Banking for Everyone

SM

Annual Report

2013

Message From the

Chairman and President

Dear Valued Members:

Mobile Banking is a popular aspect of the eServices available to

We are happy to report 2013 was an excellent year for

our members. A total of 32,576 Schools members now access

Schools Financial Credit Union. Not only did we enjoy a year of

their Credit Union accounts via their smartphone or other

strong financial performance, we also made significant

mobile device — that’s almost 1/3 of our membership. During

enhancements to our product and service offerings.

2013, we made several enhancements to our Mobile Banking

One of our favorite mottos here at Schools is “Banking for Everyone.SM” Anyone who lives, works, worships or attends school in Sacramento County or its nine surrounding counties is eligible to join our Credit Union. Membership is also available to most educators in California and to relatives of current members. Banking for Everyone represents more than just our field of

apps to increase convenience and ease of use. Clearly, our most popular mobile feature was MobileCheck.SM Introduced in late 2012, MobileCheck enables members to deposit checks using their Android or Apple* device. By year-end, members had used MobileCheck to deposit 64,867 checks totaling $30,752,586 into their Schools accounts.

membership; it is both a challenge to our organization and a

Staying focused on Banking for Everyone, we know our

pledge to our members. At Schools, we understand that each

branches and ATMs are also important to our members. In 2013,

member is a unique individual with a personal approach to

we completed installation of an entire fleet of new-generation

managing their finances. This means we need to always strive to

ATMs. Our new machines no longer require envelopes for

provide a variety of quality products and services that are both

deposits. Members can set preferences for language and “fast

convenient and affordable. We also know we must keep pace

cash” amounts. ATM receipts now include images of deposited

with changes in our industry, our society and our community.

checks and bill count by denomination. In our branches, we

In modern times, enhancements to member service are often achieved through emerging technology. Our website, our online banking system and our mobile apps are all services we refer to as eServices. This is an important area of focus as we make every effort to meet growing member demand. Last year the Credit Union made a major leap forward by introducing SchoolsOnline,SM our state-of-the-art online banking system. SchoolsOnline enables our members to access their Schools accounts 24 hours a day from almost anywhere. From a personal computer, smartphone or other mobile device, members can view all of their accounts and transactions, transfer funds in multiple ways, pay bills, create budgets, set up email or text message eAlerts for their accounts and more. Member-oriented

continue to make upgrades to enhance the member experience. In 2013, we renovated our popular Laguna Branch, and more branch renovations are planned for 2014. But just as important, we pay close attention to the interactions between members and Schools staff. We conduct ongoing surveys to measure member satisfaction. The surveys ask members to grade us on a scale of one to five, with five being excellent. In 2013, the average member score was 4.71, which shows our members think our service is outstanding. We also measure service through an independent “mystery shopper” agency. During 2013, the Credit Union averaged a very high 95% member satisfaction rating. Our average rating was higher than the average for our Sacramento peers.

videos and FAQs explaining SchoolsOnline system features are

Banking for Everyone also means providing a variety of

easily accessible on our website. By the end of 2013, over 65% of

competitive products. We believe it is important to listen to our

our members had used our eServices in some capacity.

members and to develop products and product features our

Our Mission To provide members with better value and outstanding service. SM Our Vision To be California’s Premier Credit Union.

Core Values

Member Focused Every interaction should be conducted with the intent to delight the member being served. Anticipate, listen and follow through. Excellence Strive to be the best in everything we do. Take personal responsibility and fulfill commitments with a sense of urgency. Integrity Earn the trust of others by maintaining the highest standard of honesty, fairness and professionalism. Teamwork Share one vision. Achieve greater results by working together. Bring out the best in each other. Support one another. Continuous Improvement Be flexible. Seek new and better ideas. Respond quickly to opportunities. Respect Value the individual. Treat each person with dignity.

members want most. During 2013, Schools members benefited

promotes local community programs and events. Staff is also

from low-interest-rate loans for autos, homes and more.

active in the California Credit Union League’s Partners in

Throughout that time, Schools Financial Credit Union stood out

Education Program, providing financial literacy to high school

in the market as the low-cost leader. In July 2013, we introduced

students. Schools Financial Credit Union continues to co-sponsor

Platinum Rewards Visa.® Members can earn rewards points on

the News10/Esquire IMAX Teacher of the Year and Teacher of the

every Visa Credit Card purchase. Our Rewards Visa complements

Month awards. In addition, the Credit Union sponsors and

our credit card product line, which includes our already-popular

promotes the annual Run to Feed the Hungry, Children’s Miracle

Platinum Visa and Platinum Rebate Visa. Members can now

Network, student scholarships and other worthwhile causes

choose for themselves whether to receive the lowest rate

within our community.

possible (Platinum), cash back on their purchases (Rebate) or

Perhaps most important, Banking for Everyone means service to

reward points on purchases (Rewards). All of our credit card

our members. We never forget that our members are the reason

products offer competitively low interest rates.

Schools is a successful, thriving Credit Union. Without our loyal

Growth and financial success are two key indicators that our

and dedicated members, we would not exist. We extend a hearty

Banking for Everyone approach is working for the organization.

“thank you” to all our members.

Growth tells us we are providing attractive and competitive

In closing, we would also like to extend our appreciation to our

products and services. In 2013, total membership grew to

Board of Directors, the members of our Supervisory Committee,

113,098, Total Assets grew to $1,443,836,974 and Total Loans

our other volunteers and our staff. Together, we will continue to

Outstanding grew to $650,931,539. The financial success of the

provide our members with Banking for Everyone.

Credit Union indicates that we are managing our assets in a manner that is both prudent and efficient. Growth of our

Sincerely,

organization can only be achieved through consistent financial success. We are pleased to report 2013 ended with a Return on Assets (ROA) of 1.04%, while our Net Worth grew to $141,334,787. Another requirement for Banking for Everyone is participation within our community. Our branch staff regularly sponsors and

Eugene J. Houghton, Jr. Chairman

Jim Jordan President and CEO

*MobileCheck supports all Apple devices except iPad 1 and iPad 2.

Eugene J. Houghton, Jr. Chairman

Ronald E. Kramnic Vice Chairman

Board

of Directors Marie B. Smith

Gloria L. Ross

Dolores Bleekman

Emilio Martinez

Treasurer

Director

Secretary

Director

Theresa Matista Director

Supervisory

Report

Your Supervisory Committee is an oversight committee that works directly with the Credit Union’s Internal Audit and Security Department to ensure compliance with policies, procedures, rules and regulations. The Committee oversees the evaluation of Credit Union records for thoroughness and accuracy through routine audits, monitors the compliance of internal procedures and verifies security controls are being followed. The Committee members also participate in the monthly Board of Directors’ meetings, the semiannual strategic planning sessions and various other committees.

Supervisory

Committee Gregory A. Smith, CCUV Chairman

For an independent opinion, the Committee annually engages a certified public accounting firm to conduct an external audit. Based on our review of internal operations and the independent audit, we are pleased to report that your Board of Directors and staff continue to conduct business in a judicious manner and that your Credit Union remains financially strong.

George Bleekman Member

Diana Wyman Secretary

Foundation

in Education Our Credit Union was established by a group of teachers who embedded the importance of education into our foundation. Schools annually presents $6,000 to local colleges for the purpose of awarding financial assistance to students in our community. The following institutions of higher learning award scholarships on behalf of Schools Financial Credit Union: American River College Cosumnes River College Folsom Lake College Lake Tahoe Community College National University Sacramento City College Sacramento State University Sierra College Yuba College

Recognizing

Outstanding Teachers Together with News10 and Sacramento State University, Schools continues its support of the teaching profession through News10’s Teacher of the Month program. The program recognizes outstanding teachers monthly with a classroom presentation, a feature on a News10 broadcast and a $1,000 check from Schools. One stand-out recipient is selected as News10/Esquire IMAX Teacher of the Year and receives $5,000 from the Credit Union.

Elzira

Saffold 2013 News10/Esquire IMAX Teacher of the Year

Senior

Management

Tim Marriott EVP/CFO

Lisa Mackay

VP Human Resources and Compliance

Sandy Phares VP Real Estate

Cheryl Harris

SVP Member Services

Joni Scott

VP Planning and Corporate Development

Eric Lindstrom

SVP Information Services/CIO

Rochelle Smith

VP Audit and Security

Tom Kuang

VP Technology/CTO

Roy Worley

VP Marketing

Celebrating

25 Years With Schools It is with great pride that the Credit Union’s Board of Directors and Senior Management recognize 19 employees who each have the distinction of serving Schools members for 25 years or more. The contribution made by these individuals is invaluable to our organization.

(L-R) Linda Patterson, serving members since 1988 • Sandi Artesi, serving members since 1980 • Patricia Ortiz, serving members since 1977 • Connie Campas, serving members since 1979 • Sabina Hovermale, serving members since 1979 • Michael Price, serving members since 1987 • Cathie Brower, serving members since 1985 • Brenda Gipson, serving members since 1988 • Melia Peters, serving members since 1987 • Pam Hansen, serving members since 1976 • Andrea Eberly, serving members since 1988 • Greg Cosmos, serving members since 1988 • Holly Brown, serving members since 1984 • Rochelle Smith, serving members since 1978 • Howard Duck, serving members since 1984 • Sue Roedell, serving members since 1978 • Yolanda Sosa, serving members since 1985 • (Not pictured) Andrea Alonso, serving members since 1978 • Kathy Barth, serving members since 1983

Community

Giving

Banking for EveryoneSM doesn’t stop at checking and savings — it extends to public service activities to benefit those in the greatest need of affordable financial services. Schools members and staff generously assisted these organizations:

Making Strides Against Breast Cancer

Run to Feed the Hungry

We Welcomed Our 100th

American Heart Association Army of Angels California Black Expo CBS Radio Academic Rewards Program Children’s Miracle Network Children’s Receiving Home Credit Union Partners in Education Filipino Fiesta Greater Sacramento Urban League Honor a Hero, Hire a Vet Jessie Baker Special Olympics Kids Helping Kids Local Food Banks Making Strides Against Breast Cancer News10/Esquire IMAX Teacher of the Year News10 Teacher of the Month Run to Feed the Hungry Sacramento Cultural Hub Sacramento Pride Festival Sojourner Truth Multicultural Art Museum Spirit of Giving St. Hope Annual Fundraiser St. Paul Health and Informational Fair State Financial Literacy Fair Volunteer Income Tax Assistance Program (VITA)

Baby in the Workplace Schools Financial Credit Union has a program unique to fewer than 200 companies* in the United States. In 2001, the Credit Union’s Board of Directors implemented Babies in the Workplace, allowing new mothers and fathers to bring their infants to work until the child is six months old or crawling. The program has been an exceptional success for parents and the Credit Union. A milestone of 100 babies was celebrated in 2013! *According to Parenting in the Workplace Institute (PIWI). Random order: Vanesa Babic and Mia, Renee Barragan and Lilly Hope, Andrew Carey and Nicholas, Lea Caudle with Blake and Cameron, Melinda Conejo-Fingerlos and Gabriella, Angela Edmiston with Sophia and Enzo, Theresa Estorga and Emilio, Jenny Fulton and Olivia, Dara Gibbs with Tayah and Trey, Christal Guo and Royce, Sharlon Harris and Skyler, Chay Her and Jonathon, Eric and Kristine Hernandez with Ethan, Sherman Ignacio and Serena, Angelina Jacobo and Leo, Linda Khang and Grace, Karla Lindsey with Maya and Alana, Janet McColley with Madison and Morgan, Kristy Montero with Ryan and Kristian, Shelli Murray and Liam, Benjamin Oneto and Tyler, Heather Paul and Katie, Angela Salgado and Scarlet, Hailee Shannon and Christopher, Eula Shedrick and Joshua, Erik Sordahl with Kade and Payton, Amber Steeves with Aubrey and Brock, Otis Sutton and Otis Jr., Cheryl Toon and Lilliana, Mandy Uppal and Tarun, Jason Wohlwend and Rhys, Keri Wong and Savanna, Tina Xiong and Jayson, Randy Miller and Aaron

Treasurer’s

Report

Ongoing financial success is key in Schools Financial Credit Union’s ability to provide Banking for Everyone.SM There are many benefits to financial success. It enables the Credit Union to sustain and enhance our quality products and services, to provide outstanding member service through a properly trained staff, and to maintain our market position as a low-cost leader within our community. Financial success gives our members confidence in the Credit Union knowing their assets are well-managed. It gives the Board of Directors the resources to make necessary capital improvements and to embrace emerging technologies. I am pleased to report another year of excellent financial performance for Schools Financial Credit Union. Financial success for an organization such as ours can be measured in many ways, including growth, revenue, expense control, quality assets and adequate reserves. In 2013, Schools achieved success in all of these key financial areas. Return on Assets (ROA) is an important measurement for all financial institutions. In many ways, it is an indicator of how well the Credit Union manages member assets. Within the credit union industry, a 1.00% ROA is the benchmark for defining financial excellence. Schools Financial exceeded that mark in 2013 by achieving a 1.04% ROA, an improvement over the 1.02% ROA the Credit Union attained in 2012. Good financial results provide credit unions with greater opportunities to enhance services and increase Reserves. In 2013, the Board of Directors also chose to increase Reserves; Net Worth grew by 11.6%, from $126,595,154 in 2012 to $141,334,787 in 2013. Continued growth in Net Worth helps ensure the Credit Union will be able to weather financial ups and downs — like the recent recession — without having to reduce the services available to our members. Schools Financial Credit Union also benefited from healthy growth in other key areas. Membership grew to 113,098, Total Assets increased to $1,443,836,974 and Total Loans Outstanding grew 4.53% to $650,931,539. Growth in key financial areas is an indication the Credit Union has the market presence and resources to continue to achieve solid financial

results. Calendar year 2013 was marked by a recovering, yet cautious, economy. Schools Financial Credit Union experienced increases in most loan types, with outstanding vehicle loan growth of 9.69%. While the Credit Union was successful in meeting new market demand for loans, members enjoyed another year of very low interest rates on loans. The challenge of a low-interest-rate environment is that it puts downward pressure on income from loans and investments. Schools Financial Credit Union overcame this challenge in 2013 through well-managed expense control. Total Expenses decreased from $42,102,944 in 2012 to $38,568,624 in 2013. Non-Interest Expenses as a percentage of Average Assets declined from 2.63% in 2012 to 2.58% in 2013. These results are even more impressive when compared to the National Credit Union Administration’s Industry Peer Group expense ratio of 3.19%. The bulk of this decline in expenses was a result of our high-quality loan portfolio. In 2013, Loan Delinquency dropped to 0.44% and the net Loan Charge-off ratio fell to 0.53%. Members can feel secure knowing their Credit Union's assets are used to fund high-quality loans, which perform very well even in tough economies. The continued financial success of our organization can also be seen in the new products and services introduced in 2013. These include SchoolsOnline,SM our new online banking system; MobileCheck,SM the service that enables members to deposit checks using a mobile device; our introduction of the Rewards Visa® Credit Card; and much more. These new services will contribute to increased member convenience. In closing, I thank our members whose sustained loyalty is the primary reason for our success. I commend our Board of Directors, Supervisory Committee and staff for the excellent management and leadership they have provided our organization. Sincerely,

Marie B. Smith, Treasurer

Year-to-Year

Comparison Description Number of Members Total Assets Total Loans Outstanding Vehicle Loans Real Estate Loans Unsecured Loans Miscellaneous Loans Total Deposits Shares Share Drafts Super$hares/Premier Money Market Share Certificates IRAs Deferred Compensation

2013

2012

Percentage Increase/(Decrease)

113,098 $1,443,836,974 650,931,539 293,427,758 270,797,265 84,439,750 2,266,766 1,291,399,503 347,710,447 219,607,298 512,477,939 116,213,596 89,400,287 5,989,936

111,515 $1,405,847,219 622,693,931 267,509,449 269,441,234 83,546,494 2,196,754 1,261,009,852 297,446,969 199,178,046 537,812,807 126,857,091 93,264,973 6,449,966

1.42% 2.70% 4.53% 9.69% .50% 1.07% 3.19% 2.41% 16.90% 10.26% (4.71%) (8.39%) (4.14%) (7.13%)

December 31, 2013 Balance Sheet Assets: Loans (net) Cash and Investments Accrued Interest Receivable Prepaid Expenses, NCUSIF and Other Assets Fixed Assets (net) Total Assets

33,977,760 22,461,366 $1,443,836,974

Liabilities: Member Shares Accounts Payable Notes Payable Dividends Payable Accrued Liabilities Total Liabilities

$1,291,399,503 4,797,087 0 553,094 5,416,004 $1,302,165,688

Equity: Unrealized Gains on Available-for-Sale Investments Reserves Total Equity Total Liabilities and Equity

$336,499 141,334,787 $141,671,286 $1,443,836,974

$646,876,124 736,330,638 4,191,086

Income Statement Income: Interest on Loans Interest From Investments Non-Interest Income Total Income From Operations: Expenses: Dividends and Interest Paid Operating Expenses: Salaries and Benefits Insurance Data Processing Educational Expenses Occupancy Expenses Supplies League, State and Audit Fees Outside Servicers Communications Other Operating Expenses TOTAL OPERATING EXPENSES Provision for Loan Loss Miscellaneous Interest Expense TOTAL EXPENSES Net Income From Operations Non-Operating Gain/(Loss) NET INCOME

$29,302,057 9,683,705 15,337,392 $54,323,154

% of Gross Income 53.94% 17.83% 28.23% 100%

$3,052,187

5.62%

$20,855,071 367,213 3,217,080 624,981 3,099,331 1,404,918 302,740 5,275,955 506,003 1,063,145 $36,716,437 ($1,200,000) 0 $38,568,624 $15,754,530 ($1,014,897) $14,739,633

38.39% .68% 5.92% 1.15% 5.71% 2.59% .56% 9.71% .93% 1.95% 67.59% (2.21%) 0.00% 71.00% 29.00% (1.87%) 27.13%

Krysty and Nyack Emery Members since 2007

Products/

Checking Products

CO-OP Network of ATMs CO-OP Shared Branching Credit Union Direct Lending® Dental Benefits MaxTM Domestic Wire Transfers Loan by Phone

Home equity loans and lines of credit Line of Credit Platinum Visa® Credit Cards Share and certificate secured loans Signature loan

Banking for Everyone CheckingSM account Interest Checking account Premier Money Market Checking account

Savings & Investment Products Banking for EveryoneSM Savings account Banking for YouthSM account Deferred Compensation certificates and share accounts Holiday Savings Club account Individual Retirement Accounts (IRAs) and certificates Opt-Up and Add-On Premium Rate Certificates Premier Money Market account Premium Rate Certificates Summer Reserve account Super$hare account

Custom Packages Banking for EveryoneSM Savings account package Educator RewardsSM Senior Saver ClubSM Teen Package

Loan Products Auto and other vehicle loans Computer loan Educator loans First mortgage loans

Online & Automated Services

Services

Schools Financial Services Corporation

Android app Apple app Audio Teller Automatic transfer BillPay Defer-A-Pay Direct deposit eAlerts eStatements Mobile Banking and Mobile BillPay MobileCheckSM Payroll deduction SchoolsOnlineSM Virtual receptionist Visa® Check Card Visa® eStatements

Investment and insurance services Securities offered through LPL Financial, Member FINRA/SIPC. Insurance products offered through LPL Financial or its licensed affiliates. The investment products sold through LPL Financial are not insured Schools Financial Credit Union deposits and are not NCUA insured. These products are not obligations of Schools Financial Credit Union and are not endorsed, recommended or guaranteed by Schools Financial Credit Union or any government agency. The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible. Schools Financial Credit Union and Schools Financial Services Corporation are not registered broker/dealers and are not affiliated with LPL Financial.

Other Services American Express® Travelers Cheques BALANCESM Financial Fitness

Branch Locations

and More

Calvine Pointe Branch

Fruitridge/Freeport Branch

Natomas Branch

8848 Calvine Road, Suite 110 Sacramento, CA 95828

1631 Claudia Drive Sacramento, CA 95822

2051 Natomas Crossing Drive Sacramento, CA 95834

College Greens Branch

Laguna Branch

Orangevale Branch

8725 Folsom Boulevard Sacramento, CA 95826

8255 Laguna Boulevard, Suite 180 Elk Grove, CA 95758

6000 Main Avenue Orangevale, CA 95662

Folsom Branch

Madison Branch

Placerville Branch

1010 Riley Street, Suite 5 Folsom, CA 95630

5210 Madison Avenue Sacramento, CA 95841

4278 Golden Center Drive, Suite 100 Placerville, CA 95667

Roseville Branch 1601 Douglas Boulevard Roseville, CA 95661

Yuba City 1055 Gray Avenue Yuba City, CA 95991

Member Contact Center, Loan by Phone and Audio Teller

SchoolsOnline and Mobile Banking

Administrative Offices*

916-569-5400 (Sacramento area) • 800-962-0990

schools.org

1485 Response Road, Suite 126 Sacramento, CA 95815 *No ATM or transactions performed.

Connect with us Your savings federally insured to at least $250,000 and backed by the full faith and credit of the United States Government. National Credit Union Administration, a U.S. Government Agency.

Cover: (Top L-R) Krysty and Nyack Emery, members since 2007 • Brent, Stephanie, Meyer and Emery Lathe, members since 2003 • Deana and Fitzgerald Williams, members since 2002 (Bottom L-R) BJ, Jessica and Jameson Crone, members since 2000 • Bryce Vernon, member since 1970 • Brian, Darla, Emily and Jane Fishback, members since 2004

PRSRT STD U.S. POSTAGE

PAID

SACRAMENTO, CA PERMIT NO. 837

Banking for EveryoneSM

Schools’ Annual Meeting Sunday, March 16, 2014 2:00 p.m. to 4:00 p.m. Schools Orangevale Branch 6000 Main Avenue Orangevale, CA 95662 Join the Board of Directors, Supervisory Committee and Management for an informative presentation before a catered lunch is served. Please RSVP to 916-569-2001 or 800-962-0990, ext. 2001 by March 10, 2014.

Brent, Stephanie, Meyer and Emery Lathe Members since 2003