Contents. CONCENTRA BANK 2017 ANNUAL REPORT Branching Out. 3 Our Strategy for Success Financial Performance Highlights

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2 CONCENTRA BANK 2017 ANNUAL REPORT Branching Out Contents 3 Our Strategy for Success Financial Performance Highlights 7 Joint Message from the Board Chair and President & CEO 10 Governance Board of Directors and Executive Leadership Team 12 Corporate Social Responsibility 14 Business Profile 2

3 Our Strategy for Success Our strategy is designed with an eye to the future, navigating forces of change and emerging trends while consistently maintaining the determination to return value to the credit union system. Our vision and priorities reflect Concentra s long-term focus, and our co-operative values guide our day-to-day actions. In a rapidly changing environment, we have capabilities, strengths, and a business model that positions Concentra to continue supporting the growth of the credit union system. OUR PURPOSE Change how the credit union system competes in the financial services industry. OUR VISION To be the leading credit union-owned financial institution offering wholesale and trust solutions to Canada s credit unions. Build Grow Change 2017 STRATEGIC PRIORITIES Grounded in a build-grow-change mandate, our corporate strategy positions Concentra to meet the emerging needs of credit unions. Throughout 2017, Concentra focused on strategic initiatives to further these priorities and move us closer towards achieving our vision. 3

4 2017 Financial Performance Highlights FINANCIAL POSITION SUMMARY (Thousands of Canadian Dollars) ASSETS Cash and securities 1,329,961 1,628,523 1,480,192 1,244,701 1,067,610 Retail loans 6,449,392 6,304,743 4,773,002 4,116,957 3,701,666 Commercial loans 1,228,608 1,391,870 1,450,754 1,331,656 1,151,899 Other assets 118, ,367 95,758 53, ,905 Total Assets 9,126,672 9,452,503 7,799,706 6,746,485 6,058,080 LIABILITIES AND EQUITY Deposits 3,752,766 4,206,923 4,205,254 3,834,471 3,109,680 Securitization liabilities 4,339,989 4,314,901 2,966,362 2,298,478 2,309,430 Debt 453, , , , ,883 Other 123,163 88,925 58,646 39,141 32,765 Shareholder's Equity 456, , , , ,322 Total Liabilities and Equity 9,126,672 9,452,503 7,799,706 6,746,485 6,058,080 RESULTS OF OPERATIONS Gross revenue 267, , , , ,761 Net interest income 83,497 78,467 68,309 67,399 69,449 Non-interest income 23,112 26,171 23,164 18,651 15,759 Non-interest expense 60,037 51,201 54,607 47,706 43,921 Net income 33,647 28,859 25,301 23,207 26,623 CREDIT QUALITY Net impaired loans 8,592 13,616 14,290 16,769 26,991 Net impaired loans as % of gross credit loans 0.11% 0.18% 0.23% 0.31% 0.55% Provision for credit losses ,084 2,172 6,836 5,319 Provision for credit losses as % of gross credit loans 0.01% 0.18% 0.03% 0.13% 0.11% FINANCIAL RATIOS Return on common equity 8.8% 7.9% 8.7% 8.6% 10.7% Efficiency ratio 51.7% 49.4% 58.2% 55.4% 51.5% Operating leverage ratio 4.5% 18.0% -10.7% -12.5% 8.2% Expense coverage ratio 73.9% 84.0% 86.3% 76.0% 59.1% Return on average assets 0.36% 0.33% 0.34% 0.35% 0.44% Return on investment 3.0% 10.0% 4.0% 3.0% 5.0% CAPITAL ADEQUACY Common Equity Tier 1 capital to risk weighted assets 13.1% 10.2% 11.6% 13.2% 13.3% Tier 1 regulatory capital to risk weighted assets 17.5% 13.9% 16.2% 13.3% 13.5% Total regulatory capital to risk weighted assets 17.5% 14.8% 17.6% 17.8% 18.9% Leverage ratio 1 4.7% 4.2% 5.0% 4.0% N/A 1 The assets to capital multiple was replaced with the leverage ratio under OSFI's CAR Guideline effective January 1,

5 Earnings RETURN ON COMMON EQUITY (%) EFFICIENCY RATIO (%) RETURN ON AVERAGE ASSETS (%) Capital COMMON EQUITY TIER 1 CAPITAL TO RISK WEIGHTED ASSETS (%) TOTAL REGULATORY CAPITAL TO RISK WEIGHTED ASSETS (%) Return to Shareholders DIVIDENDS PAID ($) COMMON SHARES 2017 PREFERRED SHARES ,027,560 5,105, ,322, ,282, ,329, , ,997, , ,661, ,000 1 Additional dividends were declared in 2016 to take advantage of a deduction from taxable income that is no longer available to the Bank post continuance. 5

6 Credit Quality GROSS IMPAIRED LOANS AS % OF GROSS LOANS PROVISION FOR CREDIT LOSSES AS % OF GROSS LOANS YR AVG YR AVG Loan Diversification RETAIL BY PROVINCE (%) COMMERCIAL BY PROVINCE (%) BY ASSET CLASS (%) Ontario 46 Alberta 27 British Columbia 13 Other 9 Saskatchewan 5 Ontario 33 Saskatchewan 27 Alberta 17 British Columbia 12 Other 11 COMMERCIAL PORTFOLIO (%) Mortgages 14 Loans and Leases 2 RETAIL PORTFOLIO (%) Residential Mortgages: Insured 66 Residential Mortgages: Uninsured 13 Consumer Term Loans: Uninsured 5 6

7 Joint Message from the Board Chair and President & CEO Branching Out Guided by our co-operative roots, Concentra s vision to be the wholesale bank and trust company for Canada s credit unions endures. January 1, 2017 marked a new beginning for Concentra, bringing expanded opportunities to fulfill our mandate as the system s first Schedule 1 chartered bank focused on furthering the success of the co-operative financial system. These expanded opportunities and diversification further our goal to drive growth in market share for the credit union system, powering greater success competing within the financial services industry. While the pace of change during 2017 was swift, Concentra adapted our product and service offerings to suit evolving environmental and business needs. Building relationships into true partnerships remained a corporate priority. Branching Out Strengthening Our Enterprise STRENGTHENING OUR ENTERPRISE Concentra performed strongly in We enjoyed our second highest net income in history, combined with a record net interest income result. These milestones were produced in the face of managing substantial changes in the residential mortgage market. Concentra continues to build a strong enterprise, able to produce consistent earnings, and deliver strong value back to our owners through dividends. One of Concentra s key competitive advantages is our ability to bring a national network of connections to local credit unions, facilitating participation in transactions of national scope. Our Commercial Markets team is a conduit, supporting credit unions in their respective local markets by participating in commercial lending transactions to supplement growth, use excess liquidity, diversify, and enhance yields. Worthy of highlight is Concentra s Consumer Lending business. Launched in 2016, it is showing significant potential, with approximately $365.5 million on balance sheet at the end of We continue to focus on building a diversified portfolio of consumer assets to be leveraged for Concentra, and to build further expertise to support credit union investment. Expanding Partnerships Creating Value 2017 was the fifteenth consecutive year Concentra earned distinction as part of Canada s Best Managed Companies, retaining our Platinum status. 7

8 Receiving the Award for Best Engagement by a Governance Team is a tremendous honour. DANIEL JOHNSON CHAIR, BOARD OF DIRECTORS Our consumer lending business is showing significant potential as we continue to build a diversified portfolio and expertise in consumer assets. DON COULTER PRESIDENT & CHIEF EXECUTIVE OFFICER Concentra contributed to Canada s co-operative community in tangible ways by sharing our success through continued financial returns. Financial success also enabled a number of charitable contributions, detailed in our Corporate Social Responsibility reporting. Through our revised credit union Client Engagement survey, we heard directly from system CEOs that Concentra is viewed as a strategic partner, and creates value for credit union operations. We also heard from business line leaders about the importance of ongoing training, education and responsive service. Thank-you for sharing this feedback. The insightful comments and responses are shaping Concentra s future action. As plans progress, our credit union clients can expect to hear more, and Concentra will continue working to earn your business, each and every day. EXPANDING PARTNERSHIPS Concentra Trust expanded our strategic trust partnership model in Through a unique service arrangement, a Concentra Trust expert is embedded within a credit union branch to provide comprehensive wealth management advice to members. The model offers a holistic estate and trust approach from the onset of financial planning dialogues, with branches providing cradle to grave wealth management offerings, and retaining assets within their credit union. Concentra is building on the success of this model, creating further credit unions partnerships in Continuing in the vein of partnerships, our governance work is worthy of special mention. Recognizing the exceptional work of our entire bank continuance team, and the involvement by our Board of Directors in preparing and executing bank continuance, Governance Professionals of Canada named Concentra the 2017 recipient of their Award for Best Engagement by a Governance Team. Through our engagement work, Concentra demonstrated strong partnerships with system stakeholders across Canada, and we were honoured to be recognized on a national scale. Canada s financial industry continues to experience a powerful and disruptive influence resulting from new technology entrants (fintech). Concentra is responding strategically. Future technology solutions for Concentra are founded in our objective to diversify origination sources, while addressing competitive challenges and opportunities. We continue exploring relationships with technology-enabled partners to determine if new market participants and alternate origination channels can enhance our offerings and create value for our owners. CREATING VALUE 2017 financial results show a steady rate of growth, with Concentra recording our second highest net income of $33.6 million, up from $28.9 million in Total assets growth slowed during the year due to market conditions, ending at $9.1 billion, as compared to $9.4 billion in the previous year. 8

9 Assets under administration (AUA) represents resources Concentra administers on behalf of credit unions, who retain the financial value on their balance sheet, thereby funding their own growth and strategic priorities. For 2017, AUA were $33.4 billion, up 8% over the 2016 result of to $30.0 billion, signaling not only continued support for Concentra s offerings, but indicative of asset growth within the credit union system. In 2017, Concentra s efficiency ratio a measure of our ability to turn resources into revenue maintained at a healthy 51.7%, up marginally from 49.4% from To enhance value for our owners, Concentra began delivering quarterly investor relations webinars in We also fully implemented a quarterly dividend payment to provide a more frequent and consistent return to our shareholders. In 2017, Concentra generated substantial value by returning $4.0 million in dividend payments to our common shareholders across the country, and producing a return on equity of 8.8%, an increase from the 7.9% generated in the year prior. DANIEL JOHNSON Chair, Board of Directors Looking forward to 2018, we are excited to bring together a new executive leadership team to work in tandem with the Concentra Board of Directors. Through the transitions of 2017 and the opportunities we ve seized to branch out, Concentra has built an exceptional team, growing our capacity to guide Concentra forward, and adapting to an ever-changing environment. The horizon is bringing new challenges for the financial services industry to navigate. Concentra is committed to maintaining momentum by strengthening our enterprise, expanding partnerships, and creating value for Canada s credit unions. DON COULTER President & Chief Executive Officer 9

10 Governance The Board of Directors of Concentra Bank and its wholly-owned subsidiary, Concentra Trust, fulfills its role and responsibilities to Concentra s shareholders and stakeholders by upholding high standards of corporate governance, embodying a culture of continuous improvement, and demonstrating dedication to the co-operative system. The Board directly supervises the management and affairs of Concentra, delegating as appropriate, and providing prudent oversight of Concentra s resources and capacities. Consistent with a federally regulated financial institution, Concentra s Board reflects alignment with applicable legal and regulatory requirements and evolving best practices for corporate governance, including the Office of the Superintendent of Financial Institution s (OSFI) Corporate Governance Guidelines. During 2017, Concentra began operation under the Bank Act with a 12-person Board, comprising a majority of independent directors, elected in accordance with the legislative, regulatory and by-law framework of a Schedule 1 chartered bank. The Board is accountable to the Shareholders for Concentra s strategy and performance. In 2017 the board focused on: CORPORATE STRATEGY The Board and Executive Leadership Team establish Concentra s corporate direction. The Board regularly engaged management in constructive dialogue, providing both challenge and guidance for significant strategic initiatives. Review of the Strategic Plan included evaluation of risk factors, current and forecast economic conditions, the competitive market, and Concentra s business model. RISK MANAGEMENT The Board provides risk oversight, approves the risk appetite, and establishes the corporate tone for risk culture in order to preserve Concentra s viability and shareholder value. The Board approved Concentra s risk governance and risk appetite frameworks, receiving education on proposed additional risk frameworks such as risk adjusted performance measurement. Mandates for the Chief Risk Officer and risk function were reviewed and approved, and we welcomed a new Chief Risk Officer in March of EXECUTIVE SUCCESSION PLANNING Upon Ken Kosolofski s retirement announcement, the Board implemented its CEO Succession Plan and began actively recruiting a successor. An extensive and comprehensive search was conducted, carefully considering the desired attributes, characteristics and experiences required in a new CEO, as well as adjustments to the Executive Leadership Team. GOVERNANCE EVOLUTION In alignment with the requirements of the Bank Act, and reflecting an appropriate governance structure for a bank owned by co-operative entities, a new governance model was implemented in The Board recommended the first Board of Directors for Concentra Bank to the Shareholders at the 2017 Annual and Special Meeting of Shareholders, with four new directors on-boarded. Board succession and renewal remains an important mandate to continue aligning director recruitment with the necessary skills, expertise and experience to support Concentra s strategic goals. Significant governance initiatives in 2017 included approval of new Terms of Reference for each Standing Committee, refreshed mandates for oversight functions, and revisions to director compensation. The Board also oversaw review and approval of mandates and appointments of key oversight functions including the Chief Financial Officer, Chief Risk Officer, and Chief Internal Auditor. 10

11 2017 Board of Directors DANIEL JOHNSON (CHAIR) Chief Executive Officer, Innovation Credit Union Committees: Ad Hoc Consolidation (Chair) Concentra Trust Board (Chair) Director since: 2015 TIM SMART (VICE-CHAIR) Independent Consultant Committees: Risk (Chair), Ad Hoc Consolidation Concentra Trust Board Director since: 2016 LISE DE MOISSAC Chief Financial Officer, Affinity Credit Union Committees: Audit & Conduct Review, Risk Director since: 2014 GLEN DYRDA Corporate Director Committees: Audit & Conduct Review (Chair), Governance Concentra Trust Board Director since: 2017 ANNE GILLESPIE Chief Financial Officer & Chief Risk Officer, Credit Union Central of Alberta Committees: Audit & Conduct Review, Risk, Ad Hoc Consolidation Director since: 2014 BRIAN GUILLEMIN Interim President & Chief Executive Officer, Concentra Bank, September 29 to December 31 Concentra Trust Board Director since: 2017 BOB HAGUE Executive Vice-President, CUMIS Committees: Governance (Chair), Ad Hoc Consolidation Concentra Trust Board Director since: 2010 KEN KOSOLOFSKI President & Chief Executive Officer, Concentra Bank, January 1 to September 29 Concentra Trust Board Director since: 2017 MIKE LEONARD President & Chief Executive Officer, Atlantic Central Committees: Risk Director since: 2017 DAVID LOSIER Independent Consultant Committees: Audit & Conduct Review, Human Resources & Compensation Director since: 2017 CARY RANSOME Executive Vice-President & Chief Operating Officer, Conexus Credit Union Committees: Human Resources & Compensation, Governance Director since: 2016 RUSS SIEMENS Corporate Director Committees: Human Resources & Compensation (Chair), Concentra Trust Board Director since: 2014 SHELLEY WILLIAMS Corporate Director Committees: Human Resources & Compensation, Governance Director since: 2017 TERESA LEE Lawyer, Law Office of Teresa F. Lee Concentra Trust Board Director since: 2015 Executive Leadership Team DON COULTER, BSC, MSC, CPA, CA President & Chief Executive Officer BRIAN GUILLEMIN, MBA Interim President & Chief Executive Officer, September 29 to December 31 Executive Vice-President, Corporate Services ANAND BORAWAKE, B. ENG, MBA Executive Vice-President, Chief Risk Officer RYAN GRAHAM, CPA, CMA Executive Vice-President, Wholesale Banking DALLAS MARCE, BA, CFA Executive Vice-President, Trust & Strategy PAUL MASTERSON, CPA, CA, MBA Executive Vice-President, Chief Financial Officer 11

12 Corporate Social Responsibility Concentra embraces co-operative values, and we re proud of our corporate commitment to strengthening local communities, as well as the entire co-operative system. Achieving consistent business results in 2017 afforded Concentra the continued privilege of making significant financial investments in a number of charitable endeavors. Our CSR program continues to evolve, with three key pillars forming the framework of Concentra s offerings: credit unions, co-operatives, and local communities saw Concentra s Corporate Social Responsibility program branch out, expand partnerships and create value. Credit Union EMPOWERING YOUR COMMUNITY Since 2011, under our flagship program, Empowering Your Community, Concentra has awarded $1.2 million through 95 grants, funding projects in over 70 communities across Canada. In 2017, we received a record 93 Empowering applications. Employees put their heads together, selecting two credit union projects to each receive $25,000, with another 15 receiving $10,000. Empowering is our Corporate Social Responsibility cornerstone, enabling investment in community projects across the country as supported and identified by local credit unions. $1.2M EMPOWERING GRANTS AWARDED SINCE COMMUNITIES SUPPORTED ACROSS CANADA Energize: You, Your Team, Your Company! In 2017, Concentra invested in our employees by hosting our bi-annual employee conference. The full-day event themed Energize: You, Your Team, Your Company! brought together colleagues from across the country. It was an action-packed day, providing an opportunity for professional and personal growth, along with a few crazy team-building experiences. Employees told us that spending a day to re-energize the Concentra team was truly valuable. 12

13 Co-operative CO-OPERATIVE DEVELOPMENT FOUNDATION OF CANADA (CDF) Building on continuous financial support since 2001, in 2017 Concentra signed a new four-year $300,000 funding agreement in support of CDF s Breaking New Ground campaign. The initiative will help close the gap on gender inequality, promote financial inclusion, and strengthen resilience and sustainability through international programs delivered in the developing world. CANADIAN CO-OPERATIVE INVESTMENT FUND (CCIF) With a commitment to invest $1 million, Concentra, together with co-operative partners have come together to build a $25 million fund to finance new and expanding Canadian co-operatives. Through this gift, we re showing our commitment to the co-operative principles of co-operation among co-operatives, and concern for community. $300K TO SUPPORT CDF $1M COMMITTED TO EXPAND CO-OPERATIVES Local Community VOLUNTEER In September of 2017, Concentra launched an employee volunteer policy, encouraging employees to invest up to three paid days per year to volunteer in their community. From September to December, 30 Concentra staffers volunteered hours - almost 22 days we re off to a great start! UNITED WAY Concentra and its employees have been actively supporting the United Way since 1998, collectively raising $1.3 million. Through multiple internal campaigns, in 2017, we raised $75,700 for the Regina and Saskatoon United Way organizations! WANUSKEWIN HERITAGE PARK Concentra joined the $40 million Thundering Ahead renewal campaign for Wanuskewin with a four-year, $100,000 commitment. With 6,400 years of history as a gathering site of Indigenous people, Indigenous nations have affirmed Wanuskewin as a spiritual place. This complete and intact record of cultural development in the region includes habitation sites, bison jumps, tipi rings and the most northerly Medicine Wheel recorded in North America. The Park has been named to Canada s Tentative List for UNESCO World Heritage Sites. 22 DAYS VOLUNTEERED BY STAFF $1.3M RAISED FOR UNITED WAY $100K TO THE WANUSKEWIN THUNDERING AHEAD CAMPAIGN 13

14 Business Profile Concentra is the wholesale bank and trust company for Canada s credit unions. With deep roots in the co-operative system, Concentra is built on shared values and a commitment to success through serving credit unions coast to coast. Concentra strives to earn your business by offering competitive solutions to improve performance, grow your membership, and help manage risk. Our nearly 300 employees across the country bring national connections to local credit unions, helping to serve over five million members across Canada. OVER 85% OF CANADIAN CREDIT UNIONS PARTNER WITH CONCENTRA FOR: Lending and investment solutions Risk management strategies Estate and trust services National network of relationships Results that create value Branching out by strengthenin Concentra s 2017 financial perfor at concentra.ca/investor. 14

15 CORPORATE TRUST REGISTERED PLANS ESTATES & TRUSTS Concentra Trust A wholly-owned subsidiary of Concentra Bank. Concentra Trust strives to be the provider of choice for credit unions by providing tailored solutions for estate planning and administration, trusts, and registered plans. Our offerings are designed to protect and transition wealth to future generations, and to assist your members in saving for important goals spanning their lifetime from education to retirement. As intergenerational wealth transfer occurs, Concentra Trust can help retain assets within the credit union system, assisting with membership growth by facilitating the referrals of inheritors back to credit unions SUCCESSES Canadian Credit Union Association requested assistance from Concentra s in-house registered plans experts to review training material and help lead CCUA s educational training sessions. Over 2000 participants joined Concentra for registered plan training and webinars credit union employees received personal trust educational support through presentations, webinars and workshops. CAPITAL MARKETS COMMERCIAL MARKETS Wholesale Banking Wholesale Banking delivers a range of solutions targeting asset and risk management, capital, liquidity, and also the lending and investing needs of credit unions and their members. Concentra is recognized for flexibility and responsiveness in bringing new solutions to bear on emerging market opportunities for credit unions SUCCESSES Nearly $3 billion of combined asset purchases, sales, and funding solutions delivered to credit unions. Served credit unions with expanded delivery of risk management and asset-liability consulting services, representing a market of over $43 billion in assets. Continued participation in technology-enabled consumer lending market with new partnerships supporting diversification of Concentra and credit union balance sheets leasing. EQUIPMENT FINANCING g our enterprise, expanding partnerships, and creating value. Learn more about mance in the consolidated financial statements and the Management s Discussion & Analysis 15

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