2015 AnnuAl RepoRt foR MeMbeRs - SchoolsFirst FCU · in three Members regularly used our Mobile banking app to make deposits, pay bills, transfer funds, and monitor their accounts.

2015 AnnuAl RepoRt foR MeMbeRs

Kristine Wetzel, Chairman of the board andbill Cheney, president/Ceo

(left to right)

Together, we are part of something extraordinary

since I began my time at the Credit union two years ago as your president/Ceo, I’ve had the privilege of speaking personally with many of you. You’ve consistently told me that you consider schoolsfirst fCu your family, and we couldn’t agree more. our family of 12 founding Members has grown a great deal since 1934, but we’ve never forgotten our guiding principle of people helping people, and the belief that together with our unwavering commitment to each other we will continue to be successful.

our rich legacy serves as a building block, an integral part of who we have become, and will help guide us as we continue to respond to your changing needs.

together we have achieved remarkable results: In 2015 we added more than 68,000 new Members to become more than 672,000 Members strong, and surpassed $11 billion in assets, with a capital ratio of 11.5%.

thanks to your enthusiastic support, we were honored to be named the “best Credit union” in orange County for the fourth year in a row by oC Weekly, and according to CnbC, a Consumer Reports survey rated us number one among credit unions for service.

the financial strength we have been able to achieve because of your loyalty and participation in our products and services enables us to provide Members with higher savings rates and low or no fees. In 2015, schoolsfirst fCu provided more than

$99 million in direct financial benefits to its Membership, according to a report by the Credit union national Association, when compared to other California financial institutions. that translates into an average annual savings of $290 per Member household.

We are also committed to giving back—to school employees, schools, local organizations and the communities we serve. In 2015, we gave $2.4 million in charitable donations to school and local organizations and the credit union movement.

Your Voice, Your Credit Union

Your feedback is highly valued, and helps us focus on the things that matter to you most, including convenience, security for your accounts, and help whenever you need it. In 2015, we opened a new schoolsfirst fCu branch in Inglewood, provided instant-issue

debit cards in our branches, and through our partnership with Rite-Aid, added 42 additional Rite-Aid AtMs in san Diego County. We continued to make improvements to our

A Rich Family Legacy of Membership

Richard H., Member since 1937

for Richard H. and his family, financial stability has always been an important discipline. Richard was born in 1934, the same year his father’s colleague, Harry Jackson, organized our Credit union.

shortly thereafter, his dad, a schoolteacher, opened accounts for Richard and his brother tom. over the years, Richard’s family tree has grown with four children, eight grandchildren, and two great-grandsons.

Richard and his wife have passed the legacy of Membership down in their family and now many of them are Members of our schoolsfirst fCu family.

the tradition continues…

taking Action for our Members

letter from the Chairman and president

Kristine Wetzel Chairman of the board

Financial Education Creates Financial Success

providing financial education remains a top priority for us. We continue to do this by offering a wide range of tools and advice options for youth and adults, including online and in-person financial and real estate workshops, digital and print educational newsletters, and learning modules via our partnership with balance’s online personal financial education Center. In 2015, we featured a new video monthly on our Youtube Channel, and increased our financial education posts on facebook, twitter and Instagram. We conducted 89 educational seminars on a variety of financial topics, and hosted close to 1,000 Members for our Retirement forum.

In the classroom, we held 10 “bite of Reality” events in which more than 1,500 students participated, resulting in a 100% increase over 2014, and 89 financial education presentations with 3,100 students, resulting in a 118% increase over 2014.

Financial Strength Followed

In 2015, net Interest Income was $250.3 million, 9% higher than in 2014. this increase was fueled primarily by new loan growth bringing the year-to-date net Income to $101.3 million. Assets grew to approximately $11.7 billion, resulting in a capital ratio of 11.5%, with an operating expense ratio of 2.10% versus 2.07% a year ago, and return on assets (RoA) of .89% versus 1.05% in 2014. none of these results would have been accomplished without you.

letter from the Chairman and president (continued)

We Thank You for a Record Year

our success is a direct result of your commitment to the Credit union. Your enthusiastic participation resulted in a record year for share and loan growth. And, because you shared the benefits of Membership with friends and family, we continue to grow our reserves, keep costs low, and make better use of the resources we have. that means we are in a strong capital position to make investments designed to improve the lives of our Members and increase the financial resources we need for both now and in the future.

together, we are part of something extraordinary. We are here to be your financial partner, and to help you achieve all your hopes and dreams. As always, we are honored and grateful for your Membership.

1. ApR=Annual percentage Rate. 84-month available on new auto loan. Rates range from 2.84% ApR – 4.24% ApR. estimated payment per $100 borrowed is $1.31-$1.38. Rates reflect a 0.75% discount for automatic payment transfer from your schoolsfirst fCu account. terms based on various factors including amount financed and applicant’s credit rating. financing available up to 100% of the Manufacturer suggested Retail price on new autos or purchase price, whichever is less; plus tax, license, documentation fees, GAp, and Mechanical Repair Coverage. Rates quoted are effective 5/11/2016 and are subject to change. 2. trueCar is not affiliated with schoolsfirst fCu. 3. fixed rate for 5 years, variable thereafter.

Capital

Allowance for Loan Losses

Memberships(in Thousands)

5

672.9

Capital(Dollars in Millions)

5

$1,406

OperatingExpense Ratio

5

2.10%

schoolsfirst fCu Mobile banking app for Apple and Android devices, updating the design and functionality, adding fraud text alerts, and enhancing functionality to make transferring funds between accounts even easier. We added Apple pay for our credit cards and MasterCard ID theft protection™ to provide safer ways to make payments and keep your financial information private.

We introduced an 84-month auto loan1 to give Members more flexibility and trueCar®2, a car-buying service that offers a simple, transparent shopping experience with 10,000 participating dealerships, to ensure Members save significantly on new or used cars. And for homeowners, we offered the Rate Advantage Home equity line of Credit that provides a fixed interest rate for the first five years.3

Bill Cheney president/Ceo

Products and ServicesDESIGNED JUST FOR YOU

Jennifer Q. and Familyelementary school teacher

Members since 2002

schoolsfirst fCu wants to provide products and services designed to help improve your financial life. We offer a wide range of no- to low-fee products, including insurance solutions to secure the safety of your family, financial education, and one-on-one advice to help you manage your budget, save for emergencies, and focus on long-term goals like college and retirement.

If you are a school employee, we’ve created a suite of products tailored to meet your specific needs, including savings accounts and loans to help you manage the summer months when you’re not working; a school employee credit card with an ultra-low interest rate plus 1% cash back into your summer saver account1; and mortgages with low down payments and reduced processing fees.

for all our Members, we offer a full complement of financial products, including certificates of deposit with high rates; credit cards with low interest rates; great ID theft protection and

travel reward benefits; highly competitive loan products and rates; financial and retirement planning services2, and insurance solutions to protect the people and property you value the most. In 2015, we introduced a new car-buying experience with trueCar®3, a service that demystifies vehicle pricing by showing what others have paid for cars in your area, along with guaranteed saving certificates that can be used at participating dealerships. to give you more auto loan payment flexibility, we began offering a longer-term, 84-month auto loan.4 on the home front, we introduced Rate Advantage Home equity line of Credit, which provides a fixed interest rate for the first five years.5

Managing Money Your Way

Whether you connect with us at one of our local branches, a neighborhood AtM, or through online or Mobile banking6, we want every experience to be a seamless one. We are attuned to your feedback and are committed to finding ways to make accessing your money easier and more convenient.

In 2015, we opened a new branch location in Inglewood and added more Rite-Aid AtMs in san Diego County. one in three Members regularly used our Mobile banking app to make deposits, pay bills, transfer funds, and monitor their accounts. to improve the mobile experience, we upgraded our Mobile banking app with enhancements, including more intuitive navigation, increased speed,

products and services

products and services Designed Just for You

1. earn 1.00% cash back on qualifying purchases. Cash advances, balance transfers, and returns are not eligible for cash back. Deposits will be made quarterly to summer saver. If summer saver maximum contribution limits have been reached, or if no summer saver share is open, deposit will be placed in Member’s primary share 01 (savings). Account must be open, current and in good standing. 2. securities sold, advisory services are offered through CunA brokerage services, Inc. (CbsI), member fInRA/sIpC, a registered broker/dealer and investment advisor. CbsI is under contract with schoolsfirst fCu to make securities available to Members. Not NCUA/NCUSIF/FDIC insured, may lose value, no financial institution guarantees. Not a deposit of any financial institution. CunA brokerage services, Inc. is a registered broker/dealer in all fifty states of the united states of America. 3. trueCar is not affiliated with schoolsfirst fCu. 4. ApR=Annual percentage Rate. 84-month available on new auto loan. Rates range from 2.84% ApR – 4.24% ApR. estimated payment per $100 borrowed is $1.31-$1.38. Rates reflect a 0.75% discount for automatic payment transfer from your schoolsfirst fCu account. terms based on various factors including amount financed and applicant’s credit rating. financing available up to 100% of the Manufacturer suggested Retail price on new autos or purchase price, whichever is less; plus tax, license, documentation fees, GAp, and Mechanical Repair Coverage. Rates quoted are effective 5/11/2016 and are subject to change. 5. fixed rate for 5 years, variable thereafter. 6. Data and text charges may apply. Check with your mobile provider.

products and services (Continued)

Reta C.Human Resources technicianMember since 2010

improved eDeposit functionality, secure messaging, and the ability to temporarily block/unblock your debit card and receive fraud text alerts. for credit cards, we added Apple paytM, a convenient mobile payment service to help guard against fraud when making purchases.

One-on-One Guidance

to provide individualized advice, schoolsfirst fCu has a team of professional insurance, retirement and financial advisors2 who can help you create a road map for success, including creating a budget, paying down debt, building a nest egg, reviewing insurance and investments, or developing an estate plan. no matter if you’re just starting out, or are juggling a number of priorities, an advisor can help you find the right solutions for your personal situation. If you haven’t yet set up a complimentary consultation, we encourage you to do so, as this is an excellent resource and a benefit of your Membership.

A Team Dedicated to Helping You Every Day

our team is passionate about helping you with your everyday needs, advocating on your behalf and providing personal advice when you need it. We promote high employee performance and engagement and facilitate opportunities for each teammember’s professional development.

our culture embraces the credit union philosophy of “people helping people” and we demonstrate this in real and tangible ways. first, by truly understanding every Member’s personal circumstances, and next, by finding solutions that can really make a difference in their lives. In a time when many financial institutions may care more about profits over people, schoolsfirst fCu always puts our Members first, and that guiding principle is what makes a lasting difference.

Member StoryMORE ThAN JUST A NUMbER: ONE MEMbER’S STORY

Member story

More than Just a number: one Member’s storysheela H. always had stellar credit, but when she hit a financial speed bump, her score took a tumble. so when she went to refinance her home and get a car loan, many financial institutions turned her down. A colleague told her about schoolsfirst fCu, explaining that she too had experienced financial challenges, and schoolsfirst fCu helped her get through that difficult time.

sheela was skeptical, but thankfully, her friend didn’t give up. “she was the one that drove me to the branch,” she laughs. “I was forced to go inside, and that’s when that relationship actually began.” the Credit union pulled her credit history and was able to pinpoint the time period where she had experienced her financial setback. based on her prior credit history, schoolsfirst fCu was able to help sheela refinance her home, and buy a new car with an auto loan. through the refinance, sheela was also able to send money to her children in college. “schoolsfirst fCu was brought into my life at a time when I really needed financial rescue,” says sheela. “they took a chance on me. they’ve been amazing.”

“schoolsfirst fCu was brought into my life at a time when I really needed financial

rescue—they took a chance on me.”

Sheela H.College Counselor

Member since 2014

CommunityTOGEThER WE MAkE A DIFFERENCE

Your Community is our Community: together We Make a DifferenceAt schoolsfirst fCu, supporting the communities we serve has been a priority of our Credit union since our founding. Inspired by our rich history of helping others, our Members, teammembers and communities understand the importance of working together as one—believing that together we can achieve great successes and help build a better future for all.

Giving back to the communities we serve is something our team lives each and every day. We strive to make a difference in the lives of those around us by championing local schools, causes we believe in, and the credit union movement. the schoolsfirst fCu team understands the importance of our role within the counties we serve and enthusiastically participates in events and programs held throughout the year.

together we give our time and finances for a wide range of initiatives, including supporting educational advancement, annual classroom supply drives, and important charitable causes, such as children’s hospitals in the counties we serve, blood drives, and disaster relief, both locally and globally.

In 2015, schoolsfirst fCu gave approximately $2.4 million back to our communities and those in need around the world.

You Helped Us Champion Educational Causes

The Education Foundation for Orange County Schools, which was established by schoolsfirst fCu and the orange County Department of education, awarded substantial funding, largely through our Members’ generous contributions, to provide grants to help local teachers develop education programs that are fun, interactive, and highly engaging. our Partners in Education Program helps students learn about earning, saving, spending wisely, sharing and investing.

In 2015, our teammember volunteers continued to educate students about financial topics in los Angeles, orange, Riverside, and san bernardino counties. through “Bite of Reality” financial education simulations alone, we helped more than 1,500 students understand how to live on a budget and make smart financial decisions. And because some local schools lack the finances for

SchoolsFirst FCU teammembers at the 2015 CHOC Walk

Community

classroom supplies, schoolsfirst fCu held classroom supply drives to provide these all-important resources.

since 1987, we have sponsored the Orange County Department of Education Academic Pentathlon, a competition that is open for sixth, seventh and eighth grade students of all achievement levels. We provide financial support and volunteers to proctor, judge, and hand out awards for this event. We provide the same for Academic Decathlons for los Angeles, san bernardino and orange County Diocese.

our youth is our future, so helping them plan for higher education is an ongoing priority of ours. We sponsor the Member Education Awards, a scholarship program that rewards graduating high school seniors and college freshmen and sophomores for scholastic and community achievement. In 2015, we provided more than $125,000 to 149 scholars. We also sponsor the Worthy Student Awards, a scholarship program open to all students in our communities, not just Members of the Credit union. this past year, we gave more than $175,000 in scholarships to high school and college

Community (Continued)

students in the Inland empire, los Angeles and orange County.

We appreciate the dedication and creativity school employees bring to the classroom every day and believe in recognizing them for their many contributions. We continue to be a major sponsor for the Orange County Department of Education Teachers of the Year Program, which honors excellence in education, as well as their Classified Employees of the Year Program. We also partner with Riverside County and San Bernardino County to honor their teachers, classified employees and administrators for inspiring students and their colleagues dedicated to education. our teammembers also enjoyed volunteering to be Principal for a Day at schools across southern California.

You Helped us Support our Fellow Humans in Need

In 2015, teammembers participated in a variety of charity events, including donating blood to the uCI Medical Center blood Drive, which helped to save more than 160 lives. Many of us also contributed $20 each for Jean fridays to support Children’s Miracle network (CMn). In addition, more than 120 teammembers participated in the CHoC walk. Additional fundraising efforts included hosting a silent auction and selling backpacks, water bottles and CHoCo bears in our branches and back office departments. this resulted in a record-breaking year of raising $272,799 for CMn.

You Helped us Support the Credit Union Movement

When we think about our credit union legacy, we are reminded of the work of edward filene, who is considered the father of the u.s. credit union movement. He said, “It is a great movement, worthy of great deeds, deserving of great loyalty.” We believe

we must protect the credit union mission and give our active support. some of the ways we do this is by contributing financially to the National Credit Union Foundation, which is the credit union movement’s primary funding method for programs benefiting credit unions and their Members. the foundation supports programs such as REAL Solutions®, Biz Kid$ and innovation grants. We also give to the Shapiro Group, which helps fund smaller credit unions’ advocacy efforts in sacramento and Washington, D.C.

We know the importance of having our voices heard on Capitol Hill, which is why we contribute financially to maintain Credit Union House, a meeting place for credit unions in Washington, D.C. our contributions to the Richard Miles Johnson (RMJ) Foundation support the financial educational efforts of credit unions in California and nevada, with a special focus on youth. We also make financial donations to America’s Credit Union Museum, the National Federation of Community Development Credit Unions, the World Council of Credit Unions (WOCCU) and CU Aid.

You share an important role as a Member ambassador, and as part of the very large heart that beats within the credit union movement. As is true with all of our initiatives, we do make a difference together.

SchoolsFirst FCU teammember volunteer and students at “Bite of Reality”

In 2015, we gave approximately $2.4 million to

those in need through charitable donations

to schools, local organizations and the credit union

community.

Financial StatementsENSURING A SECURE FINANCIAL FUTURE FOR EvERY MEMbER

financial statements

Assets 2015 2014

Cash and cash equivalents $678,747 $572,763

Certificates of deposit, original maturities greater than three months 654 35,652

Investments, available-for-sale, at fair value 396,723 367,490

Investments, held-to-maturity, at amortized cost 4,538,454 4,259,505

loans, net 5,671,335 5,010,198

loans held for sale 9,060 15,038

Accrued interest receivable 33,280 32,291

national Credit union share Insurance fund (nCusIf) deposit 93,499 85,183

federal Home loan bank stock, at cost 17,250 25,000

property and equipment, net 72,887 67,179

other assets 233,463 215,318

TOTAL ASSETS $11,745,352 $10,685,617

Condensed Consolidated statements of financial ConditionAs of December 31, 2015 and 2014 (in thousands of dollars)

Christine C.elementary school teacher

Member since 2011

financial statements (Continued)

Supplemental Information 2015 2014

Members’ equity $1,349,633 $1,248,907

Allowance for loan losses 56,337 61,064

Members’ equity plus allowance for loan losses $1,405,970 $1,309,971

Members’ assets without allowance for loan losses $11,801,689 $10,746,681

Adjusted capital ratio 11.91% 12.19%

Note: The Supplemental Information above has been derived from the amounts in the consolidated financial statements. This Supplemental Information includes non-GAAP measures which are provided for additional information and analysis.

Liabilities and Members’ Equity 2015 2014

Liabilities

Members’ shares $9,826,576 $8,860,990

Accrued expenses and other liabilities 119,143 100,720

borrowed funds 450,000 475,000

10,395,719 9,436,710

Members’ Equity

Retained earnings (partially restricted) 1,350,215 1,248,895

Accumulated other comprehensive income (loss) (582) 12

1,349,633 1,248,907

TOTAL LIABILITIES AND MEMBERS’ EQUITY 11,745,352 10,685,617

Capital ratio 11.49% 11.69%

Non-Interest Income

Card interchange and AtM fees 54,936 55,833

Member fees 17,995 16,565

Gain on sale of loans 9,252 2,218

Gain on sale of investments 18 431

other 21,904 20,240

TOTAL NON-INTEREST INCOME 104,105 95,287

Non-Interest Expense

salaries and benefits 129,285 117,852

operations and other 96,219 85,002

occupancy 12,298 11,495

Members’ shares insurance 11 183

TOTAL NON-INTEREST ExpENSE 237,813 214,532

NET INCOME $101,320 108,438

Change in other comprehensive income (loss) (594) 469

TOTAL COMpREHENSIVE INCOME $100,726 $108,907

Interest Expense

Members’ shares 55,440 47,062

borrowed funds 11,168 11,488

TOTAL INTEREST ExpENSE 66,608 58,550

net interest income 250,328 229,533

provision for loan losses 15,300 1,850

NET INTEREST INCOME AFTER pROVISION FOR LOAN LOSSES 235,028 227,683

financial statements (Continued)

Interest Income 2015 2014

loans $255,961 $231,612

Investments and Certificates of Deposit 60,975 56,471

TOTAL INTEREST INCOME 316,936 288,083

Condensed Consolidated statements of IncomeAs of December 31, 2015 and 2014 (in thousands of dollars)

board and Supervisory CommitteehELPING MAkE OUR MEMbERS’ LIvES bETTER

Dr. essie Adibi, Andy plumley, linda salata, John Didion, Kristine Wetzel, Dr. Marc ecker (top row, left to right)lynn April Hartline, Greg Marchant, Adam o’Connor, Kary bemoll (bottom row, left to right)

Marcy Gowdy (not present), Renee Hendrick (not present)

supervisory Committee Reportthe supervisory Committee is responsible for monitoring the financial safety and soundness of schoolsfirst federal Credit union and compliance with various financial and regulatory requirements. In fulfilling these responsibilities, the Committee engaged Moss Adams llp to perform the annual financial statement audit for the year ended December 31, 2015. We held quarterly meetings to, among other things, review internal audit services, internal controls and risk management processes, and examinations by regulatory agencies. In the opinion of the Committee, schoolsfirst federal Credit union has operated in a fiscally sound manner and, in all material respects, in accordance with applicable federal and state regulations.

paul Burkart Chairman, supervisory Committee

board of DirectorsYour volunteer board of Directors’ commitment, advice and leadership helps make our Members’ lives better.

board and supervisory Committee

paul burkart, Dr. John nelson (top row, left to right) ted Alejandre, Karen Cant, paul Reed (bottom row, left to right)

federally Insured by nCuA