Federally insured by the NCUA

Annual Report 2017Executive Committee

Dick Woo, ChairJoe LePla

Alan LedermanRussell Rosendal

Supervisory CommitteeBen Steiner, ChairAnnette MurphyCatherine Bailey

Chris GrantJohn Zielonka

Asset/Liability CommitteeAlan Lederman, Chair

Brian LuongAli Seals

Russell RosendalRandy Cloes

Bob SchweigertGeoff Swarts

Michelle Purnell-Hepburn

Governance CommitteeJoe LePla, ChairAlan LedermanAnnette Murphy

Brian LuongDick WooJamie Lee

Sharon DooleyChris Grant

Sharon Dooley Chris Grant

Dick WooChair

Alan Lederman Brian Luong

Russell RosendalPresident & CEO

Geoff SwartsSVP, Chief Risk Officer

Skott PopeSVP, Chief Retail Banking Officer

Bob SchweigertSVP, Chief Lending Officer

Sheryl KirchmeierSVP, Chief Marketing

Officer

Annette Murphy

Jamie Lee

Board of Directors

Salal Senior Staff

Joe LePlaVice Chair

Randy Cloes, cmaSVP, Chief Financial Officer

Tara SeeverSVP, Chief Human Resources Officer

Chairman’s MessageDICK WOO, CHAIR, BOARD OF DIRECTORSThroughout this past year, we continued to live up to Salal’s vision of unlocking financial opportunities for members and helping fulfill their dreams. 2017 was another year of significant milestones and strong growth for our credit union.

We invested in new technology, including the launch of Apple Pay, Samsung Pay, and Android Pay, to enhance member experience and better serve their banking needs. We developed innovative new products, such as Custom Fit Home Equity, helping many members tap into the equity in their home. In the coming year, we will introduce a new lending system to improve user experience for dealers, as well as launching a much more robust mobile and online banking system.

We continued to focus on growing our niche business lines and building a culture that supports successful recruitment and retention of engaged employees. We expanded our Dealer Direct program into more states to help members across the country finance solar energy and other home improvements. We also

conducted employee feedback surveys and focus groups with the goal of making Salal an even better place to work.

We continued to proudly and successfully serve Washington’s cannabis industry. In 2014, following voter approval of Initiative 502, we established our cannabis banking program with the goals of promoting public safety, assisting government agencies in industry monitoring, and serving the individuals and businesses in our communities. Despite recent uncertainties at the national level, we continue to work closely with elected representatives and regulators to provide necessary banking services for the cannabis industry.

On behalf of the Salal Board of Directors, I want to acknowledge our members and the hard-working staff for their support and trust during the past year. We are grateful for the opportunity to represent you and look forward to our continued growth and success in the years ahead.

President’s MessageRUSSELL ROSENDAL, PRESIDENT AND CEOOur 69th year as a credit union was a significant one, not only for the successes we achieved, but for the steadfast dedication of Salal employees to providing superior service and expanding the benefits and value we bring to members. We celebrated a major milestone—surpassing the $500M mark in assets for the first time. Perhaps even more impressive is the fact that since the end of 2007 we have grown 119%.

We ended 2017 with over $536M in assets. Loan balances were up 18%. Deposit balances were very strong—up 8% to end with a record total of $434M. We closed the year with $3.8M in net income from operations and exceeded our goals with a .77% return on assets.

This success has enabled us to improve and expand the products and services we provide our members and support our community. In 2017 we helped over 5,000 members in 15 states improve their homes with energy efficient solar power, roofing, windows, and heating systems. We launched a Nurses’ Mortgage program to complement our existing Physicians’

Mortgage program. Salal Business Services delivered banking solutions to hundreds of business members and continued its pioneering service to Washington’s legal cannabis industry. We also launched 24/7 call center access and instant issue debit and credit cards to help members get the service they need when they need it. For our community, we continue to honor our pledge to give 5% of our income to support important causes, especially supporting educational goals of healthcare workers and the important work of healthcare organizations. And finally, we sold our current headquarters building in 2017 as we prepare to move to our new location in the Northgate neighborhood.

I am proud of what we achieved this year, and am excited about our plans for the year to come. I thank our Board of Directors and management team for playing an instrumental role in the success of 2017. And most importantly, I thank our members. It has been an honor to serve you, and we look forward to helping you achieve your financial goals in 2018.

Supervisory Committee ReportBEN STEINER, CHAIR The mission of the Supervisory Committee is to oversee the operations of the Credit Union to protect the investments of its members. The Committee meets with management staff, independent external auditors and governmental examiners to ensure the Credit Union operates in compliance with the requirements of state and federal regulatory agencies.

The Supervisory Committee meets regularly with management staff to review and evaluate the Credit Union’s operating policies; ensure internal controls are defined, effective and followed; review and recommend policy changes to the Board, and ensure sound operating procedures are adhered to in accordance with established policies.

The committee works with the Credit Union’s internal auditor to make certain the activities of the internal audit department are

reported to the Board of Directors. The committee also serves as the Board’s liaison with the independent auditors in carrying out the annual opinion audit as well as reporting the auditors’ findings and recommendations to Credit Union members at the annual meeting. In our 2016 audit, our independent auditors, Moss Adams LLP, CPAs, issued an unqualified opinion.

The Supervisory Committee finds the reporting and operating procedures of the Credit Union, as well as the actions and policies of the Board of Directors, Committees and Management, to be in compliance with applicable laws and regulations.

($ In 000’s, Unaudited)

ASSETS YE 2017 YE 2016 YE 2015Cash and Cash Equivalents $15,007 $30,656 $9,847 Investments 68,167 75,674 86,121

Loans to Members 426,452 361,487 332,331

Less: Allowance for Loan Losses (6,814) (6,114) (5,715)

Loans, net 419,638 355,373 326,616

Fixed Assets, net 25,101 25,896 4,140

Federal Share Insurance Fund Deposit 3,538 3,276 3,058

Other Assets 5,214 4,335 4,178

Total Assets $536,665 $495,210 $433,960

LIABILITIES & MEMBERS’ EQUITYMember Shares $118,503 $107,465 $92,232

Checking Shares 136,813 120,551 88,319

Premium Plus Shares 107,898 103,058 105,713

Share Certificates 71,693 73,273 77,592

Total Deposits $434,907 $404,347 $363,856

Borrowings $36,051 $36,834 $23,000

Other Liabilities 11,443 10,850 8,030

Reserves, Undivided Earnings & Other 54,264 43,179 39,074 Comprehensive Income

Total Liabilities & Members’ Equity $536,665 $495,210 $433,960

STATEMENT OF INCOMEInterest on Loans to Members $20,533 $18,249 $16,272

Interest on Investments 1,412 1,164 1,047& Cash Equivalents

Total Interest Income $21,945 $19,413 $17,319

Dividends Paid to Members $810 $740 $698

Interest on Borrowings 738 543 314

Total Dividend and Interest Expense $1,548 $1,283 $1,012

Net Interest Income $20,397 $18,130 $16,307

Provision for Loan Losses (1,884) (1,865) (3,077)

Net Interest Income After Provision $18,513 $16,265 $13,230 for Loan Losses

Fee and Other Income $8,121 $6,705 $8,304

Gains on Investment Activity 0 10 8

Total Non-Interest Income $8,121 $6,715 $8,312

Employee Compensation and Benefits $ 12,836 $11,405 $9,650

Operations 7,484 5,433 4,603

Occupancy 2,562 2,114 2,044

Total Non-Interest Expense $22,882 $18,951 $16,297

Income from Operations 3,752 4,028 2,448

Proceeds from sale of building 7,170 2,797

NET INCOME $10,922 $4,028 $5,245Reclassification—Certain reclassifications have been made to conform to the current-year presentation.The reclassifications had no impact on previously reported net income or members’ equity.Audited financial statements are available upon request.