2016 Annual Report The Big Hearted Bank CONTENTS Performance Highlights Celebrating 50 Years Chairman’s Report Managing Director’s Report Renewing Our Strategic Plan Enhancing Our Customer Experience Supporting Our Community Empowering Our People Investing in Technology Managing Risk Board of Directors 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 34 35 36 37 38 Notes to the Consolidated Financial Statements 42 Directors’ Declaration Independent Auditor’s Report Corporate Governance Summary Shareholder Information Financial Glossary 86 87 89 91 94 2 5 6 8 10 12 14 15 17 19 20 22 24 PERFORMANCE HIGHLIGHTS Net Interest Revenue Capital at 6.1% Underlying cash NPAT 2.8% Loan Book 14.4% to $2.666b 14.31% Total Assets now over $3 billion 30c Dividend maintained NIM maintained at a steady level Arrears well managed and within SPIN FINANCIAL PERFORMANCE NET INTEREST INCOME ($M) DIVIDEND (CPS) 60 50 40 30 20 10 0 51 50 51 54 2013 2014 2015 2016 30 25 20 15 10 5 0 30.0 30.0 28.0 17.0 4.0 15.0 16.0 16.0 13.0 13.0 14.0 14.0 2013 2014 2015 2016 1H 2H Net Interest Income steadily increasing despite historically low interest rate environment. Sustainable dividend based on strong operating performance and capital position. 2 / ANNUAL REPORT LENDING HOME LOAN SETTLEMENTS LOANS PORTFOLIO 80 70 60 50 40 30 20 10 0 30 25 20 15 10 5 0 7 0 . 7 8 0 , 1 7 7 , 8 3 $ . , 7 4 3 3 8 8 8 8 6 4 $ , , 4 7 . 2 7 3 9 4 3 5 3 $ , 5 7 . 7 7 1 , 0 9 6 9 5 $ , 5 1 . 0 9 9 , 7 3 6 2 3 $ , . 6 9 2 4 9 , 7 0 7 , 5 4 $ . , 7 5 9 5 4 2 7 4 3 4 $ , . , 2 5 8 9 4 5 7 3 2 3 $ , , 2 6 . 7 1 0 5 8 3 5 4 $ , . 0 0 8 2 8 , 7 0 0 4 4 $ , . , 1 6 5 8 0 6 3 8 9 4 $ , . , 3 3 2 4 0 5 6 0 , 7 3 $ . 8 9 3 4 9 , 1 1 7 , 5 3 $ . , 6 9 3 8 6 4 5 7 , 7 5 $ . , 1 0 3 7 2 5 2 2 2 4 $ , . 6 9 8 6 1 , 9 0 2 2 7 $ , . , 5 3 8 5 0 9 9 4 , 1 3 $ , 1 9 . 7 7 2 5 7 1 , 3 5 $ . 2 6 9 8 2 , 7 7 4 , 1 3 $ . 0 0 9 8 0 , 1 1 2 , 7 3 $ , 6 2 . 1 1 3 6 3 8 8 3 $ , , 7 6 . 7 4 8 9 6 6 5 4 $ , , 7 7 . 3 6 8 9 8 0 3 3 $ , . 2 3 6 5 7 , 2 2 0 4 3 $ , Jul Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun 2014/2015: $450,518,974.58 2015/2016: $573,550,925.02 , 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 $ , 0 0 0 , 1 1 5 5 3 4 2 $ , , 0 0 0 , 1 1 4 6 6 6 2 $ , , Jun 13 Dec 13 Jun 14 Dec 14 Jun 15 Dec 15 Jun 16 Home loan settlements increased 27.3% compared with 2014/15. Auswide Bank’s loan book grew by 14.4% to $2.666 billion. FINANCIAL PERFORMANCE LENDING NET INTEREST MARGIN NET INTEREST MARGIN LOANS ARREARS LOANS ARREARS 2.5 2.2 1.9 1.6 1.3 1.0 100 80 60 40 m $ $34.0 $13.0 20 $40.9 $20.2 $7.3 $15.5 Jun 13 Dec 13 Jun 14 Dec 14 Jun 15 Dec 15 Jun 16 0 Jun 13 Jun 14 $11.9 $3.2 $7.2 Jun 15 $15.4 $6.7 $4.4 Jun 16 Net Interest Margin stable in spite of competitive market conditions. Total loan arrears greater than 30 days past due have fallen from $87.9m in June 2013 to $26.5m in June 2016. 30–60 days past due 60–90 days past due Over 90 days past due AUSWIDE BANK / 3 Ron Hancock AM Founding Director and former Managing Director 4 / ANNUAL REPORT CELEBRATING 50 YEARS Conceived to support the communities of central Queensland, Auswide Bank has always ensured regional communities could achieve more with us than with any other bank. In 1966, we began our journey as Burnett Permanent Building Society in Bundaberg, establishing our roots as the bank that best serves the financial, and particularly home lending, needs of the local community. Over the years, a desire to grow and share a unique banking experience has transformed Auswide Bank into a regional bank with branches across Queensland and customers across Australia. Despite our growth into new markets, our philosophy remains the same - putting the community first and making a big difference to our customers. A history of mutual relationships underpins our ability to consistently provide the best banking. These relationships are the reason we have weathered years of economic cycles, significant changes in community and society attitudes, and massive advances in technology and communication. Today, Auswide Bank is stronger, fitter and more capable than ever to deliver exceptional banking for our customers. Being a successful and trusted bank in Queensland for 50 years is a significant achievement that proves that it is the small things that make a big difference. AUSWIDE BANK / 5 CHAIRMAN’S REPORT Auswide Bank continued to improve its customer service skills and capabilities during the year, which supported organic growth momentum and a solid financial performance. I am pleased to report that Auswide Bank‘s financial results in 2015/16 represents another year of improvement, with a 2.8 per cent increase in underlying cash Net Profit After Tax (NPAT) to $14.041 million for the consolidated group. Statutory NPAT for the consolidated group was $11.699 million, compared to the 2014/15 figure of $13.262 million. This figure was impacted by one-off expenses totalling $3.788 million (before tax) including merger and acquisition costs of $2.836 million, $848,000 for branch rationalisation and rebranding expenses, and other professional costs. Auswide Bank’s organic growth continued to gain momentum over the course of the year, and this is one of the most pleasing aspects of the Company’s performance. We have been able to achieve this because of the improvements that have been made to our organisational capabilities in retail and business banking, third party broker relationships and omni-channel delivery. We are excited that our customers can now do business with Auswide Bank wherever and whenever they choose – online or by mobile banking application, over the phone, through a broker or in person at one of our branches. Most importantly, our improving organisational capabilities and the positive attitude of our staff means that our customers enjoy outstanding service through all of these channels. During 2015/16, we completed a successful merger with Your Credit Union (YCU). We welcomed more than 4,000 new customers and shareholders, many of whom will recently have received their first dividend from Auswide Bank. YCU customers voted overwhelmingly in favour of becoming customers and shareholders of Auswide Bank, reinforcing that they value the products and exceptional customer service we provide. This was the first merger between a listed bank and mutual organisation in more than a decade and favourably positions Auswide Bank as a merger partner for other mutuals. As a result of organic growth and our merger, assets of the company now exceed $3 billion. On the basis of the continued improvement in the Company’s financial performance and our strong capital position, the Board has declared a fully franked final dividend of 16.0 cents per share. This brings the total dividend for 2015/16 to 30.0 cents per share fully franked, which is in line with last financial year. The Dividend Reinvestment Plan was reinstated for the interim dividend and will continue for the final dividend with a discount of 2.5 per cent. The improved performance of Auswide Bank is a result of the organisation delivering on the initial three-year Strategic Plan to strengthen and reposition the business. The Board approved a refreshed three-year Plan in March 2016, with a continued focus on improvements that will enhance the experience we provide for our customers, generate sustainable cost efficiencies and support continued organic growth. 6 / ANNUAL REPORT I would like to thank my fellow directors for their dedication and insights in guiding the Company throughout the year. I would also like to take the opportunity to thank our shareholders, customers and business partners for your continued support of Auswide Bank. John Humphrey Chairman The new Strategic Plan also identifies some areas in which we will seek to accelerate performance improvement through streamlining and automating back office systems and processes, as well as leveraging our investments in YCU and the peer-to-peer lender, MoneyPlace. As we celebrate our 50th year of operations, it is pleasing to see that our business continues to grow and create value for shareholders because we remain focused on our foundation values to put our customers first and support them with exceptional banking service. The continued positive performance of Auswide Bank and the returns generated for shareholders are the result of the efforts of our employees and management team. The hard work of Martin Barrett and his team to ensure all of our people understand the role they play in delivering our brand promise, has been central to these achievements. AUSWIDE BANK / 7 MANAGING DIRECTOR’S REPORT Auswide Bank built on the momentum achieved since 2013 and delivered another year of organic growth across the business. We continued to build organisational capabilities that make customer experience the central element of all our operations. Our progress in strengthening and repositioning the business underpinned a solid financial performance for 2015/16. Net Interest Revenue increased by 6.1 per cent to $53.892 million in 2015/16, compared with $50.806 million in the previous financial year. We reported an 8.9 per cent expansion of our underlying loan book, to $2.537 billion at 30 June 2016. The result was above system growth and while lending activity retreated in our traditional Central and North Queensland markets, we expanded our position in South-East Queensland which now makes up more than one-third of the loan book. Taking account of the loans acquired through the Your Credit Union (YCU) merger, Auswide Bank’s loan book grew by 14.4 per cent to $2.666 billion. Home loan approvals in 2015/16 totalled $591.571 million, which represents an increase of 31.7 per cent compared with the previous financial year. The growth was balanced between Auswide Bank’s retail and third party channels, with our broker and mortgage alliance platform contributing approximately 60 per cent of loan originations in the period. In spite of an increasingly competitive lending market, Net Interest Margin remained stable at 196 basis points, compared with 198 basis points for the previous financial year. 8 / ANNUAL REPORT MANAGING DIRECTOR’S REPORT We achieved significant loan book growth without compromising the bank’s prudent approach to risk management or increasing our risk appetite. Total arrears (greater than 30 days past due) increased to $26.0 million from $22.3 million in 2014/15. Despite economic challenges in our traditional markets, arrears remain materially lower than in 2013/14, and the Board is satisfied that adequate provisions have been made for risks from current and future doubtful debts. Auswide Bank has maintained a strong capital position that will accommodate future lending growth and allow the Board to consider further merger and acquisition (M&A) opportunities. We reported a capital adequacy ratio of 14.3 per cent at 30 June 2016, compared with 15.2 per cent at the end of 2014/15. Our investments in loan funding and M&A projects led to a reduction in the level of capital but this figure remains comfortably above the Board’s target of 13.5 per cent. Outlook The broad drivers of the banking sector are largely unchanged from last year. Interest rates remain at historic lows and intense competition continues to be a feature of the market. As a result, the banking sector, including Auswide Bank, will continue to manage margin pressures. Challenging economic conditions continue to confront retail and business customers in our traditional Central and Northern Queensland markets. This has been more than offset by our growing presence in South-East Queensland, and nationally through our digital platform and third party broker relationships. In spite of these pressures, we remain reasonably optimistic about our abilities to maintain loan book growth in the year ahead. The integration of YCU into Auswide Bank represents a significant growth opportunity in 2016/17 and beyond. Auswide Bank’s balance sheet strength also gives us the opportunity to pursue other consolidation opportunities as an avenue for growth. Over the past three years, we have substantially expanded Auswide Bank’s organisational capabilities to offer our customers exceptional service which in turn drives organic growth. In the year ahead, we will continue to develop those capabilities and look to leverage them to strengthen our competitive position and build on the momentum we have achieved. We will focus on finding new and better ways to delight our customers by capitalising on our market position as a smaller bank that is close to its customers. The Auswide Bank ‘Small things, Big difference’ brand promise is all about knowing our customers and responding to their needs. It is part of our DNA and something we will continue to foster as we celebrate our first 50 years and look to the future. I would like to thank our staff, the Board, our shareholders and most of all, our customers for their continued support throughout the year. Martin Barrett Managing Director AUSWIDE BANK / 9 RENEWING OUR STRATEGIC PLAN The progress we’ve achieved in strengthening and repositioning Auswide Bank under our 2013–2016 Strategic Plan will be continued under a new three-year plan approved by the Board in March. Using this foundation, the 2016–2019 Strategic Plan sets out how we will leverage that investment to further strengthen the business and extend our market position to create value for our shareholders. The Plan maintains our path of transforming our business processes, pursuing strategic acquisitions and partnerships, focusing on our customers and communities, building the capabilities of our people, target investments in technology and grow our risk management culture. Transforming our business In regard to transforming our business we have identified a number of areas in which we can make step changes in the performance of our business. We will expand our efforts to streamline internal systems and processes to generate cost efficiencies and increase the speed of our customer response times. Auswide Bank invested in deploying a new automated loan origination system during the financial year, which has resulted in substantial efficiencies and faster processing of loan applications for customers and brokers. We will continue to automate our administrative processes so that we can manage a larger volume of loan applications more quickly and at lower cost. Strategic Acquisitions and Partnerships Following our recent merger with Your Credit Union (YCU) and partnership with peer-to-peer (P2P) lender, MoneyPlace, we will also look to leverage our position as a leader in pursuing opportunities and creating mutually beneficial partnerships. Our merger with YCU was completed in May 2016 and introduced more than 4,000 new customers to Auswide Bank and provides us with an established Brisbane CBD branch and South-East Queensland presence. This is both a significant growth opportunity in 2016/17 and beyond, and a strategic advantage for us in a consolidating market. 10 / ANNUAL REPORT The new Strategic Plan identifies mergers and acquisitions as an area of focus, and we will continue to actively consider and pursue opportunities that align with our strategy and strengthen our competitive position. The fact that we were the first listed bank to complete a merger with a mutual organisation in more than ten years has raised the profile of Auswide Bank as a potential merger partner in the mutual sector. We have captured the many lessons from the YCU merger and developed systems and processes that enable us to move quickly to facilitate a transaction, as well as streamline any integration to realise revenue and cost synergies, while ensuring the customer value proposition. Our strategic investment in MoneyPlace, Australia’s second licenced P2P lender in a market that has an estimated value of $50 billion, is contributing to the expansion of our personal lending portfolio. We have acquired a 19.3 per cent stake in the business and will provide conditional funding of up to $60 million over five years for personal lending. This strategic relationship has increased our understanding of the fast moving fintech sector of our industry. The future of financial services is becoming increasingly digital, and our Plan calls for us to continue to pursue ‘win win’ fintech partnerships through which we can leverage our funding capacity to reach new customers. The Plan maintains our path of transforming our business processes, pursuing strategic acquisitions and partnerships AUSWIDE BANK / 11 We have re-shaped our organisational structure to place increased emphasis on customer service and continue to build our capabilities in this critical area ENHANCING OUR CUSTOMER EXPERIENCE As a regional bank with a strong community focus, Auswide Bank’s ability to provide outstanding customer service is a key competitive advantage. However, as we expand into new markets, our Strategic Plan highlights the need to build on this advantage by making all customers the principal consideration in all of the business decisions we make. We have re-shaped our organisational structure to place increased emphasis on customer service and continue to build our capabilities in this critical area. Auswide Bank has established the role of Chief Customer Officer and appointed experienced banking executive, Damian Hearne with responsibility for retail and business banking sales and distribution teams, third party relationships, and marketing and product initiatives. This new customer management structure aligns all of our customer-facing functions in a single team, giving the customer a greater voice in shaping the way we do business. The revitalisation of our branch network was completed in 2015/16 with upgrades to branches in Maryborough, Gympie, Nambour, Townsville and Bundaberg. The branches have been re-branded and upgraded to create a more modern environment in which our customers can have genuine conversations about their financial needs with our people. Introducing attractive and competitive new products that can be accessed through all of our traditional and digital channels is an important element of customer experience and maintaining our competition position. In 2015/16, some of our new product initiatives included enhancements to our mobile banking app, introducing online home loan redraw, and expanding Visa Debit Card capability and business banking support. We are planning to launch new products and services in the current financial year, including: • developing our home and personal loan products to meet the needs of a broader group of borrowers • enhancing our savings options with attractive new features • offering credit cards provided by Auswide Bank and backed by our own balance sheet • new functionality that will allow customers to apply for personal loans and open accounts online • upgrades to our existing internet banking and mobile banking applications. 12 / ANNUAL REPORT The research also highlighted a need to promote our brand more widely. In June, we responded by launching our first major brand campaign as a bank. The Big-Hearted Bank creative concept behind the campaign reinforces our ‘Small things, Big difference’ brand promise that focuses on building personal relationships with our customers. The campaign is being rolled out nationally through television, billboard and online advertising to support our growth plans. During the year, Auswide Bank commissioned independent brand awareness and customer satisfaction research to understand how we are seen by our customers as well as people who bank with other institutions. Almost 75 per cent of people we surveyed nationally rated Auswide Bank positively compared with other banks based on our friendly and reliable customer service. More than 80 per cent of our customers said they were likely or very likely to recommend Auswide Bank to their friends and family. Our vision is to become “the bank that our customers, staff and partners want their friends, family and colleagues to bank with” and we are delighted that so many customers are willing to be advocates for us. AUSWIDE BANK / 13 SUPPORTING OUR COMMUNITY For 50 years, Auswide Bank has been an active member of our local community, helping schools, groups and clubs to achieve their aims through sponsorships and in-kind contributions covering a wide range of interests and endeavours. Grants and sponsorships are a tangible way we can make a positive difference for local community organisations, a focus of the strategic plan The Auswide Bank ‘Our Community’ grants scheme provides vital funding for community projects and events. Over the course of the year, over 57 projects received our support. Young people who contribute to their communities are an important element of our community connections. In 2015/16, Auswide Bank was a key sponsor of the Queensland Young Achievers Awards, providing each recipient with a cash grant as recognition of their outstanding achievements. During the year, Auswide Bank renewed our relationship with CQUniversity with a three-year scholarship agreement valued at $50,000 to support Central Queensland’s next generation of business leaders. Our 50th birthday has been an opportunity to celebrate our community roots. Customer and community events were held across our network. Auswide Bank’s ‘Loan Referral Program’ provides further support for not-for- profit organisations through a mutually beneficial incentive program. Accredited referrers are rewarded when they refer a new home or personal loan customer to Auswide Bank. We are proud to make a contribution in ways that benefit our communities and Auswide Bank. Our ongoing financial and in-kind support helps our community partners to achieve their aims, and reinforces that Auswide is the bank that our customers, staff and partners want their friends, family and colleagues to bank with. 14 / ANNUAL REPORT EMPOWERING OUR PEOPLE At Auswide Bank, our people are our brand. Empowering our people to live our brand and values is essential to our ongoing success and growth as highlighted in the Strategic Plan. Our new mission and vision place our customers at the centre of everything we do. They also provide our people with a focus on customer advocacy that supports our growth strategy. Empowering our people through professional development and training ensures we continue to meet the high expectations of our shareholders, customers and business partners. During the year, Auswide Bank conducted Brand Culture workshops with our people throughout the business. These discussions helped to re-position our brand, values, vision and mission to support long term passionate employees. Employee engagement surveys after the workshops have shown significant and positive support for embracing our brand values. Our new values, Empower, are a simple idea that positions our teams to take the initiative in delivering excellent customer service and build rapport with customers. These value help to ensure that our actions with customers live up to Auswide’s brand promise: Small things, Big difference. Some of the learning and development initiatives during 2015-16 included: • training to support key technology rollouts in our core banking system and our new loan origination system that are being utilised across our retail banking, business banking and third party mortgage broker alliances • continued use and development of our eLearning platforms and SalesMAX programme enhance the capabilities of our staff and satisfy our regulatory training obligations. Our people have been given a spotlight on Auswide Bank’s Facebook page through personal profiles. This personalises and promotes the ‘Big- Hearted Bank’ philosophy and connects our people to a broader audience. AUSWIDE BANK / 15 Feature upgrades are also planned for Internet Banking and our Mobile App 16 / ANNUAL REPORT INVESTING IN TECHNOLOGY Each year, the banking market becomes more competitive and our customers demand more digital products. This makes our technology capabilities critical to providing exceptional customer service. Our Strategic Plan directs how we invest in and manage technology to focus on: • delivering superior customer service • offering competitive products and services • maintaining secure and efficient systems • leveraging data to better understand and meet our customers’ needs. In June 2016, we completed deployment of the first phase of our new loan origination system, Lendfast. Automated valuations, credit policy assessment, and customer identification and screening have already led to faster loan processing at lower cost to the business. Our customers now benefit from automated communications at each milestone during the loan application process, as well as electronic document capture and automated credit assessment. Lendfast also provides our third party brokers with an automated channel to lodge customer loan applications via the broker centric NextGen platform. Lendfast will soon offer brokers the same improved communication at each loan application milestone and online document lodgement through the Loan Tracker portal. The use of data to drive decisions within the business continues to gain momentum with the establishment of a dedicated Business Intelligence team that develops tools to reveal “real time” business and customer insights. This work is helping us to better understand our customers’ needs and behaviours, so that we can continue to improve the service we provide through all our channels. Further feature upgrades are also planned during 2016/17 for Internet Banking and our Mobile App to ensure we deliver banking services at any time and in any place. Planning for the next generation technology platform to drive Auswide Bank’s business to 2020 is also underway. The platform will provide fast and secure end to end processing capabilities across the business to create sustainable efficiencies and improve customer service. AUSWIDE BANK / 17 18 / ANNUAL REPORT MANAGING RISK Auswide Bank has a comprehensive risk and compliance management program to actively eliminate risk where possible, and mitigate and minimise the impact of those risks that cannot be eliminated. Our risk management culture underpins the effectiveness of our Strategic Plan. An organisation-wide risk culture survey conducted during the year demonstrated that our people have a strong orientation to ‘own risk’ and accept personal responsibility to manage it across each business unit. Empower, as our brand’s newest value, encourages staff to harness this attitude, reinforcing our ‘Three Lines of Defence’ risk management model. Line 1 – Business Units. As part of their normal operations, business units manage risk. Line 2 – Risk and Compliance Management. Our Risk and Compliance Management team maintain an integrated risk management framework and provide support, supervision and expertise to support the business. The team measures risk exposures to support the decisions of the business, provides reporting to the Board and management, and makes credit risk decisions under approved delegations and loan portfolio management. Line 3 – Audit Management. During the reporting year, Auswide Bank outsourced our internal audit function to PricewaterhouseCoopers (PwC). This has allowed the bank to improve the capabilities to review our internal controls, risk management processes, and governance systems and identifies more ways to support and provide assurance on these functions. All our staff continue to make considerable improvements across the organisation to enhance the risk and compliance culture of the business. Their hard work this year has resulted in our arrears level being well managed and Standard & Poor’s reaffirming our issues credit ratings as ‘BBB’ stable. Throughout the year, we continued to focus on: • our people – training to increase capabilities of the Risk and Compliance staff • continuous review and refinement of credit policies to meet the expectations of businesses and customers in a sustainable fashion • sustainability – continuous improvement working towards reducing arrears levels • regulatory change – monitoring regulations outlined by APRA’s Prudential Standard CPS 220 Risk Management • technology solutions – implementation of our new loan origination system, Lendfast, that allows: – automation of the decision to lend in line with Auswide Bank’s credit risk appetite – instantaneous credit decisions for our customers and brokers including outside business hours – consistent and paperless loan application process which is integrated with other external systems – capacity for growth. AUSWIDE BANK / 19 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 BARRY DANGERFIELD Non-Executive 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. Pty Ltd Chairman of the Group Board Remuneration Committee Member of the Audit Committee Member of the Risk Committee Board Member since: November 2011 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. 20 / ANNUAL REPORT GREG KENNY GAICD, GradDipFin Non-Executive Director Director of Mortgage Risk Management Pty Ltd SANDRA BIRKENSLEIGH BCom, CA, GAICD, ICCP (Fellow) Non-Executive Director Chairperson of the Audit Committee Chairman of the Risk Committee Member of the Risk Committee Member of the Audit Committee Member of the Group Board Member of the Group Board Remuneration Committee Remuneration Committee Board Member since: November 2013 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 / 21 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 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 Institute of 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. His responsibilities include oversight of Auswide Bank’s Accounting and Treasury business units; financial and management reporting for the group; statutory, ASX and regulatory reporting; strategic focus for the group’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. 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 and has more than 25 years of experience in the financial services sector. Mark’s current responsibilities include the management of Auswide Bank’s lending services, banking services, property services, business continuity planning, mortgage origination services, transformation and productivity, and analytics reporting functions. 22 / ANNUAL REPORT DAMIAN HEARNE BEd, MBA Chief Customer Officer Damian was appointed in July 2016 in a new role as Chief Customer Officer to implement the Bank’s new three-year strategic plan which highlights the importance of customers and supports our planned growth. He brings 11 years’ experience of managing banks across Queensland and in Sydney for Bank of Queensland and Suncorp. Damian supervises and co- ordinates Auswide Bank’s retail and business banking sales and distribution teams, mortgage broker, third party relationships, and marketing and product initiatives, all with customer experience as the focus. STEPHEN CAVILLE AdvDipEEng Chief Information Officer Steve was appointed in 2000 as a Senior System Administrator and was subsequently appointed to the position of Chief Information Officer in 2010. He has a broad spectrum of qualifications and experience in the Royal Australian Air Force. Steve’s responsibilities include oversight of Auswide Bank’s Information Technology and he has been instrumental in the development of the bank’s IT Strategic Plan and implementation of key technology projects. GAYLE JOB Chief People Officer Gayle has significant experience in financial services including branch operations, product development, policies and procedures, and training and compliance. Her role as Chief People Officer allows her to focus on 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 OH&S. 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 in the financial services industry through senior leadership roles in Australia, Papua New Guinea and the Solomon Islands. Craig was appointed to the Chief Risk Officer role in July 2014 and is responsible for creating and maintaining a culture of risk awareness and accountability by assisting the Board of Directors in developing the risk appetite statement, promoting an enterprise- wide risk management philosophy and establishing prudent guidelines to help the business manage and mitigate identified risks. AUSWIDE BANK / 23 DIRECTORS’ STATUTORY REPORT 30 JUNE 2016 REVIEW AND RESULTS OF OPERATIONS The underlying cash NPAT for the consolidated entity for financial year 2015/16 was $14.041m compared to $13.655m for 2014/15. This represents an increase of 2.8% from 2014/15. The statutory consolidated net profit after income tax for the 2015/16 financial year was $11.699m compared to the result of $13.262m for the 2014/15 year. There were one-off expense items in the 2015/16 financial year totalling $3.788m before tax ($3.242m after tax). These one-off expenses were as follows: • Merger and acquisition projects: $2.836m; • Final write-off of signage assets for the rebranding of the bank to ‘Auswide’: $0.078m; • Branch rationalisation program (including lease payouts, make-good of premises, write-off of assets and redundancy payments): $0.770m; PRINCIPAL ACTIVITIES AND SIGNIFICANT CHANGES Following the progress made with the implementation of the strategies contained in the three year strategic plan adopted in May 2013, a refreshed 3 year strategic plan was adopted by the Board in March of 2016. The strategic plan focused on the structure, transformation, growth and strength of the bank, which is to be achieved by: • Restructure of the sales channels, products and marketing to provide better allocation of resources to improve customer experience; • Implementation and re-engineering of the end to end home loan process; • Automation of process and simplification of products, including online loans and account opening; • Building the ‘Auswide’ brand with consistency of messaging and enhanced customer service; • Outsourcing of the Internal Audit function: $0.078m: and • Continued investment in technology, skills and training; • Mortgage Risk Management Pty Ltd (MRM) restructure: • Strengthening the bank through management capabilities, $0.026m. There were also one-off income items in 2015/16, being receipt by MRM of $1.284m ($0.899m after tax) for settlement and dividends upon the conclusion of lawsuits regarding investments written off in prior years. The loan book of Auswide Bank Ltd increased from $2.330b at 30 June 2015 to $2.666b at 30 June 2016, an increase of 14.4%. This includes $129.152m of loans purchased in the merger with YCU in May 2016. The actual growth excluding the YCU loans purchased was 8.9%. Home loan approvals across the 2015/16 financial year totalled $591.571m, an increase of 31.7% on the $449.048m in home approvals for the 2014/15 financial period. Personal loans The personal loan book continues to grow and although not material to the total loan portfolio, reached $12.365m 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. MRM was Auswide Bank Ltd’s wholly owned lenders’ mortgage insurer, which ceased writing new business in August 2012. In response to a formal application by MRM, APRA revoked the authorisation under subsection 12(2) of the Insurance Act 1973, to carry on insurance business in Australia, effective 17 December 2015. The credit risk and provisions were transferred to the balance sheet of the parent entity. risk and audit processes and capital strength; and • Review of M&A and Fintech opportunities as they arise. Merger Implementation In December 2015 Auswide Bank and Queensland Professional Credit Union Ltd (trading as YCU – Your Credit Union) entered into a Merger Implementation Agreement under which the two parties agreed to proceed with a merger proposal by way of a scheme of arrangement between YCU and its members. In April 2016 YCU members voted in favour of the merger proposal (which involved the demutualisation of YCU) and the required prudential regulatory approvals were granted. The merger was a strategic acquisition for Auswide with the addition of a branch in the Brisbane CBD and in excess of 4,000 new customers for the bank. The transaction represented the first merger between a listed ADI and a mutual in 11 years. On 19 May 2016 the court approved Scheme of Arrangement was implemented, and Auswide Bank acquired 100 percent of the shares of YCU. Each eligible YCU member received $4,055 in cash and 696 new Auswide Bank Ltd shares for their membership interest. The total consideration transferred by Auswide Bank was $30,818,434, which was comprised of $16,584,949 cash and $14,233,485 of new shares issued (2,846,640 shares at $5.0001 per share). The integration of the systems and products of YCU with those of Auswide Bank is currently underway. This is expected to be materially completed by the end of September 2016. Financial synergies expected from the transaction have been realised and will add to operating profit in the future. Investment in MoneyPlace On 16 December 2015 Auswide Bank announced it would be entering into a strategic relationship and equity investment with MoneyPlace, Australia’s second fully licenced peer- to-peer (P2P) lender. The long term relationship includes a conditional five year deal to fund up to $60m to invest in consumer loans. In addition, Auswide Bank has acquired a 19.3% equity stake in MoneyPlace which settled on 4 January 2016. MoneyPlace launched in October 2015 after receiving its retail and wholesale Australian Financial Services licence and provides loans of $5,000 to $35,000 through its P2P platform. 24 / ANNUAL REPORT Branch network The rebranding of Auswide Bank which commenced in the 2014/15 financial year has included the roll-out of the branch refurbishment plan, creating a more modern look and customer-friendly experience across our branch locations. Six branch upgrades were completed during 2015/16 and additional branches have been identified for 2016/17. 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. The branches which have been refurbished in the 2015/16 year include Maryborough, Gympie, Nambour and Townsville branches and 2 branches in Bundaberg at Sugarland and the Barolin Street head office. Technology Auswide has invested in the deployment of a new automated loan origination system which has resulted in significant processing efficiencies. Loan origination now uses automated valuation request and fulfilment, credit policy assessment and exception management, customer identification and AML screening. Further stakeholder benefits include back channel messaging at origination milestones, and electronic document capture and assessment. Brokers now have an automated lodgment channel and will soon have the same back channel milestone communication and online document lodgment as the retail network. The investment in the loan origination automation is expected to result in further efficiencies as cost effective procedures are implemented across the 2016/17 year. Net Interest Margin Competition in the home loan market has continued across the 2015/16 financial year with interest rates at historical lows. Auswide has been able to manage the NIM to reflect a stable performance across the 2015/16 financial year when compared to the prior corresponding period. The net margin and interest spread for the 2015/16 year was 1.96% compared to 1.98% in the 2014/15 financial year. Arrears and collections The Arrears Project implemented in prior years has continued to deliver positive results in the arrears of the group. In accordance with data disclosed in the financial accounts of the bank, total arrears greater than 30 days past due (excluding the effects of hardship accounts) increased from $22.3m to $26.6m. Despite economic challenges in some regions of Queensland, the arrears have been maintained at levels materially less than experienced in the 2013/14 financial year. The Board is satisfied that the provisions set aside cover the risks arising from current and future doubtful debts. Risk Strengthening the risk management ‘culture’ of the organisation has been a focus of the Board and management of Auswide in the 2015/16 financial year, and is a key focus in the 2016/17 financial year. There has been increased measurement, monitoring and reporting of risk related matters in the financial year. The Board Risk Committee provides strong oversight of this process and of the risk framework across the organisation. The Board remains focused on the improvement of credit quality as the loan book grows. ACQUISITIONS The Board will continue to monitor opportunities to acquire loan books or suitable institutions as they arise and the Board will review any offers made which may complement the overall operations of the Group. 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. CAPITAL The capital adequacy ratio for the Auswide Group at 30 June 2016 was 14.31% (2015: 15.15%). The tier 1 capital ratio at 30 June 2016 was 11.90% (2015: 12.59%). The total capital level remains strong and in excess of the Board target of 13.50%. DIVIDENDS A fully franked interim dividend of 14.0 cents per ordinary share was declared and paid on 30 March 2016 (27 March 2015 - 14.0 cents). A fully franked final dividend of 16.0 cents per ordinary share has been declared by the Board and will be paid on 30 September 2016 (2 October 2015 - 16.0 cents). 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. AUSWIDE BANK / 25 DIRECTORS’ STATUTORY REPORT continued 30 JUNE 2016 DIRECTORS continued 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 is a Director of the Bundaberg Friendly Society Medical Institute which operates the Friendly Society Private Hospital and Pharmacies in Bundaberg and is Chairman of the Institute’s Audit and Risk Committee. 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 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. 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 is an Executive Director. Ms Sandra C Birkensleigh BCom, CA, GAICD, ICCP (Fellow) Ms Birkensleigh was appointed to the Board on 2 February 2015. Ms Birkensleigh was previously 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, a Director of four Responsible Entities within the NabWealth Group, a Director of Horizon Oil Limited, an independent member of the Audit Committee of the Reserve Bank of Australia, and a Board of Management member and Treasurer of Children’s Therapy Centre. Ms Birkensleigh is the Chairperson of the Audit Committee, a member of the Group Board Remuneration Committee, a member of the Risk Committee and is an independent Director. 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, 18 meetings of the Directors, 7 meetings of the Audit Committee, 2 meetings of the Remuneration Committee and 9 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 B Dangerfield GN Kenny MJ Barrett SC Birkensleigh 18 18 18 18 18 18 17 18 18 18 7 7 7 7 7 6 7 7 7* 7 n/a 2 2 n/a 2 n/a 2 2 n/a 2 n/a 9 9 9 9 n/a 8 9 7* 9 * 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 MJ Barrett B Dangerfield GN Kenny 26 / ANNUAL REPORT Ordinary Shares 31,551 143,148 43,291 15,000 RELATED PARTY DISCLOSURE No persons or entities related to key management personnel provided services to the Company during the year. REMUNERATION REPORT The Board Remuneration Committee consists of independent Directors Mr Barry Dangerfield, Mr Greg Kenny and Ms Sandra Birkensleigh. 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 2015/16 was subject to review and recommendation of the Remuneration Committee and ratification by the Board. Remuneration of other senior executives for 2015/16 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’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’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. Performance based payments were made to senior executives under the STI scheme for the year as follows: • Mr M Barrett (Managing Director): $25,000 cash bonus granted 6 November 2015 as an incentive payment for achievement of non-financial Key Performance Indicator (‘KPI’) targets relating to the financial year ended 30 June 2015. 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. AUSWIDE BANK / 27 DIRECTORS’ STATUTORY REPORT continued 30 JUNE 2016 REMUNERATION REPORT continued Remuneration of Executive Directors and Senior Executives continued 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 25 February 2016 as an incentive payment for achievement of non-financial Key Performance Indicator (‘KPI’) targets relating to the financial year ended 30 June 2013. 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: Short-term employee benefits Post employment benefits Cash salary and fees $ Cash bonus $ Non- monetary $ Super- annuation $ Other long term benefits $ Share based payments $ Performance based Total $ – – – – – – – – – – – – – 13,881 8,676 8,676 19,308 8,676 – – – – – – 160,000 100,000 100,000 11,277 37,504 612,489 – – 100,000 59,217 11,277 37,504 1,072,489 19,308 17,416 17,101 7,802 3,850 4,947 19,308 4,262 16,232 3,445 3,471 – – – – – – – 347,920 224,767 214,615 243,953 197,841 53,956 92,836 24,306 – 1,283,052 2016 SPECIFIED DIRECTORS Humphrey, JS Chairman (non-exec) Dangerfield, B Director (non-exec) Kenny, GN Director (non-exec) Performance based Fixed 146,119 91,324 91,324 – – – Barrett, MJ Managing Director 519,400 25,000 Birkensleigh, S Director (non-exec) 91,324 – Total remuneration – Specified Directors 939,491 25,000 OTHER KEY MANAGEMENT PERSONNEL Schafer, WR Chief Financial Officer Lonergan, CA Chief Risk Officer 305,810 186,001 Caville, SM Chief Information Officer 177,567 15,000 17,500 15,000 Rasmussen, MS Chief Operating Officer Nevis, CM General Manager Third Party & Business Banking 210,383 10,000 168,164 10,000 McArdle, AJ General Manager Sales & Distribution (ceased 28/08/2015) 50,485 – Total remuneration – Specified Executives 1,098,410 67,500 28 / ANNUAL REPORT 2015 Short-term employee benefits Post employment benefits Cash salary and fees $ Cash bonus $ Non- monetary $ Super- annuation $ Other long term benefits $ Performance based Fixed Share based payments $ Performance based Total $ SPECIFIED DIRECTORS Humphrey, JS Chairman (non-exec) 120,182 Dangerfield, B Director (non-exec) Kenny, GN Director (non-exec) 82,135 82,135 – – – Barrett, MJ Managing Director 500,021 37,500 Birkensleigh, S Director (non-exec) 38,052 Sawyer, PJ Director (non-exec) – Retired 17/03/15 59,304 – – Total remuneration - Specified Directors 881,829 37,500 OTHER KEY MANAGEMENT PERSONNEL Schafer, WR Chief Financial Officer 301,040 Lonergan, CA Chief Risk Officer Caville, SM Chief Information Officer Rasmussen, MS Chief Operating Officer Nevis, CM General Manager Third Party & Business Banking McArdle, AJ General Manager Sales & Distribution (ceased 28/08/2015) Total remuneration – Specified Executives 173,545 171,927 206,102 159,754 180,947 1,193,315 – – – – – – – – – – – – – – – – – – – – – 11,417 7,803 7,803 18,783 3,615 5,634 – – – – – – 131,599 89,938 89,938 11,321 37,500 605,125 – – – – 41,667 64,938 55,055 11,321 37,500 1,023,205 18,783 16,117 16,670 7,142 4,391 4,595 18,783 3,990 15,823 3,448 17,064 4,755 – – – – – – 326,965 194,053 193,192 228,875 179,025 202,766 103,240 28,321 – 1,324,876 Consequences of performance on shareholder wealth The tables below set out summary information about the Consolidated Entity’s earnings from continuing and discontinued operations and movements in shareholder wealth for the five years to 30 June 2016: Net profit before tax Net profit after tax 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 2016 $ 17,605,513 11,698,923 30 June 2016 $5.05 $5.08 14.00 cps 16.00 cps 31.20 cps 31.20 cps 30 June 2015 $ 30 June 2014 $ 19,028,332 20,192,139 13,261,991 14,062,303 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 $ 3,727,851 2,881,658 30 June 2013 $5.81 $5.25 13.00 cps 4.00 cps 6.78 cps 6.78 cps 30 June 2012 $ 25,135,492 17,603,198 30 June 2012 $8.50 $5.81 22.50 cps 25.00 cps 49.14 cps 49.14 cps Dividends franked to 100% at 30% corporate income tax rate. AUSWIDE BANK / 29 DIRECTORS’ STATUTORY REPORT continued 30 JUNE 2016 EMPLOYMENT CONTRACTS All named Key Management Personnel and the Managing Director have/had employment contracts. Major provisions of those agreements are summarised below: Chief Financial Officer & Company Secretary – W R Schafer • Contract dated – 28 May 2007 • Term of agreement – no fixed term 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. 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). • 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. Chief Operating Officer – M S Rasmussen • 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 – 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. 30 / ANNUAL REPORT Non-Current Personnel General Manager – Sales & Distribution – A J McArdle (resigned 28 August 2015) • 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. 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. Loans for the year ended 30 June 2016 Directors Executives Total: Key management personnel Loans for the year ended 30 June 2015 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 2015 (694,675) (1,643,366) (2,338,041) Balance* 30 June 2014 $ (832,385) (873,403) (1,705,788) Balance 30 June 2015 $ Interest charged $ 8,291 46,264 54,555 Interest charged $ 23,540 51,021 74,561 Write-off $ – – – Write–off $ – – – Interest** charged $ Write–off $ Balance* 30 June 2016 (1,910,317) (1,618,330) (3,528,647) Balance* 30 June 2015 $ (694,675) (1,643,366) (2,338,041) Balance* 30 June 2016 $ Number in Group 30 June 2016 1 5 6 Number in Group 30 June 2015 1 5 6 Highest in period $ (694,675) 8,291 (512,473) (388,510) (675,621) 19,858 2,689 22,776 – – – – (1,910,317) (1,912,055) (495,318) (520,314) (386,072) (388,510) (686,591) (704,955) 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 / 31 DIRECTORS’ STATUTORY REPORT continued 30 JUNE 2016 EQUITY HOLDINGS AND TRANSACTIONS The following table is in respect of ordinary shares held directly, indirectly or beneficially by key management personnel. Directors JS Humphrey MJ Barrett GN Kenny B Dangerfield Executives WR Schafer SM Caville AJ McArdle CM Nevis CA Lonergan Total Balance 30 June 2015 31,551 122,314 15,000 42,076 23,290 44,240 15,113 8,032 – 301,616 Received as remuneration Options exercised Net change other – 6,240 – – – – – – – 6,240 – – – – – – – – – – – 14,594 – 1,215 6,000 – – 9,048 2,000 Balance* 30 June 2016 31,551 143,148 15,000 43,291 29,290 44,240 15,113 17,080 2,000 32,857 340,713 * Balance at financial year end or the date the individuals ceased being key management personnel. INDEMNITIES AND INSURANCE PREMIUMS FOR OFFICERS AND AUDITORS NON-AUDIT SERVICES During the year, Deloitte Touche Tohmatsu, the Company’s Auditor, performed certain other services in addition to their statutory duties. 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 2016, 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. The Board has considered the non-audit services provided during the year by the Auditor, 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 Auditor 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 • 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. 32 / ANNUAL REPORT Non-audit services paid to Deloitte Touche Tohmatsu are as follows: Services provided in connection with: Tax advisory services Other assurance services Non-audit services paid to Bentleys are as follows: Services provided in connection with: Tax advisory services Other assurance services Other services 2016 $ 61,107 51,539 112,646 2016 $ – – – – 2015 $ – 16,414 16,414 2015 $ 24,741 6,753 1,883 33,377 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 29 August 2016 SC Birkensleigh Director AUSWIDE BANK / 33 AUDITOR’S INDEPENDENCE DECLARATION 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 The Board of Directors Auswide Bank Ltd PO Box 1063 BUNDABERG QLD 4760 29 August 2016 Dear Directors 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 2016, 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 34 / ANNUAL REPORT CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2016 Interest revenue Interest expense Net interest revenue Other non interest revenue Employee benefits expense Depreciation expense Amortisation expense Occupancy expense Consolidated Company Notes 2016 $ 2015 $ 2016 $ 2015 $ 2 2 3 124,292,628 127,000,350 124,292,628 127,000,350 (70,400,502) (76,194,046) (70,514,012) (76,470,296) 53,892,126 50,806,304 53,778,616 50,530,054 9,102,595 9,457,123 9,522,683 9,547,469 18,691,934 18,926,412 18,691,934 18,926,412 1,707,587 1,310,942 1,695,645 1,251,490 428,787 359,610 428,787 359,610 2,626,817 2,639,189 2,688,288 2,757,216 Bad and doubtful debts expense 10 (567,619) 457,948 (567,619) 457,948 Fees and commissions 9,001,105 8,692,582 9,001,105 8,692,582 General and administration expenses 13,670,651 9,020,336 13,637,448 8,926,851 Other expenses Profit before income tax expense Income tax expense 3 4 322,426 318,385 322,426 318,385 17,113,033 18,538,023 17,403,285 18,387,029 5,758,846 5,619,248 5,724,914 5,644,373 Profit for the year from continuing operations 11,354,187 12,918,775 11,678,371 12,742,656 Profit/(loss) for the year from discontinued operations 34 344,736 343,216 – – Profit for the year 11,698,923 13,261,991 11,678,371 12,742,656 Other comprehensive income, net of income tax Items that may be reclassified to profit or loss Revaluation of cash flow hedge to fair value 346,898 (1,466,387) 346,898 (1,466,387) Revaluation of RMBS investments to fair value Income tax relating to these items (63,800) (84,930) (12,553) 443,682 (63,800) (84,930) (12,553) 443,682 Items that will not be reclassified to profit or loss Revaluation of land and buildings to fair value Income tax relating to this item Other comprehensive income/(loss) for the year, net of income tax – – (809,882) 242,965 – – 266,292 (79,887) 198,168 (1,602,175) 198,168 (848,853) Total comprehensive income for the year 11,897,091 11,659,816 11,876,539 11,893,803 Profit for the year attributable to: Owners of the Company Total comprehensive income attributable to: 11,698,923 13,261,991 11,678,371 12,742,656 Owners of the Company 11,897,091 11,659,816 11,876,539 11,893,803 Earnings per share From continuing and discontinued operations Basic (cents per share) Diluted (cents per share) From continuing operations Basic (cents per share) Diluted (cents per share) 26 26 26 26 31.20 31.20 30.28 30.28 36.07 36.07 35.14 35.14 The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes. AUSWIDE BANK / 35 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2016 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 Other intangible assets Deferred income tax assets Other assets Goodwill Total assets LIABILITIES Deposits and short term borrowings Payables and other liabilities Loans under management Deferred income tax liabilities Provisions Subordinated capital notes Total liabilities Net assets EQUITY Contributed equity Reserves Retained profits Total equity Consolidated Company Notes 2016 $ 2015 $ 2016 $ 2015 $ 6 7 8 9 4 67,791,596 51,495,421 67,791,596 47,885,421 22,013,903 9,215,436 22,013,903 9,215,436 12,817,827 5,923,807 11,533,760 5,951,149 225,045,371 244,906,350 252,186,312 241,795,888 411,035 256,206 411,035 256,206 10 2,666,410,703 2,330,122,246 2,664,696,521 2,331,008,305 11 12 15 4 13 14 16 17 10 4 18 19 20 21 512,299 394,658 1,771,304 15,653,663 15,543,563 16,124,377 15,543,563 13,877,613 2,719,522 1,822,013 2,719,522 1,822,013 5,441,101 5,903,417 5,441,101 5,702,766 7,749,905 8,802,512 7,749,805 8,563,542 46,363,080 42,057,110 46,363,080 42,057,110 3,072,819,905 2,717,023,553 3,098,221,502 2,723,789,112 2,183,901,358 1,852,071,695 2,184,223,460 1,865,895,790 25,353,444 24,581,026 24,920,200 23,854,618 613,821,087 603,657,502 640,962,028 603,657,502 2,209,781 1,563,280 2,209,781 1,393,064 2,879,451 7,159,978 2,879,450 2,704,060 28,000,000 28,000,000 28,000,000 28,000,000 2,856,165,121 2,517,033,481 2,883,194,919 2,525,505,034 216,654,784 199,990,072 215,026,583 198,284,078 182,628,748 166,636,661 182,628,748 166,636,661 13,358,163 13,817,409 13,572,434 13,533,572 20,667,873 19,536,002 18,825,401 18,113,845 216,654,784 199,990,072 215,026,583 198,284,078 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 36 / ANNUAL REPORT CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2016 Cash flows from operating activities Interest received Dividends received Consolidated Company Notes 2016 $ 2015 $ 2016 $ 2015 $ 123,576,426 126,995,487 123,576,426 126,598,697 221 221 420,221 221 Other non interest income received 6,794,845 16,441,205 6,954,992 16,081,527 Interest paid (71,604,411) (74,642,405) (71,717,921) (74,918,655) Cash paid to suppliers and employees (inclusive of goods and services tax) (36,294,603) (33,019,046) (30,291,227) (31,117,928) Income tax paid (5,037,531) (5,426,392) (4,886,290) (5,043,833) Net cash provided by / (used in) operating activities 23 17,434,947 30,349,070 24,056,201 31,600,029 Cash flows from investing activities Net movement in investment securities (7,343,760) 3,198,809 (10,454,222) 817,974 Net movement in amounts due from other financial institutions (12,798,467) 1,070,985 (12,798,467) 1,070,985 Net movement in loans and advances (336,100,258) (112,735,553) (334,782,580) (112,618,695) Net movement in other investments Payments for non current assets (117,641) (58,154) 13,882,359 (57,213) (5,268,180) (2,761,940) (5,275,758) (2,761,940) Proceeds from sale of property, plant and equipment 2,766,506 290,521 531,684 290,521 Net cash provided by / (used in) investing activities (358,861,800) (110,995,332) (348,896,984) (113,258,368) Cash flows from financing activities Net movement in deposits and short–term borrowings Net movement in amounts due to other financial institutions and other liabilities Proceeds from share issue Dividends paid 330,622,245 108,447,021 317,540,252 116,590,955 36,468,304 (32,375,001) 36,574,227 (32,266,653) 477,499 3,084,830 477,499 3,084,830 (9,845,020) (10,619,468) (9,845,020) (10,619,468) Net cash provided by / (used in) financing activities 357,723,028 68,537,382 344,746,958 76,789,664 Net movement in cash and cash equivalents 16,296,175 (12,108,880) 19,906,175 (4,868,675) Cash and cash equivalents at the beginning of the financial year 51,495,421 63,604,301 47,885,421 52,754,096 Cash and cash equivalents at end of the financial year 6 67,791,596 51,495,421 67,791,596 47,885,421 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 / 37 – 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 ( , , ) 7 8 3 6 6 4 , 1 ( , 6 1 9 9 3 4 1 1 7 , 3 2 5 , 7 0 2 2 9 0 9 1 4 , 8 3 7 , 6 6 6 2 , ) , 8 6 4 9 1 6 0 1 ( , , 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 , $ – – – – – ) 4 4 5 3 5 3 , ( 6 9 1 , 5 4 2 – – – – – – $ – – – – – – – – – – – , ) 7 8 3 6 6 4 , 1 ( – , 6 1 9 9 3 4 – – – – – – – – – ) 3 5 5 2 1 ( , 6 6 7 , 3 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 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 – – – – – – – – – – – – ) , 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 ( , ) , 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 3 8 0 5 5 3 6 1 , – 2 9 0 9 1 4 , 8 3 7 , 6 6 6 2 , , 1 6 6 6 3 6 6 6 1 , 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 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 l d o s e c n i s 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 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 4 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 l 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 t n e m t s e v n i S B M R f o l 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 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 s g n d i l i u b d n a d n a l f o l 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 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 g d e h w o fl h s a c f o l a t o t - b u S 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 5 1 0 2 e n u J 0 3 t a e c n a a B l $ l a t o T y t i u q e , 8 5 2 8 7 9 5 9 1 , $ ) 5 2 6 0 7 ( , g n i l l o r t n o c d e s a b i g n g d e h s t s e r e t n i s t n e m y a p e v r e s e r $ 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 $ $ 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 y r a n d r o i n o i t a u a v e r l i d e n a t e R l a t i p a c e r a h S 8 7 5 6 6 1 , 0 1 8 , 7 8 3 2 , , 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 , - n o N - e r a h S 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 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 6 1 0 2 E N U J 0 3 D E D N E R A E Y E H T R O F 38 / ANNUAL REPORT 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 - n o N - e r a h S 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 $ l a t o T y t i u q e – 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 1 1 7 , 3 2 5 , 7 0 2 2 9 0 , 9 1 4 8 3 7 , 6 6 6 , 2 ) 8 6 4 , 9 1 6 , 0 1 ( 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 $ – – – – – – – – – – – – – – $ – – – – – – – – – – – – – – ) 7 8 3 , 6 6 4 , 1 ( ) 7 8 3 , 6 6 4 , 1 ( – 6 1 9 , 9 3 4 ) 4 4 5 , 3 5 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 ( $ – – – – – – – – – – – 5 8 1 , 2 9 3 ) 1 5 2 , 0 0 1 ( 1 5 2 , 0 0 1 ) 7 4 1 , 2 2 2 , 1 ( 1 9 9 , 1 6 2 , 3 1 $ – – – – – – – – – – – – 8 5 2 , 8 7 9 , 5 9 1 ) 5 2 6 , 0 7 ( 8 7 5 , 6 6 1 0 1 8 , 7 8 3 , 2 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 - n o N - e r a h S w o fl h s a C e l b a l i a v A l u f t b u o D t e s s A g n i l l o r t n o c d e s a b g n i g d e h s t s e r e t n i s t n e m y a p e v r e s e r e l a s r o f e v r e s e r s t b e d e v r e s e r 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 y r a n i d r o n o i t a u l a v e r d e n i a t e R l a t i p a c e r a h S d t L k n a B e d i w s u A f o s r e n w o o t e l b a t u b i r t t A 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 l 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 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 y r a i 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 l c e R s t e s s a f o n o i t a u l a v e r f o s t fi o r p d e n i a t e r o t r e f s n a r T d l o s e c n i s s t n e m t s e v n i S B M R f o n o i t a u l a v e r o t e u d e s a e r c e D 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 s e e y o l p m e o t s e r a h s f o e u s s I e u l a v r i a f o t n o i t a u l a v e r n o t n e m t s u j d a y t i l i 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 B M R f o s g n i d l i u b d n a d n a l f o n o i t a u l a v e r o t e u d e s a e r c n I e u l a v r i a f o t n o i t a u l a v e r n o t n e m t s u j d a y t i l i b a i l x a t d e r r e f e D s g n i d l i u b d n a d n a l f o e g d e h w o fl h s a c f o n o i t a u l a v e r o t e u d e s a e r c e D n o i t a u l a v e r n o t n e m t s u j d a y t i l i 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 f o l a t o t - b u S e u l a v r i a f o t 4 1 0 2 y l u J 1 t a e c n a l a B y t i t n e d e t a d i l o s n o C ) 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 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 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 l a B . s e t o n g n i y n a p m o c c a e h t h t i w n o i t c n u j n o c n i d a e r e b d l u o h s 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 ) 8 6 4 , 9 1 6 , 0 1 ( – s e r a h s y r a n i d r o – d i a p r o r o f d e d i v o r p s d n e d i v i D 2 9 0 , 9 1 4 n a l 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 8 3 7 , 6 6 6 , 2 n a l p t n e m t s e v n i e r d n e d i v i d r o f l a t i p a c e r a h s f o e u s s I $ l a t o T y t i u q e , 3 7 0 0 9 9 9 9 1 , 8 7 5 , 7 ) , 9 5 3 6 6 1 ( 6 3 4 0 6 , ) 0 0 8 3 6 , ( 0 4 1 , 9 1 8 9 8 6 4 3 , , 3 2 9 8 9 6 , 1 1 9 9 4 , 7 7 4 3 0 1 , 1 8 2 , 1 ) , 9 6 0 4 0 1 ( , 0 2 8 8 8 7 , 1 1 2 , 5 8 4 3 3 2 4 1 , ) 3 2 1 , 6 2 1 , 1 1 ( 4 8 7 , 4 5 6 6 1 2 , $ – – – – – – – – – – – – – – – g n i l l o r t n o c d e s a b i g n g d e h s t s e r e t n i s t n e m y a p e v r e s e r $ $ $ 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 $ $ 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 y r a n d r o i n o i t a u a v e r l i d e n a t e R l a t i p a c e r a h S , 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 , ) , 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 , – – ) , 9 5 3 6 6 1 ( 6 3 4 0 6 , – – – – – – – – – – – – – – ) 0 0 8 3 6 , ( 0 4 1 , 9 1 8 9 8 6 4 3 , ) , 9 6 0 4 0 1 ( – – – – – – – – – – ) 1 7 2 4 1 2 , ( ) , 2 4 6 3 8 7 ( 1 3 1 , 3 1 1 0 1 8 , 7 8 3 2 , – – – – – – – – – – – – – – – – , 1 7 0 6 7 6 2 , , 9 3 9 3 3 8 5 , – – – – – – – – – – – – ) 3 9 4 , 1 5 5 ( , 1 7 0 9 5 5 5 2 1 , 5 4 3 3 , , 6 9 9 3 9 7 , 1 3 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 9 9 4 , 7 7 4 3 0 1 , 1 8 2 , 1 , 1 6 6 6 3 6 6 6 1 , , 5 8 4 3 3 2 4 1 , 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 l d o s e c n i s 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 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 l 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 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 s t n e m t s e v n i S B M R f o l 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 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 g d e h w o fl h s a c f o l a t o t - b u S 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 r e g r e m U C Y r o f l a t i p a c e r a h s f o e u s s I : 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 5 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 – , 3 2 9 8 9 6 , 1 1 – 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 ) 1 7 2 4 1 2 , ( ) , 2 4 6 3 8 7 ( 1 3 1 , 3 1 1 0 1 8 , 7 8 3 2 , , 1 7 0 6 7 6 2 , , 9 3 9 3 3 8 5 , 5 2 1 , 5 4 3 3 , 3 7 8 , 7 6 6 0 2 , 8 4 7 , 8 2 6 2 8 1 , 6 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 / 39 ) 3 2 1 , 6 2 1 , 1 1 ( – 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 $ l a t o T y t i u q e , 1 2 9 2 2 9 3 9 1 , – ) 3 5 5 2 1 ( , 6 6 7 , 3 , 2 9 2 6 6 2 ) 7 8 8 9 7 ( , , 9 4 6 3 4 7 , 2 1 , ) 7 8 3 6 6 4 , 1 ( , 6 1 9 9 3 4 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 , $ – – – – – – – – – – – – – – $ – – – – – – – – – – – – – – $ – – – – – – – , ) 7 8 3 6 6 4 , 1 ( – , 6 1 9 9 3 4 – – – ) 3 5 5 2 1 ( , 6 6 7 , 3 – – – – – – – – – – – – – – – – – – – – – – – – – – – – , 2 9 2 6 6 2 ) 7 8 8 9 7 ( , – – – – – – – – , ) 1 5 2 0 0 1 ( , 1 5 2 0 0 1 – – – – – – – 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 l d o s e c n i s 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 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 t n e m t s e v n i S B M R f o l 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 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 s g n d i l i u b d n a d n a l f o l 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 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 g d e h w o fl h s a c f o l a t o t - b u S 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 , ) 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 , , ) 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 - n o N - e r a h S 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 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 6 1 0 2 E N U J 0 3 D E D N E R A E Y E H T R O F g n i l l o r t n o c d e s a b i g n g d e h s t s e r e t n i s t n e m y a p e v r e s e r $ 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 $ $ 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 y r a n d r o i n o i t a u a v e r l i d e n a t e R l a t i p a c e r a h S 8 7 5 6 6 1 , 0 1 8 , 7 8 3 2 , , 1 7 0 6 7 6 2 , , 9 3 9 3 3 8 5 , , 9 7 2 8 1 4 3 , , 3 1 4 9 8 8 5 1 , , 1 3 8 0 5 5 3 6 1 , : 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 y n a p m o C – , 9 4 6 3 4 7 , 2 1 – 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 40 / ANNUAL REPORT $ l a t o T y t i u q e , 9 7 0 4 8 2 8 9 1 , – ) 0 0 8 3 6 , ( 0 4 1 , 9 1 8 9 8 6 4 3 , , 1 7 3 8 7 6 , 1 1 ) , 9 6 0 4 0 1 ( , 9 1 6 0 6 1 , 0 1 2 9 9 4 , 7 7 4 3 0 1 , 1 8 2 , 1 , 5 8 4 3 3 2 4 1 , ) 3 2 1 , 6 2 1 , 1 1 ( , 3 8 5 6 2 0 5 1 2 , $ – – – – – – – – – – – – – $ – – – – – – – – – – – – – - n o N - e r a h S 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 g n i l l o r t n o c d e s a b i g n g d e h s t s e r e t n i s t n e m y a p e v r e s e r $ $ 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 $ $ 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 y r a n d r o i n o i t a u a v e r l i d e n a t e R l a t i p a c e r a h S , 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 , , ) 1 7 4 6 2 0 , 1 ( 1 9 7 , 7 5 1 0 1 8 , 7 8 3 2 , – – – – – – ) 0 0 8 3 6 , ( 0 4 1 , 9 1 8 9 8 6 4 3 , ) , 9 6 0 4 0 1 ( – – – – – – – – ) , 2 4 6 3 8 7 ( 1 3 1 , 3 1 1 0 1 8 , 7 8 3 2 , – – – – – – – – – – – – , 1 7 0 6 7 6 2 , , 9 3 9 3 3 8 5 , ) 8 0 3 9 5 1 ( , 8 0 3 9 5 1 , – , 1 7 3 8 7 6 , 1 1 – – – – – – – – 5 2 1 , 5 4 3 3 , 4 2 5 , 1 5 9 9 2 , – – – – – – – – – – – – – – – – – – – – ) , 2 4 6 3 8 7 ( 1 3 1 , 3 1 1 0 1 8 , 7 8 3 2 , , 1 7 0 6 7 6 2 , , 9 3 9 3 3 8 5 , – – – – 5 2 1 , 5 4 3 3 , – – – – – – – – – 9 9 4 , 7 7 4 3 0 1 , 1 8 2 , 1 , 1 6 6 6 3 6 6 6 1 , , 5 8 4 3 3 2 4 1 , 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 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 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 l d o s e c n i s s t e s s a 5 1 0 2 y u J l 1 t a e c n a a B l y n a p m o C l 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 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 s t n e m t s e v n i S B M R f o l 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 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 g d e h w o fl h s a c f o l a t o t - b u S 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 r e g r e m U C Y r o f l a t i p a c e r a h s f o e u s s I 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 / 41 ) 3 2 1 , 6 2 1 , 1 1 ( – 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 0 4 5 2 8 8 1 , 8 4 7 , 8 2 6 2 8 1 , 6 1 0 2 e n u J 0 3 t a e c n a a B l NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 30 JUNE 2016 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES (a) Basis of preparation The financial statements are general purpose financial statements that have been prepared in accordance with the requirements of the Corporations Act 2001, Australian Accounting Standards, Interpretations and comply with other requirements of the law. The financial statements comprise the consolidated financial statements of the Group (or the ‘Consolidated Entity’), consisting of Auswide Bank Ltd (‘the Company’) and subsidiaries, and the separate financial statements of Auswide Bank Ltd as an individual parent entity. Auswide Bank Ltd is a for–profit listed public company, incorporated and domiciled in Australia. The financial statements comply with all International Financial Reporting Standards (‘IFRS’) in their entirety. The financial statements have been prepared on an accrual basis and are based on historical costs, 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. The presentation currency of the financial statements is Australian Dollars (AUD). The following is a summary of the material accounting policies applied by the Group in the preparation of the financial statements. Except where stated, the accounting policies have been consistently applied. (b) Principles of consolidation The consolidated financial statements comprise the financial statements of Auswide Bank Ltd (‘the Company’), being the parent entity, and entities (including structured entities) controlled by the Company and its subsidiaries. The Company and its subsidiaries together are referred to in these financial statements as the Group. Control is achieved when the Company: • has power over the investee; • is exposed, or has rights, to variable returns from its involvement with the investee; and • has the ability to use its power to affect its returns. The Company has power when it has rights that give it the current ability to direct the activities that significantly affect the investee’s returns. The Group not only has to consider its holdings and rights but also the holdings and rights of other shareholders in order to determine whether it has the necessary power for consolidation purposes. The existence and effect of potential voting rights where the Group has the practical ability to exercise them are considered when assessing whether the Group controls another entity. The Company reassesses whether it has control of an investee if facts and circumstances indicate changes to the aforementioned elements have occurred. A list of the controlled entities is provided in Note 11. The acquisition of subsidiaries is accounted for using the acquisition method of accounting. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de–consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains or losses on transactions between Group entities are fully eliminated on consolidation. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. 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. (c) Goodwill Goodwill acquired in a business combination is initially measured at 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 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) that is expected to benefit from the synergies of the business combination. A cash–generating unit 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. If the recoverable amount of the cash–generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or loss. An impairment loss recognised for goodwill is not reversed in subsequent periods. (d) Investments in associates An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. An investment in an associate is accounted for using the equity method of accounting from the date on which the investee becomes an associate. The financial statements of the associate are used by the Group to apply the equity method. The reporting dates and accounting policies of the associate have been aligned to that of the Group where necessary. 42 / ANNUAL REPORT Investments in an associate are carried in the consolidated and parent 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 parent 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 discloses this, when applicable, in the consolidated and parent entity statement of changes in equity. Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged to profit or loss on a straight line basis over the period of the lease. Rental income from operating leases where the Group is lessor is recognised in profit or loss on a straight–line basis over the lease term. The respective leased assets are included in the Statement of Financial Position based on their nature. 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) Revenue recognition 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. Revenue is measured at the fair value of the consideration received or receivable. Interest revenue: Loan interest revenue is calculated on the daily loan balance outstanding and charged in arrears to the customer’s loan account. Loan interest revenue is recognised as it accrues using the effective interest method, which is the rate that exactly discounts estimated future cash receipts over the expected life of the financial asset to the net carrying amount of the financial asset. When a loan is classified as impaired, the Group generally ceases to recognise interest and other income earned but not yet received. Loan interest is generally not brought to account if a loan has been transferred to a debt collection agency, or a judgement has been obtained. Dividend revenue: Dividend revenue is recognised when the shareholder’s right to receive the payment is established. Fees and commissions: Fees and commissions are recognised on an accrual basis once a right to receive consideration has been attained or when service to the customer has been rendered. All revenue is stated net of the amount of goods and services tax (GST). (f) Leases Leases of fixed assets where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership, are transferred to the Group are classified as finance leases. Finance leases are capitalised at the lease’s inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments, including any guaranteed residual values. The corresponding 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 the asset’s expected useful life where it is likely that the Group will obtain ownership of the asset at the end of the lease term or over the shorter of the asset’s expected useful life and the lease term where there is no reasonable certainty that the Group will obtain ownership at the end of the lease term. (g) Employee benefits Provision is made for the liability for employee benefits arising from services rendered by employees to the end of the reporting period. Short–term employee benefits Liabilities for wages, salaries, sick leave and bonuses, that are expected to be settled wholly within twelve months of the end of the reporting period are recognised in the statement of financial position in respect of employee services provided to the end of the reporting period and are measured at the amounts expected to be paid when the liability is settled, plus related on–costs. Long–term employee benefits Liabilities for long service leave and annual leave are not expected to be settled within twelve months of the end of the reporting period. They are recognised as provisions for employee benefits and are measured at the present value of the expected future payments to be made in respect of services provided to the end of the reporting period. Consideration is given to expected future salary and wage increases and periods of service. Regardless of when settlement is expected to occur, liabilities for long service leave and annual leave are presented as current liabilities in the Statement of Financial Position if the entity does not have an unconditional right to defer settlement for at least twelve months after the end of the reporting period. Superannuation Contributions are made by the Group to an employees’ superannuation fund and are charged as an expense when incurred. The Group has no legal obligation to cover any shortfall in the fund’s obligation to provide benefits to employees on retirement. (h) Taxation Income tax expense for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax base of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses. The income tax expense is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period. Provisions are established where appropriate on the basis of amounts expected to be paid to the tax authorities. AUSWIDE BANK / 43 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES continued (h) Taxation continued Deferred income tax loss is recognised in full, using the liability method, on temporary differences, between the carrying amounts of assets and liabilities in the consolidated financial statements and their respective tax bases. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and 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 tax assets are only recognised for deductible temporary differences and unused tax losses if it is probable that future taxable profits will be available against which deductible temporary differences and losses 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 have formed an income tax consolidated Group under the Australian Consolidation System as of the financial year ended 30 June 2008. Auswide Bank Ltd is the head entity in the tax consolidated 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. (i) Goods and Services Tax (GST) 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 Consolidated 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. (j) 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. (k) Financial instruments Recognition 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. Financial assets Financial assets at fair value through profit or loss A financial asset is classified as fair value through profit or loss (FVTPL) if acquired principally for the purpose of selling in the short term or if so designated by management. Financial assets at FVTPL are stated at fair value, with realised and unrealised gains and losses arising from changes in the fair value 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. These instruments are measured at amortised cost using the effective interest rate method, less any impairment losses. Held-to-maturity investments Investment with fixed maturities that the Group has the positive intent and ability to hold to maturity are classified as held-to-maturity investments. These investments are stated at amortised cost using the effective interest rate method, less any impairment losses. 44 / ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued30 JUNE 2016 Available-for-sale financial assets Available-for-sale investments are non–derivative investments that are not designated as another category of financial assets. Unquoted equity securities, whose fair value cannot be reliability measured, are carried at cost. Other available–for– sale assets that are traded in an active market are stated at fair value. Unrealised gains and losses arising from changes in fair value are taken directly through equity through other comprehensive income. Financial liabilities and equity instruments Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual agreement. Equity instruments An equity instrument is any contract that evidences a residual interest in the asset of an entity after deducting all of its liabilities. Equity instruments issued by the Group entity are recognised at the proceeds received, net of direct issue costs. Equity instruments include contributed equity. 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. Refer to Note 1(n) for further details regarding impairment of financial assets. Derivative financial instruments The Group 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. Financial liabilities Financial liabilities are classified as either financial liabilities ‘at FVTPL’ or ‘other financial liabilities’. Hedge accounting The Group designates certain hedging instruments, which include interest rate swaps, as cash flow hedges. Financial liabilities are classified at FVTPL when the liability is either held for trading or is designated as at FVTPL. These liabilities are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. Other financial liabilities, including borrowings, trade payables and other non–derivative financial liabilities are originally measured at fair value. Other financial liabilities are subsequently measured at amortised cost, using the effective interest method. Derecognition 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. On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss. Impairment Other than for assets held at FVTPL, the Group assess whether there is objective evidence that a financial instrument has been impaired, at each reporting date. Financial assets are considered to be impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected. 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 Group 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 non– financial 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. AUSWIDE BANK / 45 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES continued (l) Property, plant and equipment Freehold land and buildings are stated in the consolidated statement of financial position at their revalued amounts, being the fair value at the date of revaluation, less any subsequent depreciation for buildings and subsequent accumulated impairment losses. Freehold land is not depreciated. Revalued amounts are based on periodic, but at least triennial, valuations by external independent valuers. 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. 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 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. 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. (m) Intangible assets Purchased items of computer software which are not integral to the computer hardware owned by the Group are classified as intangible assets. Intangible assets are stated in the statement of financial position at cost less any accumulated depreciation and impairment. Computer software has a finite life and accordingly is amortised on a straight line basis over the expected useful life of the software. Amortisation periods ranging from 4 to 6 years are applied. An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition are measured as the difference between the net disposal processes and the carrying amount of the assets and are taken to profit or loss at the date of derecognition. No internally generated intangible assets are recognised by the Group. (n) Impairment of assets At the end of each reporting period, the Board assesses whether there is any indication that its tangible and intangible assets 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 a 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. Further impairment considerations are discussed within the respective policy note throughout this section. 46 / ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued30 JUNE 2016 Loans and advances – doubtful debts A provision for losses on impaired loans is 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 cash flows. 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 six month period. A reserve for credit losses is also maintained to cover risks inherent in the loan portfolio. Movements in the reserve for credit losses are recognised as an appropriation of retained earnings. Bad debts are written off, as determined by management, when it is reasonable to expect that the recovery of the debt is unlikely. All write–offs are on a case–by–case basis, taking into account the exposure at the date of the write–off. On secured loans, the write–off takes place following ultimate realisation of collateral value. Bad debts are written off against the provision for impairment where impairment has previously been recognised in relation to a loan. If no provision for impairment has previously been recognised, write–offs for bad debts are recognised as expenses in profit or loss. (o) Deposits Deposits are initially measured at fair value plus transaction costs and subsequently measured at their amortised cost using the effective interest rate method. Interest on deposits is recognised on an accruals basis. Interest accrued at reporting date is shown as part of deposits. (p) Securitisation Where the Group enters into transactions that transfer substantially all the risks and rewards of ownership of the transferred assets, the Group derecognises the transferred assets. Where the Group enters into transactions that transfer assets recognised on its Statement of Financial Position, but retains substantially all of the risks and rewards of ownership of the transferred assets, the transferred assets are not derecognised and a secured liability for funds raised is recognised. In transactions in which the Group neither retains nor transfers substantially all the risks and rewards of ownership of a financial asset and it retains control over the asset, the Group continues to recognise the asset to the extent of its continuing involvement. Refer to Note 10 for further details regarding the securitisation structure in place. (q) Fair value of assets and liabilities The Group 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 that would be received to sell an asset or paid to transfer a liability in an orderly (i.e. unforced) transaction between independent, knowledgeable and willing market participants at the measurement date. 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. In measuring fair value, the Group uses valuation techniques that maximise the use of observable inputs and minimise the use of unobservable inputs. Assets and liabilities measured at fair value are classified, into three levels, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. Classifications are received at each reporting date and transfers between levels are determined based on a reassessment of the lowest level input that is significant to the fair value measurement. The categories are 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 Measurement 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. AUSWIDE BANK / 47 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES continued (q) Fair value of assets and liabilities continued Valuation techniques: The Group 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 Group gives priorities 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. For recurring and non–recurring fair value measurements, external valuers may be used when internal expertise is ether not available or when the valuation is determined to be significant. External valuers are selected based on market knowledge and reputation. 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. (r) Business combinations Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value which is calculated as the sum of the acquisition–date fair values of assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity instruments issued by the Group in exchange for control of the acquiree. Acquisition–related costs are recognised in profit or loss as incurred. At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value, except that: • deferred tax assets or liabilities and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with AASB 112 ‘Income Taxes’ and AASB 119 ‘Employee Benefits’ respectively; • liabilities or equity instruments related to share–based payment arrangements of the acquiree or share–based payment arrangements of the Group entered into to replace share–based payment arrangements of the acquiree are measured in accordance with AASB 2 ‘Share–based Payment’ at the acquisition date; and • assets (or disposal groups) that are classified as held for sale in accordance with AASB 5 ‘Non–current Assets Held for Sale and Discontinued Operations’ are measured in accordance with that Standard. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non–controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition–date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition–date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non–controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain. Non–controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation may be initially measured either at fair value or at the non–controlling interests’ proportionate share of the recognised amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction–by–transaction basis. Other types of non–controlling interests are measured at fair value or, when applicable, on the basis specified in another Standard. Where the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition–date fair value. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date. 48 / ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued30 JUNE 2016 Management have made critical accounting estimates when applying the Group’s accounting policies with respect to the impairment of financial assets, loans and advances, other investments and goodwill– refer Notes 9, 10, 11 and 14, respectively. Management have made significant judgements when applying the Group’s accounting policies with respect to loans assigned to a special purpose vehicle used for securitisation purposes – refer to Note 10. Management have made critical accounting estimates and judgement in relation to the assessment of the fair value of the assets and liabilities on the date of acquisition of Queensland Professional Credit Union (YCU) – refer to Note 33. In addition, details on critical estimates and judgements in respect of credit risk are disclosed in Note 32. (u) Application of new and revised Accounting Standards Amendments to AASBs and the new interpretations that are mandatorily effective for the current year The Group applied, for the first time, certain standards and amendments which are effective for annual periods beginning on or after 1 July 2015. • AASB 2015–3 ‘Amendments to Australian Accounting Standards arising from the Withdrawal of AASB 1031 Materiality’ • AASB 2015–4 ‘Amendments to Australian Accounting Standards – Financial Reporting Requirements for Australian Group with a Foreign Parent’ The adoption of these standards and interpretations did not have any material impact on the current or any prior period and are not likely to materially affect future periods. The subsequent accounting for changes in the fair value of contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or liability is remeasured at subsequent reporting dates in accordance with AASB 139 ‘Financial Instruments: Recognition and Measurement’, or AASB 137 ‘Provisions, Contingent Liabilities and Contingent Assets’, as appropriate, with the corresponding gain or loss being recognised in profit or loss. Where a business combination is achieved in stages, the Group’s previously held equity interest in the acquiree is remeasured to its acquisition date fair value and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were disposed of. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date. (s) Comparative figures When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. (t) 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. 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. AUSWIDE BANK / 49 NOTE 1 SIGNIFICANT ACCOUNTING POLICIES continued (u) Application of new and revised Accounting Standards continued Standards and Interpretations in issue not yet adopted Certain new accounting standards and interpretations have been published that are not mandatory for the 30 June 2016 reporting period and have not been early adopted by the Group. The Group’s assessment of the impact of these new standards and interpretations is set out below. Standard/Interpretation Effective for annual reporting periods beginning on or after Expected to be initially applied in the financial year ending AASB 9 ‘Financial Instruments’, and the relevant amending standards 1 January 2018 30 June 2019 AASB 15 ‘ Revenue from Contracts with Customers’ and AASB 2014–5 ‘ Amendments to Australian Accounting standards arising from AASB 15’ AASB 16 ‘ Leases’ AASB 2014–3 ‘Amendments to Australian Accounting Standards – Accounting for Acquisitions of Interest in Joint Operations’ AASB 2014–4 ‘Amendments to Australian Accounting Standards – Clarification of Acceptable Methods of Depreciation and Amortisation’ AASB 2014–6 ‘Amendments to Australian Accounting Standards – Agriculture: Bearer Plants’ AASB 2014–9 ‘Amendments to Australian Accounting Standards– Equity Method in Separate Financial Statements’ AASB 2014–10 ‘Amendments to Australian Accounting Standards – Sale of Contribution of Assets between an Investor and its Associate or Joint Venture’ 1 January 2018 1 January 2019 30 June 2019 30 June 2020 1 January 2016 30 June 2017 1 January 2016 30 June 2017 1 January 2016 30 June 2017 1 January 2016 30 June 2017 1 January 2016 30 June 2017 AASB 2015–1 ‘Amendments to Australian Accounting Standards – Annual Improvements to Australian Accounting Standards 2012–2014 Cycle’ 1 January 2016 30 June 2017 AASB 2015–2 ‘Amendments to Australian Accounting Standards – Disclosure Initiative: Amendments to AASB 101’ AASB 2015–5 ‘Amendments to Australian Accounting Standards – Investment Entities: Applying the Consolidation Exception’ 1 January 2016 30 June 2017 1 January 2016 30 June 2017 AASB 9 Financial Instruments (December 2014) (application date 30 June 2019) The AASB has issued complete AASB 9. The new standard includes revised guidance on the classification and measurement of financial assets, including a new expected credit loss model for calculating impairment, and supplements the new general hedge accounting requirements previously published. This supersedes AASB 9 (issued in December 2009– as amended) and AASB 9 (issued in December 2010). AASB 9 may have a potential increase in the Group’s loan and advances provisioning. However, the Group has not yet fully assessed the impact of AASB 9 (December 2014) as this standard does not mandatorily apply before 1 January 2018. AASB 15 Revenue from Contracts with Customers (application date 30 June 2019) The standard contains a single model that applies to contracts with customers and two approaches to recognition revenue: at a point in time or over time. The model features a contract–based five–step analysis of transactions to determine whether, how much and when revenue is recognised. Management have yet to assess the full impact of this standard. Other standards The Group has not yet assessed the impact of the other listed Standards; however none are expected to have a material impact on future or prior periods. 50 / ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued30 JUNE 2016 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 from continuing operations. 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 2016 Deposits with other financial institutions Investment securities Loans and advances Other Interest expense 2016 Deposits from other financial institutions Customer deposits Negotiable certificates of deposit (NCDs) Floating rate notes (FRNs) Subordinated notes Net interest revenue 2016 Interest revenue 2015 Deposits with other financial institutions Investment securities Loans and advances Other Interest expense 2015 Deposits from other financial institutions Customer deposits Negotiable certificates of deposit (NCDs) Subordinated notes Net interest revenue 2015 47,661,163 935,120 187,761,857 5,434,834 2,494,616,365 117,458,130 21,462,570 464,544 2,751,501,954 124,292,628 611,520,733 21,094,689 1,700,729,657 40,345,630 218,332,836 5,923,806 47,916,667 27,000,000 1,287,074 1,749,304 2,605,499,893 70,400,502 53,892,126 41,428,599 1,175,240 186,773,112 5,622,679 2,318,949,522 119,655,707 22,442,781 546,724 2,569,594,014 127,000,350 580,744,389 22,233,067 1,660,243,715 46,890,730 167,418,135 28,000,000 5,118,007 1,952,242 2,436,406,239 76,194,046 50,806,304 1.96 2.89 4.71 2.16 4.52 3.45 2.37 2.71 2.69 6.48 2.70 2.84 3.01 5.16 2.44 4.94 3.83 2.82 3.06 6.97 3.13 The following tables show the net interest margin, and are derived using the average balance of interest earning assets divided by the difference between interest revenue and interest expenditure. Interest margin and interest spread 2016 Interest revenue Interest expense Net interest spread 2,751,501,954 124,292,628 2,605,499,893 70,400,502 Benefit of net interest-free assets, liabilities and equity Net interest margin – on average interest earning assets 2,751,501,954 53,892,126 Interest margin and interest spread 2015 Interest revenue Interest expense Net interest spread 2,569,594,014 127,000,350 2,436,406,239 76,194,046 Benefit of net interest-free assets, liabilities and equity Net interest margin – on average interest earning assets 2,569,594,014 50,806,304 4.52 2.70 1.82 0.14 1.96 4.94 3.13 1.81 0.17 1.98 AUSWIDE BANK / 51 NOTE 3 PROFIT BEFORE INCOME TAX Profit before income tax from continuing operations includes the following revenues and expenses whose disclosure is relevant in explaining the financial performance of the Consolidated Group. Included in the profit before income tax are the following revenue items: Other non interest revenue Dividends Controlled entities Other companies Fees and commissions Other income Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ – 221 – 221 420,000 221 – 221 7,872,152 8,184,854 7,872,240 8,184,854 1,230,222 1,272,048 1,230,222 1,362,394 9,102,595 9,457,123 9,522,683 9,547,469 The profit before income tax is arrived at after charging the following items: Other expenses Provisions for employee entitlements 2016 $ 2015 $ 2016 $ 2015 $ 322,426 322,426 318,385 318,385 322,426 322,426 318,385 318,385 Superannuation contributions paid 1,441,064 1,449,779 1,441,064 1,449,779 NOTE 4 INCOME TAX RELATING TO CONTINUING OPERATIONS (a) Income tax recognised in profit or loss (i) Major components of income tax expense for the year are: Current income tax Deferred income tax Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ 4,605,475 4,778,882 4,571,543 4,804,007 1,153,371 840,366 1,153,371 840,366 Income tax expense reported in profit or loss 5,758,846 5,619,248 5,724,914 5,644,373 52 / ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued30 JUNE 2016 (ii) Numerical reconciliation of income tax expense to prima facie tax payable: Tax on profit before income tax at 30% (2015: 30%) 5,133,910 5,561,407 5,220,986 5,516,109 Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ Tax effect of permanent differences Add non-deductible expenses: Depreciation of buildings Merger expenses Less: Tax offset for franked dividends Intra-group dividend (MRM) Other items – net Income tax expense 53,255 589,819 (66) – (18,072) 56,188 – 53,255 589,819 56,188 – (133) – 1,786 (66) (126,000) (133) – (13,080) 72,209 5,758,846 5,619,248 5,724,914 5,644,373 (b) Income tax recognised in other comprehensive income Current income tax Other Deferred income tax Arising on items that may be reclassified to profit or loss: Fair value remeasurement of available–for–sale financial assets Fair value remeasurement of hedging instruments entered into for cash flow hedges Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ – – – – – – – – (19,140) (3,766) (19,140) (3,766) 104,070 84,930 (439,916) 104,070 (439,916) (443,682) 84,930 (443,682) Arising on items that will not be reclassified to profit or loss: Fair value remeasurement of land and buildings – – (242,965) (242,965) – – 79,887 79,887 Total income tax recognised directly in other comprehensive income 84,930 (686,647) 84,930 (363,795) (c) Current tax assets and liabilities Current tax assets Income tax receivable Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ 411,035 411,035 256,206 256,206 411,035 411,035 256,206 256,206 AUSWIDE BANK / 53 NOTE 4 INCOME TAX RELATING TO CONTINUING OPERATIONS continued (d) Deferred tax balances Deferred tax balances are presented in the statement of financial position as follows: Deferred income tax assets Deferred income tax liabilities Deferred income tax assets Employee leave provisions Other provisions Property, plant & equipment Unrealised losses on investments Project acquisition costs Premium on loans purchased (First Mac) Subordinated notes prepaid expenses Other items Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ 5,441,101 5,903,417 5,441,101 5,702,766 (2,209,781) (1,563,280) (2,209,781) (1,393,064) 3,231,320 4,340,137 3,231,320 4,309,702 Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ 864,226 794,106 864,226 794,106 1,514,144 1,924,045 1,514,144 1,924,045 597,650 691,192 597,650 691,192 1,886,449 1,919,599 1,886,449 1,886,449 135,807 137,753 14,022 291,050 95,601 144,569 25,924 308,381 135,807 137,753 14,022 291,050 95,601 144,569 25,924 140,880 5,441,101 5,903,417 5,441,101 5,702,766 In respect of each temporary difference the adjustment was charged to income. Deferred income tax liabilities Asset revaluation reserve Prepayments MPBS acquisition adjustments Special reserve Cash flow hedging reserve Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ 1,433,625 1,672,116 1,433,625 1,501,900 1,063,517 208,139 1,063,517 208,139 – 48,485 55,317 67,624 – 48,485 55,317 67,624 (335,846) (439,916) (335,846) (439,916) 2,209,781 1,563,280 2,209,781 1,393,064 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, the revaluations of hedging instruments entered into for cash flow hedges which were charged to the ‘cash flow hedge’ reserve in equity, and the revaluations of land and buildings which were charged to the asset revaluation reserve in equity. 54 / ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued30 JUNE 2016 NOTE 5 DIVIDENDS PAID Dividends paid during the year Interim for current year Final for previous year Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ 5,199,619 5,151,525 5,199,619 5,151,525 5,926,505 5,467,943 5,926,505 5,467,943 11,126,124 10,619,468 11,126,124 10,619,468 Dividends paid are fully franked on ordinary shares. 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 ($6.440m), for the six months to 30 June 2016, payable on 30 September 2016. The final dividend for the six months to 30 June 2015 ($5.927m) was paid on 2 October 2015, and was disclosed in the 2014/15 financial accounts in accordance with Accounting Standards. The tax rate at which the dividends have been franked is 30% (2015: 30%). The amount of franking credits available for the subsequent financial year are: Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ Balance as at the end of the financial year 16,925,283 17,196,190 16,925,283 17,196,190 Credits/(Debits) 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 (411,035) (256,206) (411,035) (256,206) (2,760,082) (2,539,931) (2,760,082) (2,539,931) 13,754,166 14,400,053 13,754,166 14,400,053 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 16.0 16.0 14.0 15.0 16.0 14.0 16.0 16.0 14.0 15.0 NOTE 6 CASH AND CASH EQUIVALENTS For the purposes of the consolidated statement of cash flows, cash and cash equivalents include cash on hand and in banks. Cash and cash equivalents at the end of the reporting period as shown in the consolidated statement of cash flows can be reconciled to the related items in the consolidated statement of financial position as follows: Cash at bank and in hand Deposits on call Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ 13,751,596 19,135,421 13,751,596 19,135,421 54,040,000 32,360,000 54,040,000 28,750,000 67,791,596 51,495,421 67,791,596 47,885,421 Cash held within securitised trusts at 30 June 2016 of $19.335m (2015: $22.491m) is restricted for use only by the trusts. AUSWIDE BANK / 55 NOTE 7 DUE FROM OTHER FINANCIAL INSTITUTIONS Deposits with Special Service Providers (SSPs) 9,965,953 9,090,851 9,965,953 9,090,851 Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ Subordinated loans Bank term deposits Maturity analysis No maturity specified 547,235 124,585 547,235 124,585 11,500,715 – 11,500,715 – 22,013,903 9,215,436 22,013,903 9,215,436 22,013,903 9,215,436 22,013,903 22,013,903 9,215,436 22,013,903 9,215,436 9,215,436 Following the acquisition of shares in Queensland Professional Credit Union Ltd, $11.501m of term deposits were transferred to Auswide Bank Ltd at fair value as part of the transfer of assets. NOTE 8 ACCRUED RECEIVABLES Interest receivable Securitisation receivables Other NOTE 9 FINANCIAL ASSETS Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ 4,681,653 3,924,865 4,681,653 3,924,865 1,448,000 1,775,864 1,448,000 1,775,864 6,688,174 223,078 5,404,107 12,817,827 5,923,807 11,533,760 250,420 5,951,149 Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ Held to maturity financial assets carried at amortised cost Certificates of deposit 199,923,930 190,934,302 199,923,930 190,934,302 Available for sale financial assets carried at fair value External RMBS investments MoneyPlace 2,373,288 3,412,696 3,516,198 2,373,288 3,516,198 – 3,412,696 Financial assets at fair value through profit or loss designated on initial recognition Investments in floating rate notes – 3,110,462 – Financial assets at amortised cost Notes – Securitisation program & other 19,335,457 47,345,388 46,476,398 47,345,388 225,045,371 244,906,350 252,186,312 241,795,888 Maturity analysis Up to 3 months From 1 to 5 years Later than 5 years 87,723,930 194,044,764 87,723,930 190,934,302 112,200,000 – 112,200,000 – 25,121,441 50,861,586 52,262,382 50,861,586 225,045,371 244,906,350 252,186,312 241,795,888 Cash held within securitised trusts at 30 June 2016 of $19.335m (2015: $22.491m) is restricted for use only by the trusts. 56 / ANNUAL REPORT – – NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued30 JUNE 2016 NOTE 10 LOANS AND ADVANCES Term loans Loans to controlled entities Continuing credit loans Provision for impairment Total loans Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ 2,506,506,559 2,142,158,075 2,506,506,559 2,142,158,075 – – (1,694,618) 903,119 164,951,290 189,683,341 164,931,726 189,666,281 2,671,457,849 2,331,841,416 2,669,743,667 2,332,727,475 (5,047,146) (1,719,170) (5,047,146) (1,719,170) 2,666,410,703 2,330,122,246 2,664,696,521 2,331,008,305 On 30 September 2015 all risks and provisions of Mortgage Risk Management Pty Ltd were transferred to the Statement of Financial Position of Auswide Bank Ltd. Provision for impairment Specific provision Opening balance (1,719,170) (2,426,452) (1,719,170) (2,426,452) Bad and doubtful debts provided for during the year (3,327,976) 707,282 (3,327,976) 707,282 Total provision for impairment (5,047,146) (1,719,170) (5,047,146) (1,719,170) Charge to profit or loss for bad and doubtful debts comprises: Specific provision Bad debts recognised directly Maturity analysis Up to 3 months From 3 to 12 months From 1 to 5 years Later than 5 years (3,327,976) 707,282 (3,327,976) 707,282 3,895,595 (1,165,230) 3,895,595 (1,165,230) 567,619 (457,948) 567,619 (457,948) 2,658,215 2,672,835 2,658,215 2,672,835 1,118,868 1,895,272 1,118,868 1,895,272 31,919,797 27,190,942 31,919,797 27,190,942 2,630,713,823 2,298,363,197 2,628,999,641 2,299,249,256 2,666,410,703 2,330,122,246 2,664,696,521 2,331,008,305 Following the acquisition of shares in Queensland Professional Credit Union Ltd, a loan book of $130.737m was transferred to Auswide Bank Ltd at fair value as part of the transfer of assets. 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 Company 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 Group is an increase in liabilities – Loans under management – of $613.821m (30 June 2015 – $603.658m). $27.141m of B notes which are owned by the Company have been eliminated from the consolidated figures. Concentration of risk The loan portfolio of the company does not include any loan which represents 10% or more of capital. AUSWIDE BANK / 57 NOTE 11 OTHER INVESTMENTS AND RELATED PARTIES Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ Unlisted shares – at cost 512,299 394,658 512,299 394,658 Controlled entities – at directors’ valuation – – 1,259,005 15,259,005 512,299 394,658 1,771,304 15,653,663 (a) Controlled entities Place of incorporation and operation Proportion of ownership and voting power held by the Company Contribution to consolidated operating profit after income tax Investment carrying value 2016 % 2015 % 2016 $ 2015 $ 2016 $ 2015 $ Name Company Auswide Bank Ltd Australia – – 11,258,371 12,742,656 – – Controlled entities Mortgage Risk Management Pty Ltd MPBS Insurance Pty Ltd MPBS Holdings Pty Ltd Australia Australia Australia Widcap Securities Pty Ltd Australia 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Auswide Performance Rights Pty Ltd Queensland Professional Credit Union Ltd (YCU) Australia 100.0 100.0 Australia 100.0 – 423,910 284,590 – 14,000,000 – – 2 2 16,326 234,745 1,258,903 1,258,903 – 316 – – – – – – 100 100 – – 440,552 519,335 1,259,005 15,259,005 11,698,923 13,261,991 1,259,005 15,259,005 All controlled entities are members of the tax consolidated group. The carrying amounts of unlisted shares were reassessed by the directors as at 30 June 2016 with the reassessments being based on whether there were internal or external indicators that the investment was impaired. Queensland Professional Credit Union Ltd (YCU) YCU was acquired in a merger with Auswide Bank Ltd on 19 May 2016 and all assets and liabilities were transferred subsequent to that acquisition. All operating results of the acquired entity were included in Auswide Bank Ltd for the period ending 30 June 2016. Further explanation can be found at Note 33. Mortgage Risk Management Pty Ltd (MRM) MRM is a wholly owned subsidiary of Auswide Bank Ltd and was previously registered as a Lenders’ Mortgage Insurance provider. MRM has been in wind–down since ceasing to write insurance business in 2012. On 13 August 2015 Auswide Bank announced the effective date of 30 September 2015 to wind–up MRM. All risks and provisions were transferred to the Statement of Financial Position of Auswide Bank on that date. The capital invested in MRM was returned to Auswide Bank. In response to a formal application by MRM, APRA revoked the authorisation under subsection 12(2) of the Insurance Act 1973, to carry on insurance business in Australia, effective 17 December 2015. Further information in relation to this entity is disclosed in Note 34. 58 / ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued30 JUNE 2016 MPBS Holdings Pty Ltd MPBS Holdings Pty Ltd is a wholly owned subsidiary of Auswide Bank Ltd which held the property at 73 Victoria Street, Mackay. This property was sold on 19 October 2015 for $2.32m. MPBS Insurance Pty Ltd MPBS Insurance Pty Ltd is a wholly owned subsidiary which is no longer actively trading. Widcap Securities Pty Ltd Widcap Securities Pty Ltd is a wholly owned subsidiary which acts as the manager and custodian for Auswide’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) Warehouse and securitisation trusts Auswide has an external securitisation program which is comprised of the following trusts: • Wide Bay Trust No. 5 • Wide Bay Trust No. 6 • WB Trust 2006–1 (matured 16 May 2016) • WB Trust 2008–1 • WB Trust 2009–1 • WB Trust 2010–1 • WB Trust 2014–1 These trusts are fully consolidated at the reporting date. (c) Details of material associates Details of each of the Group’s material associates at the end of the reporting period are as follows: Name of associate Principal activity Place of incorporation and operation Proportion of ownership interest and voting power held by the Group J1-Plan Pty Ltd (formerly Financial Technology Securities Pty Ltd (FTS)) Finance Advice Matters Group Pty Ltd (FAM) Financial Planning Australia 30/06/16 25.0% 30/06/15 25.0% Financial Planning Australia 25.0% – J1-Plan Pty Ltd (formerly FTS) is accounted for using the equity method in these consolidated financial statements. Financial Advice Matters Group Pty Ltd (FAM) purchased the financial planning business from J1–Plan Pty Ltd on 29 October 2015. AUSWIDE BANK / 59 NOTE 11 OTHER INVESTMENTS AND RELATED PARTIES continued (d) Investments accounted for using the equity method Summarised financial information in respect of each of the Group’s material associates is set out below. The summarised financial information below represents amounts shown in the associate’s financial statements prepared in accordance with AASBs. J1-Plan Pty Ltd 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 / (loss) before income tax Income tax Profit / (loss) after income tax Total comprehensive income for the year Dividends received from associate during the year The above figures were based on the unaudited accounts of J1-Plan Pty Ltd. Financial Advice Matters Group Pty Ltd (FAM) 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 / (loss) before income tax Income tax Profit / (loss) after income tax Total comprehensive income for the year Dividends received from associate during the year 2016 $ 637,048 – (99,484) (42,878) 494,686 2016 $ 595,313 106,303 – 106,303 106,303 12,502 2016 $ 273,184 462,075 (706,920) (14,347) 13,991 2016 $ 907,962 23,414 (9,566) 13,848 13,848 – 2015 $ 198,980 136,298 (113,522) (58,682) 163,074 2015 $ 1,456,046 54,341 (3,468) 50,873 50,873 – 2015 $ – – – – – 2015 $ – – – – – – The above figures were based on the unaudited accounts of Financial Advice Matters Group Pty Ltd (FAM). (e) Related party transactions Balances and transactions between the company and its subsidiaries which are related parties of the company, have been eliminated on consolidation and are not disclosed in this note. 60 / ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued30 JUNE 2016 NOTE 12 PROPERTY, PLANT AND EQUIPMENT Carrying amounts of: Freehold land and buildings Plant and equipment Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ 8,567,538 11,367,395 8,567,538 9,120,631 6,976,025 4,756,982 6,976,025 4,756,982 15,543,563 16,124,377 15,543,563 13,877,613 Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ Freehold land and buildings At independent valuation – June 2015 8,750,000 9,135,000 8,750,000 9,135,000 Provision for depreciation (182,462) (14,369) (182,462) (14,369) Land and buildings 73 Victoria St Mackay At independent valuation – June 2015 Provision for depreciation Movement in carrying amount Opening net book amount Revaluation surplus Disposals Depreciation charge – – 2,250,000 (3,236) – – – – 8,567,538 11,367,395 8,567,538 9,120,631 11,367,395 12,705,290 9,120,631 9,322,900 – (809,882) – 266,292 (2,617,822) (290,521) (383,000) (290,521) (182,035) (237,492) (170,093) (178,040) Carrying amount at end of year 8,567,538 11,367,395 8,567,538 9,120,631 Plant and equipment At cost Provision for depreciation Movement in carrying amount Opening net book amount Additions Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ 27,099,018 24,400,688 27,099,018 24,400,688 (20,122,993) (19,643,706) (20,122,993) (19,643,706) 6,976,025 4,756,982 6,976,025 4,756,982 4,756,982 3,786,359 4,756,982 3,786,359 3,599,829 2,311,548 3,599,829 2,311,548 Additions due to business combinations 349,633 – 349,633 – Disposals Depreciation charge (204,867) (267,474) (204,867) (267,474) (1,525,552) (1,073,451) (1,525,552) (1,073,451) Carrying amount at end of year 6,976,025 4,756,982 6,976,025 4,756,982 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. AUSWIDE BANK / 61 NOTE 13 OTHER ASSETS Prepayments NOTE 14 GOODWILL Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ 7,749,905 8,802,512 7,749,805 8,563,542 7,749,905 8,802,512 7,749,805 8,563,542 (a) Queensland Professional Credit Union Ltd (YCU) On 19 May 2016, the Group acquired 100 per cent of the shares of Queensland Professional Credit Union Ltd trading as Your Credit Union (YCU), via a court approved Scheme of Arrangement which involved the demutualisation of YCU and resulted in Auswide Bank Ltd obtaining control of YCU. All of YCU’s assets, liabilities and obligations, whether actual or contingent were transferred to Auswide Bank Ltd. In addition, all duties, obligations, immunities, rights and privileges which apply to YCU, had YCU continued in existence, apply to Auswide Bank Ltd as a continuation of, and the same legal entity as YCU. The financial accounting for this business combination was prepared in accordance with Australian Accounting Standards and as set out in Notes 1(c) & (r), and recognises the acquisition date as 19 May 2016. (b) Mackay Permanent Building Society Ltd (MPBS) 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 Notes 1(c) & (r), and recognises the acquisition date as 10 January 2008. Goodwill Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ 46,363,080 42,057,110 46,363,080 42,057,110 46,363,080 42,057,110 46,363,080 42,057,110 Impairment testing The cash–generating unit selected for impairment testing of goodwill was the Auswide Bank Ltd parent entity, as it is impractical to identify a separate MPBS cash generating unit, or YCU cash generating unit, within the Company and Consolidated entities. The goodwill disclosed in the Statement of Financial Position at 30 June 2016 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. 62 / ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued30 JUNE 2016 The key assumptions used in carrying out the impairment testing were as follows: * Budgeted trading result for the financial years ending 2017/18 * Estimated growth rate Represents the cash–generating potential of the parent entity based on the forecast approved by the Board of Directors. 6.0% (2015: 5.0%) represents growth in cash–generating unit cash flows over years one to three (beyond 30 June 2016). (Such growth is considered to be reasonable by management and the Board of Directors given historical loan book growth and strategic long–term growth targets) * * Terminal growth rate 6.0% (2015: 5.0%) represents the terminal growth rate (beyond three years). Pre–tax discount rate 12.0% (2015: 11.5%) is the pre–tax discount rate used in impairment testing representing the Cost to Equity to the consolidated group at 30 June 2016. The recoverable amount exceeds the carrying value of the cash–generating unit by $124.4m at 30 June 2016 (2015: $33.7m). 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 – 1.9% (2015: 3.8%); • discount rate – 15.6% (2015: 12.8%); and • average revenue growth rate – 2.1% (2015: 4.6%). NOTE 15 OTHER INTANGIBLE ASSETS Carrying amounts of: Software Software At cost Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ 2,719,522 1,822,013 2,719,522 1,822,013 2,719,522 1,822,013 2,719,522 1,822,013 Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ 8,549,488 7,222,691 8,549,488 7,222,691 Provision for amortisation (5,829,966) (5,400,678) (5,829,966) (5,400,678) 2,719,522 1,822,013 2,719,522 1,822,013 Movement in carrying amount Balance at 1 July Additions Disposals Amortisation charge Balance at 30 June 1,822,013 1,579,088 1,822,013 1,579,088 1,326,296 616,433 1,326,296 – (13,898) – 616,433 (13,898) (428,787) (359,610) (428,787) (359,610) 2,719,522 1,822,013 2,719,522 1,822,013 AUSWIDE BANK / 63 NOTE 16 DEPOSITS AND SHORT TERM BORROWINGS Call deposits Term deposits Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ 675,822,631 517,305,301 676,144,733 521,129,396 1,218,061,572 1,146,219,117 1,218,061,572 1,156,219,117 Negotiable certificates of deposit (NCDs) 215,017,155 188,547,277 215,017,155 188,547,277 Floating rate notes (FRNs) 75,000,000 – 75,000,000 – 2,183,901,358 1,852,071,695 2,184,223,460 1,865,895,790 Maturity analysis On call Up to 3 months From 3 to 12 months From 1 to 5 years 820,407,618 625,147,265 820,729,720 628,971,360 801,871,665 557,756,387 801,871,665 557,756,387 538,953,846 590,223,881 538,953,846 600,223,881 22,668,229 78,944,162 22,668,229 78,944,162 2,183,901,358 1,852,071,695 2,184,223,460 1,865,895,790 The Company’s deposit portfolio does not include any deposit which represents 10% or more of total liabilities. Following the acquisition of shares in Queensland Professional Credit Union Ltd, $178.728m of call and term deposits were transferred to Auswide Bank Ltd at fair value as part of the transfer of liabilities. NOTE 17 PAYABLES AND OTHER LIABILITIES Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ 4,686,838 3,609,892 4,678,390 3,606,888 13,946,872 15,150,781 13,946,872 15,150,781 6,719,734 5,820,353 6,294,938 5,096,949 25,353,444 24,581,026 24,920,200 23,854,618 17,951,971 17,375,867 17,518,727 16,649,459 7,189,491 2,367,229 7,189,491 2,367,229 211,982 4,837,697 211,982 4,837,697 – 233 – 233 25,353,444 24,581,026 24,920,200 23,854,618 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 64 / ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued30 JUNE 2016 NOTE 18 PROVISIONS Employee entitlements Balance at beginning of year Provided for during the year Used during the year Balance at end of year Maturity analysis Current provision Non–current provision Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ 2,647,021 2,663,000 2,647,021 2,663,000 526,607 425,207 526,607 425,207 (292,874) (441,186) (292,874) (441,186) 2,880,754 2,647,021 2,880,754 2,647,021 2,491,604 2,227,680 2,491,604 2,227,680 389,150 419,341 389,150 419,341 2,880,754 2,647,021 2,880,754 2,647,021 Unearned direct premiums and outstanding claims Balance at beginning of year 4,455,918 6,157,373 Transfers to/(from) the provision during the year (4,344,025) – Payments from the provision during the year (111,893) (1,701,455) – – – – – – – – – 4,455,918 (1,303) 57,039 (1,304) 57,039 2,879,451 7,159,978 2,879,450 2,704,060 Balance at end of year Other provisions Total provisions The provision for employee benefits represents annual leave and long service leave entitlements accrued. 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. As at 30 June 2016 the outstanding claims liability provision is nil due to the wind down of Mortgage Risk Management Pty Ltd. NOTE 19 SUBORDINATED CAPITAL NOTES Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ 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 AUSWIDE BANK / 65 NOTE 20 CONTRIBUTED EQUITY Fully paid ordinary shares Balance at beginning of year Issued during the year Staff share plan Dividend reinvestment plan YCU merger shares* Balance at end of year 2016 Shares No. 2016 Shares $ 2015 Shares No. 2015 Shares $ 37,040,654 166,636,661 36,452,951 163,550,831 99,479 477,499 84,155 419,092 264,423 1,281,103 503,548 2,666,738 2,846,640 14,233,485 – – 40,251,196 182,628,748 37,040,654 166,636,661 * Refer to Note 33 for information as to the issue of shares in relation to the merger with YCU. 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. All ordinary shares have equal voting, dividend and capital repayment rights. (a) Staff Share Plan 1 December 2015 – 99,479 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 Consolidated Company 2016 Shares 2015 Shares 2016 Shares 2015 Shares 2,783,912 2,684,433 2,783,912 2,684,433 99,479 84,155 99,479 84,155 $ $ $ $ The total market value at date of issue, 1 December 2015 (13 October 2014) The total amount paid or payable for the shares at that date 536,192 477,499 430,874 419,092 536,192 477,499 430,874 419,092 (b) Dividend Reinvestment Plan (DRP) The Board of Directors resolved to suspend the DRP for the final dividend payable on 2 October 2015 for the 2014/15 financial year. They resolved to reintroduce the DRP for the interim dividend payable on 30 March 2016 for the 2015/16 financial year. 30 March 2016 – 264,423 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 30 March 2016 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. (c) Auswide Performance Rights Pty Ltd. As at the reporting date Auswide Performance Rights Pty Ltd holds 33,080 shares ($214,271) for the purpose of facilitating the Executive LTI scheme. 66 / ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued30 JUNE 2016 NOTE 21 RESERVES Available for sale reserve Asset revaluation reserve Cash flow hedge reserve Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ 113,131 157,791 113,131 157,791 3,345,125 3,896,617 3,345,125 3,504,432 (783,642) (1,026,471) (783,642) (1,026,471) Share-based payment reserve (214,271) (108,348) – – Statutory reserve General reserve Doubtful debts reserve 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 2,676,071 2,676,071 2,676,071 2,676,071 5,833,939 5,833,939 5,833,939 5,833,939 2,387,810 2,387,810 2,387,810 2,387,810 13,358,163 13,817,409 13,572,434 13,533,572 157,791 166,578 157,791 166,578 (63,800) (12,553) (63,800) (12,553) 19,140 113,131 3,766 157,791 19,140 113,131 3,766 157,791 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 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 3,896,618 3,418,279 3,504,433 3,418,279 – – – 392,185 266,292 (79,887) – – – – 266,292 (79,887) (551,493) (100,251) (159,308) (100,251) Balance at end of year 3,345,125 3,896,618 3,345,125 3,504,433 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 (1,026,471) – (1,026,471) – Interest rate swaps 346,898 (1,466,387) 346,898 (1,466,387) Deferred tax related to gains/losses recognised in other comprehensive income (104,069) 439,916 (104,069) 439,916 Balance at end of year (783,642) (1,026,471) (783,642) (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. AUSWIDE BANK / 67 NOTE 21RESERVES continued Share based payments reserve Balance at beginning of year Increase in reserve on acquisition of shares Issue of shares held by entity to employees Balance at end of year Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ (108,348) – (166,359) (353,544) 60,436 245,196 (214,271) (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 at the current level. Since this time, there has been no policy of regular transfer. Total reserves 13,358,163 13,817,409 13,572,434 13,533,572 NOTE 22 NON-CONTROLLING INTEREST Reconciliation of non-controlling interest in controlled entities: Opening balance Deconsolidation of minority interest Closing balance Consolidated 2016 $ – – – 2015 $ (70,625) 70,625 – 68 / ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued30 JUNE 2016 NOTE 23 CASH FLOW STATEMENT Reconciliation of profit from ordinary activities after tax to the net cash flows from operations: Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ Profit after tax from continuing operations 11,698,923 13,261,991 11,678,371 12,742,656 Depreciation and amortisation Bad debts expense 2,136,374 1,670,552 2,124,432 1,611,100 (567,620) 457,948 (567,620) 457,948 (Profit)/loss on disposal of non–current assets 56,183 (265,557) 56,183 (265,557) Movement in assets Accrued interest on investments Prepayments and other receivables Deferred tax asset Movement in liabilities Creditors and accruals Deferred tax payable Income tax payable Employee benefit provisions Other provisions Reserves (756,788) (388,613) (756,788) (388,613) (2,759,423) 6,696,546 (2,106,884) 6,521,240 462,316 787,213 261,665 724,952 10,805,033 9,937,325 12,380,760 10,372,514 646,501 (704,568) 816,717 (381,716) (154,829) (106,491) (154,829) (106,491) 233,733 (15,979) (4,280,527) (1,737,277) 233,733 175,390 (15,979) (35,820) (84,929) 755,980 (84,929) 363,795 Net cash generated from operating activities 17,434,947 30,349,070 24,056,201 31,600,029 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 24 EXPENDITURE COMMITMENTS Capital expenditure commitments Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ Capital expenditure contracted for within one year 1,288,234 1,190,694 1,288,234 1,190,694 Lease expenditure commitments (as Lessee) Non-cancellable operating leases Up to 1 year From 1 to 2 years From 2 to 5 years Later than 5 years Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ 2,448,846 2,269,360 2,448,846 2,269,360 1,853,324 1,573,246 1,853,324 1,573,246 2,866,605 1,697,156 2,866,605 1,697,156 162,940 145,552 162,940 145,552 7,331,715 5,685,314 7,331,715 5,685,314 Non-cancellable operating leases relate to leases of branches across Queensland and other states of Australia. AUSWIDE BANK / 69 NOTE 25 CONTINGENT LIABILITIES AND CREDIT COMMITMENTS Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ Approved but undrawn loans 53,951,198 66,969,048 53,951,198 66,969,048 Approved but undrawn credit limits 93,706,495 92,350,042 93,706,495 92,350,042 Bank guarantees 191,237 364,316 191,237 364,316 147,848,930 159,683,406 147,848,930 159,683,406 NOTE 26 EARNINGS PER SHARE Basic earnings per share From continuing operations From discontinued operations Total basic earnings per share Diluted earnings per share From continuing operations From discontinued operations Total diluted earnings per share Basic earnings per share 2016 Cents per share 2015 Cents per share 30.28 0.92 31.20 30.28 0.92 31.20 35.14 0.93 36.07 35.14 0.93 36.07 The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are calculated as follows: Profit for the year attributable to owners of the Company Earnings used in the calculation of basic earnings per share 2016 $ 2015 $ 11,698,923 13,261,991 11,698,923 13,261,991 Profit for the year from discontinued operations used in the calculation of basic earnings per share from discontinued operations (344,736) (343,216) Earnings used in the calculation of basic earnings per share from continuing operations 11,354,187 12,918,775 Weighted average number of ordinary shares for the purposes of basic earnings per share 37,491,406 36,768,376 2016 No. of shares 2015 No. of shares 70 / ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued30 JUNE 2016 Diluted earnings per share The earnings used in the calculation of diluted earnings per share are as follows: Earnings used in the calculation of basic earnings per share Earnings used in the calculation of diluted earnings per share 2016 $ 2015 $ 11,698,923 13,261,991 11,698,923 13,261,991 Profit for the year from discontinued operations used in the calculation of diluted earnings per share from discontinued operations (344,736) (343,216) Earnings used in the calculation of diluted earnings per share from continuing operations 11,354,187 12,918,775 The weighted average number of ordinary shares for the purposes of diluted earnings per share reconciles to the weighted average number of ordinary shares used in the calculation of basic earnings per share as follows: Weighted average number of ordinary shares used in the calculation of basic earnings per share Shares deemed to be issued for no consideration Weighted average number of ordinary shares used in the calculation of diluted earnings per share 2016 No. of shares 2015 No. of shares 37,491,406 36,768,376 – – 37,491,406 36,768,376 As shares held in the share based payments reserve would be antidilutive, they have been excluded from the calculation of diluted earnings per share. NOTE 27 KEY MANAGEMENT PERSONNEL DISCLOSURES (a) Details of key management personnel Key management personnel have been taken to comprise the Directors and members of Executive Management who are collectively responsible for the day–to–day financial and operational management of the Group and the Company. The following were key management personnel for the entire reporting period unless otherwise stated. (i) Directors JS Humphrey Chairman – Non-executive Director MJ Barrett Managing Director B Dangerfield Director – Non-executive GN Kenny Director – Non-executive SC Birkensleigh Director – Non-executive (ii) Executives WR Schafer Chief Financial Officer, Company Secretary CA Lonergan Chief Risk Officer SM Caville Chief Information Officer MS Rasmussen Chief Operating Officer CM Nevis General Manager Third Party & Business Banking AJ McArdle General Manager Sales & Distribution (resigned 28 August 2015) 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. AUSWIDE BANK / 71 NOTE 27 KEY MANAGEMENT PERSONNEL DISCLOSURES continued (b) Key management personnel compensation The aggregate compensation made to directors and other members of key management personnel of the Company and the Group is set out below. Short term benefits Cash salary and fees Cash bonus Post employment benefits Superannuation Share based payments Other long term benefits Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ 2,037,901 2,075,144 2,037,901 2,075,144 92,500 37,500 92,500 37,500 152,053 158,295 152,053 158,295 37,504 35,583 37,500 39,642 37,504 35,583 37,500 39,642 2,355,541 2,348,081 2,355,541 2,348,081 Remuneration is calculated based on the period each employee was classified as key management personnel. Remuneration to Directors was approved at the previous Annual General Meeting of the Company. (c) Other transactions with key management personnel Interest has been paid on terms and conditions no more favourable than those available on similar transactions to members of the general public. The Bank’s policy for receiving deposits from other related parties and in respect of other related party transactions is that all transactions are approved and deposits are accepted on the same terms and conditions that apply to members of the general public for each type of deposit. Dividends of $90,697 (2015: $123,583) were paid to key management personnel and associates. These were made on terms no more favourable than those made on dividend payments to other shareholders. There were no other transactions in which key management personnel provided services to the Company. NOTE 28 REMUNERATION OF AUDITORS Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ Amounts received or due and receivable by the auditors of Auswide Bank Ltd, Deloitte Touche Tohmatsu, are as follows: Audit and review of financial statements 324,668 272,470 324,668 272,470 Tax advisory services Other assurance services 61,107 51,539 – 16,414 61,107 51,539 – 16,414 437,314 288,884 437,314 288,884 72 / ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued30 JUNE 2016 Amounts received or due and receivable by the previous auditors of Auswide Bank Ltd, Bentleys Brisbane Partnership, are as follows: Audit and review of financial statements Tax advisory services Other assurance services Other services 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 Other regulatory audit services (APRA Return) KPMG related practices: Other regulatory services Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ – – – – – 47,797 24,741 6,753 1,883 81,174 – – – – – 47,797 24,741 6,753 1,883 81,174 Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ 11,433 – 11,433 – – 22,600 11,300 33,900 41,000 41,000 – – – – – – – – – – Total auditors’ remuneration 448,747 444,958 437,314 370,058 NOTE 29 EVENTS SUBSEQUENT TO BALANCE DATE The financial statements were approved by the Board of Directors on the date the directors’ declaration was signed. NOTE 30 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 31 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. AUSWIDE BANK / 73 NOTE 32 FINANCIAL INSTRUMENTS The Group 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 (RMF) including policies and processes to reduce such risks to prudent levels at both a Company and Group level. The Board has established the following committees and delegated responsibilities to develop and monitor risk within their relevant areas and consistent with the Group wide Risk Management Framework: Risk Committee Responsible for constructing and reviewing Auswide Bank Ltd’s risk management policies and procedures and appraising the adequacy of the Risk Management Framework. Asset and Liability Management Committee (ALCO) Audit Committee Responsible for the analysis and management of interest rate risk. Responsible for providing an impartial review of internal and external audit and of Auswide Bank Ltd’s : • statutory reporting; • prudential reporting required by the Australian Prudential Regulation Authority (APRA); • other financial reporting; and • compliance with laws and regulations. APRA’s Prudential Standard APS 110 Capital Adequacy aims to ensure the Authorised Deposit–taking Institutions (ADI’s) 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 Group 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 13.5%. During the 2016 and 2015 financial years the capital adequacy ratios of both the Group and Company were maintained above the target ratio, with the exception of the month ended 31 May 2016 where the ratio temporarily fell below the board target due to a delay in issue of a Tier 2 Capital Instrument. At all times the capital ratio was in excess of APRA’s Prescribed Capital Ratio (PCR). The capital adequacy calculations at 30 June 2016 and 30 June 2015 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. 74 / ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued30 JUNE 2016 Details of the capital adequacy ratio on a Company and consolidated basis are set out below: Total risk weighted assets Capital base Risk-based capital ratio Consolidated Company 2016 $ 2015 $ 2016 $ 2015 $ 1,262,860,678 1,033,792,787 1,261,386,967 1,031,499,262 180,694,838 156,652,308 178,540,918 154,647,013 14.31% 15.15% 14.15% 14.99% (b) Market risk management 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 Interest Rate Risk Analysis Report (the ‘Gap Analysis Report’). The ALCO’s function and role are: (i) 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’s Interest Rate Risk Policy limits; to ascertain whether the risks manifested in the Gap Analysis Report are appropriate given the committee’s view on interest rates; to review and analyse: (ii) (iii) (iv) • 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 $10,955,048 or increase by $10,453,066 (2015: decrease by $10,060,065 or increase by $9,782,054). 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. (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). The undrawn limits on the securitisation warehouses were as follows: Securitisation Trust Wide Bay Trust No. 5 Wide Bay Trust No. 6 Total Maturity Analysis Up to 1 year 2016 $ 2015 $ 52,688,446 81,553,957 8,657,495 30,605,288 61,345,941 112,159,245 61,345,941 112,159,245 The maturity analysis for the respective groups of financial assets and liabilities have been included in the notes to the financial statements. AUSWIDE BANK / 75 NOTE 32 FINANCIAL INSTRUMENTS continued (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 one of the recognised mortgage insurers and by securing the loans by first mortgages of residential property. The company has a diversified Branch Network consisting of 24 branches and agencies across Queensland, and a business centre in Brisbane city, 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. 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 Company 2016 $ 2015 $ 2016 $ 2015 $ 4,400,909 7,125,543 4,400,909 7,125,543 6,713,812 3,215,709 6,713,812 3,215,709 8,222,802 3,178,019 8,222,802 3,178,019 2,265,778 1,670,694 2,265,778 1,670,694 553,023 2,463,633 553,023 2,463,633 4,405,670 4,652,942 4,405,670 4,652,942 26,561,994 22,306,540 26,561,994 22,306,540 As at 30 June 2016 there were 18 loans totalling $4,023,172 (30 June 2015: 13 loans totalling $3,903,233) 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: 2016 % 81.1 9.0 6.9 0.8 1.6 0.1 0.5 2015 % 83.8 8.0 5.9 0.9 1.2 0.1 0.1 100.0 100.0 Queensland New South Wales Victoria South Australia Western Australia Tasmania Northern Territory 76 / ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued30 JUNE 2016 Counterparty risk 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. (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 Short term deposits Notes to accounts 6,7 Accrued receivables Bills of exchange and promissory notes Certificates of deposit Notes RMBS investments Mortgage Risk Management Pty Ltd investments Loans and advances 8 9 9 9 9 9 10 Accounting policies Terms and conditions Short term deposits are stated at amortised cost. Interest is recognised when earned. 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. Short term deposits have an effective interest rate of 1.72% (2015 – 2.53% ) Bills of exchange and promissory notes have an effective interest rate of 0% (not applicable for 2016) (2015 – 0%) Certificates of deposit have an effective interest rate of 3.47% (2015 – 3.01%) These notes are an overcover required as part of the securitisation of loans. They have an effective interest rate of 3.71% (2015 – 3.13%) 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. 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. Details of maturity of the deposits are set out in Note 16. Interest is calculated on the daily balance. 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 2016 are disclosed in Note 5. These notes are issued for a period of 10 years non call 5 years, at which time they can be redeemed. Interest is repriced quarterly at a set margin above 90 day BBSW. AUSWIDE BANK / 77 FINANCIAL LIABILITIES 16 Deposits Payables and other liabilities 17 Dividends payable 5 Deposits are recorded at the principal amount. Interest is brought to account on an accrual basis. 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. Subordinated capital notes 19 The subordinated capital notes are inscribed debenture stock. NOTE 32 FINANCIAL INSTRUMENTS continued (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: Wide Bay Trust No.5 Wide Bay Trust No.6 WB Trust 2006–1 (matured 16 May 2016) WB Trust 2008–1 WB Trust 2009–1 WB Trust 2010–1 WB Trust 2014–1 2016 $ 38,739 – – 754,592 109,845 51,537 267,806 2015 $ – – 63,857 784,428 135,235 38,985 256,057 In addition, Auswide Bank Ltd holds three interest rate swaps with Westpac Bank (pay variable, receive fixed). These are designated as effective hedges and are accounted for as cash flow hedges. Refer to Note 1(k) for further details. (g) Interest rate risk The Group is exposed to interest rate risk because entities in the Group borrow and lend funds at both fixed and variable interest rates. The risk is managed by the Group by maintaining an appropriate mix between fixed and variable rate assets and liabilities and by the use of interest rate swap contracts. Hedging activities are evaluated regularly to align with interest rate views and defined risk appetite, ensuring the most cost effective hedging strategies are applied. The Group’s exposures to interest rates on financial assets and financial liabilities are detailed in the risk management section of this note. The Group’s exposure to interest rate risks and the effective interest rates of financial assets and financial liabilities, both recognised and unrecognised at the balance date, are as follows: 78 / ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued30 JUNE 2016 d e t h g e W i e g a r e v a e v i t c e ff e i g n y r r a c l a t o T r e p t n u o m a e t a r t s e r e t n i t e e h s e c n a a b l t s e r e t n i n o N g n i r a e b s r a e y 5 o t 1 m o r F s s e l r o r a e Y 1 l e b a i r a V e t a r t s e r e t n i : 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 % % $ 5 1 0 2 6 1 0 2 5 1 0 2 $ 6 1 0 2 $ 5 1 0 2 $ 6 1 0 2 $ 5 1 0 2 $ 6 1 0 2 $ 5 1 0 2 $ 6 1 0 2 $ 5 1 0 2 $ 6 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 h s a c d n a h s a C 6 5 2 . 9 6 . 1 , 1 2 4 5 9 4 , 1 5 6 9 5 , 1 9 7 , 7 6 , 3 9 4 9 2 2 2 , , 2 8 8 6 4 6 – – 6 2 2 . 4 9 . 1 2 0 3 . 6 3 3 . , 6 3 4 5 1 2 9 , , 3 0 9 3 1 0 2 2 , 0 0 0 5 9 , 0 0 0 5 9 , , 9 5 5 2 9 8 5 , , 8 7 5 5 6 7 , 2 1 , 9 5 5 2 9 8 5 , , 8 7 5 5 6 7 , 2 1 – – – – 9 3 1 , 5 6 9 , 7 2 9 5 7 , 0 6 2 0 5 3 , 1 2 5 . 5 7 . 4 6 1 4 , 1 4 8 , 1 3 3 2 , 9 4 8 , 7 5 4 , 1 7 6 2 , , 2 3 0 3 2 2 5 4 3 , , 5 3 3 2 7 2 8 1 2 , , 4 0 3 3 3 2 4 6 2 , , 2 2 3 8 0 3 3 6 7 , 1 , 3 1 5 , 1 0 0 2 6 0 2 , , – – 6 2 0 , 1 8 5 4 2 , , 4 4 4 3 5 3 5 2 , 6 2 0 , 1 8 5 4 2 , , 4 4 4 3 5 3 5 2 , – – – – – – – – 9 3 3 4 3 4 , 0 8 9 , 1 5 5 9 3 3 4 3 4 , 0 8 9 , 1 5 5 – – – – – – 6 8 2 . 2 4 2 . 5 9 6 , 1 7 0 2 5 8 , 1 , 9 5 3 , 1 0 9 3 8 1 , 2 , – – 2 6 1 , 4 4 9 8 7 , , 9 2 2 8 6 6 2 2 , , 2 3 2 2 2 8 5 5 2 , 1 , , 9 9 4 0 1 4 5 8 4 , 1 , , 1 2 5 5 8 7 , 3 4 6 2 , , 7 7 2 6 2 6 9 9 9 2 , , 1 9 3 , 1 5 6 8 , , 0 4 4 9 5 0 4 1 , , 8 9 8 5 2 2 8 7 3 , 8 2 7 , 5 3 6 8 4 3 , , 5 3 8 2 2 7 , 2 1 4 , 2 2 5 0 3 5 6 6 4 , , 7 9 3 5 8 1 , 4 4 8 , 1 , 1 0 3 5 0 3 , 7 1 5 , 8 8 5 0 0 4 0 7 1 , 2 , , 1 3 6 2 2 8 5 7 6 , 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 l i a c n a n fi l a t o T s e i t i l i b a i l l i a c n a n F i 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 m r e t r e h t o d n a s e b a y a P l s e i t i l i b a i l 7 9 6 . 0 5 6 . , 0 0 0 0 0 0 8 2 , , 0 0 0 0 0 0 8 2 , – – 4 7 . 3 2 3 3 . 2 0 5 , 7 5 6 3 0 6 , 6 8 0 , 1 2 8 3 1 6 , – – – – , 8 7 9 9 5 1 , 7 , 2 5 4 9 7 8 2 , , 8 7 9 9 5 1 , 7 , 2 5 4 9 7 8 2 , – – , 3 6 0 4 7 6 0 9 , – – 4 2 9 , 1 2 3 9 7 , – – , 0 0 0 0 0 0 8 2 , , 0 0 0 0 0 0 8 2 , – – – – , 3 4 4 5 0 5 6 5 , , 8 0 9 2 1 7 , 0 6 6 9 9 , 7 7 4 6 5 4 , , 5 5 2 6 8 7 , 3 7 4 s n a o l d e s i t i r u c e S , 0 5 3 6 0 9 4 4 2 , , 1 7 3 5 4 0 5 2 2 , , 6 9 6 2 1 4 3 , , 0 0 5 0 5 4 4 9 1 , 8 1 2 , 7 9 2 2 0 2 , 1 1 7 , 0 9 4 2 2 , , 7 5 4 5 3 3 9 1 , s t e s s a l i a c n a n F i – – – – – – – – – – – – , 8 2 9 5 6 2 9 4 , 5 1 7 , 4 4 1 , 7 6 l s t n e a v u q e i , 6 3 4 0 2 1 , 9 , 3 0 9 8 1 9 , 1 2 s n o i t u t i t s n i l i a c n a n fi r e h t o m o r f e u D – – i l s e b a v e c e r d e u r c c A , 1 0 2 0 7 4 5 1 5 2 , , , 1 4 3 5 5 9 3 5 8 2 , , 4 0 0 , 1 4 7 , 1 3 , 6 9 8 2 3 2 8 2 , , 5 2 2 8 1 6 9 6 1 , 3 5 1 , 0 9 9 , 1 0 1 5 7 6 , 7 2 3 0 4 3 , 1 , , 7 0 4 3 2 1 , 4 7 5 , 1 , 7 9 2 3 8 7 , 3 7 9 , 6 8 8 8 0 6 9 4 1 , 1 , l a t i p a c d e t a n d r o b u S i s e t o n s e i t i l i b a i l l i a c n a n fi l a t o T s n o i s i v o r P AUSWIDE BANK / 79 NOTE 32 FINANCIAL INSTRUMENTS continued (h) Fair value of financial instruments This section provides information about how the Group determines the fair values of various financial assets and financial liabilities. Methods & assumptions used to determine net fair values 2016 $ 2015 $ 2016 $ 2015 $ Total carrying amount per balance sheet Aggregate net fair value Financial assets Cash and cash equivalents Carrying amount approximates fair value due to short term to maturity Due from other financial institutions Estimated using discounted cash flow analysis based on current lending rates for similar types of investments Accrued receivables Fair value approximates carrying value due to short term nature Financial assets Fair value is quoted market price (if available) adjusted for any realisation costs Loans and advances Estimated using discounted cash flow analysis based on current lending rates for similar types of loans Other investments Carrying amount considered to be a reasonable estimate of net fair value Total financial assets Financial liabilities Deposits and short term borrowings Payables and other liabilities Securitised loans Estimated using discounted cash flow analysis based on current lending rates for similar types of deposits For short term liabilities, carrying value approximates 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. Estimated using discounted cash flow analysis based on current lending rates for similar types of loans 67,791,596 51,495,421 67,791,596 51,495,421 22,013,903 9,215,436 22,013,903 9,215,436 12,765,578 5,892,559 12,765,578 5,892,559 225,045,371 244,906,350 226,490,196 246,199,874 2,671,457,849 2,331,841,416 2,678,921,656 2,339,227,326 551,980 434,339 551,980 434,339 2,999,626,277 2,643,785,521 3,008,534,909 2,652,464,955 2,183,901,359 1,852,071,695 2,177,906,040 1,845,882,158 25,353,444 24,581,026 25,353,444 24,581,026 613,821,086 603,657,502 615,536,046 605,569,536 Provisions Carrying amount approximates fair value 2,879,452 7,159,978 2,879,452 7,159,978 Carrying amount approximates fair value Subordinated capital notes Total financial liabilities 28,000,000 28,000,000 28,000,000 28,000,000 2,853,955,341 2,515,470,201 2,849,674,982 2,511,192,698 80 / ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued30 JUNE 2016 Fair value of the Group’s financial assets and financial liabilities that are measured at fair value on a recurring basis: Some of the Group’s financial assets and financial liabilities are measured at fair value at the end of each reporting period. The following table gives information about how the fair values of these financial assets and financial liabilities are determined (in particular the valuation technique(s) and inputs used). Consolidated entity Fair value FV hierarchy Valuation technique(s) and key input(s) Financial assets Financial assets held to maturity: 2016 $ 2015 $ Certificates of deposit 199,923,930 190,934,302 Level 1 Quoted price Financial assets held at amortised cost: Notes – securitisation program 19,335,457 47,345,388 Level 2 Held at amortised cost Loans and advances 2,678,921,656 2,339,227,326 Level 3 Held at amortised cost Financial assets at fair value through profit or loss: Investment in floating rate notes – 3,110,462 Level 2 Shares in unlisted companies 512,299 394,658 Level 3 Financial assets available for sale: External RMBS investments 2,373,288 3,516,198 Level 2 MoneyPlace 3,412,696 – Level 3 Mark-to-market value based on consideration, maturity and interest rates Market approach using recent observable market data including cost value and net present value of future cash flows Mark-to-market value based on consideration, maturity and interest rates Market approach using recent observable market data including cost value and net present value of future cash flows Total 2,904,479,326 2,584,528,334 Financial liabilities Financial liabilities held at amortised cost: Deposits and short term borrowings 2,177,906,040 1,845,882,158 Level 3 Held at amortised cost Securitised loans Total 615,536,046 605,569,536 Level 2 Held at amortised cost 2,793,442,086 2,451,451,694 AUSWIDE BANK / 81 NOTE 32 FINANCIAL INSTRUMENTS continued (h) Fair value of financial instruments continued Company Financial assets Financial assets held to maturity: Fair value FV hierarchy Valuation technique(s) and key input(s) 2016 $ 2015 $ Certificates of deposit 199,923,930 190,934,302 Level 1 Quoted price Financial assets held at amortised cost: Notes – securitisation program 46,476,398 47,345,388 Level 2 Held at amortised cost Loans and advances 2,678,921,656 2,339,227,326 Level 3 Held at amortised cost Financial assets at fair value through profit or loss: Shares in unlisted companies 1,771,304 15,653,663 Level 3 Financial assets available for sale: External RMBS investments 2,373,288 3,516,198 Level 2 MoneyPlace 3,412,696 – Level 3 Market approach using recent observable market data including cost value and net present value of future cash flows Mark-to-market value based on consideration, maturity and interest rates Market approach using recent observable market data including cost value and net present value of future cash flows Total 2,932,879,272 2,596,676,877 Financial liabilities Financial liabilities held at amortised cost: Deposits and short term borrowings 2,190,218,779 1,872,122,826 Level 3 Held at amortised cost Securitised loans Total 615,536,046 605,569,536 Level 2 Held at amortised cost 2,805,754,825 2,477,692,362 82 / ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued30 JUNE 2016 Reconciliation of Level 3 fair value measurements: Consolidated entity Opening balance Total gains or losses: – in profit or loss – in other comprehensive income Purchases Disposals Closing balance Company Opening balance Total gains or losses: – in profit or loss – in other comprehensive income Purchases Disposals Closing balance Shares in unlisted companies MoneyPlace 2016 $ 2015 $ 2016 $ 2015 $ 394,658 336,504 – – – – – – – 117,641 58,154 3,412,696 – – – 512,299 394,658 3,412,696 – – – – – – Shares in unlisted companies MoneyPlace 2016 $ 2015 $ 2016 $ 2015 $ 15,653,663 15,596,450 – – – – – – – 117,641 58,374 3,412,696 (14,000,000) (1,161) – 1,771,304 15,653,663 3,412,696 – – – – – – NOTE 33 BUSINESS COMBINATION On 19 May 2016, the Group acquired 100 per cent of the shares of Queensland Professional Credit Union Ltd trading as Your Credit Union (YCU), via a court approved Scheme of Arrangement which involved the demutualisation of YCU and resulted in Auswide Bank Ltd obtaining control of YCU. All of YCU’s assets, liabilities and obligations, whether actual or contingent were transferred to Auswide Bank Ltd. In addition, all duties, obligations, immunities, rights and privileges which apply to YCU, had YCU continued in existence, apply to Auswide Bank Ltd as a continuation of, and the same legal entity as YCU. The acquisition is expected to provide geographic diversification of earnings, cost synergies and revenue opportunities. Consideration Transferred Cash Fully paid ordinary shares in Auswide Bank Ltd Total 2016 $ 16,584,949 14,233,485 30,818,434 The ordinary shares were issued in part satisfaction of the payment of the consideration under the Scheme of Arrangement between YCU and its members on the acquisition date of 19 May 2016. The fair value of ordinary shares issued was based on the share price of the Group at 19 May 2016, of $5.0001 per share. Acquisition related costs amounting to $2.499m have been excluded from the consideration transferred and have been recognised as an expense in profit or loss in the current year, within the ‘General and administration expenses’ line item. AUSWIDE BANK / 83 NOTE 33 BUSINESS COMBINATION continued Assets acquired and liabilities assumed at the date of acquisition at fair value Current assets Cash and cash equivalents Loans and advances Trade and other receivables Investments Deferred tax assets Non-current assets Plant and equipment Current liabilities Creditors and borrowings Members deposits Term deposits Provision for taxation Non-current liabilities Provisions Net assets No contingent liabilities have been identified from the acquisition of YCU. Goodwill arising on acquisition Consideration transferred Less: fair value of identifiable net assets acquired Goodwill arising on acquisition 2016 $ 107,327 130,737,042 899,181 74,246,191 91,644 349,633 (1,593,496) (141,785,088) (36,943,399) 453,907 (52,127) 26,512,464 2016 $ 30,818,434 26,512,464 4,305,970 Goodwill arose in the acquisition of YCU, in part due to existing synergies between Auswide Bank Ltd and YCU, which may not have been paid by potential purchasers as opposed to the goodwill inherent in YCU’s business on a stand alone basis. In addition, the consideration paid for the combination effectively included amounts in relation to the benefit of expected synergies, revenue growth, and future market developments. These benefits are not recognised separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets. None of the goodwill arising on this acquisition is expected to be deductible for tax purposes. Net cash outflow on acquisition Consideration paid in cash Less: cash and cash equivalent balances acquired 2016 $ 16,574,949 107,327 16,477,622 Impact of acquisition on the results of the Group Included in the profit (after tax) for the year is $481,700 attributable to the additional business generated by YCU. Revenue for the year includes $799,021 in respect of YCU. Had this business combination been in effect at 1 July 2015, the revenue from the Group arising from continuing operations would have been $140.513m, and the profit for the year from continuing operations would have been $11.733m. The directors of the Group consider these ‘proforma’ numbers to represent an approximate measure of the performance of the combined Group on an annualised basis and to provide a reference point for comparison in future periods. 84 / ANNUAL REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued30 JUNE 2016 NOTE 34 DISCONTINUED OPERATION MRM has been in wind–down since ceasing to write insurance business in 2012. On 13 August 2015 Auswide Bank announced the effective date of 30 September 2015 to wind up MRM. All risks and provisions were transferred to the Statement of Financial Position of Auswide Bank on that date. The capital invested in MRM was returned to Auswide Bank, further strengthening the capital position of the Bank. In response to a formal application by MRM, APRA revoked the authorisation under subsection 12(2) of the Insurance Act 1973, to carry on insurance business in Australia, effective 17 December 2015. The results of the discontinued operations included in the profit for the year are set out below. The comparative profit and cash flows from discontinued operations have been re–presented to include those operations classified as discontinued in the current year. Profit for the year from discontinued operations Revenue Expenses Profit/(loss) before income tax Income tax expense Consolidated 2016 $ 2015 $ 1,798,993 746,380 (1,306,513) (256,071) 492,480 490,309 (147,744) (147,093) Profit for the year from discontinued operations (attributable to owners of the Company) 344,736 343,216 Cash flows from discontinued operations Net cash inflows/(outflows) from operating activities Net cash inflows/(outflows) from investing activities Net cash inflows/(outflows) from financing activities Net cash inflows 2016 $ 2015 $ (6,035,493) (1,570,652) 3,953,499 2,730,836 (14,420,000) – (16,501,994) 1,160,184 AUSWIDE BANK / 85 DIRECTORS’ DECLARATION FOR THE YEAR ENDED 30 JUNE 2016 In accordance with a resolution of the Directors of Auswide Bank Ltd (‘the Company’), we declare that: (a) the financial statements comprising of the 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 and accompanying notes, and the remuneration disclosures that are contained in the Remuneration Report are in accordance with the Corporations Act 2001, and: (i) (ii) give a true and fair view of the financial position of the company and consolidated entity as at 30 June 2016 and of the performance for the year ended on that date; and comply with Australian Accounting Standards (including the Australia Accounting Interpretations) and the Corporations Regulations 2001; (b) the financial report complies with International Financial Reporting Standards (IFRS) as disclosed in Note 1; and (c) in the Directors’ opinion there are reasonable grounds to believe that the Company and its subsidiaries 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 2016. The declaration is made in accordance with a resolution of the Board of Directors and is signed for and on behalf of the Directors by: JS Humphrey Chair Brisbane 29 August 2016 SC Birkensleigh Director 86 / 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 2016, 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 as set out on pages 16 to 73. 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(a), the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements , that the consolidated 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. Liability limited by a scheme approved under Professional Standards Legislation Member of Deloitte Touche Tohmatsu Limited AUSWIDE BANK / 87 INDEPENDENT AUDITOR’S REPORT continued 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 consolidated entity and Company’s financial position as at 30 June 2016 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001 ; and (b) the consolidated financial statements also comply with International Financial Reporting Standards as disclosed in Note 1(a). Report on the Remuneration Report We have audited the Remuneration Report included in page 5 to 12 of the directors’ report for the year ended 30 June 2016. 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 2016, complies with section 300A of the Corporations Act 2001 . DELOITTE TOUCHE TOHMATSU Jamie C. J. Gatt Partner Chartered Accountants Sydney, NSW 29 August 2016 David Rodgers Partner Chartered Accountants Brisbane, QLD 29 August 2016 88 / 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’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’s Diversity Policy is available in the Corporate Governance section of its website at www.auswidebankltd.com.au. The measurable objectives and Auswide’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’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’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 / 89 CORPORATE GOVERNANCE SUMMARY continued 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. 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. 90 / ANNUAL REPORT SHAREHOLDER INFORMATION REGISTERED OFFICE The registered office and principal place of business of Auswide Bank Ltd is: SECRETARY The Secretary is Mr William (Bill) Ray Schafer. Level 5 16-20 Barolin Street Bundaberg QLD 4670 Ph Fax Email 07 4150 4000 07 4152 3566 auswide@auswidebank.com.au Website www.auswidebank.com.au 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 2016 ANNUAL GENERAL MEETING The 2016 Annual General Meeting is to be held on Wednesday 16 November 2016 at 11.00am EST at King & Wood Mallesons, Level 33 Waterfront Place, 1 Eagle Street, Brisbane, 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. 16 November 2016 29 August 2016 12 September 2016 13 September 2016 14 September 2016 30 September 2016 22 February 2016 3 March 2016 7 March 2016 8 March 2016 30 March 2016 Key Dates Annual General Meeting Full year results and final dividend announcement Ex dividend date Record date Participation in DRP (final date for receipt of application) 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 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 / 91 SHAREHOLDER INFORMATION continued Issued Shares The Company’s securities listed on the Australian Securities Exchange (ASX) as at 14 September 2016 are: CLASS OF SECURITY Permanent Ordinary Shares Distribution of Shareholdings Permanent Ordinary Shares 14 September 2016 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 14 September 2016 Name 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. J P MORGAN NOMINEES AUSTRALIA LIMITED RBC INVESTOR SERVICES AUSTRALIA NOMINEES PTY LTD ATF DRP A/C HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED NATIONAL NOMINEES LIMITED HANCOCK, RE & LP HANCOCK, RE CITICORP NOMINEES PTY LIMITED MILTON CORPORATION LIMITED SAWYER, K GDC & DMC SUPER PTY LTD ATF GRAHAM COCKERILL S/F A/C CHANTILLY ONE PTY LTD ATF RG SPRAKE & CO S/F A/C OLSEN, N SAWYER, PJ ATF THE PETER SAWYER FAMILY A/C HANCOCK, RE & LP ATF THE HANCOCK FAMILY A/C SAWFAM PTY LTD ATF SAWYER SUPER FUND A/C HESTEARN PTY LTD JW & GJ KENNEDY SUPER PTY LTD WEALTHCOACH PTY LTD ATF SUNRISE A/C RON HANCOCK SUPER PTY LTD ATF THE HANCOCK SUPERFUND A/C 20. CRAN, D ASX CODE ABA NUMBER 40,251,196 NO. OF SHAREHOLDERS 4,010 1,886 599 502 52 7,049 % 3.85 3.15 2.83 2.23 2.02 1.68 1.68 1.08 1.08 1.02 1.00 0.82 0.82 0.80 0.79 0.77 0.75 0.68 0.67 0.66 No. of Shares 1,548,816 1,267,077 1,140,858 897,385 814,738 677,241 674,569 433,570 432,719 410,046 402,577 330,520 328,486 320,000 316,362 308,543 303,852 274,791 270,740 264,074 Top 20 Permanent Shareholders 11,416,964 28.36 92 / ANNUAL REPORT Substantial Shareholders The Company’s Register of Substantial Shareholders recorded the following substantial shareholders’ interests: Permanent Ordinary Shares 14 September 2016 Hancock, RE (associated entities & associates) On-Market Buyback There is no on-market buy back. NO. OF SHARES % OF TOTAL 2,182,863 5.42 Dividend Reinvestment Plan On 22 February 2016 the Directors announced the reinstatement of the Dividend Reinvestment Plan (DRP). The DRP allows shareholders to reinvest all or part of their dividends in additional Auswide Bank Ltd shares. The Terms and Conditions of the Plan and past DRP discounts and share issue process are available online at www.auswidebankltd.com.au under Shareholder Information. 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 online 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 online or electing to receive a printed Annual Report by mail. To change your Annual Report elections online 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 / 93 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 Basel The amount that is written off as a loss and classified as an expense, usually as a result of a poor-performing loan. 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 percent 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 The amount of company earnings per each outstanding share of issued ordinary shares. Ex-Dividend Date The date used to determine a shareholder’s entitlement to a dividend. Liability Liquidity 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. 94 / ANNUAL REPORT Market Capitalisation The total value of a company’s shares calculated by multiplying the shares outstanding by the price per share. 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) Total revenue minus total expenses, with tax that will need to be paid factored in. Net Tangible Asset Backing per Share An indication of the 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. Non Interest Income Income derived primarily from fees and commissions, rather than income from interest-earning assets. Price-to-Earnings Ratio (P/E Ratio) 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 / 95 NOTES 96 / ANNUAL REPORT 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)