Strong history. Stronger future. - SASCU · follower, not a trend setter, for interest rates so we will be taking a wait and see approach on interest rate changes. Regionally, we

2016 Annual Report

Strong history. Stronger future.

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To Be ReplacedTo Be Replaced

To Be Replaced

To Be Replaced

To Be Replaced

To Be Replaced

VISION To be our Members’ lifelong financial partner.

VALUES• We continuously seek new ways of doing things.• We strive for excellence.• We honour our relationships with dignity and respect.• We collaborate in the pursuit of shared goals.• We make common sense decisions.

SASCU Credit Union is the operating name of Salmon Arm Savings and Credit Union

1 Strong History. Stronger Future

2 Message from the CEO and Chair

5 70 Years - History

6 2016 Milestones

7 In our Community

8 Strategic Plan

9 Mapping our Future

10 Board of Directors Report

11 Governance-Structure/Committees

12 Governance - Learning/Risk Management

13 Board of Directors - Bios

16 ExecutiveManagement

17 Management Discussion & Analysis

19 Report from the Auditor

20 Summary Consolidated Financial Statements

TABLE OFCONTENTS

SASCU Annual Report 2016 1

SASCU has come a long way in seventy years. A small determined group boldly acting on an innovative solution based on cooperative principles, focused on strengthening their community and membership. We are a much bigger group today—actually over 19,200 members—but the drivers are still the same.

As we look ahead, banking has changed and will continue to: our members’ needs change, technology changes, expectations change. SASCU’s principles, however, remain the same. The strength and purpose of our founders and all the members, directors, and staff who have played a role since allow us to confidently move forward with an even stronger future.

STRONG HISTORY.STRONGER FUTURE.

2 SASCU Annual Report 2016

MESSAGE FROM THECEO AND CHAIR

Chief Executive OfficerBarry Delaney

...”Our deposits for the first time in our history grew over the $600M threshold...”

...”we would like to thank Glenn for his more than 16 years of dedicated service...”

ECONOMYThe bright spot in 2016 was that BC’s economy was the best of any Province in Canada. Our credit union economist forecasts continued positive performance for BC next year, albeit lower than 2016 and they have some caution. The uncertainty that lingers for the Canadian economy relates to the price of oil being half of what it was three years ago. For the BC economy, the uncertainly about our future is mostly tied to the expiry of the softwood lumber agreement and the growth of the housing sector. Continued growth in the tourism sector for BC is forecasted which is good news.

The outlook from the Bank of Canada is that rates won’t change through 2018. Having said that, we have seen a few of the chartered banks raise their interest rates by a small amount on selected mortgage products. SASCU is a follower, not a trend setter, for interest rates so we will be taking a wait and see approach on interest rate changes.

Regionally, we see strong in-migration from both the Lower Mainland, where people are escaping high priced homes, and from Alberta, where people are escaping a poor economy. The population in the communities that we serve grew in 2016. We know this as home sales in 2016 reached record levels, student enrollment in School District #83 rose for the first time in 15 years, and SASCU had strong lending results for both home purchases and business expansion. We expect this activity in 2017 to also be positive but not at the levels we experienced in 2016.

GROWTH AND EARNINGSFor 2016, SASCU enjoyed very strong balance sheet growth. Margin performance fell slightly short of budget but it was offset by expense reductions. The result was a profit that was better than expectations. All of this took place against a backdrop of a challenging financial landscape.

Our loan portfolio finished the year at $565.4M, which represented strong


Chair, Board of DirectorsGlenn Hill

“... the Board of Directors were able to once again declare a dividend and rebate of $1.56 million for 2016...”

annual growth of 7.3%. Our deposits for the first time in our history grew over the $600M threshold finishing the year at $602.3M, which represented annual growth of 7.8%. These are very good results and shows the confidence that our members have in choosing to do business with SASCU.

Our year-end financial margin came in at $13.9M compared to last year of $13.1M showing strong growth year over year in a low rate environment. On a percentage basis, our financial margin was 2.25% which was very close to last year's of 2.29%. The small reduction in margin was more than offset by a reduction in expenses to ensure that we would meet our earnings target. Margin for most credit unions declined in 2016 and we are pleased that SASCU was able to keep it close to last year.

We were pleased to see that both of our Lines of Business exceeded expectations. SASCU Wealth generated $601k in profit and SASCU insurance contributed $138k in profit. These two businesses provide trusted advice to our members and contribute financially to the credit union’s bottom line. Our commercial team had a record year with 14% growth in commercial assets. This hard working team provides credible and sought after advice for our business community.

And finally, our Net Operating Income was $3.7M and was better than last year’s result of $3.3M. We are very proud of these financial results, during a year where there were lots of internal changes and the low interest rate environment. As a result, the Board of Directors were able to once again declare a dividend and rebate of $1.56 million for 2016, representing 8.0% rebate on interest paid on loans and service charges and an 8.0% bonus on interest earned on deposit products.

In addition, SASCU’s Community Sponsorship program for community initiatives and non- profit organizations amounted to $123,000 supporting 120 local organizations. SASCU also funded $21,000 in scholarships to students in the Shuswap.


SOLIDLY CAPITALIZEDIn setting profit allocations such as dividend and rebate levels, the Board’s over arching priority is the financial soundness of the Credit Union measured primarily through the level of capital. The Credit Union has in place a Capital Management Policy which states that SASCU will maintain a prudent cushion above the Regulatory Capital levels. As you will note in the financial statements, our Risk Weighted Capital Ratio as at year end was 13.83%, well above the Regulatory Capital minimum of 8%.The Board is proud of these results in these challenging times and the difference the Credit Union makes in the communities we serve, and in the lives of our members and our employees. 2016 also represents the final year for our Board Chair, Glenn Hill. On behalf of the Board and the staff at SASCU, we would like to thank Glenn for his more than 16 years of dedicated service to SASCU. We have accomplished many great results over this period and we want to thank Glenn for his contributions. In closing we want to once again thank all of our members for their support in 2016.


Chief Executive OfficerBarry Delaney


Commercial Visits Askews 2016

June 11, 1942

May 2, 1946


70 YEARSHISTORY70 YEARS IN THE MAKINGSASCU's story began as "Salmon Arm Savings and Credit Union" in 1946. Salmon Arm Savings and Credit Union’s story began in 1946 when a small group of orchard farmers found they could not get the loans they needed from the bank. Credit Unions were a relatively new financial institution whose growing popularity in the region was borne out of the global economic collapse of 1929 and the subsequent Great Depression of the 1930s. With 14 original members and no office, SASCU was incorporated on April 29, 1946. The following month, the first transaction in our credit union’s history was made on May 28, with a deposit of $41.50 into an account opened at the Canadian Bank of Commerce.

SASCU first did business out of the hardware department at the Salmon Arm Farmer’s Exchange until moving into the Strudwick Building on Shuswap Street in 1952. When the building was demolished in 1966, SASCU moved into a new location further along the same street.

It was not until the 1970s that SASCU experienced great growth when four branches were built between 1975 and 1980. Eagle River Credit Union of Sicamous became SASCU’s second branch—today’s Sicamous Branch—when it chose to join in 1975. Construction started on a new building the same year.

We merged with Tappen Credit Union in 1969, moving this branch to Sorrento in 1977. At this time, a fourth branch was opened in Salmon Arm at the Cedarvale Mall (now The Mall at Piccadilly), but was closed in the early 1980s during the recession. The current Salmon Arm Downtown Branch on Lakeshore Drive in Salmon Arm was constructed in 1979, opening to much fanfare the following year.

With the performance of SASCU Wealth (1998) and SASCU Insurance (2008), SASCU opened Salmon Arm Uptown Branch in 2013. The Uptown branch is a state-of-the-art facility representing the latest in green technology and an investment of $10 million in the future of the community.

SASCU has come a long way since the end of 1946 when it had grown to 33 members and $205 in assets. In 2012, SASCU surpassed $500 million in assets (now over $635 million) and currently has 19,212 member-owners. After 70 years, we continue to recognize the value of sharing and investing our resources together. The vision of a financial institution founded on the philosophy of “Bank Local” has stood the test of time and SASCU continues to honour the legacy of those who founded it so many years ago. As member-owners, we can all be very proud of SASCU’s history and the role it has played in the growth of the Shuswap.


July 25, 1946

March 13, 1952

Sicamous Branch


2016 MILESTONESOVERVIEW AND 2016 HIGHLIGHTSSASCU Financial Group is a member-owned credit union in the Shuswap area of British Columbia. We are committed to helping our members reach their financial goals. Most importantly, we are a local business strengthening communities.

Our decisions stay local. So does our money. Your deposit may fund your neighbour’s mortgage or a new business down the street. Likewise salaries, from service representative to CEO, stay here to feed back into our local economy. Here are some 2016 highlights:

• 19,212 Members• $640 Million in assets• $9 Million in Salaries and Benefits As members who are also owners, we share our profits directly back in the form of Patronage Rebate. This is another way members benefit from being part of our co-operative.

SASCU Financial Group is made up of three businesses:

Together we offer a comprehensive service to help you build a healthy financial future.

SASCU Wealth deepened their partnership with our brokerage partner Q-Trade Financial Group, which will provide staff with an improved service platform. This will mean more user-friendly and comprehensive financial advice for members.

There was also an increase in licensed mutual funds representatives sharing floor space with credit union staff. Members now have easier access to an even more holistic view of their financial well-being and investment options.

SASCU Credit Union completed the roll out of flash-enabled debit cards, introduced online account opening for existing members, and added Locked In Registered Accounts (LIRAs) and Locked In Funds (LIFs) to our product line up. We were also able to continue offering telephone banking by moving to a different telephone banking system when the long running system we had in place could no longer be supported.

We continue to have among the highest rated satisfaction levels among membership as measured by Net Promoter Score (NPS). The winning culture, strong training program, and member-first mindset combine to deliver this result.

Remembrance Day McHappy DaySASCU Crewzer Barbecue


SASCU “Community” Guiding Principle:

We will be a leader whose active support positively impacts our communities. This leadership will be recognized and valued by our members.

The Board of Directors set and met the target of 4% of net operating income to support community orientated non-profit organizations and initiatives. It will continue at that level in 2017

We are proud of our heritage here in the Shuswap and the role we continue to play in our region’s growth and overall betterment.

SASCU gets numerous requests each year. The Human Resources and Community Relations committee of the Board, the Board of Directors, and management share responsibility for portions of the overall budget. To help determine approvals, the following criteria are considered:

• Support the betterment of the community• Provide economic benefit for the local economy• Offer recognition opportunities to SASCU• Benefit the greatest number of people for the longest period

of time• Promote community building and participation, sustainability

or self-reliance.

In 2016, SASCU distributed $144,000 through our community investment program:

• 112 local organizations, events, and projects supported• $10,750 donated to local food banks• $21,000 in scholarships awarded to Shuswap students

This includes SASCU being a major sponsor of the following 2016 community events:

• Canada Day Children’s Festival• Sicamous Canada Day• South Shuswap Canada Day• Shuswap Hospital Foundation Charity Open• Wednesdays on the Wharf• Music in the Park (Sicamous)• Roots and Blues (Shade Stage)

SASCU also supports environment enhancement projects through its SASCU Community Endowment administered by the Shuswap Community Foundation. The funds grew through 2016 as no applicable applicants came forward.

The SASCU Youth Endowment Fund awarded $930 to the Air Cadets.

A group of staff known as the SASCU Crewzers were busy again raising funds. Their mainstay, the BC Cancer Society via the Relay for Life, received a Crewzer donation of $5,697. Throughout the year, the team held raffles, barbecues, and Jeans Days.

Staff from across SASCU also participate in other local activities to raise funds for good causes and build community, such as charity bonspiels and helping out at the Salmon Arm Fair.

IN OURCOMMUNITY


Strategic Plan 2017 - 2020This sets the path we will take to beour Members’ lifelong financial partnerWe will build on what makes SASCU strong to meet tomorrow’s challenges. We will continue to be:

A strong community supporter

Based on Cooperative PrinciplesFinancially sustainable

Strategic Focus

Member Centricity Continuous Improvement

Digital Member Experience• Banking is no longer somewhere you go, it’s simply something you do• We need to embed our differentiated member experience into all access channels

Line of Business Improvement• Blur the lines between our business groups and grow the level of business members conduct with us• Invest in our infrastructure to provide guidance any place, any way, with expanded hours to support digital channels

Lean Culture Strategy• Make it easier to do business with SASCU• Simplify the way we work

CO

NTIN

UO

US IMPROVEMENT RESPECT FOR PEO

PLE

LEAN CULTURE

Membership Growth• We need to provide future members a compelling reason to join SASCU• We need to keep the members we have

Employee Development• Engaged employees are our greatest asset• How we recruit and train will form our future

Advice• Providing member advice is not a one-size-fits-all process• Educating members is a cornerstone Cooperative Principle

$

Staff Townhall

2016 SASCU Crewzers

Relay Team

2016 Scholarships Okanagan College


The challenges facing our credit union include strong competition, a low interest rate environment, the importance of digital access, and rising technology and regulatory costs. With a new CEO in place, the Board turned their attention to renewing SASCU’s strategic plan to build on our strengths and address these issues. Our new strategic plan will take us to the end of 2020.

OUTREACHThe process of developing the plan reflected SASCU’s cooperative base as much as the end product:

• Two areas of focus identified by our member-elected Board of Directors

• SASCU management drafting strategies within these areas of focus

• A town hall meeting of SASCU employees to contribute to the development of the plan, followed by a survey to weigh in on the revised draft

• Presentations and consultation sessions with community groups• Invitation to members to review and provide comments

through sascu.com.

FOCUSThe Board purposefully narrowed the focus to only two areas: “continuous improvement” and being even more “member centric”. We will examine our processes with the goal of simplifying them so that they take less time for our members and staff. We also want to provide even better service to our members, particularly those members that only access us through their tablet or phone. SASCU does a lot of things well, but we must do better because the competition is fierce. Everyone has a choice where they bank, and we want people to continue to choose us.

In the area of Member Centricity we want to (1) grow membership, (2) improve our member’s digital experience and (3) provide tailored financial advice.

In the area of Continuous Improvement we want to (1) simplify the way members do business with us; (2) Invest in staff training; and (3) streamline our businesses to better serve the membership.

MAPPING OURFUTURE

Strategic Plan 2017 - 2020This sets the path we will take to beour Members’ lifelong financial partnerWe will build on what makes SASCU strong to meet tomorrow’s challenges. We will continue to be:

A strong community supporter

Based on Cooperative PrinciplesFinancially sustainable

Strategic Focus

Member Centricity Continuous Improvement

Digital Member Experience• Banking is no longer somewhere you go, it’s simply something you do• We need to embed our differentiated member experience into all access channels

Line of Business Improvement• Blur the lines between our business groups and grow the level of business members conduct with us• Invest in our infrastructure to provide guidance any place, any way, with expanded hours to support digital channels

Lean Culture Strategy• Make it easier to do business with SASCU• Simplify the way we work

CO

NTIN

UO

US IMPROVEMENT RESPECT FOR PEO

PLE

LEAN CULTURE

Membership Growth• We need to provide future members a compelling reason to join SASCU• We need to keep the members we have

Employee Development• Engaged employees are our greatest asset• How we recruit and train will form our future

Advice• Providing member advice is not a one-size-fits-all process• Educating members is a cornerstone Cooperative Principle

$

2015 Digital Banking Visits 983,427 Total

682,928Web

152,580App iOS

54,415App Android

93,504Mobile Web

2016 Digital Banking Visits 1,086,185 Total

694,634Web

194,590App iOS

99,704App Android

97,257Mobile Web


BOARD OF DIRECTORSREPORT

The past few years have been challenging for SASCU as we continue in this low interest rate environment. While it has caused some challenges for the board, SASCU is set up very well to continue its excellent service to members well into the future. The CEO, Executive Leadership Team (ELT), and all of our employees are to be commended for an excellent job on making SASCU the success it is.

Despite this low interest rate environment SASCU had another good year in 2016 and the Board was very pleased to approve almost $1.6 million in Patronage rebates to the members. From a Board’s perspective, the future is very bright at SASCU and we are forecasting a patronage rebate in 2017 as well. The patronage rebate along with community support is one of the things that differentiate SASCU from its competitors in our market.

We have had some major changes in management this year with our former CEO Michael Wagner retiring in April 2016 and our new CEO Barry Delaney starting in March 2016. We have worked with Barry and the Executive Leadership Team to build our new strategic plan so that we can enjoy the same success under his guidance.

We have had some new directors with good business and credit union backgrounds join our team in the past few years and their contributions and expertise have been welcome additions.

This year will be my last year on the board. After 16 years it is time to let someone else enjoy the same satisfaction I have had from being a SASCU board member and your Board Chair. All of us are members and we want to encourage you take the time to vote for those who you feel will be most beneficial to the operations of the credit union. Thanks you for your past support.


ELT helping at Foodbank Dec 2016

Sheri - ELT helping at

Foodbank Dec 2016

HR and Training Culture Award


STRUCTURE/COMMITTEESGOVERNANCE

BOARD OF DIRECTORSA democratically elected Board of Directors is just one more way SASCU Credit Union is proudly different than banks. Members elect Directors to three year terms during annual elections each spring. The nine-member Board's responsibilities include:

• Defining and approving the credit union’s risk appetite;

• Setting, approving and monitoring the credit union’s strategy and performance and overseeing its planning process; and

• Ensuring the credit union has the capability and culture to support its risk appetite and achieve its strategy including:

• Oversight of the credit union and executive team; • Choosing and evaluating the CEO; and, • Recruitment and renewal of the board.

The Board is accountable to the membership and sits independent of management. Each Director serves on two to three committees. The Board Chair, the Board Vice Chair, and the Chair of the Governance Committee set the committees annually, considering what the Credit Union needs, along with individual director availability, background and expertise, and preferences.

The function of Committees is to thoroughly analyze issues assigned to them and provide recommendations for Board decision. Committees may also be useful in planning and controlling. Committees have no authority other than that granted by the Board.

AuditandOperationalRiskCommittee: provides reasonable assurance that the strategic, operational, financial and regulatory objectives of the Credit Union are achieved. The committee ensures the implementation of internal controls to support the enterprise risk management framework, the integrity of financial reporting, and compliance with regulatory matters.

CreditandMarketRiskCommittee: provides effective oversight of the Credit Union’s risk management activities related to investment, credit, liquidity, interest rates, foreign exchange, and capital management. This includes compliance with the Financial Institutions Act and acting as the Investment and Lending Committee as required by the Act.

GovernanceCommittee:will aid the Board of Directors to provide for effective governance of the Credit Union including ensuring the Board’s own development and succession as well as monitoring to prevent the exercise of undue influence by related parties towards employees and

Sicamous Food Bank Donation

Staff Townhall

Okanagan College

Orientation Day 2016


LEARNING/RISK MANAGMENTGOVERNANCE

Directors. The Committee assists the Board in holding Directors and Board Committees accountable for fulfilling their duties and serves as the Conduct Review Committee as specified by the Credit Union Incorporation Act.

Human Resources and Community Relations Committee: is responsible for the oversight of HR functions, the Operating Plan and administration of the CEO performance assessment. They ensure governing policies are in place and implemented by management to provide employees with fair and meaningful employment in a safe and respectful workplace. In addition, this committee oversees the Corporate Social Responsibility policy, and as part of this role, reviews, approves, recommends or declines donation and sponsorship requests according to the authorized limits.

Nominating Committee: recruits nominees representing a cross-section of community members with appropriate skills for election to the Board of Directors from the market areas of Salmon Arm, Sicamous and Sorrento. They oversee the entire nomination and election process to ensure adherence to the

Financial Institutions Act and the Credit Union rules.

Further information on our Board of Directors is available online at sascu.com/WhoWeAre . To view our Credit Union Rules, visit sascu.com/CreditUnionRules .

TRAINING AND DEVELOPMENTDirectors are bound to specific educational requirements plus a general expectation to continuously update their skills and knowledge to effectively carry out their roles and responsibilities. Veteran directors act as mentors, plus background information is made available via a dedicated Board website to complement the programs available through Credit Union Director Achievement (CUDA) program. In the first year of office, new directors are required to complete CUDA Level A: Foundations of Governance, with many then pursuing Level B and C of this program.

Summary of Board Attendance and Compensation *Gross expenses include education such as course registrations and attendance.

NAMETITLE AS OF 12/31/16

GROSS REMUNERATION

GROSS EXPENSES

BOARD MEETINGS ATTENDED/REQUIRED

COMMITTEE MEETINGS ATTENDED/REQUIRED

HILL, Glenn Board Chair $10,650.00 $10,586.18 12/13 92% 8/0 800%

JOHNSON, Barry Board Vice-Chair $8,820.00 $4,396.14 13/13 100% 11/11 100%

BLACK, Ken Director $7,760.00 $3,001.83 12/13 92% 10/12 83%

DALE, Rochelle Board Secretary $6,341.00 $133.65 13/13 100% 14/14 100%

KING, Dave Director $6,552.00 $2,717.00 13/13 100% 14/14 100%

LADELL, Constance Director $4,203.74 $774.94 6/7 86% 5/5 100%

POPIEN, Frank Director $7,772.00 $2,969.96 12/13 92% 12/14 86%

SCHLOSAR, John Director $8,574.00 $3,941.81 13/13 100% 15/16 94%

SUTHERLAND, Charlotte Director $8,328.00 $3,949.23 13/13 100% 16/17 92%

RETIRED DIRECTORSDATE OF RETIREMENT

GROSS REMUNERATION

GROSS EXPENSES

BOARD MEETINGS ATTENDED/REQUIRED

COMMITTEE MEETINGS ATTENDED/REQUIRED

STEWART, June May 3, 2016 $4,229.18 $29.80 6/6 100% 4/5 80%

INDEPENDENT OVERSIGHTThe Board oversees the management of the organization and is one part of the overall oversight function. SASCU utilizes regular internal audits to ensure compliance with specific regulatory, board, financial, risk, and operational policies. This includes assessing effectiveness and reliable reporting of control activities. Internal auditors operate independent of management.


BOARD OF DIRECTORS

The Board of Directors oversee SASCU Financial Group including SASCU Credit Union and its subsidiaries: SASCU Insurance and SASCU Wealth.

For more information on your Board of Directors, see the "About Us" section of sascu.com

Glenn Hill, Board ChairBoard Director (2001 – 2017), CUDA Level AGlenn has been a SASCU Board Director since 2001 and has served on all committees with a previous term as Board Chair. He has a designation as a Professional Forester, a UBC Diploma in Urban Land Economics – Real Estate Appraisal and nineteen years as a local business owner. Glenn’s business experience is enhanced by his tenure as Treasurer of the Canadian Association of Home and Property Inspectors.

Rochelle Dale, SecretaryBoard Director (2014 – 2017), CUDA Level A

• Chair, Community Relations and Human Resources Committee• Member, Governance CommitteeRochelle is a successful real estate professional with 23 years of experience. She grew up in Salmon Arm and has been an active member of the community where she volunteers for the Silverbacks. Rochelle also serves on the Salmon Arm Minor Hockey Board as Risk Manager and brings her experience in that role to the SASCU Board.

Barry Johnson, Board Vice Chair Board Director (2015-Current), ACCUD

• Chair, Credit and Market Risk Committee• Member, Audit and Operational Risk CommitteeBarry worked for the Credit Union Central of Alberta for 38 years, starting as a junior clerk in 1974 and advancing to the level of Executive Vice President in 2003 until he retired in 2010. His main responsibilities were finance, lending and banking operations and at times included human resources and facilities management. Barry represented the interests of Alberta credit unions on a number of affiliate boards and national committees and led many strategic projects, including the purchase of 23 branches from the Bank of Montreal. Barry was newly elected in 2015 and has been a member of SASCU since 1985.

https://www.sascu.com/Personal/AboutUs/WhoWeAre/BoardOfDirectors/


David King, DirectorBoard Director (2014 – 2017), CUDA Level A

• Member, Audit and Operational Risk Committee• Member, Governance CommitteeDavid has 43 years of experience in the financial industry, first in banking and then with the credit unions starting in 1987. He went from Regional Manager of five credit unions in Alberta to the Senior Manager of Security in 2005. He was responsible for training over 600 employees under Privacy and Money Laundering, including senior management and the Board of Directors, and assisted in the development of a computer generated money laundering program. David has completed the Director Training Program and serves as the President of St. Ives Rate Payers Association and the CSRD Occupational Health and Safety subcommittee.

Constance Ladell, DirectorBoard Director (2016 – Current),

• Member, Audit and Operational Risk Committee• Member, Governance Committee• Member, Nominating CommitteeConstance Ladell recently retired from the position of General Counsel to the British Columbia Lottery Corporation. During her 12 years of practicing corporate law at BCLC, she gained considerable experience; notable areas of her expertise include regulatory compliance, risk management, anti-money laundering obligations, privacy, online commerce, major IT contracting, public sector procurement and corporate governance. Constance has board experience in non-profit and corporate sectors.

BOARD OF DIRECTORS

Ken Black, DirectorBoard Director (2013 – Current), CUDA Level A

• Chair, Audit and Operational Risk Committee• Member, Credit and Market Risk Committee• Member, Nominating CommitteeKen is a retired Chartered Accountant with 38 years of experience. He has knowledge as an auditor of credit unions and retail co-operatives with a background in the governance of non-profit organizations. Ken has been a director to several private corporations and has served in many leadership roles on local boards, including President of the Shuswap Housing Society.


BOARD OF DIRECTORS

Frank Popien, DirectorBoard Director (2009-2013; 2015-Current), CUDA Level A

• Chair, Nominating Committee• Member, Community Relations and Human Resources Committee• Member, Credit and Market Risk CommitteeFrank has eight years of experience in the financial industry, starting as a bank accountant and manager at CIBC/Borg Warner Acceptance, with the last six years in wholesale financing. He and his family moved to Salmon Arm in 1986, where he was involved in the car business and real estate and for 17 years owned Salmon Arm McDonald's.

John Schlosar, DirectorBoard Director (2000-2009; 2012-Current), ACCUD

• Chair, Governance Committee• Member, Community Relations and Human Resources Committee• Member, Nominating CommitteeJohn is serving his fourth term as a Board Director. He has served as both director and president of the Sicamous Chamber of Commerce and as a councillor for the District of Sicamous. He chaired the Economic Development Committee and was a member of both the CSRD Regional Economic Development Board and the Board of Variance.

CharlotteSutherland,DirectorBoard Director (2014-Current), CUDA Level A

• Member, Community Relations and Human Resources Committee• Member, Credit and Market Risk Committee• Member, Nominating CommitteeCharlotte has served on several provincial and local committees, including the Real Estate Council of Alberta, the Strategic Growth Management Committee of Canmore and the Sicamous Historical Society. She brings her strong background in real estate and her tenure as President of the Sicamous Cancer Society to the SASCU Board.


EXECUTIVE LEADERSHIP TEAM

Associate Vice President Human Resources

Sheri Hamilton

Vice President Operations and Strategy

Ken HawrysChief Executive Officer (March 2016 —)

Barry Delaney

Vice President Sales and Service

Julie LanghamVice President Finance

Jennifer Black

Associate Vice President Information Technology

Tom O’Connor

EXECUTIVEMANAGEMENTEXECUTIVEThe Executive Leadership Team (ELT) is responsible for developing and implementing the strategy and operational plans to ensure the Board’s overall direction is realized. As part of the 2012 strategic planning session, a five year plan (2012 to 2016) was created to move toward fulfilling SASCU’s Vision: To be our members’ lifelong financial partner.

PERFORMANCE & COMPENSATIONThe five year strategic plan (2012 to 2016) included key performance indicators to measure progress around our five Guiding Principles focused on the Member, Market, Employees, Community, and Finance. In addition to regular reporting and monitoring, management provides these indicators and specific targets with recommendations to the Board as part of the annual strategic planning process. The performance impacts the financial group and the variable portion of individual compensation. This past year, the variable compensation program incorporated a branch component, increasing the team ownership of performance.

SASCU Credit Union’s compensation philosophy is to attract, retain, and motivate highly competent staff using a total compensation approach (base pay and benefits) that is:

• competitive within the market place;• tax-effective for employees and the organization; and,• reflective of the organization’s goals and objectives.

The CEO compensation package consisting of base salary, variable pay, benefits and perquisites is designed to emphasize the value and impact of the CEO role. The design is consistent with the credit union’s overall compensation philosophy.

The credit union strives for above average performance results and, therefore, provides a competitive base salary targeted to be between the 50th and 75th percentiles of the market. A number of factors impact the actual market position, including experience, background, and the CEO’s skill and competency level. Salary progression is impacted by CEO performance, credit union performance, and general compensation trends. The variable pay plan is designed with the opportunity to significantly exceed market median through outstanding performance achievements. Benefits and perquisites are competitive with the market.

The market is defined as those organizations with whom SASCU competes for talent. To ensure comparability of market data, consideration is also given to factors such as geographic area, business strategy and an organization’s size and complexity (e.g. diversity of business operations, size of business portfolio and number of branches and employees).


MANAGEMENT DISCUSSION AND ANALYSISSUMMARYOur income prior to distributions to members and income taxes increased to $3.7 million for 2016 compared to $3.3 million in 2015. Although we continue to operate within tighter margins, focused efforts on expense control have helped to maintain strong profitability. In fact, we saw strong growth in both loans and deposits.

FINANCIAL MARGINFinancial margin is the difference between interest earned on loans and investments and interest paid on deposits and other liabilities. In 2016, our financial margin increased to $13.9 million from $13.1 million in 2015. When expressed as a percent of assets, financial margin is similar to the previous year at 2.25% of year end assets. For 2017, financial margin in dollars is expected to increase with the projected increase in loan growth. Financial margin is, however, expected to decrease in terms of a percent of assets. This is due to the interest rate forecast remaining low as well as changes in where our growth in lending and deposits are projected to grow.

OTHER INCOMEOther Income includes commissions and fees, service fees, and revenue from disposal of property, plant, and equipment. In 2016, other income increased to $5.3 million from $5.0 million in 2015. A small decrease is expected in 2017 as we revise the commission fund structure on mutual funds to align with the market and to be more member friendly.

Included in other income are commissions earned through our wholly owned subsidiaries: SASCU Wealth and SASCU Insurance. SASCU Wealth offers investment products of third party suppliers and SASCU Insurance is a broker of third party insurance products. Income earned from subsidiaries for 2016 totaled $784 thousand similar to 2015.

DISTRIBUTION TO MEMBERSBeing true to co-operative principles, we are committed to distributing the majority of our annual operating profits to our membership. For the year 2016, we are able to return $1.564 million in patronage rebates and equity share dividends. These amounts were deposited into member Patronage and Equity Share accounts in spring 2017.

LOANSMember loans, net of allowance, increased to $565 million in 2016 from $527 million in 2015. Commercial loans increased by 14% while personal loans increased by 5%. Commercial loan growth is expected to be lower in 2017 after growing at such a robust pace in 2016 while personal loan growth is expected to be similar to 2016.

Patronage Rebate &Equity Share Dividend

$2,500,000

$2,000,000

$1,500,000

$1,000,000

$500,000

$02012 2013 2014 2015 2016

$2,2

61,9

72

$2,1

60,1

60

$1,6

90,9

10

$1,6

20,0

00

$1,5

64,6

33

Loans Deposits

Growth

2012

$424

$485

2013

$447

$501

2014

$495 $5

12

2015

$527 $5

59

2016

$565 $6

02

$200

$300

$250

$350

$400

$450

$500

$550

$600

$650

"In 2016, our financial margin increased to $13.9 million

from $13.1 million in 2015."


VP FinanceJennifer Black

DEPOSITSMember deposits increased to $602 million in 2016 from $559 million in 2015. We experienced strong gains in 2016 with the good growth in chequing and term deposits. Growth is expected to moderate moving into 2017.

In addition to deposit products, we offer member investment products of third-party suppliers, such as mutual funds, for which we receive a commission. In 2016, these funds under administration totaled $222 million, an increase of $22 million from the prior year.

BORROWINGSWe use member deposits to fund member loans and when member loans increase more than member deposits, we have credit facilities with Central 1 Credit Union to help fund these loans. The facilities are increased or decreased based on the difference in growth between loans and deposits and other cash flow needs. We had no short-term debt at the end of 2016. All loan growth was funded by our member deposits during 2016.

MEMBER’S EQUITYMember equity increased to $32.6 million in 2016 from $30.9 million in 2015. At the end of each year, our Board of Directors decide how much of our profit will be allocated to members in Patronage Rebates and equity share dividends and how much profit will be allocated to members’ equity. While the percent of rebate earned by members is unchanged from 2015, the dollar amount paid in 2016 has declined as the amount of interest paid and interest earned by members has declined

Annual Patronage Rebate levels are directed by the SASCU Board of Directors’ Capital Policy (excerpt):

The credit union is a financial co-op and as such “excess” profits will be returned to the member owners on an annual basis by way of dividends, and patronage rebates. Excess profits are defined as all profits in excess of the credit union’s Internal and Strategic Capital Target as stated in the Specific Policy Guidelines. Future business strategies affecting capital will also be taken into consideration when determining “excess” profits.

"Commercial loan growth is expected to be lower in 2017 after growing at such a robust pace in 2016..."

$0

Thou

sand

s

$200

$100

$300

$400

$500

$600

$700

$800

$900

SASCU Wealth &SASCU Insurance Profitability

2012 2013 2014 2015 2016

$222 $2

70

$666 $7

81

$740

25

20

15

10

5

0

Mill

ions

Profitability

Return on assets before taxes and dividends Gross Income Operating Expenses

2012

$4.0

34$1

7.84

8$1

3.81

4

2013

$2.8

65$2

.865

$14.

128

$16.

993

2014

$2.7

83$2

.783

$17.

477

$14.

694

2015

$3.2

72$3

.272

$14.

835$1

8.10

7

2016

$3.6

81$3

.681

$15.

565$1

9.24

6


REPORT FROM THE AUDITOR

Chartered AccountantsSalmon Arm, British Columbia

March 8, 2016

Report of the Independent Auditor on the Summary Consolidated Financial StatementsTo the Members of Salmon Arm Savings and Credit UnionThe accompanying summary consolidated financial statements, which comprise of the summary consolidated balance sheet as at December 31, 2016 and the summary consolidated statements of comprehensive income and members’ equity and cash flows for the year ended December 31, 2016, are derived from the audited consolidated financial statements of Salmon Arm Savings and Credit Union. We expressed an unmodified audit opinion on those consolidated financial statements in our report dated February 28, 2017. Those consolidated financial statements, and the summarized consolidated financial statements, do not reflect the effects of events that occurred subsequent to the date of our report on those consolidated financial statements.The summary consolidated financial statements do not contain all the disclosures required by international financial reporting standards. Reading the summary consolidated financial statements, therefore, is not a substitute for reading the audited consolidated financial statements of Salmon Arm Savings and Credit Union.

Management’s Responsibility for the Summary Consolidated Financial StatementsManagement is responsible for the preparation of the summary of the audited complete consolidated financial statements in accordance with the basis described in Note 1.

Auditor’s ResponsibilityOur responsibility is to express an opinion on the summary consolidated financial statements based on our procedures, which were conducted in accordance with Canadian Auditing Standard 810, “Engagements to Report on Summary Financial Statements”.

OpinionIn our opinion, the summary consolidated financial statements derived from the audited consolidated financial statements of Salmon Arm Savings and Credit Union as at December 31, 2016 and for the year ended December 31, 2016 are a fair summary of those consolidated financial statements, in accordance with the basis described in Note 1.


SUMMARY CONSOLIDATED FINANCIAL STATEMENTS

The complete set of consolidated financial statements is available in-branch or online at sascu.com.

Salmon Arm Savings and Credit Union Note to Summary Consolidated Financial Statements

December 31, 2016

1. Summary Consolidated Financial Statements

The summary consolidated financial statements are derived from the complete audited consolidated financial statements, prepared in accordance with international financial reporting standards as at December 31, 2016.

The preparation of these summary consolidated financial statements requires management to determine the information that needs to be reflected so that they are consistent in all material respects with, or represent a fair summary of, the audited consolidated financial statements.

Management prepared these summary consolidated financial statements using the following criteria:

(a)the summary consolidated financial statements include the statement of consolidated balance sheet, statement of consolidated comprehensive income and members’ equity and the statement of consolidated cash flows;

(b) information in the summary consolidated financial statements agrees with the related information in the complete audited consolidated financial statements including comparative information and all major subtotals and totals; and

(c) in all material respects, the summary consolidated financial statements contain the information necessary to avoid distorting or obscuring matters disclosed in the related complete audited consolidated financial statements, including significant accounting policies and the notes thereto.

The complete audited consolidated financial statements of Salmon Arm Savings and Credit Union are available upon request by contacting the management of Salmon Arm Savings and Credit Union.

Salmon Arm Savings and Credit UnionSummary Consolidated Financial Statements

Statement of Consolidated Balance SheetDecember 31, December 31,

2016 2015

AssetsCash $ 8,375,131 $ 8,643,909Investments 47,679,933 44,033,250Loans to members 565,446,960 526,892,206Property, plant and equipment 15,677,586 16,310,393Intangible assets 1,004,101 992,567Investment property 577,298 595,640Other assets 1,107,070 956,582

$ 639,868,079 $ 598,424,547Liabilities and Members' EquityAccounts payable and accrued liabilities $ 4,159,518 $ 8,110,901Member deposits 602,333,584 558,630,675Member shares 791,218 807,164Members' equity 32,583,759 30,875,807

$ 639,868,079 $ 598,424,547

Statement of Consolidated Comprehensive Income and Members' EquityDecember 31, December 31,

2016 2015

Financial income $ 19,476,116 $ 19,010,809

Financial expense 5,556,441 5,946,348

Financial margin 13,919,675 13,064,461

Other income 5,326,361 5,042,595

19,246,036 18,107,056

Operating expensesDistributions to members 1,564,633 1,620,000Employee salaries and benefits 9,028,137 8,408,108Other 6,536,693 6,427,337

17,129,463 16,455,445

Income before income taxes 2,116,573 1,651,611Income taxes 408,621 300,635

Comprehensive income for the year 1,707,952 1,350,976

Members' equity, beginning of year 30,875,807 29,524,831

Members' equity, end of year $ 32,583,759 $ 30,875,807

Statement of Consolidated Cash FlowsDecember 31, December 31,

2016 2015

Cash flows from operating activities $ 7,693,648 $ 17,765,097

Cash flows from investing activities (3,946,480) (2,343,128)

Cash flows from financing activities (4,015,946) (12,365,904)

Net decrease in cash (268,778) 3,056,065Cash at beginning of year 8,643,909 5,587,844

Cash at end of year $ 8,375,131 $ 8,643,909

Director Director

Signed by Glenn Hill Signed by Ken Black

SALMON ARM DowntownT 250.832.8011F 250.832.5190E [email protected] Lakeshore Drive NEPO Box 868Salmon Arm, BC V1E 4N9

SALMON ARM UptownT 250.832.8011F 250.833.3200E [email protected] 25th Street NEPO Box 868Salmon Arm, BC V1E 4N9

SICAMOUST 250.836.2865F 250.836.2700E [email protected] Main StreetPO Box 477Sicamous, BC V0E 2V0

SORRENTOT 250.675.2361F 250.675.2100E [email protected] Shoppers PlazaTrans Canada HighwayPO Box 248Sorrento, BC V0E 2W0

SASCU InsuranceT 250.833.4450F 250.833.4455E [email protected] 25th Street NEPO Box 868Salmon Arm, BC V1E 4N9

SASCU WealthT 250.833.4466F 250.833.4467E [email protected] Lakeshore Drive NEPO Box 868Salmon Arm, BC V1E 4N9

SASCU Financial GroupT 250.833.1313F 250.833.4480E [email protected] Lakeshore Drive NEPO Box 868Salmon Arm, BC V1E 4N9

Documents

Strong history. Stronger future. - SASCU · follower, not a trend setter, for interest rates so we will be taking a wait and see approach on interest rate changes. Regionally, we