Management Discussion and Analysis

Introduction...... 1 Economic Environment in 2014 ...... 1 Performance Highlights ...... 2 Lines of Business Performance ...... 2 Principal Risks ...... 3 2015 Outlook ...... 5 Compensation Discussion and Analysis ...... 5 Board of Directors Compensation ...... 5 Executive Compensation ...... 11

Introduction

North Shore Credit Union (the Credit Union), doing business as BlueShore Financial, is a boutique financial institution providing a full range of personal and business banking, wealth management, insurance and commercial lending solutions. The Credit Union has 12 branches across Greater Vancouver and the Sea-to-Sky Corridor and administers over $3.5 billion in Assets Under Administration. As one of Canada's “50 Best Small and Medium Employers” for four consecutive years, the Credit Union is proud of an organizational culture that is client-focused, results-driven, supportive and inclusive.

This Management Discussion and Analysis contains information designed to provide a more complete understanding of the Credit Union and its financial and operating performance. This discussion is intended to complement our audited consolidated financial statements and should be read in conjunction with those financial statements.

Economic Environment in 2014

The Canadian economy began slowly in 2014 but picked up momentum in the second quarter, underpinned by the growth surge in the US. Initially driven by a strong rebound in the housing sector, the US recovery became more broadly based during the year. By contrast, the Euro Zone and Japan continued to struggle and emerging markets slowed their pace of growth. Stimulatory monetary conditions remained in place in most advanced economies and concerns about deflation in Europe resurfaced. The second half plunge in the oil price, on top of falling commodity prices generally, caused a repointing of most economic growth forecasts for the year. While the oil price decline is expected to have a positive effect globally, for net oil exporters like Canada the economic and exchange rate impact will be negative. Despite being stimulatory for exports, the weaker Canadian dollar is not expected to offset the negative impact of the oil price reduction. Economic growth in Canada is now estimated to be approximately 2.4% in 2014 (2.0% in 2013).

Throughout 2014, interest rates remained at record low levels. The US Federal Funds rate and the Bank of Canada rate continued unchanged. Mortgage rates, however, eased to the downside as competition

for home loans intensified. As expected, the US brought its quantitative easing program (QE III) to an end in October and began to signal a possible increase in rates, starting mid-2015. Any upward shift in rates for Canada is now looking more remote, after the recent cut by the Bank of Canada and with excess capacity in the Canadian economy likely to persist into 2016. Continued stimulatory conditions should be positive for housing and mortgage demand, although elevated household debt levels remain a curbing influence.

Performance Highlights

Overall the Credit Union’s On Balance Sheet Assets increased $384 million (a gain of 16.3%) with Assets Under Administration totaling $3.5 billion ($3.1 billion in 2013). Total loans grew by $225 million (up 10.9%) while deposits increased by $376 million (up 17.8%).

Net Interest margin was adversely impacted by the continued low interest rate environment and flat yield curve. Competition for mortgages remained intense but concentrated sales efforts achieved notable market share gains. Non-interest income was favourably affected by the gain on sale of the Credit Union’s old head office and a market leading wealth management performance. Offsetting this to some extent were the costs of moving to the new Head Office and a slightly lower level of other fee income.

Net Operating Income (NOI) of $14.2 million significantly exceeded the previous year’s $10.1 million. Return on Retained Earnings (RORE) was 11.6% (9.3% in 2013) and Return on Average Assets (ROAA) was 55 basis points (44 basis points in 2013).

Lines of Business Performance

Core Banking

2014 was another strong year in which deposit, lending and wealth performance met or exceeded aggressive growth expectations. A client benchmark study was conducted through Ipsos Reid this past year with results that were overwhelmingly positive for the Credit Union. Clients rated the Credit Union higher in almost every category in comparison to how clients of other Financial Institutions rated their own institution. Clients feel strongly that the Credit Union improves their overall financial well-being, is pro- active in contacting them, and are expert providers of financial advice. As well, Mystery shop results remained strong confirming once again the Credit Union’s ability to deliver a high quality consistent experience.

Wealth Management

Wealth Management had a strong year from both investment business and insurance business.

The investment line had strong overall asset growth of $81.6 million, and rose to $617 million in Assets Under Administration. The increase was made up of $49.6 million in net sales and $32 million in market appreciation. While market volatility tempered market appreciation towards the end of 2014, net sales continued to outpace 2013 levels.

Insurance revenue exceeded objectives as a result of the Credit Union’s advisory team increasingly identifying sophisticated estate planning, wealth protection and tax minimization opportunities for both individual and business clients. Referrals from retail branches grew significantly in 2014 and this is expected to continue in 2015.

Business Group

The Business Group, in conjunction with branch Financial Advisors, coordinates the deposits, lending, insurance and wealth management needs of business clients. This advice based group continued to successfully service and be well received by both new and existing business clients.

One consistent message from clients is that they are choosing the Credit Union as a strategic partner because of its customized service and “ease of doing business”.

BlueShore Leasing

BlueShore Leasing provides financing to small and medium size businesses in both B.C. and Alberta. The division finances equipment involved in manufacturing, construction, transportation and oil and gas site servicing sectors. It also provides pre-construction and post construction strata financing for items such as intercoms and boilers. BlueShore Leasing holds a diversified portfolio, broadly based over multiple industries and equipment types.

At the end of 2014 it had a lease portfolio balance of $67.3 million, consisting of approximately 1100 individual equipment leases with an average duration of 3-years. In 2014 it had a record year, funding $45 million in new financings and adding $16.1 million in net loans to its portfolio.

Real Estate (Commercial)

The BlueShore Financial Real Estate Lending Group is comprised of an experienced group of individuals that sources, underwrites, funds and administers commercial mortgages focused mainly in the Greater Vancouver/Lower Mainland region. The Group manages a commercial mortgage portfolio that has grown to approximately $756 million and has underwritten and funded over $1.2 billion in new loans over the last five years.

Commercial mortgage financing includes income producing properties such as retail, office, and industrial. The Group also manages a construction portfolio which finances single family, townhome, apartment buildings, as well as multi-family and mid-rise condo projects. In 2014, the Real Estate Lending Group achieved its growth targets for the year and is gearing up for a productive 2015.

Principal Risks

The Credit Union’s principal business activities result in a consolidated balance sheet that consists primarily of financial instruments. In addition, the Credit Union uses derivative financial instruments for asset/liability management purposes. The principal financial risks that arise from transacting financial instruments include credit, liquidity, and market risk.

The Credit Union’s risk management policies are established to set appropriate risk limits and controls. Management’s responsibility is to identify and analyze the risks faced by the Credit Union and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered, and changes in portfolio performance and trends. An Enterprise Risk Management Framework and Risk Appetite Statement are in place and are regularly reviewed by management through its Management Risk Committee.

The Board has overall responsibility for the establishment and oversight of the Credit Union’s risk management framework. The Board has established committees to oversee and manage the Credit Union’s exposure to five primary areas of risk: Credit, Liquidity, Market, Corporate and Operational.

Credit Risk

Credit risk is the risk of financial loss to the Credit Union if a member or counterparty of a financial instrument fails to meet its contractual obligations. Credit risk arises primarily from the Credit Union’s commercial and consumer loans and advances, and loan commitments arising from such lending activities. The Credit Union is also exposed to other credit risks arising from derivatives and settlement balances with market counterparties.

Credit risk is the single largest risk for the Credit Union’s business. Management therefore carefully manages and controls its exposure to credit risk through rigorous credit policies and procedures, including its Investment and Lending Policy (ILP). Management regularly reports its credit activities, exposure and reserves for loan loss to the Investment and Loan Committee (ILC). The Board has delegated responsibility for the oversight and governance of credit risk to the ILC.

Liquidity Risk

Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. Liquidity risk is inherent in any financial institution and could result from entity level circumstances and/or market events.

Accordingly, the Credit Union has policies and procedures in place to manage its liquidity position to comply with both regulatory requirements and sound business practices.

In terms of the Financial Institutions Act (FIA), the Credit Union must maintain a liquidity ratio of at least 8% of deposit and debt obligations. Internal limits, above this level, are determined by management, and approved by the Board, and are reflected in the Liquidity Operating Plan. A Liquidity Contingency Plan is also in place to address potential future liquidity short-falls that could arise from a general market disruption or adverse economic conditions.

Market Risk

In the normal course of its operations, the Credit Union engages in transactions that give rise to market risk. Market risk is the risk that changes in market prices, such as interest rates, foreign exchange rates and credit spreads, will affect the Credit Union’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the risk based return.

The Board, through the Investment and Loan Committee (ILC), sets risk tolerance levels for the Credit Union. Within these boundaries, the Asset Liability Committee (ALCO) monitors, measures and manages the Credit Union’s interest risk profile. The policies for market risk management are reviewed annually by the ILC and approved by the Board.

The Credit Union has various policy and procedure statements that specify roles and responsibilities for senior management, treasury, and finance. Many of these policies fall under the responsibility of the ILC of the Board.

Corporate and Operational Risk

Corporate and operational risk is the risk of loss resulting from the failure or inadequacy of internal systems, processes and procedures or from external events that may negatively impact the Credit Union. These risks are carefully monitored and managed through the Credit Union’s Enterprise Wide Risk Assessment process.

The purpose of the Enterprise Wide Risk Assessment is to ensure sound and prudent operations, stable earnings and ongoing viability of the Credit Union. The process is designed to identify risks that may affect the Credit Union, to analyze and understand the potential impacts these risks may have on the Credit Union and to manage these risks within agreed risk parameters. Through this process, the Credit Union establishes reasonable assurance of achieving its objectives despite uncertainties in the environment in which it operates.

In addition, independent internal and external auditors annually review the Credit Union’s internal control environment and assess its adequacy for effectiveness.

2015 Outlook

The robust US recovery is likely to lead global economic growth in 2015. Although Canada is expected to benefit from this, the oil price decline will have a dampening effect. Interest rates are anticipated to stay low, as the Bank of Canada maintains its accommodatory monetary policy, and the housing market to continue its upward trajectory, albeit at a somewhat slower pace.

Against this background, the Credit Union is again budgeting for solid loan and deposit growth together with a market leading wealth management performance. It is projecting a healthy capital base, strong liquidity and a continued moderate risk profile in 2015.

Compensation Discussion and Analysis

Board of Directors Compensation

Director Background

Dave Davenport

Position Chair Background Dave Davenport has been a member of BlueShore Financial since 1987, served as a Director since 2009 and been Chair of the Board since 2011. For the last 25 years, Dave has built successful retail businesses in the Sea to Sky corridor as both a senior manager and owner. He has an MBA and BA in Economics. Dave presently serves as the Vice Chair of the Whistler Legacy Society. His past board experience includes Chair of the Whistler Chamber of Commerce and Vice Chair of Tourism Whistler. He resides in Whistler. Director 2008 Since Current Term 2012-2015

Committees Governance & Conduct Review Bill Crawford Position Vice Chair Background Bill retired as Senior Vice President, BC Region, HSBC Bank Canada after 27 years. His extensive experience in the financial services industry includes sales and sales management, product management, marketing, and private and professional banking. Bill's board experience includes the Canadian Bankers Association, Vancouver Playhouse, United Way, and Vancouver Fireworks Festival Society (founding member). Bill is a Fellow of the Institute of Canadian Bankers. He currently resides in West Vancouver. Director 2009 Since Current Term 2014-2017

Committees Audit Human Resources & Compensation (Chair)

Allan Achtemichuk Position Director Background Allan is an accountant by profession, and spent 20 years working with KPMG Consulting helping clients in a wide variety of businesses and industries to improve business practices and enhance performance. In addition, Allan has solid experience in the financial, investor relations and information technology areas in the private and public sector, and clearly understands the distinct roles of board and management with respect to governance and operations. Allan is currently Chief Financial Officer of Shanahan’s Limited Partnership and resides in North Vancouver. Director 2010 Since Current Term 2013-2016

Committees Audit Investment & Loan (Chair) Brian Atkins Position Director Background Brian is a chartered accountant and a retired partner with KPMG Chartered Accountants. While an active partner with KPMG, he was responsible for their Greater Vancouver Financial Services practice. For over 20 years, he provided audit, accounting and advisory services primarily to credit unions and other financial institutions including banks, investment dealers and investment fund managers. Since retiring from KPMG, Brian continues to be active in the business community and currently is a member on two boards of directors. Brian is a resident of the North Shore. Director 2008 Since Current Term 2014-2017

Committees Audit (Chair) Human Resources & Compensation

Investment & Loan Yuri Fulmer Position Director Background Yuri is the Chairman of Fulmer Capital Partners, a private equity firm focused on a small and mid-cap investing. Companies in the diverse portfolio have, on numerous occasions, been named in the Profit 100 among Canada's fastest growing private companies. Active in the community, he serves on the board of United Way Centraide Canada and is an Honorary Governor of the Vancouver Foundation. Yuri was recognized as one of Canada’s Top Forty Under 40 in 2008 and was a recipient of the BC Community Achievement Award in 2010, the Spirit of Vancouver Award in 2011 and the Queen's Diamond Jubilee Medal in 2012. Citing his “dynamic entrepreneurship and committed volunteerism”, he was awarded the Order of British Columbia in 2010, the Province’s highest honour. Yuri resides in West Vancouver. Director 2011 Since Current Term 2014-2017

Committees Human Resources & Compensation Investment & Loan Nominations & Election Peter Leitch Position Director Background Peter is the President of North Shore Studios and Mammoth Studios and Chair of the Motion Picture Production Industry Association of B.C. He holds a Bachelor of Commerce degree from UBC and is a chartered accountant. Peter is a Past Chair of the North Vancouver Chamber of Commerce and former director of the B.C. Chamber of Commerce. He has also served on Canada Revenue Agency's Small Business Advisory Committee and Film Advisory Committee. Peter was honoured with a fellowship by the Institute of Chartered Accountants of B.C. and an honorary doctorate degree from Capilano University. Director 2011 Since Current Term 2012-2015

Committees Governance & Conduct Review (Chair) Human Resources & Compensation

Don Risk Position Director Background Don recently retired after a distinguished 35-year career practising law. His years as general counsel provide a wealth of experience to share with senior executives and directors on a wide range of strategic and operational issues. Don has also been a director and chair of a number of national and community boards and chaired virtually all types of board committees. Don grew up on the North Shore and now resides in Vancouver.

Director 2010 Since Current Term 2013-2016 Committees Governance & Conduct Review Investment & Loan Nominations & Election

Justin Webb Position Director Background Justin's senior leadership experience in large organizations includes knowledge of structure, compensation, motivation and recruitment. He has a deep understanding of technology opportunities and specific applications, and has spent the last 15 years applying technology to business solutions, both for customers and for internal business processes. He is currently Director, Western Region, Strategic Outsourcing – Delivery for IBM and resides in West Vancouver. Director 2006 Since Current Term 2012-2015

Committees Governance & Conduct Review Victoria Withers Position Director Background With her extensive senior business background, Victoria brings years of board governance experience to BlueShore Financial. A senior executive at IBM Canada for over 30 years, Victoria held the position of General Manager, Western Canada and upon retirement formed VLW Solutions. At VLW Solutions, she provides consulting services to assist organizations in the development and implementation of technology solutions. She is currently a Director with the Vancouver Coastal Health Authority and the Vancouver and UBC Hospital Foundation. Victoria holds her Bachelor of Commerce from McGill University. She resides in West Vancouver. Director 2013 Since Current Term 2013-2016

Committees Audit Nominations & Election (Chair)

Director Remuneration Philosophy

BlueShore Financial recognizes that corporate governance is a key ingredient to our organization’s success. Therefore, there is a need to attract and retain the best possible directors and remunerate them commensurate with their responsibilities, accountabilities and expectations.

Accordingly, BlueShore Financial’s director remuneration will: . Be set at such a level to be able to attract and retain the kind of experience and expertise that our owners (members) and regulators expect for a financial institution operating in a complex and challenging environment. . Recognize the workload and exposure to financial, reputational and legal risks.

. Recognize the different workloads associated with Committee Members, Committee Chairs, the Vice Chair of the Board and Chair of the Board. . Be in line with our comparator group, which includes like sized credit unions in Greater Vancouver; publicly listed companies with revenues up to $100MM annually; and other comparable co-operative organizations. . Be reviewed biennially by the Governance & Conduct Review Committee of the Board to ensure it adequately compensates directors for their responsibility and accountability and undergo a third party facilitated review before materially changing. The committee may review the policy more frequently on an as needed basis. . Be reported annually in our Annual Report. In addition, the Remuneration Philosophy, Policy and actual remuneration of each director for the preceding year will be published on our website, along with other pertinent information (e.g., director attendance).

Director Remuneration Policy

Annual Honorariums

All Directors $24,000 per annum Board Chair $18,000 per annum Board Vice Chair $ 5,000 per annum Audit Committee Chair $ 4,500 per annum Committee Chair $ 3,500 per annum Committee Member $ 1,500 per annum

Honorariums are cumulative.

Per Diem Payments

Per diems are not normally paid as the honorarium is intended to compensate for all director work, including meeting preparation and attendance and the substantial interaction of the directors with management and other directors in between meetings.

A Committee Chair may request approval by the Board Chair for additional compensation in the form of per diems for committee members for significant extraordinary hours that may be required over and above normal expectations of the committee based on their terms of reference.

A per diem will be paid to a director for attending regulatory required courses and approved conferences.

Duration Per Diem Amount Up to 3 hours $225 More than 3 hours $350

2014 Board of Directors Attendance and Remuneration

The Board of Directors meets at least once per quarter for a regular all-day Board meeting or more often as required to fulfill their responsibilities, plus Directors attend a two-day Strategic Planning Session during the year. In 2014 the Board met seven times. The Board is supported by five committees of the Board that also meet at least quarterly throughout the year or more often as required to fulfill their responsibilities.

Director Board Committee Director Education Misc. Meetings Meetings Compensation Expenses Expenses Attended Attended Paid 2014

Achtemichuk, Allan 7 of 7 9 of 9 $30,099.68 $0.00 $218.00 Investment & Loan – Chair Audit Atkins, Brian 7 of 7 17 of 17 $33,949.80 $451.93 $335.35 Audit – Chair Investment & Loan HR & Compensation Crawford, Bill 7 of 7 14 of 14 $35,599.72 $80.02 $455.37 Board Vice-Chair Audit HR & Compensation - Chair Davenport, Dave 7 of 7 3 of 3 $45,949.58 $892.50 $249.13 Board Chair Gov. & Conduct Review Fulmer, Yuri 6 of 7 18 of 18 $28,972.87 $0.00 $38.00 HR & Compensation Investment & Loan Nominations & Election

Leitch, Peter 7 of 7 12 of 12 $32,199.68 $5,087.47 $90.00 Gov. & Conduct Review – Chair HR & Compensation

Risk, Don 7 of 7 15 of 15 $28,972.87 $200.05 $115.00 Gov. & Conduct Review Investment & Loan Nominations & Election Webb, Justin 6 of 7 3 of 4 $27,011.24 $0.00 $0.00 Gov. & Conduct Review Withers, Victoria 7 of 7 14 of 14 $31,499.68 $13,871.41 $197.57 Audit Nominations & Election

Director Compensation includes per diems and technology allowance.

Education Expenses includes conference attendance and associated costs.

Director Miscellaneous Expenses include parking, lunch/coffee meetings and mileage.

Executive Compensation

Executive Background

Chris Catliff, President and CEO

Chris’ hands-on style and action-oriented vision are the driving forces behind BlueShore Financial’s growth and success. A veteran of the financial services industry, he has devoted his career to building better credit unions through customer relationship technology and knowledge management. Since joining BlueShore Financial in 2000, he has led a successful rebranding, technological innovation and strong organic growth, including a quadrupling of Assets Under Administration. Chris has broad experience in leading and developing financial institutions through an emphasis on innovative service, engaged employees and premium client service. Previously, Chris held executive positions at Vancity and Citizens Bank where his responsibilities included corporate affairs, credit, treasury, technology, branches and strategy. He has served on over 30 boards including Credential Financial Inc., the CUMIS Group, Canadian Northern Shield Insurance, Pacifica Mortgage Investment Corp. and the Filene Research Council. He holds a Master’s degree from UBC, the ICD.D designation from the Institute of Corporate Directors and Director qualifications from the Canadian Securities Institute.

Fred Cook, Chief Information Officer

With more than 20 years of senior management experience, Fred provides strategic direction to the Information Technology Solutions, Corporate Business Solutions and Facilities departments. He leads the planning, design and implementation of technology standards, helping to position BlueShore Financial as a credible innovator in the financial services marketplace. Fred also oversees the development and evolution of BlueShore Financial’s innovative Financial Spa branches, an environment designed to provide clients with seamless access to all levels of service and technology. The integration of technological development and executive, efficient administrative processes and superior facility design provides BlueShore’s signature client experience. A past Director and Chair of The Exchange Network Board, Hewlett Packard Canada Executive Advisory Board and Readers Advisory Board, Fred is also a blog contributor for Bank Systems and Technology. He received the Midmarket IT Leadership Award from CIO Decisions and an Elite 8 Award from Bank Systems and Technology.

Marni Johnson, Senior Vice President, HR and Communications

With experience in several industries and over 25 years in financial services, Marni provides overall leadership and strategic direction in the areas of human resources and corporate and internal communications. She is responsible for ensuring a highly competent, engaged and productive workforce, and for creating communication strategies to maximize employee commitment and achieve corporate goals. Marni is currently a Trustee of the BC Credit Union Employees' Pension and Benefits plans and serves on the boards of Chor Leoni Men’s Choir and the Pacific Symphonic Wind Ensemble. Marni holds an MBA from the Schulich School of Business (York University), a Bachelor of Science (Mathematics and Economics) from the University of Toronto and the designation of Certified Human Resources Professional.

William (Bill) Keen, Chief Financial Officer (CFO)

Bill is responsible for leading BlueShore Financial's finance, treasury and administration operations as well as group businesses (Commercial Lending, Credit, Broker Services, BlueShore Capital Corp. and Leasing). Prior to joining BlueShore Financial, Bill was the Executive Vice President and Chief Operating Officer at Northstar Trade Finance. He has also worked as a Corporate Finance Partner at Goepel Shields & Partners Inc (Investment Bank), as CFO and Senior Vice President, Finance at Surrey Metro Savings Credit Union (Coast Capital Savings' predecessor) and in a number of senior management positions in a large multinational mining and industrial group in South Africa. Bill obtained his FCA from the Institute of Chartered Accountants in England and Wales, his MBA from the University of The Witwatersrand in South Africa and his Canadian Securities Course with Honours from the Canadian

Securities Institute. He also holds the designation ICD.D from the Institute of Corporate Directors and was named BC CFO of the Year in 2012 by Business in Vancouver. Bill serves on a number of corporate and not-for-profit boards.

Reg Marrinier, Senior Vice President, Retail and Business Banking

Reg oversees all of BlueShore Financial's branches, Solution Centre operations, Marketing, Business Group and Wealth Management activities. He provides leadership, coaching and mentoring to help his team achieve both business and personal development goals. His over 20 years of experience in the financial industry have been instrumental in developing BlueShore Financial’s retail banking and investment growth, as the organization works to proactively meet clients' needs. Reg is active in various not-for-profit organizations including the Futurpreneur Mentoring Program, BC Children's Hospital and the Royal Canadian Marine Search and Rescue.

Doug Smith, Senior Vice President, Governance

Doug has been in the banking business for 30 years. He joined BlueShore Financial in 1992 and has led numerous areas of the organization including retail, commercial, insurance and investment subsidiaries, and marketing. As Senior Vice President, Governance, Doug acts as BlueShore Financial's chief governance officer and oversees our risk management processes. He also leads oversight of the process to execute strategy, legal affairs, BlueShore Financial's real estate portfolio and is the executive sponsor of the organization's corporate social responsibility initiatives. Doug sits on a number of BlueShore Financial's subsidiary company boards. He has also served on the boards of the Canadian Cancer Society, Multiple Sclerosis Society and Business Advisory Board of Capilano University. He is a past chair of the North Vancouver Chamber of Commerce and BC Chamber of Commerce, served on the board of the Canadian Chamber of Commerce, and was deeply involved in the 2010 Olympics. Doug is currently Chair of the National Board of Young Life of Canada and serves on numerous local committees. Doug has a B.A. (Economics), is a graduate of the School of Banking at the University of Colorado, a graduate of the Institute of Corporate Directors from the University of Toronto and Simon Fraser University. In 2013, Doug was awarded the Queen Elizabeth II Diamond Jubilee medal for his contributions to the community over the years.

Executive Compensation Governance

BlueShore Financial’s executive compensation is overseen by the Human Resource and Compensation Committee (HRCC) of the Board of Directors. The HRCC makes recommendations to the Board about:

. The CEO’s total compensation philosophy . Total compensation for the CEO . Structure and plan design for key elements on compensation . Total compensation for the CEO based on performance.

The HRCC also reviews, and approves as appropriate, the CEO’s recommended structure and plan design for material elements of compensation for the other executives. The Human Resource and Compensation Committee retains independent compensation expertise to provide advice on the elements, structure and amount of executive compensation.

Executive Compensation Philosophy

BlueShore Financial’s compensation strategy is linked to business strategy. It rewards the behaviours and performance that will make BlueShore Financial successful. A focus on objectivity and transparency ensures our compensation programs are aligned with outcomes.

BlueShore Financial provides total compensation that:

. Attracts and retains top executive talent

. Rewards the achievement of short- and long-term results that support BlueShore Financial’s strategy . Encourages an appropriate level of risk

Industry Positioning and Comparator Groups

BlueShore Financial considers competitiveness in the context of “total compensation”, which includes all material elements of base salary, incentives and benefits (including insured benefits, vacation, perquisites and retirement savings programs).

The executive compensation comparator group is drawn from the Canadian financial sector. The composition of the comparator group is based on selected financial services organizations that together represent a marketplace where BlueShore Financial would potentially compete for executive talent. These organizations are primarily banks, credit unions and insurance companies, with relevant adjustments for size of the organization and scope of the respective executive roles. The comparator group excludes the following sub-sectors because BlueShore Financial is unlikely to compete there for executive talent: real estate, independent wealth management firms, financial services associations and regulators.

BlueShore Financial targets total executive compensation at the median of the market compared to the above comparator group.

Chief Executive Officer Performance and Pay Review

Pay-for-performance is a key element of BlueShore Financial’s executive compensation philosophy. In addition to base salary, the CEO’s compensation program includes cash incentive programs that tie pay to performance on both short- and long-term goals. Consistent with the comparator group, BlueShore Financial favours a shift toward increased weight on at-risk pay vs. base pay.

The Board reserves the right to apply informed judgment to reduce or increase the amount of the CEO’s incentive payouts.

Components of CEO Compensation

Base Salary

The CEO’s base salary was $365,775 for 2014.

Short-Term Incentive Program

The CEO participates in a Short-Term Incentive (STI) program that rewards performance against predefined objectives. This is the same program that most other employees participate in – our Performance Rewards Program. Payments under the STI plan are contingent on achieving a threshold level of performance. Target payout (for achieving all objectives set by the Board) is 50%i of base salary; and maximum payout (for exceeding all objectives to the performance levels set by the Board) is 100% of base salary. For 2014 performance, the CEO’s STI is $298,645, which represents 81.6% of base salary.

Long-Term Incentive Program

The CEO participates in a Long-Term Incentive (LTI) program intended to align his interests with the long- term strategy of the organization. LTI payouts are made every year as part of a rolling three-year plan. Each year, specific measures and targets are established for each of the next three years. These are tracked annually, with payments under the LTI plan contingent on achieving a threshold level of performance. Target payout per year (for achieving all objectives set by the Board) is 55% of base salary,

and maximum payout (for exceeding all objectives set by the Board) is 110% of base salary. The payout each year is for one year, based on the average performance of the previous three years. For performance in 2012, 2013 and 2014, the CEO’s LTI payout is $234,050, which represents 64.0% of base salary.

Benefits and Perquisites

The CEO participates in the same benefits plan as all other employees. BlueShore Financial offers a flexible benefits program where employees choose the level of coverage that meets their needs. Coverage includes provincial medical, extended health, dental, accident insurance, life insurance, and employee and family assistance.

The CEO participates in the same short-term disability insurance as other employees. This plan is employee funded.

The CEO has a long-term disability insurance plan that is employer funded. Any benefits received if an executive should become disabled are taxable. The CEO has critical illness insurance coverage that is employer funded.

The CEO participates in annual preventive health assessments. This is both a benefit to him and a risk- management strategy for the organization.

The CEO receives perquisites such as a car allowance, car insurance and club/fitness membership dues. These perquisites are approximately $25,000 total, which is approximately 7% of his base salary.

Retirement Income Programs

The CEO is responsible for funding his own RRSP.

The CEO participates in a Defined Contribution Supplemental Executive Retirement Program. He receives 12.5% of his prior year earnings (base salary plus STI) contributed to his pension each year. In 2014, the amount contributed by BlueShore Financial to the CEO’s Supplemental Executive Retirement Program was $102,779ii.

Termination Benefits

The CEO’s employment contract stipulates that if his employment is terminated for cause, no notice, salary, bonuses or benefits are owed to him. If his employment is terminated without cause, there is a 24- month severance package (including salary, bonus and benefits) owed to him.

Summary Compensation Table - CEO

The following table presents target total cash compensation for BlueShore Financial’s CEO for 2014 at target levels of performance.

Target Compensation for Year Salary Short-Term Long-Term Total Cash performance at target Incentive Incentive Compensation

Chief Executive Officer 2014 $365,775 $182,888 $201,176 $749,839

The following table presents actual total cash compensation for BlueShore Financial’s CEO for actual 2014 performance. Short-Term Incentive and Long-Term Incentive payouts are above target, because the CEO exceeded objectives set by the Board.

Actual Compensation based Year Salary Short-Term Long-Term Total Cash on actual performance Incentive Incentive Compensation

Chief Executive Officer 2014 $365,775 $298,645 $234,050 $898,470

CEO Performance in 2014

Mr. Catliff has consistently exceeded challenging objectives in recent years. In 2014, he led a team that achieved excellent results in growing deposits and capital. This provided the means to effectively meet clients’ borrowing and credit needs without relying on outside resources. The credit union achieved 11.6% RORE in 2014, industry-leading asset growth of 16.3% and market-leading wealth management performance in investment products and insurance revenues. In 2014, Mr. Catliff also led, on time and under budget, the opening of BlueShore Financial’s new head office and Lonsdale Financial Spa™, a stunning centerpiece of central Lonsdale. Mr. Catliff’s strong leadership is also reflected in a widely admired, award-winning corporate culture. Employee engagement has risen steadily and reached an all- time high in 2014. Meanwhile, client ratings of BlueShore Financial’s service continue to dramatically outpace the offerings of competitors, evidence that the Credit Union’s differentiated strategy is succeeding.

Other Compensation Policies and Practices

The Board approves ranges for base salaries and bonuses for executives, and the CEO has the discretion to set base salaries and bonus targets within those ranges. The CEO must seek the Board’s approval for compensation outside of the range. On an annual basis, the CEO proposes executive compensation adjustments to the Human Resources and Compensation Committee for approval, with rationale based on performance and market data.

The compensation, benefits and perquisite packages received by executives are consistent in form with that of the CEO, although the specific amounts differ. Salaries, STI targets and LTI targets are set based on the median of the market for total compensation (base, incentives and benefits) within the comparator group. STI or LTI payments are based on achievement of pre-established performance targets. Any STI or LTI payments are contingent on Board approval.

In addition to the compensation philosophy for executive roles, BlueShore Financial has an employee compensation philosophy. Job rate (base salary for a fully competent performer) and Performance Rewards Program target incentives are set based on the median of the market. Our comparator group includes financial services for roles that are specific to that industry and the general market in BC for other roles that are non-industry specific.

A key tenet is that BlueShore Financial believes in providing wages that are not only market-competitive but also ensure a reasonable standard of living for all employees. Two different compensation surveys are used to evaluate the competitiveness of salary ranges against the BC market. As with executives, we target the median of the market for base salary ranges, with differences by individual based on performance and tenure.

All employees participate in the corporate Performance Rewards Program, except those with individually- based/commission incentive plans. Payouts are annual, based on performance against predefined corporate, team and individual goals. Target payout percentages are set to the median of the market. Payouts vary based on performance against corporate, team and individual results. Corporate targets are the same for all employees including executives, and are set and approved by the Board.

Employees also receive a competitive benefits package that includes provincial medical, extended health insurance, dental insurance, employee and family assistance, life insurance, accidental death and

15 dismemberment insurance, tuition and educational assistance. Short-term and long-term disability insurances are employee funded. BlueShore Financial provides a Defined Benefit (DB) pension plan to employees through the BC Credit Union Employees’ Defined Benefit Pension Plan (a multi-employer plan). The notes to the Annual Financial Statements describe the health and funding level of the pension plan. Effective August 1, 2014, employees who are eligible to join the pension plan may choose the DB plan or a Defined Contribution (DC) plan where the organization contributes 4% of earnings to the plan and will match employee contributions on a 50% matching basis up to an additional 2%.

i In 2012, the Human Resources and Compensation Committee was advised by its independent compensation advisor that the CEO’s compensation at target was below the median of the market. At the time, the STI and LTI payouts at target were 45% and 40% of base salary, respectively. The Board approved a recommendation to increase the LTI payout target to 55% to bring total target compensation to market median. Because the LTI is based on a three-year rolling average, and the increase to LTI would take three years to be fully effective, the Board approved a temporary increase to the STI payout as an offset. For 2014, the STI payout at target was 50%; this will revert to 45% in 2015, with a maximum payout of 90% of base salary. ii Effective January 1, 2014, the Board approved a change to the definition of pensionable income. The 2014 SERP amount reported above includes a one-time contribution of $27,055 to offset the impact of this decision. The amount was based on average LTIP payouts over the last three years.