Saskatchewan Credit Union Difference

saskcu.com

2013

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Table of Contents

Message from the President and CEO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Credit Union System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Fair Taxation for Saskatchewan Credit Unions . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Financial Literacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Credit Union Impact – Our Difference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

GIVING BACK in Hundreds of Ways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14

Saskatchewan Communities Served by Credit Unions . . . . . . . . . . . . . . . . . . . . . .15

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Message from the President and CEOThe Saskatchewan credit union system is pleased to share the enclosed information with elected officials throughout Saskatchewan . The messages contained herein reflect the collective voice of 55 Saskatchewan credit unions that serve 502,000 members in 264 communities throughout the province .

This information is intended to increase your awareness about the distinct credit union difference, in particular our concern respecting credit union taxation .

We know the provincial government is committed to ensuring small-medium sized businesses can compete and thrive within Saskatchewan . Not only are credit unions independent small-medium sized businesses, we also provide commercial lending to close to 50% of the small-medium sized businesses in Saskatchewan . A recent report from the Canadian Federation of Independent Business found that credit unions came out on top for serving entrepreneurs in the areas of financing, fees, experience with account managers and service .

Earlier this year, the federal government, without consultation, announced changes to the credit union federal tax regime . We understand this means the provincial government will be reviewing the changes and considering how to respond . Any change to the current credit union tax regime will negatively impact credit unions’ ability to exist as second tier financial institutions throughout Saskatchewan . This also means potential changes credit unions may need to consider could include: reduced community investment, streamlined operations which could impact employment, changes in pricing, reduced growth to manage capital constraints and reduced investment in innovation and development .

Saskatchewan credit unions evolved during the 1930s by providing financial services to people who were unable to obtain loans through mainstream banks . Since then, credit unions have not only served as a financial service option to communities throughout the province, credit unions have also proven to be a pillar of stability for Saskatchewan during good times and bad .

Our long history of working with community leaders and elected officials to support the social and economic fabric of Saskatchewan is something we are inherently proud of . We look to the Government of Saskatchewan to recognize our unique model, our purpose and commitment to the Province of Saskatchewan . We further ask the Government of Saskatchewan to advocate for and support our request to maintain the current tax regime for credit unions and not impose a combined 14% taxation rate increase for credit unions .

In the coming weeks, credit union representatives will be taking steps to contact you to discuss this important issue of taxation . We look forward to the participation of government in these discussions to ensure continued strength of credit unions and economic success of Saskatchewan .

Sincerely,

Dean Walde, President of the Board Keith Nixon, Chief Executive Officer Credit Union Central of Saskatchewan Credit Union Central of Saskatchewan

June 2013

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SASKATCHEWAN CREDIT UNION SYSTEM

• Credit unions: 551

• Credit union locations: 297• Number of communities served: 264• Members: 502,413• Employees: 3,479• Total assets: $16 .9 billion• Agricultural loans: $2 .0 billion• Commercial loans: $3 .5 billion• Consumer and residential loans: $6 .6 billion

CANADIAN CREDIT UNION SYSTEM

• Credit unions: 348• Credit union locations: 1,762• Members: 5 .3 million • Employees: 27,500 (approximate)• Total assets: $152 .5 billion

Credit Union System

VISION

Building lives, fulfilling dreams

MISSION

Help our communities thrive

VALUES

Honest, Trustworthy, Co-operative, Enterprising

Saskatchewan credit unions are committed to building financial well-being and growing communities through a common vision, mission and values .

1As of January 1, 2013

As of December 31, 2012 unless otherwise stated .

All figures have been rounded and are current as of December 31, 2012 unless otherwise indicated .

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Fair Taxation for Saskatchewan Credit Unions

The federal government recently changed the credit union tax regime . We understand the provincial tax regime currently mirrors the federal regime . As a result of the changes, the Government of Saskatchewan will be reviewing the changes and considering how to respond .

Our Ask: The provincial government is committed to ensuring small – medium sized businesses can exist, grow and compete within Saskatchewan . We ask the provincial government to maintain the current tax regime for credit unions . Any change to the tax provision will impose a 14% rate increase for credit unions or approximately an additional $10 .6 million per year . The current tax provision in the Income Tax Act, 2000 achieves the following:

• Recognizes credit unions as provincially regulated small sized financial institutions in comparison to banks

• Recognizes the requirements placed on the financial sector to increase capital standards and the reliance of co-operatives on retained earnings as their primary source of capital

• Maintains a tax regime that considers the co-operative business model and its democratic governance

• Considers the credit union impact and the maintenance of the robust credit union system that provides an alternative to the large national chartered banks

• Enables credit unions to continue to support the growing economy in Saskatchewan through their support of small and medium sized enterprises and provision of small business financing options

Credit unions are not the same as banks . Credit unions are different in purpose, ownership and operation from other financial institutions . The 55 Saskatchewan credit unions are each independent financial institutions . Any change to taxation overlooks the unique credit union business model and the important role credit unions play in Saskatchewan and throughout Canada . Credit unions do not raise capital the same way banks do . Credit unions rely significantly on retained earnings to raise capital . Today, the Saskatchewan Income Tax Act recognizes this .

9 Credit unions support local economies and create jobs

9 Credit unions are second tier financial institutions in Saskatchewan

9 Credit unions are at the heart of 264 communities throughout Saskatchewan

The Canadian credit union system was shocked when federal Finance Minister Jim Flaherty announced that credit unions will pay higher federal income tax in 2013 and in future years . The 40 year old federal tax deduction, unique to credit unions, will be phased out over the next five years . This federal tax increase contradicts the federal government’s intention, stated elsewhere in the federal budget, to encourage the growth of smaller financial institutions in Canada . Credit unions are the alternative to large national chartered banks and operate within a unique and local business model .

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While the federal announcement is significant to credit unions, the provincial tax regime is also of particular concern . If the provincial tax provision were to be removed, the additional tax paid by credit unions would be approximately $7 .6 million per year . Today, the provincial tax deduction ensures a competitive balance exists between credit unions and banks and ensures appropriate amounts of tax are paid by each depending on size . The deduction was further intended to ensure that a second tier of financial institutions could exist in Canada . The tax deduction recognizes the unique credit union business model and the significant role we play as second tier financial institutions within Saskatchewan .

Credit unions continue to experience ongoing competition from well-capitalized chartered banks . To date, the credit union system has managed to find ways to adapt in order to maintain market share alongside banks . This isn’t without significant challenges .

One of the biggest challenges for credit unions is accessing capital . Just like banks, credit unions are required to retain an ever-increasing amount of capital to ensure soundness . However, credit unions rely significantly on retained earnings to build capital . Alternately, banks are positioned to access international capital markets to diversify their sources of revenue and risk . Credit unions can replicate some diversification, but only to a limited extent given that we are provincially regulated and therefore are required to operate within provincial boundaries .

Credit union difference

There is a distinct credit union difference . Credit unions are dedicated to serving communities throughout Saskatchewan . Each credit union is an independent financial institution locally based, member-owned and uphold a democratic governance structure . While earnings are important to credit unions in order to meet capital requirements and provide a return on funds to the members, we are values-based financial institutions guided by well-recognized co-operative principles .

Credit unions are small compared to banks, yet our commitment can be seen through our 264 communities served . In comparison, the total number of communities served by chartered banks in Saskatchewan is 119 .

Our relative size in the province can be overestimated because of our visibility and the service levels we provide . However, in reality, the average assets of Saskatchewan’s top five credit unions is only 1/35 the size of the average assets of BMO, CIBC and the Royal Bank .

Five largest banks and Saskatchewan credit unionsTotal assets in $B (2012)

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Affi

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RBC

0.81.11.52.54.2

278.3

327.8347.2

429.6455.4

Domestic assets only

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Access to Capital

One of the most significant differences between banks and credit unions is the restricted access to capital markets to generate capital like banks . Credit unions issue shares to members for a nominal value generally $5 - $10 per membership share . Credit unions can also issue patronage shares . Membership shares may be redeemed by the member; therefore, they do not meet the requirements of permanence and are not considered Tier 1 capital . Banks issue shares through capital markets which qualify as Tier 1 capital because shareholders can sell bank shares on capital markets rather than redeeming them through the bank . Tier 1 capital requirements are increasing in response to new international standards introduced following the 2008 market disruption . For credit unions, 75% of their capital comes from retained earnings, which is the primary source of credit union capital . Any change to income tax deprives credit unions of income that might otherwise be used to support the growth of the credit union by building its capital base .

Today’s current capital requirements already require credit unions to moderate their growth, which places them in a difficult position and compromises their ability to continue to support the growth of the Saskatchewan economy . Many credit unions have had to turn away commercial lending opportunities due to current capital constraints . Any tax change would further amplify this problem and hinder credit unions’ ability to continue to support growth . This is of particular significance to the growing small business sector in Saskatchewan . As of December 31, 2012, credit unions held $3 .5 billion in commercial lending or 49 .7% of the provincial market share . To support the continued economic growth in the province, credit unions want to be in a position to provide small business financing options to this sector without additional constraints .

A new report from the Canadian Federation of Independent Business (CFIB) shows that small-medium sized businesses prefer credit unions to Canada’s big banking institutions . The report called Battle of the Banks found that credit unions came out on top for serving entrepreneurs in the areas of financing, fees, experience with account managers and service .

Impact

Any tax increase will impact credit unions representing 94% of the Saskatchewan credit union member owners .1 If the provincial government were to remove the tax deduction, the provincial impact would be an additional 10% tax (estimated impact of $7 .6 million per year) . Combined, the additional federal and provincial tax amount would be 14% (estimated impact of $10 .6 million per year) . The combined federal and provincial tax change for credit unions would result in an effective tax rate of approximately 26 .3%; whereas the maximum any business can pay is 27% . Comparatively, the effective tax rate for the top five chartered banks is approximately 21 .3% .2

1 The smallest credit unions representing approximately 6 percent of the membership would not be impacted . 2 Includes: BMO, CIBC, RBC, Scotiabank and TD Bank .

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This significant impact would require credit unions to alter their business plans to consider how to maintain their current level of retained earnings required to meet the increased capital standards . Potential changes could include: reduced community investment, reduced investment in innovation and development, streamlined operations which could impact employment, changes to pricing, or reduced growth to manage capital constraints .

We ask the provincial government to recognize that the rationale for establishing the existing credit union tax regime continues today . We urge the provincial government to recognize the small and local nature of credit unions as compared to banks and the uniqueness of the business model .

We understand governments want to ensure a strong and competitive second tier of financial institutions continues to thrive . In Saskatchewan, credit unions essentially are this option . We are hopeful that government continues to recognize credit unions as more than a financial institution, but a pillar of stability to the province of Saskatchewan .

Credit unions value the provincial government’s policy position which has always recognized the credit union difference and the unique contribution made to the province of Saskatchewan . It is critical to the future of Saskatchewan credit unions that government continues to understand this difference and remains committed to ensuring this policy direction .

In closing, we ask the Government of Saskatchewan to advocate for and support the credit union request to maintain the current tax regime and not impose a combined 14% taxation increase on credit unions .

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Financial Literacy

The Saskatchewan credit union system has been a long-time advocate to improve financial literacy for all Saskatchewan people . For decades credit union employees have helped teachers in local schools by presenting financial literacy information . While the information is well received by students and teachers, it was only offered on an ad hoc basis . Over time, credit union employees continued to see a growing number of individuals making poor financial decisions, despite efforts to educate young people . The problem was beyond the reach of credit unions .

Since 2008, Saskatchewan credit union leaders have been meeting with provincial Members of the Legislative Assembly and other stakeholders to further our position which is to:

• Continue to take steps to improve financial literacy content offered to all Saskatchewan students

• Commit to ensure financial literacy is a mandatory core requirement for all Saskatchewan students

• Provide appropriate training and support for educators who will be responsible for delivering financial literacy material to students .

In October 2012, the credit union system was pleased to see the provincial government commitment to financial literacy in the Saskatchewan Plan for Growth: Vision 2020 and Beyond . We would like to commend government for identifying financial literacy as a priority . We understand government is committed to ensuring Saskatchewan students receive information, education and experience needed to gain financial literacy, identify future career paths and learn how to start a business . This would happen by providing career development opportunities for youth in schools and access to entrepreneurship training offered through Junior Achievement . In addition, we commend government for expanding financial literacy education in the K-12 system and expanding post-secondary co-op and career development opportunities .

We thank you for this commitment .

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The Saskatchewan credit union system also participated in the federal Task Force on Financial Literacy . The results and recommendations from this work are available through the National Strategy on Financial Literacy . We ask the provincial government to work collaboratively with the federal government to implement recommendations complimentary to the provincial goal .

The Saskatchewan credit union system is willing to explore playing a supporting role to ensure all Saskatchewan students receive access to financial literacy .

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Credit Union Impact – Our DifferenceCredit unions make a significant contribution to the provincial economy and local communities . We look to the provincial government to ensure the business environment for credit unions is fair, robust and responsive to the changing Saskatchewan marketplace .

Credit unions help the people of Saskatchewan build lives and fulfill dreams by providing a full range of financial products and services with the support of a co-operative network of partners and affiliates . These services are offered through 297 branch locations in 264 communities and through current technology options . In 162 communities, the credit union is the only financial institution .

As of December 31, 2012, credit unions provide financial services to more than 500,000 members throughout Saskatchewan . This means close to 50 per cent of Saskatchewan residents have a membership with a credit union .

Credit unions balance the need for growth with the needs and well-being of members and communities . It’s an integral part of who we are and helps define our difference .

Credit unions are also connected to a larger national and international network of credit unions . Together, we are all dedicated to ensure the highest standards of financial performance for our members . Ensuring the betterment of local communities is considered in all of our decisions .

Excellent Customer Service

Our commitment to the best possible member experience was recognized through the 2012 Ipsos Best Banking Awards . For the eighth consecutive year, Canadians ranked credit unions first in overall Customer Service Excellence among all financial institutions . For the 8th year in a row credit unions took sole honours in Branch Service Excellence and for the 5th year in a row sole honours were awarded for Values My Business . Credit unions also tied for first place in the categories of Financial Planning & Advice and Telephone Banking Excellence among all financial institutions .

Democratic

Credit unions’ democratic structure allows local members to elect the board of directors who provide strategic direction to credit union management teams . This grassroots model enables credit union members to be engaged and part of the electoral process . Throughout Saskatchewan, there are more than 500 local credit union board members .

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Revenue for the People and the Province

Each year, profits generated by credit unions are returned to members in the form of patronage equity and dividends . In 2012, Saskatchewan credit unions returned $16 million to their members . Saskatchewan credit unions also contributed over $22 .7 million in taxes to the Province of Saskatchewan .1

In addition, Saskatchewan credit unions contribute millions of dollars to communities annually through donations, sponsorships, reduced fees for non-profit organizations and in-kind donations . In 2012 alone credit unions contributed more than $6 million . Credit union employees logged nearly 30,000 hours of volunteer time in 2012 and fundraising efforts brought in more than half a million dollars for causes like the Children’s Hospital Foundation of Saskatchewan, Red Cross Disaster Relief, Terry Fox Run and Telemiracle .

Key Employer

Credit unions play a significant role in the Saskatchewan economy, employing close to 3,500 people . Outside of the public sector, the credit union system is one of the largest employers in the province .

The credit union system has been recognized for its contributions . For example, the list of 2012 Top 100 Saskatchewan Companies compiled by the Regina Leader-Post and Saskatoon StarPhoenix newspapers features four credit unions . In addition, SaskCentral is proud to have been named “Canada’s Best Workplace” for 2012 by the Great Place to Work® Institute Canada .

Financial Stability

While global economic uncertainty continues, the credit union system continues to be stable ensuring consumer confidence . Credit unions are proud to continue to offer a wide range of competitive financial products and services . As of December 2012, Saskatchewan credit unions produced the following results:

• $16 .9 billion in assets or about 31 .8 per cent of the market share .

• $6 .6 billion in consumer credit and residential loans, which reflects approximately 21 .6 per cent of the market share .

• $2 .0 billion in agricultural financing, which reflects approximately 19 .3 per cent of the total farm debt outstanding in Saskatchewan .

• $3 .5 billion in authorized credit to Saskatchewan businesses, most of which are small and medium sized enterprises . Credit unions hold approximately 49 .7 per cent of the commercial loan market share in Saskatchewan .2

1 Represents approximate total paid by Saskatchewan credit unions to provincial corporate tax and sales tax .2 CUDGC’s Consolidated Financial and Statistical Report, the Bank of Canada’s Banking and Financial Statistics Report and Statistics Canada . December 31, 2012 . Asset share, consumer credit and commercial credit is a comparison of Saskatchewan credit unions to that of Saskatchewan chartered banks only . Agricultural market share is a comparison of Saskatchewan credit unions to the sum of credit issued by federal government agencies, provincial government agencies, private individuals and supply companies, advance payments and other dealers, stores or individuals.

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Guaranteed Security

Deposits held in Saskatchewan credit unions are fully guaranteed by Credit Union Deposit Guarantee Corporation (the Corporation), the primary regulator for Saskatchewan credit unions . There is no limit to the size of deposit covered by the guarantee – whether $1 or $1,000,000 or more, all deposits are fully guaranteed . The Corporation’s system of deposit protection, including preventive approaches, strong levels of credit union capital and a strong guarantee fund ensure even the largest deposits are fully guaranteed . In the history of the Corporation, no one has ever lost a dollar deposited in a Saskatchewan credit union . The Corporation and Saskatchewan credit unions have never had to rely on the government for financial assistance or bailouts .

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GIVING BACK in Hundreds of Ways

Giving back to communities is in the credit union DNA . In 2012, Saskatchewan credit unions again supported people and communities locally, provincially and globally in areas like economic development, housing, arts and culture, health care, education, sports and recreation, environment and disaster relief .

Whether it’s a winter festival or a summer softball league…an MRI machine or a mentorship program… a new hockey rink or a horse-drawn sleigh ride, Saskatchewan credit unions are active and generous members of their communities, donating volunteer time, in-kind and cash contributions to improve the quality of life for the people of Saskatchewan .

A few of the activities in 2012 that were beneficiaries of Saskatchewan credit unions include:

COMMUNITY PARTICIPATION

Saskatchewan Credit Union Queen City Marathon

Through their trade association SaskCentral, Saskatchewan credit unions collectively support a number of Saskatchewan events . One example is the continuing support for the Saskatchewan Credit Union Queen City Marathon . This Boston-certified race attracts more than 4,000 local and international participants . Hundreds of volunteers make this one of the most successful marathons in North America, putting Saskatchewan in the spotlight for healthy lifestyles and community participation .

RELIEF FOR VICTIMS OF NATURAL DISASTER

Credit Unions and the Red Cross

For years credit unions across the province have collected donations on behalf of the Red Cross when there is a need for local and international disaster relief efforts . With many branches across the province, credit unions are natural collection points that enable the giving people of Saskatchewan to support others inside and outside the province .

HEALTH

Telemiracle

Each year, Saskatchewan credit unions sell Telemiracle hands and collect donations on behalf of Telemiracle . In addition, credit union employees organize and participate in fundraising activities across the province . In 2012, credit unions raised more than $23,000 for this worthy cause . Just one more way that Saskatchewan credit unions help to build lives and fulfill dreams .

Saskatchewan Communities Served by Credit Unions

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SASKATCHEWAN COMMUNITIES SERVED BY CREDIT UNIONS

Arm River-WatrousDavidsonDrakeGovanJansenKenastonLoreburnNokomisRaymoreSemansSimpsonWatrousWynyard Young

AthabascaBuffalo Narrows

BatocheBirch HillsCudworthDomremyDuck LakeKinistinoLake LenoreMiddle LakeSt . BenedictSt . BrieuxSt . Isidore de BellevueSt . LouisWakawWeldon

BiggarBiggarBordenDelisleLandisLanghamPerdueWilkie

CanningtonAlamedaAlidaArcolaCarlyleCarnduffGainsboroughKisbeyLampmanManorOxbowRedversStoughtonWawota

Canora-PellyCanoraKamsackNorquayPellyPreecevilleSpringsideSturgisTogo

Carrot River ValleyArborfieldCarrot River Hudson BayNipawinTisdaleZenon Park

CumberlandLa Ronge

Cut Knife-TurtlefordCut KnifeEdamGlaslynLashburnMaidstoneMarsdenMeotaNeilburgTurtleford

Cypress HillsBurstallCabriClimaxConsulEastendFox Valley FrontierGull LakeHazletLancerLeaderMaple CreekMendham RichmoundSceptreShaunavonTompkins

EstevanBeaubierBienfaitEstevanMidaleRadvilleTorquayTribune

HumboldtAberdeenBrunoColonsayHumboldtLaniganMeachamMuensterPrud’hommeViscount

Indian Head-MilestoneAvonleaFort Qu’AppelleIndian HeadLangMilestoneOdessaQu’AppelleSedleyVibank

Kelvington-WadenaArcherwillBjorkdaleElfrosFoam LakeHendonKelvingtonLintlawMargoPorcupine Plain Rose Valley TheodoreWadena

KindersleyDenzilEatoniaKerrobertKindersley LuselandMacklinMajorTramping LakeUnity

Last Mountain-TouchwoodAbernethyBulyeaCuparDysartEarl GreyItunaKelliherLembergLestock NeudorfPunnichySoutheyStrasbourg

LloydminsterLloydminsterMarshallParadise HillPierceland

MartensvilleDalmenyHagueHepburnMartensvilleOslerWaldheimWarman

Meadow LakeGoodsoilLeovilleMeadow LakeSt . Walburg

MelfortAnnaheimEnglefeldGronlidLeRoy MelfortNaicamQuill LakeSpalding St . GregorStar CityWatson

Melville-SaltcoatsChurchbridgeEsterhazyGraysonLangenburgMacNuttMelvilleSaltcoats Spy HillStockholm

Moose Jaw (2 Constituencies)Moose Jaw

MoosominBroadviewCowessessGlenavonGrenfellKennedyKipling MontmartreMoosominRocanvilleWhitewoodWolseley

Prince Albert(2 Constituencies)Prince Albert

Regina (11 Constituencies)Emerald ParkRegina

Rosetown-ElroseBeechyDinsmoreDodslandElroseEstonHarrisKyleOutlookRosetown

Rosthern-ShellbrookCanwoodHaffordLairdLeaskMarcelinMedsteadRosthernShell LakeShellbrookSpiritwood

Saskatchewan RiversAlbertvilleBig River Candle LakeChoiceland Christopher Lake DebdenMeath ParkPaddockwoodSmeatonWhite Fox

Saskatoon(12 constituencies)Saskatoon

Swift CurrentPennantSwift Current

The BattlefordsBattlefordNorth Battleford

Thunder CreekBethuneCentral ButteChamberlainChaplinElbowHerbertHoldfastLumsdenMorseTugaske

Weyburn-Big MuddyBengoughCeylonCoronachKayvilleMintonOgemaWeyburnWillow BunchYellow Grass

Wood RiverAdmiralAssiniboiaBrackenCoderreGlentworth GravelbourgHodgevilleLaflecheLimerickMankotaMossbankPonteixRockglenShamrock

YorktonYorkton

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