THE ROAD LESS TRAVELLED COAST CAPITAL SAVINGS … Annual Report.pdfCoast Capital Savings is...

2006 ANNUAL REPORT

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Coast Capital Savings is Canada’s second largest credit union with $8.9 billion in assets, 360,000 members, and 49 branches located across the Greater Vancouver (Lower Mainland) and Vancouver Island regions of British Columbia. We were recognized by The Globe and Mail and Hewitt Associates as one of the 50 Best Employers in Canada and received our third consecutive Best Corporate Citizen award in Canada’s financial services industry from Imagine Canada. Coast Capital Savings also ranked among the country’s 50 Best Managed companies for the sixth time.

VISION

Yes, from Coast to coast. Demonstrates our commitment to growth and to remain a relevant and innovative financial services provider in Canada.

MISSION

Simple financial help recognizes our goal of providing easy-to-understand solutions to our members’ complex financial situations.

VALUES

Customer-centricWe put our customers’ needs first, and honour them with exceptional service and simple help – whether the customer comes from outside or inside Coast Capital Savings.

CitizenshipWe are responsible citizens in thought and in deed. We act with purpose to benefit customers, fellow employees, company, and community alike.

SpiritWe do everything with spark. Everyday.

PRODUCTS AND SERVICES

Personal - savings and chequing accounts (including Canada’s first free chequing account from a full-service financial institution), US chequing account, term deposits, RRSPs, RESPs, RRIFs, mutual funds, safety deposit boxes, mortgages, loans, lines of credit, credit cards, travellers cheques, foreign currency, drafts, lending insurance, telephone banking, online banking, ATMs, online brokerage, and mortgage brokerage centre.

Business - savings and chequing accounts, community chequing account for non-profit organizations, US chequing account, business credit card, merchant services, loans to small- and medium-sized businesses, equipment financing, interim lending and long-term mortgages, letters and lines of credit, ATM night depository, and automated funds transfer.

SUBSIDIARIES

Coast Capital Insurance Services Ltd. offers general insurance products including auto, home, travel, recreational, marine, business, and commercial insurance at 35 locations across Greater Vancouver and Vancouver Island. Marriage licenses are available at most offices. Specialized insurance staff also provide advice and service related to segregated funds, annuities, life insurance, and living benefits products.

Coast Capital Investments is Canada’s largest credit union-owned mutual fund dealer providing advice and service related to mutual funds and financial planning. Clients have access to more than 1,200 mutual funds and 94 investment professionals committed to helping them reach their financial goals.

Coast Capital Equipment Finance Ltd. specializes in leasing commercial and industrial equipment to clients located in Alberta through to Ontario. The company offers flexible, innovative, and competitive leasing plans combined with unparallelled customer service. Similar commercial leasing plans are available in British Columbia through Coast Capital Equipment Finance, a division of Coast Capital Savings.

C O A S T C A P I T A L S A V I N G S A T A G L A N C E

HEAD OFFICE

4th Floor, 15117 – 101 Avenue Surrey, BC V3R 8P7

T 604.517.7400 F 604.517.7405

CONTACT CENTRE

604.517.7000 (Greater Vancouver) 250.483.7000 (Greater Victoria) 1.888.517.7000 (Toll-free)

MAINLAND ADMINISTRATION OFFICE

1900, 13450 – 102 Avenue Surrey, BC V3T 5Y1

T 604.517.7000 F 604.517.7810

ISLAND ADMINISTRATION OFFICE

400, 645 Tyee Road Victoria, BC V9A 6X5

T 250.483.8100 F 250.483.8108

WEBSITE

www.coastcapitalsavings.com

AUDITORS

KPMG LLP Chartered Accountants P.O. Box 10426 777 Dunsmuir Street Vancouver, BC V7Y 1K3

DESIGN: Design One Graphics Group Inc. PHOTOGRAPHY: Dina Goldstein and Hans Sipma PRINTING: Hemlock Printers Ltd.

2007 ANNUAL GENERAL MEETING

Wednesday, April 25, 2007 at 5 pm (PT) River Rock Casino Resort 8811 River Road, Richmond, BC

Meeting available by webcast at www.coastcapitalsavings.com.

FEEDBACK

Send us your feedback on our 2006 Annual Report by completing our online survey at www.coastcapitalsavings.com.

TREES

WATERBORNE WASTES in kilograms

ENERGY

(000) BTU

WATER

in litres

ATMOSPHERIC EMISSIONS in kilograms

SOLID WASTE

in kilograms

71 37 16,682 46,778 1,140 588

ECO-AUDIT

This Annual Report was printed on recycled paper containing 100% post-consumer waste and saved the following:

Printed in Canada using vegetable-based inks.

C O R P O R A T E I N F O R M A T I O N

C O A S T C A P I TA L S A V I N G S 2 0 0 6 A N N U A L R E P O R T 1

1 2006 Performance Against Objectives

1 Financial Highlights at a Glance

2 Financial Highlights – 7 Year Overview

3 Message from the Board of Directors

4 Message from the President and Chief Executive Officer

5 The Road Less Travelled

13 2006 Citizenship Report

21 Corporate Governance

25 Management’s Discussion and Analysis

35 Management’s Responsibility and Auditors’ Report to the Members

36 Consolidated Financial Statements

39 Notes to Consolidated Financial Statements

53 Board of Directors

56 Senior Executive

57 Operating Executive

2 0 0 6 P E R F O R M A N C E A G A I N S T O B J E C T I V E S

F I N A N C I A L H I G H L I G H T S A T A G L A N C E

2006 OBJECTIVES PERFORMANCE

Net income Achieve $46.4 million net income $ 53.1 million

Return on average assets Achieve an after-tax return of 0.59% on average assets 0.65%

Return on average equity Achieve return on average equity of 13.63% 15.52%

Capital Attain capital level of 10.35% of risk-weighted assets 10.34%

Non-interest expenses Non-interest expenses to be no greater than 2.47% of average assets 2.40%

Operating efficiency Achieve an operating efficiency ratio of 73.50% 73.49%

1

8

7

5

4

3

2

1

0

6

2000 2001 2002 2003 2004 2005 2006

Total Loans BILLIONS OF DOLLARS

10

8

4

2

0

6

2000 2001 2002 2003 2004 2005 2006

Total Deposits BILLIONS OF DOLLARS

400

350

250

200

150

100

50

0

300

2000 2001 2002 2003 2004 2005 2006

Members’ Equity MILLIONS OF DOLLARS

50

40

30

20

10

0

60

2000 2001 2002 2003 2004 2005 2006

Net Income MILLIONS OF DOLLARS

0.5

0.6

0.7

0.4

0.3

0.2

0.1

0.0

0.8

2000 2001 2002 2003 2004 2005 2006

Net IncomeAS A PERCENTAGE OF AVERAGE ASSETS

2.5

3.0

3.5

2.0

1.5

1.0

0.5

0.0

4.0

2000 2001 2002 2003 2004 2005 2006

Non-Interest ExpensesAS A PERCENTAGE OF AVERAGE ASSETS

20

10

5

0

15

2000 2001 2002 2003 2004 2005 2006

Net IncomeAS A PERCENTAGE OF AVERAGE EQUITY

100

80

40

20

0

60

2000 2001 2002 2003 2004 2005 2006

Operating Efficiency IN PERCENT

2.5

2.0

1.5

1.0

0.5

0

3.0

2000 2001 2002 2003 2004 2005 2006

Net Interest IncomeAS A PERCENTAGE OF AVERAGE ASSETS

2002 REFLECTS MERGER WITH SURREY METRO SAVINGS CREDIT UNION (EFFECTIVE JUNE 27, 2002)

IN THOUSANDS OF DOLLARS 2006 2005 2004 2003 2002 2001 2000

Balance sheets:Assets Cash resources $ 686,997 $ 856,886 $ 581,342 $ 237,679 $ 255,988 $ 239,123 $ 290,745Investments 442,896 466,582 530,391 439,551 409,110 147,738 168,835 Loans 7,658,271 6,788,866 6,002,210 5,651,445 5,305,265 2,917,871 2,648,310 Premises and equipment 41,124 44,027 37,682 42,729 43,927 24,542 33,007 Other 53,534 44,185 43,448 50,063 48,082 28,461 22,346 $ 8,882,822 $ 8,200,545 $ 7,195,073 $ 6,421,467 $ 6,062,372 $ 3,357,735 $ 3,163,243 LiabilitiesDepositsDemand $ 1,710,791 $ 1,637,177 $ 1,432,172 $ 1,329,413 $ 1,229,362 $ 787,008 $ 667,508Term 5,170,444 4,615,949 3,819,782 3,070,874 2,876,280 1,417,264 1,492,700Registered 1,378,544 1,409,925 1,458,409 1,476,275 1,428,914 802,262 748,842Class A shares 1,660 1,557 1,651 1,454 1,456 909 964Accrued interest 98,682 71,589 70,679 76,492 70,327 47,494 52,803 8,360,121 7,736,197 6,782,693 5,954,508 5,606,339 3,054,937 2,962,817Borrowings – – – 80,000 131,000 75,200 9,000Other 86,781 70,558 61,140 76,841 74,001 60,406 43,655 8,446,902 7,806,755 6,843,833 6,111,349 5,811,340 3,190,543 3,015,472Subordinated notes 25,000 33,500 33,500 33,500 50,000 – –Class C shares 39,133 39,159 39,280 39,355 – – –Members’ equity Class B shares 44,954 45,840 48,855 50,859 50,346 41,016 38,777 Retained earnings 326,833 275,291 229,605 186,404 150,686 126,176 108,994 371,787 321,131 278,460 237,263 201,032 167,192 147,771 $ 8,882,822 $ 8,200,545 $ 7,195,073 $ 6,421,467 $ 6,062,372 $ 3,357,735 $ 3,163,243Income statements: Interest income $ 447,644 $ 357,329 $ 334,511 $ 337,969 $ 261,717 $ 214,629 $ 218,229Interest expense 250,446 175,406 167,811 177,105 134,975 118,704 128,292Net interest income 197,198 181,923 166,700 160,864 126,742 95,925 89,937Provision for credit losses 6,966 6,532 7,228 8,937 3,872 3,504 2,990 190,232 175,391 159,472 151,927 122,870 92,421 86,947Other income 70,366 66,349 68,964 66,595 57,832 46,736 47,346 260,598 241,740 228,436 218,522 180,702 139,157 134,293Non-interest expenses 196,642 184,744 184,989 175,116 150,423 116,112 116,715Income before undernoted 63,956 56,996 43,447 43,406 30,279 23,045 17,578Unusual item – (983) 12,290 – – – –Income before taxes 63,956 56,013 55,737 43,406 30,279 23,045 17,578Income taxes 10,872 8,877 10,950 5,933 3,957 4,234 6,307Net income $ 53,084 $ 47,136 $ 44,787 $ 37,473 $ 26,322 $ 18,811 $ 11,271Financial statistics in percent: Asset growth 8.32 13.97 12.05 5.92 80.55 6.15 (0.04)Loan growth 12.81 13.11 6.21 6.53 81.82 10.18 0.05 Deposit growth 8.06 14.06 13.91 6.21 83.52 3.11 (0.27)Operating efficiency 73.49 74.41 78.50 78.53 81.51 81.39 85.02 Capital ratio 10.34 10.80 11.12 11.38 9.71 11.76 11.89 Liquidity ratio 13.15 16.72 16.39 10.94 11.21 11.96 15.56 Percentage of average assetsNet interest income 2.41 2.52 2.52 2.57 2.64 2.94 2.84 Other income 0.86 0.92 1.04 1.06 1.21 1.43 1.50Non-interest expenses 2.40 2.56 2.80 2.80 3.13 3.56 3.69 Percentage return onAverage assets 0.65 0.65 0.68 0.60 0.55 0.58 0.36 Average equity 15.52 15.72 17.68 17.38 14.37 11.94 7.43Branches 49 47 44 42 42 25 25Insurance offices 35 33 26 25 25 25 16Average assets $ 8,192,880 $ 7,228,653 $ 6,606,497 $ 6,259,735 $ 4,798,744 $ 3,260,489 $ 3,163,892Average equity 342,084 299,795 253,324 215,646 183,216 157,482 151,610Mutual funds under administration 1,683,630 1,428,500 1,208,622 1,029,448 910,216 687,999 752,422Securitized loans 293,772 59,141 109,861 212,997 322,322 225,320 386,599Total assets under administration $ 10,860,224 $ 9,688,186 $ 8,513,556 $ 7,663,912 $ 7,294,910 $ 4,271,054 $ 4,302,264

2000 REFLECTS MERGER BETWEEN RICHMOND SAVINGS AND PACIFIC COAST SAVINGS CREDIT UNIONS (EFFECTIVE DECEMBER 31, 2000)

F I N A N C I A L H I G H L I G H T S – 7 Y E A R O V E R V I E W


3

M E S S A G E F R O M T H E B O A R D O F D I R E C T O R S

We have a passion to exceed our stakeholders’ expectations. It has made us an innovative and stakeholder-focused financial institution. We are driven by our How can we help you?™ brand, which often takes us on a road less travelled.

One of our greatest strengths is the cooperative structure of Coast Capital Savings. It provides a special balance amongst the interests of our members, our employees, and the communities we serve. As a financial cooperative, it’s essential that we are profitable, well capitalized, and financially sound, as we continue to grow and engage with our communities.

In 2006, the Board continued its commitment to evolve and enhance our governance responsibilities. The Governance and Member Relations Committee introduced a more comprehensive director evaluation process to assist individual Board members with their ongoing education and development. More effective directors lead to an even more effective Board.

The Nominations and Election Committee operates independently of the Board and reports directly to the members. This year, the committee is also taking the road less travelled in recommending four candidates for the four positions available on the 2007 Board of Directors. The recommended nominees include two highly qualified, new candidates who were recruited because they have specific skills and competencies that will help move us forward in achieving our long-term goals. The Board’s policy objective is to strengthen the Board’s effectiveness in executing its stewardship responsibilities over a very complex organization.

We are pleased to provide you with this report on our operating results. 2006 was an outstanding year and our success received noteworthy recognition:

• Members: In a Corporate Insights survey, Coast Capital Savings achieved the highest overall member satisfaction rating among credit unions surveyed

• Employees: Coast Capital Savings was recognized as one of the 50 Best Employers in Canada for the fourth time

• Community: Imagine Canada honoured us with the Best Corporate Citizen Award in the financial services industry for the third consecutive year

• Overall: For the sixth time, Coast Capital Savings was rated as one of Canada’s 50 Best Managed Companies.

From the Board’s perspective, this recognition is particularly meaningful because it comes from independent surveys and validates that Coast Capital Savings is meeting or exceeding our stakeholders’ expectations.

The success we have achieved to date is guided by our corporate vision and values that are shared by the Board of Directors, our chief executive officer, his skilled team, and the 2,000 talented men and women who serve our members. Coast Capital Savings’ management and every one of our employees are to be commended for these outstanding achievements. We also thank you, our members, for your support.

Going forward we will continue acting on opportunities that other financial institutions might overlook. I encourage you to read this report to learn more about how choosing the road less travelled has guided Coast Capital Savings to another year full of great achievements.

On behalf of the Board of Directors,

Bill Wellburn, FCACHAIR, BOARD OF DIRECTORS


In 2006, we introduced our Haggle-free Guarantee™ to give members our best rates up-front on mortgages and term deposits, eliminating the traditional hassle of negotiating. The new Big Perks for Small Business™ program helps small business owners by offering them compelling benefits for their business. Similarly, our initiative to increase membership and awareness within the Asian and South Asian communities has shown initial success. And, our How can we help you?™ brand was embodied in our redesigned website, providing added convenience and enhancing our members’ online experience.

Free Chequing™, our most successful product to date, continues to perform well. Our membership base has increased by 51,000 since Free Chequing was introduced in January 2005.

We are an innovative and growing organization, as demonstrated by our 2006 financial results. Net income was $53.1 million, up $5.9 million, or 12.6 % from the previous year. Net income expressed as a return on average assets was 0.65%, the same as in 2005. Expressed as a return on average equity, net income was 15.52%, down from 15.72% the year before. Assets grew to $8.9 billion by year-end and members’ retained earnings increased from $275.3 million to $326.8 million. Operating efficiency improved from 74.4% to 73.5%. Mutual funds and mortgages under administration increased by 32.9%. Total assets on and off the balance sheet totalled $10.9 billion.

Our growth will continue as we execute our strategy of building more aperio® style branches to strengthen our presence in the Greater Vancouver and Vancouver Island regions, and continue offering consumers a stronger value proposition to meet their ever-changing and growing banking needs.

We remain creative in finding ways to differentiate ourselves from other financial institutions. CONECT Thinking, our new leadership model, was developed to enhance relationships

between every employee who supports the customer experience, which is fundamental to our credit union heritage.

There are two national projects we are supporting to benefit all credit unions in Canada: amalgamating Canada’s eight provincial credit union Centrals to pool resources and lower costs; and ongoing discussions with the federal and provincial governments to create legislation to permit interested credit unions to operate outside their traditional provincial boundaries. We look forward to these initiatives moving ahead to create a more competitive future within the national credit union system, without moving away from our founding principle of offering exceptional products and services.

I am confident that 2007 will result in another successful year. We will continue to take the road less travelled to create even greater value for our members. As we move further along in our journey to become one of Canada’s leading corporate citizens, I thank the Board and all of our employees for their hard work, support, and outstanding contributions in 2006.

Lloyd CraigPRESIDENT AND CHIEF EXECUTIVE OFFICER

Choosing the road less travelled continually sets Coast Capital Savings apart from other financial institutions. Our reputation for challenging banking traditions and venturing on a different path has resulted in many unique and innovative products and services.

M E S S A G E F R O M T H E P R E S I D E N T A N D C H I E F E X E C U T I V E O F F I C E R


THE ROAD LESS TRAVELLED

The road less travelled for Coast Capital Savings leads to enhancing the value of our products

and services, and better serving our customers’ financial needs. Although it would be easier

and less challenging for us to follow a more travelled road, this way of thinking has never been

part of our credit union’s journey or vision. We don’t aspire to be just like the others – we aim

to stand out and move ahead. This path of innovation has led us to develop and deliver

leading-edge products and services.

We attract consumers looking for a financial institution that is different in a positive and

rewarding way. On the roads we travel, we believe there are no limits to where we can go or

what we can accomplish, which in turn, benefits our customers, communities, and employees.

It’s not our style to follow the beaten path. Instead, we are constantly breaking new ground in

our industry, which makes us even stronger for the future and will help us reach our goal of

becoming one of Canada’s leading companies.

5


Since launching Canada’s first free chequing account from a full-service financial institution two years ago, we’ve taken the road less travelled and made inroads to many new places by recognizing opportunities that might otherwise be missed. Our success with The Free Chequing, Free Debit and More Account™ has increased membership by more than 50,000 – that’s five times the population of Whistler.

In 2006, we introduced Free Chequing™ and our other helpful

products and services to customers living and working near our new Yaletown and Metrotown aperio® branches. We plan to bring our aperio style banking to even more communities in the future, and later this year, we’ll open our 50th branch in New Westminster. Our new branches offer more than just helpful financial service and expertise to new communities. We bring community support and our long-term commitment to build stronger and healthier communities.

A growing population that just won’t quit.


Coast Capital Savings shows innovation by offering simple financial help in an industry that can be over-complicated and difficult to understand. Great ideas begin with our desire to offer products that make sense. Our Haggle-free Guarantee™ eliminates the unpleasant business of negotiating rates on mortgages and term deposits. It’s a simple concept but one that makes a world of difference to our customers. Following the road less travelled also resulted in great changes to our website. We introduced Julie, the first

ever online greeter from a Canadian financial institution. She provides a friendly and funny approach to help you learn more about innovative services like our No Worry Mortgages™ and our Big Perks for Small Business™.

As creative as we are in offering new products and services to our customers, we also need to be increasingly innovative internally as an organization. CONECT Thinking, our new leadership model, will help us stay true to our path and find more ways for all our employees to support our business goals.

You never know what you may discover along the way.


The secret to building a great workplace is all in the hiring. We look for leaders who make the road less travelled a more inspiring and rewarding journey. We hire talented individuals who enjoy coming to work every day and are excited about helping others. Our job is to make sure our employees remain interested and engaged by providing progressive employee programs and benefits. And for our efforts, we earned recognition as one of the 50 Best Employers in Canada.

We listen to our employees. They tell us what we need to offer to keep pace with their changing needs and to stay competitive in the marketplace. In 2006, we switched to a flexible benefits plan to give employees choice in how they manage their benefits based on their lifestyle and priorities. It’s just one of the many ways we show appreciation for our employees and the valuable contributions they make at Coast Capital Savings.

It’s the company you keep that makes the journey rewarding.

13

2006 CITIZENSHIP REPORT

Coast Capital Savings believes in being a responsible corporate citizen and works hard

to support growth and investment in our Greater Vancouver and Vancouver Island regions.

Taking a leading role in the success of our communities demonstrates our company’s

values and reaffirms our commitment to become one of Canada’s top corporate leaders.

We believe it’s essential to create value, manage our resources responsibly,

and measure the impact of our community initiatives. Knowing we can improve in the

area of measuring the social and economic value of our contributions and our employees’

volunteer efforts, we are embarking on a road less travelled. We are now a participant

with London Benchmarking Group (LBG) Canada, a growing group of companies pursuing

excellence in community investment and community project evaluation. At the same time,

we are also developing our own measurement and evaluation framework to help determine

how our community giving affects our business and our communities.

15

Our seven strategic programs* meet our long-term goals and objectives to enhance our communities:1 The Coast Community Fund provides sponsorships and

donations to community organizations focused on health and wellness, community services, the environment, education, and arts and culture.

2 The Coast Capital Savings Foundation focuses its support on initiatives, programs, and partnerships that build or enhance youth leadership skills.

3 The Coast Education Awards reward students who are working hard to improve their communities or have overcome life challenges and achieved personal growth and success.

4 The Coast Community Youth Team Program offers mentoring and learning opportunities to a group of grade 11 and 12 students who work part time in our branches and act as our ambassadors at community events.

5 The Coast Volunteer Program has two components: the Volunteer Fund supports employees volunteering on their own time and rewards them with a financial donation to a non-profit group of their choice, and the Good Karma Crew provides opportunities for employees to volunteer up to 7.5 hours annually on paid company time.

6 The Rising Tide Community Lending Program provides micro-loans to small businesses and entrepreneurs unable to meet conventional lending criteria.

7 The Community Economic Development Grants Program supports community planning processes, funds innovative projects, and strengthens the capacity of non-profit and community groups.

In this report, we will provide general highlights about our community giving and share four stories about people who have benefitted from Coast Capital Savings’ investment in our communities.

FUNDING COMMUNITY INVESTMENTS

Coast Capital Savings is one of only 110 Canadian companies recognized as a Caring Company by Imagine Canada, an organization that encourages businesses to donate a minimum of 1% of their pre-tax profits to community organizations. In 2006, we invested $4.5 million in our communities, representing approximately 7% of our pre-tax profits.

In determining our community investment, we constantly ask ourselves challenging questions such as, “How much should we invest? Which areas should be the focus of our resources to make the greatest impact? Are we creating value?” These questions help us work towards making a difference in our communities.

Our corporate citizenship has remained strong over the past year in the areas of transparency and accountability, ethical business practices, community support, progressive employee development, democratic governance, environmental awareness, and healthy financial outcomes.

2 0 0 6 C I T I Z E N S H I P R E P O R T

*Visit the community section of our website (www.coastcapitalsavings.com) for more information.

ACKNOWLEDGING OUR INDUSTRY LEADERSHIP

In 2006, Coast Capital Savings was recognized for its achievements and innovation in marketing, the workplace, business management, and community endeavours. • YWCA of Vancouver Women of Distinction

Innovative Workplace Award • Imagine Canada’s Corporate Citizenship Award in the

financial services sector • BC Chapter of the American Marketing Association

“Marketer of the Year” • 50 Best Employers in Canada by The Globe and Mail

and Hewitt Associates• Canada’s 50 Best Managed Companies

Cowichan/Nanaimo 5%

Victoria 33%

CED 18%

Arts and Culture 16%

Tri-Cities 2% Health and Wellness 19%

Full Market 8%

Children 18% New Immigrants 3%

Seniors 2%

Youth 29% General 36%

Families 12%

Langley/Fraser Valley 7%

Surrey/White Rock 15%

Richmond/ Delta 12%

Environment 3%

Vancouver/Burnaby 18%Education 10%

FUNDING BY AUDIENCE FUNDING BY SECTOR FUNDING BY REGION

Citizenship 4%

Community Service 30%


Member Satisfaction Survey Our annual Member Satisfaction Survey was mailed out in July 2006 and completed by 4,500 members. In addition to surveying members about their level of satisfaction with our products and services, we asked questions regarding our community involvement programs. Overall, survey respondents selected seniors, family, education, and youth programs as important areas for Coast Capital Savings to support.

MEMBER SATISFACTION SURVEY 2006 2005

Are satisfied with current community efforts 80% 77%

Believe Coast Capital Savings is a good corporate citizen 77% 77%

Consider it important that Coast Capital Savings supports the community 72% 72%

General Public SurveyCoast Capital Savings commissioned Ipsos Reid Public Affairs to conduct a telephone survey in October 2006 to assist us with benchmarking for future measurement and to determine British Columbians’ levels of recall, awareness, and knowledge of Coast Capital Savings’ involvement with community activity and being a “good corporate citizen.” 1,050 interviews were conducted with a group of randomly selected respondents 18 years of age and older. The majority of respondents indicated that they would prefer to see companies primarily support education, health care, and family, followed by youth, and new immigrants.

Compared to nine other well known BC organizations, we ranked third overall with more than 85% of respondents having a favourable impression of Coast Capital Savings.

LOOKING AHEAD TO 2007

As part of being a good corporate citizen, we need to ensure that our community contributions continue to meet the changing needs of our business and the communities we serve. In 2007, our focus is to work towards developing a measurement and evaluation framework to help us determine the effect of our giving on our communities and business.

In addition to measuring our impacts in 2006, we also undertook an extensive review of our current community programming and initiatives and redefined our role in certain areas to ensure a more focused, cohesive, and strategic approach to how we support our communities.

Based on our findings and desire to build on our current successful community partnerships, we have developed an enhanced community strategy, which we believe will serve our communities well today and into the future. Coast Capital Savings will seek out opportunities to help families in our local communities achieve economic success and improve their quality of life. We believe helping families fits well with our credit union philosophy, as it speaks to our values and aligns well with the markets we serve.

We look forward to sharing the details of our 2007 initiatives with our community partners. We will communicate the results of our efforts in collecting data and improving measurement of our community programs and contributions with stakeholders in next year’s report.

TELL US WHAT YOU THINK

We thank our members for their ongoing support of our community programs and encourage them to provide their feedback on this report or any of our community initiatives. Our goal is to ensure that the information we share in our report is of interest and relevance to you. You can send your comments to [email protected].

21

BOARD GOVERNANCE GUIDELINES

Coast Capital Savings supports the guidelines published by the Canadian Securities Administrators and uses these in evaluating and continually enhancing the governance of the credit union.

1 BOARD OF DIRECTORS

Coast Capital Savings is committed to best practices in governance and is building a Board of Directors that will meet the needs of the credit union into the future. All directors, including the Chair, are currently independent. The definition of a “non-independent director” is any person who derives more than 5% of their commercial business income from their relationship with Coast Capital Savings. Ten Board meetings were held in 2006. A portion of each regularly scheduled Board meeting is set aside for a directors-only session with the CEO, followed by a directors-only session without the CEO. The Chair, as the presiding Board member, ensures that the relationships between the Board, management, and members are effective, efficient, and further the best interests of Coast Capital Savings. In performing this role, the Chair works with the CEO, manages the Board, and ensures effective relations with members, other stakeholders, and the general public.

2 BOARD MANDATE

The Board of Directors is responsible under law for managing Coast Capital Savings’ business and its affairs. It has the statutory authority and obligation to protect and enhance the assets of the credit union. The duties and responsibilities of the Board of Directors are set out in the mandate for the Board. The Board reviews its mandate annually to ensure that it adequately reflects how the Board functions, as well as its operations and responsibilities, and that it complies with existing regulations.

3 POSITION DESCRIPTIONS

The Board has developed written position descriptions for directors, the Board Chair, and the CEO. A director’s job is to work with the Board in providing strategic advice and business oversight of the credit union’s operations. This involves critiquing and giving final approval to the credit union’s annual operating and strategic plans. Directors are required to act honestly, in good faith, and in the best interests of the credit union. In doing so, they must take into account the interests of the members, depositors, and others to whom directors owe a fiduciary duty.

4 ORIENTATION AND CONTINUING EDUCATION

New directors are provided an orientation to familiarize them with the business of the credit union and assist in their understanding of the scope of their responsibilities on the Board. The orientation enhances individual director’s abilities to contribute effectively to Coast Capital Savings and is customized to each individual’s needs. Orientation confirms the directors’ roles, describes their responsibilities and liabilities, and provides an overview of Coast Capital Savings, as well as more detailed information as required.

All directors are eligible and encouraged to further develop their knowledge and skills. Director education and development provides new and current directors with governance, technical, and relevant industry information to assist in performing the role of director in the changing regulatory and operational environment of the financial services industry.

5 ETHICAL BUSINESS CONDUCT

The Board embraces its stewardship responsibilities to ensure a culture of ethical behaviour, and continuous improvement in all aspects of its governance practices. Directors work to ensure Coast Capital Savings meets public, regulatory, customer, and member expectations in compliance with existing laws.

C O R P O R A T E G O V E R N A N C E

The Board of Directors reviews and approves the strategic direction of the credit union. It sets policy, approves plans, and is responsible for overseeing management and ensuring Coast Capital Savings’ compliance with regulatory and statutory requirements.

Effective governance provides lasting benefits and the promise of ongoing success to all of the credit union’s stakeholders. The members of Coast Capital Savings’ Board bring a variety of skills, experience, and backgrounds to provide the necessary oversight and leadership. Both the Board and senior management are committed to excellence in sound business practices and the attainment of responsible economic, social, and environmental objectives.


The Board has approved a Code of Conduct for directors, officers, and employees stating the values upheld by Coast Capital Savings and the standards of behaviour expected. Each year, an independent Conduct Review Committee consisting of a minimum of three directors is elected by the Board and is responsible under its mandate for reviewing and overseeing compliance with the Code. Each director is required to formally adopt and agree to the Code of Conduct and Ethics for Directors annually. Employees are required to sign the Code of Conduct during the annual review process.

6 NOMINATION OF DIRECTORS

Following the Annual General Meeting, the Board appoints a Nominations and Election Committee as required by the Rules of the credit union. The Nominations and Election Committee is composed entirely of directors who will not be standing for re-election in the ensuing year. The committee reports directly to the membership, not the Board, and engages a consultant to assist in recruiting and screening qualified nominees. The committee is responsible for:• Analyzing the Board’s skill sets and identifying the

attributes needed to further strengthen the Board• Interviewing and reviewing candidates’ credentials with

the assistance of an independent governance specialist • Providing information to members about all candidates

seeking election to the Board and identifying those candidates who, if elected, would best add necessary strength to the Board

• Recommending to the Board the appointment of an independent returning officer

• Reporting the results of the election at the Annual General Meeting

In keeping with its mandate and adhering to good corporate governance practices, the Nominations and Election Committee carries out a due diligence review of each candidate, including the most important part of the review: the structured candidate interview. This interview allows the committee to assess which candidates have the business skills and experience set out in the candidate description. The committee assesses all of the information and recommends to the membership those candidates who are best qualified to assist in achieving Coast Capital Savings’ strategic plans.

7 DIRECTOR REMUNERATION

Directors are currently paid an annual retainer for attending all Board and required committee meetings. The Board Chair is paid a premium equal to twice a director’s retainer because of the additional time and responsibilities required of this position. Remuneration is adjusted annually based on the British Columbia Cost of Living Index in accordance with a membership resolution. Remuneration is reviewed annually by the Governance and Member Relations Committee. Changes to director remuneration require approval by the membership. Total remuneration paid to directors in 2006 was $204,807.

8 BOARD COMMITTEES

The Board delegates specific tasks to six standing committees: Audit and Risk Management, Conduct Review, Governance and Member Relations, Human Resources, Investment and Loan, and Nominations and Election. Each committee is made up of at least three directors. The Board Chair serves ex officio on those committees to which he/she has not otherwise been elected or appointed (except that the 2006 Board Chair did not serve on the Nominations and Election Committee). Each committee can draw upon the resources of the CEO and other members of management as appropriate, and may engage outside advisors as required. The Board determines the authority and responsibilities of each committee and approves the mandate annually. Committees meet in-camera as required, make recommendations to the Board, and, with the exception of the Nominations and Election Committee, report regularly to the Board.

Audit and Risk Management Committee - ensures quality financial reporting and sound internal controls are in place, implemented, and maintained. The committee is the liaison between risk management (which includes internal audit) and other internal resources, the external auditors, and the Board of Directors.

Conduct Review Committee - establishes and oversees the business conduct and ethical behaviour for the credit union, its directors, and employees. The committee is responsible to monitor the credit union’s compliance with the Privacy Act and the Financial Institutions Act including oversight of related party loans and transactions.

Governance and Member Relations Committee - provides a focus on Board governance that enhances the credit union’s performance. It promotes and enhances Board governance, community and member relations, and director education, knowledge, skills, and abilities. The committee recommends to the Board an annual evaluation process for individual directors, the Board as a whole, committees, and the Board and committee chairs.

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Human Resources Committee - ensures human resources policies are in place, implemented, and maintained. The committee reviews and recommends policy and strategy with respect to employee salaries, benefits, and incentive compensation and succession planning for senior management. It engages an outside advisor to assist in the determination and approval of executive compensation and directs the annual evaluation process for CEO performance.

Investment and Loan Committee - ensures the soundness of the credit union’s investment, lending, and capital policies and monitors management’s compliance with the policies.

Nominations and Election Committee - under the Rules of the credit union, operates independently of the Board to ensure there is an appropriate number of recommended and qualified nominees for election to the Board of Directors – the minimum number being those vacancies to be filled. The committee also oversees, organizes, and administers the election of directors to the Board. The committee reports directly to the members.

The Board may form temporary ad hoc committees to deal with specific tasks or issues as it sees fit. Each ad hoc committee shall have its own mandate, including purpose, duration, and limits established at the time of its creation.

9 ASSESSMENTS

The Board of Directors uses annual evaluation processes to determine the effectiveness of the Board’s governance of the credit union and to review the performance of the CEO. The Board evaluation process provides directors with an opportunity to examine how the Board is operating and to make suggestions for improving the Board as a whole. The process also allows directors to evaluate the performance of the Chair.

This review process is based on the duties and responsibilities of the Board, individual directors, and the Board Chair as described in the respective mandates. Annually, the Governance and Member Relations Committee recommends to the Board a process for the evaluation. The methodology used in 2006 was administered by an external governance consultant and involved three elements:• Interviews of all directors and the CEO by the consultant that

evaluated and sought comments on the performance of the Board and the Board Chair

• Written questionnaires for each committee that sought feedback and comments on the effectiveness of the committee’s work required under its mandate and the effectiveness of its chair

• Written peer evaluations where each director completed a questionnaire that rated the performance of individual directors based on the mandate for a director

Following completion of the interviews and questionnaires, an in-depth governance review session was held with the consultant, all directors, and the CEO on Board performance. Board goals for the next 12 months were determined and responsibility for achieving each goal was assigned. Similar to the Board evaluation process, committee self-evaluations provided each committee with an opportunity to examine how the committee was operating and to make suggestions for improvement.

As part of the evaluation, the Board Chair met privately with all directors to discuss their peer evaluation results with a view to determining how the director could contribute more effectively to the Board.

BOARD AND COMMITTEE ATTENDANCE (April 26, 2006 – February 28, 2007)

Committees are formed at the first Board meeting following the Annual General Meeting. Accordingly, Board and Committee attendance listed in the table below shows the period April 26, 2006 to February 28, 2007, and includes the most recent meeting prior to the publication of this Annual Report.

AUDIT AND GOVERNANCE BOARD OF RISK INVESTMENT AND MEMBER HUMAN CONDUCT NOMINATIONS DIRECTOR DIRECTORS MANAGEMENT AND LOAN RELATIONS RESOURCES REVIEW AND ELECTION

Bill Wellburn (Chair) 9/9 4/4 3/3 10/10 5/5 3/4 Bob Garnett (1st Vice Chair) 7/9 3/4 4/5 12/12Karen Kesteloo (2nd Vice Chair) 9/9 4/4 3/3 Christine Brodie 8/9 9/10 4/4 Daniel Burns 4/9 2/4 9/10 * 5/5 Frank Harper 8/9 4/4 * 10/10 Ken Martin 9/9 3/3 4/4 * Gordon Munn 8/9 3/3 * 4/4 Mary Jane Stenberg 7/9 10/10 12/12Doug Stone 7/9 5/5 * 12/12 *Elizabeth Woods 9/9 4/4 12/12

* Denotes Committee Chair

C O R P O R A T E G O V E R N A N C E


25 Management’s Discussion and Analysis

35 Management’s Responsibility and Auditors’ Report to the Members

36 Consolidated Financial Statements

39 Notes to Consolidated Financial Statements

This section of the Annual Report contains details of the operations and financial condition of Coast Capital Savings Credit Union (CCS), as well as management’s discussion of various forms of risk inherent in its operations. A section providing a detailed analysis of CCS’ capital structure is also included.

INTRODUCTION

We are Canada’s second largest credit union providing financial services and products to consumers living in the Greater Vancouver and Vancouver Island regions of British Columbia. Our long-term goal is to provide a national alternative for consumers in the financial services marketplace.

We successfully compete with other financial service providers in our existing market area by providing an outstanding level of customer service and high product quality. Our primary business focus is on attracting retail deposits from our members and using these deposits to fund a loan portfolio primarily comprised of residential first mortgage loans. Our ability to compete successfully with other financial institutions has enabled us to achieve asset growth without deviating from our conservative strategy.

OVERVIEW

We continued to benefit from the strategic initiatives first launched in 2005, which included The Free Chequing, Free Debit and More Account™, the launch of the No Worry Mortgages™ process, and the successful opening of new branches that incorporated an innovative new interior design referred to as aperio®. In 2006, we also introduced our Haggle-free™ term deposit strategy where all of our retail customers receive our best term deposit rates, throughout the year, without having to negotiate.

Net income for 2006 was $53.1 million, compared to $47.1 million in 2005; return on average assets was 0.65% in 2006, same as in 2005.

Assets grew by 8.3% to $8.9 billion in 2006, up from $8.2 billion in 2005. Total loans grew by 16.1% to $8.0 billion in 2006, compared to $6.8 billion in 2005. Excluding the $0.3 billion in residential mortgages securitized in 2006, loans grew by 13.2% to $7.7 billion. Total deposits were $8.4 billion, an increase of 8.1% from $7.7 billion in 2005. Mutual fund assets under administration increased by 17.9% to $1.7 billion, bringing total assets under administration to $10.9 billion.

Members’ equity was $371.8 million, up $50.7 million from the prior year, primarily due to net income generated in 2006.

FINANCIAL PERFORMANCE

NET INTEREST INCOME

Interest income is our major source of revenue. In 2006, we earned interest income of $447.6 million from borrowers on their loans and from cash resources. Interest expense, which represents amounts paid by us on members’ deposits and corporate borrowings, totalled $250.4 million. Net interest income represents the difference between interest income and interest expense. Net interest income for 2006 was $197.2 million, compared to $181.9 million in 2005. Net interest income, as a percentage of average assets was 2.41% for 2006, compared to 2.52% in 2005. Lending growth was higher than deposit generation prompting us to rely on short- term borrowings to fund this growth. The higher borrowing costs combined with short-term deposits repricing faster than our fixed-term loan portfolio contributed to the 0.11% reduction.

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S

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ANALYSIS OF NET INTEREST INCOMEYEAR ENDED DECEMBER 31

IN THOUSANDS OF DOLLARS 2006 2005

AVERAGE INTEREST AVERAGE INTEREST BALANCE MIX % INTEREST RATE % BALANCE MIX % INTEREST RATE %

Cash resources $ 771,585 9.5 $ 26,531 3.44 $ 795,562 11.0 $ 22,998 2.89

Loans:Residential 5,025,438 61.4 261,410 5.20 4,409,497 61.0 216,955 4.92Commercial 1,806,139 22.0 119,230 6.60 1,404,867 19.5 81,715 5.82Personal 306,884 3.7 24,050 7.84 333,427 4.6 22,348 6.70Lines of credit 191,399 2.3 16,423 8.58 189,891 2.6 13,313 7.01Total loans $ 7,329,860 89.4 $ 421,113 5.75 $ 6,337,682 87.7 $ 334,331 5.28 Other assets 91,435 1.1 – – 95,409 1.3 – –Total $ 8,192,880 100.0 $ 447,644 5.46 $ 7,228,653 100.0 $ 357,329 4.94

Deposits:Demand 1,667,741 20.4 15,795 0.95 1,571,805 21.7 9,786 0.62Term 4,125,217 50.4 160,810 3.90 3,627,379 50.2 107,515 2.96RRSP 1,404,478 17.1 51,118 3.64 1,470,745 20.4 49,170 3.34Total deposits $ 7,197,436 87.9 $ 227,723 3.16 $ 6,669,929 92.3 $ 166,471 2.50

Borrowings 408,230 5.0 18,549 4.55 120,995 1.7 4,966 4.10 Subordinated notes 30,496 0.4 1,822 5.97 33,500 0.5 1,615 4.82Class C shares 39,149 0.5 2,352 6.00 39,231 0.5 2,354 6.00 Total financial liabilities $ 7,675,311 93.8 $ 250,446 3.26 $ 6,863,655 95.0 $ 175,406 2.56

Other liabilities 175,485 2.1 – – 65,203 0.9 – –Class B shares 44,232 0.5 – – 46,811 0.6 – –Retained earnings 297,852 3.6 – – 252,984 3.5 – –Total $ 8,192,880 100.0 $ 250,446 3.05 $ 7,228,653 100.0 $ 175,406 2.42

Net interest income $ 197,198 2.41 $ 181,923 2.52


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OTHER INCOME

Other income is income that is not interest related. This includes items such as insurance and mutual fund commissions, securitization revenues, foreign exchange income, and charges for banking services. We price our products and services to provide excellent customer value and fair returns while maintaining market competitiveness.

Other income in 2006 was $70.4 million, compared to $66.3 million in 2005. Other income as a percentage of average assets was 0.86% in 2006, compared to 0.92% in 2005. The major reason for the decline in return on average assets came from a $0.5 million reduction in account service charges, primarily related to the introduction and continued success of The Free Chequing, Free Debit and More Account™. Helping offset this decrease was a $2.0 million increase in fund commissions, and a $1.0 million increase in securitization income as a result of securitizing $277.1 million in mortgages in 2006. Additionally, revenue from the sale of general insurance products increased by $1.1 million as a result of newly acquired business and increased volume in property and casualty policies. Effective foreign exchange activities helped to increase income to $4.2 million in 2006, compared to $3.3 million in 2005.

NON-INTEREST EXPENSES

Non-interest expenses represent all costs that are not interest related, excluding provisions for credit losses and income taxes. It includes staff salaries and benefits, occupancy, data processing, marketing, deposit insurance assessments, Credit Union Central of British Columbia (CUCBC) dues, provincial capital taxes, and other costs. Total non-interest expenses in 2006 were $196.6 million, compared to $184.7 million in 2005. Included in this increase was a $3.9 million expense due to a deposit insurance assessment levied by the Credit Union Deposit Insurance Corporation (CUDIC). Non-interest expenses as a percentage of average assets was 2.40% in 2006, compared to 2.56% in 2005. Wherever possible, we have utilized our existing capacity to manage growth; in 2006, we were able to employ our technological resources to an expanding customer base with minimal cost increases.

Employee costs, including salaries, benefits and incentive compensation, were $108.8 million in 2006, compared to $104.1 million in 2005. The incentive program is reviewed by the Board of Directors on a regular basis to ensure its alignment with corporate strategy and can be revised to reflect prevailing economic conditions.

CAPITAL EXPENDITURES/PREMISES AND EQUIPMENT

Total capital expenditures in 2006 decreased to $7.9 million, compared to $16.3 million in 2005. The primary reason for the higher spending in 2005 was the consolidation of the Greater Vancouver administration offices, previously located in several different areas, into a new facility. Two new branches opened in 2006 compared to the three that were opened in 2005.

We expect capital expenditures to be near the $14.0 million level in 2007, as branches are scheduled for renovation or relocation and one new branch opening is planned.

LOANS

Total loans as at December 31, 2006 were $7.7 billion, compared to $6.8 billion as at December 31, 2005, an increase of 13.2%.

We aggressively compete for, and are a major holder of, residential first mortgages in the Greater Vancouver and Vancouver Island regions of British Columbia. We provide mortgages to individuals according to conventional mortgage-lending standards for residential properties. We offer closed and open variable- and fixed-rate mortgages, written with terms of 6 months to 10 years.

As at December 31, 2006, our portfolio of residential mortgage loans totalled $5.2 billion, representing 68.0% of total loans outstanding, compared to $4.7 billion or 69.5% of total loans as at December 31, 2005.

Personal loans to members include installment loans, demand loans, retail leases, and lines of credit. We also offer a suite of credit cards. Based on the contractual agreement with the credit card supplier, we do not carry the balances owing from the credit card holders but earn a fee based on the total net purchases generated by the credit card holders, as well as a per-card fee.

At December 31, 2006, we had a personal loan portfolio of $0.5 billion representing 6.1% of total loans outstanding, compared with $0.5 billion and representing 7.3% of total loans as at December 31, 2005. Customers continue to move away from unsecured or chattel-secured personal borrowing and are instead accessing home equity loans which offer lower interest rates.


YEAR ENDED DECEMBER 31


Building renovations and improvements $ 141 $ 829

Leasehold improvements 2,090 4,273Computer equipment

and software 3,375 3,978Furniture and equipment 2,340 7,229Total $ 7,946 $ 16,309


Commercial lending consists primarily of first mortgage loans to medium-sized businesses for real estate projects. The types of mortgages offered are similar to residential mortgages, except the maximum term is largely limited to five years. Although we also conduct other forms of commercial lending, including small business lending and commercial leases, these constitute a small but growing portion of the commercial loan portfolio.

At December 31, 2006, our commercial loan portfolio totalled $2.0 billion, representing 25.9% of total loans outstanding, compared with $1.6 billion, representing 23.2% of total loans as at December 31, 2005.

We maintain conservative lending policies and hold no foreign loans. Our present policy limits commercial lending to a maximum of $2.75 billion, in line with our goal of holding 30% of total assets in commercial loans, the regulatory maximum. Our maximum single loan exposure to any one borrower is limited to $20.0 million while our maximum exposure to any one connection is limited to $40.0 million. We have no loans outstanding which exceed our internal limits. These limits are included in our investment and lending policy, which is regularly reviewed by the Investment and Lending Committee, approved by the Board, and filed with the Superintendent of Financial Institutions of British Columbia.

LOAN PORTFOLIOAS AT DECEMBER 31 2006 2005

TOTAL (1) AVERAGE IN TOTAL (1) AVERAGE IN IN MILLIONS IN THOUSANDS IN MILLIONS IN THOUSANDS NUMBER OF DOLLARS PERCENT OF DOLLARS NUMBER OF DOLLARS PERCENT OF DOLLARS

IndividualsMortgages:Conventional (2) 20,617 $ 2,800 36.5 $ 136 21,351 $ 2,804 41.3 $ 131Revenue 2,451 492 6.4 201 2,172 355 5.2 164Progressive 367 74 1.0 201 414 71 1.0 171Insured 3,050 524 6.8 172 3,752 608 8.9 162High-ratio 1,986 568 7.4 286 1,245 324 4.8 260Mortgage secured lines of credit 13,170 757 9.9 57 11,106 563 8.3 51Subtotal mortgages 41,641 5,215 68.0 125 40,040 4,725 69.5 118

Other:Retail leasing 1,560 23 0.3 15 1,506 22 0.3 14Other lines of credit 123,872 190 2.4 2 106,380 176 2.6 2Personal loans 21,864 259 3.4 12 24,809 299 4.4 12Subtotal other 147,296 472 6.1 3 132,695 497 7.3 4Subtotal individuals 188,937 5,687 74.1 30 172,735 5,222 76.8 30

CommercialCommercial loans 6,536 1,843 24.0 282 5,958 1,475 21.7 248Commercial leasing 2,709 143 1.9 53 2,249 105 1.5 47Subtotal commercial 9,245 1,986 25.9 215 8,207 1,580 23.2 193Subtotal individuals and commercial 198,182 7,673 100.0 39 180,942 6,802 100.0 38Accrued interest 23 20Total loan portfolio 198,182 $ 7,696 100.0 $ 39 180,942 $ 6,822 100.0 $ 38

(1) Before allowance for credit losses

(2) In 2006, 1,318 or $277.1 million of conventional mortgages were securitized and are not included.

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ALLOWANCE FOR CREDIT LOSSES

We have an established policy of providing general and specific allowances to cover potential credit losses. We review our loan portfolio on an ongoing basis and will establish a specific allowance if we identify potential credit losses. In 2006, provision for credit losses was $7.0 million, compared to $6.5 million in 2005. Lower recoveries of previously written-off loans account for the increase although loans written off in the current year remained at the same level as in 2005. The total allowance for credit losses increased to $37.8 million or 0.49% of total loans as at December 31, 2006, compared to $32.8 million, or 0.48% as at December 31, 2005.

During the year, impaired loans increased by $4.6 million to $14.0 million compared to $9.4 million as at December 31, 2005. We classify a loan as impaired when, in the opinion of management, we have reasonable doubt as to its ultimate collectibility, either in whole or in part, of principal or interest. Loans where interest or principal is contractually past due 90 days are automatically classified as impaired, unless management determines there is no reasonable doubt as to its ultimate collectibility of principal and interest. All loans are classified as impaired when interest or principal is past due 180 days. When a loan is classified as impaired, interest income is recognized on a cash basis only after any specific provisions or partial write-offs have been recovered and provided there is no further doubt as to the collectibility of principal.

DEPOSITS

Total deposits as at December 31, 2006 were $8.4 billion, compared with $7.7 billion for the previous year, an increase of 8.1%. Agency and institutional deposits accounted for $2.9 billion or 35.3% of total deposits as at year-end, compared to $2.7 billion or 35.1% in 2005. The introduction of the Haggle-free™ term deposit pricing concept helped with retail deposit growth in 2006. All our retail customers can now be assured that they will receive

our best rate, all the time and through all business channels, without having to negotiate. Retail deposit growth was $360.0 million in 2006, compared to $248.4 million in 2005. We continue to explore other deposit initiatives, designed to diversify our funding sources and develop new relationships to help further boost overall deposit growth.

We offer a full range of personal deposit services and products, including chequing accounts, savings accounts, and term deposits. All deposit accounts are in Canadian funds, with the exception of a special US dollar chequing account and US dollar short-term deposits. We are active in the registered retirement savings plan (RRSP) market, also offering Haggle-free term and variable RRSPs and registered retirement income funds (RRIFs).

As at December 31, 2006, demand deposits represented 20.5% of total deposits, compared with 21.2% in the previous year. Term deposits represented 62.8%, compared with 59.7% in 2005. Registered term deposits declined to 16.7% of total deposits, compared with 18.2% in 2005, as strong equity markets have encouraged depositors to transfer investments into mutual funds.

BORROWINGS

We maintain a loan facility with CUCBC. Outstanding amounts under this facility fluctuated in the normal course of business throughout the year. Through this facility we have the ability to borrow up to 15% of our total assets, which based on the year-end results would amount to $1.3 billion. We had no borrowings outstanding as at December 31, 2006, unchanged from the previous year. Average borrowings throughout the year were $408.2 million.

RISK MANAGEMENT

Our goal is to achieve consistent optimal long-term earnings growth, within acceptable parameters of risk. In order to achieve this goal, we have engaged a leading firm to help us implement a strategic, risk-based approach to manage the potential risks we face on an enterprise-wide basis.

Reporting to the Chief Financial Officer, the Vice President, Risk Management is responsible for the development and overseeing of the Enterprise Risk Management process. It is our intention to be able to demonstrate that our risks are being optimally managed by the time the new Basel II accord is implemented.

The Audit and Risk Management Committee of our Board is provided with an overview of our risk management practices on a regular basis and specific policies are reviewed by the Board of Directors at least annually and submitted to the Superintendent of Financial Institutions of British Columbia for prudence. The four principal areas of risk that we monitor and manage include: operational, market, credit, and liquidity/investment risk.


ASSET QUALITY COVERAGEAS AT DECEMBER 31


Total loans $ 7,658,271 $ 6,788,866Provision for credit losses (PCL) 6,966 6,532Loan write-offs 2,618 2,744Total allowance for credit losses 37,793 32,815Impaired loans 14,032 9,403Members’ equity 371,787 321,131

IN PERCENT

PCL as % of total loans 0.09 0.10Loan write-offs as % of total loans 0.03 0.04Impaired as % of total loans 0.18 0.14Impaired as % of members’ equity 3.77 2.93Total allowance as % of impaired loans 269.33 348.98Total allowance as % of total loans 0.49 0.48


OPERATIONAL RISK

Operational risk is the risk of loss associated with inadequate or failed internal processes, people and systems, or from external sources. As such, operational risk covers a broad range of risks, all of which can impact financial performance. We manage our operational risk under the following key risk areas (KRAs): reputation, regulatory compliance, investment services, business continuity, and technology and operational compliance.

Reputation risk is one of the most significant risks that we face and is considered extremely important and integral in all of our KRAs. Reputation is described as being an institution’s greatest asset, and in a financial institution, reputation and brand value is essential in maintaining the continued confidence of our stakeholders.

Regulatory compliance risk includes meeting our statutory obligations as it regards to the Proceeds of Crime (Money Laundering) Terrorist Financing Act, and the more recent British Columbia Personal Information Protection Act.

Investment services risk is comprised of the risk of non-compliance by our employees as it pertains to the many statutes and regulations as set out by government bodies, associated with the investment services provided to our members.

Business continuity risk deals with the catastrophic interruption to business operations due to a disaster, and given our primary business location, this would likely come in the form of an earthquake. Our business continuity plan is being designed to ensure that operations resume after such an event without undue delay, minimizing the potential impact on our customers and employees.

Technology and operational compliance risk primarily consists of the banking system’s integrity and internet banking security, as well as adherence by our employees to policies and administrative procedures.

We continually assess and develop strategies within specific areas to identify, monitor, and ultimately mitigate any potential risks. While we realize that these risks cannot be fully eliminated, proactive management of these risks within acceptable levels, is our primary goal.

MARKET RISK

Market risk is the potential for loss from changes in the value of financial instruments, as a result of changes in interest rates and foreign exchange rates. Reporting to the Chief Financial Officer, the Vice President, Treasury is responsible for preparing, executing, and monitoring risk strategies in this area.

Interest Rate RiskInterest rate risk is the negative impact that a change in interest rates could potentially have on net interest income. Interest rate risk arises when there is a difference in the amount of assets and liabilities that mature within a similar period.

A high proportion of our assets are in the form of residential first mortgages, and like any other financial institution, our annual profitability depends to a certain extent on our ability to manage the maturities and yields of these assets against the maturities and costs of the liabilities funding them.

We closely manage our interest rate risk through various strategies designed to optimize the return of differences between deposit and loan rates for different maturities. Our asset and liability management committee (ALCO) comprised of the Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Chief Credit Officer, and various other executives and senior managers meets regularly to review and monitor asset- and liability-related activities and initiate changes when necessary.

The differentials shown in the table on the following page for different maturities change on an ongoing basis and to some extent are dependent on the interest rate expectations held by the mortgage, loan, and deposit members. As previously noted, this information is monitored by management on a regular basis to ensure early identification of any developing trends, or any differentials that require modification. Through computer modelling techniques, we determine our interest rate risk on a monthly basis. The modelling determines the effect that rising or falling interest rates would have on net interest income and market value over the next 12 months. If the interest rate risk is approaching a level above policy guidelines, the largest differentials are reduced through either conventional means, such as deposit campaigns and mortgage securitizations, or through so-called synthetic means by employing derivative instruments such as interest rate swaps. As at year-end, we held $665 million in such instruments for interest rate risk management purposes, compared to $630 million as at December 31, 2005.

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ASSET AND LIABILITY MATURITIESAS AT DECEMBER 31


LIABILITIES/ LIABILITIES/ ASSETS EQUITY DIFFERENTIAL ASSETS EQUITY DIFFERENTIAL

Variable rate $ 2,878,706 $ 1,585,695 $ 1,293,011 $ 2,558,400 $ 1,695,325 $ 863,075Interest sensitiveMaturing within 1 year 1,650,228 4,505,630 (2,855,402) 1,639,814 3,732,218 (2,092,404)Maturing between1-2 years 983,347 563,575 419,772 911,017 724,629 186,3882-3 years 936,201 528,778 407,423 1,081,765 469,846 611,9193-4 years 886,263 691,773 194,490 698,264 300,757 397,5074-5 years 1,333,360 231,589 1,101,771 1,124,051 762,994 361,057Non-interest bearing items (1) 214,717 775,782 (561,065) 187,234 514,776 (327,542) $ 8,882,822 $ 8,882,822 $ – $ 8,200,545 $ 8,200,545 $ –

(1) Assets include cash, accrued interest receivable, premises and equipment, and other items. Liabilities/equity include accrued interest payable, retained earnings, Class B shares, and other items.

Historically, rapidly falling interest rates have had a neutral to positive impact on our net interest income over a 12-month period. This is because a greater portion of our liabilities have had the ability to reprice lower than our assets could over this period. However, with current interest rates this has not been the case over the past few years. Falling interest rates in 2007 would have a negative impact on our net interest income, as a large portion of our assets are now variable and able to reprice lower while many of our liabilities are at interest rates that cannot go any lower.

Most financial institutions tend to deem a prudent level of asset/liability mismatching to be necessary in order to enhance profitability. The challenge is to find the level of mismatch that will optimize net interest income while maintaining an acceptable level of risk.

Foreign Exchange RiskForeign exchange risk refers to losses that could result from changes to foreign currency rates. Any assets or liabilities denominated in foreign currencies have foreign exchange risk. All of our foreign exchange risk comes from US dollar (USD) transactions. The risk occurs through our offering USD chequing and term deposits to our members. We mitigate this risk by holding USD investments against these USD deposits. Our investment policy stipulates the maximum difference permitted between the USD deposits we hold and the USD investments needed to protect ourselves against rapid changes in USD exchange rates.

CREDIT RISK

Credit risk is the potential for financial loss if a borrower fails to meet its obligations. Our system for controlling the risk of borrowers defaulting on loan obligations is based upon strict adherence to clearly defined credit policies and credit approval procedures, as developed and maintained by the Chief Credit Officer (CCO). The Board of Directors delegates authority for loan approval to the Chief Executive Officer who in turn assigns this responsibility to the CCO.

The CCO grants specified limits to officers, with the guidelines reviewed annually by the Board of Directors. Loan approval limits are established based upon the experience and qualifications of the individuals involved. If a proposed loan is beyond the lending limit prescribed for branch management, it is forwarded to the Senior Manager, Retail Credit, or the CCO, depending on the size of the loan. If a loan is beyond the internal lending limit prescribed for the CCO, it is then submitted to one of three credit committees: retail management credit, senior credit, or executive credit for final approval.

We review lending activities on a regular basis to ensure adherence to policy guidelines and general credit quality. Loans requiring collection are removed from the branch level and centralized for further follow-up.

LIQUIDITY/INVESTMENT RISK

The Financial Institutions Act of British Columbia (FIA) requires us to maintain a minimum of 8% of total deposits and borrowings in a liquidity portfolio comprised of investments with maturities ranging from overnight to five years. As part of this regulation, we are required to hold statutory liquidity with CUCBC equalling 1.5% of the British Columbia credit union system’s assets, which presently amounts to approximately 7.0% of deposits and borrowings. These deposits provide yields similar to those of Government of Canada T-bills or bonds. In addition to the liquidity portfolio held at CUCBC, we hold other liquidity investments outside CUCBC. Our investment policy specifies the minimum rating and certain single investment exposures for these investments. In general, funds placed outside of CUCBC are invested in financial instruments that are rated R-1 low (A-) or higher.

Our intention is to maintain a total liquidity portfolio in the range of 9.0% of total deposits and borrowings. This level provides us with an operating cushion in the event of rapid asset growth or sudden deposit declines and still allows us to meet our regulatory



requirements, without unduly effecting profitability. Our Treasury Department monitors liquidity levels on a daily basis.

Liquidity levels are managed through a number of different avenues, including the introduction of new deposit products and the promotion of existing ones. We also have the ability to increase our borrowing relationship with CUCBC up to $1.3 billion as authorized by the Board, and through the securitization of mortgages.

CAPITAL MANAGEMENT

Our capital requirements are regulated by the Financial Institutions Commission (FICOM) using the risk-weighted approach developed by the Bank for International Settlements (BIS). FICOM established a minimum capital standard based on a ratio of capital-to-risk-weighted assets of 8.0%. At least 50% of a credit union’s capital base, for the purpose of meeting the standard, must consist of primary capital, known as Tier 1, comprised of share capital and retained earnings, less intangible assets, and future income taxes. Secondary capital, known as Tier 2, includes subordinated notes, share capital, and 50% of a credit union’s portion of retained earnings in the Credit Union Deposit Insurance Corporation (CUDIC), CUCBC, and Stabilization Central Credit Union (Stab Central). A credit union’s assets are weighted according to six categories of relative risk ranging from 0% to 200%. Residential mortgages, the largest portion of our assets, are risk-weighted at 35%, while commercial loans, the second largest portion, are risk-weighted at 100%.

Each month we monitor our capital levels. Our capital plan is updated annually and provides a forecast of capital requirements over a five-year horizon. In 2005, our capital ratio increased substantially over the previous year’s calculations as a result of FICOM decreasing its required risk-weighting on certain assets, with the largest impact coming from the risk-weighting of conventional residential mortgages being decreased from 50% to 35%. FICOM did this in anticipation of Basel II’s new requirements, which are expected to be implemented by the Canadian banking industry at the beginning of November 2007. As at December 31, 2006, our total capital ratio was 10.34%, compared to 10.80% in 2005. Our capital ratio was impacted from a 20% deduction of the effective capital portion of our Class C shares, which have a finite time horizon and mature on June 27, 2009. Additionally, higher risk-weighted assets such as commercial and high loan-to-value residential mortgages grew faster than our capital. Offsetting this was the renegotiation and term extension to August 25, 2016 of our subordinated note thus removing any applicable capital deductions. We are committed to a strong capital position, with a policy of maintaining our capital ratio above 9.0% of risk-weighted assets. As a result of the strong earnings performance in 2006, primary capital (Tier 1) now comprises 80% of total capital, up from 78% last year.

The following tables show the levels of our capital and our risk-weighted assets under the BIS requirements:

TIER 1 AND 2 CAPITALAS AT DECEMBER 31


Tier 1 capital Class A shares $ 1,660 $ 1,557Class B shares 44,954 45,748Retained earnings 326,833 275,291 Future income taxes (14,340) (12,091) 359,107 310,505

Less: Capital deductions (10,439) (9,900) 348,668 300,605Tier 2 capitalSubordinated notes (1) 25,000 20,100Portion of equity in CUCBC, CUDIC, and Stab Central (2) 47,924 43,834Class C shares (1) 15,547 23,435 88,471 87,369Total capital $ 437,139 $ 387,974

(1) Net amount deemed as capital

(2) Portion of system retained earnings x 50%


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RISK-WEIGHTED ASSETSAS AT DECEMBER 31

IN THOUSANDS OF DOLLARS 2006 2005 2006 2005

BALANCE BALANCE BIS RISK- RISK- RISK- SHEET SHEET WEIGHT WEIGHTED WEIGHTED AMOUNT AMOUNT % BALANCE BALANCE

Cash resources $ 1,081,909 $ 1,187,078 0 $ – $ –Commercial paper 47,984 136,389 0-100 31,961 25,588Residential mortgages 4,100,364 3,709,001 35 1,435,469 1,300,322Insured mortgages 647,854 703,606 0 – –High-ratio mortgages 516,550 325,935 75 387,412 244,451Personal loans 471,809 483,609 75 353,859 362,745Commercial loans and leasing 1,897,159 1,567,329 100 1,897,159 1,567,329Other assets/investments 119,193 87,598 100 119,193 87,598Off-balance sheet exposure 0-100 3,482 3,193 $ 8,882,822 $ 8,200,545 $ 4,228,535 $ 3,591,226

Risk-weighted assets as a percentage of total assets 47.6% 43.8%

IN PERCENT 2006 2005

Ratio of capital to risk-weighted assets:Primary capital to risk-weighted assets 8.25 8.37Secondary capital to risk-weighted assets 2.09 2.43Total capital ratio 10.34 10.80

Total allowance for credit losses (ACL) 37,793 32,815ACL as a percentage of risk-weighted assets 0.89% 0.91%

INVESTMENT SERVICES/SUBSIDIARIES

Investing and financial planning continues to be a complex and highly competitive area. We have concentrated on offering Simple financial help to our members to provide them with the meaningful resources needed to prosper in the years ahead.

As part of this activity, we market mutual funds. These funds provide our members with another investment option and provide us with an alternative source of fee income. Revenue from these activities increased to $16.7 million in 2006 from $14.8 million in the previous year. Buoyant equity markets in 2006 helped fuel fund sales. As at December 31, 2006, we had mutual and segregated funds under administration for our members totalling $1.7 billion, compared to $1.4 billion in 2005. These assets are not reflected on the consolidated balance sheet.

One of our subsidiary companies, Coast Capital Insurance Services Ltd., provides complementary financial services. Through these operations, members are able to purchase various forms of insurance and invest in segregated funds and/or the equity markets. General insurance continues to be a growing segment of our business with revenues reaching $19.9 million in 2006, compared to $18.8 million in 2005.

Equipment financing has become a growing business segment with lease receivables of $165.8 million, compared to $126.2 million in 2005. This service has been expanded outside of British Columbia through Coast Capital Equipment Finance Ltd., providing financing in Alberta, Saskatchewan, Manitoba, and Ontario.



Total assets $ 8,882,822 $ 8,200,545Mutual and segregated funds under

administration 1,683,630 1,428,500Securitized mortgages 293,772 59,141Total assets under administration $ 10,860,224 $ 9,688,186


OUTLOOK

LOANS AND DEPOSITS

Real estate activity in our market was active in 2006, even though unit sales declined from the previous year. The Multiple Listing Unit Sales were 10% below those in 2005, but are still in line with the number of sales achieved in 2004, which is considered by many analysts to be at a healthy level, and more sustainable over the longer term. With interest rates, a key driver of the real estate market, also expected to stay stable or perhaps even decline in 2007, expectations are for the real estate market to remain a healthy part of British Columbia’s strong economy, supporting our growth objectives.

A number of initiatives launched over the past few years are also going to further support our growth targets for 2007. Many of these initiatives are still fairly new in the product development cycle and as such, have yet to reach their full business potential. These initiatives include; The Free Chequing, Free Debit and More Account™, the first such chequing account in Canada offered by a full service financial institution, the Haggle-free Guarantee™, which promises our customers the best retail term deposit and mortgage rates up-front without having to go through the onerous task of negotiating, and No Worry Mortgages™ introduced in 2005, and simplifying the mortgage application process. All of these initiatives were developed to align with our mission of providing our customers with Simple financial help. It is through the introduction of innovative product offerings such as these that we are adding value for our existing customers and are continuing to attract new ones as we move forward.

After opening two new branches in 2006, we believe that 2007 will be a banner year for us with the opening of our 50th branch. The branch network is an important business channel for us that exposes many of our customers to the “face” of CCS, bringing them a high level of personal service, confidence, and trust.

NET INCOME

Based on the current level of interest rates, we anticipate that net interest income, expressed as a percentage of average assets, will be in a similar range to last year’s levels. We also anticipate non-interest expenses expressed as a percentage of assets, to continue to decline as a result of improved efficiencies.

Current income tax legislation provides that British Columbia corporations are taxed at rates as high as 34.1%. Credit unions can reduce normal corporate income tax rates through a special income tax rate reduction that is based upon the relationship between the level of deposits and accumulated pre-tax earnings that were previously taxed at the reduced rates. Based on our estimated deposit growth in 2007, we may not receive this tax rate reduction on portions of our 2007 taxable income, and accordingly, are increasing our provision for income taxes for fiscal 2007. In the event that deposit growth is greater than anticipated, we will be able to reduce our income tax rate from this projected rate.

While the possibility of increased income tax provisions will put pressures on our overall performance in 2007, we believe CCS will have another successful year as our initiatives come to realize their full potential. We are looking forward to the opportunities that will present themselves in the coming year.

Note regarding forward-looking statements:This Annual Report contains forward-looking statements about the operations, objectives, and expected financial performance of Coast Capital Savings. These statements are subject to risks and uncertainties. Actual results may differ depending on a number of factors, including but not limited to legislative or regulatory changes, interest rates, and general economic conditions in British Columbia and Canada. These issues should be given careful consideration and readers should not place undue reliance on Coast Capital Savings’ forward-looking statements.

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MANAGEMENT’S RESPONSIBILITY

The consolidated financial statements and all other information contained in the Annual Report are the responsibility of management and have been approved by the Board of Directors. The consolidated financial statements have been prepared by management in accordance with the requirements of the Credit Union Incorporation Act and appropriate generally accepted accounting principles in Canada, and include amounts based on informed judgments and estimates of the expected effects of current events and transactions. Financial information presented elsewhere in this Annual Report is consistent with that in the consolidated financial statements.

In meeting its responsibility for the reliability of financial data, management relies on comprehensive internal accounting, operating, and system controls. Controls include an organizational structure providing for effective segregation of responsibilities, delegation of authority and personal accountability, and careful selection and training of personnel; the application of accounting and administrative policies and procedures necessary to ensure adequate internal control over transactions, assets and records; and a continued program of extensive internal audits. These controls are designed to provide reasonable assurance that financial records are reliable for preparing financial statements and maintaining accountability for assets, and that assets are safeguarded against unauthorized use or disposition. The Board of Directors has appointed an Audit and Risk Management Committee, comprised of five directors, to review with management and auditors the annual financial statements prior to submission to the Board of Directors for final approval.

KPMG LLP has been appointed by the membership as independent auditors to examine and report on the consolidated financial statements, and their report appears at right. They have full and free access to the internal audit staff and the Audit and Risk Management Committee of the Board.

Lloyd Craig Hermann Bessert President and Chief Financial Officer Chief Executive Officer

AUDITORS’ REPORT TO THE MEMBERS

We have audited the consolidated balance sheet of Coast Capital Savings Credit Union as at December 31, 2006, and the consolidated statements of income, members’ equity, and cash flows for the year then ended. These financial statements are the responsibility of Coast Capital Savings Credit Union’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of Coast Capital Savings Credit Union as at December 31, 2006, and the results of its operations and its cash flows for the year then ended in accordance with Canadian generally accepted accounting principles.

Vancouver, Canada February 9, 2007

M A N A G E M E N T ’ S R E S P O N S I B I L I T Y A N D A U D I T O R S ’ R E P O R T T O T H E M E M B E R S


AS AT DECEMBER 31

ALL TABULATED IN THOUSANDS OF DOLLARS, UNLESS OTHERWISE STATED NOTES 2006 2005

Assets:Cash resources 3 $ 686,997 $ 856,886Investments 7 442,896 466,582Loans 4,5,6 7,658,271 6,788,866Premises and equipment 8 41,124 44,027Other 9 53,534 44,184 $ 8,882,822 $ 8,200,545

Liabilities:Deposits 10 $ 8,360,121 $ 7,736,197Other 11 86,781 70,558 8,446,902 7,806,755Subordinated notes 12 25,000 33,500Class C shares 13 39,133 39,159

Members’ equity:Class B shares $ 44,954 $ 45,840Retained earnings 326,833 275,291 371,787 321,131 $ 8,882,822 $ 8,200,545

Commitments and contingent liabilities 19

The accompanying notes to the consolidated financial statements are an integral part of these statements.

On behalf of the Board:

Chair, Board of Directors Chair, Audit and Risk Management Committee

C O N S O L I D A T E D B A L A N C E S H E E T S

37



Interest income: Loans $ 421,113 $ 334,331Cash resources and investments 26,531 22,998 447,644 357,329Interest expense: Deposits 230,075 168,825Borrowings 20,371 6,581 250,446 175,406

Net interest income 197,198 181,923Provision for credit losses 5 6,966 6,532 190,232 175,391Other income 14 70,366 66,349 260,598 241,740

Non-interest expenses:Salaries and employee benefits 108,841 104,088Administration 15 41,438 37,837Technology 18,617 18,334Occupancy 23,292 20,670Community contributions 4,454 3,815 196,642 184,744Income before the following: 63,956 56,996Stabilization Central Credit Union dividend 16 – 18,533Deposit insurance assessment 17 – (19,516)Income before provision for income taxes 63,956 56,013

Provision for income taxes 18 10,872 8,877Net income $ 53,084 $ 47,136


RETAINED CLASS B MEMBERS’ ALL TABULATED IN THOUSANDS OF DOLLARS, UNLESS OTHERWISE STATED EARNINGS SHARES EQUITY

Balance, January 1, 2005 $ 229,605 $ 48,855 $ 278,460Net income 47,136 – 47,136Share dividends (1,640) 1,640 0Cash dividends (173) – (173)Income tax deduction on dividends 363 – 363Share redemption – (4,655) (4,655)Balance, December 31, 2005 275,291 45,840 321,131Net income 53,084 – 53,084Share dividends (1,804) 1,804 0Cash dividends (123) – (123)Income tax deduction on dividends 385 – 385Share redemption – (2,690) (2,690)Balance, December 31, 2006 $ 326,833 $ 44,954 $ 371,787

Class B shares are not a membership requirement. These shares are non-transferable, non-cumulative, and non-voting. Retraction and redemption of Class B shares including terms, conditions, and dividends, are set at the discretion of the Board of Directors. The dividend rate is a floating rate and is currently 4.32% (2005 – 3.92%).

CCS has authorized six classes of equity shares. Each class is authorized for an unlimited number of shares with a par value of $1.

C O N S O L I D A T E D S T A T E M E N T S O F I N C O M E

C O N S O L I D A T E D S T A T E M E N T S O F M E M B E R S ’ E Q U I T Y




Cash flows from operating activities:Net income $ 53,084 $ 47,136Adjustments for: Amortization of premises and equipment 8 10,825 9,522 Amortization of intangible assets 256 221 Future income taxes 18 (2,140) 833 Provision for credit losses 5 6,966 6,532 Changes in accrued interest receivable and payable 20,872 (1,681) Changes in other non-cash operating items 10,610 9,052Cash flows from operating activities 100,473 71,615

Cash flows used in investing activities:Net increase in loans (1,150,148) (790,178)Net (increase) decrease in investments 251,742 (272,577)Net purchase of premises and equipment (7,921) (15,868)Acquisition of insurance agency business, net of cash 25 (1,590) (1,234)Cash flows used in investing activities (907,917) (1,079,857)

Cash flows from financing activities: Net increase in deposits 596,727 952,689Net proceeds from mortgage securitization 277,095 –Repayment of subordinated note, net 12 (8,500) –Redemption of Class C shares 13 (26) (121)Net redemption of Class A and B shares 10 (2,587) (4,749)Cash flows from financing activities 862,709 947,819

Net increase (decrease) in cash and short-term investments 55,265 (60,423)Cash and short-term investments, beginning of year 3 155,108 215,531Cash and short-term investments, end of year 3 $ 210,373 $ 155,108

Supplemental disclosure of cash flow information:Interest paid during the year $ (221,949) $ (173,739)Income taxes paid during the year (7,788) (10,293)


C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S

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Coast Capital Savings Credit Union (CCS) is incorporated under the British Columbia Credit Union Incorporation Act, and its subsidiaries are incorporated under the British Columbia Company Act or the Canada Business Corporations Act. The operation of CCS is regulated under the British Columbia Financial Institutions Act. CCS serves members principally in the Greater Vancouver and Vancouver Island regions of British Columbia.

1. SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

These consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles. The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet date and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from these estimates.

PRINCIPLES OF CONSOLIDATION

These consolidated financial statements include the financial position, operating results, and cash flows of CCS, its active subsidiaries Coast Capital Insurance Services Ltd. (CCIS), Coast Capital Investments (a partnership between CCS and CCIS), Coast Capital Equipment Finance Ltd., and inactive subsidiaries. All inter-company transactions and balances have been eliminated.

BUSINESS COMBINATIONS, GOODWILL, AND OTHER INTANGIBLES

Business combinations are accounted for using the purchase method. Identifiable intangible assets are recognized separately from Goodwill and included in Other intangibles.

Goodwill represents the excess of the price paid for the acquisition of subsidiaries over the fair value of the net assets acquired. Goodwill impairment is assessed on at least an annual basis. Any excess of carrying value over fair value is charged to income in the period in which impairment is determined.

Other intangible assets with definite lives are amortized over their estimated useful lives, generally not exceeding 10 years, and are also reviewed for indications of impairment annually.

CASH RESOURCES

For the purposes of the Consolidated Statements of Cash Flows, cash and short-term investments comprise balances with less than 90 days maturity from the date of acquisition, including cash and deposits with Credit Union Central of British Columbia (CUCBC), treasury bills and other eligible bills, amounts due from other banks, and cheques and other items in transit.

INVESTMENTS

Investments are recorded at cost plus accrued interest, except where there is a loss in value that is determined by management to be other than temporary in nature. In such cases, the investment is written down to recognize the loss.

LOANS

Loans are stated at the amount of unpaid principal plus accrued interest net of the allowance for credit losses.

Interest income is recorded on the accrual basis. Accrued but uncollected interest is reversed whenever loans are determined to be impaired. CCS classifies a loan as impaired when, in the opinion of management, there is reasonable doubt as to the ultimate collectibility, either in whole or in part, of principal or interest. Loans where interest or principal is contractually past due 90 days are automatically placed on an impaired basis, unless management determines there is no reasonable doubt as to the ultimate collectibility of principal and interest. All loans are classified as impaired when interest or principal is past due 180 days. When a loan is classified as impaired, interest income is recognized on a cash basis only after any specific provisions or partial write-offs have been recovered and provided there is no further doubt as to the collectibility of principal.

LOAN FEES

Loan origination fees, including commitment, renewal, and renegotiation fees, are considered to be adjustments to loan yield, and are deferred and amortized to loan interest income over the term of the loans.

ALLOWANCE FOR CREDIT LOSSES

CCS maintains an allowance for credit losses which, in management’s opinion, is considered adequate to provide for credit-related losses. The allowance is increased for loan impairment by a charge to income and reduced by write-offs net of recoveries.

A specific allowance is established on an individual loan basis to reduce the carrying value to the loan’s estimated realizable amount. The estimated realizable amounts are determined by discounting the expected future cash flows at the effective interest rate inherent in the loans. When the amounts and timing of future cash flows cannot be reliably determined, estimated realizable amounts are determined by reference to market prices for the loans or their underlying security.

CCS also maintains a general allowance to absorb credit losses that management estimates have occurred at the balance sheet date for which specific allowances cannot yet be determined. CCS applies a methodology that incorporates loan loss history as the basis for estimating probability of default and loss for various credit portfolios that exhibit similar loan loss characteristics.

Write-offs are generally recorded after all reasonable restructuring or collection activities have taken place and the possibility of further recovery is considered to be remote.

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

YEAR ENDED DECEMBER 31, 2006 AND 2005. ALL TABULATED IN THOUSANDS OF DOLLARS, UNLESS OTHERWISE STATED


1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

TRANSFERS OF MORTGAGE RECEIVABLES

Transfers of mortgages to unrelated parties are treated as sales provided that control over the transferred mortgages has been surrendered and consideration other than beneficial interests in the transferred mortgages has been received in exchange. If these criteria are not satisfied, then the transfers are treated as financing transactions. If treated as sales, the mortgages are removed from the consolidated balance sheet, and a gain or loss is recognized in Other income based on the carrying value of the loans transferred, allocated between the assets sold and the retained interests in proportion to their fair values at the date of transfer. The fair values of mortgages sold, retained interests, and recourse liabilities are determined using either quoted market prices or pricing models that take into account management’s best estimates of key assumptions such as expected losses, prepayments, and discount rates commensurate with either the risks involved or sales of similar assets. Where CCS continues to service the mortgages sold, a servicing liability is recognized and amortized over the servicing period as servicing fees. The carrying value of retained interests is reviewed periodically for impairment of an other than temporary nature.

PREMISES AND EQUIPMENT

Land is carried at cost. Buildings, furniture and equipment, and leasehold improvements are carried at cost, less accumulated amortization. Amortization is calculated using the straight-line method over the estimated useful lives of the related assets as follows:

Buildings 40 to 50 yearsLeasehold improvements Lease term Computer and telephone equipment 3 yearsFurniture and other equipment 5 to 10 yearsComputer software 3 to 5 years

Gains and losses on disposal are recorded separately in the Consolidated Statements of Income. Gains realized from the sale of land and buildings that are accompanied by a more than minor leaseback agreement are deferred and amortized over the minimum lease period to the extent of the present value of the minimum lease costs. The balance of any gain received is recognized in earnings of the current period.

DERIVATIVE-FINANCIAL INSTRUMENTS

Derivative-financial instruments are financial contracts whose value is derived from interest rates, foreign exchange rates, or other financial indices.

In the ordinary course of business, CCS enters into various derivative contracts, including interest rate forwards, swaps, options, and equity swaps. Derivative contracts are either exchange-traded contracts or negotiated over-the-counter contracts. CCS enters into such contracts principally to manage

its exposures to interest rate fluctuations as part of its asset/liability management program.

CCS formally documents all relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives to specific assets and liabilities on the Consolidated Balance Sheets or to specific firm commitments or forecasted transactions. CCS also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

Derivative instruments entered into for the purpose of managing CCS’ interest rate exposures and meeting hedge accounting requirements are accounted for on the accrual basis. The income or expense is recognized over the term of the agreement as an adjustment to interest income or expense.

Derivative instruments used in trading activities are marked to market and the resulting realized and unrealized gains or losses are recognized in Other income in the Consolidated Statements of Income in the current period.

CONSOLIDATION OF VARIABLE INTEREST ENTITIES

As of January 1, 2005, CCS prospectively adopted the Canadian Institute of Chartered Accountants (CICA) accounting guideline on consolidation of variable interest entities (VIEs). VIEs are defined as entities that have insufficient equity and/or their equity investors at risk lack one or more of the specified essential characteristics of a controlling financial interest. The guideline requires CCS to identify VIEs and provides specific guidance for determining if CCS has a significant variable interest and/or is the primary beneficiary of the variable interest. The primary beneficiary is required to consolidate a VIE.

CCS neither has significant variable interests in nor is the primary beneficiary of any VIEs. Consequently, the consolidated financial statements do not include the financial position nor results of any VIEs.

INCOME TAXES

CCS uses the asset-and-liability method of accounting for income taxes. Future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using enacted or substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment. A valuation allowance

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1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

is established to reduce future income tax assets to the amount expected to be realized.

Future income tax assets or liabilities are included in other assets or other liabilities, as applicable.

COMPARATIVE FIGURES

Certain comparative figures have been reclassified to conform to the current year’s financial statements.

2. FUTURE ACCOUNTING CHANGES

The following summarizes future accounting policy changes that are relevant to CCS’ Consolidated Financial Statements subsequent to December 31, 2006.

FINANCIAL INSTRUMENTS

The CICA has issued four new standards: Financial Instruments – Recognition and Measurement, Hedges, Comprehensive Income, and Equity. These will be effective for CCS on January 1, 2007, and require the following:

Financial instruments – recognition and measurementUnder the new standard, all non-derivative financial assets will be classified as one of the following: held-to-maturity, loans and receivables, held for trading, or available for sale.

All financial assets will be classified as held for trading or available for sale and recorded at fair value in the Consolidated Balance Sheets, with the exception of loans and receivables, which will be recorded at amortized cost. All financial liabilities will be classified as other financial liabilities and will be recorded at their amortized cost.

All derivatives, including embedded derivatives, will be recorded at fair value in the Consolidated Balance Sheets.

Realized and unrealized gains and losses on financial instruments that are held for trading will continue to be recorded in the Consolidated Statements of Income. Unrealized gains and losses on financial instruments that are classified as available for sale will be recorded in Other comprehensive income until they are realized, at which time they will be recorded in the Consolidated Statements of Income.

HedgesThe new standard specifies the circumstances under which hedge accounting is permissible and how hedge accounting may be performed.

In a fair value hedging relationship, the change in the fair value of the hedged item is recorded in the Consolidated Statements of Income. This change in fair value of the hedged item, to the extent that the hedging relationship is effective, is offset by changes in the fair value of the hedging derivative.

In a cash flow hedging relationship, the change in fair value of the derivative will be recorded in Other comprehensive income to the extent that the hedging relationship is effective. The ineffective portion will be recognized in Net income and recorded in the Consolidated Statements of Income.

The amounts recognized in Accumulated other comprehensive income will be reclassified to Net income and recorded in the Consolidated Statements of Income when the asset or liability being hedged is affected by the variability in the cash flows of the hedged item.

Comprehensive incomeUnrealized gains and losses on available for sale financial assets, unrealized foreign currency translation amounts arising from self-sustaining foreign operations, and changes in the fair value of cash flow hedging instruments will be recorded in a Statement of Other Comprehensive Income until recognized in the Consolidated Statement of Income. Accumulated other comprehensive income will form part of members’ equity.

EquityThe new standard requires CCS to present a separate component of members’ equity for each category of equity that is of a different nature.

CCS will adopt these new standards and will revalue its investments and derivatives, as appropriate, and report a new section of members’ equity called Accumulated other comprehensive income effective January 1, 2007. The impact of revaluing our hedging derivatives at fair value on January 1, 2007 will be recognized in opening retained earnings and opening Accumulated other comprehensive income as appropriate. The impact of reclassifying investment securities as available-for-sale securities and revaluing them at fair value on January 1, 2007 will be recognized in opening Accumulated other comprehensive income. Prior periods will not be restated. We are currently determining the impact that these changes in accounting policy will have on our consolidated financial statements once adopted, based on recently released transitional guidance.



In accordance with provincial legislation and the terms of arrangements with CUCBC, credit unions are required to maintain deposits with CUCBC totalling the lesser of 9% of their deposit and debt liabilities or 1.5% of all British Columbia credit union assets.

Deposits with CUCBC earn interest at short-term market rates. The long-term portion of CCS’ deposits with CUCBC is shown in Note 7 and classified as Investments.

3. CASH RESOURCES 2006 2005

Cash $ 77,163 $ 75,029Short-term investments 133,210 80,079Cash and short-term investments 210,373 155,108

Statutory deposits with CUCBC 471,202 698,525Accrued interest 5,422 3,253 $ 686,997 $ 856,886

Substantially all of CCS’ loans are written on properties and businesses located in the Greater Vancouver and Vancouver Island regions of British Columbia.

4. LOANS COMMERCIAL RESIDENTIAL PERSONAL MORTGAGES 2006 MORTGAGES LOANS AND LOANS TOTAL

Loan principal $ 5,215,376 $ 471,809 $ 1,985,782 $ 7,672,967Accrued interest 12,411 1,668 9,018 23,097Total loans 5,227,787 473,477 1,994,800 7,696,064Allowances for credit losses 5,812 6,945 25,036 37,793 $ 5,221,975 $ 466,532 $ 1,969,764 $ 7,658,271

Impaired loans $ 3,085 $ 1,415 $ 9,532 $ 14,032Less amounts where loss not expected 2,912 394 9,189 12,495Specific allowances 173 1,021 343 1,537General allowances 36,256Total allowances for credit losses $ 37,793

COMMERCIAL RESIDENTIAL PERSONAL MORTGAGES 2005 MORTGAGES LOANS AND LOANS TOTAL

Loan principal $ 4,724,691 $ 497,425 $ 1,579,785 $ 6,801,901Accrued interest 11,792 1,091 6,897 19,780Total loans 4,736,483 498,516 1,586,682 6,821,681Allowances for credit losses 5,141 7,672 20,002 32,815 $ 4,731,342 $ 490,844 $ 1,566,680 $ 6,788,866

Impaired loans $ 4,847 $ 974 $ 3,582 $ 9,403Less amounts where loss not expected 4,721 441 3,175 8,337Specific allowances 126 533 407 1,066General allowances 31,749Total allowances for credit losses $ 32,815

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6. TRANSFERS OF MORTGAGE RECEIVABLES

As part of its program of liquidity, capital, and interest rate risk management, CCS enters into arrangements to fund mortgage growth by selling loans to unrelated third parties.

As part of these transfers of mortgage receivables, CCS retains servicing responsibilities. CCS does not receive a servicing fee for its servicing responsibilities. CCS’ retained interests consist of its rights to future cash flows arising after the investors have received the return for which they contracted and credit enhancement provided to the third parties in the form of cash collateral accounts. The third parties, as holders of the securitized mortgages, have recourse only to a cash collateral account and cash flow from the securitized mortgages. The investors and the third parties have no recourse to CCS’ other assets for failure of debtors to pay when due.

CCS’ retained interests are subject to credit, prepayment, and interest rate risks on the securitized mortgages.

In 2006, gains of $562 (2005 – nil) were recognized on the securitization of residential mortgages, net of the servicing liability of $1,857 (2005 – nil) recognized initially on securitization. Servicing liabilities amortized to income during the year amounted to $314 (2005 – $214). The fair value of servicing liabilities amounted to $1,909 at December 31, 2006 (2005 – $ 366). The fair value of retained interests amounted to $2,646 at December 31, 2006 (2005 – $210) and is recorded in Other assets.

The following table summarizes quantitative information about mortgages securitized by CCS as at December 31, 2006:

5. ALLOWANCES FOR CREDIT LOSSES 2006 2005

Balance, beginning of year $ 32,815 $ 27,823Provision for credit losses 6,966 6,532 39,781 34,355Loans written off 2,618 2,744Recoveries of loans written off 630 1,204Balance, end of year $ 37,793 $ 32,815Percentage of total loans 0.49% 0.48%

TOTAL PRINCIPAL PRINCIPAL AMOUNT AMOUNT OF OF LOANS OVER AVERAGE TYPE OF LOAN MORTGAGES 60 DAYS PAST DUE BALANCES

Residential $ 285,011 $ – $ 115,140Commercial 8,761 – 15,366Total loans $ 293,772 $ – $ 130,506

Key assumptions used in measuring the retained interests at the date of securitization were as follows:

2006 2005

Prepayment 20.00 % nilExpected credit losses 0.12 % nilResidual cash flows discounted at 4.32 % nilWeighted average life (in years) 4.51 nil

CCS has no obligation to repurchase the securitized mortgages, which mature as follows:

2007 $ 29,9842008 7002010 61,7992011 201,289 $ 293,772Recourse for holders of conventional securitized mortgages $ 5,442



7. INVESTMENTS 2006 2005

Investments, CUCBC $ 406,238 $ 397,163Shares, CUCBC 25,831 25,269Accrued interest 7,703 6,969Other 3,124 37,181 $ 442,896 $ 466,582

Shares in CUCBC are a required investment as a condition of membership in CUCBC and provincial legislation and are carried at cost. The amount of the share investment in CUCBC is determined based on CCS’ membership and assets

8. PREMISES AND EQUIPMENT ACCUMULATED 2006 NET 2005 NET COST AMORTIZATION BOOK VALUE BOOK VALUE

Land $ 3,703 $ – $ 3,703 $ 3,703Buildings 18,785 9,390 9,395 10,111Furniture and equipment 41,726 23,352 18,374 21,119Leasehold improvements 15,906 6,254 9,652 9,094 $ 80,120 $ 38,996 $ 41,124 $ 44,027

Amortization in respect of the above buildings, furniture and equipment, and leasehold improvements amounted to $10,825 (2005 – $9,522).

9. OTHER ASSETS 2006 2005

Accounts receivable $ 9,499 $ 7,293Prepaid expenses 17,419 17,095Future income taxes (Note 18) 12,803 11,014Goodwill and other intangible assets 10,807 8,215Other 3,006 567 $ 53,534 $ 44,184

10. DEPOSITS 2006 2005

Demand $ 1,710,791 $ 1,637,177Term 5,170,205 4,615,687Registered plans 1,378,544 1,409,925Class A membership shares 1,660 1,557Class P non-equity shares 239 262Accrued interest 98,682 71,589 $ 8,360,121 $ 7,736,197

CLASS A MEMBERSHIP SHARES

Class A shares are a membership requirement and are redeemable on demand upon cessation of membership, and accordingly are classified as deposits. These are voting shares with a par value of $1 each. CCS has authorized an unlimited number of Class A shares.

CLASS P NON-EQUITY SHARES

Amounts contributed by members for Class P shares can be withdrawn on demand or redeemed at any time by CCS, and accordingly are classified as deposits. These shares have a life insurance component such that the shareholder’s estate is paid double the value of the share upon death of the shareholder. These shares do not participate in any annual dividend.

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11. OTHER LIABILITIES 2006 2005

Accounts payable and accruals $ 73,300 $ 56,945Deferred fee income 13,481 13,613 $ 86,781 $ 70,558

CCS has the ability to borrow up to 15% of its total assets from CUCBC. Borrowings would be secured by a debenture in favour of CUCBC, which creates a floating charge on the assets and undertakings of CCS, and an assignment of book debts.

12. SUBORDINATED NOTES

The notes are unsecured and subordinated in right of payment to the claims of depositors and certain other creditors. The interest rates are calculated on a floating rate basis. CCS has an option to convert to fixed-interest rates on 30 days’ written notice.

MATURITY DATE 2006 2005

December 31, 2008 $ – $ 5,000June 30, 2009 – 28,500August 25, 2016 25,000 – $ 25,000 $ 33,500

13. CLASS C SHARES 2006 2005

Issued and outstanding Class C shares $ 39,133 $ 39,159

During 2003, the Credit Union issued a Disclosure Statement regarding the sale of Class C Shares – Series 1 at a price of $1.00 per Class C share. These non-voting, non-transferable shares receive a non-cumulative cash dividend equal to 6%.

The shares are redeemable on June 27, 2009 at their par value of $1.00 per share. The rights of claim of Class C shares ranks after claims of the depositors, certain other claims, and subordinated notes, but rateably with holders of Class B shares.

14. OTHER INCOME 2006 2005

General insurance commissions, net $ 19,926 $ 18,821Mutual and segregated fund commissions 16,736 14,771Account service charges 13,612 14,139Creditor and life insurance commissions 7,954 8,214Foreign exchange 4,234 3,301Loan processing fees 2,062 2,535Credit card commissions 1,956 1,814Safety deposit box rental income 1,112 1,081Securitization income (Note 6) 914 (67)Other 1,860 1,740 $ 70,366 $ 66,349



15. ADMINISTRATION EXPENSES 2006 2005

Assessments to CUCBC, Financial Institutions Commission $ 2,046 $ 1,728Assessments to Credit Union Deposit Insurance Commission 3,877 –Chequing service charges 3,390 3,112Marketing 6,400 6,587Capital taxes 3,525 3,160Bonding and other insurance 1,711 1,985Professional services and other 2,813 3,139Stationery, telephone, and postage 6,557 6,944Travel, meals, and entertainment 2,218 2,056Loan processing 1,890 1,796Courier 1,125 843Training and recruitment 817 896Sundry 5,069 5,591 $ 41,438 $ 37,837

16. STABILIZATION CENTRAL CREDIT UNION DIVIDEND

Stabilization Central Credit Union (Stab Central) is a central credit union under the Credit Union Incorporation Act and is owned by all of the credit unions of British Columbia. Stab Central had accumulated a depositor insurance fund but no longer needed to maintain the fund at its historic levels. In 2005, Stab Central declared dividends from retained earnings to all of the credit unions of British Columbia including dividends of $18,533 to CCS.

17. DEPOSIT INSURANCE ASSESSMENT

The Credit Union Deposit Insurance Corporation (CUDIC) is a statutory corporation continued under the Financial Institutions Act and has a mandate to guarantee deposits and non-equity shares of depositors’ of British Columbia’s credit unions. To maintain a deposit insurance fund, CUDIC is empowered to assess the credit unions on the basis of each individual credit union’s deposit balances. In 2005, CUDIC assessed all credit unions of British Columbia including an assessment to CCS of $19,516.

18. PROVISION FOR INCOME TAXES 2006 2005

Current income taxes $ 13,012 $ 8,044Future income taxes (2,140) 833 $ 10,872 $ 8,877

Income tax expense differs from the amount that would be computed by applying the federal and provincial statutory income tax rates of 34.1% (2005 – 34.9%) to income before income taxes. The reasons for the differences are as follows:

2006 2005

% OF PRE-TAX % OF PRE-TAX AMOUNT INCOME AMOUNT INCOME

Combined federal and provincial statutory income taxes $ 21,822 34.1 $ 19,511 34.9Reduction applicable to credit unions (10,160) (15.9) (5,627) (10.0)Change in estimate of tax rates 288 0.5 864 1.5Non-taxable dividend – – (6,462) (11.6)Large corporation tax – – 303 0.5Other (1,078) (1.7) 288 0.5Effective income tax rate $ 10,872 17.0 $ 8,877 15.9

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18. PROVISION FOR INCOME TAXES (CONTINUED)

The components of the future income tax asset, net are as follows: 2006 2005

Allowance for credit losses $ 9,642 $ 8,847Deferred revenue/prepaid expense 216 242Tax loss carry forwards 43 2Transition costs 802 906Employee future benefits 1,116 1,134Capital and intangible assets 39 160Other 945 (277)Future income tax asset, net (Note 9) $ 12,803 $ 11,014

19. COMMITMENTS AND CONTINGENT LIABILITIES

A) COMMITMENTS

Lease commitmentsCCS occupies premises under long-term leases extending to 2016. Aggregate basic annual lease payments are as follows:

2007 $ 9,0722008 7,8732009 5,9102010 4,1812011 3,353Subsequent years 8,672

Credit instrumentsCCS enters into various off-balance-sheet commitments such as letters of credit and loan commitments. These are not reflected in the Consolidated Balance Sheets. In the normal course of business,

many of these arrangements will expire or terminate without being drawn upon, and therefore the actual credit risk is expected to be less than the amounts set forth. Details of these are as follows:

2006 2005

Lines of credit, unfunded $ 1,176,240 $ 986,752Letters of credit 42,587 41,216

CCS, as part of its commercial lending services program, issues letters of credit and guarantees. These are issued in the normal course of business. CCS issues guarantees that commercial clients will perform certain work or services on behalf of third parties. Additionally, CCS may issue guarantees to facilitate commercial trade of goods and services between clients and third parties. CCS’ policy for requiring collateral security with respect to these instruments held is generally the same as for loans. As at December 31, 2006, all but $2,602 (2005 – $2,434) of the total letters of credit and guarantees issued were secured by deposits by the borrower with CCS. Management estimates that

there will be no losses under these obligations that require an allowance for credit losses.

B) CONTINGENCIES

CCS is involved in various claims arising in the normal course of business. CCS cannot state what the ultimate outcome of such matters will be; however, based on current information and knowledge, management considers that adequate provisions have been recorded in the consolidated financial statements in respect of claims issued. Management regularly assesses the adequacy of accruals for contingent liabilities.



20. INTEREST RATE SENSITIVITY POSITION

Interest rate risk results from differences in the maturities or repricing dates of interest rate sensitive assets and liabilities, both on and off the Consolidated Balance Sheets. The resultant mismatch, or gap, to which it is commonly referred, may produce favourable or unfavourable variances on interest margins depending

on the direction of the gap, the direction of interest rate movements, and/or the volatility of those interest rates. The maturity or repricing profiles change daily in the ordinary course of business as members select different terms of mortgages, member loans, and deposits.

FIXED-RATE TERMS NON- VARIABLE 0 – 3 4 – 6 7 – 12 1 – 3 3 INTEREST 2006 RATE MONTHS MONTHS MONTHS YEARS YEARS+ SENSITIVE TOTAL %

AssetsCash and investments – 604,412 56,978 171,271 175,489 2,500 119,243 1,129,893 3.60Loans 2,878,706 216,619 273,280 327,668 1,744,059 2,217,123 816 7,658,271 5.73Other assets – – – – – – 94,658 94,658 – 2,878,706 821,031 330,258 498,939 1,919,548 2,219,623 214,717 8,882,822 Asset yield 6.60% 4.40% 5.03% 4.92% 4.64% 4.98% – 5.40

LiabilitiesDeposits 1,560,512 1,839,096 704,032 1,962,502 1,053,220 923,362 317,397 8,360,121 3.41Other liabilities 183 – – – – – 86,598 86,781 – 1,560,695 1,839,096 704,032 1,962,502 1,053,220 923,362 403,995 8,446,902 Liability cost 1.10% 4.29% 3.94% 3.96% 4.12% 4.34% – 3.37Subordinated notes 25,000 – – – – – – 25,000 5.84Class C shares – – – – 39,133 – – 39,133 6.00 1,585,695 1,839,096 704,032 1,962,502 1,092,353 923,362 403,995 8,511,035 Total liability cost 1.18% 4.29% 3.94% 3.96% 4.19% 4.34% – 3.39

Members’ equityClass B shares – – – – – – 44,954 44,954Retained earnings – – – – – – 326,833 326,833 – – – – – – 371,787 371,787Balance-sheet mismatch 1,293,011 (1,018,065) (373,774) (1,463,563) 827,195 1,296,261 (561,065) –

DerivativesAssets – 50,000 – 250,000 265,000 100,000 – 665,000 4.05Liabilities – 615,000 – – – 50,000 – 665,000 4.34 – (565,000) – 250,000 265,000 50,000 – –Net mismatch 1,293,011 (1,583,065) (373,774) (1,213,563) 1,092,195 1,346,261 (561,065) –

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20. INTEREST RATE SENSITIVITY POSITION (CONTINUED)

FIXED-RATE TERMS NON- VARIABLE 0 – 3 4 – 6 7 – 12 1 – 3 3 INTEREST 2005 RATE MONTHS MONTHS MONTHS YEARS YEARS+ SENSITIVE TOTAL %

AssetsCash and investments – 778,679 49,794 146,927 225,330 10,000 112,738 1,323,468 3.00Loans 2,558,400 163,365 169,671 331,379 1,767,452 1,812,315 (13,716) 6,788,866 4.95Other assets – – – – – – 88,211 88,211 – 2,558,400 942,044 219,465 478,306 1,992,782 1,822,315 187,233 8,200,545 Asset yield 5.58% 3.33% 5.17% 5.03% 4.94% 4.76% – 4.58

LiabilitiesDeposits 1,661,666 1,329,084 446,654 1,956,480 1,194,475 1,024,592 123,246 7,736,197 2.76Other liabilities 159 – – – – – 70,399 70,558 0.01 1,661,825 1,329,084 446,654 1,956,480 1,194,475 1,024,592 193,645 7,806,755 Liability cost 0.78% 3.34% 2.78% 2.92% 3.98% 3.83% – 2.74Subordinated notes 33,500 – – – – – – 33,500 5.57Class C shares – – – – – 39,159 – 39,159 6.00 1,695,325 1,329,084 446,654 1,956,480 1,194,475 1,063,751 193,645 7,879,414 Total liability cost 0.85% 3.34% 2.78% 2.92% 3.98% 3.91% – 2.76

Members’ equityClass B shares – – – – – – 45,840 45,840Retained earnings – – – – – – 275,291 275,291 – – – – – – 321,131 321,131Balance-sheet mismatch 863,075 (387,040) (227,189) (1,478,174) 798,307 758,564 (327,543) –

DerivativesAssets – 20,000 – 200,000 270,000 140,000 – 630,000 3.63Liabilities – 610,000 – – 20,000 - – 630,000 3.05 – (590,000) – 200,000 250,000 140,000 – – Net mismatch 863,075 (977,040) (227,189) (1,278,174) 1,048,307 898,564 (327,543) –

In managing interest rate risk, CCS relies primarily upon its contractual interest rate sensitivity position adjusted for certain assumptions regarding customer behaviour preferences, which

are based upon historical trends. Adjustments made include assumptions relating to early repayment of loans and customer preferences for demand, notice, and redeemable deposits.



21. DERIVATIVE INSTRUMENTS

Gains and losses on both securities and derivative instruments used for hedging purposes are recognized in the Consolidated Statements of Income on the same basis and in the same period as the underlying hedged items.

A derivative will qualify as a hedge if the hedge relationship is designated and formally documented at inception, detailing the particular risk management objective and strategy for the hedge, the specific asset, liability or cash flow being hedged, as well as how effectiveness is being assessed.

Changes in the fair value of the derivative must be highly effective in offsetting either changes in the fair value of on-balance-sheet items or changes in the amount of future cash flows. The effectiveness of these hedging relationships is evaluated at inception of the hedge and on an ongoing basis,

both retrospectively and prospectively using quantitative statistical measures of correlation.

This hedge accounting will be discontinued prospectively when the derivative ceases to qualify as an effective hedge, and the fair value of the derivative will be recognized on the Consolidated Balance Sheet at that time. The amounts required to record the derivative at this fair value would be deferred and recognized in income as the hedged item affects net income. Subsequent changes in fair value will be recognized immediately in “Net interest income” until the derivative qualifies for hedge accounting again. The fair value at the time the derivative qualifies again will be recognized in income as the hedged item affects net income.

CCS has the following accrual accounted derivatives:

NOTIONAL NOTIONAL MATURITIES OF DERIVATIVES AMOUNTS AMOUNTS FAIR VALUES FAIR VALUES 0-12 MONTHS 1 – 3 YEARS 3 – 5 YEARS TOTAL 2006 TOTAL 2005 2006 2005

Interest rate swapsReceive fixed $ 250,000 $ 265,000 $ 100,000 $ 615,000 $ 550,000 $ (211) $ (2,008)Forward starting receive fixed – – – – 60,000 – 29Pay fixed – – 50,000 50,000 20,000 (380) (142)Total derivative contracts $ 250,000 $ 265,000 $ 150,000 $ 665,000 $ 630,000 $ (591) $ (2,121)

Notional amounts are the contract amounts used to calculate the cash flows to be exchanged. They are a common measure of volume of outstanding transactions, but do not represent credit or market risk exposure. Notional amounts are not exchanged.

Interest rate swaps are transactions in which two parties exchange interest flows on a specified notional amount for a predetermined period based on agreed-upon fixed and

floating rates. Index-linked swaps are transactions in which CCS manages its exposure to changes in the value of index-linked deposit products. Two parties exchange cash flows on a specified notional amount for a predetermined period based on the increase or decrease in an underlying stock market index versus a fixed interest rate. Notional amounts are not exchanged.

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22. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table represents the fair values of CCS’ financial instruments, including derivatives. The fair values of financial assets and liabilities with fixed interest rates have been determined using discounted cash flow techniques based on interest rates being offered for similar types of assets and liabilities with similar terms and risks as at the balance sheet date. The fair value of financial assets and liabilities with floating rates of interest is assumed to be equal to book value, as the interest rates on these instruments automatically reprice to market rates. Fair values of other financial assets and liabilities are assumed to approximate their carrying

values, principally due to their short-term nature. Fair values of derivative financial instruments have been based on market price quotations. No fair values have been determined for capital assets, or any other asset or liability that is not a financial instrument.

The undernoted fair values, presented for information only, reflect conditions that existed only at the respective balance sheet dates and do not necessarily reflect future value or the amounts CCS might receive or pay if it were to dispose of any of its financial instruments prior to their maturity.

2006 2005

BOOK VALUE FAIR VALUE DIFFERENCE BOOK VALUE FAIR VALUE DIFFERENCE

Assets:Cash resources $ 686,997 $ 686,776 $ (221) $ 856,886 $ 857,127 $ 241Investments 442,896 441,328 (1,568) 466,582 467,620 1,038Loans 7,658,271 7,624,868 (33,403) 6,788,866 6,776,238 (12,628)Other 12,198 12,198 – 7,859 7,859 – $ 8,800,362 $ 8,765,170 $ (35,192) $ 8,120,193 $ 8,108,844 $ (11,349)

Liabilities: Deposits $ 8,360,121 $ 8,361,866 $ 1,745 $ 7,736,197 $ 7,728,229 $ (7,968)Other 66,754 66,754 – 56,058 56,058 –Subordinated notes 25,000 25,000 – 33,500 33,500 –Class C shares 39,133 39,537 404 39,159 39,898 739 $ 8,491,008 $ 8,493,157 $ 2,149 $ 7,864,914 $ 7,857,685 $ (7,229)

Hedging derivatives – (591) (591) – (2,121) (2,121)


23. RELATED-PARTY TRANSACTIONS

At December 31, 2006, outstanding loans to directors, officers, and employees totalled $228,421 (2005 – $208,327), which included 1,506 mortgages totalling $212,086 and 1,959 other loans totalling $16,335.

During the year, directors received remuneration of $205 (2005 – $205). Directors do not receive or pay preferred rates on products and services offered by the credit union.

24. PENSION PLAN

CCS is a participating member of the British Columbia Credit Union Employees’ Pension Plan, a contributory defined-benefit plan.

As at December 31, 2003, the plan actuary reported that the plan had assets in excess of actuarial liabilities for accrued pension benefits. The plan actuary further reported that no change needed to be made at that time to the current level of employer contributions to the plan. The next actuarial review is scheduled for the period ending December 31, 2006 and should be available in September 2007.

Pension expense included in the Consolidated Statements of Income was $1,822 (2005 – $1,681).


25. BUSINESS COMBINATIONS

ACQUISITIONS

On July 1, 2005, CCIS acquired 100% of the outstanding shares of a general insurance agency in British Columbia for cash proceeds of $1,285. The results of the operations of the acquired business have been included in the consolidated financial statements since that date. The majority of the purchase price has been allocated to goodwill, the customer list, and an ICBC license.

On January 1, 2006, CCIS acquired 100% of the outstanding shares of a general insurance agency in British Columbia for cash proceeds of $1,578. The results of the operations of the acquired business have been included in the consolidated financial statements since that date. The majority of the purchase price has been allocated to goodwill, the customer list, and an ICBC license.

26. PURCHASE OF SMS NON-VOTING SHARES

Pursuant to the merger agreement with Surrey Metro Savings Credit Union (SMS) of June 27, 2002, CCS became obligated to purchase all SMS non-voting shares for $21.00 each. As at December 31, 2006, Computershare Investor Services held $9,223 (2005 – $9,310) in trust for 439,211 non-tendered shares (2005 – 443,319); $9,148 of these funds are placed with CCS. As of June 27, 2008, any unclaimed funds become the property of CCS.

B O A R D O F D I R E C T O R S

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Bill Wellburn, Board Chair DIRECTOR SINCE: 1992 RESIDENCE: VICTORIA

Areas of Expertise: • financial literacy • governance • strategic planning

Board Committees: • Human Resources

• Investment and Loan • Audit and Risk Management (ex officio) • Conduct Review (ex officio) • Governance and Member Relations (ex officio)

Mr. Wellburn, 59, is the Chair of the Board, a position he has held since 2000. He holds a BA from the University of Victoria and is a chartered accountant. Mr. Wellburn brings to the Board a broad range of business, accounting, and board experience. He has owned and managed his own businesses, including providing professional accounting and consulting services to clients. He has served on a variety of business and not-for-profit boards and is currently chair of the Provincial Capital Commission and a director of the Greater Victoria Harbour Authority. He was honoured with a Fellowship from the Institute of Chartered Accountants in 2006.

W. (Bob) Garnett, 1st Vice Chair DIRECTOR SINCE: 1985 RESIDENCE: RICHMOND

Areas of Expertise:• mergers and acquisitions • rapid growth management • finance and accounting

Board Committees: • Audit and Risk Management • Human Resources • Nominations and Election

Mr. Garnett, 58, is an independent businessman and an owner of Novex Couriers in Richmond and WPX Couriers in Seattle. Mr. Garnett and his partners also develop environmentally responsible industrial buildings in the Pacific Northwest. He has served on the boards of five public companies and the Richmond Gateway Theatre Society. He received a BA (Commerce) from Simon Fraser University and later received his chartered accountant designation. Mr. Garnett is an entrepreneur with significant corporate board experience and strong financial and corporate governance knowledge.

Christine BrodieDIRECTOR SINCE: 1993 RESIDENCE: RICHMOND

Areas of Expertise:• corporate governance • corporate social responsibility • community economic development

Board Committees: • Conduct Review • Governance and Member Relations

Ms. Brodie, 61, is a teacher consultant supporting out-of-school youth. She is a member of the District Autism Team. A California State University graduate, she also holds an MA (Education). Ms. Brodie serves on the boards of Co-operators Group and Coast Capital Savings Foundation, is chair of Kwantlen University College Foundation, and was previously a director of Credit Union Central of British Columbia. Ms. Brodie is actively involved in Rotary and is the past chair of Richmond Caring Place Society. She continues to be involved in educational opportunities related to director competencies, corporate social responsibility, and sustainability.

Karen Kesteloo, 2nd Vice Chair DIRECTOR SINCE: 1984 RESIDENCE: VICTORIA

Areas of Expertise:• finance and accounting • small/medium business management • corporate governance

Board Committees:• Audit and Risk Management • Investment and Loan

Ms. Kesteloo, 50, is a partner in the public accounting firm of Kesteloo and Busse CGAs and recently launched their ElderCare practice. Ms. Kesteloo holds the designations of certified general accountant and trust and estate planner. She is a governor of Royal Roads University, a director of the Pacific Christian School Foundation, and a past director of the Queen Alexandra Foundation for Children and the Pacific Coast Savings Foundation. She brings to the Board a strong focus on raising corporate governance standards and ensuring a healthy triple bottom line.

*Denotes Committee Chair


Daniel Burns DIRECTOR SINCE: 1994 RESIDENCE: VANCOUVER

Areas of Expertise: • legal • corporate governance • business management

Board Committees:• Audit and Risk Management • Governance and Member Relations* • Human Resources

Mr. Burns, 46, is an entrepreneur, conservationist, and lawyer. He is CEO of Myrmex Solutions Inc., a software development company, and CEO of BNW Travel Management Ltd., an Internet-based travel company. He graduated from the University of Western Ontario with a BA (Economics) and received an LL.B. from the University of British Columbia. Mr. Burns is the Board Chair for Credit Union Central of BC and a director of the Canadian Constitution Foundation and the British Columbia Committee of the Nature Conservancy of Canada. With a certified director designation (ICD.E) from the Institute of Corporate Directors, Mr. Burns brings excellent corporate governance skills to the Board.

Frank Harper DIRECTOR SINCE: 1995 RESIDENCE: SURREY

Areas of Expertise:• financial services • real estate • mergers and acquisitions

Board Committees: • Audit and Risk Management* • Governance and Member Relations

Mr. Harper, 65, is the President and Director of Sphere Financial Ltd., a private investment company. He holds a B.Com. (Honours Finance) from the University of British Columbia and is a chartered accountant. Mr. Harper has a successful track record as a senior executive and director of public and private corporations involved in financial services, real estate, merchant banking, and capital markets, both in Canada and internationally. In addition to a strong finance, accounting, and corporate governance background, Mr. Harper brings significant strategic planning, change management, risk management, product development, and marketing expertise to the Board.

Ken Martin DIRECTOR SINCE: 2004 RESIDENCE: SURREY

Areas of Expertise:• corporate social responsibility • ethical business practices • environmental sustainability

Board Committees: • Conduct Review* • Investment and Loan

Mr. Martin, 52, is the founder and senior partner of Passion for Action, a social enterprise that develops environmental sustainability and healthy living public outreach programs on behalf of corporations, local governments, and non-profit organizations. He is a board member of the West Panorama Ridge Ratepayers Association and the Environmental Education Action Program Society. Mr. Martin received an MBA from Simon Fraser University in 1998, and an Electronic Technology diploma from the BC Institute of Technology in 1975. A champion of community and environmental sustainability, he also brings to the Board expertise in mergers and Canadian banking technology through his experience with high-tech corporations.

Gordon Munn DIRECTOR SINCE: 1990 RESIDENCE: VICTORIA

Areas of Expertise:• finance and accounting • national credit union system

Board Committees: • Investment and Loan* • Conduct Review

Mr. Munn, 59, is a certified general accountant and holds a BA from the University of Victoria. He is an accountant for an endowed community charitable foundation. He is a past director of Stabilization Central of BC, Credit Union Central of BC, and Credit Union Central of Canada. He is also a board member of a local non-profit society that operates a halfway house for released prisoners. Mr. Munn embraces strong support for our communities and the co-operative and credit union system in Canada.

B O A R D O F D I R E C T O R S

*Denotes Committee Chair

55

Areas of Expertise: • social and ethical responsibility • environmental sustainability

Board Committees: • Conduct Review • Nominations and Election

Ms. Woods, 67, is a freelance writer. Her board experience includes three previous terms on the Coast Capital Savings Board from 1994 to 2003. Ms. Woods received a BA from the University of British Columbia. She has published four books of poetry and three novels, the latest being Beyond the Pale, and her plays and poetry have been broadcast on CBC Radio. She brings to the Board a strong background in and knowledge of literary, social, ethical, and environmental concerns.

Elizabeth Woods DIRECTOR SINCE: 2005 RESIDENCE: VICTORIA

Doug Stone DIRECTOR SINCE: 1994 RESIDENCE: WHITE ROCK

Areas of Expertise:• human resources management • corporate governance

Board Committees: • Nominations and Election* • Human Resources*

Mr. Stone, 62, retired as the Director of Operations for the City of White Rock in 2004 and owns a private consulting and television production firm. Mr. Stone is an active member of the community, having served on committees of the Air Canada Championship, White Rock Sea Festival, White Rock Food Bank, and Olympiad for the Physically Disabled. He received a BA (Parks and Recreation Administration) from San Jose State University. Mr. Stone brings to the Board a true community spirit and excellent human resource and corporate governance skills.

Mary Jane Stenberg DIRECTOR SINCE: 2005 RESIDENCE: LANGLEY

Areas of Expertise: • executive management • financial management

Board Committees: • Governance and Member Relations • Nominations and Election

Ms. Stenberg, 49, is the External Affairs Advisor for the Office of the President for Kwantlen University College and is the former owner and CEO of Stenberg College. She received an MA in Leadership and Training from Royal Roads University. She has extensive board experience, most recently with the College of Opticians of British Columbia. She has also been actively involved with the BC Career Colleges Association, Langley Chamber of Commerce, and Langley Stepping Stone Rehabilitation Association.

S E N I O R E X E C U T I V E


Mr. Craig leads the executive team in formulating strategy, establishing financial goals and objectives, and developing values and employee culture. He has more than 35 years of experience in the financial services industry and received a BA (Business Administration) from Washington State University. Mr. Craig is a board member of Credit Union Central of British Columbia and Chairman of the BC Business and Economic Roundtable on Mental Health.

Mr. Bushore identifies key business opportunities. He holds a BA (Economics) from Southern Methodist University, an M.Sc. (Economics) from the London School of Economics, and was a Rhodes Scholar Candidate at Oxford University. He is a Fellow of the Wharton Business School and Chairman of the Board of the Vancouver YMCA.

Mike BushoreSENIOR VICE PRESIDENT STRATEGIC PLANNING

Lloyd CraigPRESIDENT AND CHIEF EXECUTIVE OFFICER

Ms. Baker directs all aspects of information technology and systems relating to strategic planning, performance optimization, and information and knowledge management. With 32 years of experience in the financial services industry, Ms. Baker has held a number of key operational positions and has managed the credit union’s past merger integration initiatives.

Sheila BakerCHIEF INFORMATION OFFICER

Mr. Bessert oversees finance, treasury, enterprise risk management, institutional and agency deposits, and facilities administration. With a banking career spanning more than 25 years, Mr. Bessert was formerly the President and CEO of a private, fully-integrated real estate corporation and a TSX listed energy company.

Hermann BessertCHIEF FINANCIAL OFFICER

Ms. Ferguson identifies and develops key marketing strategies. She holds a B.Com. (Marketing) from the University of British Columbia. Her marketing team was named Marketer of the Year by the BC Chapter of the American Marketing Association in 2006. Ms. Ferguson is a member of the Conference Board of Canada’s Centre for Chief Marketing Executives.

Lawrie FergusonSENIOR VICE PRESIDENT MARKETING

Ms. Fordy provides leadership in developing and implementing human resource programs. She has a BA from McMaster University and a post graduate diploma in human resources from Humber College. Ms. Fordy is also a Certified Human Resources Professional (CHRP) and has held senior management positions in crown, private, and municipal corporations.

Jay-Ann FordySENIOR VICE PRESIDENT HUMAN RESOURCES

S E N I O R E X E C U T I V E

57

Ms. McNeill identifies corporate efficiencies and ensures operational guidelines are met within Coast Capital Savings. With more than 30 years of experience in the financial services industry, Ms. McNeill is a member of the Provincial and National Canadian ATM Exchange Network Governance Committees, an alternate member of the Interac Board, and serves on numerous advisory groups for Credit Union Central of British Columbia.

Mr. Hahn retired in February 2007 after 46 years of service in the financial services industry. He held executive roles with Surrey Metro Savings, Richmond Savings, and Credit Union Central of British Columbia. Through Mr. Hahn’s leadership in developing progressive human resources programs, Coast Capital Savings was recognized four times as one of the nation’s 50 Best Employers as rated by Hewitt Associates.

Ken Hahn SENIOR VICE PRESIDENT HUMAN RESOURCES

Nancy McNeillSENIOR VICE PRESIDENT ADMINISTRATION

Mr. Munson guides credit policy, adjudication, quality, and rehabilitation within the credit union. With more than 35 years of financial services industry experience, he has also held senior management positions with several Canadian banks. Mr. Munson holds a B.Sc. (Electrical Engineering) from the University of New Brunswick, as well as an MBA from the University of Western Ontario.

David MunsonCHIEF CREDIT OFFICER

Mr. Rosenberg manages the delivery of products and services for retail, commercial, leasing, investment, small business, and insurance operations. He has a B.Sc. (Computational Science) from the University of Saskatchewan and an MBA from Royal Roads University. Mr. Rosenberg was previously recognized by Computerworld magazine as one of the Premier 100 IT Leaders.

Joel RosenbergCHIEF OPERATING OFFICER

David BensonVICE PRESIDENT COMMERCIAL REAL ESTATE LENDING

David GaskinVICE PRESIDENT FINANCE

Guy GondorVICE PRESIDENT INFORMATION TECHNOLOGY

Sheena HanburyVICE PRESIDENT RETAIL SERVICES

Herb JamiesonVICE PRESIDENT RETAIL PERFORMANCE

Norm KrannitzVICE PRESIDENT TREASURY

Cyndie Kremyr VICE PRESIDENT PUBLIC AFFAIRS

Ian MaguireVICE PRESIDENT RETAIL SERVICES

Rod MarrSENIOR VICE PRESIDENT COMMERCIAL SERVICES

Ross MorrowVICE PRESIDENT RETAIL SERVICES

Ron PackVICE PRESIDENT RISK MANAGEMENT

Lynn RobertsVICE PRESIDENT PERFORMANCE ANALYTICS

Brenda ScottVICE PRESIDENT HUMAN RESOURCES

Tony WilliamsVICE PRESIDENT CORPORATE LEARNING

RETIRED

O P E R A T I N G E X E C U T I V E

Coast Capital Savings is Canada’s second largest credit union with $8.9 billion in assets, 360,000 members, and 49 branches located across the Greater Vancouver (Lower Mainland) and Vancouver Island regions of British Columbia. We were recognized by The Globe and Mail and Hewitt Associates as one of the 50 Best Employers in Canada and received our third consecutive Best Corporate Citizen award in Canada’s financial services industry from Imagine Canada. Coast Capital Savings also ranked among the country’s 50 Best Managed companies for the sixth time.

VISION

Yes, from Coast to coast. Demonstrates our commitment to growth and to remain a relevant and innovative financial services provider in Canada.

MISSION

Simple financial help recognizes our goal of providing easy-to-understand solutions to our members’ complex financial situations.

VALUES

Customer-centricWe put our customers’ needs first, and honour them with exceptional service and simple help – whether the customer comes from outside or inside Coast Capital Savings.

CitizenshipWe are responsible citizens in thought and in deed. We act with purpose to benefit customers, fellow employees, company, and community alike.

SpiritWe do everything with spark. Everyday.

PRODUCTS AND SERVICES

Personal - savings and chequing accounts (including Canada’s first free chequing account from a full-service financial institution), US chequing account, term deposits, RRSPs, RESPs, RRIFs, mutual funds, safety deposit boxes, mortgages, loans, lines of credit, credit cards, travellers cheques, foreign currency, drafts, lending insurance, telephone banking, online banking, ATMs, online brokerage, and mortgage brokerage centre.

Business - savings and chequing accounts, community chequing account for non-profit organizations, US chequing account, business credit card, merchant services, loans to small- and medium-sized businesses, equipment financing, interim lending and long-term mortgages, letters and lines of credit, ATM night depository, and automated funds transfer.

SUBSIDIARIES

Coast Capital Insurance Services Ltd. offers general insurance products including auto, home, travel, recreational, marine, business, and commercial insurance at 35 locations across Greater Vancouver and Vancouver Island. Marriage licenses are available at most offices. Specialized insurance staff also provide advice and service related to segregated funds, annuities, life insurance, and living benefits products.

Coast Capital Investments is Canada’s largest credit union-owned mutual fund dealer providing advice and service related to mutual funds and financial planning. Clients have access to more than 1,200 mutual funds and 94 investment professionals committed to helping them reach their financial goals.

Coast Capital Equipment Finance Ltd. specializes in leasing commercial and industrial equipment to clients located in Alberta through to Ontario. The company offers flexible, innovative, and competitive leasing plans combined with unparallelled customer service. Similar commercial leasing plans are available in British Columbia through Coast Capital Equipment Finance, a division of Coast Capital Savings.

C O A S T C A P I T A L S A V I N G S A T A G L A N C E

HEAD OFFICE

4th Floor, 15117 – 101 Avenue Surrey, BC V3R 8P7

T 604.517.7400 F 604.517.7405

CONTACT CENTRE

604.517.7000 (Greater Vancouver) 250.483.7000 (Greater Victoria) 1.888.517.7000 (Toll-free)

MAINLAND ADMINISTRATION OFFICE

1900, 13450 – 102 Avenue Surrey, BC V3T 5Y1

T 604.517.7000 F 604.517.7810

ISLAND ADMINISTRATION OFFICE

400, 645 Tyee Road Victoria, BC V9A 6X5

T 250.483.8100 F 250.483.8108

WEBSITE

www.coastcapitalsavings.com

AUDITORS

KPMG LLP Chartered Accountants P.O. Box 10426 777 Dunsmuir Street Vancouver, BC V7Y 1K3

DESIGN: Design One Graphics Group Inc. PHOTOGRAPHY: Dina Goldstein and Hans Sipma PRINTING: Hemlock Printers Ltd.

2007 ANNUAL GENERAL MEETING

Wednesday, April 25, 2007 at 5 pm (PT) River Rock Casino Resort 8811 River Road, Richmond, BC

Meeting available by webcast at www.coastcapitalsavings.com.

FEEDBACK

Send us your feedback on our 2006 Annual Report by completing our online survey at www.coastcapitalsavings.com.

TREES

WATERBORNE WASTES in kilograms

ENERGY

(000) BTU

WATER

in litres

ATMOSPHERIC EMISSIONS in kilograms

SOLID WASTE

in kilograms

71 37 16,682 46,778 1,140 588

ECO-AUDIT

This Annual Report was printed on recycled paper containing 100% post-consumer waste and saved the following:

Printed in Canada using vegetable-based inks.

C O R P O R A T E I N F O R M A T I O N

2006 ANNUAL REPORT

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