financial risks include liquidity risk and market risk relating to foreign currency exchange rates, interest rates and credit risk. (i) Liquidity risk Liquidity risk is the risk that Olympia will encounter difficulties in meeting its financial obligations. Olympia manages its liquidity risk by keeping surplus cash in liquid investments with a highly rated financial institution. This allows Olympia to earn interest on surplus cash while having access to it within a very short time. Liquidity risk is associated with Olympia’s credit facility. The credit facility is available to finance day-to-day operations to a maximum principal amount of $15 million (December 31, 2018 – $8.50 million) and bears interest at the Canadian prime rate plus 0.25%. For the year ended December 31, 2019, a balance of $6.66 million is outstanding (December 31, 2018 – $4.21 million). Olympia has determined the principal and interest to be current. Security for the credit facility includes a general security agreement providing a first security interest in all present and subsequently acquired property. 54 2019 Annual Report | Olympia Financial Group Inc. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSThe timing of cash outflows is outlined in the following tables: At December 31, 2019 Current 31 to 60 days 61 to 90 days Over 90 days Total Trade and other payables $ 1,388,733 $ 67,433 $ Other liabilities and charges Lease liabilities Total At December 31, 2018 Trade and other payables Other liabilities and charges(1) Total 1,732,886 73,616 - $ - - - - 73,984 74,353 685,113 $ 1,456,166 1,732,886 907,066 $ 3,195,235 $ 141,417 $ 74,353 $ 685,113 $ 4,096,118 $ 1,341,291 1,259,435 $ 2,600,726 $ $ - - - $ $ - - - $ $ 601 - 601 $ 1,341,892 1,259,435 $ 2,601,327 (1) Other liabilities and charges excludes leasehold inducement, straight-line rent and onerous contract obligation. As at December 31, 2019, trade and other payables totaled $1.46 million (December 31, 2018 – $1.34 million). Olympia continues to meet all of the obligations associated with its financial liabilities. The aging of the undiscounted lease payments is outlined in the following table: At December 31, 2019 Lease payments Less than one year One to two years Two to three years More than three years Total undiscounted lease payments $ 1,013,885 $ 1,013,885 $ $ 923,397 923,397 $ $ 147,932 147,932 $ $ - - $ 2,085,214 $ 2,085,214 The liquidity risk relating to derivative financial instruments payable is outlined in the following table: Current 31 to 60 days 61 to 90 days Over 90 days Non-current (1–3 years) December 31, 2019 December 31, 2018 $ $ $ 7,766 32,175 11,733 605,585 657,259 887,020 $ $ $ 15,210 19,473 16,849 108,948 160,480 - (ii) Market risk Market risk is the risk that the fair value of future cash flows of financial instruments will fluctuate because of changes in market prices and is composed of the following: Foreign currency exchange risk Olympia is exposed to changes in foreign exchange rates when, and if, revenues or financial instruments fluctuate because of changing rates. Transactions in the applicable financial market are executed consistent with established risk management policies. Olympia purchases forward contracts whenever it enters into a transaction to buy or sell foreign currency in the future. These contracts are both short term and long term in nature and are in the normal course of business. Management understands that the currency markets are volatile and therefore subject to higher risk. 2019 Annual Report | Olympia Financial Group Inc. 55 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Olympia applies the following policy to mitigate the currency risk: • For forward contracts, a margin of 5% is payable on signature of the contract; $4.14 million (December 31, 2018 – $3.76 million). A 1% decrease in interest rates would have had an equal but opposite effect. This sensitivity analysis assumes that all other variables remain constant. • Olympia sets up a corresponding position with its currency Credit risk supplier; and • If market rates vary by 4% or more, the client is required to adjust their margin to match the variance by the end of the trading day. Olympia’s FX division maintains various foreign currency bank accounts of which Canadian dollar and United States dollar bank accounts are the most significant. It is Olympia Trust’s policy to limit the amount of foreign currencies on hand to $1.50 million to reduce exposure to foreign currency risk. If the United States dollar to Canadian dollar exchange rate at December 31, 2019, were to have increased by $0.10, it is estimated that Olympia’s after-tax earnings for the year ended December 31, 2019 based on amounts shown in Note 11 and 13, would have decreased by approximately $232,876 (December 31, 2018 – $91,464). A $0.10 decrease in the United States dollar to Canadian dollar exchange rate would have had an equal but opposite effect. The vast majority of Olympia’s Foreign Exchange division’s trades are Canadian dollars traded for United States dollars and vice versa, although it trades in various other currencies. This sensitivity analysis assumes that all other variables remain constant. Interest rate risk Interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. Olympia is exposed to interest rate risk as the cash flows generated from Olympia’s own cash ($13.75 million) and the cash portion of the off-balance sheet arrangements ($569.60 million), from which Olympia Trust earns trust income, are held in interest bearing instruments that fluctuate in response to changes in market interest rates. If the interest rates were to have increased by 1%, it is estimated that Olympia’s after-tax earnings for the year ended December 31, 2019, would have increased by approximately Current 31 to 60 days 61 to 90 days Over 90 days Allowance for doubtful accounts Credit risk is the risk that the counterparty to a financial asset will default, resulting in Olympia incurring a financial loss. Before material transactions begin with a new counterparty, the counterparty’s creditworthiness is assessed by the FX division. The assessment practice considers both quantitative and qualitative factors. Olympia constantly monitors the exposure to any single customer or counterparty along with the financial position of the customer or counterparty. If it is deemed that a customer or counterparty has become materially weaker, Olympia will work to reduce the credit exposure and lower the credit limit allocated. Olympia is exposed to credit risk on its cash and cash equivalents, restricted cash and investments, trade and other receivables, promissory note receivable and derivative financial instruments receivable. The maximum exposure to credit risk of Olympia at the end of the year is the carrying value of cash and cash equivalents, restricted cash and investments, trade and other receivables, promissory note receivable and derivative financial instruments receivable. • Cash and cash equivalents Olympia mitigates its exposure to credit risk by maintaining its bank accounts with a highly rated financial institution. • Restricted cash and investments Olympia limits its counterparty credit risk on these assets by dealing with reputable counterparties and performing due diligence to assess their credit worthiness. • Trade and other receivables Olympia has policies and procedures in place to govern the credit risk it will assume. Trade receivables over 90 days are considered past due. As of December 31, 2019, net trade receivables of $2.83 million (December 31, 2018 – $2.04 million) were past due but deemed not impaired. The aging of these receivables is as follows: December 31, 2019 December 31, 2018 $ $ 247,890 $ 19,093 7,337 3,813,030 (981,584 ) 3,105,766 $ 196,911 12,657 24,234 2,609,598 (571,363 ) 2,272,037 56 2019 Annual Report | Olympia Financial Group Inc. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The allowance for doubtful accounts is based on an account portfolio analysis. Movements on Olympia’s provision for impairment of trade receivables are as follows: At January 1 Increase in provision Receivables written off Allowance for doubtful accounts Included within receivables is the current portion of a lease receivable of $0.04 million recognized based on the present value of sublet property, as required by the newly adopted IFRS 16. The balance relates to a number of independent clients which Olympia is actively pursuing through its internal collection process. As a result, management considers the outstanding amounts to be recoverable. The provision for impaired receivables has been included in administrative expenses in the consolidated statements of net earnings and comprehensive income. Amounts charged to the allowance account are generally written off when there is no expectation of recovering additional cash. Provision matrix Olympia has set up a provision matrix based on its historically observed default rates. Olympia adjusts the matrix for forward- Current 31 to 60 days 61 to 90 days Over 90 days Non-current (1–3 years) December 31, 2019 December 31, 2018 $ $ 571,363 478,930 (68,709 ) 981,584 $ $ 613,822 269,437 (311,896 ) 571,363 looking estimates. The minimum allowance has been calculated based on the provision matrix, and the expected credit loss is as follows: • less than 90 days: nominal; • more than 90 days but less than two years past due: $390,864; • more than two years but less than three years past due: $215,594; and • three or more years past due: $148,527. Derivative financial instruments receivable The expected maturity relating to derivative financial instruments receivable and foreign exchange contracts is outlined in the following table: December 31, 2019 December 31, 2018 $ $ $ 11,005 55,658 19,742 2,090,615 2,177,020 1,840,389 $ $ $ 17,926 30,960 45,029 312,167 406,082 - The receivable can all be offset with one counterparty. (iii) Capital risk management Olympia’s objectives when managing capital are to safeguard Olympia’s ability to continue as a going concern in order to provide returns and benefits to shareholders and to maintain an optimal capital structure to reduce the cost of capital and to meet minimum regulatory capital requirements. In order to maintain or adjust the capital structure, Olympia may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, repurchase shares, sell assets or make further use of its credit facility. Olympia includes shareholders’ equity of $17.93 million (December 31, 2018 – $15.08 million) in the definition of capital. Shareholders’ equity comprises share capital, contributed surplus, non-controlling interest and retained earnings. Olympia’s main objectives when managing its capital structure are to: • Maintain sufficient cash and cash equivalents over the short and medium term in order to finance its growth and development, including capital expenditures; 2019 Annual Report | Olympia Financial Group Inc. 57 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The current portion as at December 31, 2019, is $0.91 million, with the non-current portion being $1.04 million. Included under administrative expenses are interest expenses related to the lease liabilities in the amount of $0.14 million for the year ended December 31, 2019. 9. OPERATING SEGMENTS Olympia has six operating segments or divisions, of which five are business segments and offer different products and services and are managed separately because they require different technology and marketing strategies. The Corporate division is a cost centre and earns incidental revenue. For each of the divisions, Olympia’s president, chief financial officer and other executive management review internal management reports on a monthly basis. Segment profit or loss is used to measure performance. Olympia’s president and other executive management believe that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries. Inter-segmental transactions consist mainly of cost recoveries, which are recognized at cost. In addition, reportable segments are managed on a functional basis through regular reporting to the president and other executive management. Olympia does not disclose a measure of segment assets, because the president and other executive management do not use this information to assess performance and allocate for all resources. Olympia reports net operating results operating segments to the president and other executive management. All other assets and liabilities are reported on a consolidated basis. Costs are allocated to segments based on usage. • Maintain investor and creditor confidence to sustain future development of the business. Olympia’s objective when managing capital is to maintain adequate financial flexibility to preserve its ability to meet financial obligations. In managing capital, Olympia estimates its future dividend payments and capital expenditures, which is compared to planned business growth for purposes of sustainability; • Maintain regulatory capital for Olympia Trust as required by the Loan and Trust Corporations Act (Alberta) ($2 million). Similar regulatory capital in Nova Scotia ($5 million) and Saskatchewan ($5 million). Regulatory capital is defined as share capital and retained earnings. Olympia Trust has maintained these minimum capital requirements throughout the year ended December 31, 2019; and is required by legislation • Maintain compliance with financial covenants, which includes maintaining a minimum equity of $12 million. The financial covenants are reviewed quarterly, and controls are in place to maintain compliance with the covenants. Olympia complied with its financial covenants for the year ended December 31, 2019. The capital structure of Olympia is managed and adjusted to reflect changes in economic conditions. Capital structure adjustments could include adjusting the level of dividends and/or issuance or repurchase of common shares. In support thereof, management reviews the financial position of Olympia on a monthly and cumulative basis. Financing decisions are set based on the timing and extent of expected operating and capital cash outlays. Factors considered when determining capital and the amount of operational cash requirements are weighed against the costs associated with excess cash, its terms and availability and whether to issue equity. Olympia works towards managing its capital objectives to the extent possible while facing the challenges of market conditions and the public’s assessment of Olympia’s risk profile. Olympia’s capital management objectives have remained substantively unchanged over the periods presented. 8. LEASE LIABILITIES Olympia recognized lease liabilities on the initial application of IFRS 16, which was implemented on January 1, 2019. The movement of the lease liabilities is shown below Lease liability Balance at January 1 Lease repayment Balance at December 31 $ $ 2019 2,801,728 (856,376 ) 1,945,352 58 2019 Annual Report | Olympia Financial Group Inc. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Net operations for the year ended December 31, 2019 Health RRSP FX EEI CSS Corporate Total Service revenue $ 8,078,679 $ 18,784,070 $ 7,778,903 $ 731,397 $ 180,330 $ 26,747 $ 35,580,126 Interest revenue and trust income 335,144 12,812,347 253,361 1,016 2,872 98,108 13,502,848 Direct expenses (1,708,096 ) (51,189 ) (1,376,199 ) (50,672 ) (3,178 ) - (3,189,334 ) 6,705,727 31,545,228 6,656,065 681,741 180,024 124,855 45,893,640 Administrative expenses (3,744,574 ) (20,814,440 ) (7,307,531 ) (1,296,981 ) (1,265,249 ) (174,842 ) (34,603,617 ) Depreciation and amortization Other gains/(losses), net (note 25) Earnings/(loss) before income taxes Income taxes (expense)/recovery(1) (153,473 ) (982,418 ) (286,135 ) (82,339 ) (33,264 ) (57 ) (1,537,686 ) 12,871 95,173 2,999,206 3,401 - (5,910 ) 3,104,741 2,820,551 9,843,543 2,061,605 (694,178 ) (1,118,489 ) (55,954 ) 12,857,078 (748,490 ) (2,627,174) (541,962 ) 183,311 293,757 (90,539 ) (3,531,097 ) Net earnings/(loss) $ 2,072,061 $ 7,216,369 $ 1,519,643 $ (510,867 ) $ (824,732 ) $ (146,493 ) $ 9,325,981 Net operations for year ended December 31, 2018 Health RRSP FX EEI CSS Corporate Total Service revenue $ 7,958,937 $ 20,004,171 $ 9,921,513 $ 518,257 $ - $ 194,370 $38,597,248 Interest revenue and trust income 234,441 10,694,190 207,096 767 - 295,839 11,432,333 Direct expenses (1,801,294 ) (36,062 ) (1,108,870 ) (165,826 ) 6,392,084 30,662,299 9,019,739 353,198 (23 ) (23 ) - (3,112,075 ) 490,209 46,917,506 Administrative expenses (3,745,167 ) (19,951,246 ) (6,176,542 ) (742,736 ) (257,476 ) (277,722 ) (31,150,889 ) Depreciation and amortization Other (losses)/gains, net (note 25) Earnings/(loss) before income taxes Income taxes (expense)/recovery(1) (75,218 ) (514,300 ) (80,151 ) (74,709 ) (780 ) (1,809 ) (746,967 ) (2,064 ) (54,440 ) (1,384,262 ) - - 10,150 (1,430,616 ) 2,569,635 10,142,313 1,378,784 (464,247 ) (258,279 ) 220,828 13,589,034 (657,930 ) (2,694,538 ) (366,306 ) 136,212 68,612 (172,870 ) (3,686,820 ) Net earnings/(loss) $ 1,911,705 $ 7,447,775 $ 1,012,478 $ (328,035 ) $ (189,667 ) $ 47,958 $ 9,902,214 (1) No income tax adjustment has been made regarding the elimination of intercompany transactions. 2019 Annual Report | Olympia Financial Group Inc. 59 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Service revenue per segment for year ended December 31, 2019 Health RRSP FX EEI CSS Corporate Total - $ 650,150 $ - $ 227,493 $ 68,475 $ - $ 946,118 1,385,520 12,900,938 - - 39,146 - 14,325,604 6,085,253 5,152,122 263,211 506,321 72,709 - 12,079,616 Account set-up fees and onboarding fees $ Annual administration fee and annual health spending account fees Monthly and transaction fees Trading profits Travel and life insurance brokerage fees 546,827 225 - - - 7,568,004 Other 61,079 80,635 (52,312 ) (2,417 ) - - - - - - - 7,568,004 547,052 26,747 113,732 Service revenue $ 8,078,679 $ 18,784,070 $ 7,778,903 $ 731,397 $ 180,330 $ 26,747 $ 35,580,126 Service revenue per segment for the year ended December 31, 2018 Health RRSP FX EEI CSS Corporate Total $ - $ 469,700 $ - $ 207,683 $ - $ - $ 677,383 Account set-up fees and onboarding fees Annual administation fee and annual health spending account fees Monthly and transaction fees Trading profits Travel and life insurance brokerage fees 1,186,941 13,006,125 - - 6,153,989 6,431,024 122,542 310,109 - 555,137 - - 9,782,629 - - - - - - - - - 14,193,066 - 13,017,664 - - 9,782,629 555,137 194,370 371,369 Other 62,870 97,322 16,342 465 Service revenue $ 7,958,937 $ 20,004,171 $ 9,921,513 $ 518,257 $ - $ 194,370 $ 38,597,248 Revenue earned from one customer in the FX division represents more than 10% of the FX division’s revenue earned for the year ended December 31, 2019 and December 31, 2018. 60 2019 Annual Report | Olympia Financial Group Inc. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 10. RESTRICTED CASH AND INVESTMENTS Foreign exchange trading investments collateral provided December 31, 2019 December 31, 2018 $ $ 2,500,000 2,500,000 $ $ 707,000 707,000 Restricted cash and investments as at December 31, 2019, of $2.50 million (December 31, 2018 – $0.71 million), consist of cash held by a financial institution as collateral for the performance of foreign exchange trading platform obligations. Restricted cash and investments are not readily accessible for use in operations and are therefore reported separately from cash and cash equivalents. Olympia utilized its revolving credit facility to fund the increased collateral requirements. 11. CASH AND CASH EQUIVALENTS Cash at bank and on hand is readily convertible to known amounts of cash, which are subject to an insignificant risk of changes in value. Non-restricted cash in circulation refers to Olympia’s foreign exchange cash in ATM cassettes and cash in transit. Cash at bank and on hand Non-restricted cash in circulation 12. REVOLVING CREDIT FACILITY As at December 31, 2019, Olympia has drawn $6.66 million (December 31, 2018 – $4.21 million) on its established credit facility. On March 15, 2019, Olympia increased the credit facility amount from $8.50 million to $15 million. Amounts drawn in the current year have been used primarily to facilitate the additional trading collateral requirements for the FX division and to finance the growth of the Exempt Edge division. The credit facility in place has a maximum amount of $15 million (December 31, 2018 – $8.50 million) which can be drawn and bears interest at the Canadian prime rate plus 0.25%. The credit facility will be reviewed quarterly based on these financial statements. The credit facility is subject to certain covenants and other limitations that, if breached, could cause a default, which might result in a requirement for immediate repayment of all amounts outstanding. The credit facility contains a number of affirmative covenants, including maintaining specific security, maintaining a specific financial ratio, and maintaining a total equity of $12 million. The financial ratio is a quarterly cash flow coverage ratio of not less than 1.50:1. At December 31, 2019, Olympia’s cash flow coverage ratio under the terms of the credit facility was calculated to be 1.99:1 (December 31, 2018 – 3.23:1). Total Available balance at January 1 Drawn Available at the end of the year December 31, 2019 December 31, 2018 $ $ 13,080,249 673,840 13,754,089 $ $ 11,827,579 1,007,327 12,834,906 equity as at December 31, 2019 was $17.93 million, compared to total equity of $15.08 million at December 31, 2018. As at December 31, 2019, Olympia was in compliance with all covenants. Security for the credit facility includes a general security agreement providing a first security charge over all present and after acquired property. Subsequent to year end, the credit facility was amended to divide the facility between Olympia and Olympia Trust. The new agreements provides Olympia with a $9 million facility and Olympia Trust with a $6 million facility. On May 16, 2016, Olympia Trust entered into a contingent credit facility to be used only by the FX division. The contingent credit facility had a maximum of $5 million, which was only to be used to enter into spot, forward or foreign exchange transactions with the issuing financial institution. For the year ended December 31, 2019, the agreement has been replaced with a new demand credit facility with a US$6 million limit. As as December 31, 2019, no amounts have been drawn on this facility. December 31, 2019 December 31, 2018 $ $ 15,000,000 (6,655,347 ) 8,344,653 $ $ 8,500,000 (4,207,347 ) 4,292,653 2019 Annual Report | Olympia Financial Group Inc. 61 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 13. DERIVATIVE FINANCIAL INSTRUMENTS Fair value as at December 31, 2019 Notional amount as at December 31, 2019 Fair value as at December 31, 2018 Notional amount as at December 31, 2018 Current assets Non-current assets (1–3 years) Current liabilities Non-current liabilities (1–3 years) $ $ $ $ 2,177,020 1,840,389 657,259 887,020 $ $ $ $ 63,680,730 78,426,150 30,131,773 33,447,904 $ $ $ $ 406,082 - 160,480 - $ $ $ $ 25,894,166 - 5,796,292 - Olympia Trust has entered into foreign exchange contracts with its customers and currency suppliers. The expiry dates of the above derivatives vary between January 15, 2020, and September 24, 2021. As a result, a portion of the foreign exchange contracts is classified as non-current. Forward foreign exchange contracts are measured at fair value through profit or loss based on contractual maturities and are presented at their fair value on the balance sheet. Changes in fair values of forward foreign exchange contracts are recorded in “Other (gains)/losses, net” in the consolidated statements of net earnings and comprehensive income. The fair value of all forward foreign exchange contracts is based on current bid prices for their respective remaining terms to maturity in an active market. As at December 31, 2019, Olympia has margins held in Canadian dollars of $3.69 million (December 31, 2018 – $1.22 million). For the year ended December 31, 2019, there were no transfers between Level 1 and Level 2 fair value measurements and no transfers into or out of Level 3 fair value measurements. The following table presents Olympia’s derivative financial assets and liabilities measured at fair value and categorized by level according to the significance of the inputs used in making these measurements: Recurring measurements Financial assets – derivative financial instruments Financial liabilities – derivative financial instruments Recurring measurements Financial assets – derivative financial instruments Financial liabilities – derivative financial instruments December 31, 2019 Level 1 Level 2 Level 3 $ 4,017,409 $ (1,544,278 ) $ 2,473,131 $ - - - $ 4,017,409 $ (1,544,278 ) $ 2,473,131 $ - - - December 31, 2018 Level 1 Level 2 Level 3 $ $ 406,082 $ (160,480 ) 245,602 $ - - - $ $ 406,082 $ (160,480 ) 245,602 $ - - - 62 2019 Annual Report | Olympia Financial Group Inc. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 14. EQUIPMENT AND OTHER December 31, 2019 Cost At beginning of year Additions Disposals Leasehold improvements Computers & equipment Furniture & fixtures FX ATM equipment Total $ 3,226,243 $ 643,135 $ 1,110,517 $ 294,449 $ 5,274,344 61,905 200,548 91,887 (256,445 ) (229,519 ) (231,877 ) 973 - 355,313 (717,841) At end of year $ 3,031,703 $ 614,164 $ 970,527 $ 295,422 $ 4,911,816 Accumulated depreciation At beginning of year Disposals $ 2,567,485 $ 434,987 $ 947,377 $ 84,962 $ 4,034,811 (256,445 ) (216,989 ) (231,613 ) - (705,047 ) Depreciation charge for the year 208,617 120,954 72,505 59,021 461,097 At end of year Closing net book value $ 2,519,657 $ 512,046 $ $ 338,952 275,212 $ $ 788,269 182,258 $ $ 143,983 $ 3,790,861 151,439 $ 1,120,955 December 31, 2018 Cost At beginning of year Additions Reclassification Disposals At end of year Accumulated depreciation At beginning of year Disposals Leasehold improvements Computers & equipment Furniture & fixtures ATM equipment Total $ 3,307,502 $ 2,497,727 $ 1,499,304 $ 1,467,560 $ 8,772,093 143,859 178,249 (1,677 ) (843 ) 70,638 1,560 180,283 573,029 960 - (223,441 ) (2,031,998 ) (460,985 ) (1,354,354 ) (4,070,778 ) $ 3,226,243 $ 643,135 $ 1,110,517 $ 294,449 $ 5,274,344 $ 2,579,050 $ 2,244,883 $ 1,247,936 $ 467,828 $ 6,539,697 (211,205 ) (1,923,476 ) (421,097) (531,090 ) (3,086,868 ) Depreciation charge for the year 199,640 113,580 120,538 148,224 581,982 At end of year Closing net book value $ 2,567,485 $ 658,758 $ $ 434,987 208,148 $ $ 947,377 163,140 $ $ 84,962 $ 4,034,811 209,487 $ 1,239,533 2019 Annual Report | Olympia Financial Group Inc. 63 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 15. INTANGIBLE ASSETS December 31, 2019 Cost At beginning of year Additions Disposals Internally generated software Computer software ATM processing contracts Other Total $ 2,110,319 $ 1,647,523 $ 943,968 $ 27,305 $ 4,729,115 279,454 503,165 - (16,740 ) (431,442 ) (943,968 ) - - 782,619 (1,392,150 ) At end of year $ 2,373,033 $ 1,719,246 $ - $ 27,305 $ 4,119,584 Accumulated depreciation At beginning of year $ 408,450 $ 851,575 $ 943,968 $ 16,860 $ 2,220,853 Amortization charge for the year 255,921 277,620 - 9,126 542,667 (16,740 ) (431,442 ) (943,968 ) - (1,392,150 ) Closing net book value $ 1,725,402 $ 1,021,493 $ 647,631 $ 697,753 $ $ - - $ $ 25,986 $ 1,371,370 1,319 $ 2,748,214 Disposals At end of year December 31, 2018 Cost At beginning of year Additions Disposals Internally generated software Computer software ATM processing contracts Other Total $ 1,850,960 $ 1,210,020 $ 1,082,968 $ 41,032 $ 4,184,980 461,642 616,192 - 2,305 1,080,139 (202,283 ) (178,689 ) (139,000 ) (16,032 ) (536,004 ) At end of year $ 2,110,319 $ 1,647,523 $ 943,968 $ 27,305 $ 4,729,115 Accumulated depreciation At beginning of year $ 354,923 $ 942,715 $ 1,015,216 $ 22,433 $ 2,335,287 Amortization charge for the year 255,810 76,231 9,584 10,459 352,084 Disposals At end of year Closing net book value Additions (202,283 ) (167,371 ) $ 408,450 $ 1,701,869 $ $ 851,575 795,948 $ $ (80,832 ) 943,968 - (16,032 ) (466,518 ) $ $ 16,860 $ 2,220,853 10,445 $ 2,508,262 The capital additions of $0.78 million relates to the continued development and enhancement of the Issuer’s Edge, Dealer’s Edge and Edgelink systems by the Exempt Edge division and the continued development of the Registered Plans division’s mobile application. 64 2019 Annual Report | Olympia Financial Group Inc. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 16. RIGHT-OF-USE ASSETS Balance at January 1 Amortization Balance at December 31 2019 1,606,986 (533,922 ) 1,073,064 $ $ The right-of-use leased assets recognition is related to the adoption of IFRS 16 and is depreciated over the term of the lease. 17. TRADE AND OTHER PAYABLES Trade and other payables Agents and commissions payable Amounts due to related parties Government taxes 18. DEFERRED REVENUE Annual registered plan services administration fees Annual health spending account fee Annual corporate & shareholder services retainer fees December 31, 2019 December 31, 2018 $ $ $ $ 826,597 188,118 126,380 315,071 1,456,166 December 31, 2019 950 463,042 22,663 486,655 $ $ $ $ 719,340 207,067 107,539 307,946 1,341,892 December 31, 2018 6,300 393,520 - 399,820 At December 31, 2019, deferred revenue totaled $0.49 million compared to $0.40 million as at December 31, 2018. This is comprised of annual fees that have been received by the Health division, the CSS division, and the RRSP division. The unearned portion of these annual fees is recognized as deferred revenue at the time of billing and revenue is recognized on a straight-line basis in relation to Olympia rendering these services. 2019 Annual Report | Olympia Financial Group Inc. 65 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 19. OTHER LIABILITIES AND CHARGES Other liabilities and charges (current) Bonuses and commission payable $ General accruals Medical benefits payable CRA employee tax accrual Scholarships and other Vacation payable Professional fees accrual Severance accrual Straight-line rent Leasehold inducement Onerous contract obligation Legal fee accrual December 31, 2019 December 31, 2018 $ 925,422 275,926 124,436 111,306 100,130 89,236 63,930 42,500 - - - - 597,426 223,235 124,436 - 85,996 69,595 132,558 - 122,483 85,688 73,635 13,026 General accruals primarily comprises enhanced cyber security testing, computer maintenance and services and corporate maintenance. In the prior year the non-current portion of other liabilities of $0.79 million related to leasehold inducements. With the transition to IFRS 16 on January 1, 2019, these were offset with the right-of-use asset, as disclosed in Note 3. $ 1,732,886 $ 1,528,078 20. SHARE CAPITAL AND CONTRIBUTED SURPLUS At January 1, 2019 Shares repurchased and cancelled Balance at December 31, 2019 At January 1, 2018 Balance at December 31, 2018 Number of common shares Share capital Contributed surplus Total 2,406,352 $ 7,886,989 $ 86,373 $ 7,973,362 (16 ) 2,406,336 2,406,352 2,406,352 $ $ - - - 7,886,989 $ 86,373 $ 7,973,362 7,886,989 $ 86,373 $ 7,973,362 7,886,989 86,373 7,973,362 Olympia is authorized to issue an unlimited number of common shares without nominal or par value. (December 31, 2018 – unlimited common shares). All issued shares are fully paid. During the year, Olympia repurchased fractional shares from former shareholders at $50 per share. The full repurchase was allocated to retained earnings. 66 2019 Annual Report | Olympia Financial Group Inc. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 21. INCOME TAXES a) The significant components which give rise to deferred income tax assets and liabilities are as follows: Bad debts provision and other Non-capital losses Carrying amount of equipment higher than the tax basis December 31, 2019 December 31, 2018 $ $ 501,728 595,604 (311,132 ) 786,200 $ $ 154,456 1,314,559 (225,759 ) 1,243,256 b) Income tax expense is recognized based on management’s best estimate of the weighted average annual income tax rate expected for the full financial year. The average annual rate used for the year ended December 31, 2019, was 26.5% (December 31, 2018 – 27%). On May 28, 2019, the Alberta government introduced Bill 3, reducing the corporate income tax rate to 11% (from 12%) effective July 1, 2019. Earnings from continuing operations before income tax $ 12,857,078 $ 13,589,034 December 31, 2019 December 31, 2018 Anticipated income tax expense Non-deductible expenses Adjustment in respect of prior years Other Remeasurement of deferred tax (change in provincial tax rate) Current tax expense Deferred tax recovery 22. ADMINISTRATIVE EXPENSES 3,407,126 60,027 5,630 12,064 46,250 3,531,097 3,074,041 457,056 $ $ $ 3,669,039 28,833 (16,179 ) 5,127 - 3,686,820 3,353,276 333,544 $ $ $ Salaries, management fees & bonuses $ 17,599,545 $ 16,238,728 December 31, 2019 December 31, 2018 General administration Rent Management compensation (note 32) Employee benefit expense (note 24) Bad debts 23. DIRECT EXPENSES Commission expense Trailer health commissions Service costs paid 2019 Annual Report | Olympia Financial Group Inc. 9,721,219 1,106,153 3,734,826 1,673,640 768,234 7,994,985 1,787,377 3,594,972 1,290,633 244,194 $ 34,603,617 $ 31,150,889 December 31, 2019 December 31, 2018 $ $ 1,614,858 1,217,517 356,959 3,189,334 $ $ 1,395,391 1,295,264 421,420 3,112,075 67 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 24. EMPLOYEE BENEFITS Medical benefits Parking and other benefits Employee share ownership assistance scheme Long-term service awards and education assistance 25. OTHER (GAINS)/LOSSES, NET Unrealized foreign exchange (gain)/loss (Gain)/loss on disposal of asset Insurance settlement December 31, 2019 December 31, 2018 $ $ $ $ 788,106 507,707 278,626 99,201 1,673,640 December 31, 2019 (2,227,529 ) (39,680 ) (837,532 ) (3,104,741 ) $ $ $ $ 556,484 379,704 239,146 115,299 1,290,633 December 31, 2018 1,381,682 48,934 - 1,430,616 The insurance settlement relates to amounts received as part of the insurance claim stemming from the cyber incident disclosed in the press release on February 2, 2019. 26. EARNINGS PER SHARE Basic and diluted Basic earnings per share is calculated by dividing the profit attributable to equity holders of Olympia by the weighted average number of common shares in issue during the period. Year ended December 31, 2019 December 31, 2018 Net earnings from continuing operations attributable to shareholders of Olympia Net loss from discontinued operations Total net earnings Weighted average number of shares (basic and diluted) Basic and diluted earnings per share – continuing operations Basic and diluted loss per share – discontinued operations Basic and diluted earnings per share – combined operations $ $ $ $ $ 9,428,154 - 9,428,154 2,406,341 3.92 - 3.92 $ $ $ $ $ 9,967,821 (388,022 ) 9,579,799 2,406,352 4.14 (0.16 ) 3.98 27. DIVIDENDS PER SHARE The aggregate dividends declared and paid amounted to $6.50 million (December 31, 2018 – $5.41 million). 68 2019 Annual Report | Olympia Financial Group Inc. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 28a. CHANGES IN NON-CASH WORKING CAPITAL December 31, 2019 December 31, 2018 Trade & other receivables Prepaid expenses Promissory note receivable Inventory Trade & other payables Deferred revenue Current taxes payable Other liabilities & charges Other liabilities (non-current) $ (761,393 ) (486,914 ) 28,539 (7,391 ) 114,275 86,836 171,158 486,914 - $ (1,045,598 ) (87,467 ) - 74,212 215,954 86,564 (96,575 ) (17,676 ) (277,071 ) (1,147,657 ) $ (367,976 ) $ 28b. NON-CASH FINANCING AND INVESTING ACTIVITIES Lease receivable resulting from IFRS 16 Lease liability resulting from IFRS 16 December 31, 2019 $ $ $ 141,208 282,106 423,314 29. RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES Revolving credit facility December 31, 2018 Cash flows December 31, 2019 $ $ 4,207,347 4,207,347 $ $ 2,448,000 2,448,000 $ $ 6,655,347 6,655,347 30. COMMITMENTS Olympia leases various offices under lease agreements. The initial lease terms are between twelve months and fifty months and the majority of lease agreements are renewable at market rates when the lease period ends. Future aggregate minimum lease payments under leases are listed in the table below: 2020 2021 2022 December 31, 2019 $ $ 1,013,885 923,397 147,932 2,085,214 2019 Annual Report | Olympia Financial Group Inc. 69 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31. CONTINGENCIES Olympia is not a money lender nor does it guarantee or participate in loans or mortgages of any type, except in its capacity as trustee of conventional and syndicated mortgages. Olympia is defendant and plaintiff in a number of legal actions that arise in the normal course of business, the losses or gains from which, if any, are not anticipated to have a material effect on the consolidated financial statements. 32. RELATED PARTY TRANSACTIONS Olympia’s president and CEO owns and controls 29.28% of Olympia’s shares. During the year, Olympia entered into transactions with the following related parties: • Companies and businesses controlled by management of Olympia; • Family members of the president, management and directors; • Companies and businesses controlled by the president and and CEO of Olympia; • Companies and businesses associated with the directors of Olympia; • Key management and directors. The following transactions with related parties were measured at the exchange amount, which is the amount of consideration agreed to by the parties: Service revenue Companies and businesses controlled by the president and CEO December 31, 2019 December 31, 2018 $ $ 34,330 34,330 $ $ 11,639 11,639 Revenue from associated entities totaled $34,330 for the year ended December 31, 2019 (December 31, 2018 – $11,639). This mainly consisted of revenue from legal services provided by Olympia’s in-house general counsel to Tarman, a company controlled by the president and CEO, as well as sublease income ($24,000) from Exempt Experts Inc., a company controlled by the president and CEO. Interest revenue Companies and businesses controlled by the president and CEO December 31, 2019 December 31, 2018 $ $ 58,800 58,800 $ $ 37,335 37,335 Interest revenue from associated entities totaled $58,800 for the year ended December 31, 2019, (December 31, 2018 – $37,335), and consists of interest earned from the promissory note receivable. Administrative expenses December 31, 2019 December 31, 2018 Companies and businesses controlled by the president and CEO (management fee) Olympia Charitable Foundation Companies and businesses controlled by the president and CEO $ $ 3,734,826 68,155 38,379 3,841,360 $ $ 3,594,972 98,432 - 3,693,404 70 2019 Annual Report | Olympia Financial Group Inc. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Administrative expenses paid to associated entities totaled $3.84 million for the year ended December 31, 2019 (December 31, 2018 – $3.69 million), and consisted of the following: • The Olympia Charitable Foundation is funded by Olympia and the employees of Olympia. Olympia’s matched donation totaled $68,155 for the twelve months ended December 31, 2019 (December 31, 2018 – $98,432). • Management fees are paid to Tarman based on a percentage of pre-tax profits of Olympia’s divisions, except for the Private Health Services Plan division, where the management fee is based on a percentage of health claims administered. These fees are for services provided as president and CEO of Olympia. For the twelve months ended December 31, 2019, this amounted to $3.73 million (December 31, 2018 – $3.59 million). • Fees paid to Olympia ATM Ltd., a company owned and controlled by Olympia’s president and CEO, of $38,379 relate to maintenance services provided for Olympia’s Foreign Exchange ATMs. Trade and other receivables include amounts receivable from related parties Companies and businesses controlled by the president and CEO (current) Companies and businesses controlled by the president and CEO (non-current) December 31, 2019 December 31, 2018 $ $ 49,966 1,400,000 1,449,966 $ $ 57,522 1,428,539 1,486,061 Receivables from associated entities totaled $1.45 million for the year ended December 31, 2019 (December 31, 2018 – $1.49 million) and consisted mainly of the following: • A receivable in the amount of $34,421 (December 31, 2018 – $57,488) from Tarman, a company controlled by Olympia’s president and CEO, reflects legal services provided and cost recoveries relating to accounting and other administration services provided. • A receivable in the amount of $15,545 (December 31, 2018 – $nil) from Olympia ATM Ltd., a company controlled by the president and CEO of Olympia, for expense recoveries relating to accounting and other administrative services provided. • On June 5, 2018, Olympia announced the sale to Tarman ATM Inc. (“Tarman”) of the ATM business operated by Olympia ATM Inc., as a going concern, for an amount equal to then current net book value of all assets used in the ATM business less all assumed liabilities; an amount estimated to be $1.4 million. • The sale of the ATM business to Tarman, a corporation owned and controlled by Rick Skauge, was a related party transaction, as defined in Multilateral Instrument 61-101 – [Protection of Minority Security Holders in Special Transactions], but was exempted from Olympia obtaining disinterested shareholder approval and a formal valuation as the fair market value of the proposed transaction was less than 25% of Olympia’s market capitalization. • An ad hoc committee composed solely of the independent members of Olympia’s Board of Directors was constituted to consider and approve the sale of the ATM business to Tarman. As part of its deliberations, the ad hoc committee of the Board of Directors noted the continuing losses of approximately $120,000 per month in the ATM Business and acknowledged that while the ATM business still had the potential to grow and expand, it was unlikely to become profitable in the near future. Given the immediate financial benefits that the sale of the ATM business would have for Olympia and the uncertain timelines to profitability, the ad hoc committee believed the sale of the ATM business to be in the best interest of Olympia. The ad hoc committee of the Board of Directors obtained a fairness comfort letter stating that the proposed transaction was fair to the disinterested shareholders of Olympia. In addition, following the public disclosure of the transaction, Olympia received an unsolicited expression of interest in the ATM business from a third-party. Olympia permitted the third-party to conduct a due diligence review and valuation of the ATM business and received an offer to purchase the ATM business from the third-party that was economically comparable to the offer made by Tarman. • In conjunction with the sale of substantially all assets of Olympia ATM Inc. in 2018, the purchase price paid by Tarman was equal to the aggregate net book value of the assets used by the ATM division. The assets’ book value at June 5, 2018, was estimated to be $1.40 million. The purchase price was paid by the delivery of a secured demand promissory note (the “promissory note”) for $1.40 million by Tarman. The outstanding principal amount of the promissory note bears interest at prime plus 0.25%. All interest accrued under the promissory note the shall be paid on an annual basis on or before 30th day of June of each calendar year. Subject to Canadian Western Bank’s consent, which Olympia has obtained, commencing June 30, 2020, Tarman is 2019 Annual Report | Olympia Financial Group Inc. 71 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS required to repay the outstanding principal amount of the promissory note in annual installments of $140,000 on or before the 30th day of June of each calendar year, with the outstanding balance of the principal amount to be repaid in full on or before June 30, 2023. As at December 31, 2019, all interest has been fully paid. Interest earned for the year ended December 31, 2019 was $58,800. • Olympia has assessed the expected credit loss as it relates to the promissory note and has determined it to be nominal. Trade and other payables and provision for other liabilities and charges include amounts payable to related parties Companies and businesses controlled by the president and CEO Directors' fees Payables to associated entities totaled $235,230 for the year ended December 31, 2019 (December 31, 2018 – $223,278), and consisted mainly of the following: • A payable in the amount of $39,994 (December 31, 2018 – $37,070) to Tarman, a company controlled by the president and CEO of Olympia, for commissions related to the sale of health plans offered by OBI. • A payable in the amount of $3,095 (December 31, 2018 – $nil) to Olympia ATM Ltd, a company controlled by the president and CEO of Olympia, for services provided to maintain Foreign Exchange ATMs. December 31, 2019 December 31, 2018 $ $ 151,939 83,291 235,230 $ $ 153,502 69,776 223,278 • A management fee payable in the amount of $108,850 (December 31, 2018 – $115,739) to Tarman, a company controlled by the president and CEO of Olympia, based on a percentage of pre-tax profits of Olympia’s divisions. • A payable for directors’ fees of $83,291 (December 31, 2018 – $69,776). These payables are all current. Key management compensation Compensation paid to key management is included in Note 22. Key management includes the Board of Directors and executive team members from OBI, Olympia Trust, Exempt Edge Inc., and Olympia. Olympia uses management and/or employment contracts as a means to incent certain executives to maximize the profitability of their applicable business units and the profitability of Olympia as a whole. The compensation paid or payable to key management is shown in the following table: Salaries, bonuses and profit sharing $ Management fees Directors’ fees Short-term employee benefits December 31, 2019 December 31, 2018 $ 5,322,684 3,734,826 285,001 250,978 4,583,106 3,594,972 262,163 233,604 $ 9,593,489 $ 8,673,845 72 2019 Annual Report | Olympia Financial Group Inc. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CORPORATE INFORMATION Directors Rick Skauge Craig Skauge Brenda Eprile 2 Brian Newman1 2 3 4 Diana Wolfe1 2 3 4 Gerard Janssen1 2 3 4 Tony Balasubramanian Tony Lanzl Board Committees 1 Audit Committee 2 Corporate Governance Committee 3 Executive Compensation Committee 4 Investment Committee Head Office 2300, 125 – 9th Avenue SE Calgary, AB T2G 0P6 Tel: 403-261-0900 Fax: 403-265-1455 www.olympiafinancial.com info@olympiafinancial.com Transfer Agent Olympia Trust Company 2300, 125 – 9th Avenue SE Calgary, AB T2G 0P6 Tel: 587-774-2340 Fax: 403-668-8307 Auditors PricewaterhouseCoopers LLP Chartered Professional Accountants Suite 3100, 111 – 5th Avenue SW Calgary, AB T2P 5L3 2019 Annual Report | Olympia Financial Group Inc. 73 THE EXECUTIVE TEAM RICK SKAUGE CRAIG SKAUGE GERHARD BARNARD ROBIN FRY President and Chief Executive Officer Executive Vice President and President, Olympia Trust Company President, Exempt Edge Inc. Chief Financial Officer and Vice President, Finance Chief Executive Officer, Olympia Benefits Inc. KEN FRY NEIL MCCULLAGH ANDREA GILLIS KELLY REVOL President, Olympia Benefits Inc. Vice President, Foreign Exchange Vice President, Securities Registered Plans Vice President, Mortgages Registered Plans STEPHEN PRESTON DEAN NAUGLER JONATHAN BAHNUIK RYAN MCKENNA Vice President, Exempt Edge Inc. Vice President, Corporate and Shareholder Services General Counsel Vice President, Information Technology 74 2019 Annual Report | Olympia Financial Group Inc. 19202300, 125 – 9th Avenue SE, Calgary, Alberta T2G 0P6 Tel: 403.261.0900 Fax: 403.265.1455 www.olympiafinancial.com info@olympiafinancial.com 1920

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