Auswide Bank
Annual Report 2015

Plain-text annual report

A SOLID PLATFORM FOR FUTURE GROWTH 2015 ANNUAL REPORT CONTENTS Performance Highlights Australia’s Newest Bank Chairman’s Report Managing Director’s Report Strategic Direction Shareholder Value Retail Banking Business Banking Third Party Mortgage Broker Alliances Our People Technology Investment Community Risk and Compliance Culture Board of Directors 2 4 6 8 11 12 15 16 19 20 23 24 27 28 Leadership Team Directors’ Statutory Report Auditor’s Independence Declaration Consolidated Statement of Profit or Loss and Other Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity Notes to the Consolidated Financial Statements Directors’ Declaration Independent Auditor’s Report Corporate Governance Summary Shareholder Information Financial Glossary 30 32 44 45 46 47 48 50 88 89 91 93 96 PERFORMANCE HIGHLIGHTS Auswide Bank’s improving financial performance in 2014/15 was supported by significant progress in strengthening and repositioning the business. LENDING HOME LOAN SETTLEMENTS 60 60 60 50 50 50 40 40 40 30 30 30 20 20 20 10 10 10 0 0 0 . . , . , 5 9 5 0 9 5 4 9 0 9 4 0 5 9 4 9 9 5 9 9 , , 5 1 9 3 9 , $ 9 1 3 , 1 $ 3 $ , . , 1 6 . 1 5 6 8 1 . 5 6 0 8 5 6 0 8 3 0 6 8 3 6 9 8 3 4 9 8 $ 4 9 $ 4 $ , , , , Jul Jul Jul . 2 8 2 2 8 2 3 . 2 8 1 , 3 . 5 2 1 2 3 , 5 9 1 2 , , 5 0 9 2 3 9 0 $ 3 0 $ 3 $ , , . . 8 9 8 3 9 8 4 9 3 9 4 . , 3 1 9 1 4 , 7 9 1 , 1 5 , 1 7 3 1 , 5 $ 7 3 , 5 $ 3 $ Aug Aug Aug . 2 9 2 4 9 2 8 . 9 4 7 , 8 . 2 4 7 0 8 , 2 2 7 0 , , 2 2 2 0 2 2 $ 2 2 2 $ 2 $ , , 1 0 1 . 3 0 7 1 . 0 3 2 , 7 . 5 3 2 2 7 , 5 2 2 2 5 2 2 4 2 2 2 $ 4 2 $ 4 $ , , , , Sep Sep Sep . 8 0 8 6 0 8 9 . 0 6 7 , 9 . 1 6 7 5 9 , 4 1 7 5 , , 0 1 4 5 3 0 4 $ 3 0 $ 3 $ , , . . , . , 5 3 5 8 3 5 5 8 3 0 5 8 9 0 5 9 9 0 4 9 , , 9 1 4 3 9 , $ 1 4 3 , 1 $ 3 $ , . , 1 9 . 1 9 9 6 1 . 9 9 2 6 9 4 2 6 2 4 2 5 2 4 8 5 2 2 8 5 $ 2 8 $ 2 $ , , , , . . 2 6 2 9 6 2 8 9 6 2 8 . , 7 9 2 7 8 , 4 7 2 7 , , 1 7 4 3 7 , $ 1 4 3 , 1 $ 3 $ . . . , 8 8 8 4 8 8 2 4 8 8 2 4 0 8 2 1 , 8 0 0 , 1 , 0 2 0 3 1 , 0 2 $ 3 2 $ 3 $ , 6 2 6 . 1 2 1 6 . 3 1 2 , 1 . 6 1 3 3 1 , 6 3 8 3 6 8 8 3 3 8 8 $ 3 8 $ 3 $ , , , , Oct Oct Oct Nov Nov Nov Dec Dec Dec , . , 7 5 7 . 6 5 7 3 . 6 5 2 3 6 4 2 3 0 4 2 8 0 4 2 8 0 3 8 2 $ 3 2 $ 3 $ , , , , , 7 7 . 7 3 7 6 7 . 3 8 7 6 . , 3 9 8 6 8 9 8 0 8 9 3 0 8 3 0 3 $ 3 3 $ 3 $ , , , , Jan Jan Jan 1 6 . 1 9 6 1 1 . 5 9 6 , 1 . 0 9 5 2 1 , 0 5 2 2 0 8 2 2 2 8 2 $ 2 8 $ 2 $ , , , , . . . , 2 5 2 8 5 2 9 8 5 4 9 8 5 4 9 7 , 5 3 4 7 , , 2 5 3 3 7 , 2 3 $ 3 2 $ 3 $ , . . 0 0 0 8 0 0 2 0 8 8 2 . , 7 8 8 0 2 , 7 0 8 0 , , 7 4 0 0 4 0 4 $ 4 4 $ 4 $ , , . . 6 8 6 3 8 6 3 3 8 9 3 . , 7 3 9 1 3 , 7 7 9 , 1 2 , 7 7 3 1 , 2 $ 7 3 , 2 $ 3 $ . . . , 2 8 2 2 8 2 2 2 8 4 2 2 8 4 2 2 , 8 4 1 , , 2 8 8 1 2 2 , 8 $ 1 , 2 8 $ 2 $ 4 7 . 4 2 7 7 4 . 3 2 7 7 , . 9 2 3 4 7 , 9 3 3 4 9 5 3 4 3 5 3 $ 3 5 $ 3 $ , , , , 1 0 1 . 3 0 9 1 . 0 3 5 9 . , 3 1 5 7 9 , 0 1 5 7 , , 9 1 0 7 3 , 9 0 $ 3 9 $ 3 $ , 5 1 . 5 0 1 9 5 . 0 9 1 . 9 , 0 7 9 3 9 , 7 6 9 3 , , 7 2 6 3 3 6 2 $ 3 2 $ 3 $ , , . . . , 9 2 9 6 2 9 6 6 2 2 6 6 0 2 6 3 , 0 2 1 , , 3 8 0 1 2 3 , 8 $ 1 , 2 8 $ 2 $ . , 7 5 7 . 9 5 5 7 . 9 4 5 5 9 2 4 5 7 , 4 2 4 7 , , 3 2 4 4 7 , 3 4 $ 4 3 $ 4 $ , Feb Feb Feb Mar Mar Mar Apr Apr Apr May May May Jun Jun Jun 2013/2014: $365,183,721.72 2013/2014: $365,183,721.72 2013/2014: $365,183,721.72 2014/2015: $450,518,974.58 2014/2015: $450,518,974.58 2014/2015: $450,518,974.58 LOANS PORTFOLIO s n o i l l i B 3.0 2.8 2.6 2.4 2.2 2.0 1.8 1.6 1.4 1.2 1.0 , 0 0 0 7 3 8 4 5 2 2 $ , , , 0 0 0 9 7 9 2 7 2 2 $ , , , 0 0 0 5 6 9 8 7 2 2 $ , , , 0 0 0 3 7 3 0 3 2 2 $ , , , 0 0 0 8 4 4 9 2 2 2 $ , , , 0 0 0 6 4 5 7 9 1 2 $ , , , 0 0 0 0 4 1 9 2 2 2 $ , , , 0 0 0 3 2 9 2 9 1 2 $ , , , 0 0 0 5 7 9 3 2 2 2 $ , , , 0 0 0 6 9 2 1 7 2 2 $ , , , 0 0 0 2 2 1 0 3 3 2 $ , , Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Jun 14 Dec 14 Jun 15 Home loan settlements increased 23.4% compared with 2013/14. Auswide Bank’s loan book grew by 4.8% to $2.33 billion. LOANS ARREARS LOANS ARREARS LOANS ARREARS LOANS ARREARS 50 50 50 50 LOANS ARREARS m m $ m $ m $ $ 40 40 40 40 30 30 30 30 20 20 20 20 10 10 10 10 0 0 0 0 $20.2 $20.2 $20.2 $20.2 $7.3 $7.3 $7.3 $7.3 $15.5 $15.5 $15.5 $15.5 Jun 14 Jun 14 Jun 14 Jun 14 $19.6 $19.6 $19.6 $19.6 $13.5 $13.5 $13.5 $13.5 $15.4 $15.4 $15.4 $15.4 $5.7 $5.7 $5.7 $5.7 $10.8 $10.8 $10.8 $10.8 Sep 14 Sep 14 Sep 14 Sep 14 $4.3 $4.3 $4.3 $4.3 $12.1 $12.1 $12.1 $12.1 $2.6 $2.6 $2.6 $7.9 $2.6 $7.9 $7.9 $7.9 Dec 14 Mar 14 Dec 14 Mar 14 Mar 14 Dec 14 Dec 14 Mar 14 30–60 days past due 30–60 days past due 30–60 days past due 30–60 days past due 60–90 days past due 60–90 days past due 60–90 days past due 60–90 days past due Past due over 90 days Past due over 90 days Past due over 90 days Past due over 90 days $11.9 $11.9 $11.9 $11.9 $3.2 $3.2 $3.2 $7.2 $3.2 $7.2 $7.2 $7.2 Jun 15 Jun 15 Jun 15 Jun 15 Total loan arrears greater than 30 days past due have fallen from $87.9m in June 2013 to $22.3m in June 2015 2 / ANNUAL REPORT HOMELOAN ORIGINATION HOMELOAN ORIGINATION HOMELOAN ORIGINATION HOME LOAN ORIGINATION Regional QLD Regional QLD Regional QLD 29% 29% 29% 42% 42% 42% 58% 58% 58% South East QLD South East QLD South East QLD 29% 29% 29% First Party Direct First Party Direct First Party Direct Third Party Broker Third Party Broker Third Party Broker Home loan origination was in line with Auswide Bank’s target of 40% Third Party and 60% direct. FINANCIAL PERFORMANCE SIX-MONTH AFTER TAX PROFIT/LOSS NET INTEREST MARGIN NET INTEREST MARGIN DIVIDEND HISTORY s n o i l l i M 12 10 8 6 4 2 0 -2 -4 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Jun 14 Dec 14 * * after impairement of investment in financial planning business 1.90 1.85 1.80 1.75 1.70 1.65 1.60 30 20 10 Jun 13 Dec 13 Jun 14 Dec 14 Jun 15 Calculated as the interest revenue or expense and average interest rate on the average monthly balance of interest earning assets and liabilities 80 70 60 50 66c 63c 60c 60c 60c 51.5c 40 42c s t n e C 47.5c 17c 30c 28c 05 06 07 08 09 10 11 12 13 14 15 Underlying cash net profit after tax for the chief entity rose by 7.4% to $13.104m. Net Interest Margin increased to 179 basis points in spite of a competitive lending market. Total 2014/15 dividend was 30 cents per share, an increase of two cents. SHARE PRICE HISTORY 6.2 6.0 5.8 5.6 5.4 5.2 5.0 4.8 * *$5.36 – 7th September 2015 Jul 14 Aug 14 Sept 14 Oct 14 Nov 14 Dec 14 Jan 15 Feb 15 Mar 15 Apr 15 May 15 Jun 15 Jul 15 Aug 15 Sept 15 AUSWIDE BANK / 3 AUSTRALIA’S NEWEST BANK On 1 April 2015, we celebrated a significant achievement by becoming Australia’s newest bank. Auswide Bank is Australia’s tenth and Queensland’s third bank trading on the Australian Stock Exchange. The change followed shareholder approval on 20 January 2015 and Australian Prudential Regulation Authority (APRA) consent on 5 February 2015. Our new name was supported by a new corporate identity and full rebranding, with roll out commencing on 1 April across the business including branches, online and digital channels, and products and services. The rebranding was well accepted by shareholders, employees and customers alike and has reinvigorated our business. Our new branding is building greater awareness and supporting our new customer proposition as a national bank. The new brand is also helping to create shareholder value. The Auswide Bank name complements our strategy to support our core business in Queensland while expanding our presence and acceptance Australia-wide through third party relationships, online and digital channels, and our business banking network. The change has been a major step which will help Auswide Bank grow its markets and diversify its business model. 4 / ANNUAL REPORT AUSWIDE BANK / 5 CHAIRMAN’S REPORT Last year we continued to build solid foundations for the future. In many aspects, we continued to rebuild the Company and we are seeing improved business performance as a result. I am pleased to report that Auswide Bank has delivered another improved financial performance in the 2014/15 financial year, with an underlying net profit after tax (NPAT) for the chief entity of $13.1 million. This result excludes one-off expense items of $516,000 in 2014/15 for the rebranding and the writedown of assets relating to the outsourcing of the bank’s ATM fleet. Statutory NPAT for the chief entity was $12.73 million, compared to the 2013/14 figure of $12.96 million which included a one-off dividend of $750,000 from Mortgage Risk Management. This improvement and the Company’s strong capital position have allowed the Board to declare a fully franked final dividend of 16 cents per share. This brings the total dividend for 2014/15 to 30 cents per share, fully franked – an increase of two cents over 2013/14. This year marks the third year of our three-year Strategic Plan. The Board is pleased with what has been achieved since the announcement of the Plan in May 2013, although more work remains to be done. We are seeing the benefits of our hard work with the return to organic growth across many parts of the business for the first time in a number of years. Auswide Bank is gaining momentum following a year of significant achievement which included the approval of our banking licence by the Australian Prudential Regulation Authority (APRA) – an exciting milestone which represents growth and opportunity. Supported by a full rebranding across every aspect of the Company, our banking licence and new name now fully align with our strategy to build brand recognition and grow our national customer base. We have continued to invest substantially in technology improvements across the Company, this year completing an upgrade of our core operating system. Our people are the key to our ongoing success and we have focused on building the capability of our employees through training and other initiatives. Following significant improvements made in 2013/14, we continue to remain focused on cost control and improving productivity. Delivery of the Transformation Project during the year enabled us to identify significant productivity improvement opportunities to operating practices across the business. We are currently implementing the recommendations made in January. This focus on transforming the business to be more productive and efficient has been well accepted by our staff and has also supported our shift to a better risk and compliance culture. In line with our strategic priorities, our mortgage broker division continues to perform strongly and we are seeing improvements in our business banking division as we work to develop stronger ties to the local communities we operate within. Our ongoing investment in our retail banking division is paying off, with the segment seeing growth during the year across its home loan book and personal loan products. 6 / ANNUAL REPORT The progress in implementing our business strategy has also been reflected in the revised outlook for Auswide Bank that was issued by Standard & Poors in June 2015. The credit rating agency cited a number of elements of the strategy including significant investment in information technology, re-balanced distribution channels and our rebranding, providing positive impacts for the Company’s growth prospects. Board renewal continued to progress during the year. Peter Sawyer, a long- standing Non-Executive Director and Chairman of Auswide Bank’s Audit Committee retired in March. On behalf of the Board, I thank him most sincerely for his contribution to the Company and wish him well for the future. Sandra Birkensleigh was appointed Non-Executive Director on 2 February. Sandra brings to the role extensive experience in financial services, particularly risk management, compliance and corporate governance. Our achievements this year would not have been possible without our strong management team and the efforts of all employees. Martin Barrett continues to lead a high performing team and during a year of such significant change, it is pleasing to see how staff have embraced the many changes and challenges we have experienced. To my fellow Directors, thank you for your efforts and assistance during the year. I would also like to take this opportunity to thank our shareholders, customers, and business partners for your continued support. John Humphrey Chairman AUSWIDE BANK / 7 MANAGING DIRECTOR’S REPORT It has been a year of substantial progress and momentum for Auswide Bank. I am pleased to report we have achieved organic growth across the Company for the first time in a number of years, consolidating the work we have undertaken since 2013 to reposition Auswide Bank and build capability across the organisation. Our conversion to Australia’s tenth listed bank in April was a significant milestone in our history. Our new name, Auswide Bank, links back to our previous name, Wide Bay Australia, which has helped ensure that the goodwill and recognition associated with our past is maintained. However, Auswide Bank better reflects our growing customer base across the country and aligns with our omni-channel strategy of expanding our presence and acceptance Australia-wide, via third party relationships such as mortgage brokers and through online and digital channels. While we remain committed to providing Australians with an alternative to the ‘big banks’, we believe becoming a bank has opened up opportunities for growth and recognition in a highly competitive market. Our progress in implementing the Strategic Plan has supported an improvement in financial performance. • Net Interest Revenue of $51.20 million, an increase of 3.1% over the previous year • Chief Entity underlying NPAT of $13.10 million compared to $12.20 million in 2013/14 • Home loan approvals of $449 million, up 8.5% over 2013/14 • Total loan book up 4.8% to $2.33 billion at 30 June 2015 • Arrears (greater than 30 days past due) reduced to $22.3 million from $43.0 million in 2013/14 • Total dividend of 30 cents per share, an increase of 2 cents or 7%. While we have experienced material improvements in arrears we are also better-positioned to identify credit risks, providing a strong foundation for the future. Strong capital position During the reporting period, we made material progress towards winding up our captive lenders mortgage insurer, Mortgage Risk Management Pty Ltd (MRM). After the financial year end, we announced that MRM will be wound up on 30 September 2015, which will make available up to $10 million of Tier 1 capital and considerably strengthen our regulatory capital position. The return of capital to Auswide Bank will allow the Board to consider a number of options including acquisition or merger opportunities, a special dividend for shareholders, as well as supporting ongoing lending growth in housing, consumer and business finance. Our capital position is the highest of the listed banks which allows us to avoid the cost of additional Tier 2 capital or the dilution created by on market equity raisings recently undertaken by some of our competitors. We believe this is beneficial to our shareholders. 8 / ANNUAL REPORT Diversified funding We continued to diversify our sources of funding during the year through a combination of securitisation and ongoing deposit growth, and as a listed company we also have access to the equity capital markets. This was demonstrated by the level of investor support for Auswide Bank’s first Senior Unsecured Floating Rate Note which was issued after the reporting period on 19 August 2015. The issue was oversubscribed and raised $25 million in cost-effective funding for growth in loan portfolio. Progressing our Strategic Plan As we implement the final phases of our three-year Strategic Plan, we have made measured investments in building the capability of our people, creating efficiencies across internal systems and processes, and improving the range of services for our customers. The substantial progress we have made to date has established a basis for sustained growth and progress, and we are seeing these benefits flow through the Company, to our customers and shareholders. Investment in technology is a key plank in the Strategic Plan, with a goal of delivering productivity and cost-to-income efficiencies in the short-term. In February, we upgraded Auswide Bank’s core operating system to Ultracs 4 – one of the most advanced and complete retail banking systems in the financial services software marketplace. The new banking system has improved customer service by reducing unnecessary administrative tasks and improving account opening and transaction times. Customer information is more readily available which enhances our ability to match the right products to meet our customers’ needs. This is enabling us to expand our range of products and services. Additionally, delivery of the Transformation Project during 2014/15 is leading to significant productivity improvements across the business by streamlining and automating internal systems and processes to strengthen our quality assurance systems, and create cost and time efficiencies. This project has neared completion, with many recommendations now implemented. We will continue to invest in technology to deliver competitive and efficient products for our customers. Digital capability is a key component of our future. We anticipate launching even more online and digital services in the near future including online account opening, seamless online home and personal loan applications and improved online transactional capability. Our investment also extends to ensuring a seamless and consistent customer experience, and this remains an ongoing focus. We are committed to delivering flexible and convenient banking services, accessible across a range of traditional and online platforms. Our significant investment in technological improvements now ensures customers can do business with us however and whenever they choose – online, digitally, through a broker, on the phone or in-person at one of our branches – and at all times receive outstanding customer service and relevant information about our products and services. In 2014/15, we tripled the training budget to deliver a number of new programs across the organisation. These included tailored programs to build the skills of our sales, collections and lending teams and e-learning platforms to ensure all employees can continue to access online training. We also invested in health and safety training for our people who we recognise are critical to our success as a leading financial institution. Our training investments complement our ongoing commitment to employ and retain the right people – those with a strong skills base and a natural fit with the friendly, customer-focused culture of our Company. Enhanced customer experience We have embarked on a number of important projects to support our omni-channel marketing strategy and improve the overall customer experience. We have upgraded our fleet of ATMs with the latest available technology, to offer faster and upgraded capabilities. These are performing on average at 99% availability. In early 2015, we released a new mobile banking application and upgraded our website. This included a retail website with enhanced features and a corporate website which provides shareholders with a dedicated portal. Customer feedback confirms these are more modern and user-friendly, and in 2016 we will introduce additional website functionality, enabling our customers to make loan applications and open new accounts online. This is an exciting time for Auswide Bank, giving us true national reach in the digital space and aligning with our new name and national brand. AUSWIDE BANK / 9 MANAGING DIRECTOR’S REPORT CONTINUED Balance sheet strength gives the Company the flexibility to consider appropriate consolidation opportunities. If a logical partner or prospective acquisition is identified, we will work to understand the benefits to shareholders and the Company and pursue those opportunities that align with our strategy In 2015/16 we will continue to concentrate on being a positive disruptor in banking, offering products that are attractive and competitive to allow us to expand in traditional and new markets. As a smaller bank, we are nimble and quick to respond, providing true value for our customers, and we will continue to foster this. This is our difference. The changes we are making are benefiting Auswide Bank and our shareholders, but the DNA of our business remains. I would like to thank our staff, the Board, our shareholders and our customers for their invaluable support during the year. Martin Barrett Managing Director To support our growing and changing customer base, we have significantly increased the capacity and functionality of our Bundaberg-based Contact Centre. While additional investment is planned for 2016, the Contact Centre now provides greater capability and enables Auswide Bank to engage regularly with more of our customers. A central part of our rebranding to Auswide Bank is the roll-out of our branch refurbishment plan, creating a more modern look and customer- friendly experience across our branch locations. Six branches moved to the new model during 2014/15 and additional branches have been identified for 2015/16 including Maryborough, Gympie and Bundaberg. While we strive to deliver a positive and consistent customer experience at all times, we also seek to maximise shareholder investment across our branch network and as a result some branches have been closed, amalgamated or relocated to provide more opportunity. We will continue to review the existing branch footprint to ensure it delivers a strong performance for both shareholders and customers. Community connections Our connection to the community is important, and we are a significant contributor to the communities we operate in. In 2015 Auswide Bank launched its Community Grants Scheme to formalise our community sponsorship activities. The new scheme provides substantial financial assistance to valuable community initiatives while ensuring we leverage maximum value from these relationships. Outlook In 2015, we were committed to building the organic capabilities of the Company and I am pleased that we have made substantial progress. In the year ahead, we will continue to build on the momentum we have created. The historic low interest rate environment and intense competition are contributing to margin pressure across the banking sector. General economic conditions also continue to be challenging for our retail and business customers in our traditional markets in Central and Northern Queensland. We are confident though that we can overcome these challenges. It is evident from this year’s performance, that while we remain committed to serving regional Queensland, our strategies that support growth through third party relationships and an increased focus on the South East Queensland market are paying dividends. This includes a future intention to establish a central branch in Brisbane to support customers who live or do business in the city. Diversification and continued expansion into South East Queensland and southern capital cities is necessary to avoid over- exposure to regional markets. I am excited by the momentum we have achieved in 2015 and the opportunities ahead, as we continue to strengthen the foundations of the business, maintain our focus of attracting new and younger customers, and develop our technology platform to deliver a better customer experience. 10 / ANNUAL REPORT STRATEGIC DIRECTION We have made significant progress of our three-year Strategic Plan, delivered in May 2013. Since this time, we have made substantial investments in our people, technology and our products and services, building a strong platform for future growth and success. During the year, we demonstrated a clear commitment to deliver many of the key investments outlined in the Strategic Plan, including: • Significantly improving our risk and compliance culture WE REMAIN COMMITTED TO CONTINUALLY IMPROVING OUR • Growing our Third Party and Business PERFORMANCE FOR THE BENEFIT OF ALL OUR SHAREHOLDERS Banking segments • Ongoing development and refinement of our products and services to ensure competitiveness • Enhancing technology and digital platforms to make it easier for our customers to do business with us • Providing learning and development opportunities for our people • Continuing to invest in the local communities we operate in • Progressing the branch revitalisation program. There is still work to be done, however we remain committed to continually improving our performance for the benefit of all shareholders. We will continue to leverage investments already made, and will outline the Bank’s strategic focus in a new Strategic Plan. AUSWIDE BANK / 11 CENTRAL TO MAXIMISING VALUE FOR OUR SHAREHOLDERS IS OUR APPROACH TO DRIVING COST MANAGEMENT AND EFFICIENCY OUTCOMES ACROSS THE BUSINESS SHAREHOLDER VALUE A key Project finding was confirmation that our branch network was under- utilised. Specifically, the Transformation Project allowed us to examine how we utilise our assets and personnel and enabled us to identify and align productivity opportunities and priorities to the Strategic Plan. Following the review of our operating practices, we introduced an online work management tool to enable us to use existing systems more efficiently and increase automation of back office tasks, processes and workflows. This low-cost, high capability management tool has enabled us to identify opportunities to improve productivity, efficiency and compliance. These improvements have reduced the cost base of our back office functions while improving efficiency and productivity to enable us to support a better customer experience. The Transformation Project has also helped improve the way we communicate internally and seek out information, while allowing us to centralise functions and re-design jobs, particularly in the back office, to create more meaningful roles for our people. We have maintained a strong focus on balancing lending growth with the needs and demands of customers in a very competitive market. This risk management approach ensures our priority remains on the delivery of returns to our shareholders. During the year we investigated a number of revenue opportunities. As part of this, we undertook a fee review across our portfolio of products and services. We also continued to develop and enhance products and services throughout the year. Central to maximising value for our shareholders, is our approach to driving cost management and efficiency outcomes across the business. Key to this was the delivery of the Transformation Project which, using the Six Sigma Process, identified a significant number of opportunities for process and productivity improvements in operating practices across the organisation. Project findings were delivered in December, with recommendations made in January, which we are continuing to implement as resources become available. 12 / ANNUAL REPORT AUSWIDE BANK / 13 14 / ANNUAL REPORT RETAIL BANKING It has been a successful year for the retail banking segment, during which we have invested in resources to grow our sales volumes. We remain committed to significantly improving the customer experience to grow our customer base. We will achieve this by strengthening relationships with existing customers, maximising cross- selling opportunities, and reviewing our customer retention and advocacy strategies. We are seeing considerable improvement in this area, however there is still work to be done. During the year, our home loan book grew by more than $100 million. This growth was supported by a combination of new products and services, successful marketing campaigns, targeted customer engagement strategies, and a more proactive approach by our Lenders to engage with local business communities. We have seen considerable uplift in the volume and value of our Personal Loan products, supported by key marketing campaigns and strategies to support our value proposition as a key provider of personal lending within our local communities and beyond. We expect this growth to continue as planned technology improvements in 2016 will enable customers to apply for personal loans online. During the year we worked with our third party providers to ensure we had a comprehensive product suite and as a result, introduced a number of new product offerings to better support our customers. We also made enhancements to the credit card application process, resulting in a faster and more efficient processing system. Our locally-based Contact Centre was enhanced during the year, enabling greater out-of-hours capability and more functionality to support our inbound and outbound customer engagement strategies. While we have made significant improvements, there is still work to be done, and this program will continue in 2016. Investing in our people has been a key focus during the year with the successful introduction of the Salesmax program, designed to build sales and service capabilities of our frontline staff. We are already realising the benefits of this training as it enhances the capabilities of our frontline staff to convert opportunities. The program will continue in 2016, ensuring we continue to build capability and support all elements of the sales process. We have also continued to build on our community involvement and support throughout the year, with community activities – led by our rebranding to Auswide Bank – enabling our branch staff to establish a greater presence and provide additional support to their local communities. The proactive approach adopted by our Lenders has also increased their presence within the community through networking and participation in local business groups. In November we launched our new customer website, separating the corporate and retail sites. The new customer website has a fresh feel, is easy to navigate, and is optimised for mobile and tablets. The user-friendly structure highlights the availability of online applications and incorporates social media elements as well as Live Chat and Newsfeeds. We also launched additional online application functionality for loans and accounts, upgrades to Internet Banking, and a new smartphone app. The new mobile banking app has been well accepted by customers, and we will continue to refine and improve the application, releasing a number of new features in the first half of 2016. We have received positive feedback about the new website from a number of our external partners, and it will remain a key platform for new customer acquisition, particularly as our technology investments come online. The branch revitalisation program continues with a number of our branches upgraded and new technology enhancements rolled-out including electronic in-branch advertising, iPads for customer use, and internet kiosks to support online banking. New format branches opened in Pialba, Hervey Bay and Mt Pleasant in Mackay, and further openings are planned during 2016. AUSWIDE BANK / 15 BUSINESS BANKING Our Business Bankers have been well accepted in their local communities throughout Queensland, and we have taken the opportunity to open up discussions with small-to-medium enterprises (SMEs) to explore ways Auswide Bank can add value to their business. We are well networked within our local communities and have strong relationships with local accountants, solicitors and other professional services to ensure we understand the needs of emerging and mature local businesses. We continually seek to broaden our networks and in May 2015, sponsored the Bundaberg Business Expo, which enabled us to promote our offering directly to the market. During the year, we grew our SME networks throughout North Queensland, Central Queensland and the Sunshine Coast. This included forming a strategic partnership with the Chamber of Commerce & Industry Queensland (CCIQ) to specifically target the Sunshine Coast and Central Queensland regions. The partnership is an opportunity to directly engage with CCIQ members on a range of business banking topics, raising brand awareness for Auswide Bank among members, customers and stakeholders. The partnership is a new avenue to promote Auswide Bank’s participation in local business networks, and we will continue to work with CCIQ during 2015/16 to build on this year’s success. We will continue to grow our presence and networks in North and Central Queensland and the Sunshine Coast in 2016, while extending into South East Queensland and winning customers in this area. Our Business Bankers have acquired customers from the larger banks on the basis of being local, highly accessible, experienced and stable. These new customers represent growth in Auswide Bank’s balance sheet and lines of revenue across products including loans, equipment financing, transactional banking products and services such as merchant facilities. We expect growth to continue as we gain momentum in this emerging part of the business. Auswide Bank’s business banking approach differs to the traditional ‘big bank’ mentality, which is characterised by the need for small businesses to strictly conform to rules and regulations. We will continue to evaluate each opportunity to support small businesses based on the strength of their business models. Over the next 12 months, we will focus on converting our pipeline of opportunities into new business banking customers for whom we provide lending and transactional banking services. AUSWIDE BANK’S BUSINESS BANKING APPROACH DIFFERS TO THE TRADITIONAL ‘BIG BANK’ MENTALITY, WHICH IS CHARACTERISED BY THE NEED FOR SMALL BUSINESSES TO STRICTLY CONFORM TO RULES AND REGULATIONS 16 / ANNUAL REPORT AUSWIDE BANK / 17 18 / ANNUAL REPORT THIRD PARTY MORTGAGE BROKER ALLIANCES Key to sustaining this growth is offering brokers a seamless lodgement experience. As part of the Lendfast loan origination project, we are building a better broker platform over the next 12 months that fully utilises the capability of NextGen – our broker submission portal – to enable easier and more comprehensive applications by brokers. This will enable brokers to receive faster and in some cases, immediate credit assessment outcomes. This functionality is expected to be fully operational during the first half of the 2016 financial year. To support this growth area of the business, we have established a dedicated broker centre in Toowong, a broker office in Robina and a broker representative in Sydney. The Third Party business has grown substantially during the year, with the model continuing to evolve and support Auswide Bank’s value proposition as a genuine alternative to the major banks. We introduced a number of initiatives to engage with mortgage brokers across each capital city and surrounding areas including sales specials, information sessions and product offers. As a result, we have experienced a significant increase in the number of brokers seeking accreditation with us, and this sector is now a major contributor to the lending program. This expansion positions Auswide Bank well for customer growth nationwide and we anticipate an increase in loan approvals in the near-term, particularly from Sydney, Melbourne and Brisbane. AUSWIDE BANK / 19 OUR PEOPLE • Delivery of the e-learning platform in 2014/15, which has enabled the Bank to fully streamline our regulatory and compliance training obligations, and increased our internal capability to deliver other learning requirements • Delivery of development opportunities for other business units. These training opportunities – developed to meet recognised learning standards – are supported by full-time trainers employed to deliver and assess our programs. As part of our continuous improvement processes, we have put in place various employee feedback mechanisms including performance appraisals and regular staff surveys to better understand how we can improve internal processes and services for our customers. This ongoing focus in our people and their professional development will ensure Auswide Bank continues to meet the high expectations of its shareholders, customers and our key business partners. At Auswide Bank, we recognise that our people are the strength of our business and essential to our ongoing success and growth. We have invested significantly in our employees and continue to focus on this area of the business as a key strategic priority. During the year, we focused on maximising the potential of our employees and enhancing the customer service experience through the roll-out of the MAX programme and other learning and development initiatives, including: • SalesMAX – the introduction of a sales coaching program across our branch network has increased sales performance throughout the business • LeaderMAX – developing and coaching our leaders to support employees through the rapid changes experienced by the bank and within the fast-paced finance industry • Key technology developments in Ultracs 4 and Lendfast, with delivery of further cost-saving and customer-centric enhancements planned for 2015/16 20 / ANNUAL REPORT AUSWIDE BANK / 21 22 / ANNUAL REPORT TECHNOLOGY INVESTMENT AN UPGRADE OF OUR INTERNET BANKING SYSTEM IS CURRENTLY IN PLANNING AND IS TARGETED FOR COMPLETION DURING THE 2016 FINANCIAL YEAR In an increasingly competitive market, our ability to deliver exceptional customer service, products, capability and innovation is more important than ever. Technology investment is central to achieving this, and we have continued to pursue our IT strategic objectives focusing on: • Competing with our peers in technology • Delivering a superior customer experience • Providing secure and efficient systems • Leveraging data to gain a better understanding of our customers. In February, we successfully completed the upgrade of our core banking system, seamlessly integrating it into the business. We are continuing to leverage the full benefits of the system upgrade which has increased automation, integrated our Customer Relationship Management with improved data analysis and increased functionality for customers and our staff. Our first dedicated smartphone mobile banking app was launched in May, making mobile banking easier for our customers. A second release is planned during the first half of the 2016 financial year, which will provide greater functionality for customers and enable services including BPAY payments and entity management. A key focus for the 2016 financial year is the completion of the upgrade to our loan origination system. Once implemented, the system will support faster loan application processing and provide applicants with an immediate approval decision. By significantly improving our ‘time to yes’, these automatic loan processing functions will reduce processing costs and risk, while improving the customer experience. The personal loan application process will be the first introduced on the new system, planned for the last quarter of 2015/16. An upgrade of our Internet Banking system is currently in planning and is targeted for completion during the 2016 financial year. Once implemented, the new system will provide the tools and functionality needed to keep customers on our site for longer, fostering deeper engagement with them and generating cross-selling opportunities. While these projects have remained a key focus for the Company, we have made additional technology improvements across the business. In November 2014, we moved data centres and consolidated our server footprint to increase capacity and simplify our technology systems. We have also improved our business intelligence service by building our data capability, enabling us to provide better insights for customers and develop more targeted products and services to enhance our service offering. AUSWIDE BANK / 23 COMMUNITY Sponsorship is a key plank of our community engagement program, during the year we provided several hundred thousand dollars in financial sponsorship to local community events and initiatives. In October 2014, to meet an increasing demand from Not-For-Profit groups for sponsorship support, we formalised our community sponsorship program through the introduction of ‘Our Community’ Grants Scheme. The Scheme provides a fair and equitable application and assessment process for eligible groups to access sponsorship and funding, together with a transparent reporting and evaluation process. We are confident this revised sponsorship approach will deliver positive outcomes for all parties by ensuring expectations are clearly articulated and managed throughout the sponsorship process. As part of our ongoing commitment to the Bundaberg region, in January 2015 we contributed a $50,000 donation towards the purchase of an Armstrong Siddeley Tourer – the car used by pioneer aviator, Bert Hinkler during his processional motorcade and State welcome home parade in Brisbane on 6 March 1928. The donation allowed the purchase of two vehicles and a year- long rebuild project to commence. Upon completion, the vehicle will be housed at the Hinkler Hall of Aviation as part of the Hinkler Collection, helping to showcase Bundaberg’s significant aviation history. Our connection to the community is fundamental to who we are and we will continue to be a significant contributor to our local communities in the future. SPONSORSHIP IS A KEY PLANK OF OUR COMMUNITY ENGAGEMENT PROGRAM, DURING THE YEAR WE PROVIDED SEVERAL HUNDRED THOUSAND DOLLARS IN FINANCIAL SPONSORSHIP TO LOCAL COMMUNITY EVENTS AND INITIATIVES We have always been actively involved in the local communities we operate in, and we are proud of the support we provide to many schools, groups and clubs throughout the year. We seek to maintain and enhance our community relationships through: • Sponsorship for local community events and initiatives • Social media including Facebook, Twitter, LinkedIn and Instagram • The Not-For-Profit Loan Referral Program – an incentives program designed to benefit Not-for-Profit organisations who provide referrals to Auswide Bank • Staff volunteer programs – our program for staff to personally give back to their local community • In-kind support for community events such as signage, marquee hire, merchandise and use of our company mascot, Ziggy the Super Saving Piggy. 24 / ANNUAL REPORT AUSWIDE BANK / 25 26 / ANNUAL REPORT RISK AND COMPLIANCE CULTURE It is essential to have a fully functional risk and compliance management program to actively eliminate risk, where possible, and reduce those risks that cannot be eliminated. Over the past 12 months, we have continued to make substantial improvements across the organisation to enhance the risk and compliance culture of the business. Auswide Bank’s Strategic Plan is underpinned by an effective and robust risk management framework. Each business unit continues to be responsible for managing the outcome of risk-related activities under a ‘Three Lines of Defence’ model: Line 1 – Business Units. Front line business units manage risk as part of ‘day-to-day’ operations. Line 2 – Risk and Compliance Management. This team provides support, oversight and risk and compliance expertise by developing and maintaining an integrated risk management framework which supports the Strategic Plan. Risk and Compliance measure risk exposures to support the decisions of the business, provide reporting to the Board and Management, and make credit risk decisions under approved delegations and loan portfolio management. Line 3 – Audit Management. Independently assess the effectiveness and efficiency of internal controls, risk management processes, and governance systems created by business units, while supporting and providing assurance on these functions. Our hard work and achievements in this area over the past two years contributed to Auswide Bank receiving approval to become a bank in April 2015, as well as the revised outlook issued by Standard & Poors from ‘negative’ to ‘stable’ and reaffirmed issuer credit ratings on Auswide Bank at ‘BBB/A-2’. Throughout the year, we continued to focus on: • Ensuring sustainability – continuous improvement working towards reducing arrears levels. There has been a significant reduction in loan portfolio arrears, which is now in-line with our peers • Our people – training to increase the capabilities of our loan collections, credit, risk and compliance teams • Ongoing review and refinement of credit policies against credit risk oversight findings, portfolio trends and macroeconomic conditions to help meet business and customer expectations while ensuring sustainability of the business • Regulatory change – monitoring of new and proposed regulations with particular emphasis on the new APRA Prudential Standard CPS 220 Risk Management, which came into effect 1 January 2015. AUSWIDE BANK / 27 BOARD OF DIRECTORS JOHN HUMPHREY LL.B Chairman Member of the Audit Committee MARTIN BARRETT BA(ECON) MBA Managing Director Director of Mortgage Risk Management Board Member since: February 2008 Pty Ltd Professor Humphrey was appointed Chairman of the Board following the 2009 Annual General Meeting. He was a senior partner in the Brisbane office of international law firm, King & Wood Mallesons until 1 January 2013, where he specialised in commercial law and corporate mergers and acquisitions. He is now Executive Dean of the Faculty of Law at Queensland University of Technology and is currently a Non- Executive Director of Horizon Oil Limited and Downer-EDI Limited. Board Member since: September 2013 Mr Barrett has extensive experience in the banking sector, having previously held the positions of Managing Director (Queensland, Western Australia and National Motor Finance Business) and General Manager NSW/ACT Corporate & Business Bank at St George Bank Ltd. Prior to working at St George Bank, Mr Barrett held senior roles at regional financial institutions in the United Kingdom and at National Australia Bank. 28 / ANNUAL REPORT BARRY DANGERFIELD Non-Executive Director Director of Mortgage Risk Management GREG KENNY GAICD, GradDipFin Non-Executive Director Director of Mortgage Risk Management Pty Ltd Pty Ltd SANDRA BIRKENSLEIGH BCom, CA, GAICD, ICCP (Fellow) Non-Executive Director Chairperson of the Audit Committee Chairman of the Group Board Chairman of the Risk Committee Member of the Risk Committee Remuneration Committee Member of the Audit Committee Member of the Group Board Member of the Audit Committee Member of the Group Board Remuneration Committee Member of the Risk Committee Remuneration Committee Board Member since: November 2011 Board Member since: November 2013 Mr Dangerfield has had a successful 39 year banking career with Westpac Banking Corporation having held positions across Queensland and Northern Territory as Regional Manager of Business Banking, Head of Commercial and Agribusiness, and Regional General Manager of Retail Banking. Mr Dangerfield is a Director of the Bundaberg Friendly Society Medical Institute which operates the Friendly Society Private Hospital and Pharmacies in Bundaberg. Mr Kenny had a long and successful career with Westpac Banking Corporation and St George Bank Ltd, and prior to that with Bank of New York and Bank of America in Australia. At St George Bank he held the positions of Managing Director (NSW and ACT), General Manager Corporate and Business Bank, and General Manager Group Treasury and Capital Markets. Board Member since: February 2015 Ms Birkensleigh was a partner at PricewaterhouseCoopers for 16 years until 2013. During her career her predominant industry focus has been Financial Services (Banking and Wealth Management). Ms Birkensleigh has also advised on risk management in other sectors such as retail and consumer goods, retail and wholesale electricity companies, resources and the education sector. Ms Birkensleigh is currently a Non-Executive Director of five Wealth Management and Insurance subsidiaries of the National Australia Bank and a Board of Management member and Treasurer of Children’s Therapy Centre. AUSWIDE BANK / 29 LEADERSHIP TEAM MARTIN BARRETT BA(ECON) MBA Managing Director Martin was appointed in February 2013 and is responsible for overseeing Auswide Bank’s operations and business strategy. He has a 30 year career across diverse banking institutions, both nationally and internationally. This includes senior executive roles in retail, commercial, corporate, and specialist areas. Martin holds a Bachelor of Arts (Economics) from Murdoch University and an MBA from the University of Western Australia. He is also a member of the Australian Instructed Company Directors. BILL SCHAFER BCom CA Chief Financial Officer and Company Secretary Bill was appointed in 2001 and has significant experience in the financial services industry. Bill’s responsibilities include oversight of Auswide Bank’s Accounting and Treasury business units, financial and management reporting for the Company, statutory, ASX and regulatory reporting, strategic focus for the Company’s capital, funding and liquidity planning, budget preparation, and financial analysis for key stakeholders, the Board and management. MARK RASMUSSEN MBA Chief Operating Officer Mark was appointed in early 2014 as the General Manager for Business Banking and Operations, and has more than 25 years’ experience in the financial services sector. He has held senior roles in corporate and business banking, property, product development and strategy, product sales and people management, planning and operations, and compliance in both retail and commercial/corporate environments. Mark’s responsibilities include management of Auswide Bank’s lending services, banking services, property and procurement, business continuity planning, transformation and productivity, implementation and analytics reporting, teams, and functions. STEPHEN CAVILLE AdvDipEEng Chief Information Officer DALE HANCOCK BBus SAFin Group Treasurer Steve was appointed in 2000 as Senior System Administrator and was subsequently appointed to the position of Chief Information Officer in 2010. He has previously gained a broad spectrum of qualifications and experience in the Royal Australian Air Force. Steve’s responsibilities include oversight of Auswide Bank’s Information Technology business unit, where he has been instrumental in the development of the Company’s Information Technology Strategic Plan and implementation of key technology projects. Dale was appointed in 1996 as the Structured Finance Manager and was subsequently appointed to the position of Group Treasurer in 2013. His previous experience included specialising in accounting, taxation, and audit within a Chartered Accountant firm. Dale’s responsibilities include managing Auswide Bank’s wholesale and retail funding, treasury and liquidity operations, and interest rate risk management. CHARLTON NEVIS BA MBA General Manager – Third Party and Business Banking Charlton was appointed in 2013 and has extensive experience across the financial services sector. He established the Third Party Mortgage Broker division and has developed and implemented Auswide Bank’s mortgage broker strategy. Charlton’s responsibilities include the development of relationships across aggregators and brokers nationally, and driving Auswide Bank’s proposition to Australian mortgage brokers across the country. This year, Charlton has also assumed control of building and growing Auswide Bank’s Business Banking portfolio. 30 / ANNUAL REPORT RAY LINDERBERG BBus (Comn) General Manager – Marketing and Products GAYLE JOB General Manager – Human Resources Ray was appointed in 1986 as Marketing Manager and was subsequently appointed to General Manager, Marketing and Products in 2013. Ray has extensive experience in marketing and the financial services industry, and has been instrumental in many company initiatives. Ray’s responsibilities include oversight of Auswide Bank’s Marketing and Products business unit and management of the Company’s brand, marketing, communications and product strategy. Gayle was appointed in 1977, gaining significant experience in financial services including branch operations, product development, documentation of policies and procedures, training, and compliance. Gayle’s appointment in 2013 to General Manager, Human Resources has enabled her to focus on the improvement of people, engagement, and development. This includes Auswide Bank’s payroll management and remuneration, recruitment, learning and development, performance management, employment law regulation and compliance, staff welfare, and occupational health and safety. CRAIG LONERGAN MBA, F Fin Chief Risk Officer Craig was appointed in February 2014 as General Manager Internal Audit, bringing more than 25 years’ experience within the financial services industry having held senior leadership roles in Australia, Papua New Guinea and the Solomon Islands. Craig was appointed to the role of Chief Risk Officer in early July 2014, and is responsible for creating and maintaining a culture of risk awareness and accountability. He achieves this by assisting the Board of Directors in developing the Company’s risk appetite statement, promoting an enterprise-wide risk management philosophy, and establishing prudent guidelines to help the business manage and mitigate identified risks. MICHAEL MCLENNAN BBus CPA General Manager – Internal Audit Michael was appointed as Chief Risk Officer in 2011 to establish the Risk function for the Company and was subsequently appointed General Manager, Internal Audit in 2014. He has more than 25 years’ experience within Australia and the United Kingdom in financial and risk management of financial institutions. Michael’s responsibilities incorporate the third line of defence in Auswide Bank’s ‘Three Lines of Defence’ model, and include assessment of the effectiveness and efficiency of internal control, risk management and governance systems. AUSWIDE BANK / 31 DIRECTORS’ STATUTORY REPORT 30 JUNE 2015 REVIEW AND RESULTS OF OPERATIONS The consolidated net profit after income tax for the 2014/15 financial year was $13.262m compared to the result of $14.063m for the 2013/14 year. There were two one-off expense items in the 2014/15 financial year relating to the rebranding costs for the Auswide Bank name and the writedown of assets in the outsourcing of the ATM fleet. The total costs relating to these one-off items was $516,000. The underlying cash NPAT in the chief entity for financial year 2014/15 was $13.104m compared to $12.196m (excluding the $750,000 dividend from Mortgage Risk Management Pty Ltd) for 2013/14. This represents an increase of 7.4% from 2013/14. The statutory net profit for the chief entity for 2014/15 was $12.743m compared to $12.946 (including the MRM dividend) for 2013/14. The loan book of Auswide Bank Ltd recorded growth of 4.8% across the year increasing from $2.224b at 30 June 2014 to $2.330b at 30 June 2015. The loan book totalled $2.271b at 31 December 2014. Home loan approvals across the 2014/15 financial year totalled $449m, an increase of 8.5% on the $414m in home approvals for the 2013/14 financial period. Personal loans Funding of personal loans commenced in the last quarter of the 2012/13 financial year. The personal loan book continues to grow in line with budgeted approvals, and although not material to the total loan portfolio, reached $8.219m at the conclusion of the financial year. Personal loans have not been reported as a separate segment for the financial year. Mortgage Risk Management Pty Ltd (MRM) The Board announced on 13 August 2015 the effective date of 30 September 2015 to wind up the captive lenders’ mortgage insurance subsidiary, MRM. 32 / ANNUAL REPORT The credit risk and provisions will be transferred to the balance sheet of the chief entity. There is ongoing focus on increasing the quality of origination as the loan book grows. The wind up will release up to $10m of tier 1 capital which is currently invested in MRM. The claims expense in MRM was in line with budget expectations across the 2014/15 financial year. The total claims expense for the year was $2.6m and the total insurance liabilities, based on actuarial advice, were $4.9m at 30 June 2015. These ‘Provisions’ have been calculated to cover all claims arising in the next three financial years, while maintaining significant risk buffers in place to account for claims which may be brought to account unexpectedly. PRINCIPAL ACTIVITIES AND SIGNIFICANT CHANGES Substantial progress has been made with the implementation of the strategies contained in the three-year Strategic Plan adopted by the Board in May 2013. Residential lending The strategic plan focused on bringing growth to residential lending with the objective of growing the loan book through the branch network and mortgage broker introduced loans in the 2014/15 financial year. As reported above, approvals in residential lending increased 8.5% compared to 2013/14 as a result of: • Improving the skills, capability and accountability of the Sales and Distribution team (retail network) as a priority to lift both financial performance and customer experience; • Building Auswide Bank’s Third Party Broker platform by better defining, managing and growing home lending via the Broker and Mortgage Alliance introducers; • Growth in demand from South East Queensland from the Gold Coast north to the Sunshine Coast; and • An ongoing emphasis on resourcing the Third Party platform and first party network for growth into the 2015/16 financial year. Business Banking Auswide Bank introduced Business Banking in April 2014 with a staged origination phase. The new channel is to provide both growth opportunity as well as revenue diversification. The model targets SME customers primarily in the Auswide Bank core catchment area. Risk The Board and management of Auswide Bank have committed to addressing the risk framework of the group, and strengthening the risk management ‘culture’ of the organisation. This has resulted in enhanced measurement, monitoring and reporting of risk related matters in the financial year. Of particular note is the establishment of a separate Board Risk Committee to provide a further strengthening of the oversight and improvement of the risk framework across the organisation. The Board remains focused on the improvement of credit quality as the loan book grows. Arrears and collections The Arrears Project developed in the 2013/14 financial year has continued to deliver improvements in the arrears and collections systems of the group. The enhanced systems and procedures, retraining of staff and the addition of resources in the risk and collections departments, has resulted in an improvement in the arrears in the 2014/15 financial year. In accordance with data disclosed in the financial statements, total arrears greater than 30 days past due (excluding the effects of hardship accounts) have decreased from $43.0m to $22.3m in the year to 30 June 2015. Branch network The rebranding of Auswide Bank included the roll-out of the branch refurbishment plan, creating a more modern look and customer-friendly experience across our branch locations. Six branches moved to the new model during 2014/15 and additional branches have been identified for 2015/16 including Maryborough, Gympie and Bundaberg. CAPITAL The capital adequacy ratio for the Auswide Bank group (excluding MRM) at 30 June 2015 was 15.15% (2014: 14.29%). The tier 1 capital ratio at 30 June 2015 was 12.59% (2014: 11.68%). The total capital level remains strong and in excess of the Board target of 13.00%. DIVIDENDS A fully franked interim dividend of 14.0 cents per ordinary share was declared and paid on 27 March 2015 (28 March 2014 – 13.0 cents). A fully franked final dividend of 16.0 cents per ordinary share has been declared by the Board and will be paid on 2 October 2015 (3 October 2014 – 15.0 cents). The Board has resolved to suspend the Dividend Reinvestment Plan for the final dividend payable on 2 October 2015. DIRECTORS The names and particulars of the Directors of the Company in office during or since the end of the financial year are: Professor John S Humphrey LL.B Professor Humphrey was appointed to the Board on 19 February 2008, and was appointed Chairman following the 2009 Annual General Meeting. He was a senior partner in the Brisbane office of international law firm, King & Wood Mallesons (until 1 January 2013), where he specialised in commercial law and corporate mergers and acquisitions. He is now Executive Dean of the Faculty of Law at Queensland University of Technology. He is currently a Non- Executive Director of Horizon Oil Limited and Downer-EDI Limited. Professor Humphrey is a member of the Audit Committee and is an independent Director. Some branches have been closed, amalgamated or relocated to locations which will provide more opportunity. There is an ongoing review of the existing branch footprint to ensure it delivers a strong performance for both shareholders and customers. Technology In February, Auswide Bank upgraded the core operating system to Ultracs 4, to improve customer service by reducing unnecessary administrative tasks and improving account opening and transaction times. Customer information is more readily available which enhances the ability to match the right products to meet customers’ needs. Digital capability is a key component of the Auswide Bank strategy. Future plans include online and digital services including online account opening, online home loans and personal loans and improved online transactional capability. NAME CHANGE AND CHANGE OF STATUS Auswide Bank Ltd was previously known as Wide Bay Australia Ltd. Effective 1 April 2015, the building society formerly known as Wide Bay Australia Ltd converted to a bank and changed its name to Auswide Bank Ltd. Appropriate approval was granted by the Australian Prudential Regulation Authority in relation to both the change of status (from a building society to a bank) and the utilisation of the term ‘bank’ in the name of Auswide Bank Ltd. ACQUISITIONS The Board will continue to monitor opportunities to acquire loan books or suitable institutions as they arise. MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR There has been no other matter or circumstance since the end of the financial year that will significantly affect the results of operations in future years or the state of affairs of the company. Mr Peter J Sawyer FCA, FAICD, FIFS – Retired 17 March 2015 Mr Sawyer has been a Director since 1987. He retired as a Director of the company on 17 March 2015. Until August 2008, he was a partner of the firm Ulton, Chartered Accountants with offices in Bundaberg, Maryborough, Hervey Bay and Gladstone. Until his retirement Mr Sawyer was Chairman of the Audit Committee, a member of the Group Board Remuneration Committee, a member of the Risk Committee and was an independent Director. He also retired as a Director of Mortgage Risk Management Pty Ltd, a position he was appointed to in 2011. Mr Barry Dangerfield Mr Dangerfield was appointed to the Board on 22 November 2011. Mr Dangerfield has had a successful 39 year banking career with Westpac Banking Corporation having held positions across Queensland and the Northern Territory of Regional Manager Business Banking, Head of Commercial and Agribusiness and Regional General Manager Retail Banking. Mr Dangerfield was appointed to the Board of Mortgage Risk Management Pty Ltd on 19 November 2013. Mr Dangerfield is the Chairman of the Group Board Remuneration Committee, a member of the Audit Committee, a member of the Risk Committee and is an independent Director. Mr Gregory N Kenny GAICD, GradDipFin Mr Kenny was appointed to the Board on 19 November 2013. Mr Kenny has had a long and successful career with Westpac Banking Corporation and St George Bank Ltd, and prior to that with Bank of New York and Bank of America in Australia. At St George he held the positions of Managing Director (NSW and ACT), General Manager Corporate and Business Bank and General Manager Group Treasury and Capital Markets. Mr Kenny was appointed to the Board of Mortgage Risk Management Pty Ltd on 19 November 2013. He is the Chairman of the Risk Committee, a member of the Audit Committee, a member of the Group Board Remuneration Committee and is an independent Director. AUSWIDE BANK / 33 DIRECTORS CONTINUED Mr Martin J Barrett BA(ECON), MBA Mr Barrett commenced as Chief Executive Officer of Wide Bay Australia Ltd (now Auswide Bank Ltd) on 4 February 2013, and was subsequently appointed Managing Director on 19 September 2013. Mr Barrett has extensive experience in the banking sector, having previously held the positions of Managing Director (Queensland and Western Australia) and General Manager NSW/ACT Corporate & Business Bank at St George Bank. Prior to working at St George Bank, Mr Barrett held senior roles at regional financial institutions in the UK and at National Australia Bank. Mr Barrett was appointed as a Director of Mortgage Risk Management Pty Ltd on 19 November 2013. He is an Executive Director. Ms Sandra C Birkensleigh BCom, CA, GAICD, ICCP (Fellow) Appointed 2 February 2015 Ms Birkensleigh was appointed to the Board on 2 February 2015. Ms Birkensleigh was a partner at PricewaterhouseCoopers for 16 years until 2013. During her career her predominant industry focus has been Financial Services (Banking and Wealth Management). Ms Birkensleigh has also advised on risk management in other sectors such as retail and consumer goods, retail and wholesale electricity companies, resources and the education sector. Ms Birkensleigh is currently a Non-Executive Director of five Wealth Management and Insurance subsidiaries of the National Australia Bank and a Board of Management member and Treasurer of Children’s Therapy Centre. Ms Birkensleigh is an independent Director. She was appointed as the Chairperson of the Audit Committee upon her appointment to the Board on 2 February 2015, and also as a member of the Group Board Remuneration Committee and the Risk Committee. COMPANY SECRETARY Mr William R Schafer BCom, CA Mr Schafer was appointed Company Secretary in August 2001. He has extensive experience in public accounting and management. He is an Associate of the Institute of Chartered Accountants. DIRECTORS’ MEETINGS During the financial year, 16 meetings of the Directors (including 4 special meetings), 10 meetings of the Audit Committee, 4 meetings of the Remuneration Committee and 12 meetings of the Risk Committee were held, in respect of which each Director attended the following number: BOARD AUDIT REMUNERATION RISK HELD ATTENDED HELD ATTENDED HELD ATTENDED HELD ATTENDED JS Humphrey PJ Sawyer B Dangerfield GN Kenny MJ Barrett SC Birkensleigh 16 10 16 16 16 10 16 9 16 16 16 9 10 10 10 10 10 4 7 9 10 7 10* 4 n/a n/a n/a 4 4 4 n/a 1 4 4 1 n/a 1 9 12 12 12 5 n/a 8 12 12 11* 4 * Mr Barrett who is not a member of the Audit or Risk Committees, attended the Audit and Risk Committee meetings by invitation. DIRECTORS’ SHAREHOLDINGS The Directors currently hold shares of the Company in their own name or a related body corporate as follows: JS Humphrey PJ Sawyer (retired 17 March 2015) B Dangerfield MJ Barrett GN Kenny RELATED PARTY DISCLOSURE No persons or entities related to key management personnel provided services to the Company during the year. Ordinary Shares 31,551 1,077,567 42,076 122,314 15,000 34 / ANNUAL REPORT DIRECTORS’ STATUTORY REPORT C0NTINUED30 JUNE 2015REMUNERATION REPORT The Board Remuneration Committee consists of independent Directors Mr Barry Dangerfield, Mr Greg Kenny and Ms Sandra Birkensleigh (appointed 2 February 2015). Mr Peter Sawyer was a member of the committee until his retirement on 17 March 2015. Mr Barry Dangerfield is Chairman of the Committee. The objective of the Board Remuneration Policy is to maintain behaviour that supports the sustained financial performance and security of Auswide Bank Ltd and to reward efforts which increase shareholder and customer value. This objective is upheld by: • Appropriately balanced measures of performance weighted towards long- term shareholder interests; • Variable performance based pay for Executives/Senior Managers involving a long-term incentive plan subject to an extended period of performance assessment; • Recognition and reward for strong performance; • A considered balance between the capacity to pay and the need to pay to attract and retain capable staff at all levels; • The exercise of Board discretion as an ultimate means to mitigate unintended consequences of variable pay and to preserve the interests of the shareholders; and • Short-term and long-term incentive performance criteria are structured within the overall risk management framework of the Company. Remuneration of Non-Executive Directors The fees payable for Non-Executive Directors are determined with reference to industry standards, the size of the Company, performance and profitability. The Directors’ fees are approved by the shareholders at the Annual General Meeting in the aggregate and the individual allocation is approved by the Board. The Company’s Non-Executive Directors receive only fees (including superannuation) for their services. They are not entitled to receive any benefit on retirement or resignation (other than superannuation) and do not participate in any share based remuneration. Remuneration of Executive Directors and Senior Executives Remuneration of the Managing Director for 2014/15 was subject to review and recommendation of the Remuneration Committee and ratification by the Board. Remuneration of other senior executives for 2014/15 was subject to ratification by the Remuneration Committee. The remuneration policy for executives uses a range of components to focus the Managing Director and senior executives on achieving Auswide Bank’s strategy and business objectives. Auswide Bank’s overall philosophy is to adopt, where possible, a Total Target Reward methodology which links remuneration directly to the performance and behaviour of an individual with Auswide Bank’s results. The Total Target Reward framework is designed to: • Reward those who deliver the highest relative performance through the Company’s incentive programs; • Attract, recognise, motivate and retain high performers; • Provide competitive, fair and consistent rewards, benefits and conditions; • Align the interests of senior executives and shareholders through ownership of Company shares. In setting an individual’s Total Target Reward, the Committee considers: • Input from the Company’s Managing Director on the Total Target Reward for senior executives who report directly to the Managing Director; • Market data from comparable roles in the financial services industry; • The performance of both the individual and Auswide Bank Ltd over the last year; and • General remuneration market environment and trends. Each individual’s actual remuneration will reflect: • The degree of individual achievement in meeting key performance measures under the performance management framework; • Parameters approved by the Board based on the Company’s financial and risk performance and other qualitative factors; • Auswide Bank Ltd’s share price performance and relative shareholder returns; and • The timing and level of deferral in relation to any vesting conditions applicable. Components of the Total Target Reward include: • Fixed annual remuneration provided as cash and benefits (including employer superannuation and fringe benefits) (FAR); • Cash based short-term incentive (STI) reflecting both individual and business performance for the current year that supports the longer term objectives of Auswide Bank; and • Equity based long-term incentives (LTI) provided to drive management decisions focused on the long-term prosperity of Auswide Bank through the use of challenging performance hurdles. AUSWIDE BANK / 35 REMUNERATION REPORT CONTINUED Remuneration of Executive Directors and Senior Executives continued Performance based payments were made to senior executives under the STI scheme for the year as follows: • Mr M Barrett (Managing Director): $37,500 cash bonus granted 25 August 2014 as an incentive payment for achievement of non- financial Key Performance Indicator (‘KPI’) targets relating to the financial year ended 30 June 2014. These KPI targets included launching the company’s strategic business plan and effective executive team restructure, together with his overall effectiveness as measured against his initial executive service agreement. . Performance based payments were made to senior executives under the LTI scheme for the year as follows: • Mr M Barrett (Managing Director): $37,500 of shares granted 4 December 2014 as an incentive payment for achievement of non- financial Key Performance Indicator (‘KPI’) targets relating to the financial year ended 30 June 2014. These KPI targets included launching the company’s strategic business plan and effective executive team restructure, together with his overall effectiveness as measured against his initial executive service agreement. KPI targets were considered by the Remuneration Committee to be appropriate measures of performance as these had been specifically chosen for each executive with the overall aim of achieving the strategy and business objectives of the Company. The KPI targets for the Managing Director were assessed by the Remuneration Committee. The KPI targets for the other senior executives were assessed by the Managing Director and then ratified by the Remuneration Committee. No incentive payments based on financial KPIs were made during the year. Details of the nature and amount of each major element of the remuneration of each Director and each of the named Officers of the company receiving the highest remuneration and the key management personnel are: 36 / ANNUAL REPORT DIRECTORS’ STATUTORY REPORT C0NTINUED30 JUNE 20159 9 5 , 1 3 1 8 3 9 9 8 , 8 3 9 9 8 , – – – $ l a t o T $ d e s a b e c n a m r o f r e P $ – – – 7 6 6 , 1 4 8 3 9 4 6 , – – – – 5 2 1 , 5 0 6 0 0 5 , 7 3 1 2 3 , 1 1 , 5 0 2 3 2 0 , 1 0 0 5 , 7 3 1 2 3 , 1 1 5 6 9 6 2 3 , 3 5 0 4 9 1 , 2 9 1 , 3 9 1 , 5 7 8 8 2 2 5 2 0 9 7 1 , 6 6 7 , 2 0 2 , 6 7 8 4 2 3 , 1 – – – – – – – 2 4 1 , 7 1 9 3 4 , 5 9 5 4 , 0 9 9 3 , 8 4 4 3 , 5 5 7 , 4 1 2 3 8 2 , $ – – – – – – – – – – – – – – $ – – – – – – – – – – – – – – $ 7 1 4 , 1 1 3 0 8 , 7 3 0 8 , 7 3 8 7 , 8 1 5 1 6 3 , 4 3 6 5 , 5 5 0 5 5 , 3 8 7 , 8 1 7 1 1 , 6 1 0 7 6 6 1 , 3 8 7 , 8 1 3 2 8 5 1 , 4 6 0 , 7 1 0 4 2 3 0 1 , $ – – – – – – – – – – – – – – r e h t O d e s a b e r a h S m r e t g n o l n o i t a n m r e T i t n e m e r i t e R - r e p u S - n o N s t n e m y a p s t fi e n e b s t fi e n e b s t fi e n e b n o i t a u n n a y r a t e n o m l t n e m y o p m e t s o P s t fi e n e b l s t fi e n e b e e y o p m e m r e t - t r o h S e c n a m r o f r e P d e s a b d e x F i $ h s a C s u n o b $ s e e f h s a C d n a y r a a s l – – – 2 8 1 , 0 2 1 5 3 1 , 2 8 5 3 1 , 2 8 0 0 5 , 7 3 , 1 2 0 0 0 5 – – 2 5 0 8 3 , 4 0 3 9 5 , 0 0 5 , 7 3 9 2 8 , 1 8 8 – – – – – – – 0 4 0 , 1 0 3 5 4 5 3 7 1 , 7 2 9 , 1 7 1 2 0 1 , 6 0 2 4 5 7 , 9 5 1 7 4 9 0 8 1 , , 5 1 3 3 9 1 , 1 5 1 / 2 0 / 2 d e t n o p p A – i ) c e x e - n o n ( r o t c e r i D S , i h g e l s n e k r i B 5 1 / 3 0 / 7 1 d e r i t e R – ) c e x e - n o n ( r o t c e r i D J P , r e y w a S i s r o t c e r i D d e fi c e p S – n o i t a r e n u m e r l a t o T L E N N O S R E P T N E M E G A N A M Y E K R E H T O ) c e x e - n o n ( n a m r i a h C S J , y e r h p m u H ) c e x e - n o n ( r o t c e r i D B , l d e fi r e g n a D ) c e x e - n o n ( r o t c e r i D N G , y n n e K r o t c e r i i D g n g a n a M J M , t t e r r a B I S R O T C E R D D E F C E P S I I 5 1 0 2 r e c ffi O l i i a c n a n F f e h C R W i , r e f a h c S ) 5 1 / 1 0 / 8 2 o t 4 1 / 7 0 / 1 ( i s n o i t a r e p O d n a g n k n a B s s e n i s u B r e g a n a M l a r e n e G . 5 1 / 1 0 / 9 2 m o r f r e c ffi O g n i t a r e p O i f e h C S M , n e s s u m s a R i 4 1 / 7 0 / 1 d e t n o p p A – r e c ffi O k s i R i f e h C A C , n a g r e n o L r e c ffi O n o i t a m r o f n I i f e h C M S , e l l i v a C i g n k n a B s s e n i s u B & y t r a P d r i Th r e g a n a M l a r e n e G M C , s i v e N n o i t u b i r t s i D & s e a S r e g a n a M l l a r e n e G J A , l e d r A c M i s e v i t u c e x E d e fi c e p S – n o i t a r e n u m e r l a t o T AUSWIDE BANK / 37 $ l a t o T 2 1 3 , 1 1 1 0 5 7 , 2 8 3 2 9 0 5 , 0 5 7 , 2 8 4 6 4 2 3 , 2 8 9 2 8 5 , 9 6 8 2 0 1 , , 0 5 0 6 4 0 , 1 , 5 7 6 8 2 3 3 7 1 , 6 9 1 0 9 0 , 7 8 3 2 8 3 8 1 , , 7 1 5 6 8 1 4 1 7 , 2 1 2 , 2 9 9 4 9 1 , 1 – – – – – – – – – – – – – – – $ d e s a b e c n a m r o f r e P $ – – – – – 2 8 9 , 7 0 1 5 , 1 2 9 4 9 , 4 8 2 5 , 0 2 2 3 , 7 0 4 , 1 5 8 5 2 , 0 6 6 2 , 7 8 3 3 , 3 4 5 8 1 , $ – – – – – – – – – – – – – – – $ – – – – – – – – – – – – – – – $ 4 2 4 9 , 6 0 0 , 7 2 1 3 4 , 5 7 7 , 7 1 6 0 0 , 7 9 4 7 , 2 7 7 6 , 7 9 4 9 5 5 , 5 7 7 , 7 1 0 9 4 5 1 , 7 3 8 6 , 3 9 3 4 1 , 0 2 7 , 4 1 0 8 6 6 1 , 5 9 8 5 8 , $ – – – – – – – – – – – – – – – r e h t O d e s a b e r a h S m r e t g n o l n o i t a n m r e T i t n e m e r i t e R - r e p u S - n o N s t n e m y a p s t fi e n e b s t fi e n e b s t fi e n e b n o i t a u n n a y r a t e n o m e c n a m r o f r e P d e s a b d e x F i $ h s a C s u n o b $ s e e f h s a C d n a y r a a s l – – – 4 4 7 , 5 7 1 1 6 6 4 , 8 8 8 , 1 0 1 0 0 0 5 7 , , 5 2 2 2 8 4 – – – 4 4 7 , 5 7 5 1 7 , 9 2 2 8 6 3 9 , n o i t a t n e m e p m l I y g e t a r t S – r e g a n a M l a r e n e G & r o t c e r i D M F , d o e L c M 3 1 / 1 1 / 9 1 r o t c e r i D a s a d e r i t e R – t n e m e v o r p m I y t i v i t c u d o r P & 5 1 / 3 0 / 7 1 d e r i t e R – ) c e x e - n o n ( r o t c e r i D J P , r e y w a S 3 1 / 1 1 / 9 1 d e r i t e R – ) c e x e - n o n ( r o t c e r i D F J , r e l s s e r P ) c e x e - n o n ( n a m r i a h C S J , y e r h p m u H ) c e x e - n o n ( r o t c e r i D B , l d e fi r e g n a D ) c e x e - n o n ( r o t c e r i D N G , y n n e K r o t c e r i i D g n g a n a M J M , t t e r r a B I S R O T C E R D D E F C E P S I I 4 1 0 2 0 0 0 5 7 , 9 0 6 5 0 9 , i s r o t c e r i D d e fi c e p S – n o i t a r e n u m e r l a t o T L E N N O S R E P T N E M E G A N A M Y E K R E H T O 0 0 0 0 1 , 0 0 0 0 1 , – 0 0 0 0 1 , 0 0 0 0 1 , , 6 1 6 5 9 2 3 6 4 , 7 6 1 6 4 8 8 7 , 5 4 8 6 5 1 , 7 3 1 , 9 5 1 0 0 0 0 1 , 0 0 0 0 5 , 7 4 6 2 8 1 , , 4 5 5 0 4 0 , 1 r e g a n a M l a r e n e G . 5 1 / 1 0 / 9 2 m o r f r e c ffi O g n i t a r e p O i f e h C S M , n e s s u m s a R ) 5 1 / 1 0 / 8 2 o t 4 1 / 7 0 / 1 ( s n o i t a r e p O d n a g n k n a B s s e n i s u B i r e c ffi O n o i t a m r o f n I i f e h C M S , e l l i v a C . 4 1 / 7 0 / 1 m o r f t i d u A l a n r e t n I r e g a n a M l a r e n e G B M , n a n n e L c M n o i t u b i r t s i D & s e a S r e g a n a M l l a r e n e G J A , l e d r A c M i s e v i t u c e x E d e fi c e p S – n o i t a r e n u m e r l a t o T ) 4 1 / 6 0 / 0 3 o t 3 1 / 7 0 / 1 ( r e c ffi O k s i R i f e h C i g n k n a B s s e n i s u B & y t r a P d r i Th r e g a n a M l a r e n e G M C , s i v e N r e c ffi O l i i a c n a n F f e h C R W i , r e f a h c S s t fi e n e b l t n e m y o p m e t s o P l s t fi e n e b e e y o p m e m r e t - t r o h S d e u n i t n o c i s e v i t u c e x E r o n e S d n a s r o t c e r i D e v i t u c e x E f o n o i t a r e n u m e R I D E U N T N 0 C T R O P E R Y R O T U T A T S ’ S R O T C E R D I 5 1 0 2 E N U J 0 3 I D E U N T N O C T R O P E R N O T A R E N U M E R I 38 / ANNUAL REPORT Consequences of performance on shareholder wealth The tables below set out summary information about the consolidated entity’s earnings and movements in shareholder wealth for the five years to 30 June 2015: 30 June 2015 $ 30 June 2014 $ 30 June 2013 $ 30 June 2012 $ 30 June 2011 $ Net profit before tax Net profit after tax 19,028,332 20,192,139 3,727,851 25,135,492 32,630,595 13,261,991 14,062,303 2,881,658 17,603,198 22,621,371 Share price at start of year Share price at end of year Interim dividend Final dividend Basic earnings per share Diluted earnings per share 30 June 2015 $5.50 $5.05 14.00 cps 16.00 cps 36.07 cps 36.07 cps 30 June 2014 $5.25 $5.50 13.00 cps 15.00 cps 38.75 cps 38.75 cps 30 June 2013 $5.81 $5.25 13.00 cps 4.00 cps 6.78 cps 6.78 cps 30 June 2012 $8.50 $5.81 22.50 cps 25.00 cps 49.14 cps 49.14 cps 30 June 2011 $10.20 $8.50 30.00 cps 30.00 cps 66.36 cps 66.36 cps Dividends franked to 100% at 30% corporate income tax rate. The performance rights carry no dividend or voting rights. Subject to the vesting conditions 33% of the performance rights vest on the second anniversary of the measured performance year, 33% on the third anniversary and 33% on the fourth anniversary. The vesting conditions are as follows: • The Managing Director must be employed at the vesting date. • Any personal income tax payable on exercise of the performance rights is payable by the Managing Director. • The number of performance rights will be adjusted for any capital reconstructions (eg consolidation or splits). EMPLOYMENT CONTRACTS All named Key Management Personnel and the Managing Director have/had employment contracts. Major provisions of those agreements are summarised below: Current Personnel Managing Director – M J Barrett • Contract dated – 4 February 2013 • Term of agreement – no fixed term • Auswide Bank Ltd or M J Barrett may terminate this agreement by providing six months written notice or provide payment in lieu of the notice period. • Short Term Incentive (STI) – The STI benefit will be payable on achieving Key Performance Indicators each year and will be a cash bonus of up to a maximum value of 30% of Fixed Pay subject to meeting performance targets. For details of the STI see (a). • Long Term Incentive (LTI) – Grant of performance rights up to a maximum value of 30% of Fixed Pay and as determined by the Board Remuneration Committee. For details of the LTI see (b). (a) Short Term Incentives Up to 30% of base salary on achieving KPIs on the basis of percentage allocation in terms of CEO scorecard and measured by populating actual results and discretionary. The CEO must complete a full year of service to be eligible to receive the STI for each applicable financial year, the bonus entitlement will be calculated based on the 30th June results and the overall performance including discretionary as determined by the Board Remuneration Committee and paid on the 30th September. (b) Long Term Incentives The grant of performance rights, under the terms of Auswide Performance Rights Plan Rules, to subscribe for or be transferred at no cost one share for every performance right exercised. The Managing Director must complete a full year of service to be eligible to receive the LTI for each applicable financial year, the bonus entitlement will be calculated based on the 30th June results and overall performance including discretionary as determined by the Board Remuneration Committee and paid on the 1st July. AUSWIDE BANK / 39 LOANS TO KEY MANAGEMENT PERSONNEL The following table outlines the aggregate of loans to key management personnel. Details are provided on an individual basis for each of the key management personnel whose indebtedness exceeded $100,000 at any time during this reporting period. Loans have been made in accordance with the normal terms and conditions offered by the company and charged at 90 basis points below the standard variable rate or 20 basis points below the standard fixed rate on applicable loan types, available to the general public at any time. Similar rates are, however, available to the general public, therefore this interest rate would approximate an arm’s length interest rate offered by the company. Loans are also made in accordance with the Staff Share Plan approved by shareholders in 1992. The loans are repayable over 5 years at 0% interest, with the loans being secured by a lien over the relevant shares. Such loans are only available to employees of the company and there is no applicable arm’s length interest to take into account. EMPLOYMENT CONTRACTS CONTINUED Chief Financial Officer & Company Secretary – W R Schafer • Contract dated – 28 May 2007 Chief Operating Officer – M S Rasmussen (from 29 January 2015) General Manager – Business Banking & Operations (3 February 2014 to 28 January 2015) • Term of agreement – no fixed term • Original Contract dated – 3 February 2014. Amended Contract dated – 29 January 2015 • Term of agreement – no fixed term • Auswide Bank Ltd or M S Rasmussen may terminate this agreement by providing three months written notice or provide payment in lieu of the notice period. General Manager – Sales & Distribution – A J McArdle • Contract dated 24 May 2013 • Term of agreement – no fixed term • Auswide Bank Ltd or A J McArdle may terminate this agreement by providing three months written notice or provide payment in lieu of the notice period. General Manager – Third Party & Business Banking – C M Nevis • Contract dated 25 April 2013 • Term of agreement – no fixed term • Auswide Bank Ltd or C M Nevis may terminate this agreement by providing three months written notice or provide payment in lieu of the notice period. • Auswide Bank Ltd or W R Schafer may terminate this agreement by providing four months written notice or provide payment in lieu of the notice period. • Payment on early termination due to a takeover and not being offered ongoing employment in Bundaberg in an equivalent position, equal to six months salary plus two weeks salary per year of service with a minimum payment of 20 weeks and a maximum payment of 104 weeks. Chief Risk Officer – C A Lonergan • Original Contract dated – 10 February 2014. Amended Contract dated – 1 July 2014 • Term of agreement – no fixed term • Auswide Bank Ltd or C A Lonergan may terminate this agreement by providing three months written notice or provide payment in lieu of the notice period. Chief Information Officer – S M Caville • Contract dated 1 November 2010 • Term of agreement – no fixed term • Auswide Bank Ltd or S M Caville may terminate this agreement by providing four months written notice or provide payment in lieu of the notice period. • Payment on early termination due to a takeover and not being offered ongoing employment in Bundaberg in an equivalent position, equal to six months salary plus two weeks salary per year of service with a minimum payment of 20 weeks and a maximum payment of 104 weeks. 40 / ANNUAL REPORT DIRECTORS’ STATUTORY REPORT C0NTINUED30 JUNE 2015Loans for the year ended 30 June 2015 Directors Executives Total: Key management personnel Loans for the year ended 30 June 2014 Directors Executives Total: Key management personnel Individuals with loans above $100,000 in reporting period Directors MJ Barrett Executives WR Schafer AJ McArdle CM Nevis Balance* 30 June 2014 Interest charged $ (832,385) 23,540 (873,403) (1,705,788) 51,021 74,561 Balance* 30 June 2013 $ (1,599,467) (2,135,033) (3,734,500) Interest charged $ 22,289 32,899 55,188 Balance* 30 June 2015 (694,675) (1,643,366) (2,338,041) Balance* 30 June 2014 $ (832,385) (873,403) (1,705,788) Number in Group 30 June 2015 1 5 6 Number in Group 30 June 2014 2 3 5 Write-off $ – – – Write–off $ – – – Balance 30 June 2014 $ Interest** charged $ Write–off $ Balance* 30 June 2015 $ Highest in period $ (562,742) 23,540 (494,427) (339,820) – 22,472 16,333 11,770 – – – – (694,675) (705,443) (512,473) (575,385) (388,510) (403,714) (675,621) (695,722) Does not include SM Caville or CA Lonergan as their loans were less than $100,000. * Balance at financial year end or the date the individuals ceased being key management personnel. ** Actual interest charged is affected by the use of the company’s offset account. Balances are for the period individuals were considered key management personnel. AUSWIDE BANK / 41 EQUITY HOLDINGS AND TRANSACTIONS The following table is in respect of ordinary shares held directly, indirectly or beneficially by key management personnel. Balance 30 June 2014 Received as remuneration Options exercised Net change other Balance* 30 June 2015 – – – – – – – – – – – 74,535 15,000 – – 7,540 8,601 13,348 8,032 31,551 122,314 15,000 1,077,567 42,076 23,290 44,240 15,113 8,032 127,056 1,379,183 • The non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, as they did not involve reviewing or auditing the Auditor’s own work, acting in a management or decision making capacity for the Company, acting as an advocate for the Company or jointly sharing risks and rewards. A copy of the Auditor’s Independence Declaration, as required under Section 307C of the Corporations Act 2001, is included in the Directors’ Statutory Report. Directors JS Humphrey MJ Barrett GN Kenny PJ Sawyer B Dangerfield Executives WR Schafer SM Caville AJ McArdle CM Nevis Total 31,551 41,000 – 1,077,567 42,076 15,750 35,639 1,765 – – 6,779 – – – – – – – 1,245,348 6,779 * Balance at financial year end or the date the individuals ceased being key management personnel. NON-AUDIT SERVICES During the year, Deloitte Touche Tohmatsu, the Company’s Auditor, together with Bentleys, the previous Company’s Auditor, have performed certain other services in addition to their statutory duties. The Board has considered the non- audit services provided during the year by the Auditors, and in accordance with advice provided by the Board Audit Committee, is satisfied that the provision of those non-audit services during the year by the Auditors is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: • All non-audit services were subject to the Corporate Governance procedures adopted by the Company and have been reviewed by the Board Audit Committee to ensure they do not impact the integrity and objectivity of the Auditor, and INDEMNITIES AND INSURANCE PREMIUMS FOR OFFICERS AND AUDITORS During the financial year the Company has paid premiums to indemnify Directors and Officers against personal losses arising from their respective positions within the Company. During the reporting period and subsequent to 30 June 2015, no amounts have been paid under the indemnities by the Company. The Directors and Officers of the Company and its subsidiaries are insured against certain liabilities arising in the course of their duties. This premium is paid by the Company but under the confidentiality provisions of this policy, the Directors have not disclosed the nature of the liability, the insurer, the limit of liability, or the premiums paid. The company has not otherwise, during or since the end of the financial year, except to the extent permitted by law, indemnified or agreed to indemnify an officer or auditor of the company or of any related body corporate against a liability incurred as such an officer or auditor. 42 / ANNUAL REPORT DIRECTORS’ STATUTORY REPORT C0NTINUED30 JUNE 2015Non-audit services paid to Deloitte Touche Tohmatsu are as follows: Services provided in connection with: Other assurance services Non-audit services paid to Bentleys are as follows: Services provided in connection with: Tax returns (including subsidiaries) Other assurance services Other services 2015 $ 16,414 16,414 2015 $ 24,741 6,753 1,883 33,377 2014 $ – – 2014 $ 16,589 68,090 17,903 102,582 This Report is signed for and on behalf of the Board of Directors in accordance with a resolution of the Board of Directors. JS Humphrey Director Brisbane 28 August 2015 SC Birkensleigh Director AUSWIDE BANK / 43 AUDITOR’S INDEPENDENCE DECLARATION Deloitte Touche Tohmatsu ABN 74 490 121 060 Riverside Centre Level 25 123 Eagle Street Brisbane QLD 4000 Tel: +61 7 3308 7000 Fax: +61 7 3308 7001 www.deloitte.com.au The Board of Directors Auswide Bank Ltd PO Box 1063 BUNDABERG QLD 4670 28 August 2015 Dear Board Members Auswide Bank Ltd In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of independence to the directors of Auswide Bank Ltd. As lead audit partner for the audit of the financial statements of Auswide Bank Ltd for the financial year ended 30 June 2015, I declare that to the best of my knowledge and belief, there have been no contraventions of: (i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and (ii) any applicable code of professional conduct in relation to the audit. Yours sincerely DELOITTE TOUCHE TOHMATSU Jamie C.J. Gatt Partner Chartered Accountants Liability limited by a scheme approved under Professional Standards Legislation. 44 / ANNUAL REPORT CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2015 Interest revenue Borrowing costs Net interest revenue Other non interest revenue Employee benefits expense Depreciation expense Amortisation expense Occupancy expense Bad and doubtful debts expense Other expenses Profit before income tax Income tax expense Profit from continuing operations Other comprehensive income Items that may be reclassified to profit or loss Revaluation of Cash Flow Hedge to fair value Income tax relating to this item Revaluation of RMBS investments to fair value Income tax relating to this item Items that will not be reclassified to profit or loss Revaluation of land and buildings to fair value Income tax relating to this item Consolidated Chief entity Notes 2015 $ 2014 $ 2015 $ 2014 $ 2 2 3 10 3 127,397,139 134,202,850 127,000,350 133,590,585 (76,194,046) (84,549,451) (76,470,296) (84,701,389) 51,203,093 49,653,399 50,530,054 48,889,196 9,806,713 10,238,336 9,547,469 9,695,452 18,926,412 18,539,500 18,926,412 18,539,500 1,332,181 1,195,961 1,272,729 338,371 359,973 338,371 1,134,711 359,973 2,639,189 2,575,074 2,757,216 2,671,149 457,948 360,473 457,948 360,000 18,287,373 16,668,615 17,937,818 17,107,260 19,028,332 20,192,139 18,387,029 18,412,055 4 5,766,341 6,129,836 5,644,373 5,465,747 13,261,991 14,062,303 12,742,656 12,946,308 (1,466,387) 439,916 (12,553) 3,766 – – (27,126) 8,138 (1,466,387) 439,916 (12,553) 3,766 – – (27,126) 8,138 (809,882) 242,965 – – 266,292 (79,887) – – Other comprehensive income/(loss) for the year (1,602,175) (18,988) (848,853) (18,988) Total comprehensive income for the year 11,659,816 14,043,315 11,893,803 12,927,320 Profit is attributable to: Owners of the parent entity Non-controlling interests Total comprehensive income attributable to: Owners of the parent entity Non-controlling interests Earnings per share 13,261,991 14,062,638 12,742,656 12,946,308 – (335) – – 13,261,991 14,062,303 12,742,656 12,946,308 11,659,816 14,043,650 11,893,803 12,927,320 – (335) – – 11,659,816 14,043,315 11,893,803 12,927,320 Basic earnings per share (cents per share) Diluted earnings per share (cents per share) 28 28 36.07 36.07 38.75 38.75 The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. AUSWIDE BANK / 45 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2015 ASSETS Cash and cash equivalents Due from other financial institutions Accrued receivables Financial assets Current tax assets Loans and advances Other investments Property, plant and equipment Deferred income tax assets Other assets Goodwill Total assets LIABILITIES Consolidated Chief entity Notes 2015 $ 2014 $ 2015 $ 2014 $ 6 7 8 9 13 51,495,421 63,604,301 47,885,421 52,754,096 9,215,436 10,286,421 9,215,436 10,286,421 5,923,807 11,662,495 5,951,149 11,591,133 244,906,350 248,117,712 241,795,888 242,626,415 256,206 149,714 256,206 149,714 10 2,330,122,246 2,223,974,886 2,331,008,305 2,224,977,803 11 12 13 14 15 394,658 336,504 15,653,663 15,596,450 17,946,390 18,070,737 15,699,626 14,688,347 5,903,417 6,690,630 5,702,766 6,427,718 8,802,512 9,244,871 8,563,542 8,929,300 42,057,110 42,057,110 42,057,110 42,057,110 2,717,023,553 2,634,195,381 2,723,789,112 2,630,084,507 Deposits and short term borrowings 16 1,852,071,695 1,743,812,432 1,865,895,790 1,749,493,593 Payables and other liabilities Securitised loans Deferred income tax liabilities Provisions Subordinated capital notes Total liabilities Net assets EQUITY Parent entity interest in equity Contributed equity Reserves Retained profits Total parent entity interest in equity Non-controlling interests Contributed equity Retained profits Total non-controlling interests 17 10 18 19 20 21 22 23 24,581,026 21,109,505 23,854,618 20,023,248 603,657,502 634,130,085 603,657,502 634,130,085 1,563,280 2,267,848 1,393,064 1,774,780 7,159,978 8,897,253 2,704,060 2,739,880 28,000,000 28,000,000 28,000,000 28,000,000 2,517,033,481 2,438,217,123 2,525,505,034 2,436,161,586 199,990,072 195,978,258 198,284,078 193,922,921 166,636,661 163,550,831 166,636,661 163,550,831 13,817,409 14,482,677 13,533,572 14,482,677 19,536,002 18,015,375 18,113,845 15,889,413 199,990,072 196,048,883 198,284,078 193,922,921 – – – 1,000 (71,625) (70,625) – – – – – – Total equity 199,990,072 195,978,258 198,284,078 193,922,921 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 46 / ANNUAL REPORT CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2015 Cash flows from operating activities Interest received Dividends received Borrowing costs Consolidated Chief entity Notes 2015 $ 2014 $ 2015 $ 2014 $ 126,995,487 133,883,448 126,598,697 133,271,184 221 217 221 750,217 (74,642,405) (88,626,461) (74,918,655) (88,778,400) Other non interest income received 16,441,205 11,317,422 16,081,527 10,376,279 Cash paid to suppliers and employees (inclusive of goods and services tax) (33,019,046) (39,359,058) (31,117,928) (35,079,068) Income tax paid (5,426,392) (4,734,893) (5,043,833) (4,734,893) Net cash flows from operating activities 24 30,349,070 12,480,675 31,600,029 15,805,319 Cash flows from investing activities Net (increase)/decrease in investment securities 3,198,809 22,354,871 817,974 20,883,720 Net (increase)/decrease in amounts due from other financial institutions 1,070,985 (5,106,235) 1,070,985 (5,106,235) Net (increase)/decrease in loans (112,735,553) 1,969,311 (112,618,695) (828,577) Net (increase)/decrease in other investments (58,154) 250,000 (57,213) 250,000 Purchase of non current assets (2,761,940) (2,667,484) (2,761,940) (2,667,484) Proceeds from sale of property, plant and equipment 290,521 – 290,521 – Net cash used in investing activities (110,995,332) 16,800,463 (113,258,368) 12,531,424 Cash flows from financing activities Net increase/(decrease) in deposits and other borrowings Net increase/(decrease) in amounts due to other financial institutions and other liabilities Proceeds from share issue Dividends paid 108,447,021 38,457,541 116,590,955 39,005,642 (32,375,001) (74,219,680) (32,266,653) (74,219,680) 3,084,830 264,436 3,084,830 264,436 (10,619,468) (5,172,303) (10,619,468) (5,172,303) Net cash flows from financing activities 68,537,382 (40,670,006) 76,789,664 (40,121,905) Net increase/(decrease) in cash and cash equivalents (12,108,880) (11,388,868) (4,868,675) (11,785,162) Cash at beginning of financial year 63,604,301 74,993,169 52,754,096 64,539,258 Cash at end of financial year 6 51,495,421 63,604,301 47,885,421 52,754,096 For the purposes of the consolidated statement of cash flows, cash includes cash on hand and deposits on call. The cash at the end of the year can be agreed directly to the consolidated statement of financial position. The above consolidated statement of cash flows should be read in conjunction with the accompanying notes. AUSWIDE BANK / 47 $ l a t o T y t i u q e $ 7 3 9 , 1 2 9 6 8 1 , ) 0 9 2 0 7 ( , 9 0 3 5 8 1 , , 9 5 2 8 8 9 ) , 2 6 5 0 6 1 , 6 ( – – – , 8 3 6 2 6 0 4 1 , ) 5 3 3 ( ) 6 2 1 , 7 2 ( 8 3 1 , 8 , 2 5 2 5 6 9 0 0 2 , – – – ) 5 3 3 ( ) 5 2 6 0 7 ( , , 8 5 2 8 7 9 5 9 1 , , 8 5 2 8 7 9 5 9 1 , ) 5 2 6 0 7 ( , ) 5 2 6 0 7 ( , – 1 4 6 8 3 , 6 9 1 , 5 4 2 ) 3 5 5 2 1 ( , 6 6 7 , 3 , 2 9 2 6 6 2 ) 7 8 8 9 7 ( , , 6 1 9 9 3 4 , ) 7 8 3 6 6 4 , 1 ( 2 9 0 9 1 4 , 8 3 7 , 6 6 6 2 , 1 1 7 , 3 2 5 , 7 0 2 ) , 8 6 4 9 1 6 0 1 ( , ) , 8 3 6 3 3 5 , 7 ( , 3 7 0 0 9 9 9 9 1 , – – – – – – – – – – – – – – – ) 7 4 1 , 2 2 2 , 1 ( 1 9 9 , 1 6 2 3 1 , – – 5 2 6 0 7 , 5 2 6 0 7 , - n o N g n i l l o r t n o c - e r a h S d e s a b s t s e r e t n i s t n e m y a p i g n g d e h e v r e s e r w o fl h s a C l e b a l i a v A l u f t b u o D t e s s A d t L k n a B e d w s u A i f o s r e n w o o t e b a t u b i r t t A l $ – – – – – – – – – – – – – – – ) 4 4 5 3 5 3 , – – – – – – 6 9 1 , 5 4 2 $ – – – – – – – – – – – – – – – – – – – – – ( , 6 1 9 9 3 4 , ) 7 8 3 6 6 4 , 1 ( $ l e a s r o f e v r e s e r $ s t b e d e v r e s e r 6 6 5 5 8 1 , 0 1 8 , 7 8 3 2 , – – ) 6 2 1 , 7 2 ( 8 3 1 , 8 – – – – – – – – – – 8 7 5 6 6 1 , 0 1 8 , 7 8 3 2 , 8 7 5 6 6 1 , 0 1 8 , 7 8 3 2 , 8 7 5 6 6 1 , 0 1 8 , 7 8 3 2 , – – – – – – – – – – ) 3 5 5 2 1 ( , 6 6 7 , 3 – – – – – – – – – – – – $ e v r e s e r y r o t u t a t S $ l a r e n e G e v r e s e r $ $ e v r e s e r s t fi o r p n o i t a u a v e r l i d e n a t e R $ e r a h S l a t i p a c y r a n d r o i , 1 7 0 6 7 6 2 , , 9 3 9 3 3 8 5 , , 9 7 2 8 1 4 3 , , 9 9 2 3 1 1 , 0 1 3 6 2 , 7 7 3 2 6 1 , – – – – – – – – – – – – – – – – – – – – – , 1 7 0 6 7 6 2 , , 9 3 9 3 3 8 5 , , 9 7 2 8 1 4 3 , – – – , 8 3 6 2 6 0 4 1 , – – – – – – 9 0 3 5 8 1 , , 9 5 2 8 8 9 , 7 3 9 5 7 1 , 4 2 3 6 2 , 7 7 3 2 6 1 , – – – – – – – – – – – – – – – – – – – – – – – – – – – 5 8 1 , 2 9 3 – – , 2 9 2 6 6 2 ) 7 8 8 9 7 ( , – – – – – – – – – – – – ) 7 4 1 , 2 2 2 , 1 ( 1 9 9 , 1 6 2 3 1 , , ) 1 5 2 0 0 1 ( , 1 5 2 0 0 1 – – – – – – – – – – – – , 1 7 0 6 7 6 2 , , 9 3 9 3 3 8 5 , , 9 7 2 8 1 4 3 , , 5 7 3 5 1 0 8 1 , , 1 3 8 0 5 5 3 6 1 , , 1 7 0 6 7 6 2 , , 9 3 9 3 3 8 5 , , 9 7 2 8 1 4 3 , , 5 7 3 5 1 0 8 1 , , 1 3 8 0 5 5 3 6 1 , – – – – – – – – – – – – – – – – – – – – – – – – – – – – ) , 8 4 3 8 0 1 ( , ) 1 7 4 6 2 0 , 1 ( 1 9 7 , 7 5 1 0 1 8 , 7 8 3 2 , , 1 7 0 6 7 6 2 , , 9 3 9 3 3 8 5 , , 8 1 6 6 9 8 3 , – – , 0 7 4 5 5 1 , 0 3 ) , 8 6 4 9 1 6 0 1 ( , – 2 9 0 9 1 4 , 8 3 7 , 6 6 6 2 , , 1 3 8 0 5 5 3 6 1 , ) , 8 6 4 9 1 6 0 1 ( , , 0 3 8 5 8 0 3 , e u a v l r i a f o t s t n e m t s e v n i S B M R l f o n o i t a u a v e r o t e u d e s a e r c e D y n a p m o c t n e r a p f o s r e b m e m o t e b a t u b i r t t a t fi o r P l s t s e r e t n i g n i l l l o r t n o c - n o n o t e b a t u b i r t t a t fi o r P : r a e y e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T 3 1 0 2 y u J l 1 t a e c n a a B l y t i t n e d e t a d i l o s n o C S B M R l f o n o i t a u a v e r n o t n e m t s u d a y t i l i j b a i l x a t d e r r e f e D s t n e m t s e v n i l a t o t - b u S l n a p e r a h s ff a t s r o f l a t i p a c e r a h s f o e u s s I l n a p t n e m t s e v n e r d n e d v d r o f i i i l a t i p a c e r a h s f o e u s s I l d o s e c n i s s t e s s a f o n o i t a u a v e r l f o s t fi o r p d e n a t e r o t i r e f s n a r T n o i t a d i l o s n o c n o e v r e s e r m o r f / o t r e f s n a r T l s e e y o p m e o t s e r a h s f o e u s s I e u a v l r i a f o t s t n e m t s e v n i S B M R l f o n o i t a u a v e r o t e u d e s a e r c e D y n a p m o c t n e r a p f o s r e b m e m o t e b a t u b i r t t a t fi o r P l : r a e y e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T s t s e r e t n i g n i l l o r t n o c - n o n f o n o i t a d i l o s n o c e D i y r a d i s b u s n i t n e m t s e v n i f o n o i t a c fi i s s a c e R l 4 1 0 2 y u J l 1 t a e c n a a B l 4 1 0 2 e n u J 0 3 t a e c n a a B l e u a v l r i a f o t s g n d i l i u b d n a d n a l l f o n o i t a u a v e r o t e u d e s a e r c n I d n a d n a l l f o n o i t a u a v e r n o t n e m t s u d a y t i l i j b a i l x a t d e r r e f e D S B M R l f o n o i t a u a v e r n o t n e m t s u d a y t i l i j b a i l x a t d e r r e f e D s t n e m t s e v n i s g n d i l i u b e g d e h w o fl h s a c l f o n o i t a u a v e r n o t n e m t s u d a y t i l i j b a i l x a t d e r r e f e D l a t o t - b u S e u a v l r i a f o t e g d e h w o fl h s a c l f o n o i t a u a v e r o t e u d e s a e r c e D l n a p e r a h s ff a t s r o f l a t i p a c e r a h s f o e u s s I l n a p t n e m t s e v n e r d n e d v d r o f i i i l a t i p a c e r a h s f o e u s s I s e r a h s i i y r a n d r o – d a p r o r o f d e d v o r p s d n e d v D i i i ) , 2 6 5 0 6 1 , 6 ( – s e r a h s i i y r a n d r o – d a p r o r o f d e d v o r p s d n e d v D i i i ) , 8 4 3 8 0 1 ( , ) 1 7 4 6 2 0 , 1 ( 1 9 7 , 7 5 1 0 1 8 , 7 8 3 2 , , 1 7 0 6 7 6 2 , , 9 3 9 3 3 8 5 , , 8 1 6 6 9 8 3 , , 2 0 0 6 3 5 9 1 , , 1 6 6 6 3 6 6 6 1 , 5 1 0 2 e n u J 0 3 t a e c n a a B l i . s e t o n g n y n a p m o c c a e h t h t i w n o i t c n u n o c n j i d a e r e b d u o h s l y t i u q e n i s e g n a h c f o t n e m e t a t s d e t a d i l o s n o c e v o b a e Th I Y T U Q E N I S E G N A H C F O T N E M E T A T S D E T A D L O S N O C I 5 1 0 2 E N U J 0 3 D E D N E R A E Y E H T R O F 48 / ANNUAL REPORT $ l a t o T y t i u q e , 5 9 5 2 8 9 5 8 1 , , 8 0 3 6 4 9 2 1 , 8 3 1 , 8 ) 6 2 1 , 7 2 ( , 5 1 9 9 0 9 8 9 1 , 9 0 3 5 8 1 , , 9 5 2 8 8 9 ) , 2 6 5 0 6 1 , 6 ( , 1 2 9 2 2 9 3 9 1 , , 1 2 9 2 2 9 3 9 1 , – 6 6 7 , 3 ) 3 5 5 2 1 ( , ) 7 8 8 9 7 ( , , 2 9 2 6 6 2 , 9 4 6 3 4 7 , 2 1 , 6 1 9 9 3 4 , ) 7 8 3 6 6 4 , 1 ( 7 1 7 , 7 1 8 5 0 2 , 2 9 0 9 1 4 , 8 3 7 , 6 6 6 2 , ) , 8 6 4 9 1 6 0 1 ( , , 9 7 0 4 8 2 8 9 1 , $ – – – – – – – – – – – – – – – – – – – – – – – $ – – – – – – – – – – – – – – – – – – – – – – – - n o N g n i l l o r t n o c - e r a h S d e s a b s t s e r e t n i s t n e m y a p $ – – – – – – – – – – – – – – – – i g n g d e h e v r e s e r , 6 1 9 9 3 4 , ) 7 8 3 6 6 4 , 1 ( w o fl h s a C l e b a l i a v A l u f t b u o D t e s s A $ l e a s r o f e v r e s e r $ s t b e d e v r e s e r 6 6 5 5 8 1 , 0 1 8 , 7 8 3 2 , – 8 3 1 , 8 ) 6 2 1 , 7 2 ( – – – 8 7 5 6 6 1 , 0 1 8 , 7 8 3 2 , – – – – – – 8 7 5 6 6 1 , 0 1 8 , 7 8 3 2 , 8 7 5 6 6 1 , 0 1 8 , 7 8 3 2 , $ e v r e s e r y r o t u t a t S $ l a r e n e G e v r e s e r $ $ e v r e s e r s t fi o r p n o i t a u a v e r l i d e n a t e R $ e r a h S l a t i p a c y r a n d r o i , 1 7 0 6 7 6 2 , , 9 3 9 3 3 8 5 , , 9 7 2 8 1 4 3 , – – – – – – – – – , 1 7 0 6 7 6 2 , , 9 3 9 3 3 8 5 , , 9 7 2 8 1 4 3 , – – – – – – – – – , 1 7 0 6 7 6 2 , , 9 3 9 3 3 8 5 , , 9 7 2 8 1 4 3 , , 1 7 0 6 7 6 2 , , 9 3 9 3 3 8 5 , , 9 7 2 8 1 4 3 , , 7 6 6 3 0 1 , 9 3 6 2 , 7 7 3 2 6 1 , , 8 0 3 6 4 9 2 1 , – – – – , 5 7 9 9 4 0 2 2 , – – – 9 0 3 5 8 1 , , 9 5 2 8 8 9 3 6 2 , 7 7 3 2 6 1 , , 3 1 4 9 8 8 5 1 , , 1 3 8 0 5 5 3 6 1 , , 3 1 4 9 8 8 5 1 , , 1 3 8 0 5 5 3 6 1 , – – – – – – 6 6 7 , 3 ) 3 5 5 2 1 ( , – – – – – – – – – – – – – – – – – – – – – – – – – – – – , 2 9 2 6 6 2 ) 7 8 8 9 7 ( , – – – – – – , ) 1 5 2 0 0 1 ( , 1 5 2 0 0 1 – , 9 4 6 3 4 7 , 2 1 – – – – – – – – – – – – – – – – – – – – – – – – – – , ) 1 7 4 6 2 0 , 1 ( 1 9 7 , 7 5 1 0 1 8 , 7 8 3 2 , , 1 7 0 6 7 6 2 , , 9 3 9 3 3 8 5 , , 3 3 4 4 0 5 3 , – – , 3 1 3 3 3 7 , 8 2 ) , 8 6 4 9 1 6 0 1 ( , – 2 9 0 9 1 4 , 8 3 7 , 6 6 6 2 , , 1 3 8 0 5 5 3 6 1 , s t n e m t s e v n i S B M R l f o n o i t a u a v e r n o t n e m t s u d a y t i l i j b a i l x a t d e r r e f e D l a t o t - b u S l n a p e r a h s ff a t s r o f l a t i p a c e r a h s f o e u s s I e u a v l r i a f o t s t n e m t s e v n i S B M R l f o n o i t a u a v e r o t e u d e s a e r c e D y n a p m o c t n e r a p f o s r e b m e m o t e b a t u b i r t t a t fi o r P l : r a e y e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T 3 1 0 2 y u J l 1 t a e c n a a B l y t i t n e f e h C i l n a p t n e m t s e v n e r d n e d v d r o f i i i l a t i p a c e r a h s f o e u s s I e u a v l r i a f o t s t n e m t s e v n i S B M R l f o n o i t a u a v e r o t e u d e s a e r c e D l d o s e c n i s s t e s s a f o n o i t a u a v e r l f o s t fi o r p d e n a t e r o t i r e f s n a r T y n a p m o c t n e r a p f o s r e b m e m o t e b a t u b i r t t a t fi o r P l : r a e y e h t r o f e m o c n i e v i s n e h e r p m o c l a t o T 4 1 0 2 y u J l 1 t a e c n a a B l 4 1 0 2 e n u J 0 3 t a e c n a a B l s t n e m t s e v n i S B M R l f o n o i t a u a v e r n o t n e m t s u d a y t i l i j b a i l x a t d e r r e f e D e u a v l r i a f o t s g n d i l i u b d n a d n a l l f o n o i t a u a v e r o t e u d e s a e r c n I s g n d i l i u b d n a d n a l l f o n o i t a u a v e r n o t n e m t s u d a y t i l i j b a i l x a t d e r r e f e D e g d e h w o fl h s a c l f o n o i t a u a v e r n o t n e m t s u d a y t i l i j b a i l x a t d e r r e f e D l a t o t - b u S e u a v l r i a f o t e g d e h w o fl h s a c l f o n o i t a u a v e r o t e u d e s a e r c e D l n a p e r a h s ff a t s r o f l a t i p a c e r a h s f o e u s s I l n a p t n e m t s e v n e r d n e d v d r o f i i i l a t i p a c e r a h s f o e u s s I s e r a h s i i y r a n d r o – d a p r o r o f d e d v o r p s d n e d v D i i i ) , 2 6 5 0 6 1 , 6 ( – s e r a h s i i y r a n d r o – d a p r o r o f d e d v o r p s d n e d v D i i i , ) 1 7 4 6 2 0 , 1 ( 1 9 7 , 7 5 1 0 1 8 , 7 8 3 2 , , 1 7 0 6 7 6 2 , , 9 3 9 3 3 8 5 , , 3 3 4 4 0 5 3 , , 5 4 8 3 1 1 , 8 1 , 1 6 6 6 3 6 6 6 1 , 5 1 0 2 e n u J 0 3 t a e c n a a B l i . s e t o n g n y n a p m o c c a e h t h t i w n o i t c n u n o c n j i d a e r e b d u o h s l y t i u q e n i s e g n a h c f o t n e m e t a t s d e t a d i l o s n o c e v o b a e Th AUSWIDE BANK / 49 I D E U N T N O C Y T U Q E N I I S E G N A H C F O T N E M E T A T S D E T A D L O S N O C I 5 1 0 2 E N U J 0 3 D E D N E R A E Y E H T R O F NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 30 JUNE 2015 NOTE 1 BASIS OF PREPARATION The financial report is a general purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001 and Australian Accounting Standards and complies with other requirements of the law. The financial report has also been prepared on a historical cost basis, except for land and buildings, hedging instruments, financial assets held at fair value through profit or loss, and available-for-sale financial assets that have been measured at fair value. All amounts are denominated in Australian Dollars (AUD). The financial report complies with Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standards (‘AIFRS’). Compliance with AIFRS ensures that the financial report, comprising the financial statements and notes thereto, complies with International Financial Reporting Standards (‘IFRS’). The financial report covers the consolidated group of Auswide Bank Ltd and controlled entities, (‘consolidated entity/economic entity’) and Auswide Bank Ltd as an individual parent entity (‘the company/chief entity’). Auswide Bank Ltd is a for-profit listed public company, incorporated and domiciled in Australia. (a) Principles of consolidation The consolidated financial statements incorporate all of the assets, liabilities and results of the chief entity and all of the subsidiaries. Subsidiaries are entities the chief entity controls. The chief entity controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The chief entity reassesses whether it has control of an investee if facts and circumstances indicate changes to the aforementioned elements have occurred. A list of the subsidiaries is provided in Note 11. The assets, liabilities and results of the subsidiaries are fully consolidated into the financial statements of the consolidated entity from the date on which control is obtained. 50 / ANNUAL REPORT The consolidation of a subsidiary is discontinued from the date that control ceases. Intercompany transactions, balances and unrealised gains or losses on transactions between group entities are fully eliminated on consolidation. Accounting policies of subsidiaries have been changed and adjustments made where necessary to ensure uniformity of the accounting policies adopted by the consolidated entity. Equity interests in a subsidiary not attributable, directly or indirectly, to the consolidated entity are presented as ‘non-controlling interests’. The consolidated entity initially recognises non-controlling interests that are present ownership interests in subsidiaries and are entitled to a proportionate share of the subsidiary’s net assets on liquidation at either fair value or at the non-controlling interests’ proportionate share of the subsidiary’s net assets. Subsequent to initial recognition, non-controlling interests are attributed their share of profits or loss and each component of other comprehensive income. Non-controlling interests are shown separately within the equity section of the statement of financial position and statement of profit or loss and other comprehensive income. (b) Income tax The economic entity adopts the liability method of tax-effect accounting whereby the income tax expense is based on the profit from ordinary activities adjusted for any non- assessable or disallowed items. Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited to profit or loss except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity. Deferred income tax assets are recognised to the extent that it is probable that future taxable profits will be available against which deductible temporary differences can be utilised. The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the economic entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case the current and deferred tax are also recognised in other comprehensive income or directly in equity, respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination. Tax consolidation legislation The company and all its wholly-owned Australian resident entities are part of a tax-consolidated group under Australian taxation law as of the financial year ended 30 June 2008. Auswide Bank Ltd is the head entity in the tax consolidation group, and as a consequence recognises current and deferred tax amounts relating to transactions, events and balances of the wholly-owned Australian controlled entities in this group as if those transactions, events and balances were its own, in addition to the current and deferred tax amounts arising in relation to its own transactions, events and balances. The tax consolidated group has not entered into a tax sharing agreement. (c) Property, plant and equipment Each class of property, plant and equipment is carried at cost or fair value less, where applicable, any accumulated depreciation and impairment losses. Freehold land and buildings are shown at their fair value (being the amount for which an asset could be exchanged between knowledgeable willing parties in an arm’s length transaction), based on periodic, but at least triennial, valuations by external independent valuers, less subsequent depreciation for buildings. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the re-valued amount of the asset. Depreciation The depreciable amount of all fixed assets including building and capitalised lease assets, but excluding freehold land, is depreciated on a straight line basis over their useful lives to the economic entity commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. Plant and equipment are measured on the cost basis less depreciation and impairment losses. The carrying amount of plant and equipment is reviewed annually by Directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset’s employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred. Any revaluation increase arising on the revaluation of freehold land and buildings is recognised in other comprehensive income and accumulated within equity, except to the extent that it reverses a revaluation decrease for the same asset previously recognised in profit or loss, in which case the increase is credited to profit or loss to the extent of the decrease previously expensed. A decrease in the carrying amount arising on the revaluation of such land and buildings is recognised in profit or loss to the extent that it exceeds the balance, if any, held in the properties revaluation reserve relating to a previous revaluation of that asset. The depreciation periods used for each class of depreciable assets are: • Buildings – 40 years • Plant and equipment – 4 to 6 years • Leasehold improvements – 4 to 6 years or the term of the lease, whichever is the lesser The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in profit or loss. When revalued assets are sold, amounts included in the revaluation reserve relating to that asset are transferred to retained earnings. (d) Leases Leases of fixed assets where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership, that are transferred to entities in the economic entity are classified as finance leases. Finance leases are capitalised by recording an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period. Leased assets are depreciated on a straight-line basis over their estimated useful lives where it is likely that the economic entity will obtain ownership of the asset or over the term of the lease. Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred. Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term. (e) Financial instruments Financial assets and financial liabilities are recognised when a group entity becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss. Subsequent to initial recognition these instruments are measured as set out below. The group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the group is recognised as a separate asset or liability. The group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. AUSWIDE BANK / 51 NOTE 1 BASIS OF PREPARATION CONTINUED (e) Financial instruments continued Financial assets at fair value through profit and loss A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. Realised and unrealised gains and losses arising from changes in the fair value of these assets are included in profit or loss in the period in which they arise. Loans and receivables Loans and receivables are non- derivative financial assets with fixed or determinable payments that are not quoted in an active market and are stated at amortised cost using the effective interest rate method, less any impairment losses. Held-to-maturity investments These investments have fixed maturities and it is the group’s intention to hold these investments to maturity. Any held-to-maturity investments held by the group are stated at amortised cost using the effective interest rate method, less any impairment losses. Available-for-sale financial assets Available-for-sale financial assets include any financial assets not included in the above categories. Available-for- sale financial assets are reflected at fair value. Unrealised gains and losses arising from changes in fair value are taken directly to equity. Financial liabilities Non-derivative financial liabilities are recognised at amortised cost, comprising original debt less principal payments and amortisation. 52 / ANNUAL REPORT Impairment At each reporting date, the group assess whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale financial instruments, a prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. Impairment losses are recognised in the consolidated statement of profit or loss and other comprehensive income. (f) Share capital – Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects. (g) Derivative financial instruments The consolidated entity enters into derivative financial instruments, including interest rate swaps, to manage its exposure to interest rate risk. Derivatives are initially recognised at fair value at the date the derivative contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. Hedge accounting The consolidated entity designates hedging instruments as cash flow hedges. At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the consolidated entity documents whether the hedging instrument is highly effective in offsetting changes in cash flows of the hedged item attributable to the hedged risk. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income and accumulated under the heading of cash flow hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, and is included in the ‘other gains and losses’ line item. Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss, in the same line as the recognised hedged item. However, when the hedged forecast transaction that is hedged results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously recognised in other comprehensive income and accumulated in equity are transferred from equity and included in the initial measurement of the cost of the non-financial asset or nonfinancial liability. Hedge accounting is discontinued when the consolidated entity revokes the hedging relationship, when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting. Any gain or loss recognised in other comprehensive income and accumulated in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognised immediately in profit or loss. (h) Fair value of assets and liabilities The consolidated entity measures some of its assets and liabilities at fair value on either a recurring or non-recurring basis, depending on the requirements of the applicable Accounting Standard. Fair value is the price the economic entity would receive to sell an asset or would have to pay to transfer a liability in an orderly (i.e. unforced) transaction between independent, knowledgeable and willing market participants at the measurement date. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS C0NTINUED30 JUNE 2015As fair value is a market-based measure, the closest equivalent observable market pricing information is used to determine fair value. Adjustments to market values may be made having regard to characteristics of the specific asset or liability. The fair values of assets and liabilities that are not traded in an active market are determined using one or more valuation techniques. These valuation techniques maximise, to the extent possible, the use of observable market data. To the extent possible, market information is extracted from either the principal market for the asset or liability (i.e. the market with greatest volume and level of activity for the asset or liability) or, in the absence of such a market, the most advantageous market available to the entity at the end of the reporting period (i.e. the market that maximises the receipts from the sale of the asset or minimises the payments made to transfer the liability, after taking into account transaction costs and transport costs). For non-financial assets, the fair value measurement also takes into account a market participant’s ability to use the asset in its highest and best use or to sell it to another market participant that would use the asset in its highest and best use. The fair value of liabilities and the entity’s own equity instruments (excluding those related to share-based payment arrangements) may be valued, where there is no observable market price in relation to the transfer of such financial instrument, by reference to observable market information where such instruments are held in assets. Where this information is not available, other valuation techniques are adopted and where significant, are detailed in the respective note to the financial statements. (i) Impairment of assets At the end of each reporting period, the Board assesses whether there is any indication that an asset may be impaired. The assessment will include the consideration of external and internal sources of information, including dividends received from subsidiaries, associates or jointly controlled entities. If such an indication exists, an impairment test is carried out on the asset by comparing the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, to the asset’s carrying amount. Any excess of the asset’s carrying amount over its recoverable amount is recognised immediately in profit or loss, unless the asset is carried at revalued amount in accordance with another standard (for example, in accordance with the revaluation model in AASB 116: Property, Plant and Equipment). Any impairment loss of a revalued asset is treated as a revaluation decrease in accordance with that other standard. Where it is not possible to estimate the recoverable amount of an individual asset, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Impairment testing is performed annually for goodwill, intangible assets with indefinite lives and intangible assets not yet available for use. (j) Investments in associates Investments in associate companies are recognised in the financial statements by applying the equity method of accounting where significant influence is exercised over an investee. Significant influence exists where the investor has the power to participate in the financial and operating policy decisions of the investees but does not have control or joint control over those policies. The financial statements of the associate are used by the group to apply the equity method. The reporting dates of the associate and the group are identical and both use consistent accounting policies. The investment in the associate is carried in the consolidated and chief entity statement of financial position at cost plus post-acquisition changes in the group’s share of net assets of the associate, less any impairment in value. The consolidated and chief entity profit or loss reflects the group’s share of the results of operations of the associate. Where there has been a change recognised directly in the associate’s equity, the group recognises its share of any changes and disclose this, when applicable, in the consolidated and chief entity statement of changes in equity. (k) Goodwill Goodwill acquired in a business combination is initially measured at its cost, being the excess of the cost of the business combination over the group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised at the date of the acquisition. Goodwill is subsequently measured at its cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill is allocated to each of the group’s cash-generating units, or groups of cash-generating units, expected to benefit from the synergies of the business combination. Cash- generating units or groups of cash- generating units to which goodwill has been allocated are tested for impairment annually, or more frequently if events or changes in circumstances indicate that goodwill might be impaired. (l) Trade and other payables Trade and other payables represent the liabilities for goods and services received by the entity that remain unpaid at the end of the reporting period. The balances are recognised as a liability with the amounts normally paid within 30 days of recognition of the liability. (m) Employee benefits Provision is made for the economic entity’s liability for employee benefits arising from services rendered by employees to balance date. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. (n) Provisions Provisions are recognised when the group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. AUSWIDE BANK / 53 NOTE 1 BASIS OF PREPARATION CONTINUED (o) Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less. Premium Revenue – Mortgage Risk Management Pty Ltd Premiums have been brought to account as income from the date of attachment of risk. Direct Premiums comprise amounts charged to the policy holder, excluding stamp duties collected on behalf of the statutory authorities. The earned portion of premiums received and receivable is recognised as revenue. (p) Goods and Services Tax (GST) (r) Loans and advances – doubtful debts Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the statement of financial position are shown inclusive of GST. Cash flows are presented in the statement of cash flows on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. (q) Revenue Revenue is recognised to the extent that it is probable that the economic benefits will flow to the group and the revenue can be reliably measured. Interest is recognised as it accrues (using the effective interest method, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument) to the net carrying amount of the financial asset. Dividend revenue is recognised when the shareholder’s right to receive the payment is established. Fees and commissions are recognised as revenue or expenses on an accrual basis. During the 2011/2012 financial year, insurance for a significant portion of loans was transferred from MRM to QBE. MRM will continue to insure the remaining portfolio not transferred, with new loans in excess of 80% LVR being insured with QBE going forward. Loan impairments are recognised when objective evidence is available that a loss event has occurred and as a consequence it is not likely that all amounts owed will be received. Specific provisions for doubtful debts are recognised for individual loans that are identified as impaired by undertaking an assessment of estimated future cashflows. Collective provisions are determined by segmenting the portfolio into asset classes with similar credit risk characteristics. Each exposure within each segment is allocated a probability of default and a loss given default percentage to calculate an expected loss. Key elements determining the segmentation of an exposure include the product type, LVR, whether the exposure is covered by Lenders’ Mortgage Insurance and the arrears position. Where loan terms have been renegotiated (e.g. loans provided hardship relief), impairment provisioning is determined on the basis of the arrears position as if the renegotiation had not taken place. Restructured loans are returned to performing status after meeting restructured terms for a minimum 6 month period. (s) Adoption of new and revised accounting standards The consolidated entity has adopted all of the new, revised or amending Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) that are mandatory for the current reporting period. Any new, revised or amending Accounting Standards or Interpretations that are not yet mandatory have not been early adopted. The following new, revised or amending Accounting Standards and Interpretations were effective for the current reporting period. i) AASB 2012-3: Amendments to Australian Accounting Standards – Offsetting Financial Assets and Financial Liabilities The amendments to AASB 132 clarify the requirements relating to the offset of financial assets and financial liabilities. Specifically, the amendments clarify the meaning of ‘currently has a legally enforceable right of set-off’ and ‘simultaneous realisation and settlement’. The application of these amendments does not have any material impact on the disclosures in the consolidated financial statements. ii) AASB 2013-3 Amendments to AASB 136 – Recoverable Amount Disclosures for Non-Financial Assets The amendments to AASB 136 remove the requirement to disclose the recoverable amount of a cash- generating unit (CGU) to which goodwill or other intangible assets with indefinite useful lives had been allocated when there has been no impairment or reversal of impairment of the related CGU. Furthermore, the amendments introduce additional disclosure requirements applicable to when the recoverable amount of an asset or a CGU is measured at fair value less costs of disposal. These new disclosures include the fair value hierarchy, key assumptions and valuation techniques used which are in line with the disclosure required by AASB 13 Fair Value Measurements. 54 / ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS C0NTINUED30 JUNE 2015The application of these amendments does not have any material impact on the disclosures in the consolidated financial statements. iii) AASB 2013-4 Amendments to Australian Accounting Standards – Novation of Derivatives and Continuation of Hedge Accounting The amendments to AASB 139 provide relief from the requirement to discontinue hedge accounting when a derivative designated as a hedging instrument is novated under certain circumstances. The amendments also clarify that any change to the fair value of the derivative designated as a hedging instrument arising from the novation should be included in the assessment and measurement of hedge effectiveness. The application of these amendments does not have any material impact on the disclosures in the consolidated financial statements. iv) AASB 2013-5 Amendments to Australian Accounting Standards – Investment Entities The amendments to AASB 10 define an investment entity and require a reporting entity that meets the definition of an investment entity not to consolidate its subsidiaries but instead to measure its subsidiaries at fair value through profit or loss in its consolidated and separate financial statements. As neither the parent entity nor its subsidiaries meet the definition of an investment entity, the application of these amendments do not have any material impact on the disclosures in the consolidated financial statements. v) AASB 2014-1 Amendments to Australian Accounting Standards (Part A: Annual Improvements 2010-2012 and 2011-2013 Cycles) The Annual Improvements 2010-2012 and 2011-2013 have made amendments to various AASBs. The application of these amendments does not have any material impact on the disclosures in the consolidated financial statements. vi) AASB 2014-1 Amendments to Australian Accounting Standards (Part B: Defined Benefit Plans: Employee Contributions Amendments to AASB 119) The amendments to AASB 119 clarify how an entity should account for contributions made by employees or third parties to defined benefit plans, based on whether those contributions are dependent on the number of years of service provided by the employee. The application of these amendments does not have any material impact on the disclosures in the consolidated financial statements. vii) Interpretation 21 Levies Interpretation 21 addresses the issue as to when to recognise a liability to pay a levy imposed by a government. The Interpretation defines a levy, and specifies that the obligating event that gives rise to the liability is the activity that triggers the payment of the levy, as identified by legislation. The application of these amendments does not have any material impact on the disclosures in the consolidated financial statements. viii) AASB 1031 Materiality, AASB 2013-9 Amendments to Australian Accounting Standards – Conceptual Framework, Materiality and Financial Instruments (Part B: Materiality), AASB 2014- 1 Amendments to Australian Accounting Standards (Part C: Materiality) The revised AASB 1031 is an interim standard that cross-references to other Standards and the ‘Framework for the Preparation and Presentation of Financial Statements’ (issued December 2013) that contain guidance on materiality. The AASB is progressively removing references to AASB 1031 in all Standards and Interpretations. Once all of these references have been removed, AASB 1031 will be withdrawn. The adoption of AASB 1031, AASB 2013-9 (Part B) and AASB 2014-1 (Part C) does not have any material impact on the disclosures or the amounts recognised in the consolidated financial statements. The adoption of new Accounting Standards and Interpretations did not have any significant impact on the financial performance or position of the consolidated entity. (t) New standards and interpretations not yet adopted Accounting Standards and Interpretations issued by the AASB that are not yet mandatorily applicable to the Group, together with an assessment of the potential impact of such pronouncements on the Group when adopted in future periods, are discussed below: (i) AASB 9 Financial Instruments, and the relevant amending standards (applicable for annual reporting periods commencing on or after 1 January 2018) AASB (9) 2009 introduces new requirements for the classification and measurement of financial assets. AASB 9 was subsequently amended in December 2010 to include requirements for the classification and measurement of financial liabilities and for derecognition, and in December 2013 to include the new requirements for general hedge accounting. Another revised version of AASB 9 was issued in December 2014 mainly to include a) impairment requirements for financial assets and b) limited amendments to the classification and measurement requirements by introducing a ‘fair value through other comprehensive income’ (FVTOCI) measurement category for certain simple debt instruments. The consolidated entity has not yet determined the potential impact of this standard. (ii) AASB 15 Revenue from Contracts with Customers (applicable for annual reporting periods commencing on or after 1 January 2017) AASB 15 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. AASB 15 will supersede the current revenue recognition guidance including AASB 118 Revenue, AASB 111 Construction Contracts and the related interpretations when it becomes effective. The core principle of AASB 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. AUSWIDE BANK / 55 Currently, the Group uses the straight- line method for depreciation and amortisation for its property, plant and equipment, and intangible assets respectively. The Directors of the company believe that the straight-line method is the most appropriate method to reflect the consumption of economic benefits inherent in the respective assets and accordingly, the Directors of the Company do not anticipate that the application of these amendments to AASB 116 and AASB 138 will have a material impact on the Group’s consolidated financial statements. (v) AASB 2014-9 Amendments to Australian Accounting Standards – Equity Method in Separate Financial Statements (applicable for annual reporting periods commencing on or after 1 January 2016) The consolidated entity has not yet determined the potential impact of this standard. (vi) AASB 2014-10 Amendments to Australian Accounting Standards – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (applicable for annual reporting periods commencing on or after 1 January 2016) The consolidated entity has not yet determined the potential impact of this standard. (vii) AASB 2015-1 Amendments to Australian Accounting Standards – Annual Improvements to Australian Accounting Standards 2012-2014 Cycle (applicable for annual reporting periods commencing on or after 1 January 2016) The consolidated entity has not yet determined the potential impact of this standard. (viii) AASB 2015-2 Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 101 (applicable for annual reporting periods commencing on or after 1 January 2016) The consolidated entity has not yet determined the potential impact of this standard. (ix) AASB 2015-3 Amendments to Australian Accounting Standards arising from the Withdrawal of AASB 1031 Materiality (applicable for annual reporting periods commencing on or after 1 July 2015) The consolidated entity has not yet determined the potential impact of this standard. (x) AASB 2015-5 Amendments to Australian Accounting Standards – Investment entities: Applying the Consolidation Exception (applicable for annual reporting periods commencing on or after 1 January 2016) The consolidated entity has not yet determined the potential impact of this standard. (xi) AASB 2015-4 Amendments to Australian Accounting Standards – Financial Reporting Requirements forAustralian Groups with a Foreign Parent (applicable for annual reporting periods commencing on or after 1 July 2015) This standard is not applicable to the group. (xii) AASB 2014-6 Amendments to Australian Accounting Standards – Agriculture: Bearer Plants (applicable for annual reporting periods commencing on or after 1 January 2016) This standard is not applicable to the group. (u) Comparative figures When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. (v) Critical accounting estimates and judgements The preparation of financial statements in conformity with AASBs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. NOTE 1 BASIS OF PREPARATION CONTINUED (t) New standards and interpretations not yet adopted continued (ii) AASB 15 Revenue from Contracts with Customers continued The consolidated entity has not yet determined the potential impact of this standard. (iii) AASB 2014-3 Amendments to Australian Accounting Standards – Accounting for Acquisitions of Interest in Joint Operations (applicable for annual reporting periods commencing on or after 1 January 2016) The amendments to AASB 11 provide guidance on how to account for the acquisition of a joint operation that constitutes a business as defined in AASB 3 Business Combinations. Specifically, the amendments state that the relevant principles on accounting for business combinations in AASB 3 and other standards (eg. AASB 136 Impairment of Assets regarding impairment testing of a cash generation unit to which goodwill on acquisition of a joint operation has been allocated) should be applied. The same requirements should be applied to the formation of a joint operation if, and only if, an existing business is contributed to the joint operation by one of the parties that participate in the joint operation. The consolidated entity has not yet determined the potential impact of this standard. (iv) AASB 2014-4 Amendments to Australian Accounting Standards – Clarification of Acceptable Methods of Depreciation and Amortisation (applicable for annual reporting periods commencing on or after 1 January 2016) The amendments to AASB 116 prohibit entities from using a revenue-based depreciation method for items of property, plant and equipment. The amendments to AASB 138 introduce a rebuttable presumption that revenue is not an appropriate basis for amortisation of an intangible asset. 56 / ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS C0NTINUED30 JUNE 2015Estimates and underlying assumptions are reviewed on an ongoing basis and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. Details on critical estimates and judgements in respect of impairment of receivables, impairment of investments, impairment of goodwill, outstanding claims liability and assessment of credit risk are disclosed in Note 1r), Note 11, Note 15, Note 19 and Note 35, respectively. NOTE 2 INTEREST REVENUE AND INTEREST EXPENSE The following tables show the average balance for each of the major categories of interest bearing assets and liabilities, the amount of interest revenue or expense and the average interest rate. Month end averages are used as they are representative of the entity’s operations during the period. Average balance $ Interest $ Average interest rate % Interest revenue 2015 Deposits with other financial institutions Investment securities Loans and advances Other Borrowing costs 2015 Deposits from other financial institutions Customer deposits and NCDs Subordinated notes Net interest revenue 2015 Interest revenue 2014 Deposits with other financial institutions Investment securities Loans and advances Other Borrowing costs 2014 Deposits from other financial institutions Customer deposits and NCDs Subordinated notes Net interest revenue 2014 41,428,599 1,175,240 207,733,025 6,019,468 2,318,949,522 119,655,707 22,442,781 546,724 2,590,553,927 127,397,139 580,744,389 22,233,067 1,827,661,850 52,008,737 28,000,000 1,952,242 2,436,406,239 76,194,046 51,203,093 55,788,914 1,532,820 206,515,969 6,091,913 2,253,418,425 125,963,525 25,634,682 614,592 2,541,357,990 134,202,850 613,768,329 24,289,381 1,750,221,615 57,383,290 28,000,000 2,876,780 2,391,989,944 84,549,451 49,653,399 2.84 2.90 5.16 2.44 4.92 3.83 2.85 6.97 3.13 2.75 2.95 5.59 2.40 5.28 3.96 3.28 10.27 3.53 AUSWIDE BANK / 57 NOTE 3 PROFIT BEFORE INCOME TAX Profit before income tax includes the following revenues and expenses whose disclosure is relevant in explaining the financial performance of the consolidated group. Consolidated Chief entity 2015 $ 2014 $ 2015 $ 2014 $ Profit relating to mortgage insurance activities (also refer Note 1(q)) Premium revenue 239,090 488,220 – – Included in the profit before income tax are the following revenue items: Other revenue Dividends Controlled entities Other corporations Fees and commissions Revaluation of investment securities to fair value Other income – 221 – 217 – 221 750,000 217 8,184,854 7,813,686 8,184,854 7,813,686 110,500 1,272,048 408,750 1,527,463 9,806,713 10,238,336 – 1,362,394 9,547,469 – 1,131,549 9,695,452 The profit before income tax is arrived at after charging the following items: Other expenses Fees and commissions 8,692,582 8,608,000 8,692,582 8,608,000 Provisions for employee entitlements 318,385 343,752 318,385 343,752 General and administration expenses 9,163,567 8,554,347 8,926,851 8,155,508 Underwriting expenses 112,839 (837,484) – – Superannuation contributions paid 1,449,779 1,362,126 1,449,779 1,362,126 18,287,373 16,668,615 17,937,818 17,107,260 58 / ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS C0NTINUED30 JUNE 2015NOTE 4 INCOME TAX Major components of tax expense for the year are: Current income tax Deferred income tax 2015 $ 2014 $ 2015 $ 4,869,643 4,898,837 4,804,007 896,698 1,230,999 840,366 Income tax reported in profit or loss 5,766,341 6,129,836 5,644,373 2014 $ 4,366,108 1,099,639 5,465,747 Consolidated Chief entity The prima facie tax on profit before income tax differs from the income tax provided as follows: Prima facie tax on profit before income tax at 30% (2014: 30%) 5,708,500 6,057,642 5,516,109 5,523,617 Tax effect of permanent differences Depreciation of buildings Franked dividends Other items – net Intra-group dividend (MRM) Income tax expense attributable to profit from ordinary activities NOTE 5 DIVIDENDS PAID Dividends paid during the year Interim for current year Fully franked dividend on ordinary shares 56,188 (133) 1,786 – 55,641 – 16,553 – 56,188 (133) 72,209 55,641 – 111,489 – (225,000) 5,766,341 6,129,836 5,644,373 5,465,747 Consolidated Chief entity 2015 $ 2014 $ 2015 $ 2014 $ 5,151,525 4,711,018 5,151,525 4,711,018 Final for previous year 5,467,943 1,449,544 5,467,943 1,449,544 Fully franked dividend on ordinary shares 10,619,468 6,160,562 10,619,468 6,160,562 In accordance with Accounting Standards, dividends are only provided for as declared or paid. Subsequent to the reporting date, the Board declared a dividend of 16.0 cents per ordinary share ($5.927 million), for the six months to 30 June 2015, payable on 2 October 2015. The final dividend for the six months to 30 June 2014 ($5.468 million) was paid on 3 October 2014, and was disclosed in the 2013/14 financial accounts in accordance with Accounting Standards. The tax rate at which the dividends have been franked is 30% (2014: 30%). AUSWIDE BANK / 59 NOTE 5 DIVIDENDS PAID CONTINUED The amount of franking credits available for the subsequent financial year are: Consolidated Chief entity 2015 $ 2014 $ 2015 $ 2014 $ Balance as at the end of the financial year 17,196,190 16,637,890 17,196,190 16,637,890 Credits that will arise from the payment of income tax payable per the financial statements Debits that will arise from the payment of the proposed dividend (256,206) (149,714) (256,206) (149,714) (2,539,931) (2,343,404) (2,539,931) (2,343,404) 14,400,053 14,144,772 14,400,053 14,144,772 Dividends – cents per share Dividend proposed Fully franked dividend on ordinary shares Interim dividend paid during the year Fully franked dividend on ordinary shares Final dividend paid for the previous year Fully franked dividend on ordinary shares 16.0 14.0 15.0 15.0 13.0 4.0 16.0 14.0 15.0 15.0 13.0 4.0 NOTE 6 CASH AND CASH EQUIVALENTS Cash at bank and in hand Deposits on call Consolidated Chief entity 2015 $ 2014 $ 2015 $ 2014 $ 19,135,421 8,554,801 19,135,421 8,554,096 32,360,000 55,049,500 28,750,000 44,200,000 51,495,421 63,604,301 47,885,421 52,754,096 NOTE 7 DUE FROM OTHER FINANCIAL INSTITUTIONS Consolidated Chief entity 2015 $ 2014 $ 2015 $ 2014 $ Deposits with Special Service Providers (SSPs) 9,090,851 10,161,836 9,090,851 10,161,836 Subordinated loans 124,585 124,585 124,585 124,585 9,215,436 10,286,421 9,215,436 10,286,421 Maturity analysis No maturity specified 9,215,436 10,286,421 9,215,436 10,286,421 9,215,436 10,286,421 9,215,436 10,286,421 NOTE 8 ACCRUED RECEIVABLES Consolidated Chief entity 2015 $ 2014 $ 2015 $ 3,924,865 3,536,251 3,924,865 1,775,864 223,078 1,708,008 6,418,236 5,923,807 11,662,495 1,775,864 250,420 5,951,149 2014 $ 3,536,251 1,708,008 6,346,874 11,591,133 Interest receivable Securitisation receivables Other 60 / ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS C0NTINUED30 JUNE 2015NOTE 9 FINANCIAL ASSETS Consolidated Chief entity 2015 $ 2014 $ 2015 $ 2014 $ Financial assets held to maturity Certificates of deposit 190,934,302 172,145,269 190,934,302 172,145,269 Financial assets available for sale RMBS investments 3,516,198 5,106,919 3,516,198 5,106,919 Financial assets at fair value through profit or loss designated on initial recognition Investments in floating rate notes 3,110,462 5,491,297 – – Financial assets at amortised cost Notes – Securitisation program & other 47,345,388 65,374,227 47,345,388 65,374,227 244,906,350 248,117,712 241,795,888 242,626,415 Maturity analysis Up to 3 months From 3 to 12 months From 1 to 5 years Later than 5 years 194,044,764 173,655,268 190,934,302 173,655,268 – – 7,063,109 2,000,000 – – 3,571,812 – 50,861,586 65,399,335 50,861,586 65,399,335 244,906,350 248,117,712 241,795,888 242,626,415 Cash held within securitised trusts at 30 June 2015 of $22,490,711 (2014: $20,192,160) is restricted for use only by the trusts. NOTE 10 LOANS AND ADVANCES Term loans Loans to controlled entities Continuing credit loans Provision for impairment Total loans Provision for impairment Specific provision Opening balance Consolidated Chief entity 2015 $ 2014 $ 2015 $ 2014 $ 2,142,158,075 1,992,857,967 2,142,158,075 1,992,857,967 – – 903,119 1,002,797 189,683,341 233,543,371 189,666,281 233,543,491 2,331,841,416 2,226,401,338 2,332,727,475 2,227,404,255 (1,719,170) (2,426,452) (1,719,170) (2,426,452) 2,330,122,246 2,223,974,886 2,331,008,305 2,224,977,803 (2,426,452) (2,175,797) (2,426,452) (2,175,797) Bad and doubtful debts provided for during the year 707,282 (250,655) 707,282 (250,655) Total provision for impairment (1,719,170) (2,426,452) (1,719,170) (2,426,452) Charge to profit or loss for bad and doubtful debts comprises: Specific provision 707,282 (250,655) 707,282 Bad debts recognised directly (1,165,230) (109,818) (1,165,230) (250,655) (109,345) (457,948) (360,473) (457,948) (360,000) Maturity analysis Up to 3 months From 3 to 12 months From 1 to 5 years Later than 5 years 2,672,835 1,895,272 2,154,321 1,475,789 2,672,835 1,895,272 2,154,321 1,475,789 27,190,942 25,570,522 27,190,942 25,570,522 2,298,363,197 2,194,774,254 2,299,249,256 2,195,777,171 2,330,122,246 2,223,974,886 2,331,008,305 2,224,977,803 AUSWIDE BANK / 61 NOTE 10 LOANS AND ADVANCES CONTINUED The Group has entered into securitisation transactions on residential mortgage loans that do not qualify for derecognition. The special purpose entity established for the securitisation is considered to be controlled in accordance with Australian Accounting Standards & Australian Accounting Interpretations. The economic entity is entitled to any residual income of the securitisation program after all payments due to investors and costs of the program have been met, to this extent the economic entity retains credit and liquidity risk. The impact on the consolidated and chief entity is an increase in liabilities – securitised loans – of $603.658 million (30 June 2014 – $634.130 million). Concentration of risk The loan portfolio of the company does not include any loan which represents 10% or more of capital. NOTE 11 OTHER INVESTMENTS Consolidated Chief entity 2015 $ 2014 $ 2015 $ 2014 $ Unlisted shares – at cost 394,658 336,504 394,658 336,384 Controlled entities – at Directors’ valuation – – 15,259,005 15,260,066 394,658 336,504 15,653,663 15,596,450 Investment in controlled entities comprises: Name Chief entity Country of incorporation Contribution to consolidated operating profit after income tax Investment carrying value June 2015 % June 2014 % 2015 $ 2014 $ 2015 $ 2014 $ Auswide Bank Ltd Australia – – 12,742,656 12,196,308 – – Australia 100.0 100.0 284,590 1,539,984 14,000,000 14,000,000 Controlled entities Mortgage Risk Management Pty Ltd Wide Bay Australia Mini Lease Pty Ltd MPBS Insurance Pty Ltd MPBS Holdings Pty Ltd Australia Australia Australia 51.0 100.0 100.0 100.0 100.0 51.0 100.0 100.0 100.0 100.0 F.I. Software Solutions Pty Ltd Australia Widcap Securities Pty Ltd Australia Auswide Performance Rights Pty Ltd Australia 100.0 – – – (348) – – 2 1,041 2 234,745 326,694 1,258,903 1,258,903 – – – – – – – – 100 120 – – 519,335 1,866,330 15,259,005 15,260,066 13,261,991 14,062,638 15,259,005 15,260,066 The carrying amounts of unlisted shares were reassessed by the Directors as at 30 June 2015 with the reassessments being based on whether there were internal or external indicators that the investment was impaired. 62 / ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS C0NTINUED30 JUNE 2015An application has been lodged with the prudential regulator, APRA, for the cancellation of the insurance licence for MRM. This will effectively transfer the risk on the insured loans and the associated provisions to the balance sheet of the chief entity. Wide Bay Mini Lease Pty Ltd The company controlled a 51% share in Wide Bay Australia Mini Lease Pty Ltd. This company provided leasing and rental finance for businesses to acquire plant and equipment. The Directors have resolved not to issue new leasing and rental contracts and to wind the business down as existing contracts are paid out. This company was deregistered on 17 June 2015. MPBS Holdings Pty Ltd MPBS Holdings Pty Ltd is a wholly owned subsidiary which holds the property at 73 Victoria Street, Mackay. MPBS Insurance Pty Ltd MPBS Insurance Pty Ltd is a wholly owned subsidiary which is no longer actively trading. F.I. Software Solutions Pty Ltd F.I. Software Solutions Pty Ltd was a wholly owned subsidiary. The company was deregistered on 17 June 2015. Widcap Securities Pty Ltd Widcap Securities Pty Ltd is a wholly owned subsidiary which acts as the manager and custodian for Auswide Bank’s public RMBS and Warehouse Securitisation programs. Auswide Performance Rights Pty Ltd Auswide Performance Rights Pty Ltd is the trustee company for the Auswide Performance Rights Plan, set up to assist in the retention and motivation of executives, senior managers and qualifying employees. (b) Investment accounted for using the equity method On 29 July 2005, Auswide Bank Ltd acquired a 25% interest in Financial Technology Securities Pty Ltd. Financial Technology has operated since 1993 as financial planners; the company operates primarily in South East Queensland and New South Wales, with a large clientele developed over the years. Financial Technology Securities Pty Ltd is not listed on any public exchange and therefore there is no published quotation price for the fair value of this investment. The reporting date of the associate is the same as Auswide Bank Ltd. In the 2012/13 financial year, the Directors resolved that a provision for impairment for the investment be made as the recoverable amount was determined to be nil. The impairment was based on the view that there is significant uncertainty about dividend income to be derived. Therefore, it was determined that value-in-use was nil. As there is no discernable market for the investment, it was also determined that fair value less costs to sell was nil. As a result of this, small profits arising in past years have not been brought to account. The carrying value of the investment, accounted for using the equity method, was reduced from $7.377m to nil. In the current financial year, a carrying value of $50,873 was recognised as a result of the application of equity accounting given the recent developments which indicate a return to profitability. However, profitability is not at a level to indicate a reversal of the impairment. The following table illustrates summarised information of the investment in Financial Technology Securities Pty Ltd: (a) Controlled entities Mortgage Risk Management Pty Ltd (MRM) MRM is a wholly owned subsidiary of Auswide Bank Ltd and is a registered lenders’ mortgage insurance provider. The company acts solely for the purpose of insuring the company’s residential mortgages and has received APRA approval. The operations of MRM are subject to and under the supervision of APRA in respect of compliance and capital requirements. MRM meets APRA’s acceptable LMI test and all residential mortgage loans insured with the company qualify for a concessional risk-weight for capital adequacy purposes. During the 2011/12 financial year the insurance for a portfolio of loans was transferred from MRM to QBE at a cost of $6.1m which is being written off over 5 years. MRM will continue to insure the remaining portfolio not transferred, with new loans in excess of 80% LVR being insured with QBE going forward. The Directors, acting on advice from the reviewing actuary, significantly increased the provisions in MRM in the second half of 2012/13. The increase arose from a re-examination and revised modelling of the insured loan book. The Directors resolved that the additional provisions and resulting losses in MRM were evidence of impairment of the investment in the entity. Impairment losses of $6.42m were recognised in the chief entity, in the year ended 30 June 2013, reducing the value of the investment from $20.42m to $14.00m. The carrying value of the investment on the balance sheet of the chief entity has been derived by estimating the net present value of the future cash flows, and by evaluating the net assets of the controlled entity. The recoverable amounts are considered by the Directors to be value-in-use, and it is the intention of the Board for the subsidiary to continue trading. There is unlikely to be a market for sale of the subsidiary. AUSWIDE BANK / 63 NOTE 11 OTHER INVESTMENTS CONTINUED (b) Investment accounted for using the equity method continued Share of associate’s balance sheet: Current assets Non-current assets Current liabilities Non-current liabilities Net assets Share of associate’s revenue and profit: Revenue Profit before income tax Income tax Profit after income tax 30 June 2015 $ 30 June 2014 $ 198,980 318,857 – 136,298 (113,522) (58,682) 163,074 – 864,336 (214,621) (143,460) 825,112 30 June 2015 $ 30 June 2014 $ 1,456,046 2,092,104 54,341 (3,468) 50,873 52,473 (22,309) 30,164 We note that the above figures were based on the unaudited accounts of Financial Technology Securities Pty Ltd. NOTE 12 PROPERTY, PLANT AND EQUIPMENT Consolidated Chief entity 2015 $ 2014 $ 2015 $ 2014 $ Freehold land and buildings At independent valuation – June 2015 9,135,000 9,680,000 9,135,000 9,680,000 Provision for depreciation (14,369) (357,100) (14,369) (357,100) Land and buildings 73 Victoria St Mackay 2,250,000 3,504,890 At independent valuation – June 2015 Provision for depreciation (3,236) (122,500) – – – – 11,367,395 12,705,290 9,120,631 9,322,900 Movement in carrying amount Carrying amount at beginning of year 12,705,290 12,940,200 9,322,900 9,501,450 Additions Revaluation increment/(decrement) (net) Disposals Depreciation – 4,890 (809,882) (290,521) (237,492) – – (239,800) – 266,292 (290,521) (178,040) – – – (178,550) Carrying amount at end of year 11,367,395 12,705,290 9,120,631 9,322,900 64 / ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS C0NTINUED30 JUNE 2015Plant and equipment At cost Consolidated Chief entity 2015 $ 2014 $ 2015 $ 2014 $ 31,623,379 29,781,921 31,623,379 29,781,921 Provision for depreciation (25,044,384) (24,416,474) (25,044,384) (24,416,474) 6,578,995 5,365,447 6,578,995 5,365,447 Movement in carrying amount Carrying amount at beginning of year Additions Disposals Depreciation 5,365,447 2,927,981 4,017,405 2,672,391 5,365,447 2,927,981 4,017,405 2,672,391 (281,372) (8,215) (281,372) (8,215) (1,433,061) (1,316,134) (1,433,061) (1,316,134) Carrying amount at end of year 6,578,995 5,365,447 6,578,995 5,365,447 17,946,390 18,070,737 15,699,626 14,688,347 All land and buildings were revalued as at 3 June 2015 by certified practicing valuers Jim Webster and Richard Lysnar of Propell National Valuers QLD. The valuations were assessed to fair market values. The company’s policy is to engage external experts to comprehensively revalue freehold land and buildings every three years with an assessment performed by the Board of Directors in intervening years. NOTE 13 INCOME TAX ASSETS Consolidated Chief entity 2015 $ 2014 $ 2015 $ 2014 $ Income tax receivable 256,206 149,714 256,206 149,714 Deferred income tax assets are attributable to: Employee leave provisions Other provisions Property, plant & equipment 794,106 798,900 794,106 798,900 1,924,045 2,704,216 1,924,045 2,698,286 691,192 625,834 691,192 625,834 Unrealised losses on investments 1,919,599 2,009,074 1,886,449 1,886,449 MPBS project costs Other project acquisition costs Premium on loans purchased (First Mac) Subordinated notes prepaid expenses Share issue costs Other items – 95,601 144,569 25,924 – 308,381 57,726 78,459 147,005 14,216 32,449 222,751 – 95,601 144,569 25,924 – 140,880 57,726 78,459 147,005 14,216 32,449 88,394 5,903,417 6,690,630 5,702,766 6,427,718 In respect of each temporary difference the adjustment was charged to income, except for share issue costs which were credited to equity. NOTE 14 OTHER ASSETS Prepayments Consolidated Chief entity 2015 $ 8,802,512 8,802,512 2014 $ 9,244,871 9,244,871 2015 $ 8,563,542 8,563,542 2014 $ 8,929,300 8,929,300 AUSWIDE BANK / 65 NOTE 15 GOODWILL Pursuant to a bidder’s statement lodged with the Australian Securities & Investments Commission on 15 November 2007, the company issued an off-market takeover offer for 100% of the ordinary shares in Mackay Permanent Building Society Ltd (MPBS). On 11 January 2008 the company announced the fulfilment of conditions pertaining to the off-market takeover offer set out in the bidder’s statement and gave notice that the offer was unconditional effective 10 January 2008. In accordance with APRA’s approval for the transfer of business the financial and accounting records of the entities were merged on 1 June 2008. The financial accounting for this business combination was prepared in accordance with Australian Accounting Standards and as set out in note 1k), and recognises the acquisition date as 10 January 2008. Goodwill 42,057,110 42,057,110 42,057,110 42,057,110 42,057,110 42,057,110 42,057,110 42,057,110 Consolidated Chief entity 2015 $ 2014 $ 2015 $ 2014 $ Impairment testing The cash-generating unit selected for impairment testing of goodwill was the Auswide Bank Ltd chief entity, as it is impractical to identify a separate MPBS cash generating unit within the chief and consolidated entities. The goodwill disclosed in the Statement of Financial Position at 30 June 2015 was supported by the impairment testing and no impairment adjustment was required. Impairment testing of goodwill was carried out by comparing the net present value of cash flows from the cash-generating unit to the carrying value of the cash generating unit. The cash flows were based on projections of future earnings before taxation, depreciation and amortisation, minus forecast capital expenditure. The cash flows have been projected over a period of three years. The terminal value of the business beyond year three has been determined using a constant growth perpetuity. The key assumptions used in carrying out the impairment testing were as follows: The recoverable amount exceeds the carrying value of the cash-generating unit by $33.70m at 30 June 2015. The trigger points at which the carrying value of cash-generating unit would exceed its recoverable amount, while holding all other variables constant, are as follows: • Terminal growth rate – 3.8% (2014: 1.8%); • Discount rate – 12.8% (2014: 10.7%); and • Average revenue growth rate – 4.60% (2014: 3.0%). • The budgeted trading result for the financial year ending 30 June 2016 represents the cash-generating potential of the chief entity based on the forecasts approved by the Board of Directors; • The estimated growth in the cash- generating unit cash flows over years one to three (beyond 30 June 2016) was 5.0% (2014: 3.0%); (Such growth rate is considered to be reasonable by management and the Board of Directors given historical loan book growth and strategic long-term growth targets) • The terminal growth rate (beyond three years) was 5.0% (2014: 3.0%); and • The pre-tax discount rate used in the impairment testing was 11.50% (2014: 9.48%) which represents the Cost of Equity to the consolidated group at 30 June 2015. 66 / ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS C0NTINUED30 JUNE 2015NOTE 16 DEPOSITS AND SHORT TERM BORROWINGS Call deposits Term deposits Consolidated Chief entity 2015 $ 2014 $ 2015 $ 2014 $ 517,305,301 471,426,192 521,129,396 477,107,353 1,146,219,117 1,133,827,244 1,156,219,117 1,133,827,244 Negotiable certificates of deposit 188,547,277 138,558,996 188,547,277 138,558,996 1,852,071,695 1,743,812,432 1,865,895,790 1,749,493,593 Maturity analysis On call Up to 3 months From 3 to 12 months From 1 to 5 years 625,147,265 535,472,818 628,971,360 554,877,071 557,756,387 648,484,778 557,756,387 648,484,778 590,223,881 504,463,831 600,223,881 490,740,739 78,944,162 55,391,005 78,944,162 55,391,005 1,852,071,695 1,743,812,432 1,865,895,790 1,749,493,593 The company’s deposit portfolio does not include any deposit which represents 10% or more of total liabilities. NOTE 17 PAYABLES AND OTHER LIABILITIES Trade creditors Accrued interest payable Other creditors Maturity analysis Up to 3 months From 3 to 12 months From 1 to 5 years Later than 5 years Consolidated Chief entity 2015 $ 2014 $ 2015 $ 2014 $ 3,609,892 2,276,927 3,606,888 2,276,927 15,150,781 13,599,140 15,150,781 13,599,140 5,820,353 5,233,438 5,096,949 4,147,181 24,581,026 21,109,505 23,854,618 20,023,248 17,375,867 14,621,984 16,649,459 13,535,727 2,367,229 2,488,602 2,367,229 2,488,602 4,837,697 3,998,919 4,837,697 3,998,919 233 – 233 – 24,581,026 21,109,505 23,854,618 20,023,248 NOTE 18 INCOME TAX LIABILITIES Deferred income tax liabilities are attributable to: Asset revaluation reserve Prepayments MPBS acquisition adjustments Special reserve Cash flow hedging reserve Consolidated Chief entity 2015 $ 2014 $ 2015 $ 2014 $ 1,672,116 208,139 55,317 67,624 (439,916) 1,958,045 1,501,900 1,464,977 164,658 73,755 71,390 208,139 55,317 67,624 – (439,916) 164,658 73,755 71,390 – 1,563,280 2,267,848 1,393,064 1,774,780 In respect of each temporary difference the adjustment was charged to income, except for the revaluations of the RMBS investments which were charged to the ‘available for sale’ reserve in equity, and the revaluations of land and buildings which were charged to the asset revaluation reserve in equity. AUSWIDE BANK / 67 NOTE 19 PROVISIONS Employee entitlements Balance at beginning of year Annual leave and long service leave provided for during the year Annual leave and long service leave payments used during the year Balance at end of year Maturity analysis Current provision Non-current provision Consolidated Chief entity 2015 $ 2014 $ 2015 $ 2014 $ 2,663,000 2,565,000 2,663,000 2,565,000 425,207 370,764 425,207 370,764 (441,186) (272,764) (441,186) (272,764) 2,647,021 2,663,000 2,647,021 2,663,000 2,227,680 419,341 1,570,813 1,092,187 2,227,680 419,341 1,570,813 1,092,187 2,647,021 2,663,000 2,647,021 2,663,000 Unearned direct premiums and outstanding claims Balance at beginning of year 6,157,373 9,541,091 Transfers to/(from) the provision during the year – (3,140,000) Payments from the provision during the year (1,701,455) 4,455,918 (243,718) 6,157,373 – – – – – – – – Premium revenues are earned over 10 years in accordance with actuarial advice based on historical claim patterns. The unearned portion is recognised as unearned premium liability. The outstanding claims liability is based on independent actuarial advice and estimates of claims incurred but not settled at balance date. The estimation is based on statistical analyses of historical experience. Other provisions Total provisions 57,039 76,880 57,039 76,880 7,159,978 8,897,253 2,704,060 2,739,880 NOTE 20 SUBORDINATED CAPITAL NOTES Consolidated Chief entity 2015 $ 2014 $ 2015 $ 2014 $ Inscribed debenture stock 28,000,000 28,000,000 28,000,000 28,000,000 Maturity analysis Later than 5 years 28,000,000 28,000,000 28,000,000 28,000,000 68 / ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS C0NTINUED30 JUNE 2015NOTE 21 CONTRIBUTED EQUITY Fully paid ordinary shares All ordinary shares have equal voting, dividend and capital repayment rights. 2015 Shares No. 2015 Shares $ 2014 Shares No. 2014 Shares $ Balance at beginning of year 36,452,951 163,550,831 36,238,600 162,377,262 Issued during the year Staff share plan Dividend reinvestment plan Balance at end of year 84,155 419,092 503,548 2,666,738 36,550 177,801 185,309 988,260 37,040,654 166,636,661 36,452,951 163,550,831 Effective 1 July 1998, the Company Law Review Act abolished the concept of par value shares and the concept of authorised capital. Accordingly, the company does not have authorised capital or par value in respect of its issued shares. (a) Staff Share Plan 13 October 2014 – 84,155 ordinary shares were issued. Shares issued pursuant to the company’s staff share plan were at a price of 90% of the weighted average price of the company’s shares traded on the Australian Securities Exchange for the 10 days prior to the issue of the invitation to subscribe for the shares. The members of the company approved a staff share plan in 1992 enabling the staff to participate to a maximum of 10% of the shares of the company. The share plan is available to all employees under the terms and conditions as decided from time to time by the Directors, but in particular, limits the maximum loan to each participating employee to 40% of their gross annual income. The plan requires employees to provide a deposit of 10% with the balance able to be repaid over a period of 5 years at no interest. The total number of shares issued to employees since the inception of the staff share plan The total number of shares issued to employees during the financial year The total market value at date of issue, 13 October 2014 (3 April 2014) The total amount paid or payable for the shares at that date (b) Dividend Reinvestment Plan (DRP) Consolidated Chief entity 2015 Shares 2014 Shares 2015 Shares 2014 Shares 2,684,433 2,600,278 2,684,433 2,600,278 84,155 36,550 84,155 36,550 $ $ $ $ 430,874 215,645 430,874 215,645 419,092 185,309 419,092 185,309 The DRP was maintained by the Board of Directors during the 2014/15 financial year and suspended for the final dividend payable 2 October 2015. 3 October 2014 – 259,502 ordinary shares were issued. 27 March 2015 – 244,046 ordinary shares were issued. Shares issued under the plan rank equally in every respect with existing fully paid permanent ordinary shares and participate in all cash dividends declared after the date of issue. The shares issued under the DRP on 3 October 2014 and 27 March 2015 were issued at a discount of 2.5% on the weighted sale price of the company’s shares sold during the five trading days immediately following the Record Date. AUSWIDE BANK / 69 NOTE 22 RESERVES Movements in reserves Available for sale reserve Balance at beginning of year Increase/(decrease) due to revaluation of RMBS investments to mark-to-market Deferred tax liability adjustment on revaluation of RMBS investments Balance at end of year Consolidated Chief entity 2015 $ 2014 $ 2015 $ 2014 $ 166,578 185,566 166,578 185,566 (12,553) (27,126) (12,553) (27,126) 3,766 157,791 8,138 166,578 3,766 157,791 8,138 166,578 The balance of this reserve represents the excess of the mark-to-market valuation over the original cost of the RMBS investments. Asset revaluation reserve Balance at beginning of year 3,418,279 3,418,279 3,418,279 3,418,279 Transfer from profit and loss appropriation Increase/(decrease) due to revaluation increment on land and buildings Deferred tax liability adjustment on revaluation increment on land and buildings Decrease due to transfer to retained profits of revaluation of assets since sold 392,185 266,292 (79,887) (100,251) – – – – – 266,292 (79,887) (100,251) – – – – Balance at end of year 3,896,618 3,418,279 3,504,433 3,418,279 The balance of this reserve represents the excess of the independent valuation over the original cost of the land and buildings. Cash flow hedge reserve Balance at beginning of year Gain/(loss) arising on changes in fair value of hedging instruments entered into for cash flow hedges Interest rate swaps Income tax related to gains/losses recognised in other comprehensive income Balance at end of year – (1,466,387) 439,916 (1,026,471) – – – – – (1,466,387) 439,916 (1,026,471) – – – – The cash flow hedging reserve represents the cumulative effective portion of gains or losses arising on changes in fair value of hedging instruments entered into for cash flow hedges. The cumulative gain or loss arising on changes in fair value of the hedging instruments that are recognised and accumulated under the heading of cash flow hedging reserve will be reclassified to profit or loss only when the hedged transaction affects the profit or loss, or is included as a basis adjustment to the non-financial hedged item, consistent with the relevant accounting policy. There were no cumulative gains/losses arising on changes in fair value of hedging instruments reclassified from equity into profit or loss during the year. 70 / ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS C0NTINUED30 JUNE 2015Share based payments reserve Increase in reserve on acquisition of shares Issue of shares held by entity to employees Balance at end of year Consolidated Chief entity 2015 $ 2014 $ 2015 $ 2014 $ (353,544) 245,196 (108,348) – – – – – – – – – The share based payments reserve relates to shares available for long term incentive (LTI) based payments to employees. Statutory reserve Balance at end of year 2,676,071 2,676,071 2,676,071 2,676,071 This is a statutory reserve created on a distribution from the Queensland Building Society Fund. General reserve Balance at end of year 5,833,939 5,833,939 5,833,939 5,833,939 A special reserve was established upon the company issuing fixed share capital in 1992. The special reserve represented accumulated members’ profits at that date and was transferred to the general reserve over a period of 10 years being finalised in 2001/2002. Doubtful debts reserve Balance at end of year 2,387,810 2,387,810 2,387,810 2,387,810 Under APRA Harmonised Standards the company was required to establish a general reserve for doubtful debts. The amount was 0.5% of Risk Weighted Assets, and the Board resolved to retain this reserve. Total reserves 13,817,409 14,482,677 13,533,572 14,482,677 NOTE 23 OUTSIDE EQUITY INTEREST Reconciliation of outside equity interest in controlled entities: Opening balance Share of operating profit/(loss) Deconsolidation of minority interest Closing balance Consolidated 2015 $ 2014 $ (70,625) (70,290) – 70,625 (335) – – (70,625) AUSWIDE BANK / 71 NOTE 24 CASH FLOW STATEMENT Reconciliation of profit from ordinary activities after tax to the net cash flows from operations: Profit after tax from continuing operations 13,261,991 14,062,638 12,742,656 12,946,308 Consolidated Chief entity 2015 $ 2014 $ 2015 $ 2014 $ Depreciation and amortisation 1,670,552 1,555,934 Bad debts expense (Profit)/loss on disposal of non-current assets 457,948 (265,557) 360,473 1,611,100 457,948 3,133 (265,557) 1,494,684 360,000 3,133 (Increase)/Decrease in Assets Accrued interest on investments (388,613) 140,103 (388,613) 140,103 Prepayments & other receivables 6,696,546 3,096,476 6,521,240 2,952,529 Deferred tax asset Increase/(Decrease) in Liabilities Creditors & accruals Deferred tax payable Income tax payable Employee entitlement provisions Other provisions Reserves 787,213 (1,238,506) 724,952 (1,256,860) 9,937,325 (5,695,028) 10,372,514 (1,179,744) (704,568) (106,491) (15,979) (1,737,277) 755,980 165,359 (313,659) 343,752 – – (381,716) (106,491) (15,979) (35,820) 363,795 165,359 (163,945) 343,752 – – Net cash flows from operating activities 30,349,070 12,480,675 31,600,029 15,805,319 Cash flows arising from the following activities are presented on a net basis: • Deposits to and withdrawals from customer deposit accounts. • Advances and repayments on loans, advances and other receivables. • Sales and purchases of investment securities. • • Insurance and reinsurance premiums. (Profit)/Loss on disposal of fixed assets. NOTE 25 EXPENDITURE COMMITMENTS Capital expenditure commitments Capital expenditure contracted for within one year 1,190,694 920,000 1,190,694 920,000 Consolidated Chief entity 2015 $ 2014 $ 2015 $ 2014 $ 2,269,360 2,534,364 2,269,360 2,534,364 1,573,246 1,697,156 145,552 2,014,140 2,337,185 – 1,573,246 1,697,156 145,552 2,014,140 2,337,185 – 5,685,314 6,885,689 5,685,314 6,885,689 Lease expenditure commitments Non-cancellable operating leases Up to 1 year From 1 to 2 years From 2 to 5 years Later than 5 years 72 / ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS C0NTINUED30 JUNE 2015NOTE 26 EMPLOYEE ENTITLEMENTS The aggregate employment entitlement liability is comprised of: Provisions Consolidated Chief entity 2015 $ 2014 $ 2015 $ 2014 $ 2,647,021 2,663,000 2,647,021 2,663,000 Notes 19 NOTE 27 CONTINGENT LIABILITIES AND CREDIT COMMITMENTS Consolidated Chief entity 2015 $ 2014 $ 2015 $ 2014 $ Approved but undrawn loans 66,969,048 76,036,526 66,969,048 76,036,526 Approved but undrawn credit limits 92,350,042 92,740,504 92,350,042 92,740,504 Bank guarantees 364,316 258,469 364,316 258,469 159,683,406 169,035,499 159,683,406 169,035,499 NOTE 28 EARNINGS PER SHARE Basic earnings per share (cents per share) Diluted earnings per share (cents per share) Consolidated 2015 Cents 36.07 36.07 2014 Cents 38.75 38.75 As shares held in the share based payments reserve would be antidilutive, they have been excluded from the calculation of diluted earnings per share. Information relating to the calculation of the earnings per share is as follows: Calculation of numerator Basic Diluted 2015 $ 2014 $ 2015 $ 2014 $ Net profit attributable to shareholders 13,261,993 14,062,638 13,261,993 14,062,638 Less dividends paid on preference shares – – – – Numerator 13,261,993 14,062,638 13,261,993 14,062,638 Weighted average number of shares Ordinary shares Potential ordinary shares 36,768,376 36,293,202 36,788,376 36,293,202 – – – – Total weighted average ordinary shares 36,768,376 36,293,202 36,788,376 36,293,202 AUSWIDE BANK / 73 NOTE 29 KEY MANAGEMENT PERSONNEL DISCLOSURES (a) Details of key management personnel The following were key management personnel for the entire reporting period unless otherwise stated. (i) Directors JS Humphrey Chairman – Non-Executive Director MJ Barrett PJ Sawyer Managing Director Director – Non-Executive (retired 17 March 2015) B Dangerfield Director – Non-Executive GN Kenny Director – Non-Executive SC Birkensleigh Director – Non-Executive (appointed 2 February 2015) (ii) Executives WR Schafer Chief Financial Officer, Company Secretary CA Lonergan Chief Risk Officer SM Caville Chief Information Officer MS Rasmussen Chief Operating Officer (appointed 29 January 2015 ) previously General Manager Business Banking and Operations CM Nevis General Manager Third Party & Business Banking AJ McArdle General Manager Sales & Distribution Each of the key management personnel, relatives of key management personnel and related business entities which hold share capital and/or deposits with the company do so on the same conditions as those applying to all other members of the company. (b) Key management personnel compensation Remuneration for the year ended 30 June 2015 Short term benefits Cash and salary fees Cash bonus Non-monetary Post employment benefits Superannuation Retirement benefits Termination benefits Share based payments Other long term benefits Consolidated Chief entity 2015 $ 2014 $ 2015 $ 2014 $ 2,075,144 37,500 – 1,946,162 125,000 – 2,075,144 37,500 – 1,946,162 125,000 – 158,295 141,844 158,295 141,844 – – 37,500 39,642 – – – 28,035 – – 37,500 39,642 – – – 28,035 2,348,081 2,241,041 2,348,081 2,241,041 Remuneration is calculated based on the period each employee was classified as key management personnel. (c) Other transactions with key management personnel There were no other transactions in which key management personnel provided services to the company. 74 / ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS C0NTINUED30 JUNE 2015NOTE 30 REMUNERATION OF AUDITORS Amounts received or due and receivable by the auditors of the chief entity, Deloitte Touche Tohmatsu, are as follows: Audit and review of financial statements of the entity and any other entity in the economic entity Other assurance services Amounts received or due and receivable by the previous auditors of the chief entity, Bentleys Brisbane Partnership, are as follows: Audit and review of financial statements of the entity and any other entity in the economic entity Tax returns (including subsidiaries) Other assurance services Other services Accrual adjustment Amounts received or due and receivable by the auditors of Mortgage Risk Management Pty Ltd, KPMG, are as follows: Audit and review of the financial statements of the entity Other regulatory audit services (APRA Return) KPMG related practices: Other regulatory services Total auditors’ remuneration Consolidated Chief entity 2015 $ 2014 $ 2015 $ 2014 $ 272,470 16,414 288,884 – – – 272,470 16,414 288,884 – – – 47,797 24,741 6,753 1,883 – 81,174 22,600 11,300 33,900 41,000 41,000 444,958 224,768 16,589 68,090 17,903 (5,726) 321,624 22,600 11,300 33,900 21,000 21,000 376,524 47,797 24,741 6,753 1,883 – 81,174 224,768 16,589 68,090 17,903 (5,726) 321,624 – – – – – – – – – – 370,058 321,624 NOTE 31 EVENTS SUBSEQUENT TO BALANCE DATE The financial statements were authorised for issue by the Directors on the date the Directors’ declaration was signed. Mortgage Risk Management Pty Ltd (MRM) The Board announced on 13 August 2015 the effective date of 30 September 2015 to wind up the captive lenders’ mortgage insurance subsidiary, MRM. The credit risk and provisions will be transferred to the balance sheet of the chief entity. The wind up will release up to $10m of tier 1 capital which is currently invested in MRM. Land and buildings – Victoria Street, Mackay A conditional contract for the sale of the property at Victoria Street, Mackay was entered into on 31st July 2015 in the amount of $2.35m. AUSWIDE BANK / 75 NOTE 32 BUSINESS AND GEOGRAPHICAL SEGMENT INFORMATION The company operates predominantly in one industry. The principal activities of the company are confined to the raising of funds and the provision of finance for housing, personal loans and business banking. The company commenced funding personal loans in May 2013. The personal loans portfolio was immaterial at balance date and has not been reported as a segment. Funding of business loans commenced in April 2014. The business loans portfolio was immaterial at balance date and has not been reported as a segment. The company operates principally within the states of Queensland, New South Wales and Victoria. NOTE 33 CONCENTRATION OF ASSETS AND LIABILITIES AND OFF BALANCE SHEET ITEMS The Directors are satisfied that there is no undue concentration of risk by way of geographical area, customer group or industry group. (b) Valuation techniques The economic entity selects a valuation technique that is appropriate in the circumstances and for which sufficient data is available to measure fair value. The availability of sufficient and relevant data primarily depends on the specific characteristics of the asset or liability being measured. The valuation techniques selected by the economic entity are consistent with one or more of the following valuation approaches: Market approach: valuation techniques that use prices and other relevant information generated by market transactions for identical or similar assets or liabilities. Income approach: valuation techniques that convert estimated future cash flows or income and expenses into a single discounted present value. Cost approach: valuation techniques that reflect the current replacement cost of an asset at its current service capacity. Each valuation technique requires inputs that reflect the assumptions that buyers and sellers would use when pricing the asset or liability, including assumptions about risks. When selecting a valuation technique, the economic entity gives priority to those techniques that maximise the use of observable inputs and minimise the use of unobservable inputs. Inputs that are developed using market data (such as publicly available information on actual transactions) and that reflect the assumptions that buyers and sellers would generally use when pricing the asset or liability are considered observable, whereas inputs for which market data is not available and therefore are developed using the best information available about such assumptions are considered unobservable. NOTE 34 FAIR VALUE MEASUREMENTS The economic entity measures and recognises the following assets and liabilities at fair value on a recurring basis after initial recognition: • Financial assets held for sale • Available-for-sale financial assets • Freehold land and buildings • Investments in floating rate notes The economic entity does not subsequently measure any liabilities at fair value on a non-recurring basis. (a) Fair value hierarchy AASB 13: Fair Value Measurement requires the disclosure of fair value information by level of the fair value hierarchy, which categorises fair value measurements into one of three possible levels based on the lowest level that is significant to the measurement, and can be categorised as follows: Level 1 Measurements based on quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. Level 2 Measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 Measurements based on unobservable inputs for the asset or liability. The fair values of assets and liabilities that are not traded in an active market are determined using one or more valuation techniques. These valuation techniques maximise, to the extent possible, the use of observable market data. If all significant inputs required to measure fair value are observable, the asset or liability is included in Level 2. If one or more significant inputs are not based on observable market data, the asset or liability is included in Level 3. 76 / ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS C0NTINUED30 JUNE 2015The following tables provide the fair values of the economic entity’s assets and liabilities measured and recognised on a recurring basis after initial recognition and their categorisation within the fair value hierarchy: Consolidated entity – at 30 June 2015 Financial assets Financial assets held to maturity: Level 1 $ Level 2 $ Level 3 $ Total $ Certificates of deposit 190,934,302 – Financial assets held at amortised cost: Notes – securitisation program Loans and advances Financial assets at fair value through profit or loss: Investment in floating rate notes Financial assets available for sale: RMBS investments Total Non-financial assets Freehold land and buildings Total Financial liabilities Financial liabilities held at amortised cost: Deposits and short term borrowings Securitised loans Total Chief entity – at 30 June 2015 Financial assets Financial assets held to maturity: Certificates of deposit Financial assets held at amortised cost: Notes – securitisation program Loans and advances Financial assets at fair value through profit or loss: Shares in unlisted companies Financial assets available for sale: RMBS investments Total Non-financial assets Freehold land and buildings Total Financial liabilities Financial liabilities held at amortised cost: Deposits and short term borrowings Securitised loans Total – – – – – – – – – – 190,934,302 47,345,388 47,345,388 – 2,339,227,326 2,339,227,326 3,110,462 3,516,198 – – 3,110,462 3,516,198 190,934,302 53,972,048 2,339,227,326 2,584,133,676 – – – – – – – 11,367,395 11,367,395 11,367,395 11,367,395 – 1,845,882,158 1,845,882,158 605,569,536 – 605,569,536 605,569,536 1,845,882,158 2,451,451,694 Level 1 $ Level 2 $ Level 3 $ Total $ 190,934,302 – – – 190,934,302 47,345,388 47,345,388 – 2,339,227,326 2,339,227,326 – 15,653,663 15,653,663 3,516,198 – 3,516,198 190,934,302 50,861,586 2,354,880,989 2,596,676,877 – – – – – – – 9,120,631 9,120,631 9,120,631 9,120,631 – 1,872,122,826 1,872,122,826 605,569,536 – 605,569,536 605,569,536 1,872,122,826 2,477,692,362 AUSWIDE BANK / 77 NOTE 34 FAIR VALUE MEASUREMENTS CONTINUED (b) Valuation techniques continued Consolidated entity – at 30 June 2014 Financial assets Financial assets held to maturity: Certificates of deposit Financial assets held at amortised cost: Notes – securitisation program Loans and advances Financial assets at fair value through profit or loss: Investment in floating rate notes Financial assets available for sale: RMBS investments Total Non-financial assets Freehold land and buildings Total Financial liabilities Financial liabilities held at amortised cost: Deposits and short term borrowings Securitised loans Total Chief entity – at 30 June 2014 Financial assets Financial assets held to maturity: Certificates of deposit Financial assets held at amortised cost: Notes – securitisation program Loans and advances Financial assets at fair value through profit or loss: Shares in unlisted companies Financial assets available for sale: RMBS investments Total Non-financial assets Freehold land and buildings Total Financial liabilities Financial liabilities held at amortised cost: Deposits and short term borrowings Securitised loans Total 78 / ANNUAL REPORT – – – – – – – – Level 1 $ Level 2 $ Level 3 $ Total $ 172,145,269 – – – 172,145,269 65,374,227 65,374,227 – 2,233,714,347 2,233,714,347 5,491,297 5,106,919 – – 5,491,297 5,106,919 172,145,269 75,972,443 2,233,714,347 2,481,832,059 – – – – – – – 12,705,290 12,705,290 12,705,290 12,705,290 – 1,738,210,118 1,738,210,118 636,212,997 – 636,212,997 636,212,997 1,738,210,118 2,374,423,115 Level 1 $ Level 2 $ Level 3 $ Total $ 172,145,269 – – – 172,145,269 65,374,227 2,233,714,347 2,233,714,347 15,596,450 15,596,450 65,374,227 – – 5,106,919 – 5,106,919 172,145,269 70,481,146 2,249,310,797 2,491,937,212 – – – – – – – 9,322,900 9,322,900 9,322,900 9,322,900 – 1,755,095,906 1,755,095,906 636,212,997 – 636,212,997 636,212,997 1,755,095,906 2,391,308,903 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS C0NTINUED30 JUNE 2015(c) Valuation techniques and inputs used to measure Level 2 fair values Fair value Consolidated Description $ Jun 15 $ Jun 14 Valuation technique(s) Inputs used Financial assets available for sale RMBS investments 3,516,198 5,106,919 Mark to market value Financial assets at fair value through profit or loss Investment in floating rate notes 3,110,462 5,491,297 Mark to market value Consideration, maturity and interest rates Consideration, maturity and interest rates 6,626,660 10,598,216 There were no changes during the period in the valuation techniques used by the economic entity to determine Level 2 fair values. (d) Valuation techniques and inputs used to measure Level 3 fair values Fair value Description $ Jun 15 $ Jun 14 Valuation technique(s) Inputs used Freehold land and buildings 11,367,395 12,705,290 Market approach using recent observable market data, income approach using discounted cash flow methodology Shares in unlisted companies 15,653,663 15,596,450 Market approach using recent observable market data, income approach using discounted cash flow methodology 27,021,058 28,301,740 Rentals for the property, capitalisation rate, value of similar properties Cost value, net present value of future cash flows (see note 11) The fair value of freehold land and buildings is determined at least every three years based on valuations by an independent valuer. At the end of each intervening period, the Directors review the independent valuation and when appropriate, update the fair value measurement to reflect current market conditions. (e) Reconciliation of Level 3 fair value measurements Opening balance Total gains or losses: – in profit or loss – in other comprehensive income Purchases Disposals Closing balance Shares in unlisted companies Freehold land and buildings 2015 $ 2014 $ 2015 $ 2014 $ 15,596,450 15,925,577 12,705,290 12,940,200 – – 58,374 (1,161) – – – (329,127) (528,013) (809,882) – – (239,800) – 4,890 – 15,653,663 15,596,450 11,367,395 12,705,290 AUSWIDE BANK / 79 The Australian Prudential Regulation Authority’s (APRA’s) Prudential Standard APS 110 Capital Adequacy aims to ensure the Authorised Deposit-taking Institutions (ADIs) maintain adequate capital, on both an individual and group basis, to act as a buffer against the risks associated with the group’s activities. APRA requires capital to be allocated against credit, market and operational risk, and the group has adopted the ‘standard model’ approach to measure the capital adequacy ratio. The Board of Directors takes responsibility to ensure the company and consolidated entity maintain a level and quality of capital commensurate with the type, amount and concentration of risks to which the company and consolidated group are exposed from their activities. The Board has regard to prospective changes in the risk profile and capital holdings. The company’s management prepares a three year capital plan and monitors actual risk-based capital ratios on a monthly basis to ensure the capital ratio complies with Board’s targets. The Board’s target is for the capital adequacy ratio to be maintained above 13%. During the 2015 and 2014 financial years the capital adequacy ratios of both the consolidated and chief entities were maintained above the target ratio. The capital adequacy calculations at 30 June 2015 and 30 June 2014 have been prepared in accordance with the revised prudential standards incorporating the Basel III principles. APRA Prudential Standards and Guidance Notes for ADIs provide guidelines for the calculation of capital and specific parameters relating to Tier 1, Common Equity Tier 1 and Total Capital. Tier 1 capital comprises the highest quality components of capital and includes ordinary share capital, general reserves and retained earnings less specific deductions. Tier 2 capital comprises other capital components including general reserve for credit losses and cumulative subordinated debt. Consistent with Basel III, the approach to capital assessment provides for a quantitative measure of the capital adequacy and focuses on: • Credit risk arising from on-balance sheet and off-balance sheet exposures; • Market risk arising from trading activities; • Operational risk associated with banking activities; • Securitisation risks; and • The amount, form and quality of capital held to act as a buffer against these and other exposures. NOTE 35 FINANCIAL INSTRUMENTS Auswide Bank Ltd has exposure to the following risks from its use of financial instruments: • Capital risk • Market risk • Liquidity risk • Credit risk (a) Capital risk management The Board and Management of Auswide Bank Ltd are responsible for instituting a risk management framework and processes to diminish such risks to prudent levels. The Board has established the following committees with responsibilities to develop and monitor risk management frameworks within their relevant areas: the Risk Committee; the Asset and Liability Management Committee and the Audit Committee. The Risk Committee is responsible for constructing and reviewing Auswide Bank Ltd’s risk management policies and procedures and appraising the adequacy of the risk management framework. The Asset and Liability Management Committee is responsible for the analysis and management of interest rate risk. Conversely, the Audit Committee is responsible for providing an impartial review of internal and external audit and of Auswide Bank Ltd’s: • Statutory reporting; • Prudential Australian Prudential Regulation Authority reporting; • Other financial reporting; and • Compliance with laws and regulations. 80 / ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS C0NTINUED30 JUNE 2015Details of the capital adequacy ratio on a chief entity and consolidated basis are set out below: Total risk weighted assets Capital base Risk-based capital ratio Consolidated Chief entity 2015 $ 2014 $ 2015 $ 2014 $ 1,033,792,787 1,063,422,672 1,031,499,262 1,060,944,227 156,652,308 151,960,540 154,647,013 149,543,312 15.15% 14.29% 14.99% 14.10% (b) Market risk management (iv) to review and analyse: (c) Liquidity risk management The Board of Directors have approved an appropriate liquidity risk management framework for the management of the group’s short, medium and long-term funding and liquidity management requirements. The group manages liquidity risk by maintaining adequate reserves, credit facilities and reserve borrowing facilities, and daily monitoring and forecasting cash flows. Liquidity is monitored by management and a projection of near future liquidity (30 days) is calculated daily. This information is used by management to manage expected liquidity requirements. An additional reserve equivalent to a minimum of 8% of the company’s liability base assessed on a quarterly basis is set aside and isolated as additional liquidity available in a crisis situation via the RBA repurchase facility (Repo). Market risk is the risk that changes in market prices, such as interest rates, will affect Auswide Bank Ltd’s income or the worth of its holdings of financial instruments. The Board’s objective is to manage market risk exposures while optimising the return on risk. Interest rate risk Interest rate risk is the potential for loss of earnings to Auswide Bank Ltd due to adverse movements in interest rates. The Asset and Liability Management Committee (ALCO) is responsible for the analysis and management of interest rate risk inherent in the balance sheet through balance sheet and financial derivative alternatives. These risks are quantified in the Rate Sensitive Asset and Liability Gap Analysis Report (the ‘Gap Analysis Report’). The ALCO’s function and role are: (i) (ii) to review and analyse the interest rate exposures (as set out in the ‘Gap Analysis Report’) in the context of current wholesale interest rate settings; to compare the interest rate exposures set out in the Gap Analysis Report against the limits prescribed under Auswide Bank’s Interest Rate Risk Policy limits; (iii) to ascertain whether the risks manifested in the Gap Analysis Report are appropriate given the committee’s view on interest rates; • The maturity profile of cash flow as produced through the Gap Analysis Report; • The concentration in sources and application of funds; • The ability to borrow in various markets; • The potential sources of volatility in assets and liabilities; • The impact of market/ operational disruption on cash flow and on customers; and • The ability to undertake asset sales. At the reporting date, if interest rates had been 2.0% higher or lower and all other variables were held constant, the group’s net profit would decrease by $10,060,065 or increase by $9,782,054 (2014: decrease by $2,826,434 or increase by $2,826,434). This is mainly due to the company’s exposures to fixed and variable rate loans, and deposit and securitisation liabilities. The sensitivity analysis was derived from the Gap Analysis Report which calculates risk associated with movements in interest rates through the input of parameters for all financial assets and liabilities. The parameters used were consistent with those adopted for the prior period. AUSWIDE BANK / 81 NOTE 35 FINANCIAL INSTRUMENTS CONTINUED (c) Liquidity risk management continued The undrawn limits on the securitisation warehouses were as follows: Securitisation trust WB Trust No. 3 WB Trust No. 5 WB Trust No. 6 Total Maturity analysis 2015 $ 2014 $ – 50,596,703 81,553,957 – 30,605,288 40,544,808 112,159,245 91,141,511 Up to 1 year 112,159,245 91,141,511 The maturity analysis for the respective groups of financial assets and liabilities have been included in the notes to the financial statements. (d) Credit risk management Under the direction of the Board of Directors, management has developed risk management policies and procedures to establish and monitor the credit risk of the company. The risk management procedures define the credit principles, lending policies and the decision making processes which control the credit risk of the company. Credit risk is minimised by the availability and application of insurances including lenders’ mortgage insurance, title insurance, property insurance, mortgage protection insurance and consumer credit insurance. Credit risk in the loan portfolio is managed by protecting all loans in excess of 80% LVR with either one of the recognised mortgage insurers or through the company’s wholly owned subsidiary Mortgage Risk Management Pty Ltd, an approved lenders’ mortgage insurer, and by securing the loans by first mortgages of residential property. The company has a diversified Branch Network consisting of 32 branches and agencies across Queensland, and a business centre in Toowong, Brisbane, which conducts the company’s Third Party and interstate business. All regional loan staff and panel valuers are locally based ensuring an in depth knowledge of the local economy and developments in the real estate market. The Board of Directors and management receive reports on a monthly basis to monitor and supervise the past due loans in the portfolio and ensure credit procedures are adhered to on a timely and accurate basis. The economic entity’s maximum exposure to credit risk at balance date in relation to each class of recognised financial asset is the carrying amount of those assets as indicated in the balance sheet. The maximum credit risk exposure does not take into account the value of any security held or the value of any mortgage or other insurance to cover the risk exposure. 82 / ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS C0NTINUED30 JUNE 2015The past due loans and advances for the group (excluding effects of hardship accounts) comprise: 30 days and less than 60 days 60 days and less than 90 days 90 days and less than 182 days 182 days and less than 273 days 273 days and less than 365 days 365 days and over Consolidated Chief entity 2015 $ 2014 $ 2015 $ 2014 $ 7,125,543 15,481,298 7,125,543 15,481,298 3,215,709 3,178,019 1,670,694 2,463,633 4,652,942 7,262,763 9,587,526 1,830,451 3,215,709 3,178,019 1,670,694 4,692,619 2,463,633 4,136,824 4,652,942 7,262,763 9,587,526 1,830,451 4,692,619 4,136,824 22,306,540 42,991,481 22,306,540 42,991,481 As at 30 June 2015 there were 13 loans totalling $3,903,233 (30 June 2014: 15 loans totalling $4,199,640) on which interest was not being accrued due to impairment. Concentration of credit risk The company minimises concentrations of credit risk in relation to loans receivable by undertaking transactions with a large number of customers principally within the states of Queensland, New South Wales and Victoria. The concentration of the loans and advances throughout Australia are as follows: Queensland New South Wales Victoria South Australia Western Australia Tasmania Northern Territory Counterparty risk 2015 % 83.8 8.0 5.9 0.9 1.2 0.1 0.1 2014 % 86.8 6.2 5.6 0.7 0.6 0.1 - 100.0 100.0 As part of Auswide Bank Ltd’s investment policy individual counterparties need to have the appropriate investment grading and are monitored in respect of their credit rating. Further, limits are placed on the amount of funds which may be placed with institutions with certain credit ratings. AUSWIDE BANK / 83 NOTE 35 FINANCIAL INSTRUMENTS CONTINUED (e) Terms, conditions and accounting policies The economic entity’s accounting policies, including the terms and conditions of each class of financial asset, financial liability and equity instrument, both recognised and unrecognised at the balance date, are as follows: Recognised financial instruments FINANCIAL ASSETS Notes to accounts Short term deposits 6,7 Accounting policies Terms and conditions Short term deposits are stated at amortised cost. Interest is recognised when earned. Short term deposits have an effective interest rate of 2.53% (2014 – 2.89%) Accrued receivables Bills of exchange and promissory notes Certificates of deposit Notes RMBS investments Mortgage Risk Management Pty Ltd investments 8 9 9 9 9 9 Loans and advances 10 Amounts receivable are recorded at their recoverable amount. Bills of exchange and promissory notes are stated at amortised cost. Certificates of deposit are carried at amortised cost. Interest revenue is recognised when earned. Notes are carried at amortised cost. RMBS investments are recorded at fair value through the Available for Sale Reserve. Investments held by Mortgage Risk Management Pty Ltd are recorded at fair value through profit or loss. Loan interest is calculated on the closing daily outstanding balance and is charged in arrears to the customer’s account on a monthly basis. Loans and advances are recorded at amortised cost. Bills of exchange and promissory notes have an effective interest rate of 0% (not applicable for 2015) (2014 – 2.81%) Certificates of deposit have an effective interest rate of 3.01% (2014 – 2.92%) These notes are an overcover required as part of the securitisation of loans. They have an effective interest rate of 3.13% (2014 – 4.32%) New mortgage loans approved with an LVR in excess of 80% will be insured under an arrangement with QBE, and are secured by first mortgage over residential property. Personal loans are approved on both a secured and unsecured basis and are not insured. Loans made for the purchase of staff shares are secured by the shares themselves. Certain of the company’s loans have been securitised and continue to be managed by the company. Further details are disclosed in note 10. The securitisation notes have a maturity period of greater than 30 years. The securitisation notes are eligible for repayment once the balance of the trust falls below 10% of the invested amount. Interest paid to the note holders is repriced on a monthly basis at a set margin above BBSW. 84 / ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS C0NTINUED30 JUNE 2015Recognised financial instruments Notes to accounts FINANCIAL LIABILITIES Deposits 16 Payables and other liabilities 17 Dividends payable 5 Accounting policies Terms and conditions Deposits are recorded at the principal amount. Interest is brought to account on an accrual basis. Details of maturity of the deposits are set out in note 16. Interest is calculated on the daily balance. Liabilities are recognised for amounts to be paid in the future for goods and services received, whether or not billed to the economic entity. Dividends payable are recognised when declared by the company. Trade creditors are normally settled on 30 day terms. Details of the final dividend declared by the company for the financial year ended 30 June 2015 are disclosed in note 5. These notes are issued for an initial period of 5 years and thereafter can be redeemed on an annual basis until the final redemption date of 10 years. Interest is repriced quarterly at a set margin above BBSW. Subordinated capital notes 20 The subordinated capital notes are inscribed debenture stock. (f) Derivatives Each of the securitisation trusts has an Interest Rate Swap in place to hedge against fixed rate loans held in the trust. The mark-to-market values at the end of the year were as follows: WB Trust No.3 WB Trust No.5 WB Trust No.6 WB Trust 2006-1 WB Trust 2008-1 WB Trust 2009-1 WB Trust 2010-1 WB Trust 2014-1 2015 $ – – – 63,857 784,428 135,235 38,985 256,057 2014 $ 359,400 – – 65,200 619,400 122,600 28,600 – AUSWIDE BANK / 85 – – – – 5 6 5 . 1 2 5 . 9 2 3 . 6 8 2 . d e t h g e W i e g a r e v a e v i t c e ff e t n u o m a g n y r r a c i l a t o T e t a r t s e r e t n i t e e h s e c n a a b r e p l g n i r a e b t s e r e t n i n o N s r a e y 5 o t 1 m o r F s s e l r o r a e Y 1 e t a r t s e r e t n i g n i t a o F l : n i g n i r u t a m e t a r t s e r e t n i d e x F i : s w o l l o f s a e r a , e t a d e c n a a b e h t l t a d e s i n g o c e r n u d n a d e s i n g o c e r h t o b , s e i t i l i b a i l l i a c n a n fi d n a s t e s s a l i a c n a n fi f o s e t a r t s e r e t n i e v i t c e ff e e h t d n a s k s i r e t a r t s e r e t n i o t e r u s o p x e s ’ y t i t n e c m o n o c e e i Th k s i r e t a r t s e r e t n I ) g ( I D E U N T N O C S T N E M U R T S N I I I L A C N A N F 5 3 E T O N I I D E U N T N 0 C S T N E M E T A T S L A C N A N F D E T A D L O S N O C E H T O T S E T O N I I 5 1 0 2 E N U J 0 3 86 / ANNUAL REPORT % % $ 4 1 0 2 5 1 0 2 4 1 0 2 $ 5 1 0 2 $ 4 1 0 2 $ 5 1 0 2 3 7 . 2 6 5 2 . 1 3 2 . 6 2 2 . , 1 0 3 4 0 6 3 6 , , 1 2 4 6 8 2 0 1 , – – , 9 5 3 5 3 6 , 1 1 1 2 3 . 2 0 3 . 2 1 7 , 7 1 1 , 8 4 2 8 3 3 , 1 0 4 6 2 2 2 , , , 1 2 4 5 9 4 , 1 5 , 0 1 9 6 0 6 3 , , 3 9 4 9 2 2 2 , , 6 3 4 5 1 2 9 , 0 0 0 5 9 , 0 0 0 5 9 , , 9 5 5 2 9 8 5 , , 0 5 3 6 0 9 4 4 2 , 6 1 4 , 1 4 8 , 1 3 3 2 , – – , 9 5 3 5 3 6 , 1 1 – – , 9 5 5 2 9 8 5 , 5 8 1 , 6 7 3 , 9 3 3 4 3 4 5 8 1 , 6 7 3 , 9 3 3 4 3 4 , 9 9 2 9 2 9 8 , , 5 1 6 0 5 3 9 6 5 2 , , , 1 7 0 9 5 5 8 , , 9 9 2 9 2 9 8 , , 1 7 0 9 5 5 8 , , 2 9 5 4 4 3 2 5 6 2 , , 3 5 7 , 2 4 6 4 2 , , 2 6 4 0 1 2 , 7 1 $ – – – $ – – – $ – – – $ – – – 4 1 0 2 5 1 0 2 4 1 0 2 5 1 0 2 $ 4 1 0 2 $ 5 1 0 2 s t n e m u r t s n i l i a c n a n F i s t e s s a l i a c n a n F i 1 9 3 , 7 9 9 9 5 , , 8 2 9 5 6 2 9 4 , – – 1 2 4 , 1 9 1 , 0 1 , 6 3 4 0 2 1 , 9 i l s t n e a v u q e h s a c d n a h s a C l i a c n a n fi r e h t o m o r f e u D s n o i t u t i t s n i i l s e b a v e c e r d e u r c c A , 3 6 3 3 7 6 0 5 , 9 3 1 , 5 6 9 , 7 2 8 8 1 , 2 5 2 , 7 7 1 , 0 0 5 0 5 4 4 9 1 , 0 6 1 , 2 9 1 , 0 2 1 1 7 , 0 9 4 2 2 , s t e s s a l i a c n a n F i – – – – – – – – – – – – 2 4 2 , 7 3 1 , 2 9 2 9 5 7 , 0 6 2 0 5 3 , , 7 3 3 6 2 3 5 0 2 , , 5 3 3 2 7 2 8 1 2 , , 1 2 2 3 0 0 0 3 7 , 1 , , 2 2 3 8 0 3 3 6 7 , 1 , s e c n a v d a d n a s n a o L s t n e m t s e v n i r e h t O s t e s s a r e h t O , 5 0 6 0 1 8 2 4 3 , , 8 9 8 5 2 2 8 7 3 , , 5 2 5 8 7 5 2 8 3 , , 5 3 8 2 2 7 , 2 1 4 3 9 1 , 4 8 3 0 2 8 , 1 , , 7 9 3 5 8 1 , 4 4 8 , 1 s t e s s a l i a c n a n fi l a t o T – – , 6 0 5 9 0 1 , 1 2 6 2 0 , 1 8 5 4 2 , , 6 0 5 9 0 1 , 1 2 6 2 0 , 1 8 5 4 2 , – – – – – – s e i t i l i b a i l r e h t o d n a s e b a y a P l 3 7 . 3 4 7 . 3 , 5 8 0 0 3 1 , 4 3 6 2 0 5 , 7 5 6 3 0 6 , – – 6 7 3 , 7 0 2 3 8 , , 3 6 0 4 7 6 0 9 , – – 3 5 2 , 7 9 8 8 , , 8 7 9 9 5 1 , 7 3 5 2 , 7 9 8 8 , , 8 7 9 9 5 1 , 7 8 0 0 1 . 7 9 6 . , 0 0 0 0 0 0 8 2 , , 6 7 2 9 4 9 5 3 4 2 , , , 0 0 0 0 0 0 8 2 , , 1 0 2 0 7 4 5 1 5 2 , , – – 9 5 7 , 6 0 0 0 3 , 4 0 0 , 1 4 7 , 1 3 – – – – , 1 8 3 8 9 5 8 3 1 , , 5 2 2 8 1 6 9 6 1 , – – 2 4 6 , 1 8 4 8 5 , , 3 4 4 5 0 5 6 5 , , 0 0 0 0 0 0 8 2 , , 0 0 0 0 0 0 8 2 , , 3 3 5 4 4 7 , 2 9 4 6 9 9 , 7 7 4 6 5 4 , s n a o l d e s i t i r u c e S – – – – s e t o n l a t i p a c d e t a n d r o b u S i s n o i s i v o r P , 6 7 8 6 7 4 3 0 3 , 1 , 5 7 6 , 7 2 3 0 4 3 , 1 , 5 2 7 , 0 7 1 , 4 6 9 , 7 9 2 3 8 7 , 3 7 9 s e i t i l i b a i l l i a c n a n fi l a t o T , 2 3 4 2 1 8 3 4 7 , 1 , 5 9 6 , 1 7 0 2 5 8 , 1 , – – 5 0 0 , 1 9 3 5 5 , 2 6 1 , 4 4 9 8 7 , , 4 3 2 5 9 9 6 1 2 , 1 , , 2 3 2 2 2 8 5 5 2 , 1 , 2 9 1 , 6 2 4 , 1 7 4 , 1 0 3 5 0 3 , 7 1 5 m r e t t r o h s d n a s t i s o p e D i s g n w o r r o b s e i t i l i b a i l l i a c n a n F i (h) Net fair values The aggregate net fair values of financial assets and financial liabilities, both recognised and unrecognised, at the balance date are as follows: Financial assets Cash and cash equivalents Total carrying amount per balance sheet 2015 $ 2014 $ Aggregate net fair value 2015 $ 2014 $ 51,495,421 63,604,301 51,495,421 63,604,301 Due from other financial institutions 9,215,436 10,286,421 9,215,436 10,286,421 Accrued receivables Financial assets Loans and advances Other investments Other assets Total financial assets Financial liabilities 5,892,559 11,635,359 5,892,559 11,635,359 244,906,350 248,117,712 246,199,874 249,410,962 2,331,841,416 2,226,401,338 2,339,227,326 2,233,714,347 434,339 376,185 434,339 376,185 8,559,071 8,929,299 8,559,071 8,929,299 2,652,344,592 2,569,350,615 2,661,024,026 2,577,956,874 Deposits and short term borrowings 1,852,071,695 1,743,812,432 1,845,882,158 1,738,210,118 Payables and other liabilities 24,581,026 21,109,506 24,581,026 21,109,506 Securitised loans Provisions Subordinated capital notes Total financial liabilities 603,657,502 634,130,085 605,569,536 636,212,997 7,159,978 8,897,253 7,159,978 8,897,253 28,000,000 28,000,000 28,000,000 28,000,000 2,515,470,201 2,435,949,276 2,511,192,698 2,432,429,874 The following methods and assumptions are used to determine the net fair values of financial assets and liabilities: Cash and cash equivalents The carrying amount approximates fair value because these assets are receivable on demand or have a short term to maturity. Due from other financial institutions The fair values of amounts due from other financial institutions are estimated using discounted cash flow analysis, based on current lending rates for similar types of investments. The carrying amount approximates fair value. Accrued receivables The carrying amount approximates fair value as they are short term in nature. Financial assets For the financial instruments traded in organised financial markets, fair value is the current quoted market price adjusted for any realisation costs. Loans and advances Payables and other liabilities The fair values of loans receivable are estimated using discounted cash flow analysis, based on current lending rates for similar types of loans. Other investments The carrying amount for other investments is considered to be the reasonable estimate of net fair value. Other assets The carrying amount for these prepaid fees and expenses is considered to be the reasonable estimate of net fair value. This includes interest payable and trade payables for which the carrying amount is considered to be a reasonable estimate of net fair value. For the liabilities which are long term the fair value is estimated using discounted cash flow analysis, based on current rates for similar types of liability. Securitised loans The fair values of securitised loans are estimated using discounted cash flow analysis, based on current lending rates for similar types of loans. Deposits and short term borrowings Provisions The fair values of deposits are estimated using discounted cash flow analysis, based on current lending rates for similar types of deposits. Due to other financial institutions The fair values of these liabilities are estimated using discounted cash flow analysis, based on current borrowing rates for similar types of borrowing arrangements. The carrying amount approximates fair value. Subordinated capital notes The carrying amount approximates fair value. AUSWIDE BANK / 87 DIRECTORS’ DECLARATION 30 JUNE 2015 In the opinion of the Directors of Auswide Bank Ltd (‘the company’): (a) the financial statements and notes and the remuneration disclosures that are contained in the Remuneration Report are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the financial position of the company and consolidated entity as at 30 June 2015 and of their performance as represented by the results of their operations and their cash flows for the year ended on that date; and (ii) complying with Australian Accounting Standards (including the Australia Accounting Interpretation) and the Corporations Regulations 2001; and (b) the financial report also complies with International Financial Reporting Standards as disclosed in note 1; (c) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Managing Director and Chief Financial Officer for the financial year ended 30 June 2015. Signed in accordance with a resolution of the Directors. JS Humphrey Director Brisbane 28 August 2015 SC Birkensleigh Director 88 / ANNUAL REPORT INDEPENDENT AUDITOR’S REPORT Deloitte Touche Tohmatsu ABN 74 490 121 060 Riverside Centre Level 25 123 Eagle Street Brisbane QLD 4000 GPO Box 1463 Brisbane QLD 4001 Australia Tel: +61 7 3308 7000 Fax: +61 7 3308 7002 www.deloitte.com.au Independent Auditor’s Report to the Members of Auswide Bank Ltd Report on the Financial Report We have audited the accompanying financial report of Auswide Bank Ltd which comprises the consolidated statement of financial position as at 30 June 2015, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of cash flows and the consolidated statement of changes in equity for the year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity, comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control, relevant to the company’s preparation of the financial report that gives a true and fair view, in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. AUSWIDE BANK / 89 INDEPENDENT AUDITOR’S REPORT C0NTINUED We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Auditor’s Independence Declaration In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of Auswide Bank Ltd, would be in the same terms if given to the directors as at the time of this auditor’s report. Opinion In our opinion: (a) the financial report of Auswide Bank Ltd is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2015 and of their performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) the financial statements also comply with International Financial Reporting Standards as disclosed in Note 1. Report on the Remuneration Report We have audited the Remuneration Report included in pages 5 to 12 of the directors’ report for the year ended 30 June 2015. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Opinion In our opinion the Remuneration Report of Auswide Bank Ltd for the year ended 30 June 2015, complies with section 300A of the Corporations Act 2001. DELOITTE TOUCHE TOHMATSU Jamie C.J. Gatt Partner Chartered Accountants Brisbane, Queensland 28 August 2015 90 / ANNUAL REPORT CORPORATE GOVERNANCE SUMMARY Auswide Bank Ltd maintains corporate governance policies and practices which follow the recommendations outlined by the Australian Securities Exchange (ASX) and which comply with the Corporations Act 2001, the ASX Listing Rules and APRA Prudential Standard CPS 510 Governance. The Board of Directors of Auswide Bank Ltd has adopted a Corporate Governance Statement which sets out the Company’s compliance with the Australian Securities Exchange (ASX) Corporate Governance Council’s Corporate Governance Principles and Recommendations. The Corporate Governance Statement is available under the Governance section of the Company’s website located at www.auswidebankltd.com.au The Governance section also details other relevant corporate governance information, including the Board and Committee Charters, policies and codes of conduct. The following is a summary of Auswide Bank’s compliance with the principles outlined in ASX’s Corporate Governance Principles and Recommendations (3rd edition): PRINCIPLE 1: LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT The Board Charter, together with the Corporate Governance Statement, set out the roles and responsibilities of the Board and separate functions of management and delegated responsibilities. The Corporate Governance Statement also details checks undertaken and provision of material information to shareholders prior to recommendation and appointment of Directors. In accordance with the regulatory standards, the Board has established a Group Board Remuneration Committee which carries out a performance evaluation of the Managing Director and review of the performance evaluations of other senior executives, which is provided to the Board following a report of discussions between the Chairman of the Committee and the Managing Director. A performance evaluation of the Board, the Board Committees and each individual Director’s contribution to the Board is performed annually as outlined in the Corporate Governance Statement. Auswide Bank recognises that a gender balanced diverse and inclusive workforce with a wide array of perceptions resulting from such diversity, promotes innovation and a positive and successful business environment. Auswide Bank’s Diversity Policy is available in the Corporate Governance section of its website at www.auswidebankltd.com. au. The measurable objectives and Auswide Bank’s progress in achieving them, are outlined in the Corporate Governance Statement. Auswide Bank is in compliance with Principle 1 and full details are available in the Corporate Governance Statement, Board Charter, Remuneration Committee Charter, together with other policies and codes located in the Governance section at www.auswidebankltd.com.au. PRINCIPLE 2: STRUCTURE THE BOARD TO ADD VALUE Auswide Bank’s Board Charter outlines the structure of the board and its composition, together with the Board Renewal policy. Details of Directors’ skills, knowledge, experience, independence and diversity are discussed in the Corporate Governance Statement and in the Directors’ Statutory Report of this Annual Report. The Board does not have a separate formal Nomination Committee, with the full Board addressing such issues that would otherwise be considered by the Nomination Committee. These matters include Board succession issues and ensuring that the Board has the appropriate balance of skills, knowledge, experience, independence and diversity to enable it to discharge its duties and responsibilities effectively. Auswide Bank is in compliance with Principle 2 and full details are available in the Corporate Governance Statement and Board Charter, together with other charters, policies and codes located in the Governance section at www.auswidebankltd.com.au. The Directors’ Statutory Report of this Annual Report also provides details relevant to this principle. PRINCIPLE 3: ACT ETHICALLY AND RESPONSIBLY Auswide Bank promotes and supports a culture of honest and ethical behaviour. The standards of behaviour expected of all Directors, management and employees are detailed in the bank’s Codes of Conduct. Auswide Bank is in compliance with Principle 3 and full details are available in the following Codes of Conduct – ‘Corporate Code of Conduct’ and ‘Code of Conduct for Directors and Key Executives’ located in the Governance section at www.auswidebankltd.com.au. PRINCIPLE 4: SAFEGUARD INTEGRITY IN CORPORATE REPORTING The Audit Committee has a documented Charter, approved by the Board. The Audit Committee’s focus is on the issues relevant to verifying and safeguarding the integrity of Auswide Bank’s financial operations and reporting structure. The names and qualifications of the members of the Audit Committee, the number of meetings held and the number of meetings attended are set out in the Directors’ Statutory Report. Declarations have been signed by the Managing Director and Chief Financial Officer before approval by the board of Auswide Bank’s financial statements for the financial period as detailed in the Corporate Governance Statement. Auswide Bank is in compliance with Principle 4 and full details are outlined in the Board Audit Committee Charter, Corporate Governance Statement and ‘Appointment of External Auditors and Rotation of the External Audit Partners’ statement located in the Governance section at www.auswidebankltd.com.au. The Directors’ Statutory Report of this Annual Report also provides details relevant to this principle. AUSWIDE BANK / 91 CORPORATE GOVERNANCE SUMMARY C0NTINUED Auswide Bank is in compliance with Principle 8 and full details are outlined in the Board Remuneration Committee Charter and Corporate Governance Statement located in the Governance section at www.auswidebankltd.com.au. The Directors’ Statutory Report of this Annual Report also provides details relevant to this principle. PRINCIPLE 5: MAKE TIMELY AND BALANCED DISCLOSURE Auswide Bank is committed to the promotion of investor confidence by providing equal, timely, balanced and meaningful disclosure to the market. The Company’s Continuous Disclosure Policy outlines its processes for complying with its continuous disclosure obligations under the Listing Rules. Auswide Bank is in compliance with Principle 5 and full details are outlined in the Continuous Disclosure Policy and Corporate Governance Statement located in the Governance section at www.auswidebankltd.com.au. PRINCIPLE 6: RESPECT THE RIGHTS OF SECURITY HOLDERS Auswide Bank believes it is important for its shareholders to make informed decisions about their investment in the company and aims to provide shareholders with access to quality information and encourage two-way communication. Auswide Bank is in compliance with Principle 6 and full details are outlined in the Governance section at www.auswidebankltd.com.au, including the Corporate Governance Statement. PRINCIPLE 7: RECOGNISE AND MANAGE RISK The Risk Committee has a documented Charter, approved by the Board. The Risk Committee has the responsibility to set and oversee the risk profile and the risk management framework of the Company, and to ensure management have appropriate risk systems and practices to effectively operate within the Board approved risk profile. The Risk Committee reviews the Group’s Risk Management Framework at least annually to satisfy itself that the framework continues to be sound. The names and qualifications of the members of the Risk Committee, the number of meetings held and the number of meetings attended are set out in the Directors’ Statutory Report. Auswide Bank is in compliance with Principle 7 and full details are outlined in the Board Risk Committee Charter and Corporate Governance Statement located in the Governance section at www.auswidebankltd.com.au, together with the Charter for Corporate Social Responsibility located in the Social Responsibility section at www.auswidebankltd.com.au. The Directors’ Statutory Report of this Annual Report also provides details relevant to this principle. PRINCIPLE 8: REMUNERATE FAIRLY AND RESPONSIBLY The Remuneration Committee has a documented Charter, approved by the Board. The Remuneration Committee’s primary function is to assist the Board in fulfilling its responsibilities to shareholders and regulators in relation to remuneration, by ensuring that Auswide Bank has clear remuneration policies and practices that fairly and responsibly reward individuals having regard to performance, the Group’s Risk Management Framework, the law and the highest standards of governance. The names and qualifications of the members of the Remuneration Committee, the number of meetings held and the number of meetings attended are set out in the Directors’ Statutory Report. Further information in relation to the Company’s policies and practices regarding the remuneration of Non-Executive Directors, Executive Directors and other Senior Executives can be found in the Remuneration Report section of the Directors’ Statutory Report, together with employment contract details of the Managing Director and Key Management Personnel. 92 / ANNUAL REPORT SHAREHOLDER INFORMATION REGISTERED OFFICE The registered office and principal place of business of Auswide Bank Ltd is: Level 5 16-20 Barolin Street Bundaberg QLD 4670 Ph Fax 07 4150 4000 07 4152 3566 2015 ANNUAL GENERAL MEETING The 2015 Annual General Meeting is to be held on Wednesday 18 November 2015 at 11.00am EST at Auswide Bank Ltd, Level 3, 16-20 Barolin Street, Bundaberg, Queensland. VOTING RIGHTS OF SHAREHOLDERS A shareholder is entitled to exercise one vote in respect of each fully paid ordinary permanent share held in accordance with the provisions of the Constitution. Email auswide@auswidebank.com.au KEY DATES Website www.auswidebank.com.au Annual General Meeting SECRETARY The Secretary is Mr William (Bill) Ray Schafer. AUDITOR The principal auditors are: Deloitte Touche Tohmatsu Riverside Centre Level 25 123 Eagle Street Brisbane QLD 4000 Ph Fax 07 3308 7000 07 3308 7001 Website www.deloitte.com.au Full year results and final dividend announcement Ex dividend date Record date Dividend payment Half-year results and interim dividend announcement Ex dividend date Record date Participation in DRP (final date for receipt of application) Dividend payment 18 November 2015 28 August 2015 9 September 2015 11 September 2015 2 October 2015 18 February 2015 4 March 2015 6 March 2015 9 March 2015 27 March 2015 SECURITIES INFORMATION SHARE REGISTER The register of holders of Permanent Ordinary shares is kept at the office of: Computershare Investor Services Pty Limited 117 Victoria Street, West End QLD 4101. Ph Fax 1300 552 270 (07) 3237 2152 Online Contact www-au.computershare.com/Investor/Contact Website www.computershare.com.au AUSWIDE BANK / 93 SHAREHOLDER INFORMATION C0NTINUED ISSUED SHARES The Company’s securities listed on the Australian Securities Exchange (ASX) as at 16 September 2015 are: CLASS OF SECURITY Permanent Ordinary Shares DISTRIBUTION OF SHAREHOLDINGS Permanent Ordinary Shares 16 September 2015 Range 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – OVER TOTAL NUMBER OF SHAREHOLDERS TOP 20 SHAREHOLDERS Permanent Ordinary Shares 16 September 2015 Name 1. 2. HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED J P MORGAN NOMINEES AUSTRALIA LIMITED 3. NATIONAL NOMINEES LIMITED 4. 5. 6. HANCOCK, RE & LP HANCOCK, RE CITICORP NOMINEES PTY LIMITED 7. MILTON CORPORATION LIMITED 8. 9. SAWYER, K SAWYER, PJ ATF THE PETER SAWYER FAMILY A/C 10. CHANTILLY ONE PTY LTD ATF RG SPRAKE & CO S/F A/C 11. COCKERILL, GD & DM ATF GRAHAM COCKERILL S/F A/C 12. OLSEN, N 13. HANCOCK, RE & LP ATF THE HANCOCK FAMILY A/C 14. HESTEARN PTY LTD 15. WEALTHCOACH PTY LTD ATF SUNRISE A/C 16. MERTAN PTY LTD 17. CRAN, D 18. DRENWOOD PTY LTD 19. KENNEDY, JW & GJ 20. LOHSE HOLDINGS PTY LTD ATF PETER LOHSE SUPER FUND A/C ASX CODE NUMBER ABA 37,040,654 No. of Shareholders 1,300 1,922 608 508 53 4,391 % 3.03 2.44 2.24 2.20 1.83 1.79 1.17 1.17 1.10 1.09 1.04 0.89 0.86 0.83 0.77 0.75 0.71 0.70 0.66 0.64 No. of Shares 1,122,832 904,465 827,884 814,738 677,241 663,375 433,570 432,719 408,486 402,577 383,546 330,520 320,000 308,543 285,236 275,973 264,074 258,985 245,100 238,893 Top 20 Permanent Shareholders 9,598,757 25.91 94 / ANNUAL REPORT SUBSTANTIAL SHAREHOLDERS The Company’s Register of Substantial Shareholders recorded the following substantial shareholders’ interests: Permanent Ordinary Shares 16 September 2015 Hancock, RE (associated entities & associates) ON-MARKET BUYBACK There is no on-market buy back. DIVIDEND REINVESTMENT PLAN No. of Shares % of Total 2,174,188 5.87 The Board of Directors resolved to suspend the dividend reinvestment plan for the final dividend for the half year ended 30 June 2015, due to the strength of the capital position. SHAREHOLDER ONLINE INVESTOR CENTRE We encourage shareholders to take advantage of the Computershare Investor Centre website available at www.computershare.com.au where you can register and: • View your shareholding, dividend and transaction history online • Update your registered address, TFN and dividend instructions • Elect to receive eCommunications about your shareholding • Retrieve copies of dividend payment statements. Alternatively, please contact Computershare Investor Services Pty Limited directly on 1300 552 270. ANNUAL REPORT MAILING The Company’s Annual Report is available on-line at www.auswidebankltd.com.au under the Shareholders’ section. The default option for receiving Annual Reports is via this website. You have the choice of receiving an email when the Annual Report becomes available on-line or electing to receive a printed Annual Report by mail. To change your Annual Report elections on-line visit www.computershare.com.au/easyupdate/aba. If you do not have internet access call 1300 308 185 and follow the voice instructions. AUSWIDE BANK / 95 FINANCIAL GLOSSARY For your reference, this glossary provides definitions for some of the terms used in financial reporting, particularly by financial institutions listed on the ASX. Not all terms may have been used in the Annual Report and Financial Statements. ADI AGM APRA ASIC Asset An Authorised Deposit-taking Institution is a corporation authorised under the Banking Act 1959 and includes banks, building societies and credit unions regulated by APRA. Annual General Meeting Australian Prudential Regulation Authority Australian Securities and Investments Commission A resource which has economic value and can be converted to cash. Assets for an ADI include its loans because income is derived from the loan fees and interest payments generated. ASX Australian Securities Exchange Limited (ABN 98 008 624 691) Bad Debt The amount that is written off as a loss and classified as an expense, usually as a result of a poor-performing loan. Basel The Basel Accords are the recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision, which has the purpose of improving the consistency of capital regulations internationally. Basis Point One hundredth of one per cent or 0.01 percent. The term is used in money and securities markets to define differences in interest rates or yields. Capital Adequacy Ratio A ratio of an ADI’s capital to its risk, obtained by dividing total capital by risk-weighted assets. This ratio shows an ADI’s capacity to meet the payment terms of liabilities and other risks. Cost-to-income Ratio Obtained by dividing operating cost by operating income, this ratio shows a company’s costs in relation to its income. A lower ratio can be an indication that a company is better at controlling its costs. Credit Rating An analysis of a company’s ability to repay debt or other obligations. Dividend A portion of a company’s profits that may be paid regularly by the company to its shareholders. Dividend Payout Ratio The amount of dividends paid to shareholders relative to the amount of total net income of a company, represented as a percentage. Dividend Yield Computed by dividing the annual dividend by the share price. DRP A Dividend Reinvestment Plan allows shareholders to reinvest some or all of their dividends into additional shares. Earnings per Share Ex-Dividend Date Liability Liquidity Market Capitalisation The amount of company earnings per each outstanding share of issued ordinary shares. The date used to determine a shareholder’s entitlement to a dividend. A company’s debts or obligations that arise during the course of business operations. Liabilities for ADIs include interest-bearing deposits. For an ADI, liquidity is a measure of the ability of the ADI to fund growth and repay debts when they fall due, including the paying of depositors. The total value of a company’s shares calculated by multiplying the shares outstanding by the price per share. 96 / ANNUAL REPORT NCD A Negotiable Certificate of Deposit is a short term security typically issued by an ADI to a larger institutional investor in order to raise funds Net Interest Income The difference between the revenue that is generated from an ADI’s assets, and the expenses associated with paying out its liabilities. Net Interest Margin (NIM) The difference between the interest income generated by an ADI and the amount of interest the ADI pays out to their depositors, divided by the amount of their interest-earning assets. Net Profit After Tax (NPAT) Net Tangible Asset Backing per Share Non Interest Income Price-to- Earnings Ratio (P/E Ratio) Total revenue minus total expenses, with the tax that will need to be paid factored in. An indication of a company’s net worth, calculated by dividing the underlying value of the company (total assets minus total liabilities) by the number of shares on issue. Income derived primarily from fees and commissions, rather than income from interest-earning assets. A measure of the price paid for a share relative to the annual income or profit earned by the company per share. Record Date The date used to identify shares traded and registered up until Ex-Dividend Date. Return on Average Ordinary Equity A measurement of how well a company uses the funds provided by its shareholders, represented by a ratio of the company’s profit to shareholder’s equity. RMBS Residential mortgage-backed securities are a type of bond backed by residential mortgages on residential, rather than commercial, real estate. Securitisation Refers to setting aside a group of income-generating assets, such as loans, into a pool against which securities are issued. Securitisation is performed by an ADI in order to raise new funds. SSP Special Service Provider such as an authorised settlement clearing house. Subordinated Capital Notes Subordinated notes or subordinated debentures, are a type of capital represented by debt instruments. Subordinated notes have a claim against the borrowing institution that legally follows the claims of depositors. Subordinated notes or debentures come ahead of stockholders. Tier 1 Capital Describes the capital adequacy of an ADI. Tier 1 Capital is core capital and includes equity capital and disclosed reserves. Tier 2 Capital Describes the capital adequacy of an ADI. Tier 2 Capital is secondary capital that includes items such as undisclosed reserves, general loss reserves, subordinated term debt and more. Underlying Cash NPAT The actual reflection of a company’s profit. One-off items may be removed from the statutory profit for the company to arrive at this profit figure. AUSWIDE BANK / 97 AUSWIDE BANK LTD ABN 40 087 652 060 Australian Financial Services & Australian Credit Licence 239686 Head Office Auswide Bank 16 – 20 Barolin Street PO Box 1063 Bundaberg QLD 4670 T 07 4150 4000 F 07 4152 3499 E auswide@auswidebank.com.au 1300 138 831 auswidebank.com.au (Retail Website) auswidebankltd.com.au (Corporate Website) 

Continue reading text version or see original annual report in PDF format above