Management Discussion and Analysis Introduction

Management Discussion and Analysis

Introduction...... 1 2015 Economic Environment ...... 1 Performance Highlights ...... 2 2016 Outlook ...... 2 Lines of Business Performance ...... 2 Risk Framework ...... 4 Compensation Discussion and Analysis ...... 5 Board of Directors Compensation ...... 5 Executive Compensation ...... 11

Introduction

BlueShore Financial (the “Credit Union”) 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 $4 billion in assets. As one of Canada’s “50 Best Small and Medium Employers” for five consecutive years, the Credit Union is proud of an organizational culture that is client-focused, results-driven, supportive and inclusive.

The 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.

2015 Economic Environment

After a technical recession in the first six months of 2015, the Canadian economy rebounded in the second half, but not at the pace initially expected. Growth for the year of approximately 1% is now anticipated, following a poor final quarter weakened by the continued slide in oil and other commodity prices. The slump in demand from China, as it transitions to a more sustainable growth path, coupled with a disappointing performance from other emerging economies, dampened global growth. On the positive side, the US economy remained solid and led the developed world in growth. Europe began a slow improvement and the UK showed the beginnings of a firming trend. The declining Canadian dollar cushioned some of the impact of the oil price collapse on Canadian exports, but insufficiently to offset the reduction in demand for commodities generally.

In December 2015, the US Federal Reserve Board increased its Federal Funds rate by 25 basis points, the first change in nine years. This signaled the start of a return to “policy normalization” and a level of Federal confidence in the underlying strength of the US economy. In contrast, the Bank of Canada cut its overnight rate in January and July, by 25 basis points, to help stimulate the flagging economy. This led to downward adjustments to prime interest rates and mortgage rates, and to continued strong demand for

home loans. Further cuts to the overnight rate have been speculated, but are likely to be delayed until the deficit spending proposals of the Federal government, expected to be announced in their April budget, have been evaluated by the Bank of Canada. Any upward movement in the Bank of Canada rate in 2016 is now looking less probable, as excess capacity in the Canadian economy is expected to persist until late 2017. Fiscal and monetary conditions should, therefore, be favourable for increased home investment, household spending, and mortgage demand in the coming year.

Performance Highlights

BlueShore Financial’s Assets Under Administration reached the $4 billion milestone at the end of 2015 (2014 $3.5 billion). Balance sheet assets increased by $378 million to $3.12 billion (2014 $2.74 billion). Total loans grew by $420 million (an increase of 18.3%) and deposits rose by $280 million (up 11.3%).

Despite the improvement in Net Interest Margin over 2014, the percentage margin declined as a result of further flattening of the yield curve and competitive pricing pressure. Loan growth, however, was outstanding, with strong market share gains once again. Non-interest income was impacted positively by industry leading wealth management results and loan fee revenue from higher volumes.

In the absence of last year’s gain on sale of the Credit Union’s old head office, comparable non-interest income was lower for 2015. Non-interest expenses were moderately higher than last year but were well contained.

Net Operating Income (NOI) of $10.8 million was lower than 2014’s NOI of $14.2 million, due to the absence of the 2014 gain on sale of the old head office. Return on Retained Earnings (RORE) was 8.3% (2014 11.6%) and Return on Average Assets (ROAA) was 37 basis points (2014 55 basis points).

2016 Outlook

The US is expected to maintain its diverging monetary policy from that of Canada. Higher rates are anticipated in the US, but on a gradual basis, while Canada holds fast or potentially lowers its overnight rate one last time. The US is likely to lead global economic growth once again in 2016. Canada should benefit from this, but is expected to underperform as commodity prices, particularly oil, remain depressed. Infrastructure spending by the Federal government could, however, add stimulus to an otherwise dampened economic landscape. From a housing market perspective, the continued accommodative monetary policy of the Bank of Canada should underpin housing growth and steady demand, but at a reduced level from 2015.

BlueShore Financial anticipates a competitive mortgage market once again. Although growth in resale transactions in the Vancouver residential housing market is forecasted to be lower than in 2015, the Credit Union is budgeting for steady growth in both loans and deposits. It is also targeting to grow its Wealth Management contribution at a robust rate. Balance sheet structure is expected to remain strong, with a healthy capital base, solid liquidity and high asset quality. BlueShore Financial is well positioned to build on its strong foundation and continue to progress strategically towards its high touch, high tech Vision 2020.

Lines of Business Performance

Core Banking

2015 was another strong year both financially and for client results. Deposits, lending and wealth management all met or exceeded aggressive growth expectations. Further, the independent study that

gathered client’s opinions of BlueShore Financial and our competitors through Ipsos Reid had excellent results. In almost every category, from expertise to helping with clients’ overall financial well-being, to proactive contact, BlueShore Financial excelled above the competition. Our Mystery Shop results had similar findings with BlueShore Financial Advisors following a comprehensive diligent process.

BlueShore Leasing

BlueShore Leasing provides lease financing to businesses in B.C. and, on a select basis, Alberta and Ontario. The division primarily leases equipment for clients in manufacturing, construction, transportation, warehousing and related industries. The portfolio is divided between transportation and construction equipment financed under BlueShore Transport Finance Ltd. and all other equipment types financed through BlueShore Leasing Ltd. BlueShore Leasing Ltd. also provides strata loans to post construction strata facilities for common property upgrades. The division strives to maintain a diverse portfolio, broadly based over multiple industries and equipment types. This helps diversify risk due to cyclical downturns in industry sectors.

At the end of 2015, the total portfolio investment balance was $72 million consisting of approximately 1,200 individual equipment leases with an average duration of 30 months. Approximately 350 new leases totalling $38 million were funded during the year, adding $5 million in net investment to the portfolio. With the decline in oil prices, leasing activity to the Alberta oil and gas sector was significantly reduced in the year.

Wealth Management

Wealth Management had a strong year, despite significant volatility in stock markets in the third quarter.

The investment line had asset growth of 10.1%, and ended 2015 with $679 million in assets under administration. The increase was comprised primarily of $62 million in net sales. Clients continued to demonstrate confidence in our strong advisory platform by consolidating their assets with BlueShore Financial despite the 11% decline in the TSX.

Business Group

The Business Group, in conjunction with branch Financial Advisors coordinates the deposits, lending, insurance and wealth management needs of business clients. The advice based group continued to successfully service and be well received by both new and existing business clients. We grew our business loans and mortgage portfolio by $27 million and our wholesale and business deposits by over $100 million.

Real Estate Lending (Commercial)

The BlueShore Financial Real Estate Lending Group is comprised of an experienced group of individuals that sources, underwrites, funds and administers commercial mortgages primarily in the Lower Mainland. The Group manages a commercial mortgage portfolio of just under $900 million and has underwritten over $1.5 billion in new loans over the past 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, and multi-family. During 2015, record commercial growth was achieved. This was significantly in excess of budget and positions us well for revenue growth in the coming year.

Risk Framework

The Credit Union’s Board of Directors 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 primary risks. Within the Credit Union’s risk management framework are policies to establish appropriate risk limits and controls. Management’s responsibility is to identify and analyze the risks faced by the Credit Union and to monitor adherence to established limits. Risk management policies and controls are reviewed regularly to reflect changes in market conditions, product and service offerings, portfolio performance and economic trends. An Enterprise Risk Management Framework is in place and is regularly reviewed by management through its Management Risk Committee.

The Board has identified 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 loans and advances as well as loan commitments arising from such lending activities. The Credit Union is also exposed to credit risks arising from derivatives and settlement balances with market counterparties for asset/liability management purposes.

Credit risk is the single largest risk for the Credit Union’s business. Management controls exposure to credit risk through rigorous credit policies and procedures established in its Investment and Loan Policy. 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 its 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. The Credit Union has policies and procedures in place to manage its liquidity position to comply with both regulatory requirements and sound business practices.

The Financial Institutions Act requires Credit Unions in BC to maintain a liquidity ratio of at least 8% of deposit and debt obligations. The Credit Union has established Board approved internal limits which are above this level and are reflected in the Liquidity Operating Plan. A Liquidity Contingency Plan is also in place to address potential future liquidity shortfalls 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 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 on behalf of the Board.

Corporate and Operational Risk

Corporate and operational risk is the risk of loss resulting from the failure of or inadequacy of systems, internal controls 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, and 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.

Independent internal and external auditors annually review the Credit Union’s internal control environment and assess its adequacy for effectiveness.

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 2008 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 2015-2018

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 Human Resources & Compensation Nominations & Election 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 Human Resources & Compensation Investment & Loan (Chair) Brian Atkins Position Director Background Brian is a chartered professional 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 in addition to BlueShore. Brian is a resident of the North Shore. Director 2008 Since Current Term 2014-2017

Committees Audit Nominations & Election (Chair)

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 Vancouver. Director 2011 Since Current Term 2014-2017

Committees Human Resources & Compensation (Chair) 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 professional 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 Chartered Professional Accountants of B.C. and an honorary doctorate degree from Capilano University. Peter resides in North Vancouver. Director 2011 Since Current Term 2015-2018

Committees Audit (Chair) Investment & Loan Nominations & Election Don Risk Position Director Background Don retired after a distinguished 35-year career practicing 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

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 Vice-President, BC Operations for ISM Canada and resides on the North Shore. Director 2006 Since Current Term 2015-2018

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

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

Responsibility Honorarium

All Directors $27,000 per annum (1) Board Chair $22,000 per annum Board Vice Chair $ 5,500 per annum Audit Committee Chair $ 5,500 per annum HR & Compensation Chair $ 4,000 per annum Investment & Loan Chair $ 4,000 per annum Gov. & Conduct Review Chair $ 3,000 per annum Nominations & Election Chair $ 3,000 per annum Committee Member $ 1,750 per annum (2)

(1) Honorariums are cumulative. (2) The Committee Member Honorarium incorporates meeting fees.

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 $300 More than 3 hours $500

2015 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 2015 the Board met eight 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 2015

Achtemichuk, Allan 7 of 8 13 of 13 $34,513.39 $0.00 $73.00 Audit Human Resources & Comp. Investment & Loan (Chair) Atkins, Brian 7 of 8 13 of 13 $38,801.88 $1974.11 $291.48 Audit Nominations & Election (Chair) Crawford, Bill 8 of 8 12 of 12 $45,578.71 $4202.86 $426.84 Board Vice-Chair Human Resources & Comp. Davenport, Dave 8 of 8 4 of 4 $51,659.47 $3334.14 $1,395.43 Board Chair Gov. & Conduct Review Fulmer, Yuri 7 of 8 14 of 14 $35,874.97 $55.00 $18.00 Human Resources & Comp. (Chair) Investment & Loan Nominations & Election Leitch, Peter 8 of 8 13 of 13 $37,344.12 $10,255.60 $0.00 Audit (Chair) Investment & Loan Nominations & Election Risk, Don 8 of 8 8 of 8 $30,965.25 $590.81 $0.00 Gov. & Conduct Review Investment & Loan Webb, Justin 8 of 8 6 of 7 $29,576.74 $0.00 $0.00 Audit Gov. & Conduct Review Withers, Victoria 8 of 8 8 of 8 $33,766.42 $1,840.61 $127.00 Human Resources & Comp. Gov. & Conduct Review (Chair)

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 as CEO 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 market niches, 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 solutions and 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 branch design concept. The integration of technology, administrative processes and facility design concepts ensures BlueShore Financial’s signature client experience. Fred is a past Director and Board Chair of The Exchange Network, and has served on the Hewlett Packard Canada Executive Advisory Board. Fred has also been a blog contributor for Bank Systems and Technology and served on their Readers Advisory Board. He was recently appointed by Central 1 Board to serve on the C1 Technology Committee. He received the Midmarket IT Leadership Award from CIO Decisions and an Elite 8 CIO 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 board of Chor Leoni Men’s Choir. 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 over that time led all of our lines of businesses including our branches, commercial division, insurance subsidiary, wealth management services and many of our head office departments. Now Senior Vice President, Governance, Doug acts as BlueShore Financial's chief governance officer, oversees the credit union’s enterprise wide risk management processes and leads our processes to ensure we execute on our strategy. He also oversees 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 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, past chair of the BC Chamber of Commerce, served on the board of the Canadian Chamber of Commerce and was deeply involved in the Vancouver 2010 Olympics. 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, and has been awarded the Queen Elizabeth II Diamond Jubilee medal for his many 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 $377,825 for 2015.

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 45% of base salary; and maximum payout (for exceeding all objectives to the performance levels set by the Board) is 90% of base salary. For 2015 performance, the CEO’s STI is $276,471, which represents 73.2% 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 2013, 2014 and 2015, the CEO’s LTI payout is $262,630, which represents 69.5% 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 6.6% of his base salary.

Retirement Income Programs

The CEO participates in a Defined Contribution Supplemental Executive Retirement Program (SERP). He receives 12.5% of his prior year earnings (base salary plus STI) contributed to his pension each year. The amount of SERP contribution earned for 2015 was $84,559.

In 2015, BlueShore Financial introduced a Defined Benefit Individual Pension Program (IPP) for the CEO to allow him to receive retirement income in a tax efficient manner. The CEO is personally responsible for funding the contributions related to his past service; the contribution for current service is effected through a transfer of funds from the CEO’s SERP.

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 2015 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 2015 $377,825 $170,021 $207,804 $755,650

The following table presents actual total cash compensation for BlueShore Financial’s CEO for actual 2015 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 2015 $377,825 $ 276,471 $ 262,630 $916,926

CEO Performance in 2015

Mr. Catliff has consistently exceeded very challenging objectives in recent years. In 2015, he led a team that achieved excellent results in growing deposits and capital. The Credit Union grew its loans by $420 million, or 18.3%. It led the industry with organic asset growth of 14% and market-leading wealth management performance in investment products and insurance revenues. It also achieved an 8.3% Return on Retained Earnings. Mr. Catliff’s strong leadership is also reflected in a nationally recognized, award-winning corporate culture. Employee engagement has risen steadily and maintained an all-time high in 2014 and 2015. Mr. Catliff has led the growing awareness of BlueShore Financial’s new distinctive and premium brand. 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 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%.